Trading with Crude Oil

Everyday financial markets convey information about events taking place in the Middle East or “Mideast.” This is because the largest source of crude oil or petroleum comes from the Mideast, and the price of crude directly influences the price of gasoline.

So what causes the price of crude oil to fluctuate? Well, supply issues can affect perception of availability of gasoline. Crude is a commodity always in flux because they depend on worldwide supply and demand. If anything occurs which could disrupt the supply of crude then the price of oil will increase. The crude oil market is also an international market at which investors hedge bets on how much they think the price of oil will go up or down in the future. Speculating over oil prices greatly influences the cost of petroleum.

As a binary options trader, you can speculate on the cost of crude. If you bet correctly, then you can profit from the moves on the oil market. When trading the oil market though, there are more than just basic issues of supply and demand because speculators invest in oil futures which are bets on future prices of crude oil, and this in exchange, affects how crude will be priced into the future. Also, OPEC, weather, and governments also influence the markets. Announcements about cutbacks, changes in weather patterns and government regulations all will affect how the market views the potential supply of crude. So as a trader, you need to be cognizant of all possible factors which will influence pricing of the underlying option which is crude oil.

The explosive growth of commodities trading with either the physicals or the derivatives has really influenced the price of oil significantly.
Large speculators investing in commodity futures have a surprising effect on crude oil prices because speculators who buy large amounts of futures contracts can influence the market’s perception of prices and swing the prices. As an example if a speculator buys oil futures at higher prices than the current market price, this could cause oil producers to horde their oil supply so they can sell it later at the newer, higher “future” price. This will, in turn, reduce the current supply of crude on the market and drive up both present and future prices.

It may seem unreasonable that speculators have so much influence over the oil market, but speculators are in all financial markets. You entering the binary options market for crude are also speculating which entitles you to either risk or reward. Let’s look at these scenarios:

If a trader anticipates that the price of crude oil will rise above the current price, let’s assume a price of $98.113 for this example, he can purchase a binary call option. Assuming that he has paid $250 for his option, he will receive $462.50 (his original investment plus 85 percent) if the price has risen to $98.114 or more by the time the option expires. If, however, the price has fallen to $98.112 or below, he loses all of his original $250.

If, on the other hand, the trader decides that the price of oil is likely to fall, rather than rise, he buys a binary put option. In this case, a trader who has invested $300 in his put option would receive $555, or his initial investment plus the 85 percent if the price of oil does fall below the price of $98.113 by its expiration time. He will lose his entire $300 if the price happens to rise above $98.113 by the expiry time.