When you want to get into a business where the main product is a commodity, it would be a great idea to own the commodity. However, it is not uncommon to find someone trading in a commodity he or she does not own. This could be you when it comes to oil trading. The question is, how can someone who has no oil trade oil futures?
It is possible that by this time I have lost you on oil futures. Do not be worried, because I am going to explain what oil futures are.
This article will also help you understand how oil futures work. You will learn how you can trade in oil futures even without any oil.
Being able to trade in oil futures is a skill you should have if commodity trading is what you want to be doing. You can earn money and change your life from the income generated from trading in oil.
The interesting thing about this is that you do not need to own any oil. In fact, you can be able to trade in oil futures without touching a single barrel of oil.
Wouldn’t you love that?
What is Oil Trading?
Oil trading is the activity of buying and selling to make a profit.
You can do this by exchanging the physical oil, or by speculating on the price movement of the oil in the markets.
If you are wondering, how can someone who has no oil trade oil futures? You are in the right place.
How Can Someone Who Has No Oil Trade Oil Futures
If you have no oil, this is how you can trade oil futures especially if you have no oil today;
- Have confidence in yourself.
- Study the market.
- Understand factors affecting crude oil
- Understand the players.
- Pick Brent or WTI crude oil.
- Analyze oil trading charts.
- Choose your exchange or platform.
The above are the steps someone who has no oil use to trade oil futures.
7 Ways to Trade Oil Futures for Someone without Oil
Here are the seven ways someone who has no oil trade oil futures:
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Have confidence in yourself.
You should have confidence in yourself as a trader. You actually need it.
Crude oil trading is a high risk game. You should have patience and courage to take risks. As with any investment, the higher the risk, the higher the return. And also the higher the potential for losses.
However, to start trading crude oil futures, you need to have confidence that you shall be able to execute your trades successfully.
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Study the market.
It is important that you should study the oil and gas market. You will need to gather the market information on supply, demand, crude oil prices and trends.
This will help you to make decisions on how to trade the oil futures.
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Understand factors affecting crude oil.
The other important thing you should do is understand the key factors affecting crude oil.
The basic tenets of supply and demand play a role. However, there are other factors you should be aware of to determine when to buy or sell your oil futures.
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Understand the Players
As you involved in the business of crude oil trading, you should take time to know the key players in the market.
It is good to know that professional traders, hedge managers and institutional traders play a big role in the oil futures market.
Know who the players in this game are will help you to calculate your risks and make appropriate moves in the market.
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Pick Brent or WTI crude oil.
Brent and WTI are the two crudes that are traded in the oil futures market.
You should make a decision on the type of crude you will be trading in.
WTI originates in the U.S. Permian Basin and other local sources while Brent comes from more than a dozen fields in the North Atlantic.
These varieties contain different sulfur content and API gravity, with lower levels commonly called light sweet crude oil.
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Analyze oil trading charts.
You should be able to undertake both fundamental and technical analysis of the oil futures.
To be able to do this, you will need to develop the skill of reading short-term and also long-term oil trading charts.
This will help you to understand the historical performance of crude oil, while keeping an eye on the day to day price fluctuations.
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Choose Your Exchange or Platform
Even if you do not have or won any oil you can still trade in oil futures.
To do this, you will need to choose the broker, the exchange or the platform to use.
The NYMEX WTI Light Sweet Crude Oil Futures Contracts trades more than 10 million contracts per month. This provides great liquidity to you as an investor.
However, you should be aware that it has relatively higher risk because of the 1,000 barrel contract unit and .01 per barrel minimum price fluctuations.
There are other products offered through NYMEX and you can consider them.
You could also consider the U.S Oil fund which provides a popular way to trade in crude though the equities market.
How to Trade Oil Futures with No Oil
Crude oil is one of the most traded commodities in the world. The price of the crude oil usually affects the prices of many other commodities.
It is also important to note that the crude oil prices also affect the price of shares, bonds and currencies across the world.
The good news for you is that it is possible to trade in oil futures, even when you do not have physical oil.
Oil futures are contracts where you agree to exchange an amount of oil at a set price and on a set date in the future. This means you are simply exchanging the contracts without dealing in the physical oil.
It is important to note that oil futures are traded on exchanges, like NYMEX and reflect the demand for the different types of oil.
Oil prices are volatile and can move at the slightest market provocation. This makes crude oil one of the best commodities to trade on futures.
This volatility provides you with an opportunity to trade oil futures. For this, you will need to think and come up with good crude oil investment strategies.
I would like you to go and read about the best strategy for trading in crude oil in this article I wrote a few days ago.
Related: What is the Best Strategy for Trading Crude Oil?
Oil futures are the common way in which you can buy and sell oil today. You get an opportunity to trade in crude oil or take advantage of rising or falling crude oil prices.
How an Oil Futures Contracts Work
In theory, oil futures contract are simple.
The idea is that someone in the market is selling a risk to someone else who is willing to buy that risk in the hope of making money.
To make this work, the buyer and the seller establish a price that the oil commodity will trade, not today, but on some date in the future.
While no one knows what the price of oil will be trading at the future day, buyers and sellers in the oil futures market believe they can predict the future oil prices.
For example, suppose that a commodity, which is currently selling at $40, will be available for $45 in a contract dated to come due next March.
You, thinking that the price will, in actuality, shoot past that, say to $65, by said time can thus purchase the $45 contract.
If your prediction is correct, you can then buy the commodity at $45 and immediately sell it for a $20 profit. But should the commodity end up falling short of $45, your contract is worthless and you make a loss.
How much money do you need to trade in oil futures?
The amount of money you need to trade in oil futures depends highly on the commodity broker you are using.
However, you should have a minimum of $1,000 in your futures trading account.
It is also important to ensure that you have enough funds or money to cover for potential losses. This means that while the initial margin might be small, you are covered in case you need more cash.
How much is an oil futures contract?
You should note that the value of the oil futures contract is derived from the cash value of the underlying asset. In the case of oil, the underlying asset is the crude oil itself.
You can be able to buy and sell the oil futures contract with a much smaller amount, which is known as the initial margin.
The initial margin is therefore your down payment on the value of the contract and the obligations that come with that contract.
The amount of an oil futures contract is established by the commodity exchange and is a percentage of the value of the futures contract.
For example, if a crude oil contract futures contract is 1,000 barrels of oil, at $100 per barrel, the nominal value of the contract is $100,000
This means that you can put down $1,000 as the initial margin with your broker. This allows for high leverage and as you might be aware, you can make profits or losses from the oil futures.
How do I get an oil futures contract?
As you have seen, to be able to trade in crude oil, you need an oil futures contract.
This is basically a contract allowing you to buy or sell crude oil at a predetermined price and at a future date.
This is how someone who has no oil trade in crude oil, by getting an oil futures contract.
To get an oil future, you buy a stake on the New York Mercantile Exchange through a broker. You pay a certain price per barrel of crude oil for 1,000 barrels.
It is possible for you to exit your position by selling your side of the futures contract.
How to settle your oil futures.
Oil futures are settled within a month. That is the standard, unlike other commodities that can be settled over a long period of time.
The current position limits 3,000 contracts in the last three trading days in the spot month. This is inclusive of futures-equivalent position in the West Texas Intermediate options.
The WTI light sweet crude oil futures contract is settled in cash, against the current market price for US light sweet crude oil.
Conclusion
In conclusion, trading in oil futures can be a profitable or lucrative way of making money. This can be for an individual or for a business.
It is my hope that the article has demonstrated you how you can trade in oil futures without oil.
You do not need to have the underlying physical asset to get involved in crude oil trading.
Oil futures trading provide you with an opportunity to buy and sell oil from the comfort of your home or office.
