Trading in physical barrels of oil
By "oil trader" most people probably think of a person who orders delivery of a certain amount of oil in barrels, which he then has stored somewhere. He then waits to see what direction the oil price will go in order to make a profitable sale.
And indeed, trading physical barrels is a legitimate way how to buy oil. However, for the retail investor/trader, it is absolutely unviable. In fact, the minimum order for oil in physical form is 1 contract, which is 1000 barrels of oil. So, if you calculate what the price of a barrel of oil is and add to that the amount needed to pay for the lease of a storage facility or a smaller fleet of cisterns, you will probably conclude that it would be better to consider other ways to invest in oil.
Purchase of futures contracts
Trading oil through futures contracts is often the chosen way to invest in oil. In essence, it is the purchase of a future delivery of a certain amount of oil in physical form, but with a predetermined expiration (delivery date). However, this does not usually happen because the principle of trading oil through futures contracts is to buy, wait for the price of oil to rise, and sell before the contract expires. If you can't make it, then we recommend renting a storage facility.
Investments in oil shares
As we have already mentioned, oil reaches almost every corner of the global economy, so it is not surprising that the oil industry is made up of a huge number of conglomerates, companies, and firms. Shares of these companies can be another good way to invest in oil. Whether they are oil exploration companies or oil refining companies, retail investors have the opportunity to share in their potential success. In addition, nowadays with countless online trading brokers, there are really many places to buy oil stocks.
Speculation through CFD contracts
A very popular method of investing in oil is through contracts for difference. These are broker-created speculative contracts, the price of which is usually derived from the price of oil futures contracts.
In this case, the trader does not own the oil directly, nor does he commit to its future ownership, but only speculates on the development of oil prices in any direction. The latter is linked to the price of oil futures contracts in CFDs.
Moreover, the entire process of trading oil CFDs is conducted exclusively online via a so-called trading platform. The trader is thus not tied to any particular location and can trade on his mobile phone, for example, on his way to work.
Advantages of CFD oil trading:
It is possible to trade with smaller capital - of all the mentioned oil trading options, CFD contracts are among the most financially affordable. The minimum deposits here are around CZK 2,500 / EUR 100.
Leverage - determines the ratio of the amount of capital you invest in a given trade to the funds provided to you by the broker. At Purple Trading, we offer 1:5 leverage for Brent crude oil trading (i.e. you can open a $ 500 trading position with $ 100) and 1:10 for WTI. This gives you a chance for higher profit when trading oil, but keep in mind that potential losses will also multiply.
The ability to speculate on the rise and fall of oil prices - with CFD contracts, you do not own physical barrels of oil, which means that not only you don’t need to be worried about falling prices, but you even have the opportunity to profit from it. Provided that you will estimate that the price will fall.