Today, crude oil is almost as vital as water. The unique standing of oil in the world’s economic and political systems makes it one of the most heavily traded commodities in the market globally.
Published on 13 January 2023
Commodity trading in oil also offers liquidity because of the high volume of trade. Further, the volatility of the energy market allows investors to earn consistent returns in short-term swings and well-timed long-term strategies. However, commodities trading is sensitive to market volatility.
If you want to do commodity trading, here is a quick guide that can help you understand online trading in India and how to do commodity trading online in oil:
Commodities are naturally occurring materials or goods that form the basis of the economy and help produce other goods or services, such as food, energy and clothing. Commodities are standardised and are interchangeable. A few commodities include crude oil, natural gas, iron, steel, gold, silver, cotton, grain, pulses, etc.
Similar to stock trading, commodities are also traded online on certain exchanges, such as MCX (Multi commodity exchange), NMCE (National multi-commodity exchange), ICEX (Indian commodity exchange), etc.
You can undertake commodity trading and aim to profit from the fluctuating prices in the commodity market. You can buy a commodity, such as oil, expecting an appreciation in its future price. When the commodity price hits the target in the future, you can sell the commodity to earn profit from the price differential. However, you need to open a trading account to be able to undertake commodity trading in India.
Also Read: Agri Commodity Trading
You can do commodity trading through a trading account and choose any of these investment options:
Online trading in India for oil can happen in main crude oil (lot size of 100 barrels) and mini crude oil (lot size of 10 barrels). Both futures contracts expire on the 19th and 20th of every month. The price quote is per barrel.
For instance, you prefer trading online in main crude oil through a futures contract. You expect the oil prices to rise in the future. The current oil price per barrel is ₹3,000, and the futures contract is 100 barrels. The total investment is ₹3,00,000. However, when commodity trading in India through a futures contract, you do not have to pay the entire sum and pay a margin of 5%, which equals ₹15,000.
Now, the oil prices rise to ₹3,500 per barrel. In this case, if you sell your futures contract of ₹3,000 per barrel, you earn a profit of ₹500 per barrel. Your total profit is ₹50,000 with an investment of ₹15,000.
You can also profit from falling oil prices by trading online by taking a short position on the futures contract. For instance, the oil price per barrel falls to ₹2,700. However, in this case, if you go short on your contract, you can still sell your 100 barrels for ₹3,000 per barrel.
You can consider trading online in oil if you prefer minimal investment and potentially high profits. However, oil futures are also highly volatile, and it is difficult to predict the future movement of oil prices. Therefore, it is advisable to consult an expert for trading online in oil or a similar commodity.