Trading Crude Oil
You could argue that the world runs on oil. The U.S. alone consumes nearly 20 million barrels a day, an astounding number, when you consider that the average barrel can run 40 cars. Global demand for oil is strong, and as an investment, speculators buy and sell based on their opinions of the fluctuation in the market, whether do to pipeline initiatives, reserve supplies and even war.
Crude oil occurs naturally in underground rock formations. Extraction can be complicated and occurs both on and off shore. Crude oil needs to be refined for petroleum products like gasoline. Depending on the source, crude is labeled by its viscosity (light and heavy), and sulfur content (sweet or sour). Popular crude oil deliverable grades are West Texas Intermediate, U.K. Brent, Norwegian Oseberg Blend and others.
To trade oil as a CFD, you need to understand the elements of the contract. If you want to trade West Texas Intermediate, for example, look for USOIL, since that grade is traded on the New York Mercantile Exchange (NYMEX). If you think the price of oil will rise, you buy USOIL, multiplying the buy price by the number of contracts you want to trade, or barrels in this case.
There are many factors to consider when trading oil, including theories on peak production, where available oil reaches a peak level, flattens out, then begins a decline. Likewise, global warming has caused concern for many traders as the development of green energy sources diminishes consumption. In any circumstance, oil has proven a popular and exciting commodity to trade.
Leverage: Leverage is a double-edged sword and can dramatically amplify your profits. It can also just as dramatically amplify your losses. Trading foreign exchange with any level of leverage may not be suitable for all investors.