Crude Oil Trading

The Indian stock market brings a lot of trading opportunities for traders to earn profit. But what if you get a chance to earn profit from the global market volatility. Crude oil trading can provide you with such an option.

Before knowing crude oil trading, there might be several questions running through your mind. 

• What is crude oil? 
• What is commodity trading? 
• Is it safe to trade in crude oil? 
• How to begin trading in crude oil? 

In this article, the majority of your doubts and questions will be covered. But before that, let us understand what crude oil means and what commodity trading is. 

The base or the foundation of petrol (transport oil) and many other things is crude oil. It is extracted from below the ground by drilling.

Crude Oil Trading in India

Crude oil trading is a part of commodity trading, so you need to know every detail about commodity trading and how it functions. 

Now when it comes to trade in commodities you need to look for the stockbroker offering you such a facility. In general, the broker registered with the commodity exchanges like MCX and NCDEX allows you to trade in commodities like crude oil.

Digging a little deeper about the crude oil trade, crude oil has always been a crucial asset in the economy of a country. With the onset of commodity trading, this asset has also gained popularity. In India, crude oil trading is on an uphill, and let’s now unravel every detail about it. 

Crude oil trading is a good deal as it has a global appeal, so the profits gained are not limited. Commodity trading in India started before many countries and has finally bounced back after going through many downfalls. 

Once an investor is familiar with the market’s prices and fluctuations, crude oil trading can give access to long-term and short-term benefits. Crude oil trading is a beneficial and significant commodity to trade-in. 

You should remember that you are trading in crude oil, and it is one of the most liquid commodities available in the world. Before starting a commodity trade in crude oil, here are few important points that you must consider. 

• MCX ranks third in crude oil trading.
• It is a highly volatile commodity
• Crude oil is generally traded as a futures contract.
• The price fluctuation depends upon its supply and demand and therefore one must be alert while trading in crude oil.
• It works with technical as well as fundamental analysis.
• You need to be very specific about the strategy and must stick to it to make a profitable trade.

Some more facts and basics of crude oil trading in India are:

• A crude oil contract allows you to purchase crude oil at today’s price but take the delivery date in the future.
• The maximum order size is 10,000 barrels. 
• The crude oil trading margin is approximately 5 percent. 
• The contract usually expires either on the 19th or the 20th of every month. 
• Lot size- 10 barrels for mini and 100 barrels for main 
• Price- Per barrel 

Investing in commodities, especially oil, where the prices fluctuate a lot is often a risky business. There have to be specific strategies to smoothen the process for every investor, but before jumping to the strategy, here is the process of how to start or do crude oil trading in India. 

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How to Trade Crude Oil in India? 

Crude oil trading has now become a growing interest among investors. Now that we have seen the various benefits and details attached to it, it is important to know how to trade crude oil in India. 

There are various things that you should keep in mind when you are beginning to set a base for crude oil trading. 

• Choose a broker that is registered with MCX or NCDEX, which are the commodity trading exchanges. If you open a Demat account with a broker that is not registered with these stock exchanges, you will not be able to trade the commodities. 
• Make sure that the commodity trading account is activated before you start trading crude oil. 
• Various brokers charge different charges for the activation of the commodities segment. Although there are some brokers that do it absolutely free as well. 
• It is also important for a trader to submit income proof when you want to activate the commodities segment. 
• Once you open the account, download the mobile trading app or log in to the web application.
• Choose crude oil and pick the specific strategy to make a profitable trade.
• Follow the steps of trading, book your profit and enter the stop loss value to get the most out of the trade.

Now that we know what you essentially need to do crude oil trading, let us have a look at the various brokers that provide you with this facility and how you can do it. 

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Choose The Broker for Crude Oil Trading 

There are many risks associated with commodity trading, especially crude oil trading. But, if done correctly, it can produce significant benefits and visible profits. 

It is always a plus point to seek a broker’s help (one specializing in commodity trading) to maximize the opportunity. 

The question here is, how to choose the stockbroker for crude oil trading? Let us look at some of the features you can check before finalizing a commodity broker. 

• Affiliated exchange– There are a lot of commodity exchanges dealing with crude oil trading. You, as an investor, should check if the broker is associated with any exchange or not. Also, check that the registration number should be mentioned very specifically on the website of the broker. 
• The popularity of the broker- Always check the number of customers a broker has and the reviews. The number of customers can tell about the broker’s popularity, and then you can proceed with your decision.
• Brokerage-  Always compare the brokerage charges of various brokers. There was a time when brokers used to charge hefty amounts. Now, the charges have decreased to a great extent. Usually, the brokers charge Rs. 20 as brokerage. It, therefore, becomes very crucial to analyze the charges and then choose one.
• Customer Support- You should also check what kind of customer support is provided by the broker. 

There are various brokers available for commodity trading, some of the best being Zerodha, Upstox, Fyers, among many others. 

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Crude Oil Trading Account

Once you choose the stockbroker for crude oil trading, the next important step is to open the crude oil or say commodity trading account.

Most of the stockbroker offers 2-in-1 or 3-in-1 account thus providing the facility to get a commodity trading account along with demat account. 

For this, you need to follow the steps below:

• Visit the website of the stockbroker and click on ‘Open a Demat account’.

Make the process simpler by reaching out to us for account opening.

• Enter the mobile number and name and get your mobile number verified by entering the OTP sent to your mobile number.
• Now enter the Aadhar card and PAN card details along with bank account details.
• Further, verify the information by entering the OTP sent to the mobile number registered with your Aadhar card.
• Move ahead to upload documents like PAN card, Bank passbook, photograph.
• Since crude oil is traded in futures and options it is therefore essential to submit the income proof.
• Upload last 3 months bank statement, ITR acknowledgement slip or Form-16.
• Once done, proceed further for the IPV where you need to do the e-sign by entering the Aadhar card number and OTP received on the linked mobile number.
• On verification, the account gets activated in a few minutes.

*Pay the charges applicable for the commodity account. However, most of the stockbroker offers free account opening facility but there are few stockbrokers like Zerodha that charges ₹100 extra for commodity trading account opening. 

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Crude Oil Trading Strategy 

Dealing with crude oil when dealing with commodity trading gives you a fair chance to earn decent money. But at the same time, it involves high risk.

Whenever entering a risky ride, it is essential to follow the best strategy for crude oil trading. 

To follow the best strategy, you must follow the three basic steps; technical analysis, fundamental analysis, and risk management. 

Once you are familiar with the three analyses and the right way to carry them, the chances of suffering subsequent losses with cut down to a great extent.

So what actually affects the stock prices especially the crude oil when trading in the Indian stock market?

Some fundamental factors affect the demand and supply of crude oil. These factors, in turn, cause all the fluctuations in the prices of crude oil.

Once a trader gets the hang of this fundamental analysis, he/she can proceed further and start with the technical analysis. 

The technical analysis will give the buy and sell signal. It is only after this that the trader will be able to do the risk management. It will be better if we understand it with the help of an example. 

Let’s assume that on a particular day, there was a cut in fuel production, which also decreased the supply. This is the fundamental analysis and will help the investor to trade in crude efficiently. 

A trader can now study the various charts and technical indicators and find crude market trading signals to enter the market. This step is the technical analysis. 

The final step is to see the risks and manage them. So, what are the strategies that you can apply to make it easier? To simplify it, a trader can look for the recent high and set the take profit there. The stop loss can be placed at the point of the current low. 

In this way, the trader can make sure that the crude oil trading goes smoothly and efficiently. 

Now there are many strategies and indicators that can help you in making a trading decision. But specifying one proven way to increase the chance of profit is to use the combination of Stochastic RSI with CCI indicator. 

Let’s learn how to use this strategy for crude oil trading.

Stochastic RSI With CCI Indicator

The stochastic RSI in combination with the CCI indicator proves to be a better strategy for crude oil trading.

But how to use this strategy to get better results, follow the steps below:

• All you have to do is open the chart and select the indicator. Select 20 periods for Stochastic RSI while 200 periods for CCI indicator to get better results.
• Here the positive reading above the zero line is the bullish signal and thus the trader can go long on the basis of this interpretation. While the negative reading or the reading below zero line interprets a bearish signal that is helpful in making a selling decision.
• Now determine the stochastic indicator to assure that it shows an overbought condition for a prolonged period of time.
• To make the buying decision take two things into consideration:
  • Stochastic indicator drops to the oversold territory after remaining in the overbought condition for a prolonged period
  • CCI indicator reading should be above 0 preferably above 100+ lines.
• Finally, make a buying decision when the stochastic oscillator crosses below 20 levels.

You can make a profit by continuously tracking the trade by the end of the day or when the CCI indicator drops below zero line, whichever condition comes first.

Other than this you can use the ADX indicator, which gives an idea of the strength of the trend. In all for day trading in crude oil, learn how to use ADX indicator for intraday trading and gain better profit.

Where to Set Stop Loss in Crude Oil Trading?

Along with booking a profit the above strategy also helps you in setting a stop loss.

Once you make a buying decision, you need to look for the specific indication to set the stop loss in order to minimize the risk of loss in trading.

Especially if you are doing intraday trading then it becomes even more important to use a stop loss.

But here comes the major challenge how to set stop loss in intraday trading?

However, there are different methods, but here you can look at the stochastic indicator and pick swing low where the indicator reading was below 20 points before entering the prolonged overbought condition.

Now once you understand the strategy, place the order using the respective app of the broker.

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How to Trade Crude Oil in Zerodha? 

Zerodha is one of the leading discount brokers in the nation. If you are looking to start your crude oil trading, you need to activate the commodity segment in Zerodha. 

If you are activating the account online, you have to pay ₹100 and if you are opening an account offline, you need to pay ₹200. 

Once you have successfully opened a commodity account with Zerodha, you can easily start trading.

• Log in to the account using the login credentials.
• Once you have successfully logged in, you will see a search bar. Search the crude oil commodity. .
• You can only trade commodities in futures and options, so select one that is most suitable to you. 
• Once you have selected the desired strike price, a buying/selling window will appear on the screen. 
• Enter the price, quantity, and order type. 
• Click on buy/sell. 

After this, your order will be successfully placed in the market. You can trade in crude oil from 9 am-11:30 pm (daylight savings hour) and 9 am-11:55 pm (November-March). 

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How to Trade Crude Oil in Angel Broking?

If you have a Demat account in Angel Broking and want to trade crude oil in it, you can easily do that. All you need to do is fill an application to activate the commodity segment in Angel Broking. 

You don’t have to pay anything but you will have to maintain an initial margin when you are opening a commodity account with Angel Broking. This margin is usually 5-10%

If you want to trade ₹2,00,000 and the initial margin is 5% then you will to pay ₹10,000 as the initial margin.

Once you have opened a commodity account in Angel Broking, you can trade crude oil using the following steps. 

• Log in to your Angel Broking account using your login ID and password. 
• Now on the search bar type crude oil.
• From the options now select the strike price that suits you the most. 
• On selecting, now you will see the buy/sell option.
  • A buying/selling window will open after this.
  • Enter the price, order type, and quantity. 
  • Click on buy/sell. 

Your order will be placed. 

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How to Trade Crude Oil in Upstox? 

Upstox is also a leading player in the stockbroking industry and you can now trade commodities in Upstox.

All you need to do is activate the commodity segment in Upstox. If you want to open a commodity account with Upstox, you will need your bank statement of 6 months. 

You will also be required to share your live picture and your geolocation. Once you have successfully completed the activation, you can trade crude oil in Upstox. 

• Log in using your login credentials. 
• On the home screen, you will see a search bar. Search crude oil in the search bar. 
• Since you can only trade in futures and options in commodities, you can also analyse the option chain. 
• Click on the desired strike price and click on buy/sell. 
• A buying/selling window will open. 
• Enter the price, quantity, order type, and click on buy/sell.

Your order will be successfully placed after this. 

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How to Trade Crude Oil in ICICI Direct? 

ICICI direct like all the other brokers registered with MCX also allows you to trade in commodities and therefore in crude oil as well. All you need to do is activate the commodities account of ICICI Direct and start trading. 

If you are an existing customer of ICICI direct and have a 3-in 1 Demat account, then you have to just accept the terms and conditions for the commodity segment and it will be activated. Remember that the securities in your bank account should not be less than ₹5000.

If you have linked some other bank with your ICICI Demat account, then you have to provide the 6 monthly bank statement and other necessary documents to activate the commodity segment.

You can trade crude oil in ICICI Direct by following the given steps.

• Perform ICICI Direct Registration if you have not already.
• Open the trading platform of ICICI Direct and log in using your username and password. 
• Once you have successfully logged in, click on the commodities tab. 
• Search for crude oil and click on the contract that suits you. 
• Now enter the quantity, price, order type, and click on place order. 

Your order will be successfully placed and you can easily trade-in crude oil. 

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Tips on Crude Oil Trading 

The traders are often not well aware of all the crude oil trading tips, and because of this, they cannot benefit from crude oil trading. 

It is essential to understand the gaining points and also the hidden pitfalls of trading. Below are some tips that an investor should follow to profit from crude oil trading. 

• Crude oil movement

The foremost tip to successfully trade crude oil is to study the movement of crude oil and its reason. The global economy and prosperity play a crucial role in determining the demand and supply of crude oil. 

It is best to sell the crude oil market when the supply is growing, but the global demand is rising. You can bid on crude oil at a much higher price when the demands increase, but the production is comparatively less.  

During the global pandemic in 2020, crude oil prices went subsequently low as the global economy was hampered. 

• Differentiate between the crude oils 

To trade in crude oil, you must understand the difference between WTI and Brent crude. There is a difference in the production of both, and hence the trading. Brent crude oil is produced offshore, while the WTI is made in the US. 

India consumes Brent crude oil. Before you place your bet on any of the given crude oil, make sure that you know and have analyzed the individual performances of both. 

• Institutional Investors 

You can always look up to institutional investors for guidance when trading in crude oil. The institutional investors, including national oil companies, purchase crude oil in larger quantities. An investor can always look up to them to secure a safe space and benefit from the trading. 

An investor can study the strategies of the institutional investors and then understand the market accordingly. 

• Right Strategy 

Another essential step to be successful in crude oil trading is to choose the right strategy. There are a lot of experts and investors competing in crude oil trading to make the maximum profits. 

The investors must have a way figured out. The strategies should not be driven just by emotion but by sheer facts and analysis.

Following these crude oil trading tricks can give you an upper edge in the world of crude oil trading. 

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Crude Oil Trading Time 

When it comes to commodity trading, the market is open almost for the majority of the week. But, all the days and hours are not equally suitable for trading. A lot of factors affect what day and time are the best suited for crude oil trading. 

In commodity trading, every minute of the day brings something unique. If you want to be a long-term investor, you must understand the best time for yourself to trade. This will help you in protecting your capital in times of crisis. 

You should know when to enter and exit a market. A market should have high liquidity and high price volatility. Below listed are the best crude oil trading hours to make the maximum out of it. 

 

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Conclusion 

Crude oil is an essential asset in a country’s economy, and therefore crude oil trading is a crucial aspect of the economy’s growth. If you want to learn how to do crude oil trading, then first it becomes important for you to know the basics of technical and fundamental analysis of stocks. 

Further, the most important step is to pick the right stockbroker.

It is good to do research of the broker offering the best trading app in India, research tips, and required indicators to do analysis before trading.

In all, crude oil trading is a great way to earn enough profits if done the right way. If not done precisely and carefully, various crude oil trading risks can drag the investor into significant losses. So choose wisely, and turn this commodity into an asset. 

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Now start commodity trading by opening a Demat account with the renowned stockbrokers in India. Get in touch with us and we will assist you in picking the right stockbroker.

 

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