TRADING CFDS ON COMMODITIES — Energy
CFD refers to a deal made between a buyer and a seller, not to trade the actual product but a deal on the difference in the price of the product (CDF = Contract For Difference). Trading CFDs on commodities such as crude oil requires investors to speculate about the up and down movements in the price of the trading instrument.
In contrast to buying oil, CFDs on commodities allow the trader not actually purchasing the underlying asset and not taking delivery of it. What trade is doing is taking either a short or a long position, depending on whether he or she thinks the market will go up or down. This means the trader will take a short position if he thinks the price will decrease, or a long position if he thinks the price will increase. If the speculation was correct – a profit is made. This structure allows traders to benefit from greater flexibility. It gives him better chances to profit from the market movement.
Frequently Traded Commodity
Oil is actually the most traded commodity! Other commonly traded commodities are precious metals: gold, silver, and copper. Oil considered to be energy beside natural gas. Another group of commodities called "soft commodities" includes cocoa, coffee, cannabis, and sugar.
How to start trading CFD
The first thing to do is research – find out about the available commodities and their volume of trade. Your choice will also be made based on the price of the unit of the commodity. After you have established on which commodity you want to trade, you will have to decide the size of your preferred deal. This is determined by the leverage, which allows you to trade with a bigger volume than your initial deposit. Checking predictions and analyses will help you to determine whether to take a long or short position. You want to open a long position if you believe that the price of the oil will rise and a short position if you believe it will fall.
Trading CFDs on Oil
As we know, crude oil, or petroleum, is a fossil fuel formed as a result of the activities of bacteria on the remains of plants and algae. As this continues for millions of years with heat and density, these components transform into carbon. Thus, we have a mixture of hydrocarbons and cyclo-paraffin deposited in deep rock strata or scarcely near the earth's surface. To successfully trade CFDs on oil, you must understand factors influencing the demands for oil.
The transportation sector is the largest consumer of oil, and indicators show that things are not likely to change until 2040. This is followed by the construction industry consisting of cement, glass, iron, and steel. Sectorial industry and agriculture are the third and fourth consumers. Anyone trading CFDs on oil should also take note of the factors influencing the price movement. These include:
- Oil demand
- Current supply
- Future supply
- World crises
- Natural and man-made disasters, and
- Currency strengths