Trading Crude Oil is exactly the same as trading Forex as opposed to buying shares, allows two big advantages. The first is that we can profit from falling prices just the same as rising prices, by selling first rather than buying. The second is ‘leverage’ which allows us to effectively buy huge quantities with just a small deposit. This means we can pocket a decent profit from a small move up or down in price. Of course, this is potentially risky but we always put in an automatic ‘stop loss’ to close the trade should the price move against us by a set amount. Likewise, we put in an automatic ‘limit’ to close the trade for a set profit.
Many Forex brokers also allow you to trade crude oil, gold and the Dow, so setting up an account is no problem at all. Forex is mostly traded on the MetaTrader 4 platform and this often includes these instruments without people realising. In fact, most MetaTraders have all sorts of additional instruments, often shares and sometimes even including the DOW. To reveal these, you need to right click in the Market Watch window (where the currency pairs are displayed) and click on ‘Show All’.
We obtain our signals from a free, everlasting demo version of MetaTrader but you can actually place the trades anywhere you like, The amount of capital you require varies from broker to broker but most will trade mini contracts but you need a minimum of a thousand dollars in your account. If you trade the micro contracts (0.01 contracts) with AvaFX, you can actually start with $100 but you won’t get rich!
Here is how a typical trade for oil works. We see that the quoted price is 81.50 – 81.56 so this means that we can buy at 81.56 oil and sell at 81.50 – the difference in prices being the broker’s profit. We have a sell signal on our chart, so we sell 0.1 contracts or $1 (or £1) a pip. Now, a ‘pip’ is the smallest movement, which in this case is 0.01 or a one cent move. At the same time, we put in a stop loss at 84.00 (250 pips up in the ‘wrong’ direction because we are selling and want the price to go down) and a take profit of 76.50 (500 pips in the hoped-for direction). Then, we simply wait anything from two hours to 24hours, sometimes days to a week, on average.