Crude oil is one of the world's most actively traded commodities acocrding to Washington Independent Journlist, Morton. It is known as "black gold" and "the mother of all commodities" since it is often extracted from Middle Eastern countries. Everything from plastics to gasoline, cosmetics to automobiles, and fabrics to medications is made from crude oil.
Given the heightened volatility in recent years, trading in the oil markets can be a risky choice. The price of oil is continually shifting as supply and demand fluctuate. Crude oil, on the other hand, is a liquid commodity, which means it can be traded in huge quantities and has a very narrow spread of roughly 3.0 points on average. Continue reading to learn how to trade oil.
Crude oil classifications
The kind of crude oil is determined by the oil field's geographic location and the properties of the oil itself. While there are hundreds of different types of crude oil sold on the worldwide market, Brent and West Texas Intermediate serve as global benchmarks for oil pricing.
Brent Crude Oil: Brent oil is sourced from 15 separate North Sea oil fields. Although it is not as "sweet" or "light" as WTI, it is described as a "light and sweet" oil. Brent accounts for up to two-thirds of all worldwide oil contract trades.
WTI Crude Oil: Is sourced from US oil fields, predominantly in Texas, Louisiana, and North Dakota, as the name suggests. Because of its low density and low sulphur level, it is referred to as 'light sweet crude oil.' Because of these properties, it is less expensive to produce and refine than 'heavy' or'sour' oils. The key benchmark for oil consumption in the United States is WTI.
What is crude oil so valuable?
Crude oil, in particular, is seen as a highly valuable commodity in the commodities market since it can be refined into commonplace products like gasoline, diesel, and other petrochemicals, all of which are in constant demand. It is the world's principal energy source at the moment. In today's globe, the human population is growing, as is the consumption of agricultural and leisure commodities. As a result, there is a greater need for energy, putting supply and demand under strain.
Trading prices for crude oil
Oil prices are extremely volatile, and supply, demand, and market mood all play a role. The following are some of the elements that influence oil trade prices in the United Kingdom:
- Natural calamities, conflict, and civil instability are all possibilities.
- Demand fluctuates with the seasons.
- Growth in the population
- Growth in the global economy
- Freight prices and shipping availability
- Developments in alternative fuels, include a desire for renewable energy
How to Make Money Trading Oil
Crude oil can be traded utilizing long-term and short-term investment products, either by buying and selling the underlying asset or by speculating on price changes using a trading platform. The following are the most common ways to trade in the oil market.
Spread betting on crude oil
Spread betting is our most popular derivative product, allowing traders to speculate on oil price movements for a variety of commodities, including Brent and West Texas Crude Oil. Spread betting is a leveraged product, which means that to open a position, just a percentage of the total trade value is required as a deposit.
Spread betting on crude oil can be risky because the commodities market is notoriously volatile, especially during times of economic crisis or upheaval. Before registering a genuine account, you can trade with virtual funds on our spread betting demo account. In the United Kingdom, spread betting is a popular product because it allows investors to trade thousands of products tax-free, including both forms of Brent and WTI crude oil.
CFDs on oil
Contracts for difference (CFDs) are a sort of financial derivative that, like spread betting, allow you to open a position on crude oil based on whether you believe the price will rise or fall. The primary distinction between CFDs and spread betting is how they are taxed. Please keep in mind that tax treatment varies by individual circumstances and can change or differ in countries other than the United Kingdom.
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Letters of credit – Knowing the different typesGenerally the international traders need help of financial intermediaries like banks for guaranteeing payments and also the assurance of delivering goods on time.
Letters of credit usually accomplish their goal by playing the role of a substitute to the credit of the bank to that of the client mainly for facilitating trade.
Such a letter is issued by a bank to guarantee full payment and timely payment to the seller.
Under a circumstance where the buyer is not able to make such a payment, the bank will either cover the entire amount or the remaining amount on the buyer’s behalf.
This letter is granted against a pledge of cash or securities as collateral.
Banks also collect a fee which is a percentage of the total amount of letter of credit.
