Factors contributing to movements in the price of Crude Oil

Another common commodity which is often found traded on CFD & Spread Betting sites is Crude Oil. In the modern world Crude Oil has become one of the most important commodities due to its crucial role in many industries and power production. Crude Oil is also an attractive commodity for CFD traders and Spread betters due to the high volume of trading witnessed on a daily basis and significant price volatility. It should be noted that Crude Oil also has a very active futures market. Today we are going to look at some of factors that contribute to movements and fluctuations in Crude Oil prices. 

OPEC stands for the Organisation of Petroleum Exporting Countries and consists of 12 member states. OPEC works effectively as a cartel and is somewhat unique factor to the crude oil market is OPEC (there was a now defunct similar organisation for Copper). Essentially OPEC has the power to dictate how many barrels of Oil each of its member states can produce a day. In the past OPEC was heavily criticized for its ability to effectively control the price of Oil. But more recently it’s influence in controlling Oil production has significantly decreased, this in part due to large new Oil reserves being discovered outside of OPEC nations and the opening up of Russia’s vast Oil supplies to the World Markets after the Collapse of the Soviet Union. Another factor has been OPEC’s increasingly dwindling influence over it’s member states, comments particularly from the Saudi’s have suggested that certain OPEC members states will be willing to meet market demands and dismiss the quotas imposed by OPEC. Currently OPEC member states make up 79% of Oil reserves and 44% of current Oil production.

Natural Events & Disasters, Political Events 
While not particularly common these events can have a huge effect on Oil production and therefore have a huge effect on Oil prices in the global market. One example would be recent tensions in the Middle East between Iran & US over the strait of Hormuz, which at one point looked like it could have a huge effect on global oil prices (read here). An another example of such an event is when the US either experiences a hurricane warning or an actual hurricane to its Oil producing areas. These have been known to lead to quite significant spikes in overall levels of Oil prices. A really interesting article on this can be found here.

The rise in Oil futures markets have made many commentators state the increasing role that Speculation now plays in the overall price of Crude Oil. While Oil futures can be of important economic value it also increases the role that speculators can take. This only increases the attractiveness of trading Crude for those interested in CFD Trading & Spread betting. 

Many Oil producers and consumers build large Oil inventory, in case of emergencies and for future use. Inventories can also be built up for other purposes, these include arbitrage opportunities and selling at higher price levels. The US government in recent years have also built up significant Oil reserves. Any significant changes in these reserve and inventory levels can also have a significant effect on the price that crude is trading.

Crude oil is used in the production of almost all the products that you see in your shelf. This means that by probably the biggest factor in Crude oil prices is demand, in recent years this extra demand has been fueled more and more by emerging economies. This means that announcements that China’s manufacturing output is slowing down and in some areas has decreased have had a negative effect on the price of crude oil. Economic news from the BRIC economies more importantly that concerning manufacturing.

A Basic Guide To Spread Betting Order Terminology

It helps to know some of the key terminology when it comes to placing Spread betting orders and here at Made to Trade we aim to help. This post will help you explain them to you, so you will be able to tell VWAPs from your MOOs and OCOs. 

Market Order– A market order is an order to fulfill an order to buy or sell at the current market price- e.g Buy Big Bank PLC @ 1p per point at 100p would be a market order. 
Limit Order– A limit order is an order to sell or buy at a limit price. This limit price is normally to buy or sell above the current market price- e.g Buy Big Bank PLC @ 1p per point at 102p would be a limit order, if Big Bank PLC was currently trading at 100p. 
Stop Loss Order– A stop loss order is an order aimed to stop losses at a certain level. With a long client it will be when the market falls to a certain level and with a short client when a market climbs to a certain level. Stop Loss orders are used with an open position in order to provide protection against the market moving against there position. e.g a client placing a Buy order for Big Bank PLC @1p per point @100p, might chose to place a stop order at 94p to limit his loss. 
Stop To Open Order– A stop to open order is an order to open a position at certain level, either if the market is falling or rising. These orders are designed to open a position if the market moves in a certain direction, often used by momentum traders who believe to get into a position if the market shows particular significant momentum.-e.g client placing a Sell Order for Big Bank PLC @1p per point @95p, if share was trading at 100p this would be a significant movement. 
GFD-(Good for the Day) the order is Good For the rest of the trading Day in question.
MOC-(Market on Close) order will be completed at market price at the close of the market.
MOO-(Market on Open) opposite as the order will be completed at market price at the opening of the market.
OCO-(One Cancels the Other) their are two order are two be executed but one cancels the other order. 
GTC– (Good Until Cancelled) an ongoing order (different from an Ongoing trade), the order will remain good until it is cancelled by the client.  
Fill or Kill– for a particular large order a broker is instructed by the client to get a price for the whole quantity of the order, if he is unable to get a price then the order is killed and cancelled.  
VWAP-(Volume Weighted Average Price) an order which is to be fulfilled throughout the day to get the average price of that particular day.

Explaining the Spread: Underlying Price vs The Spread

The Spread is unsurprisingly one of the key factors in Spread betting. It is also one of the reasons why Spread betting is relatively simple and hassle free. When it comes to trading in physical shares there are lots trading fees and commission that need to be paid (these include stamp duty, capital gains and brokerage fees). By contrast when undertaking a spread bet all the costs are calculated into the spread offered by the spread betting company. All the trader has to take into account is the price movement in relation to the spread on offer.

The Spread is derived from the overall underlying price. This is why Spread betting is a form of derivative trading, as the Spread is derived from the Underlying price. If Big Bank PLC is trading on the Stock Exchange at 100p, a Spread betting company may offer a bid-offer price of 99p-101p for the day. In this case the Spread is 2p. This spread cost is where the spread betting companies make their profit, it is also where all the costs of your trading are covered. How the bid-offer spread is calculated depends on company to company but is often calculated as small percentage of the market price. 

How quickly the spread bid-offer changes depends on changes in the underlying market. If Big Bank PLC share prices moves 5p in an hour it is likely that the related Spreads will move by the same amount. When it comes to quarterly futures it is possible that the effect could be even sharper. Many of the Spreads on offer will often radically change due to the levels of volatility in the market, this is especially true when price sensitive information or announcements come to light. 

This makes shopping around an attractive proposition while small differences in Spread’s appear to not make a huge amount of difference. But getting a good deal on your spread can make all the difference as it can be the difference between a profitable and non profitable bet. Even tiny differences in spread’s can make huge differences when the value of the spread bet is particularly large. 

Part of The Beginners Guide To Spread Betting

Is Spread Betting for me?

Those who have learned about the basics of Spread Betting may be interested in the concept and the goal of making money through Spread Betting but are unsure whether the opportunity is for them. Today we are going to examine whether Spread betting presents a good opportunity for you as an individual.

Remember as with all types of trading Spread betting carries significant risk. When it comes to spread betting everyone’s first rule should be not to risk what they cannot afford. It should also be noted that not everyone is suited to the stressful and tough world of trading. I personally wouldn’t suggest Spread betting to some of the more sensitive souls of this planet. But for the right person a venture into trading could be a very profitable one.

Some even find that trading can be a very addictive activity and every spread better should seriously evaluate what is driving them on to keep up at the activity. A study undertaken by Gambling commission revealed that when it came to financial spread betting 15% of people became addicted when compared to 1% with other forms of gambling. Another study undertaken by London’s CASS business school showed that only 1 in 5 people came out as winners. Though it should be remarked that this is no lower than the rates experienced in other forms of casual trading, such as small stockholders and people undertaking share deals.

When stepping into the world of spread betting, the risk you take should proportionate to the knowledge and experience you have of the financial services industry. Lucky spread betting allows be people to be exposed to very limited risks from 1p per point and many sites offer demo and practice accounts which can be opened for free, to allow users to gain real trading experience with no risk. There is also a wealth of resources available for those who wish to learn more and try different techniques.

Be realistic with your expectations. If you have a busy career with much of your day taken up with other commitments, you may want to limit yourself to one open position a day. If you have a lot of free time you may want to monitor and manage more positions at a time.

Spread betting is not just for those who work in City jobs or the financial services industry, a customer survey undertaken by ETX Capital showed that only 8% of their members worked in the financial services sector. Though clearly having a background in financial services may come in very handy for those interested in Spread betting.

Don’t enter blindly and take your time to learn, know your limits and Spread betting could become a very rewarding opportunity for you. But you should also be ever vigilant of the risks that you are taking. 

Part of The Beginners Guide To Spread Betting

What factors effect Forex movement?

Forex (Foreign Exchange) is one of the most popular trading categories for the online trader. It has recently been reported that up to $4 trillion dollars is traded on global Forex markets daily (this excludes the trading of Forex based derivatives). This makes it one of the most active markets in the world and is particularly attractive for traders as Forex markets are open 24/7 with the exceptions of weekends. Many people are interested in trading Forex but are unsure as what actually drives the fluctuations found in the Forex markets, today we are going to examine some of the factors that drive movements in the international foreign exchange markets.

By far the biggest factor in the daily movements in the Forex market is pure speculation unrelated to underlying economic conditions. Some have stated that around 70% of all Foreign exchange trading is speculative, with major international hedge funds rise to prominence in the 90’s playing a significant role in the rise of currency speculation. While it is hard to gauge which way speculation will take a market, it is possible to use speculation to your favor when trading Forex by surfing the underlying speculative trends. 

Political Conditions 
Political conditions and even the political party in power can have an effect on movements in the Forex markets. Political stability is crucial, no right minded investor wants to hold the currency of a nation suffering from significant political instability due to the inherent risk that political instability holds. Real life examples where major currencies have suffered significant negative movements in currency valuations are plentiful. In recent history unstable governments in Thailand have had a significant downward effect on Thai currency prices. 2012 might see political instability in Russia also lead to a drop in the strength of Ruble, though such a movement will also be linked to capital flight out of Russia.

A currency of a nation which is either struggling with inflation or seeing significant increases in inflation will typically see a decrease in the strength of the currency. This is due to the relative buying power of the currency decreasing. Though sometimes inflationary pressure will lead to the expectation that the central bank will take action and raise interest rates to combat inflation, this expectation can in fact lead to a rise in the price of the currency.

Economic Growth 
One of the more obvious factors that effects the movement of currency prices. Generally a healthy economic outlook means that there will be strong demand for the currency and this will have an effect on strengthening the currency. Economic growth also attracts investment from outside sources meaning there may be a strong flow of capital arriving into the country.

Government Fiscal & Monetary Policy 
Governments use of fiscal and monetary policy can effect the price of currency. Typical a rise in interest will see hot money enter the country and strengthen the currency, while a lowering of interest rates will lead to money leaving the country in order to look for opportunities to earn greater interest. Monetary policy also plays a role as this can effect the money supply and can have complicated effects on the value of the currency. For example working out what the effect recent bouts of Quantitative easing will have on the currency prices has been difficult. In one way QE raises the chance seeing higher rates of inflation (a downward pressure on currency) but at the same time should stimulate positive growth in the short term. It can also be noted that Government efforts in controlling currency values have been terribly ineffective in recent times, with the belief governments could really control currency prices being crushed by Black Wednesday in 1992.

Government Deficits and Trade Balances 
Unsurprisingly large Government deficits, negative and worsening trade balances have a negative effect on currency prices. These indicators often reflect trouble for the economy as it shows imbalance and also shows a lack of international competitiveness. Of course positive trade balances and government balances have the opposite effect leading to strengthening of the currency on international markets. 

Psychological Factors 
Market psychological factors can also play an important role. Many of those trading on the Forex markets will be either knowingly or unknowingly effected by these psychological factors. These factors include flight to quality during international scares, long term trends and market rumors.

The Similarities & Differences between CFD’s & Spread Betting

One common confusion out there in the trading public at large is the difference between CFD’s & Spread Betting. The difference can be hard to see, but there is a very important similarity between the two products in the fact they are both leveraged investment products.

The Similarities 

  1. Both products are derivative based products. This means you don’t own the underlying share or commodity but are trading on movements in prices within that particularly asset class. 
  2. Both CFD trading and Spread Betting involve margin trading. You only put up a initial deposit to cover your position. 
  3. You have the option to both short and long asset classes. Allowing you to potentially profit during both bull and bear markets. 
  4. (UK) As you do not own the instrument you do not have to pay Stamp Duty. 
  5. Many of the markets on offer through both CFD trading and Spread Betting are the same. 
  1. Prices offered by spread betting companies are synthetic, i.e the spread is determined by the spread betting company. While CFD prices often reflect the underlying the value of the traded commodity. 
  2. One important thing to remember is that a CFD company makes its money of the commission and interest charged. If you lose money on the trade you undertook beyond these costs your CFD trader doesn’t make any extra money. This is different from Spread Betting companies. 
  3. CFD trades are undertaken in a the currency of the underlying asset, so there is a very slight risk from currency price swings. 
  4. Costs of financing a CFD trade are not quoted in the overall price as within in Spread betting. But there is a separate financing cost.
  5. A positive for CFD’s is that a CFD owner takes part in the corporate actions of the company, when holding a share CFD position.  
  6. CFD profits are subject to capital gains tax where as Spread betting profits are not as they are deemed to be gambling. Though Spread betting losses can’t be used to offset tax in the same way CFD losses can. 
  7. CFD’s can typically be held for longer periods than Spread bets can, which means in certain situations it may be more beneficial to use CFDs. Most spread bet traders aim to get in and out of a position within a day. 
These are the main differences between CFD trading and Spread betting. In future posts we will examine how and when one should use CFD trading and Spread betting. 

Part of The Beginners Guide To Spread Betting

Spread Betting The Very Basics

Today we are going to teach you about the very basics of spread betting using share prices as an example. We are going to break this down into several steps for you.

Step 1: Getting a quote. You ask for a bid-offer quote from a spread betting company. This can be done in several ways, online, telephone, etc.

Step 2: If you hold the belief that the value of that commodity (in this example Shares) is going to rise above the offer price which has been offered by the Spread betting company. In this situation you would buy.

If you hold the opposite belief to the one above, i.e namely that the commodity (in this example Shares) is going to fall below the bid price offered by the spread betting company, in this situation you would sell

Step 3: Pick your stake size, this is the amount you will risk per point movement of the commodity price. For example this can often be as low as 10p. If you place a 10p stake on a Buy – if the share price rises 10 points above the offer price offered by the spread betting company you would have made a £1 profit.

Step 4: Inform the spread betting company of the funds you wish to risk and place an reasonable stop-loss position in order to prevent large losses.

Example picture: 

Warning: Spread betting risk substantial financial loss, all transactions are at your own risk. Only speculate on financial spread bets within the limits you can afford. Spread betting may not be a suitable investment for all. Make sure that you understand the risks involved and seek independent advice to whether spread betting is suitable for you.

Part of The Beginners Guide To Spread Betting