CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

How to Trade Crude Oil CFDs as a Beginner: 4 Essential Tips

Andrew Moran - Writer for Fortrade
By Andrew Moran
Joel Taylor - Editor for Fortrade
Edited by Joel Taylor

Updated January 9, 2024.

A woman holding a phone and looking at a chart, with a computer in the background.

It has been a wild ride for crude oil in the past couple of years, going from below $0 in the early days of the coronavirus pandemic to as high as $130 earlier this year. For first-time investors and investing veterans, trading crude oil, especially from the perspective of contract for differences (CFDs), is a popular thing to do.

Crude oil trading is widely done for three reasons: it is highly liquid, it is suitable for both short- and long-term trading, and most movement is based on trends and patterns that stem from news headlines (geopolitics, OPEC, EIA data, and public policymaking).




What You Should Know About Crude Oil CFDs

The first thing that every investor needs to know is that crude oil CFDs require traders to use leverage, so when they open a position, they only need to place a small sum of the full trade value.

This offers traders greater exposure to the energy commodity. However, like every other form of leverage with low barriers to entry, there is an exceptional risk of losing money since it is based on debt.

Meanwhile, crude oil prices can be rather volatile. Two of the three main global benchmarks are West Texas Intermediate (WTI) and Brent. The former is US-based and the latter is concentrated in Europe.

A whole host of facts can influence the price of WTI and Brent CFDs: military conflicts in key producing areas, the Organization of the Petroleum Exporting Countries (OPEC), weekly storage reports, US production levels, and demand volumes from major importing countries.



» Learn more about how to trade crude oil CFDs in a volatile market



4 Tips for Trading Crude Oil CFDs

1. Choose Brent or WTI—or Both

When you are pursuing crude oil CFD trading, it is important to select WTI, Brent, or both. You do not need to delve too much into the other benchmarks, like Urals and Dubai.

Brent and WTI are important because this is where most of the action takes place and they are more susceptible to the current events and data you monitor. In other words, you are watching what the folks on the New York Mercantile Exchange and ICE Futures exchange are watching.

2. Risk Management Strategy

Like every other trading avenue, it is crucial to employ a risk management strategy so that you do not lose sight of your objective—shielding your assets from losses.

Indeed, it might be counterintuitive, but the goal of trading is not generating profits—it is protecting your principal from red ink. In addition, follow these three tips and you will be fine:

  • Never risk more than you can afford to lose.
  • Stick to your trading strategy (if it is not working after a few months, reconsider your strategy).
  • Rely on Take Profit and Stop Loss orders when opening or closing a trade.

3. Long-Term or Short-Term Strategies

Crude oil can be integrated into both long- and short-term trading strategies. But there is a difference, whether you are using CFDs or not.

If you are going long on crude oil, you are better off depending on oil and gas stocks instead of relying on the front-month contract. If you plan to hold crude oil for no more than a few sessions, then it is better to concentrate on crude oil CFDs.

4. Monitor Market News and Analysis

Finally, it is imperative to monitor market news and analysis when you are day trading or swing trading crude oil CFDs.

For example, on Wednesdays, the US Energy Information Administration (EIA) will publish its weekly storage report that will confirm how much crude oil and other fuels were withdrawn from inventories. Or, as another instance, nearly every month, OPEC will host a meeting in Vienna where it will assess market conditions and make decisions on production volumes. It is vital to pay attention to these components of the worldwide energy landscape.



Note: Fortrade offers the ability to trade the price changes of instruments with CFDs and NOT to buy/sell ownership of the instrument itself



Final Words

Now, there can be a debate about Brent vs. WTI, but the energy commodity can be easier to invest in based on a treasure trove of elements available to the average person. As time goes by, you start noticing patterns, such as if crude oil is oversold or overbought.

Overall, as long as you grasp the fundamentals of CFD trading—and trading in general—crude oil can be one of the vehicles to make a potential profit.

» Ready to start trading CFDs on commodities? Discover how to open an account with Fortrade