How to Trade in the Oil Commodity Market

The oil commodity market is one of the more popular markets in exchanges across the world. Perhaps this is because oil is one of the most important commodities that are traded in. The fact that oil prices keep fluctuating is also another factor that encourages trading for the commodity. In a typical exchange, trading does not necessarily involve the real products. Instead, traders use certificates known as futures contracts. Futures contracts are used to certify that the issuing party has agreed to pay the stated amount of the commodity at a specified date. Futures contracts do not compel the issuing party to give the oil commodity. One has an option of paying in cash an amount of money that is considered to be the value of the commodity at that time. Essentially, that means one will be re-buying the contract for its full price.

Your Personal Financial Mentor notes that when trading in the oil commodity market, the first thing to do would be to identify the form of oil commodity you want to trade in. Petroleum comes in different forms, depending on the availability as well as the location. For example, when oil is very viscous, its value will be less compared to other lighter crude oil forms. This is because it will cost more to refine viscous crude oil. But when trading, you could still choose to trade in viscous oil if the changes in price seem more favorable for trading.

There are two common types of contracts that you can use in the oil commodity market. One is the Call contract. A call contract is the type of contract which a trader buys hoping to resell it for a higher price. In this case, the buyer is hoping that the price of the oil commodity will rise. A pot contract is the opposite of a call contract. Rather than hoping for the prices to rise, the buyer of a put contract hopes that the prices will fall.

One very important piece of advice when trading in the oil commodity market is this: Always ensure that your buy your contracts from stockbrokers who are registered with that particular exchange. It is also important that you keep yourself up to date with the news, especially news that might affect the market.  For example, news of unrest in any oil producing country could mean higher prices for crude oil. You should always take that into consideration when trading.

Categories: Oil Commodity Market

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July 8, 2013 How to Trade in the Oil Commodity Market