If you want to trade oil, there are a few different options that you have. Many traders are trying to find ways to get involved in the oil market because of the high price of oil. Here are the basics of how to trade crude oil effectively.

Futures Contracts

The most direct way for you to get involved in the crude oil market is to trade futures contracts. A futures contract gives you the ability to secure a certain amount of crude oil, at a fixed price and for a specific amount of time. These contracts are traded in standard lot sizes. If the price of oil goes up above the price that you have on the contract, you will be able to make profit. It is essentially giving you the ability to buy oil at a lower price than the market and then turn around and immediately sell it at the market price.

Futures Brokers

In order to get involved with futures contracts, you will need to open an account with a futures broker. The futures broker will provide you with an account that will allow you to trade futures contracts in real-time online. When you want to place an order, you can simply access your brokerage software and make a trade.

There are several futures brokers that you could choose to work with. You need to make sure that you choose a broker that has low commissions and a good reputation in the industry. The commissions that you will have to pay on each trade can significantly eat into your profitability. Finding a reputable broker will help you avoid many of the problems that some new traders have in the futures market.

ETFs

Another way that you can get involved in the crude oil market is to trade ETF's. ETF's are exchange traded funds that you can buy and sell through a standard brokerage account. You can trade ETFs anytime that the traditional market is open. An ETF is essentially like a mutual fund because you are purchasing a share of a larger portfolio of investments. There are a few oil ETFs that you can invest in that will give you exposure to the crude oil market. Many of these ETFs invest in a combination of oil company stocks as well as directly into oil futures. This type of investment will not give you direct exposure as you will find with the futures market. However, many investors prefer ETFs because they are convenient to work with. 

Volatility

If you plan on getting involved in the crude oil market, you should understand that it is extremely volatile. Prices can be impacted by many different factors and they can shoot up, or down, quickly. When you invest in this market, you need to be prepared to deal with the volatility so that it does not catch you by surprise.

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