How to Trade Crude Oil Futures2015-06-24
As one of the most significant resources in the world, crude oil is also a staple financial instrument for hedgers, traders, and investors around the globe. Keeping up with crude markets requires a keen attention to detail as well as patience in what is typically a volatile industry.
First things first, those looking to invest in futures will need to decide which exchanges they would like to utilize. Below, we outline three of the most popular options for trading crude oil futures [for more updates on crude oil subscribe to our free newsletter].
- New York Mercantile Exchange: When it comes to U.S. exposure, you will be hard pressed to find a better starting point than the NYMEX. The exchange offers multiple futures contracts, some of them optionable, for both West Texas Intermediate (WTI) and Brent crude. One benefit to these contracts is that they trade Sunday to Friday between the hours of 6:00 p.m. and 5:15 p.m (CST), meaning that investors can make a play for approximately 23 hours every day (there is a 45-minute break period between each day).
- Intercontinental Exchange: Known as the ICE this exchange offers two different contracts for Brent crude and one for WTI. The WTI contracts represent 1,000 barrels and are quoted in U.S. dollars and cents. Note that these contracts are nearly identical to those offered on the NYMEX.
- Multi Commodity Exchange: For those looking to invest abroad, the MCX offers exposure based out of India. A single contract for Brent and WTI is available on this foreign exchange, with WTI contracts representing 100 barrels each, making them ideal for those with smaller capital bases to work with. Note that the contracts are available Monday to Saturday, with no trading occurring on Sunday.
Common Crude Oil Trading Strategies
Though all commodities require active monitoring for sound trades, crude oil is known for its heavy intraday volatility and should be handled with care. It is not uncommon to watch oil prices start the day off way down and then rally as markets come to a close (or vice versa). One of the most difficult aspects of trading crude is that sometimes its prices are reflective of how the overall economy is performing, and other times its prices signal how the economy will be performing. This commodity has its teeth sunk firmly into global markets and should be treated with respect from traders and investors. Finally, it is important to remember that as a primary trading instrument, developing trends in markets and how the majority of traders are behaving can also skew oil prices. Remember, the trend is your friend [see also Crude Oil Guide: Brent Vs. WTI, What’s The Difference?].
For those who are uncomfortable with trading futures contracts, which are often quite dangerous, there are a number of ETFs to help establish exposure to this fossil fuel:
|USO||United States Oil Fund||0.45%|
|OIL||S&P GSCI Crude Oil Tot Ret Idx ETN||0.75%|
|UCO||Ultra DJ-UBS Crude Oil||0.95%|
|UWTI||3x Long Crude ETN||1.35%|
|DBO||DB Oil Fund||0.78%|
|SCO||UltraShort DJ-UBS Crude Oil||0.95%|
|DWTI||3x Inverse Crude ETN||1.35%|
|USL||United States 12 Month Oil||0.88%|
|DTO||DB Crude Oil Dble Short ETN||0.75%|
|SZO||DB Crude Oil Short ETN||0.75%|
|DNO||United States Short Oil Fund||0.60%|
|OLO||DB Crude Oil Long ETN||0.75%|
|TWTI||Oil Trendpilot ETN||1.10%|
|OLEM||Pure Beta Crude Oil ETN||0.75%|
|BNO||United States Brent Oil Fund||0.90%|
Further Resources and Reading
For further reading on crude oil and related topics, check out some of the links below.
- Commodity HQ Trading Center – Our free trading center offers details on your favorite commodity futures and exchange-traded products.
- Commodity HQ Heatmap Tool – Our free tool allows investors to easily compare the past performance of their favorite commodities.
- NYMEX Crude Oil Page – Home page for crude oil on the NYMEX.
- ICE Crude Oil Page – Home page for crude oil on the ICE.
- MCX Crude Oil Page – Home page for crude oil on the MCX.
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Disclosure: No positions at time of writing.