How to trade oil

­Learn everything you need to know about speculating on oil and gas markets. We explain how oil trading works, with a step-by-step guide to trading oil with IG.

Oil is a hugely popular commodity among traders. With supply and demand constantly in flux, volatility is never far away – and liquidity is rarely hard to find. Find out how to get started trading oil here, with a quick introduction followed by detailed instructions.

Follow these three steps to make your first oil trade:

1. Find out how the oil market works

2. Choose how you’d like to trade

3. Open your position

How the oil market works

Luckily, you don’t need to handle large amounts of crude in order to trade the oil markets. That’s because most oil and gas trading is handled via futures.

What are oil futures?

Oil futures are contracts in which you agree to exchange a set amount of oil at a set price on a set date. They are traded on futures exchanges, and are the most commonly used method of buying and selling oil.

While oil importers and exporters use futures to insure against the adverse effects of oil price volatility, traders can use them to speculate on oil without buying or selling the commodity itself. That’s because the prices of oil futures will move as the value of oil goes up or down. 

So instead of buying oil, storing it, waiting for its price to increase and then selling it on and arranging for it to be delivered, you can buy a futures contract and then sell the contract before it expires. In doing so, you’re taking advantage of the same increase in price without the same logistical effort.

Oil options

An oil option is similar to a futures contract, but with one key difference. With an oil option, you have a right to buy a set amount of oil before a set date at a set price – but no obligation to trade if you don’t want to. Options also provide a method of trading on the price movements of oil without having to take any delivery of the commodity itself.

Find out more about options

Where are oil futures traded?

Oil futures are traded on exchanges, just like shares. But unlike shares, they are traded in the form of oil benchmarks. Oil doesn’t come out of the ground in the same form all around the world, and oil benchmarks enable traders to quickly identify the quality and drilling location of the oil they are buying and selling.

The two most popular oil benchmarks are Brent Crude and West Texas Intermediate (WTI), traded on the Intercontinental Exchange (ICE) and New York Mercantile Exchange (NYMEX).  You can trade both of these benchmarks with IG, alongside various other oil and gas benchmarks: including Heating Oil, Natural Gas and No Lead Gasoline.

What are oil spot prices?

Oil spot prices show the cost of buying or selling oil and taking delivery immediately – or on the spot – instead of at a set date in the future. So while futures prices reflect how much the markets believe oil will be worth when the future expires, spot prices show how much it is worth right now.

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Heating Oil
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Three ways of trading oil

There are three main ways of speculating on oil price movement: futures and options, CFD trading, or investing via equities and ETFs.

Buy futures and options

To trade futures and options, you’ll need to use the right exchange for the oil benchmark you wish to trade. Most exchanges have criteria for who is allowed trade on them, so the majority of futures speculation is undertaken by professionals instead of individuals. If you want to trade options, you’ll need an options broker.

Trade via CFDs

CFDs enable you to trade on the changing prices of futures and options, but without buying and selling the contracts themselves. And instead of trading on a commodities exchange, you create an account with a leveraged provider. This brings several benefits for oil traders:

  • You can trade on the spot prices of oil benchmarks, as well as futures and options
  • You can go both long and short on a huge variety of oil markets, on a single platform
  • You don’t have to be a professional to get started

Find out more about CFD trading.

Oil investment

Instead of trading individual markets, you can get exposure to oil via the shares of oil companies and oil exchange traded funds (ETFs). The prices of oil companies are heavily influenced by the price of oil, and can sometimes offer good value compared to trading oil itself. You can use ETFs to invest in oil benchmarks, or a basket of oil stocks.

How to place your first oil trade with IG

1. Open an account

To trade on oil prices with IG, you’ll need to open an account. It takes a matter of minutes, can be done entirely online, and there’s no obligation to fund once you’ve finished your application.

However, you will need to fund before you place your first trade. Funding a CFD trading account is simple – you can use your debit or credit card, BPAY or PayPal.

If you’d like to try out oil trading without the risk of losing any capital, you can open a demo account instead. Your demo will come preloaded with $20,000 virtual funds, which you can use to trade live oil markets.

2. Find your first opportunity

  • You can use your IG account to trade Brent Crude and WTI (Called US Light Crude on the platform), as well as Heating Oil, Natural Gas and No Lead Gasoline. And you can access a variety of tools to help you identify the right time to open your first position, including:

  • Oil trading signals, which tell you when opportunities arise with details on how to take advantage
  • Alerts, which notify you when certain conditions you’ve set have been fulfilled
  • Technical indicators, including MACD, Bollinger Bands and RSI
  • Find out more about the IG Trading platform.

3. Open your position

Once you’ve decided the market you want to trade, you can open your position on IG’s web platform, or one of our mobile trading apps.

Open the deal ticket to place your trade. First of all you’ll enter your stake, which dictates the profit or loss you’ll make when the market moves. You can also choose to add a stop or a limit here, which will automatically close your position once it hits a certain level.

Bear in mind, though, that a basic stop loss does not guarantee your position will close at the exact level you specify – if the market suddenly gaps beyond your stop level, it’s possible your position will be closed at a worse level than requested.

If you think oil is going up in value, then ‘buy’ your chosen market. If you think it’s headed down, then ‘sell’ it.

4. Monitor and close your position

Now your trade is open, you’ll want to keep a close eye on it – or use the appropriate monitoring tools – and decide when the right time is to either cut your losses or take your profits. You can also add, remove or amend any stops or limits once your position is open.

To close a trade, you just click on your position and trade in the opposite direction to when you opened it. So if you bought oil, then you’d sell it. If you’d sold oil, then you buy it.

Your profit or loss is determined by deducting the price at which you opened the position from the price at which you closed it, and multiplying the result by your position size. If you bought the market at the outset, then a positive figure indicates a profit and negative one a loss. If you sold it, then it's the opposite.

Open an account now

There's no minimum balance to open an account, it takes less than five minutes, and there's no obligation to fund or trade.

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