Trading is simply buying and selling products or items or shares to make money. An individual purchases a product or shares and sells it when the demand for the products hikes, thus making a profit. Trading never comes with the guarantee of making a profit; it highly depends on the trader. It works on the principle of buying a commodity when the demand is low and trading it at its high demand. High demand will automatically generate the value of the assets in the market, making it costlier. A huge shift in trading has come into notice from the past few years. The manual work of an individual has been overpowered by technology.
Types of Trading
Though trading includes the exchange of products, there can be several types of trading. High frequency, Arbitrage, Event-based, Quantitative, Positional, Intraday, or money flow trading are some of its types. Time, frequency, fluctuation in the market, events are some of the basis for all types of trading. Each class is unique in its ways and so cannot be compared with the other kind. It depends on the prerequisite of the trader, which type suits him/her the best.
Shares of a company, automobile, Bitcoins, or Energy are some of the most traded commodities. All hold their importance in the market. Among all of them, Energy is hugely traded internationally. Energy is the prime source for any country to survive and to grow its economic value. It might be possible that a country would not be able to generate energy, but for the manufacturing of commodities and to run their automobile, they need energy. Due to these and some more reasons, oil and gas trading is broadly acclaimed among forex traders. They make a huge profit with the trading, using the following strategies freshers can trade. There are many brokers that offer oil & gas futures for trading.
How to Make Money from Oil and Gas Trading?
Among all the energies, Crude oil is the most widely traded commodity. Every country, irrespective of their status in the economy, needs crude oil to run the factories and to survive. So crude oil is always a demand in the market. But this does not guarantee that the price of crude oil will always be high. If the demand increases and supply decreases, the price of crude oil will hike, but if the economic growth of a country decreases, the demand and the price simultaneously will go down. The two most popular types of crude oil markets available are UK Brent crude and US Crude WTI (West Texas Intermediate). To make money from oil and gas trading, there are some steps to be followed:
- What Makes Oil and Gas Prices Fluctuate? It is essential to know the reasons for the fluctuations in crude oil and gasoline prices in the market. Once fluctuations are comprehended successfully, it is easy to make future predictions also, which ultimately leads to profit. The decrease in economic growth is one of the main reasons for the breakout in the prices. COVID pandemic is the best example of the same, as OPEC and its allies also drop their prices to a large extent. Whereas less supply and high demand lead to the peek at the prices, encouraging traders to trade.
- Choose Which to Trade: Brent and WTI are both the influential crude oil markets available. Their crude oil differs in the content of sulfur and API gravity. Till 2010 their prices lied within a narrow range, but then the prices conflicted distinctly. This is because of a revolution in the supply and demand environment. There was great crude oil production in WTI as compared to Brent. Majorly traders keep a track with the liquid charts to make a clear declaration.
- Keep a track with Crude oil Price Chart: As said, fluctuations are the part of trading, so it becomes a necessity to keep a track with them. For instance, after World War II, WTI prices were at a peak in the upper $20s but in 1970 embargo, which took it to $120.Taking reference from the chart, the breakout in prices can be seen. As in 2018, the closing price was $65.2; in 2019, it went down to $56.99, and finally, in 2020, the prices crashed and went to $38.59.
- Crowd Analysis: Trading is not limited to any set of traders. There can be retail traders, professional traders, hedgers as well as investors. All influence the price of crude oil and gasoline in the market in some or the other way. When retail and other traders trade due to the hike in prices, unaware of several other facts leads to a great profit to professional traders. Knowing the crowd is a skill that comes with the experience or under the guidance of experts. One who masters the skill makes a huge profit in any type of trading.
- Research and Choose the right venue: NYMEX WTI and the US Oil Fund are the two distinctly marked venues available in the oil and gas market. Researching both individually can help us to choose the right venue as per our demands. So far, NYMEX WTI is a bit risky as compared to the US Oil Fund. But NYMEX WTI gives the price value of $10 million per month along with grand liquidity. It is risky due to the 1,000-barrel unit and 0.1 per barrel minimum price fluctuation. On the other hand, the US Oil Fund posts an average daily volume above 20 million shares. So, there is a difference in terms of contracts having their pros and cons.
Crude oil is a natural source, and so its composition depends on the site of production. The world’s daily crude oil production is 92.65 barrels per day (BPD). 5 major countries are involved in the production of crude oil worldwide, namely the United States, Saudi Arabia, Russia, Iran, and Canada. The US has produced 13,057 thousand Barrels per day in 2017, thus becoming the major producer. The US states, Texas and North Dakota together produce more oil than any other country.