Oil futures trading is a fast-moving market that offers many opportunities for profit. It also can lead to big losses. Therefore, only those with sufficient financial resources and a level of risk tolerance appropriate for this type of trading should consider it.Find out :theinvestorscentre.co.uk

The price of crude oil is a major factor in global economics and politics, as well as the world’s supply and demand for this vital commodity. While investing in physical crude is not for everyone — it requires operational know-how and expensive infrastructure – investors can gain exposure to the price of crude by buying and selling oil futures contracts or exchange traded products (ETPs) that track total return indices underpinned by oil futures.

What is Oil Futures Trading? A Beginner’s Guide

An oil futures contract is an agreement to buy or sell a commodity on a specific future date at a set price. It can be settled either physically by taking delivery of the underlying barrels, or financially by rolling over into a new futures contract. Oil futures have a variety of maturities, from one month to three years.

Crude oil futures are a popular investment instrument for traders seeking to gain leveraged exposure to the price of crude. The prices of these derivatives tend to track the spot market closely, a phenomenon known as parallelism. As a futures contract approaches expiration, it also tends to move closer to the spot market’s price, a phenomenon called convergence.

Traders can use these relationships to generate profits through arbitrage and hedging strategies. For example, suppose a physical oil producer wants to hedge against the risk that its production costs will rise over time. In that case, the producer would sell a December futures contract at a higher price than its spot market price, thus “longing” the December price in the futures market while “shorting” it in the spot market.