The foreign exchange market is very sensitive to quotations of raw materials and metals. The reason for the dependence is that currency transactions affect raw materials. On the other hand, the value of the currency also depends on the value of raw materials and metals. That is, for successful trading, it is important to always understand these dependencies. And first of all, it is important to understand how oil affects Forex, as it, especially now, is a leading player.
Forex and black gold
Oil plays a leading role in the stability and competitiveness of many economies. Historically, the dollar and oil have been two concepts that are interconnected, because it is the United States that produces and consumes a huge amount of this raw material.
Forex oil has long been loved by traders as the best tool for trading. Today, most Forex brokers provide the opportunity to trade in these raw materials.
Common notation
Most know the price of a barrel of oil right now, because it has a direct impact on all areas of life. Therefore, it is important to understand how oil works on Forex, and to understand all the intricacies of the economy.
Oil, as the most sought-after raw material, is sold in colossal volumes at tenders, where quotations of price per barrel are formed, contracts are concluded. The cost of oil is formed on the main exchange platforms:
- London;
- New York;
- Singaporean.
When studying the designation of oil on the "Forex", it is important to know the following:
- several brands of these raw materials participate in the auction: Brent, Light, WTI;
- the size of one lot is equal to one hundred barrels;
- the spread level is in the range of $ 3- $ 15. It all depends on the broker.
How is Forex oil signified? Latin alphabet. You will find the Brent brand in quotes as UKOIL. Brand WTI - USOIL.
In addition to transactions that focus on the difference in the cost of raw materials (CFDs), it is possible to trade future supply contracts (futures):
- A contract for the supply of a barrel of Brent crude oil is designated as BRN;
- A contract for the supply of a barrel of Light Sweet crude oil is designated as CL.
These are common notation. This does not mean that the broker cannot enter its own symbols and designations.
In addition to the alphabetic names of brands, in the common designation there is also a letter that indicates the month if you are working with derivatives contracts, and a figure indicating the year of delivery.
For example, BRN5 means that Brent crude will be delivered in June (N) 2005 (5th year of supply).
Types
Forex offers two types of contracts to work with:
- Mist Albion raw materials are traded under the brand name Brent;
- oil from the west of Texas (USA).
UK oil is a mixture of low sulfur crude oil. This is a "light" oil. They get it in the North Sea. The cost of a barrel exceeds the average OPEC price.
Oil extracted in the USA is much more expensive because it has a more refined chemical composition, sulfur is practically absent.
Who takes part in the trade
The Forex oil market is transnational. It hosts entire countries, international corporations, small companies, private traders. Airlines have the opportunity to trade this raw material to prevent its cost growth.
On the other hand, participants in the foreign exchange market earn on oil quotes (the difference between the purchase and sale prices). Like the currency market, many factors influence the raw materials market:
- political;
- economic;
- financial;
- social and others.
How it works
Forex oil trading is against the US currency. The price is indicated for 1 barrel of crude oil. The price is adjusted based on supply and demand. It can be changed within one day of trading.
Transactions are carried out directly between the participants: the seller and the buyer. As with any other raw material, there is no physical deal. This is due to the speculative nature of the transaction. Quotation prices can be seen on most trading platforms used by traders. It can be seen in the form of spot prices.
Crude oil is the main indicator of demand. In other words, long-term growth in oil demand could lead to higher gas prices. Traders under the rapid growth of the economy understand the increase in demand for raw materials, that is, the cost of a barrel of crude oil. Stagnation leads to the opposite effect - a drop in the cost of a barrel.
Do I need to trade oil
Taking into account that oil at Forex is a relatively new area, it has advantages:
- Trade in these raw materials will help in diversifying the investment portfolio and generating additional income.
- Most currencies and raw materials directly depend on the cost of oil. With a detailed study, this will help in studying the direction of the movement of prices for these raw materials. This will provide an opportunity to make a profit.
- The cost of a barrel at Forex does not have high volatility. Price changes within one business day. A trader can benefit from this by identifying price changes.
What is the result
With the help of the American currency, oil on the Forex has a strong influence. You can often hear in the news that the dollar has “supported” the oil, or that the oil is “putting pressure” on the US dollar. Following fluctuations in the prices of these raw materials, the US dollar is also adjusted. Following the dollar, the currencies of other states are also adjusted.
That is, oil quotes due to the dollar affect trading. This must be understood, especially if there are no obvious prerequisites for movement, and the raw materials market is “standing” in anticipation of factors.
Commodity trading in the stock market is a good way to invest, and with relatively low risk.
The currency market is special. It is stable, while the economic situation in the country is stable. Economic growth contributes to the growth of the national currency. Development stagnation or crisis reduces the exchange rate. We form a number of conclusions:
- the value of the currencies of the country that produces and exports these raw materials is growing;
- the currency of the states that import oil is lower;
- those states that export oil have a better position than those that depend on imports.
Forex Oil Designation: UKOIL and USOIL are Brent and WTI crude oil, respectively.
Oil trading is a popular trading area. Its development is on a par with the trading of precious metals and currency. But do not forget that before you start trading, you need to develop a strategy, work it out on demo accounts or playing in small lots. And only then enter the real market. Because here you can win as well as lose everything quickly.
Be successful!