The price of crude oil is influenced not only by fundamental expectations of the physical commodity and global supply and demand but also by the actions of specific traders. The price of crude oil fluctuates constantly, and day traders use this movement to make money.
Futures Markets
A futures contract is an agreement to buy or sell something – like crude oil, gold, or wheat – at a specified future date for a specified price. Naturally, day traders do not actually want to purchase those products. Day traders, by definition, close all contracts each day. They make a profit or loss on each trade based on the difference between the price at which they bought or sold the contract and the price at which they sold or bought to close the trade.
Minimum Futures Trading Amounts
The amount of money you need in your account to trade a crude oil futures contract depends on your futures broker, but you can expect the minimum amount to be around $1,000. Remember, you will also need enough money in the account to cover potential losses. If you decide that you do not want to risk more than 1% of your capital on any single trade, you can only risk $10 per trade.
Trading Crude Oil ETFs
Another way to day trade crude oil is through an exchange-traded fund (ETF) that trades in shares, such as the United States Oil Fund (USO). Novice traders may find this strategy more accessible as they can trade price movements in crude oil through the stock trading account they likely already have. The values of crude oil ETFs reflect daily changes in the percentage price.
Minimum ETF Trading Amounts
U.S. regulations require that “pattern day traders” of stocks and ETFs maintain a margin account balance of at least $25,000. Anyone who opens and closes a position on the same day at least four times a week is considered a pattern day trader. Individual brokers may impose their requirements in addition, but you need at least $25,000 to start serious day trading.
Crude Oil Trading, A Volatile Market
Remember that oil can also be a volatile market. In April 2020, the oil market saw its lowest levels ever. For reference, the United States Oil Fund (USO) was trading at around $4.66 on April 14, 2020. Two weeks later, at the close of trading on April 28, 2020, USO underwent a 1-for-8 reverse stock split, which increased the net asset value per share and reduced the number of shares traded. At the market close on May 1, 2020, USO closed at a price of $18.86 per share.
With decreased demand for oil, it is unlikely that prices will return to 2019 levels by the end of 2020, so exercise caution and continue to consider all risks before investing in oil or any industry-specific fund.
Source: https://www.thebalancemoney.com/how-to-start-day-trading-crude-oil-1031366
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