Complete guide to crude oil trading

• Brent Crude Oil: Brent oil comes from 15 different oil fields in the North Sea. It is also characterised as a “light and sweet” oil, although it is not as “sweet” or “light” as WTI. Up to two-thirds of global oil contract trades are on Brent.
• WTI Crude Oil: As the name suggests, WTI is sourced from US oil fields primarily in Texas, Louisiana and North Dakota. It is referred to as 'light sweet crude oil' due to its low density and low sulphur content. These characteristics make it less expensive to produce and easier to refine than 'heavy' or 'sour' oils. WTI is the main benchmark for oil consumed in the US.

• Natural disasters, war, civil unrest
• Seasonal demand
• Population growth
• Global economic growth
• Shipping availability and freight rates
• Alternative fuel developments, including a demand for renewable energy

Oil trading can be a volatile process, so why not practise first on our demo trading account?

Crude oil spread betting

Spread betting is our most popular derivative product that allows traders to trade on oil price movements for a wide selection of commodities, including both Crude Oil Brent and West Texas. Spread betting is a leveraged product, meaning that only a percentage of the full trade value is needed as a deposit to open a position. As a trader, you will not own the underlying asset but instead have the ability to speculate on price movements.

Crude oil spread betting can be a risky process as the commodities market is particularly volatile, especially during times of economic crisis or instability. You can trade using our spread betting demo account with virtual funds before opening a live account. Spread betting is an attractive product in the UK, as it allows investors to trade tax-free on thousands of instruments, including both types of Brent and WTI crude oil.

Oil CFDs

Contracts for difference (CFDs)​ are a type of financial derivative that work in a similar way to spread betting and allow to open a position on crude oil based on whether you think the commodity's price will rise or fall. However, the main difference between CFDs and spread betting lies in tax treatment. Please note that tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

How to trade crude oil futures

Perhaps the most popular method of crude oil trading is through futures contracts, also known as forwards. Oil futures are an agreement to buy or sell an exact amount of oil for a set price at a set date in the future. This type of contract trading is commonly seen within the commodities market due to the volatility of oil pricing. Rather than purchasing oil at its spot price, storing and then waiting for its value to increase within the market to then be sold again, futures prices predict how much the oil will be worth when it expires on the set date. It is an easier way to take advantage of price fluctuations without physically owning the underlying asset. However, trading oil futures can be a risky process as futures prices will also fluctuate depending on the price of oil, which is impacted by many external factors. Read more about futures trading.

Oil ETFs

A slightly different method of oil investment is through ETF trading​. Exchange-traded funds are a type of investment fund that can grant traders exposure to the oil market through holding a collection of underlying assets, which in this case would be shares in oil companies. Crude oil ETFs are bought and sold in the same way as many other shares in the stock market. When the price of oil fluctuates, this also has an influence on the share price of oil companies and subsequently, the value of the ETF.

It can be difficult to trade oil stocks​ in the long-term as the value and price of oil is constantly changing, therefore many traders prefer to use more short-term trading strategies, such as day trading. This way, the ETF value is reflected in the daily price change of oil and it is easier to analyse trends in price charts and graphs in order to predict future movements. Similar to spread betting and CFD trading, an oil exchange-traded fund​ is a collection of shares that can be traded within the market but the trader still does not own the underlying asset. It is important to remember that leveraged ETFs are complex financial instruments that carry significant risks. Certain leveraged ETFs are only considered appropriate for experienced traders.

1. Decide between spread betting or CFDs. Open a live account to start trading oil straight away. Alternatively, you can start practising with £10,000 worth of virtual funds on a demo account.
2. Familiarise yourself with our platform. Our award-winning software offers an extensive range of technical indicators including the simple moving average (SMA), Bollinger Bands and stochastic oscillators.
3. Choose your preferred asset. There are two popular types of crude oil to trade, and these are Brent and West Texas Intermediate (WTI).
4. Research the oil market. Remember that the commodities market can be very volatile, especially in times of political or economic uncertainty. We advise our clients to keep up to date with news and economic insights in order to stay reactive to changes in the market that may affect their positions.
5. Build a thorough and effective trading strategy. There are various types of order execution available, and stop-loss orders in particular can help to reduce losses when market volatility is high.