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Trading Crude Oil Futures 101 – Basic Overview of Trading Energy Futures

Trading Crude Oil Futures 101 – Basic Overview of Trading Energy Futures

If you are interested in trading futures then you need to consider one of the most actively traded future contracts, crude oil. Crude oil is one of the most important commodities to the global economy and that makes it a highly desirable future contract to trade. Buying and selling oil contracts is easy and for those who like to trade actively it is full of opportunities. Before you start trading crude oil futures here are some basic information about them:

  • One crude oil contract controls 1,000 barrels of oil or 42,000 gallons.
  • Globex trading hours start on Sunday at 7PM EST through Friday 5:15 EST. It is a 24 hour a week market.
  • Margin requirements for overnight trades are typically under $4,000 but it depends on the broker.
  • Margin rates for day trading can be as low as $1,000 but again it depends on your broker.
  • The minimum tick size is a penny and the minimum dollar movement is $10.
  • One dollar per contract is equal to $1,000.
  • Expiration and delivery months are all 12 months out of the year.
  • Expiration dates are always the third Friday of every month.
  • Crude oil is traded electronically around the clock on the Globex and on regular market hours on the New York Mercantile Exchange also known as the NYMEX.

The basics of trading crude oil are related to how well the economy is growing. Crude oil typically goes up when the economy is doing well and it also goes down when the economy is not doing so well. Another large influence on oil prices is your local currency. For example, I live in the United States and if the dollar goes down then crude oil goes up because the US dollar loses it buying power and that makes oil more expensive for those who trade in the US dollar currency.

For most trading purposes most traders trade crude oil using any of the following techniques:

  1. Tape Reading
  2. Technical Analysis
  3. News/Fundamentals

Tape reading requires learning to read the Globex order book and learning how to recognize different types of behavior. What tape readers do is watch all of the bid/ask and trade data to get a feel of how orders are effecting price changes. Tape reading is an art and it takes a long time to develop a feel for the market. Anyone who is interested in learning how to read the tape just needs to get a Globex order book and spend at least one month watching all of the trade data all day long until a gut feel is developed. There are no shortcuts and just like learning a new person’s personality, it takes time.

Technical analysis it nothing more then analyzing chart price data. There are many forms of technical analysis and there is no real correct way to view data. This technique can be as simple as using high and low points of a chart to make trading decisions all the way to complex formulas that mathematicians come up with. For many professional traders they simple look at a chart and nothing else.

Finally many longer term traders trade off of news that affects the prices of oil. It can range oil inventory reports to wars breaking out and affecting the world oil supplies.

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