Spread Trading the Oil Markets
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So far in 2010 the crude oil market has been rather unspectacular.
The only people who seem to be making money, apart from the gents who own the wells, are those who have been trading the ranges. The range traders have been speculating on the price of a barrel to go up and then to go down and so on.
Of course, if you are trading the oil markets through a financial spread betting account or otherwise then caution is needed. Trading the ranges in 2010 has been profitable. Nevertheless if the oil market breaks out of a range then you can end up in trouble. Personally, I normally put a Stop Loss order on my trades to protect my downside.
The oil market is certainly curious. If the various asset markets continue to grow stronger, or at the very least hold firm, then there is every chance of a more concerted attempt higher.
Unfortunately we are coming out of the worst recession since the 1930s. The fact remains that inventories are still strong and growth in the West is still on the anaemic side. Pressure on supply, and therefore price, seems far away at the moment.
Having said all this, many commentators keep warning us of lack of future supply and increasing demand from the emerging markets. That argument may be true but for now it is not pushing up the market.
The oft mentioned OPEC target price of $75 per barrel was the focal point for the late 2009 and early 20010 price action. However, if the Oil producing nations start to feel that the global economy can bear it, we may see some slight closing of the taps to restrict demand and increase prices.
I am tempted to sit this one out for a little while longer though. Of course, if you want to trade the key US Crude Oil and UK Brent Crude Oil markets though then one of the easiest ways is through a spread betting account.
Being able to 'short' a market provides interesting opportunities. You are not limited to solely speculating on markets to go up. If your research suggests that the US Oil will go down you can speculate on it to go down. If your research indicates that UK Oil will go up then you can spread bet on it to go up.
As I said, caution is required. One problem that many traders can face is their desire to make large profits very quickly. They often try to achieve this by opening too many big bets. Whilst this may be tempting, it is often difficult to judge your overall position, especially if the stake sizes are quite large. Try trading with small stakes.
Or, if you are new to trading oil, it is often worth trying a spread betting practice account. A number of firms like paddypowertrader and CapitalSpreads offer these for free. If you are less familiar with spread betting then placing risk-free trades via a demonstration account can help you focus on a new market and help you understand its behaviour.
Finally though, a word of warning, with spread bets you can lose more than you initially invested. Familiarise yourself with the risks. Spread bets do carry a high level of risk. Before trading, ensure that spread betting matches your investment objectives. Seek independent advice if necessary.
Crude Oil Spread Trading - Commodities Comparison
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| Gold Daily - Spread Size |
4 |
5 |
4 |
4 |
5 |
4 |
5 |
4 |
| Gold Daily - Min Stake |
£1 |
£1 |
£1 |
£0.1 |
£1 |
£1 |
£1 |
£1 |
| Gold Future - Spread Size |
6 |
6 |
6 |
6 |
7 |
6 |
13 |
6 |
| Gold Future - Min Stake |
£1 |
£1 |
£1 |
£0.1 |
£1 |
£1 |
£1 |
£1 |
| Brent Crude Daily - Spread Size |
5† |
5 |
5† |
4 |
5† |
5† |
5 |
5† |
| Brent Crude Daily - Min Stake |
£1 |
£1 |
£1 |
£0.5 |
£1 |
£1 |
£1 |
£1 |
| Brent Crude Future - Spread Size |
5 |
6 |
5 |
6 |
5 |
5 |
5 |
5 |
| Brent Crude Future - Min Stake |
£1 |
£1 |
£1 |
£0.5 |
£1 |
£1 |
£1 |
£1 |
| US Crude Oil Daily - Spread Size |
5† |
5 |
5† |
4 |
5† |
5† |
6 |
5† |
| US Crude Oil Daily - Min Stake |
£1 |
£1 |
£1 |
£0.5 |
£1 |
£1 |
£1 |
£1 |
| US Crude Oil Future - Spread Size |
5 |
6 |
5 |
6 |
5 |
5 |
6 |
5 |
| US Crude Oil Future - Min Stake |
£1 |
£1 |
£1 |
£0.5 |
£1 |
£1 |
£1 |
£1 |
Comparison Notes
The above comments do not constitute investment advice and neither Financial Spreads nor Clean Financial accept any responsibility for any use that may be made of them.
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Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
Article provided / approved by Financial Spreads which is a trading name of London Capital Group Ltd which is authorised and regulated by the Financial Services Authority (FSA), FSA Register number 182110.
'Spread Trading the Oil Markets' edited by DB, updated 06-Feb-10
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