Are you looking to get involved in the petroleum industry as a trader or investor? If so, your timing is good because prices are moving upward as the year comes to an end. And, if you follow the latest financial news sites, you probably already know that several short-term and long-term factors are working to move the per-barrel price of crude oil in a northerly direction. That’s all positive news for newcomers, but it’s essential to get a handle on the forces that move prices in the petroleum sector and to gain a deeper understanding of what’s going on in the niche right now.
Questions to ask yourself, and which are answered below, include, why is now such an opportune time to get involved in oil as a trader, how can CFDs (contracts for difference) make it easy to get in and out of positions quickly, what are some of the best trading strategies for newcomers, how do volatility and diversification work, why is it so important to follow the daily petro news, and how can I find a trading platform that meets my needs?
Oil Goes Bullish at Year’s End
With natural gas producers unable to maintain output, OPEC+ unable to provide enough crude petroleum to its customers, and international demand for oil continuing to rise, there’s good reason to believe that prices for black gold will continue their upward trajectory. Just look at the stats for 2021, when crude opened the year around $48.50 and has since soared to well past the $75 mark, with a few dips and rises in between. For those who want to learn how to trade successfully in the petro niche, it’s important to understand that a $90 price point is not out of the question before 2022 arrives. Of course, as is the case with every commodity in the energy sector, those predictions could be dead wrong. But, it’s easy to make a logical, fact-based case for both short-term and long-term optimism for petrol-related assets, especially crude.
Why Now is a Good Time to Invest in Crude
In addition to the rosy scenario for near-term pricing in oil-related assets, what are some of the other reasons that this year is a smart time to get involved? For starters, there are now more ways than ever before to take part, as an investor/trader. In addition to outright purchases of oil company stocks, you can play the market through options, futures, CFDs (contracts for difference), ETFs (exchange-traded funds), and ETNs (exchange-traded notes). Not long ago, only wealthy individuals who had a deep understanding of the complex factors that affected commodities could take part in the crude oil marketplace. Thanks to new instruments, primarily CFDs, people of all income levels can take part in the exciting, fast-paced world of petroleum trading, investing, and speculation.
Using CFDs
CFDs are an easy, low-cost, low-commitment way to participate in virtually any market. For those who enjoy following the global petro markets, contracts for difference represent a solid opportunity. The only decisions you make are the amount of money you wish to invest and your choice of whether the next price move will be up or down. So, even if you’re bearish on oil, there’s no need to use leverage (but you can if you wish) or to get permission from a broker to short-sell. All you need to do is open a sell position on whatever asset you’re trading, in this case, crude oil. The real beauty of using CFDs is that beginners can take part in commodities transactions that would otherwise be highly complex and require large opening balances. With contracts for difference, part-time and casual traders can enter and exit the marketplace at will.
Know About the Many Techniques
While the CFD represents the simplest way of taking part in the action of global petroleum markets, there are several other ways for enthusiasts to participate, including oil stocks, ETFs (exchange-traded funds), mutual funds, ETNs (exchange-traded notes), MLPs (master limited partnerships), futures, and options. All come with varying degrees of risk, entry costs, complexity, and time frames. Few oil-savvy investors use all the methods. Most tend to focus on just one and specialize in that technique, learning as much as they can about all of its nuances over many years of buying and selling.
Learn About Volatility
All it takes is an hour of research to gain a firm understanding of how volatile the petroleum sector is. Take a quick look at one-year, two-year, five-year, and ten-year crude petrol charts and compare them to charts for a typical blue-chip stock. You don’t need to be a mathematician or expert analyst to see the difference. Make note of how volatile the energy sector is, and especially how big some of the price swings are in the petrol-related asset groups.
Don’t Forget to Diversify
For anyone who wants to put their hard-earned money at risk, portfolio diversification is essential. Oil’s allure can lead some people to place too large a percentage of their account balance into just one asset. Be careful to treat petrol as you would precious metals. For instance, it can make sense to limit your exposure in asset classes like precious metals and petroleum to no more than 10 percent of the total for any one commodity.
Find an Oil-Friendly Broker
It’s important for those just getting their feet wet in the petroleum industry to find a brokerage platform that doesn’t charge high fees. This is especially important if you intend to place orders frequently as you follow the rapid up and down value in the petro niche. Keep in mind that there are a number of brokers out there who charge either nothing or very low fees on ETF and stock trades, but don’t jump on the first discount resource you see. That’s because all brokerages are a little different. As a newcomer, you’ll want access to things like a vast knowledge base of content, online chat, customer service backup for account questions, and more. All in all, hooking up with a broker who suits your needs is an excellent first step.
