The fluctuation of crude oil prices has always made the commodity an interesting asset for investors to trade on.
Crude oil prices are significantly influenced by many micro and macro factors. Generally, within the oil markets, there is a bias towards expected upside or downside moves within certain time frames.
As a result, investors who can spot a trading range may benefit from opportunities to buy low and sell high, and vice-versa, when executing successful trades.
Oil Futures Contracts: An Interesting Commodity
Oil Futures provide direct crude oil exposure and are one of the methods to trade oil after a sharp rise or fall in global crude oil production.
The price of Oil Futures will always move as the value of oil goes up or down. With Oil Futures, you can enter Buy/Call contracts if you anticipate higher prices and Sell/Put contracts if you expect prices to go down.
The Dynamics of Oil Futures 101
Let us say you take out a Buy position on an AUG20 Crude Oil Futures Contract at the price of USD $25 per barrel. If the price of oil rises above, the futures contract itself becomes more valuable, allowing you to sell your contract back into the market for a higher price than originally bought.
As long as you close your futures position before the expiration date of the contract, you will lock in a profit based on the difference between the open and closing price of the contract. On the other hand, if oil prices drop, you will lose money.
The Risks of Crude Oil Futures Trading
Investors trade Oil Futures on a daily basis, many of them to a successful extent. However, trading Oil Futures is not for everyone; it does involve a high level of risk, and for each trader who makes a dollar in Oil Futures trading, another trader will lose one.
Before trading Oil Futures, please remember the following:
- Any present demand/supply level for oil does not guarantee that these levels will continue into the future. Therefore, if you buy Oil Futures for $50 a barrel in a year, and prices only reach $45 by the time the contract matures, you will lose money.
- The oil futures market is influenced by many unforeseen factors, for example: OPEC output or supply, demand from emerging and developing countries, U.S. shale production and inventories, global geopolitics, the U.S. dollar and more. All these can cause drastic changes in the price of oil, therefore making Oil Futures extremely risky.
- Demand for oil futures can be extremely difficult to predict. As a rule of thumb, when demand increases, prices generally go up. On the other hand, as the price of oil increases, it places more of a burden on consumers, enough to make many consumers reduce oil consumption, resulting in a drop in demand.
Introducing New Oil Futures Contracts Available at AvaTrade
At AvaTrade, we are always on the lookout for new and exciting trading opportunities.
That’s why we’re happy and excited to announce the addition of new oil assets to our platform.
AvaTrade clients can now trade Oil Futures up to December 2020 on our newly offered Oil Futures CFDs: