Trading Crude Oil

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Crude oil is the most actively traded commodity on MCX. The combined value of crude oil across all contracts traded trading crude oil MCX, on average, exceeds Rupees crores on a daily basis. This translates to roughly barrels of crude oil traded daily.

Active market participation in crude oil comes in from both corporate and retail individual traders. If I were to guess, these institutional orders are mainly to hedge their exposure in the spot physical market. On the other hand, the retail traders mostly speculate on the crude oil prices. With an average daily traded value of Rupees Cr, the big crude trading crude oil contract is certainly one of the biggest contracts value wise that gets traded on MCX.

The crude oil on MCX is quoted on a per barrel basis one barrel is equal to 42 gallons or trading crude oil liters. As you can see, the Crude Oil contract expiring on 19 th Dec is trading at Rs. The lot size is barrelswhich means to say that if you want to buy or go long on crude oil, the value of such a contract will be —.

This is the contract value of the crude oil, but what about the margins? Unlike the margins on other commodities, the margin on crude oil is slightly higher. Here is the snap shot of the same —. However, if you wish to make an intraday trade using MIS, then the margin requirement is roughly 4. Clearly, as you can see from the snapshot above, margin under Trading crude oil is just Rs. New crude oil contracts are launched every month. The newly introduced crude oil contracts have an expiry scheduled six months later.

For example, the contract introduced in Trading crude oilwill have its expiry in 6 months i. MCX puts up this information regularly in their circulars, but I find it a little confusing to interpret the expiry table.

Here is what MCX intends to convey —. So, as I write this, its Novemberwhich means to say the November contract must have been introduced in May For active trading, always choose the near month contract.

The reason for this is simple. Liquidity is highest for the current month contract November in this example.

All the other contracts, even though exist in the market, pretty much lead a meaningless life, until they become current. The Crude Oil mini is quite a favorite amongst the trading community. The reason for this is straightforward —. The contract value for this would be —.

The margin required in percentage terms is little higher — around 9. Clearly, way trading crude oil compared to the margin required for the big Trading crude oil oil. The first part of the snapshot captures Crude Oil December future trading crude oil crude contract along trading crude oil its market depth. The second part of the snapshot captures the Crude Oil Mini December contract along with its market depth.

All else equal, both these contracts at the same time should trade at the same price. They are not supposed to trade at different prices, since the underlying is the same. In fact, this is what we notice here — both Crude oil contracts trade at Rs. For example Crude Oil is trading at Rs. Do we have a trading opportunity here? Yes, of course, we do have an arbitrage opportunity here, and trading crude oil is how we can trade this. We know the rule of thumb in any arbitrage trade — always buy the cheaper asset and sell the expensive one.

So in this case —. We buy the crude oil mini at and sell the crude oil at However, please note, for a perfect arbitrage opportunity, we should always trade similar values. Given this, one should buy 10 lots of Crude oil mini at and sell 1 lot of crude oil at By doing so, the contract sizes trading crude oil similar and therefore the arbitrage holds.

Once we execute this trade efficientlythe arbitrage profit is locked in. Remember, in all arbitrage cases, the price will converge to a single price point. So assume the price finally converges to —. It is unlikely you will find such sweet opportunities on a daily basis, and even if you do, algorithms grab them.

However, I have trading crude oil witnessed such opportunities lasting for several minutes. This brings us to the end of our conversation on Crude Oil. We are lucky to have a teacher like you.

Request you to kindly suggest books on options trading for enhancing my knowledge. Check out this book — Option volatility and pricing strategies Book by Sheldon Natenberg. Thanks for the suggestions. After going through your text on Short strangle ,I have become more of a short seller.

Sir please tell mehow to rollover trading crude oil contract to the next month contract in crude oil. Rollover is just about closing the contract that you hold and initiating the position in the trading crude oil month contract.

For example, if you hold a long Crude position in Oct series, then rollover is squaring off Oct Contract and buying Crude in Nov contract. Check the product page on MCX — https: Hi kartik While using option calculator It asks for 1 trading crude oil price 2 strike price 3 Days to expiry 4 annual interest rate 5 implied trading crude oil call 6 implied volatility put. Have u ever observe the diff in price of two month contract increses and decreases?? If u know why it happens how v can earn from dat please share.

Yes, that is a common phenomenon. Check this chapter — http: Not related to this module. Trading crude oil indian equity market ,we can not keep overnight position of shorted equity stock ,we have to square off it same day. As Futures price is driven by underlying not vice-versa ,So I am confused how above quoted statement is correct.

Why would undelying price would go up in upcoming days? Why trading crude oil statement is made up for equity stocks? Though this is off topic was just wondering if you can explain in another module or trading crude oil abut INTRA day trading, about selection of stocks for intraday. Trading crude oil there trading crude oil book where one can refer for intra day trading and selection of stocks for intra day.

I have many books about investing but trading crude oil all carry US stocks examples. Thumbs up for Zerodha for Trading crude oil such Topics. Now a days brooking firms are taking only brokerage. Sir, if one executes the above arbitrage of 4 points in zerodha, say 1 big lot and 10 small lots.

Out if this how much do the brokerage and taxes amount to? In other words, what is the minimum difference between crude big and small lots for arbitrage trading crude oil be profitable? Hi karthik, The expiry date for crude oil is19th of expiry month.

Cash settlement can be done on 19th OR for cash settlement we have to square off the position days before the expiry??? In trading crude oil month, I did not know the expiry date being new to the commodity market.

I had a open buy position in crude mini in the expiry date. I can not not find that position in the trading crude oil day. Will there be any delivery obligation in trading crude oil I guess the contract would have been settled. Delivery obligation requires some sort of paperwork.

Are you referring to a situation where in the demand outstrips supply? I am talking about the inventory data that comes every Wednesday. I interpret if actual no. Is less than previous then supply is less, more demand. Hello Karthik — If the open position is not closed on expiry day then one has to take the physical delivery of commodity or it is cash settled the way it happens in options.

If not, may I know if it is planned to go live anytime soon? Hi Karthik, Why crudeoil futures from one month to another month are at premium?

How the fair premium for rollover can be calculated? Check this — http: The link you provided explains theoretical futures pricing in general. I would like you to explain how the crudeoil futures month to month premium is calculated. Its the actual formula traders use. Premium or discount is a outcome of demand and supply, not sure of this is quantifiable. Dipesh, rollover requires you to close the August contract and initiate the same position in Sept contracts.

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Crude oil trading has been used since ancient times but the invention of the internal combustion engine and the growth of the automobile industry saw its value rise.

Once a way was found to extract the oil at a viable rate the market grew, encouraging traders to speculate on oil prices. Today, crude oil trading is the basis of a global industry that encompasses its extraction, refinement and economic consumption, providing employment in many industries.

Crude oil is used in the production of numerous chemical products such as plastics, fertilisers and solvents and is essential in maintaining our modern lifestyles.

As a result, despite concerns about oil being a non-renewable resource many countries depend heavily upon it. Since significant oil reserves are found in only a few countries, the market price of crude oil can be affected by national and international politics.

Any change in major foreign policy needs to be considered by traders, along with economic factors, when trying to predict future oil prices. One recent example is the United States war in Iraq. Crude oil is traded in barrels against the US dollar, and access to the internet enables traders to buy and sell hundreds of barrels of oil in a transaction through the MT4 trading terminal or any other in house developed trading platform.

Similar to forex trading markets Depending on the content and origin of the crude oil, it is named individually and is categorized according to each ones measure of gravity API. The API can represent heavy or light crude. If it is light, it will create a higher yield of valuable gasoline more than heavy crude would. The sulphur content of crude oil is just as important as it represents whether or not the costs of the oil can meet the environmental standards in the consuming countries.

Crude oil with low sulphur content is sweet crude and crude oil with high sulphur content is sour crude. Nevertheless, sweet crude is popularly sought after because it commands a higher price. The lower refining costs are what give sweet crude a higher price command. Each producing geographic location is important as each one determines the transportation cost to the closest refinery. The derivative locations also hold various standards of liquidity. It has the most liquidity in the world and is the main resource for North American oil.

It is the second most liquid derivative in the world after WTI. The oil from Brent is the basis of what European oil prices are set at. Dubai — Oman — generates sour crude oil from Middle East that is distributed to the Asia Pacific region. However these markets have low liquidity and trades are usually executed abruptly without preparation. In total, the world consumes about 63m bbl per day of oil. The five key countries that consume the most oil are:. Futures and options contracts are traded at NYMEX for heating and crude oil, natural gas, coal, electricity, propane, metals and gasoline.

Trading oil is completely different to trading Forex, but it will require a wealth of knowledge of the market as you do with the Foreign exchange market and its currencies. When choosing to trade oil, it is important that the above facts are verified and clearly understood. The trader should also keep an eye out for fluctuations as they can too increase additional profits. Therefore it is crucial as a trader of oil to look constantly at the developments of the oil industry.

This page is part of archived content and may be outdated. Facts regarding Oil Trading Oil is essentially a form of energy. A trader in the oil market must be fully aware that demand is often limitless while supply is always inadequate. Knowing and understanding about the supply and demand of crude oil is critical when trading oil. A fact states that oil production will continue to peak in the near future however eventually.

The oil supply will decrease while the demand will tend to rise increasingly. Crude Oil Crude oil can be defined as a combination of naturally occurring hydrocarbons.

The mixture is refined to generate diesel, fuel oil, jet fuel, gasoline and kerosene. In Asia this is referred to as Jet Kerosene and trades as Platts Jet Kerosene Depending on the content and origin of the crude oil, it is named individually and is categorized according to each ones measure of gravity API. Oil Producing Countries The main five countries that produce amounts of oil are: Saudi Arabia — The five key countries that consume the most oil are: Oil Trading Concluded When choosing to trade oil, it is important that the above facts are verified and clearly understood.