Oil is one of the most important energy commodities globally, used to produce gasoline, diesel, and petrochemicals that fuel many of the world’s activities.

As a highly traded commodity, oil has also given rise to various financial derivatives, including oil Contracts for Difference (CFDs).

The Oil and Gas Industry

The international trade of different types of oil includes crude oil, unleaded gasoline, natural gas, and heating oils. While some of these oils are traded more locally, crude oil remains the most significant sector globally. Due to its large trading volume and the diversity of its points of origin, crude oil is particularly susceptible to geographical, political, and economic instability, making its market highly volatile.

This volatility brings risks and opportunities, allowing traders to capitalize on price fluctuations. If you want to gain exposure to the oil market, trading oil CFDs could be an effective approach.

What are oil CFDs?

Oil CFDs allow traders to speculate on the price changes of oil without taking physical ownership of the commodity. These financial products enable traders to gain exposure to oil spot prices, oil futures, and oil options through leverage, which increases their potential profit. Traders can access markets like West Texas Intermediate (WTI) and Brent Crude Oil without needing to purchase the actual asset.

Understanding WTI vs Brent Crude Oil

When trading oil CFDs, you’ll encounter the two main types of crude oil: WTI Crude Oil and Brent Crude Oil. These oils differ in their qualities, such as density and sulfur content. WTI, often described as lighter and sweeter, is preferred for its lower sulfur content, which makes refining cheaper. Brent Crude, though slightly heavier, is responsible for setting the price of two-thirds of the world’s traded crude oil supplies.

How to trade oil CFDs

Trading oil CFDs involves leveraging, meaning that you only need to put down a margin, a fraction of the full value of the trade, while gains and losses are calculated based on the entire position. Effective risk management is crucial to minimize the risk of amplified losses.

To get started with oil CFD trading, follow these steps:

Familiarise yourself with live trading

Begin with a demo account to practice using trading tools and platforms in a risk-free environment. Decide if you want to trade Brent Crude, WTI Crude, or both.

Open a live trading account

Once you’re confident with the demo account, transition to a live account and start trading with real funds.

Manage your risk

Use tools like stop-loss orders to prevent excessive losses and develop a risk management strategy.

Study the market

Analyse market data, stay updated on breaking news, and familiarise yourself with both fundamental and technical analysis to make informed trading decisions.

Develop a strategy

Choose between short-term trading and long-term investments, depending on your goals and risk tolerance.

Diversify your portfolio

Consider adding other energy commodities, such as natural gas or heating oil, to reduce risk and strengthen your overall portfolio.

Trading oil CFD futures

Oil CFDs also allow you to trade futures, where two parties agree to exchange an asset at a set price on a future date. Trading oil CFD futures enables you to speculate on price movements without needing to trade on local exchanges, offering a flexible way to participate in oil markets.

Pros and cons of trading oil CFDs

Pros

Leverage allows traders to gain increased exposure with only a small margin deposit.

Traders can access the oil market without needing to take physical possession of the asset.

Volatility in oil prices provides ample opportunities for traders to profit.

Cons

Leveraged trading can magnify losses as well as profits, requiring strong risk management strategies.

Oil CFD trading is not permitted in some regions, such as the United States.

Get started with oil CFD trading at VFTradings

Learning how to trade oil CFDs requires practice and a strong understanding of global oil markets. VFTradings provides a powerful trading platform, MetaTrader 5, to help clients access real-time market data and execute trades efficiently.

With tools like market analysis, expert advisors, and stop-loss features, you’ll have everything you need to navigate volatile oil markets.

If you’re ready to start trading oil CFDs, open a demo account or live account with VFTradings today and explore the opportunities in the global oil market.