What is Crude Oil?

Oil is a term that is commonly used by oil investors and crude traders to describe activity in the market that is carried out by traders, investors and speculators.

In oil trading a trader can buy or sell a crude oil. A trader will buy a oil instrument if they think the value of the instrument is likely to appreciate in the future. A Trader will sell a oil instrument if they think the value of the instrument is likely to depreciate in the future.

The Market is an over the counter market which means trading is carried out through a network of the big international banks; this oil network is commonly referred to as the interbank network. This interbank oil network consists of banks and brokers which are in different locations. These interbank network is responsible for providing the prices at any particular time to the traders and other market participants who want to buy or sell crude oil. In oil trading the price is constantly changing and this price is denoted by what is known as a Oil Quote. In Oil the Price is displayed as a Oil Quote. This oil quote is constantly changing and the interbank network will update automatically the current oil quote and crude traders can then trade the instrument at the current price.

Oil Quotes

Crude prices of instruments is displayed using Oil Quotes. This is the price at which any trader wanting to trade this oil instrument will trade at.

Because prices are constantly changing it means that crude traders can take advantage of these price movements to make profits by trading these price movements. The price of any oil instrument will keep moving because of demand supply. This is because there are many participants oil instrument in the open market and therefore this means that the price quotes will get determined by the current market forces. These market forces may be determined by factors such as an increase in demand for crude oil.

Oil Pips

In oil trading the price moves are measured in points commonly known as Pips in the crude trading market. The pip is used to calculate the profit or loss that a Oil Trader makes in a particular trade. For example if a trader makes a trade which moves 50 pips in his direction, then the profit of the trader will be calculated as 50 pips. Pip in oil is represented as the second last decimal point in the Oil Quote and it is made up of pipettes - pipettes are fractions of a Oil Pip.

Oil Lots

In crude trading - oil instruments are traded in units known as lots or oil contracts.

Oil Leverage

Because not many crude traders can afford to trade large units of oil contracts, there is leverage in oil which means that crude traders can borrow money and use the borrowed money to make trades with. For example leverage of 100:1 means that a trader with capital of $10,000 can borrow upto 100 times using the 100:1 leverage option and therefore after borrowing using this leverage the trader will have a total of $10,000 multiplied by 100, which means the trader will have a total of $1,000,000. This leverage is what makes Trade accessible to retail traders because retail crude traders can begin with little capital of their own and use leverage to borrow the rest of the money required for trading. Money that the trader deposits is referred to as the trader's margin and a trader can continue borrowing money using this leverage option as long as they have the required oil margin in their account. This is why traders must have the required account balance in their account to open the trades they want to.