Before the Industrial Revolution, agricultural staples like corn and wheat ruled the commodities market. Today, however, Crude Oil and its derivatives are the most actively traded commodities in the world. That is not surprising, considering oil touches just about every aspect of the global economy, in terms of consumer goods themselves as well as their production and transportation. Oil is a major component in the manufacture of plastics, synthetic textiles (acrylic, nylon, spandex, and polyester), fertilizer, computers, cosmetics, and even steel.
Recently Crude Oil trading has become a popular financial investment, allowing retail traders to benefit from the fast-paced movements of the commodity or hedge against currency depreciation. In the past, Oil trading was only available to large institutions, central banks, hedge funds and high net worth individuals. Thanks to the development of the Internet, more and more small investors are now taking advantage of the daily fluctuations, and the opportunities to benefit from this commodity in the form of a contract for difference (CFD).
Unlike other commodities like gold futures and silver futures which derive prices from multiple factors, in case of crude, the price isn’t determined only by demand and supply forces but also by speculators influencing price determination. Commodity markets exhibit cyclical movement in price curve and crude shows a co-relation to the same. Trading in crude oil futures is similar to trading in equity futures. Crude oil futures are nothing but exchange-traded standardized contracts between a buyer and a seller in which buyer is bound by an obligatory contract to take delivery of the specific quantity of crude oil (lot) at a certain pre-decided price on a future date.
In line with the world’s standard, there exist two major classifications of crude oil, and different platforms trade each. US oil is referred to as West Texas Intermediate (WTI), and UK oil, called Brent Blend oil. It is possible to trade both of these crude oils on different forex platforms. Trading crude oil on the forex platform may be somewhat different from trading in other commodities. Some platforms simply trade CFDs in oil, and then you trade the contract just as you would a currency pair. Oil is generally traded against the dollar, as oil futures contracts are always priced in dollars.
Crude oil futures, or derivatives, reflect the prices of the physical petroleum markets around the world. Understanding the physical flows of oil from producers to consumers is an imperative when it comes to being a knowledgeable trader or investor. Crude oil and energy markets are highly specialized venues, requiring exceptional skill sets to build consistent profits. Market players looking to trade crude oil futures and its numerous derivatives need to learn what moves the commodity, the nature of the prevailing crowd, the long-term price history and physical variations between different grades.