Oil trading is a great opportunity to profit in nearly any market condition. This is due to its high standing throughout the world in both political and economic systems. The oil market is largely dominated by players with huge funds and the commercial entities, but it is possible for nearly anyone to take advantage of the market to some degree. Many who try fail, often due to simply not knowing the unique traits of the market. You’ll certainly need good trading discipline as well as a strategy if you wish to make the most out of oil trading. Fortunately, there are some good tips to follow even for beginning traders.
Fundamentals
Before you can really start planning your strategy, you’ll need to understand some fundamental concepts of the market. One of the most basic concepts is understanding what moves crude oil. Like any product, crude oil moves are dictated by the law of supply and demand. Periods of oversupply and short demand will lower the value of oil, while a lack of supply and higher demand will raise its value. The most basic rule of trading is to buy low and sell high, so you’ll need to take advantage of this law. There can also be mixed conditions in the market, and during these periods there is potentially little change in a product’s value.
You’ll also need to have some understanding of your competitors and how they operate. Professional traders are typically thinking ahead to future markets, and they base their buying and selling practices accordingly. Under normal circumstances, retail traders tend to have less influence over the oil market compared to their influence over other goods. A big exception is when changes in the market make headlines. In these cases, factors such as fear or greed, depending on the news, can have a huge impact on the market.
Timing trades
Now that you have some understanding of the fundamentals, you can begin strategizing your trades and timing. Obviously, you’ll want to buy oil when prices are lower and sell it when prices inflate. Prices tend to rise to their peak in the summer season, which is where we see the most activity on the roads. Price then tends to decrease as we approach autumn and winter, making these months good times to buy.
Big risk factors
Like with any market, there are some outside risk factors that may disrupt your trades. The dollar is essentially the worldwide pricing standard for raw materials. Because of this, when the value of the dollar lowers, the value of materials in all other currencies tends to decrease as well. Conversely, the strengthening of the dollar will lead to increased value in other currencies. Anyone interested in trading foreign currencies should sell when the dollar is at a high value.
Naturally, considering its political importance, geographic factors can play a large role in the value of oil. For example, political issues in middle eastern countries can have dramatic effects on the oil market. Weather events and other disasters in the Gulf of Mexico as well as any oil spills throughout the world are also factors for concern.
Venue and long term success
There are multiple choices in the US for oil company funds to invest in. Depending on how much you’re willing to spend and the level of risk you’re willing to undertake, you’ll need to choose the venue that best suits your needs.
It’s also a good idea to look at past oil trends, especially the particularly high peaks in price and the most devastating crashes. Examining the reasons for these events should be able to help you in forming your own strategy. You may also want to research trading skills in general. While the oil market is a bit different from others, it still follows many of the same trading rules of any commodity.
