Intro to Trading Crude Oil Futures
Crude oil is one of the most popularly traded commodity futures contracts. The crude market is known for being especially active. Notorious with investors around the world, crude oil prices experience large fluctuations on seemingly any news regarding pricing, making it a prized instrument for swing and day traders looking for heavy price action. Despite the increased focus on renewable energy, crude oil remains a major source of energy. Because of this, crude oil affects the prices of many other asset classes, including stocks, bonds, currencies, and other commodities.
Crude Oil Futures | E-Mini Crude Oil Futures | |
|---|---|---|
| Contract Size | 1,000 Barrels | 500 Barrels |
| Minimum Tick | $0.01 | $0.025 |
| Tick Value | $10.00 | $12.50 |
| Contract Code | Firetip X: QM CME: QM | Firetip X: QM CME: QM |
| Contract Months | All | All |
| Delivery | Cash Market Deliverable | None (Financially Settled) |
Why Trade Crude Oil Futures?
Many factors make Crude Oil futures appetizing to day traders, including:
Price Action: Crude oil prices are often volatile. Since there are many countries across the globe that are major producers, news events can happen at any time, causing prices to swing widely and unpredictably. Supply and demand tends to dictate how prices move over the long term, however crude is known to move on rumor and emotion in the short term.
News: Being that crude oil is such a heavily covered market by news outlets and analysts, there seems to never be a shortage of market news and resources available to traders of the product, such as the EIA Weekly Energy Stocks Report.
Options: Crude oil futures offer one of the most liquid commodity option markets. Bid-ask spreads tend to be tighter than some of the lesser traded contracts, attracting many options traders for the access to liquidity.
Risks
The nature of the oil market: The crude market is well-known as one of the most volatile markets in futures. Even the most experienced traders can end up on the wrong side of a large price movement in crude. Risk management practices such as using stop-loss orders and being properly capitalized to meet the full margin requirements of your positions is always highly recommended.
Overtrading: It can be very tempting to a trader to accumulate large numbers of trades throughout the day. Beginner futures traders tend to overlook the fact that every time they buy or sell, there are various fees such as commissions, exchange, clearing, NFA, and platform fees. These fees can stack up very quickly if they’re not paid attention to.
Crude Oil Fundamentals
Crude oil is the raw material that gets refined to produce various fuels, such as gasoline, heating oil, diesel, jet fuel, and many others. There are separate futures contracts for many of these. CME’s CL contract Light Sweet Crude Oil is the most popular grade of oil being traded. The second most popular is Brent Crude, which is traded on ICE exchange.
The most watched reports for crude oil are found in the weekly EIA Weekly Energy Stocks report. The report is released every Wednesday at 10:30 AM ET. The crude market commonly experiences large price movements immediately following the report. The report provides a wealth of information, such as rig counts and individual PADD performance, but most importantly it shows whether or not U.S. inventories of oil have risen or fallen. Large builds can indicate over-supply, while large draws can indicate under-supply. The EIA report is a very useful tool to follow the real supply and demand of the U.S. crude market.
If you have any questions, feel free to contact us or leave a comment.
DISCLAIMER: There is a substantial risk of loss in trading commodity futures and options products. Losses in excess of your initial investment may occur. Past performance is not necessarily indicative of future results. Please contact your account representative with concerns or questions.