Crude oil futures have become popular among day traders because the market can be volatile enough to make big moves and prone to strong day-long trends. It’s also (pardon the pun) a highly liquid market.
The price of crude oil goes up and down in response to a variety of factors: supply and demand, political unrest, and seasonal trends. When oil prices move, other markets often move with them, including precious metals and stocks. That makes crude a partial reflection of the overall economy. In election years, for example, higher gas prices can often spell trouble for candidates seeking re-election.
For individual traders, trading crude oil futures can seem intimidating or exciting—or both. After all, you’re trading the highly volatile crude oil market alongside giant corporations, sovereign wealth funds, multi-billionaires, and other big players. ETFs have given some investors a way to dip their toes in the energy market, but they have their own pros and cons.
As with any kind of futures day trading, crude oil trading traditionally involves
- relatively high account balance minimums
- the possibility of unexpected losses
- margin calls
- the need to use stop-loss orders to manage risk
Trade crude oil a different way: same excitement, manageable costs
Every time you put gas in your car (or motorcycle or scooter) you form an opinion about where gas prices are headed and, indirectly, the price trend in crude oil. However, day trading and swing trading are focused on the short-term fluctuations that last for minutes, hours, or a few days.
Nadex binary options and option spreads are designed for trading short-term moves in volatile markets like crude oil. With durations from two hours to one week, these contracts let you trade without worrying about some of those downsides associated with futures trading:
- Minimum opening balance is just $250
- All binary options cost less than $100 each
- You set your maximum possible loss and profit before each trade, so you never lose more than you planned for
- As a result, you don’t need a stop-loss and you can never get a margin call
Crude oil, precious metals, and stocks often move together
For decades, futures traders have known about a phenomenon not many outsiders are aware of. The price and volatility of crude oil often serve as harbingers of price action in gold (and silver). The reasons for this are several.
First, both oil and gold are traded in US dollars, so if the dollar rises, both these dollar-denominated commodities will drop in price. If the dollar drops, you’ll often see spurts of buying as oil traders seek to purchase as much as they can before their money loses more value.
Second, gold is considered a hedge against inflation. Rising oil prices and inflation go hand in hand. So when oil prices go up, inflation tends to follow. And then, as investors buy gold in a “flight to safety,” gold prices rise as well.
And what often happens when oil and gas prices rise and inflation goes up? The stock market expresses its collective opinion on what it perceives as changes in the strength of the economy. Especially on days when an economic number like the nonfarm payroll or the Fed’s interest rate is announced.
If only you could simultaneously trade crude oil alongside gold, stock indexes, and economic events like the Fed announcement, all from one account. Actually, you can. On Nadex, you can trade all of those markets, taking short positions in some and long positions in others, for durations of a couple hours or a couple of days. You can even trade the value of the US dollar versus other currencies at the same time.
Day Trading Crude Oil on Nadex is Different
Nadex binary options and option spreads offer an affordable way to try a variety of crude oil trading strategies and add them to your portfolio. You choose your maximum profit and loss up front, before you place the trade. You don’t have to worry about unexpected losses or margin calls, as you may find in other kinds of commodity trading. And you get risk management without needing to set a stop-loss.
Check Out These Example Trades in Crude Oil
- Sell Crude Oil Binary Options
Half the movement in any market is downward, which means that much potential profit is to be found on the short side. Markets go up and down, so why shouldn’t you have the chance to profit both ways? Binary options give you a limited-risk way to learn and execute short selling in any market, including volatile markets like crude oil.
- Trade Crude Oil Futures with Nadex Spreads for Protection
Protect your futures trades with Nadex Spreads instead of, or along with stop-loss orders for greater staying power. You are short one crude oil futures contract at 38.16. Instead of using stop loss orders for protection, using an out of the money (OTM) spread can give you a hedge against loss while letting you stay in your position longer.