A few years gone, most retail trading was concentrated in shares and currencies. Commodities and rare metals like oil or gold were for experienced and professional traders with large portfolios. Most of the action in the commodities markets was carried through futures exchanges, and trading was in giant lots.
Nowadays things are changed. Commodities are traded everywhere and spread betting traders do not miss an opportunity to have some oil lubricating their portfolios. Trading happens in small fractions and a spread better can place trades of just 50p per point at Finspreads or City Index.
Spread betting providers sometimes offer two flavours of oil to trade on: Brent Crude and WTI Crude or Light Sweet. There are more kinds of oil but those two are the most vital and the ones you are most certain to find within spread betting.
Brent Crude comes from the North Sea and is a blend of a few types of crude from the region. It is accountable for something near 70 or 75% of all oil trades around the Planet. Nevertheless in the US, WTI is utilized as reference instead , being cited in the news, TV, and all info sites.
WTI stands for West Texas Intermediate. This is prime quality oil with tiny quantities of sulphur, making it sweeter. That is why it is also known as light sweet oil.
The difference in quality makes WTI stand out but it doesn't mean WTI is dearer. In fact , at the time of writing, WTI is cheaper than Brent. The explanation is because quality is only one of the things that are accounted for when the price forms. There are lots of other variables to account for. Traditionally they have prices that roughly don't differ much from each other and when the spread dilates, it has a tendency to go back with time.
Spread betters can trade Brent Crude, WTI Crude, and the most notable difference between the 2. One conventional market in which investors like to trade is the Brent-WTI spread. That's essentially the difference in price between the two: Brent Crude price less WTI price. It is similar to being long the Brent and short the WTI. Because this spread has a tendency to 0, traders like to put trades when it dilates too much or when they think there are reasons for the cost of one sort of oil to move faster than the other.
The level of economic activity and, in particular, future prospects for growth are main drivers for oil costs. If the global economy is ready to expand quickly then more oil will be wanted to produce and thus the oil price is pressured up.
Regional Differences in the Oil Market
There are many factors influencing oil costs and that may account differently for each type of oil and therefore to change the Brent-WTI spread. Regional supply, disruptions in supply and natural disasters all affect unequally the two sorts of oil. Hurricanes having an impact on the Gulf coast customarily tend to elevate WTI price. They cause disruptions in the regions and led on to price rises. Regional demand is also key for prices. WTI is more often seen inside the US while Brent more in Europe and in the third World. If GDP growth in US is far better than Europe generally, WTI may increase quicker than Brent. When China is growing faster, maybe Crude can be pushed higher.
Politics has effects on the economy and therefore the oil market. This year we helped to unsteadiness in the MENA region. Issues in Libya, Egypt, Saudi Arabia, and many others, led on to some interruptions and to expectations of future interruptions that weighted more on Brent than on WTI.
Pipelines and the general substructure to conduct oil to the final client or to refineries are also of vital signification. In the US there are many pipelines connecting the Gulf Coast up to Canada and to conduct oil around the country. This year there had been an inversion of oil direction within the pipeline sub-structure that led to an accumulation of oil at Cushing, Oklahoma, pressing WTI price down that led straight to a record Brent-WTI spread.
In order to know the direction the Brent-WTI spread will take, a trader needs to evaluate all the factors that can create regional differences and change the demand-supply equilibrium differently for both kinds of oil.
Historic Relation Between Brent and WTI
It is currently time to have a look at some information to better understand the relation between the 2 sorts of oil.
The following table shows correlations, price changes and the spread for Brent and WTI for the period between 2005 and 2011. The dataset ranges from 20th March 2005 and 20th December 2011. This way, information for. 2005 and 2011 does not include the full year.
The correlation between Brent and WTI is high although variable across time. If we take a look at yearly price changes we clearly see that when the price changes in one particular direction for Crude then it is anticipated that the price for WTI changes in the same direction and with similar strength and vice versa. Regarding the Brent-WTI spread, it is less than 2.00 on average but this year it dilated to a mean of 15.44.
The above chart shows that Brent and WTI move very closely but Brent jumped a touch more in 2011 creating a type of an opening between the two. The chart below shows that the spread touched near 30 this year but started decreasing after that time and now sits below 10.
Start Trading the Brent "WTI Spread
Now that we have identified the primary drivers for price in the oil markets and after studying the connection between Brent and WTI, it is time to make use of the information and data to put spread trades.
As we have learned, you could have in mind that: 1) the spread relies upon the development of each oil market separately, and there are many regional factors that affect it as we have seen, and 2) the spread has a tendency to go back to near nil after widening.
After studying the market, it's time to place the trades. Capital Spreads, as an example, lets you trade directly on the Brent-WTI spread. Others that do not have such a market still permit you to do the same. Just stake the same amounts on each oil market but in opposite directions and you'll get the same position as you would with a spread market. It's that simple. Nonetheless, there some disadvantages deriving from the simulated position: it will need you a larger margin requirement, because the system will not offset the hazards of the long with the short position; it will cost you more apropos spreads; it'll need more attention, because you will need to monitor 2 positions instead of a single one; it'll need changes in stop levels, because you can't set a stop for the entire portfolio losses but just for each article.
Nowadays things are changed. Commodities are traded everywhere and spread betting traders do not miss an opportunity to have some oil lubricating their portfolios. Trading happens in small fractions and a spread better can place trades of just 50p per point at Finspreads or City Index.
Spread betting providers sometimes offer two flavours of oil to trade on: Brent Crude and WTI Crude or Light Sweet. There are more kinds of oil but those two are the most vital and the ones you are most certain to find within spread betting.
Brent Crude comes from the North Sea and is a blend of a few types of crude from the region. It is accountable for something near 70 or 75% of all oil trades around the Planet. Nevertheless in the US, WTI is utilized as reference instead , being cited in the news, TV, and all info sites.
WTI stands for West Texas Intermediate. This is prime quality oil with tiny quantities of sulphur, making it sweeter. That is why it is also known as light sweet oil.
The difference in quality makes WTI stand out but it doesn't mean WTI is dearer. In fact , at the time of writing, WTI is cheaper than Brent. The explanation is because quality is only one of the things that are accounted for when the price forms. There are lots of other variables to account for. Traditionally they have prices that roughly don't differ much from each other and when the spread dilates, it has a tendency to go back with time.
Spread betters can trade Brent Crude, WTI Crude, and the most notable difference between the 2. One conventional market in which investors like to trade is the Brent-WTI spread. That's essentially the difference in price between the two: Brent Crude price less WTI price. It is similar to being long the Brent and short the WTI. Because this spread has a tendency to 0, traders like to put trades when it dilates too much or when they think there are reasons for the cost of one sort of oil to move faster than the other.
The level of economic activity and, in particular, future prospects for growth are main drivers for oil costs. If the global economy is ready to expand quickly then more oil will be wanted to produce and thus the oil price is pressured up.
Regional Differences in the Oil Market
There are many factors influencing oil costs and that may account differently for each type of oil and therefore to change the Brent-WTI spread. Regional supply, disruptions in supply and natural disasters all affect unequally the two sorts of oil. Hurricanes having an impact on the Gulf coast customarily tend to elevate WTI price. They cause disruptions in the regions and led on to price rises. Regional demand is also key for prices. WTI is more often seen inside the US while Brent more in Europe and in the third World. If GDP growth in US is far better than Europe generally, WTI may increase quicker than Brent. When China is growing faster, maybe Crude can be pushed higher.
Politics has effects on the economy and therefore the oil market. This year we helped to unsteadiness in the MENA region. Issues in Libya, Egypt, Saudi Arabia, and many others, led on to some interruptions and to expectations of future interruptions that weighted more on Brent than on WTI.
Pipelines and the general substructure to conduct oil to the final client or to refineries are also of vital signification. In the US there are many pipelines connecting the Gulf Coast up to Canada and to conduct oil around the country. This year there had been an inversion of oil direction within the pipeline sub-structure that led to an accumulation of oil at Cushing, Oklahoma, pressing WTI price down that led straight to a record Brent-WTI spread.
In order to know the direction the Brent-WTI spread will take, a trader needs to evaluate all the factors that can create regional differences and change the demand-supply equilibrium differently for both kinds of oil.
Historic Relation Between Brent and WTI
It is currently time to have a look at some information to better understand the relation between the 2 sorts of oil.
The following table shows correlations, price changes and the spread for Brent and WTI for the period between 2005 and 2011. The dataset ranges from 20th March 2005 and 20th December 2011. This way, information for. 2005 and 2011 does not include the full year.
The correlation between Brent and WTI is high although variable across time. If we take a look at yearly price changes we clearly see that when the price changes in one particular direction for Crude then it is anticipated that the price for WTI changes in the same direction and with similar strength and vice versa. Regarding the Brent-WTI spread, it is less than 2.00 on average but this year it dilated to a mean of 15.44.
The above chart shows that Brent and WTI move very closely but Brent jumped a touch more in 2011 creating a type of an opening between the two. The chart below shows that the spread touched near 30 this year but started decreasing after that time and now sits below 10.
Start Trading the Brent "WTI Spread
Now that we have identified the primary drivers for price in the oil markets and after studying the connection between Brent and WTI, it is time to make use of the information and data to put spread trades.
As we have learned, you could have in mind that: 1) the spread relies upon the development of each oil market separately, and there are many regional factors that affect it as we have seen, and 2) the spread has a tendency to go back to near nil after widening.
After studying the market, it's time to place the trades. Capital Spreads, as an example, lets you trade directly on the Brent-WTI spread. Others that do not have such a market still permit you to do the same. Just stake the same amounts on each oil market but in opposite directions and you'll get the same position as you would with a spread market. It's that simple. Nonetheless, there some disadvantages deriving from the simulated position: it will need you a larger margin requirement, because the system will not offset the hazards of the long with the short position; it will cost you more apropos spreads; it'll need more attention, because you will need to monitor 2 positions instead of a single one; it'll need changes in stop levels, because you can't set a stop for the entire portfolio losses but just for each article.
About the Author:
There are financial spread betting tips you can learn from spread betting companies such ig index and town index.
No comments:
Post a Comment