Our estimates are based on past market performance, and past performance is not a guarantee of future performance. This strategy involves identifying and following established trends in crude oil prices. Traders use moving averages and trendlines to determine direction and ride the trend until it shows signs of reversal.
Range Trading
This leverage allows you to increase How to buy crude oil your exposure, but also your potential losses. CFDs often offer adjustable leverage, which allows you to better control your level of risk. ETFs (Exchange Traded Funds) allow you to invest in a basket of stocks or contracts related to oil. Some ETFs directly track Brent or WTI price indices, while others focus on large companies in the energy sector.
CFDs, on the other hand, offer a clear cost structure (spread, financing costs), but require a good understanding of overnight fees in the event of a prolonged position. While investing in oil may be enticing for some, other investors may prefer a more sustainable option. Clean energy ETFs are an easy way to add energy exposure to your portfolio without investing in fossil fuels.
FAQs about how to invest in oil
Buying shares in major oil companies is one of the most direct ways to gain exposure to the oil market. TotalEnergies, ExxonMobil, BP and Chevron are benchmark stocks listed on the world’s major stock exchanges. Investing in oil isn’t just for the rich, and it can be fairly affordable. Several well-known oil stocks frequently trade for under $100 a share.
- Futures contracts involve order execution commissions, margin calls and sometimes complex rollover fees.
- Crude oil ETFs invest in crude oil futures themselves in an attempt to track the performance of the underlying commodity index.
- It’s rather volatile because of geopolitical events, the imbalance of supply and demand, and environmental concerns.
- Oil is a highly sought-after and valuable asset in the global economy.
- This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research.
The Crude Oil market: What drives prices?
While we strive to provide a wide range of offers, Bankrate does not include information about every financial or credit product or service. Investing in oil can diversify your portfolio and offer potential returns through options like CFDs, ETFs, or oil company stocks, all available on eToro. However, due to the market’s volatility, thorough research and effective risk management are essential. Oil is traded in financial markets as a commodity, and its price is influenced by a multitude of factors, including geopolitical events, global supply and demand dynamics, weather conditions, and economic indicators. Investors can also gain exposure to oil by purchasing related equities directly, or through energy-sector ETFs and mutual funds.
Setting stop-loss and take-profit levels helps protect capital from excessive downside moves, while position sizing ensures exposure remains in line with market volatility. Diversification—whether through different asset classes or trading instruments—reduces the impact of unpredictable shifts in oil prices. Staying ahead of macroeconomic events, from OPEC+ decisions to supply disruptions, is equally critical, as sudden geopolitical or economic developments can trigger sharp, unexpected price moves. Futures are more advanced than investing in oil stocks or funds and should be approached with caution. Futures are a way for a producer to lock in the price of what they are selling in advance — and for the buyer to lock in the price of what they are purchasing. Oil futures are contracts in which two parties agree to exchange a set amount of oil at a set price on a set date.
Master crude oil trading: strategies, analysis & risk management
Margined FX and contracts for difference are complex leveraged products which carry a high level of risk and can result in losses that exceed your initial investment. Breakout traders seek to capitalize on sharp moves after oil prices breach established support or resistance levels. This strategy requires quick decision-making and is best suited for volatile market conditions. In terms of liquidity, oil futures (such as those listed on the NYMEX or ICE) are among the most liquid instruments and are popular with professional traders.
Best strategy for Crude Oil trading
Trading crude oil online provides flexibility through various financial instruments. Futures contracts, widely traded on major exchanges, represent 1,000 barrels each and offer direct exposure to oil price movements. With millions of contracts changing hands daily, they are a preferred choice for speculators and hedgers due to their liquidity and around-the-clock trading. For those looking for a more accessible alternative, contracts for difference (CFDs) allow traders to speculate on price changes without owning the asset, offering smaller contract sizes and lower capital requirements. Exchange-traded funds (ETFs) provide another option, tracking crude oil prices and offering an indirect way to invest in the market, though they are subject to risks like contango and backwardation.
Flexibility and continuous learning are key to maintaining profitability over the long term. Crude oil is known for its volatility, which means traders must adopt sound risk management practices to protect their capital. There is no leverage on stocks and ETFs, but it is present on futures and CFDs.
As of the same date, USO’s sister fund investing in crude oil futures expiring over the next year, the United States 12 Month Oil Fund (USL), was down 31% since inception in 2007. These instruments track the performance of oil futures or oil-related indexes. They are suitable for longer-term investors who prefer less complexity compared to direct futures trading. Whether you’re looking to buy crude oil online, invest in oil stocks, or start trading oil through financial platforms, there are accessible solutions for gaining exposure to this strategic commodity. Discover the main methods for investing in crude oil, as well as the risks, opportunities and best practices. The issuer will very likely use crude oil futures contracts to offset its exposure, but the ETN itself holds no assets.
These fluctuations impact oil prices and can affect assets like ETFs, oil stocks or CFDs. While trading crude oil online can offer short-term opportunities, it also involves high risks. Always review product costs and use risk-management tools, especially when using leverage. Direct and indirect investment options in oil include oil futures, options, commodities ETFs/ETNs, and energy stocks or funds. Oil is a volatile commodity, with futures and options offering more direct exposure.
- Support and resistance are key price levels where oil tends to stop and reverse direction.
- Options contracts give the buyer or seller the option to trade oil on a future date.
- These funds are essentially baskets of stocks that you buy all at once.
- Investing in oil isn’t just for the rich, and it can be fairly affordable.
- The crude oil market is shaped by supply-demand dynamics, geopolitical developments, and macroeconomic trends.
Crude oil production is heavily concentrated in politically sensitive regions such as the Middle East. Any conflict, sanctions, or instability in these areas can lead to significant price movements due to concerns about supply disruptions. The idea with futures trading is that you never actually end up with the oil yourself. There is usually a healthy market of buyers who will take a futures contract off your hands.
This approach is popular among retail traders due to the ability to use leverage and go long or short. While this market is used more by physical oil buyers and suppliers, some traders engage in spot market transactions through brokers who provide direct access to current oil prices. ➡️ CFDs offer a good compromise between complexity and flexibility, particularly for active traders looking to take advantage of short- or medium-term market movements. However, it is important to note that leverage can also amplify losses. You don’t need to move to Texas and buy a well to start investing in oil.
Oil futures contracts allow you to buy or sell a barrel at a set price for future delivery. This market is very liquid and used by energy professionals, hedge funds and financial institutions. “Oil” goes beyond what you put in your car, and understanding this complex market takes more than waiting to fill your tank until your local gas station’s prices dip. Just like any investment, supply and demand play a role in how much oil is worth. For example, the Russian invasion of Ukraine in February 2022 caused oil prices to jump over concerns about global supply.
One of the easiest ways to invest in oil is via an oil exchange-traded fund (ETF). An oil ETF owns futures and options contracts on crude oil, rather than the commodity itself — unlike some gold ETFs that own the actual physical metal. As the spot price of oil fluctuates, the price of the ETF will tend to mimic these changes, though imperfectly due to how the fund invests in oil. Crude oil trades on the New York Mercantile Exchange as light sweet crude oil futures contracts, as well as other commodities exchanges around the world.