Investment circles have said before that oil is the money machine. With all the photos of large mansions and luxury cars, obviously many people in particular Middle Eastern nations are reaping the benefits of oil. This is also common knowledge to those who invest in the oil futures market. Sadly, many people who are ignorant of the oil futures market nevertheless dive in blindly, often with devastating results from their investing mistakes.
Difference in oil types is based on the differences in chemical and physical makeup, and there are many investment options available in different kinds of oil. Although different type of oil have different prices, each type of oil tends to follow the track of the market. Globally all oil prices move in the same direction although each different type of oil moves independently. This puts the the oil futures parameters into motion, leading towards profit.
Those who are successful traders are able to profit in financial markets from a particular relationship, due to the fact that there is an analytic relationship between prices of different types of oil. It is understood that whenever the price of one type of oil rises by a certain amount, the price of other types is expected to rise at relatively the same rate. For oil futures, deviations from this create profit generators which are known as spreads.
A price difference, which is either too large or too small in comparison to its pair, constitutes potentially profitable oil futures spread. For the last two years the price difference between the Oil Company A and Oil Company B showed approximately US$6, however, by the end of 2005, the price difference was established at US$14.
You have to sell higher priced product and buy lesser priced product at the same time to learn how to invest correctly and profit from this spread in oil futures. You turn around your position again when the difference in prices is back to its regular level. This is called arbitrage — earning profits on the temporary differences in oil futures prices.
In the oil futures market risk spreading and risk reward ratios are expected to move in relation to one another. The average price difference between Brent and Dubai oil was around US$2 during the period 2002 to 2004. As with any other commodities trading, trading in oil futures with little knowledge about parameters involved can be a dangerous thing, especially without the aid of a proven commodity trading solution.
Success can hinge upon a number of issues. Understanding commodity trading charts is of the utmost importance. Especially with regard to specific commodity a person intends to trade in the market, it is desirable that he should have the knowledge about financial markets and how they function. Lastly, it is very helpful to have a proven system to evaluate the market, such as having commodity trading info optimized with candlestick signals.
Using technical analysis tools is the most-used or obvious way to support your decisions. It’s great because anyone can be a pro. Successful traders are separated from the rest by experience and training, coupled with the best strategies.