How to trade oil online
Trading crude oil is the most popular way to get involved in the oil market, and this beginner-friendly guide explains how to do it. Discover all the different ways you can trade and where you can start trading now.
Compare the best platforms for trading oil
To get started with oil trading right away, use one of the brokers below. We have reviewed all the top brokers to come up with a list of the best platforms, and you can be sure that any of these would make a good choice. Otherwise, keep reading to learn more about the oil market.
How to trade oil online – a step-by-step guide
It’s not difficult to start investing in oil even if you’re new to commodities trading. Use this step-by-step guide to grasp the basics of how to take your first steps.
- Find a broker. To invest in crude oil, you need a broker. There are lots of different platforms to choose from, each with slightly different features and benefits. Use our table above to help you choose one.
- Create an account. It only takes a few minutes to create an account but you should be prepared to provide some personal details before you can get started. The exact steps vary by platform but make sure you have a form of photo ID to hand.
- Deposit funds. Log into your new account to deposit funds. Most brokers accept deposits via bank transfer or credit or debit card. Some accept payment from e-wallets like PayPal but you should check with your broker before you sign up if that’s how you want to pay.
- Decide whether to go long or short. When you trade oil you have two basic options and you have to decide whether you think the price is going to go up (long) or down (short). Then you’re ready to trade.
- Execute trade. Once you’ve placed the order, your broker will execute it automatically and the trade will show up in your account.
- Set stops and limits (optional). Stops and limits are a way of reducing your risk by putting in orders to automatically close a position once it hits a certain level. This is often a good idea as a way to make sure you don’t lose too much if there’s a sudden market swing.
What is oil? And why does it have value?
Oil is the most widely traded commodity in the world. It’s a natural resource that’s crucial to the 21st century economy, used in the production of plastics, textiles, and computers, and turned into the fuel that makes it possible to transport those products across the globe.
Those uses are what makes oil such a valuable commodity. Even as the world looks for ‘greener’ and more environmentally-friendly energy sources, oil is still vital to so many industries and every developed country needs lots of it to – literally – keep the lights on.
What affects the price of oil?
The biggest influences are supply, demand, and market sentiment. These can be tied together, as the expectation of supply or demand changes in the future can cause the price to shift today.
What makes oil a bit different to many markets is that ‘intangibles’ affect its price along with real-world factors. A lot of crude oil trading is based on speculation, and what the community believes is going to happen can move the price quite significantly.
That speculation is often based on oil’s unique place in global politics, where it’s often used as a bargaining chip by all sides. The USA, Russia, and China are three major oil producers, while 40% of the entire supply comes from countries known collectively as ‘OPEC,’ led by the likes of Saudia Arabia, Iraq, and Iran. Policy decisions in these countries can have big effects on the price of oil.
How has oil performed in recent years?
It’s experienced some major ups and downs in recent times. The price of Brent Crude oil is generally used as a benchmark to measure the industry’s performance, and that saw a 70% fall between 2014-2016 before rebounding. Volatility is a feature of the oil market and there have been some big swings since then as well.
The main one came in March 2020, when confidence collapsed as the coronavirus pandemic took hold. In that case, the oil price actually fell below zero for a short time, with suppliers paying people to take it off their hands. It quickly recovered, however, and within a year was back up to pre-pandemic levels.
In general, interested parties tend to step in long before things get too serious. The most notable recent example came amidst the coronavirus crisis, when OPEC countries, along with Russia and the US, agreed to cut their production by 10% to stabilise the oil price.
Should I start trading oil now?
It depends on how you expect the economy to perform in the next few months. Oil helps keep the global markets going, so its price is closely tied to overall economic performance. If you expect a broader upturn, the price of oil is likely to go along with it.
Alternatively, you can get some exposure to oil without needing to manage the day-to-day trading by buying stocks in companies that are involved in oil production. Businesses like Royal Dutch Shell and Glencore are a substitute to trading oil itself.
Whichever method you choose, it’s crucial to stay on top of what’s going on in the world so that you don’t miss anything that might affect the price. Our news and analysis is the easiest way to get the most up to date information on the oil market:
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Trading oil for beginners
Before you start trading it’s a good idea to do your research, especially if you haven’t traded commodities before. That means knowing what might impact the market and all of the different ways you can trade. Keep reading for some tips for how to get going.
What to do before starting to trade
Being a successful trader doesn’t start with the act of placing a trade. You want to be prepared and set guidelines for yourself, and you can use this list to help you.
- Research the commodity. You need to know why oil is valuable, and anything that might affect its price. That means following the news to look out for what oil producing countries are doing, whether there are events that might affect demand, and keeping an eye out for how alternative energy sources are doing. That way, you can decide when is a good time to buy or sell.
- Make sure you understand the basics of commodities trading. It’s important to understand how to trade oil, which means getting to grips with futures and options trading, and knowing how the market works. Then you can work out what sort of trader you want to be.
- Decide between long term and short term trading. How soon do you want to see returns? If you’re looking to make a quick buck, that calls for a different approach than if you want to build your wealth over time. Generally, the shorter your time frame, the more risk you have to take on.
- Set a budget. Never risk more than you can afford to lose. Setting a budget in advance means you can protect yourself against damaging losses and that each trade makes up only a part of your total capital.
- Find a broker platform. Each broker has a different set of features. Some offer low trading fees, while others might offer more advanced features so you have more options for how to trade.
The different ways to trade oil
When it comes to commodities trading, you have a lot of different options. Which is the right one for you depends on your goals, how soon you want to see returns, and how active a trader you want to be. Read through the list below to get a grasp of all the different ways you can trade.
- Oil spot trading. The ‘spot’ means the current price of oil. Spot trading means buying or selling at today’s price and generally this is done using CFDs, or contracts for difference. When you use a CFD you’re trying to profit from the difference in spot price between the dates when you bought and sold it.
- Oil futures contracts. A futures contract is an agreement to buy or sell a commodity at a set date in the future, at a price agreed today. This is the most popular way of trading, because if you buy oil futures you can speculate on what the price is going to be in a few months’ time.
- Oil options contracts. Options are similar to futures, except rather than an obligation they give you the opportunity to buy before a set date in the future. If you think the price is going to go up, you buy a ‘call’ option, if you think it’s going to do down, buy a ‘put’.
- Oil spread betting. Spread betting is a way of predicting market moves by betting on whether it’s going to go up or down. For each point it moves in that direction, you get the value of your stake. Be warned, however, you also lose your stake for every point it goes the other way, so your losses can mount up.
- Oil stocks. An alternative way of getting exposure to the oil market is to buy crude oil stock, which means shares in companies that are involved in production, like drilling, extracting, or refining. These are often less volatile than the oil price and require less day-to-day management.
- Oil ETFs. An ETF is an exchange-traded fund, a portfolio of stocks from within a particular market or index that you can buy just like you would a share in an individual company. There are lots of ETFs that own stocks in companies that are involved in oil or energy production and these tend to be a safe, beginner-friendly way to get involved.
- Physical buying and selling. It is possible to physically own barrels of oil, although this is obviously not practical for the vast majority of traders.
If you want to learn more about any of these trading methods, our commodities courses explain them in detail. Otherwise, if you’re ready to put them into practice, sign up with a broker to start trading now.