Crude oil is considered the best-selling raw material in the world. Oil supply contracts are concluded at the largest exchanges: on the London, New York and Singapore. Contracts are traded in different parts of the world. The fuel produced differs significantly depending on the quality, which forms a significant increase in price. The cost of petroleum products is established taking into account their density, based on the presence of paraffin additives in the fuel composition. A large demand for raw materials automatically triggers a question for many people regarding how to buy oil on the exchange. Everything is not as complicated as it might initially seem to a simple person.
Oil trading: availability in every corner of the world
Everyone who thinks about how to buy oil on the stock exchange will be pleasantly surprised that there is nothing complicated in purchasing raw materials for a modern person. Asset trading can be conducted from anywhere in the world via the Internet. Earnings on the price difference when reselling the world's most common fuel. The oil exchange, previously closed to ordinary people, is now available through broker's intermediary services. There is an opportunity to invest in the acquisition of 1000, 100 and even 10 barrels of oil. Profit can be withdrawn both from the increase in the price of an oil product, and from its decrease.
Futures trading
The purchase of oil on the exchange can be carried out through the purchase of futures contracts. Access to them is available to each participant in the foreign exchange market with a special terminal installed on the PC. In fact, futures is a contract for the supply of fuel in the coming month in the amount of 1000 barrels. In accordance with the terms of the agreement, the buyer assumes the obligation to pay and accept the goods, the seller’s duty is to deliver the goods to the previously agreed place. Traders buy futures at the same price with a focus on higher fuel prices. Until the contract expires, that is, until the time when the actual raw materials come to be delivered to the agreed place, futures are sold on the secondary market. The contracts themselves are sold on the exchange, and their value is formed on the basis of the situation on the international market. There are two options for the development of events: the trader either earns or loses part of the money, selling the contract cheaper, since the actual delivery of raw materials does not interest him.
Oil Trading: Clear Benefits
One barrel, a unit of measure for the volume of raw materials, corresponds to 42 gallons, or 158.988 liters. Oil on the stock exchange is bought in barrels. This measure is also actively used to measure other liquids. Within the exchange, oil products are traded through the purchase or sale of lots. One lot corresponds to a volume of 100 barrels. Compared with the real trade in raw materials, its virtual format is simpler and more affordable, it provides a minimum amount of costs and difficulties. In reality, to conduct transactions with oil, not only a large amount of funds will be needed, but also a warehouse, transport for the delivery of raw materials. Finding a buyer will be no less difficult.
What is needed to start trading?
Before you buy oil on the exchange, you first need to open a special trading account with a company that will provide access to the exchange. After registration, you can immediately start buying or selling raw materials. In the absence of experience in this matter, you can try your hand at a special demo account, which is traded without investing real money.
Available trading formats
There are only a few commodity trading formats:
- Oil trading on the stock exchange.
- Purchase or sale of raw materials under a contract, the conclusion of which is allowed only on the OTC market.
- Trading on a long-term contract between a fuel producer and its first buyer.
- Trading on the basis of futures contracts mentioned above.
The stock market is characterized by its clearly defined rules. For example, one contract for fuel trade has a standard volume and corresponds to 1000 barrels. Within the framework of the OTC market, the purchase and sale of raw materials can be carried out in any volume. It is more convenient and affordable. The stock market is characterized by a specific location, which makes it inaccessible to most. Access to the OTC market through a broker is almost always open.
What currency is the trade in?
You can buy oil on the exchange only for dollars, and this situation has a logical explanation. In fact, the raw material itself has long been perceived as a currency, and each world currency is tied to the American dollar. This explains the changes in the cost of fuel with a change in the currency of America. At every world-class company, it is dollars that take priority. It is worth saying about the presence of minimum commissions during conversion, which is very convenient and profitable for large volumes of transactions. Oil trade has some similarities with currency pair trading, since its value is affected by similar factors: weather events, political and economic events of world rank.
Phased Action Plan
It is not difficult to sell or buy oil on the exchange. The whole process can be reduced to performing several actions. Initially, you need to choose a reliable broker with an impeccable reputation. The advantage should be given to those companies that take minimal transaction fees and offer small spreads. Raw materials can be traded on the Forex currency market, the main thing is to check with the broker in advance if this is possible. A trading tool is quite often present in the list of basic quotes in the standard Metatrader terminal. It is worth looking for in the "futures" section. Oil may be designated as UKOIL or USOIL, but there are brokers who use other quotes. After the required tool is found, you need to add a new chart to the terminal window. This is precisely the base on which trade will be conducted. If almost everyone can figure out the technical part of how to buy oil on the exchange, far from all newcomers to this field can correctly predict the future price movement. Despite the apparent simplicity, it is important to consider that exchange trading is not just the most complex, but also a high-risk format for earning funds.
Who provides access to the exchange and on the basis of what is it worth making forecasts?
An oil exchange can be open to everyone thanks to the support of broker companies. Among a large number of firms, the service is available to customers of Instaforex and RoboForex, Forex4you and Alpari, and some others. Determining the direction of the oil price movement and preparing to enter the market, it is worth knowing that the value of the asset is formed on the basis of the ratio of supply and demand. Private access to this information makes trading participants pay attention to the following factors:
- Changes in fuel stocks, both industrial and strategic. An increase in the indicator indicates a low demand in the future, and its sharp decline signals a probable shortage of fuel in the future.
- Political feuds in the "oil regions". In Iran, in Iraq, in Libya, in Afghanistan, hostilities often take place, which in one way or another affect the volume of fuel production, and, consequently, the volume of its supply on the market.
- Forecasts in the development of the economy. During the global crisis of 2008 , the oil market collapsed and became unattractive to trade. A similar situation could be observed at the end of 2014.
Comparing the facts, one can not only give a reliable forecast of the further development of events, it is possible to obtain a substantial income on its basis. It is better to use both fundamental and technical analysis in trading at the same time. This will reduce the chance of making mistakes.