Online trading is an increasingly popular way to invest in the financial markets. And one of the markets in which it can participate is that of raw materials and energy, oil being the most important for the world economy. In this article, we will explain how commodity trading works and how you can start investing in oil.
What is commodity trading?
Commodity trading is a way of investing in the basic products that are used in industry and commerce, such as oil, gold, silver, coffee, wheat, among others. The objective of commodity trading is to make a profit from buying and selling these products in the financial markets.
How does commodity trading work?
The most popular way to invest in commodities is futures, these are contracts that establish the purchase or sale of a certain amount of a commodity at a certain price on a future date. These contracts are traded in the futures markets, which are organized and regulated markets where the prices of raw materials are established.
Traders can speculate on the movement of commodity prices and make a profit by buying or selling futures contracts. For example, if a trader believes that the price of oil will rise in the future, he can buy oil futures contracts at a lower price and sell them at a higher price at a later date.
Invest in oil and commodities
Investing in oil and other commodities can offer opportunities for profitability and diversification in an investment portfolio. To invest in oil, traders can buy and sell oil futures contracts through an online trading platform.
Before investing in oil or any other commodity, it is important to understand the risks and rewards associated with this type of investment. Commodity prices can be volatile and subject to fluctuations based on economic, political and environmental factors. Therefore, traders must be aware of the risks and be prepared to make informed decisions about their investments.
Another popular way to invest in oil is through Contracts for Difference (CFDs). CFDs are financial instruments that allow investors to speculate on the price of oil without having to physically own the asset. With CFDs, investors can make a profit if the price of oil goes up, but they can also incur a loss if the price goes down.
To trade oil CFDs, you need to find a broker like 24Five that offers CFDs. As with any investment, it is important to do extensive research before choosing a broker.
Invest in Shares of Oil Companies:
Another way to invest in oil is through the purchase of shares of oil companies. Oil companies are businesses engaged in the exploration, production, and sale of oil and gas. Investing in oil company stocks can be an effective way to gain exposure to the oil market and potentially earn long-term profits.
When considering investing in oil company stocks, it is important to do careful research and analyze the company’s financial statements. Attention should also be paid to oil prices and how they can affect the revenue and profit of the company. Oil companies are also exposed to geopolitical and environmental risks, so it is important to stay informed about the latest news and events related to the industry. And keep in mind that these types of investments are highly profitable in the long term, between 15 to 20 years.
When to invest in oil?
It may be a good idea to take advantage of falling crude oil prices to invest in oil. By taking a position in oil when it hits record lows, you avoid the risk of going into highs. However, market timing remains a risky practice. Therefore, it is absolutely essential to have a long-term investment horizon and not be too risk-averse. You should also invest only a small part of your assets in this extremely volatile commodity. For traders looking to take a short-term position in oil, it is important to identify the consolidation zone from a technical point of view, which could serve as the starting point for a further recovery in crude oil prices.
The intrinsic value of oil
Oil is a strategic energy asset. In fact, the exploitation of oil is one of the pillars of the contemporary industrial economy, since this fossil energy provides almost all liquid fuels – fuel oil, diesel, paraffin, gasoline, LPG, while the naphtha produced by refining is the petrochemical base, from which a large number of common materials are derived – plastics, synthetic textiles, synthetic rubbers (elastomers), detergents, adhesives, fertilizers, cosmetics, etc. -. – The heavier fractions are used in the composition of bitumen, paraffin and lubricants. It can be considered the basic raw material of the current economy, since its price changes and the alteration of its supply and demand are correlated with the main financial markets.