Oil trading provides an attractive form of investment for people willing to invest in it. Out of all the non-financial commodities in the world, oil is the most actively traded; thus, its high liquidity provides investors with the ability to harvest massive profits. The price of oil is normally quoted per barrel in United States dollars. Just like in the trading of currencies, oil trading is carried out through the internet using the OTC (over-the-counter) method. As such, oil trading does not entail the “physical” buying and selling of the commodity.
The price of oil is affected by various factors, some of which are outlined below:
- The value of the United States dollar
- Political situation in the world
- Supply and demand forces
- Oil trading is an excellent way of practicing portfolio diversification
- Oil trading provides a considerable degree of fortification during times of economic crisis
- Oil is very liquid and marketable
The price of oil is often quoted in United States dollars. And, since the dollar is regarded as the safe haven currency in the world, when investors think it is susceptible, they will shift their investments to other commodities-including oil- and this would result in an increase in their prices.
During times of wars and political uncertainties, the demand for oil normally increases. This is sometimes caused by transportation difficulties and artificial shortage caused by some corporations and countries. And, this often results in an increase in the price of oil.
Similar to other financial instruments, supply and demand forces affect the price of oil. A drastic reduction in supply can increase the price of oil in the market.
There are many benefits of engaging in oil trading, some of which are outlined below:
As the old adage goes “Don’t place all your eggs in one basket”, investing in oil is a good way of diversifying your asset categories. As such, you can cushion some of your investments in times of economic difficulties. Because of its many advantages, oil trading is an excellent way of minimizing your risks against economic uncertainties.
During these times of widespread economic uncertainties, most investments are neither reliable nor secure. Conversely, oil is not susceptible to economic crisis. Thus, it cannot run out of value entirely, even in such times.
Of late, an increased number of investors who have discovered its benefits have enhanced the liquidity and marketability of oil. Thus, this high level of activity in oil trading increases its profitability.