Crude Oil Trading Basics Concepts
Learning to trade the crude oil market is much easier for beginners when beginners start by learning the oil trading basics. This way the other crude oil trading concepts become much easier to learn because the new oil trader will have already learnt about the basic ideas before proceeding to the other oil trading concepts.
The oil trading basics that traders should learn first before starting oil trading are:
What is Oil Trading?
Oil Trading is the simultaneous buying and selling of one financial instrument for another. Oil traders buy & sell for speculation purpose and for the purpose of trying to make a profit. Oil traders will buy oil that they think will appreciate in value and sell oil which they think will depreciate in value.
In Oil traders buy oil instruments when they become undervalued and sell oil instruments when they become overvalued. This is the basic concept of trading oil, as a beginner if you want to become successful when trading oil you must learn to buy undervalued oil instruments and sell overvalued oil instruments. Many Oil traders miss this concept and do the exact opposite buying overvalued oil instruments because that is when these oil instruments seem to be moving up and up and they sell undervalued oil instruments because these oil instruments seem as if they will continue to move lower.
Just like in stock market successful trader buy stocks when the stock crude oil price is low and sell stocks when the stock crude oil price is high. This is the same trading concept that traders should follow when trading oil.
What is Crude Oil Trading?
Oil trading is the simultaneous exchange of one financial instrument for another, for this reason oil is traded in symbols known as oil trading instruments.
What is a Oil Trading Quote?
Because oil instrument is traded in symbols, the crude oil price at which these oil instruments are exchange is determined by the oil trading quote.
Oil Trading is quoted in the format of decimal places.
What is a Pip?
Oil is quoted in the format of decimal places. The second last decimal place represents a Pip which is the smallest movement used to calculate profit and loss in oil market moves.
Pip means Oil Trading Price Interest Point: it is a one point move in the oil trading quote.
What is a Lot?
Oil Trading is traded in units known as lots. There is also the Mini lot which is made up of fractions of the standard oil lots and the Micro oil lots which are fractions of the oil trading mini lots.
What is Oil Trading Leverage?
Because not many traders can afford to trade standard oil lots which require a lot of money to trade, there is oil trading leverage in Oil Trading which means that traders can borrow money and use the borrowed money to make trades with. For example oil leverage of 100:1 means that a trader with capital of $10,000 can borrow upto 100 times using the 100:1 oil leverage option and therefore after borrowing using this oil trading leverage the trader will have a total of $10,000 multiplied by 100, which means the trader will have a total of $1,000,000. This oil leverage is what makes Oil Trading accessible to retail oil traders because retail crude oil traders can begin with little capital of their own and use oil leverage to borrow the rest of the money required for trading. The money that the trader deposits is referred to as a oil trader’s margin and a trader can continue borrowing money using this oil leverage option as long as they have the required margin in their account. This is why traders must have the required account balance in their trading account to open the trade transactions they want to.
What is Oil Trading Margin?
Margin is the specific amount of money which a trader is required to put aside in order to continue holding an open oil trading leveraged trade. Margin can also be explained as the deposit a trader is required to keep so as to maintain his open positions. This margin is a percentage of account equity that has to be set aside and allocated as a margin deposit for the open positions that are held by a oil trader.
