A Complete Guide to what is an Oil CFD

Nov 2, 2021CFD Trading0 comments

As we all are aware that Crude oil is the most commonly traded raw material in the world, these markets can be specifically volatile, which is the primary reason some traders are attracted to this commodity. In times of economic or geographical instability, the oil prices usually fluctuate between low and high costs to be opportunistic, especially for professional traders.

Oil CFDs are one of the favorite ways of speculating on their prices. CFDs are derivative products that assist you in trading over price movements of the underlying asset without purchasing the crude oil directly at its spot price. Instead, with CFD crude oil trading, you agree to exchange the value difference when a position is closed and opened.

Without any further ado, let’s learn more about the CFD oil trading in the following sections!

Part 1: What is Oil CFD Trading?

CFDs on Crude oil need you to trade with leverage. To open a position, traders only need to place a small total trade value fraction, also referred to as a deposit. Thus, it offers you better exposure to the oil market and can multiply gains to a great extent. However, this is a stance of higher risk and can cause you to lose money while trading. Thus, it’s always advisable to create an effective risk management strategy when trading oil CFDs.

Oil trading falls within both commodities and energy. For example, the gas and oil industry produces international commodities such as Crude Oil WTI and Crude Oil Brent and other local items such as heating oil for homes and natural gas.

The prices of crude oil can vary based upon their origin and current supply and demand. Naturally, then, these prices alter throughout periods of volatility. The most commonly traded crude oil frontlines are Brent and West Texas Intermediate (WTI).

Part 2: How to do CFD Oil Trading?

  • Select whether you want to trade CFD Brent crude oil or WTI, or both. Then, open an account and begin depositing funds.
  • Think about risk management strategies while trading with leverage. If you cannot afford to take high-risk chances, stop-loss orders are available to close the position once the trade reaches your maximum price.
  • Keep updated with the analysis and news section. In addition, you need to check and predict possible political or economic trends that may impact the oil markets. This is generally applicable to times when CFD oil prices are volatile to trade.
  • Think about your trading plan. There is an abundance of both short-term and long-term strategies that can be useful when trading oil CFDs.

So, you can easily follow these steps according to the different trading platforms listed. And, it’s a simpler version of CFD oil trading in general terms without mentioning any specific trading platform.

Part 3: Defining WTI vs. Brent Oil prices

There are numerous differences between CFD oil WTI and CFD Brent crude oil essential to consider while selecting your trading commodity. Brent is derived from the North Sea and has more presence internationally.

And, you can derive WTI only from oil fields inland of Texas and Louisiana. WTI is a sweeter alternative crude oil with lower sulfur content. Since Brent gets sourced close to sea, its transportation costs are low than WTI, sourced from the land. This can impact the price of both WTI and Brent CFDs when selling and buying raw commodities.

WTI vs. Brent oil prices

CFD Brent crude oil is generally more impacted by recent years’ economic, political, and geographical instability and pressures. As this raw material is more widespread for traders across the globe, in conditions of crisis, its price tends to vary, and there is often a surge in Brent oil prices.

On the other hand, WTI Crude oil spot CFD is less widespread; it does not feel the effect of international events and thus holds a lower price throughout the entire year. These external factors are crucial for your oil market’s understanding and form part of your fundamental analysis.

Some traders like trading CFD crude oil in such a speculating environment. Leveraged trading, otherwise called margin trading, assists the trader with full exposure to each financial asset. However, leverage trading in such volatile markets also risks significant capital loss, magnifying them.

Part 4: All you need to know about trading Oil CFD futures

CFDs can further be valuable to speculate on oil market price movements via a commodity futures contract. The trading in futures is a contractual agreement between two parties to sell and buy an asset at a fixed price.

On the other hand, Crude oil CFD trading is an over-the-counter product; futures are usually traded on a local exchange. Thus, selling and buying oil futures are not explicitly carried out through a CFD, although it provides the investor with the chance to trade price movements of mentioned future contracts.

As discussed above, Brent futures prices are usually higher than those of WTI, in line with their spot prices. It means that traders with knowledge in this field may find that their price movements are simpler to forecast.

Part 5: Top 5 Platforms for Oil CFD Trading 2021

Crude oil trading brokers offer services for futures contracts or CFDs. Given below is a list compiling the top 5 platforms to trade oil CFDs in 2021.

So, have a look at our top crude oil brokers to get started!

1 – TD Ameritrade

td Ameritrade

TD Ameritrade meets the requirements of both beginner investors and active traders/professional traders with the best trading platforms, options, and ETF trades, online stocks with $0 commissions, and a large selection of mutual funds.

Charles Schwab completed its acquisition in October 2020 of TD Ameritrade, but the amalgamation of the two companies may happen over the next 18 to 36 months.

It is one of the massive US-based stockbrokers, launched in 1975. Some renowned authorities are under vigilance as online brokers, like the Securities and Exchange Commission, Financial Industry Regulatory Authority, and the Commodity Futures Trading Commission (CFTC).

TD Ameritrade is one of them who provide mock trading accounts.

Its paperMoney virtual simulator is a desktop-based platform that goes toward frequent and advanced traders. It offers $100,000 in practice “money” along with access to a margin account. However, non-customers can freely register for a 60-day trial — an ideal way to launch a new platform before committing to creating up a real-money account.

TD Ameritrade provides two primary trading platforms, each with a mobile version of its own.

Thus, it is an on-ramp platform that provides almost everything an average investor needs to research, identify, screen, and trade stocks, funds, bonds, CDs, and options. Baked into the free platform are:

  • Research from Morningstar, Thomson Reuters, CRFA (formerly S&P Capital IQ), and TD Ameritrade’s financial pros.
  • Screeners.
  • A customizable landing page.
  • The broker’s GainsKeeper tool to track capital gains and losses for tax season.

2 – Interactive Brokers

interactive brokers

Interactive Brokers (IBKR) is best renowned for providing its traders access to global markets. Moreover, professionals can take advantage of industry-leading commissions, including the lowest margin rates across all balance tiers.

Interactive Brokers provides two primary pricing plans: IBKR Pro (professionals) and IBKR Lite (casual investors). And, they also offer the lowest commissions schedule available.

IB, regulated by the US Securities and Exchange Commission, the Financial Industry Regulatory Authority, the Commodity Futures Trading Commission, the New York Stock Exchange, and other self-regulatory organizations, is a safe platform.

Traders must be aware of the minimums charged and miscellaneous fees by Interactive Brokers. Held easily, you can maintain a $100,000 balance or spend at least $30 in commissions each month, and you will be in the clear; otherwise, charges can reach up to $20 per month. For everyday investors and beginners, we recommend IBKR Lite.

3 – Ninja Trader

ninja trader

NinjaTrader is another robust derivatives trading platform specializing in forex, futures, and options. The platform has a great list of unique trading tools. It also has its flagship advanced trading platform for Windows-based desktop computers. If you are a user of the Mac operating system, you can operate the software through a multi-boot utility like Apple Boot Camp.

By default, the broker uses CQG (Continuum) for order routing and complies with the order execution via Rithmic. Kinetick also has a free end-of-day market data source for futures, stocks, and forex data-optimized for use with NinjaTrader’s platform.

You can register for a free 2-week trial if you’re interested in trying out the NinjaTrader platform using futures data.

The margin requirements and commissions are among the lowest in the industry. A minimum initial deposit of $1,000 is needed to fund commissions and a new account to go as less as $.09 per Micro contract with a Lifetime license. Day trading margins are $500 for NQ, ES, and YM contracts, and $400 for CL and GC contracts are also very low.

NinjaTrader is well-controlled in the United States by the National Futures Association and the Commodity Futures Trading Commission (CFTC).

The live data and the broker’s advanced platform are offered freely for use in a demo account when it comes to platform fees.

4 – Discount Trading

discount trading

Discount trading is a well-formulated futures trading broker that provides multiple options available to begin trading. No inactivity fees, low commissions, and robust platforms to start trading.

You’ll find various platform options backed initially by Discount Trading. Generally, you can access 20 plus different futures trading platforms along with the five trade routing solutions. Discount Trading is also compatible with various industry-leading platforms on Mac, smartphone, PC, or tablet: Multicharts, Sierra Chart, Firetip, MarketDelta Cloud, Rithmic, CTS T4, X Trader, QST, CQG, and a lot more. Here’s an overview of some famous options you’ll be able to access.

Discount Trading is registered with the Commodity Futures Trading Commission and is a member of the National Futures Association.

Discount Trading gives access to an entirely free platform with live streaming quotes for no charge.

Also, you’ll find commission rates as low as $0.19 per side for high-volume online futures traders. Broker assistance means paying for a higher rate. High-volume traders can also go for an Exchange Membership, which minimizes your exchange fees while trading.

5 – E*Trade

etrade

Launched in 1982 as one of the primary online brokerages in the United States, E*TRADE highlights include $0 trades, two excellent mobile apps, and the Power E*TRADE platform, great for beginners active trading and options trading.

E*TRADE offers everything an investor expects from a full-service brokerage platform. All investment vehicles provided, from options and stocks to bonds and financial planning services via the E*TRADE Capital Management. It also offers banking services.

E*TRADE trading fees are low. The margin rate is applicable while you do margin trading, which generally means that you borrow money or stocks from your broker to trade. On this borrowed stock/money, you have to pay interest. It can be an essential proportion of your trading costs.

However, its regulation concern is NA.

Broker TD Ameritrade Interactive Brokers Ninja Trader Discount Trading E*Trade
Regulation Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the Commodity Futures Trading Commission (CFTC). U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, the New York Stock Exchange, Chicago Mercantile Exchange

The United States by National Futures Association,

the Commodity Futures Trading Commission, National Futures Association, and the Commodity Futures Trading Commission (CFTC) Commodity Futures Trading Commission and is a registered member of the National Futures Association (NFA). NA
Platforms Web Platform, thinkorswim desktop, thinkorswim web, and Mobile Trading Client Portal, Trader workstation, IBKR Mobile, and IBKR APIs. Web Platform Firetip, Trading View, Sierra Chart, CQG Desktop, Trade Navigator, and more Power E*Trade, E*Trade, and Two Mobile platforms
Instruments Stocks, Options, ETFs, Futures, Mutual Funds, Forex, Cryptocurrency, Managed Portfolio, Bonds & Fixed Income, Collateral Lending Program, etc Stocks/ETFs, Futures/FOPs, Spot Currencies, Cryptocurrencies, US Spot Gold, Bonds, Mutual Funds, and Hedge Funds Futures, Options, CFDs, and Stocks. Micro E-Mini, Energies, Metals, Grains/Agricultural, Softs, Indices, Interest Rate Futures, and Currency Futures. Stocks, Options, Mutual Funds, ETFs, Futures, Bonds and CDs, and Prebuilt Portfolios
Leverage 1:1 for cash account and 4:1 for intraday. 20:1 for stock index CFDs, and 5:1 for single-stock CFDs. NA 50:1 NA
Margin Between -15% to +15%. Begins from 0.75%. NA NA NA

Part 6: Some FAQs

1 – How do you trade oil?

Oil trading is the selling and buying of different types of oil and oil-linked assets to make a profit.

2 – Can you trade oil on MetaTrader?

We are happy to announce that it’s easy to trade crude oil CFDs on the MetaTrader 4 platform. If you go with trade leverage of 1:500, your oil leverage will be 1:50.

3 – How can I invest in oil with little money?

Investors have many options for investing in oil, including ETFs, mutual funds, and the purchase of oil futures or oil futures options.

Conclusion

Trading in crude oil and energy markets needs extraordinary skill sets to create regular profits. Market players looking to trade crude oil futures and their various derivatives need to skim what moves the commodity, the prevailing crowd’s mentality or nature, the long-term price history, and physical variations between different grades. So, grab all information about Oil CFDs before putting your hard-earned money in the market.

Related Blogs

Presets Color

Primary
Secondary