What is Crude Oil Futures Trading?
Crude oil futures trading is the act of buying or selling a predetermined amount of exchange traded crude oil contracts on a predetermined date for a predetermined price. Crude oil futures contracts are the most actively traded physical commodity on the futures market due to public consumption and necessity of crude oil.
How Does Crude Oil Futures Trading Work?
Crude oil futures trading works much like other futures trading. First, the trader must look at the crude oil chart and determine the right time to buy into the market. You don’t want to buy in while the market is too high and risk a downturn. Once a trader has determined their proper entry-point they can then decide how many contracts they would like to buy, keep in mind that one crude oil futures contract is an agreement to purchase 1,000 barrels. Once the trader has their contract size determined, they can then choose which month’s contract they wish to purchase. Crude oil futures contracts trade for expiration all 12-months of the year. When you have all this determined, a trader can then purchase their crude oil contract and do what they see fit with it. Some may see an opportunity to sell before expiration, others may want to take delivery, it depends on your situation and risk capital. We recommend speaking with and RJO Futures Senior Market Strategist before partaking in trading crude oil futures.
How Much Does a Crude Oil Futures Contract Cost?
As with all futures contracts, the price of a crude oil futures contract changes based on the conditions of the marketplace. Supply, demand, transportation, climate, and many others are all factors. To determine the current price, one must look at a crude oil futures chart and look at what the current price quote is. At the time of this writing, crude oil is trading at $83.17 a barrel. A crude oil contract is a contract for 1,000 barrels of oil, so the total price value of the contract would be $83,170. That seems like a lot of money, but you are not required to put that down up front. You are only responsible for the initial margin which is a fraction of the total price at $5610.
What are The Benefits of Trading Crude Oil Futures?
One of the largest benefits of trading crude oil futures is the ability to trade it nearly 24-hours a day. This means the trader can take advantage of any and all market conditions at a moment’s notice instead of having to wait until the trading session begins in the morning.
Another major benefit of trading crude oil futures is the leverage it provides as well as efficient use of capital. As mentioned above, the current price of a crude oil contract is $83,170 dollars, but you are only responsible for putting down $5610. You are controlling over $83,000 worth of value for a fraction of the price, this what we call leverage. This leverage also affords you the ability to maximize your profit potential by affording you the ability to add other assets to your portfolio.
Liquidity is also a huge benefit to trading crude oil. While the world may be transitioning to more eco-friendly energy sources, crude oil is still the most popularly traded physical commodity on the globe. That means there are always people looking to buy or sell crude oil. A trader would have no problem selling off their position regardless of market condition, and would find ease buying into the market if they so choose.
In addition to liquidity, crude oil also offers investors a great chance at profitability. Oil prices are in a constant state of flux and change rapidly based on news or market conditions. This volatility gives investors plenty of opportunities to realize large profits if they are able to time the market right. The downside to this however, is you also expose yourself to losses if your timing is off even just a little.
The last major draw to crude oil futures is that the supply is finite. The world has a finite supply of oil and that supply won’t last forever. As the demand steadies and supply dwindles, the price will have to go up, its simple economics. Although it is a semi-morbid thought as humanity relies on oil, it is a very real reason and advantage to invest in crude oil, if you’re willing to play the long game.
How Can I Buy a Crude Oil Futures Contract?
You can purchase a crude oil futures contract through a commodity exchange like RJO Futures or on an exchange sanctioned trading platform such as RJO Futures Pro. Platforms like RJO Futures Pro allow you to look at real time data and charts to determine levels of support and resistance that will help you decide on where you want your entry level to be. Once you determine the entry level you feel comfortable with you can purchase your contract for whichever month you decide. Remember, crude oil futures are traded for expiration 12-months of the year so you can choose any month. You cannot purchase a contract with the same month expiration past the 15th of the month in question.
Before you start to risk actual capital, we recommend practicing trading a live market. This way you can get a feel for how the market moves and better determine your exit and entry levels as well as nail down the strategy that works best for you. RJO Futures offers a free 2-week trial of our platform, RJO Futures Pro. This trial allows you to trade a 200k simulated account, by using real time data, charts, and quotes. This is a great tool for any beginner or a seasoned trader looking to test out some new ideas in a zero-risk setting.
What Are the Different Ways to Invest in Crude Oil Futures?
The two main ways to invest in crude oil futures are to invest in them as an asset or invest in crude oil directly. When investing in crude oil futures as an asset, you are buying a crude oil contract with the intention of selling it for a profit at a later date. You are only investing in the asset on paper and are not taking delivery. On the other hand, when you invest in crude oil directly, you are buying a contract with the intent on taking physical delivery of crude oil upon expiration.
How Can RJO Futures Help Me Invest in Crude Oil Futures
RJO Futures has a team of dedicated, experienced, and willing Senior Market Strategists that are happy to assist you in buying crude oil futures. Our brokers can help you understand the market and work alongside you to determine the best course of action for each individual’s needs and risk capital. Please feel free to contact us and one of our brokers will get back to you shortly!