Crude oil commodities: A guide to oil spread betting

Oil spread betting is a form of financial speculation that allows traders to take advantage of rising and falling oil prices without physically owning the underlying asset. 

In this comprehensive guide, let’s discuss oil spread betting, explore its basic concepts, compare it to traditional investing, understand how it works, and discuss its benefits, risks, and strategies for success.

Understanding the basics of oil spread betting

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Crude oil is a non-renewable resource that serves as a vital energy source globally. It is a complex mixture of hydrocarbons extracted from the earth’s subsurface and refined into various products, including gasoline, diesel, and jet fuel. 

Traders buy and sell crude oil on various commodities exchanges worldwide, with the most well-known being the New York Mercantile Exchange (NYMEX) and the Intercontinental Exchange (ICE). 

In modern trading, you can trade this commodity in various contracts for difference (CFD) and spread betting platforms online. One such trading platform is markets.com, known for over a decade of experience helping beginner and professional traders.

Oil spread betting vs. conventional trading in crude oil

Oil spread betting differs from traditional trading in crude oil in several significant ways. 

Firstly, traditional trading involves physically owning and storing the commodity by purchasing oil barrels or funding oil-related companies. This method requires substantial capital, storage facilities, and logistics for transporting a physical oil commodity. 

On the other hand, oil spread betting allows traders to speculate on the price movements of crude oil without the need for ownership or storage.

Aside from the mentioned difference, traditional trading in crude oil often involves a long-term perspective, focusing on the potential for price appreciation over time. 

In contrast, oil spread betting allows short-term trading, taking advantage of rising and falling oil prices. This flexibility appeals to traders who aim to achieve desired financial goals from short-term price fluctuations or who want to hedge their existing acquisitions in the oil industry.

How oil spread betting works

Oil spread betting involves placing a bet on the future price movement of crude oil commodities. You can take either a long or short position, depending on your market predictions. 

A long position means that you can hold an oil commodity if you expect the price to rise, while a short position may occur when oil prices decline. 

To begin a spread bet, you need to choose a stake size per point, representing the amount of money won or lost for each movement in the oil price. 

For example, if you bet £10 per point and the oil price increases by 10 points, you would earn £100. However, if the price moves against your position, you would lose the exact amount you could win.

Benefits of oil spread betting

Oil spread betting offers several advantages over traditional investing in crude oil. 

First, it can allow you to make probable profit from rising and falling oil prices. This flexibility can be advantageous in a volatile market, as traders can adapt their positions based on changing market conditions.

Second, oil spread betting takes advantage of leverage, amplifying its exposure to the market. While this can increase potential profits, it may also heighten risks. You must use leverage responsibly and employ risk management strategies to protect against significant losses.

Furthermore, spread betting provides access to a wide range of oil markets. It can allow you to diversify your trading portfolio. You can place bets on various types of crude oil, including Brent Crude, WTI Crude, and OPEC Basket, as well as other related commodities such as natural gas and gasoline.

Risks in oil spread betting

While oil spread betting can be lucrative, it is necessary to be aware of the risks you may encounter during oil price speculation. 

• Price volatility in the oil market - Oil prices exhibit significant volatility due to various factors, including geopolitical tensions, fluctuations in supply and demand, and economic indicators. These frequent and abrupt price fluctuations can result in substantial financial losses for traders engaged in oil spread betting.
• Impact of unforeseen market events - The oil market is vulnerable to unexpected events such as natural disasters or major policy modifications affecting oil production and distribution. These unforeseen occurrences can profoundly influence oil prices, posing a considerable challenge for traders. 
• Margin calls and the need for additional funds - Since oil spread betting involves using leverage, you can control a more prominent position than your initial deposit. However, when the market moves against your position, brokers may issue margin calls, requiring you to deposit additional funds to cover potential losses. 

Failure to meet these margin calls can result in the forced closure of your positions, potentially resulting in substantial financial setbacks. 

Strategies for boosting your oil spread betting

Traders can employ various strategies to increase their chances of winning in oil spread betting. 

You may use technical analysis to study historical price data and identify patterns or trends in oil commodities. This approach involves studying charts, indicators, and oscillators to predict future price movements.

You must also conduct a fundamental analysis since oil price relies on economic factors. This approach includes monitoring supply and demand dynamics and news from the oil-producing countries. By staying informed about these factors, you can make more accurate predictions about the price movements of oil commodities. 

Finally, a clear trading plan and appropriate position sizing techniques can help manage risk. You should set precise risk-reward ratios, use stop-loss orders and diversify your portfolio to various financial assets to limit potential losses.

Take your first step into oil spread betting with markets.com

Oil spread betting is an exciting and potentially profitable strategy for those interested in crude oil commodities. 

As an aspiring trader, you must learn and understand the complexities and risks before trading in this form of financial speculation. Employ effective risk management strategies to increase your chances of success in oil spread betting. 

Aside from that, you must also conduct thorough research, be informed, and continuously learn and adapt your trading strategy. You may utilise markets.com’s news analysis and insight-driven trading tools to help and guide you in spread betting endeavours. 

With various asset classes found on markets.com, you have the flexibility to diversify your trading portfolio by choosing from a range of asset classes beyond just oil commodities.

Sign up for an account and begin your spread betting journey today.
For more information on CFD trading, read our complete guide: What is CFD trading? (A full guide with benefits, risks and CFD trading examples)
 

“When considering CFDs for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.”