menu

Forex Brokers Offering Energies (Oil, Gas, etc)

Load more

This is one of the most exciting times to trade energy assets. It is a time when energy prices are at their most volatile, just after the wild ride of the 2020 pandemic. At the time, people thought that the storm would only last a few months. Little did we know that more exciting times were coming. If you have never considered energy trading before, then you should seriously start thinking of trading energy assets right now.

The good thing is that forex brokers offering energy trading are more common than they used to be in the past. Now it is possible to trade energy assets on the forex broker platforms you are used to. If you use MT4 or MT5, or even cTrader in your trading, you should be able to trade energy assets. But before we showcase the forex brokers offering energy trading, the question to be answered is: what is energy trading?

Energy Trading and Energy Assets

Energy trading is trading assets that make up the oil and gas industry products. The following are the energy trading assets you will find on the platforms of forex brokers offering energy assets:

  • Crude Oil
  • Natural Gas
  • Heating Oil

You are more likely to find crude oil and natural gas as the commonly traded energy assets on most forex broker platforms. So what are these energy assets, and how are they traded?

A) Crude Oil

Crude oil is the primary energy asset. It is the precursor of almost all energy products in many industries today. Be it aviation, welding, road transport, shipping, manufacturing, healthcare and in the beauty/cosmetic industries, crude oil is the precursor product for all hydrocarbons, plastics and other energy derivatives fuelling these industries. Indeed, there is virtually no industry today that does not depend on crude oil directly or indirectly. These industries exert a demand-supply pull that influences the crude oil price.

As far as energy trading is concerned, crude oil as an energy asset is divided into two: Western Texas Intermediate (WTI) blend and the Brent crude blend, the international oil benchmark. WTI crude is also known as US oil, as it indicates the price of the contracts of oil sourced from the US and North America. Brent crude is also known as the international pricing benchmark and is sometimes called UK Oil. There is a price differential between WTI and Brent crude, with Brent carrying a higher price than WTI. On the platforms of forex brokers offering energy trading, you will see the WTI and Brent crude listed as different contracts. So you can opt to trade US Oil or UK Oil.

Crude oil price is susceptible to certain factors affecting its production/supply and demand/utilization. China, Japan and India make up the three largest net importers of crude oil. Saudi Arabia, Russia, Canada, Venezuela and Libya constitute the major producers of crude oil. Iran and Iraq have at various times caused prices of crude oil to oscillate due to war, internal upheaval or sanctions blocking international oil sales. Understanding how these factors are interrelated is required for successful crude oil trading.

B) Natural Gas

Natural gas is a naturally occurring product just like crude oil. It should not be confused with the gas products that come from the fractional distillation of crude oil. Instead, natural gas occurs as the product layer on top of crude oil within a rock formation that carries both. During drilling, gas is reached first, before crude oil. The gas is either flared (if no use is found for it), or channelled into use for power generation or powering engines as compressed natural gas.

As far as the global economy is concerned, natural gas has a unique placement in production and utilization. Europe cannot produce all the natural gas it needs for its industrial and domestic uses. Most of Europe gets its natural gas from Russia via the Nord Stream 1 pipeline. This makes natural gas susceptible to fundamentals from the two regions.

Who are the Forex Brokers Offering Energy Trading?

This article showcases the forex brokers offering energy trading. These are forex brokers that allow you to trade crude oil (WTI and Brent) and natural gas CFD contracts.

What you get to trade is not the physical product. Instead, you trade the contracts based on the change in the prices of the underlying assets. The crude oil assets are based on the price of crude oil as traded on the New York Mercantile Exchange (NYMEX) and the Chicago Mercantile Exchange (COMEX).

You need to understand the contract specifications for the energy assets. Most importantly, you must know how each energy asset's pricing is represented and each point's monetary value in price movement.

  1. Price Quotes
  2. Monetary Value/Pip
  3. Minimum Contract Size
  4. Leverage and Margin Requirements

Price quotes for crude oil are to two decimal places, unlike forex pairs (priced to five decimal places). Crude oil prices are represented in dollars and cents, and price changes in whole numbers and not just decimals are possible, unlike in the FX market. This makes crude oil a volatile asset to trade with big money moves. Price quotes for natural gas are done to three decimal places. Some brokers have two-decimal pricing for natural gas.

How much is a pip worth when trading natural gas or crude oil? The forex brokers offering energy trading will indicate these under their contract specifications, along with the minimum and maximum contract sizes.

Trading with Forex Brokers Offering Energy Trading: What You Gain

What do you stand to gain when trading with forex brokers offering energy trading?

  1. You get access to assets that are volatile and which have a wide range of movement daily. This provides more trading opportunities than forex trading and opportunities to score good wins if profitable.
  2. The fundamentals governing the energy markets are well known and very predictable.
  3. The energy assets also have correlated forex assets. You can use crude oil and natural gas analyses to trade the correlated forex assets such as the USD/CAD, CAD/JPY or USD/INR.

Best Practices When Using Forex Brokers Offering Energy Trading

Energy trading may provide good reward opportunities, but the extra volatility and trading conditions put the onus of responsibility on the trader to ensure that best practices are adhered to if results are to be positive.

A) Risk Management Comes First

Energy assets have a wide range of movement. Risk management prevents you from sustaining a loss that has a debilitating effect on your account. It would be best if you used proper risk when sizing your positions, and your stop loss and profit targets. Use proper risk-reward settings so that a loss does not end your career prematurely.

B) Understand the Fundamentals Behind Energy Prices

Never take a single trade on the forex brokers offering energy trading until you fully understand the fundamentals governing crude oil and natural gas prices. Specifically, know the following and understand how to trade them:

  • Organization of Petroleum Exporting Countries (OPEC) meetings and production quota adjustments.
  • Weather patterns in the US Gulf Coast (hurricanes, etc).
  • Conflict in oil-producing countries.
  • China's industrial production and GDP data (and to a lesser degree, India).
  • Sanctions regimes on major oil producers.
  • Monthly demand and supply forecast reports from OPEC and International Energy Agency (IEA).
  • Crude oil inventories report from the API and EIA. (crude oil).
  • US Department of Energy Natural Gas Storage Report (natural gas).
  • Gas flows through the Nord Stream 1 Pipeline (natural gas).

These items provide the triggers for energy price movements. You can use the information to know how to direct your entries.

C) Maintain a Well-Funded Account

Margin requirements for energy trading are much higher than for forex trading. You must maintain a well-funded account to provide the correct margin for the leverage provided by the broker. It is also necessary to help your account withstand any price shocks due to market volatility. Many traders are unsuccessful, not because they do not know how to trade but because their accounts are not sufficiently funded to handle market volatility. Do not fall into this trap.

Conclusion

Now that you have been introduced to what energy trading is all about, we present a list of forex brokers offering energy trading to give you prospective info to spread your tentacles into another asset class with great potential for earning. Go through this list and see which of them have all you want to make an energy trading career successful.