By Thomas Bainbridge
It’s 2010 and the US Oil market is now at its highest level since the falls from $147 in July 2008.
Despite the market being at a recent high, at the moment it continues to be a dangerous market to bet against. One must speculate that the appalling winter weather across the Northern Hemisphere might be depleting reserves more than forecast.
There is room to both the upside and also the downside and the markets are very volatile at the moment. This is particularly true around the weekly oil inventory numbers. Having said that, we recently saw that, for those who were very quick, there were opportunities on both sides of the market.
During a recent data release, the immediate reaction to the oil inventory data took the price $0.60 higher and then $1.50 lower in the next few minutes, only to reverse once again and rally $2.50 over the rest of the session.
If you are interested in the trading the oil markets then an increasingly common form of trading that many investors are turning to is spread trading. The speed at which you can trade as well as the easy access to markets like Oil, Gold and World Currencies make it worth investigating further.
There are downsides to all forms of investing and with spread trading you need to be careful because you can lose more than your initial investment.
Nevertheless, spread betting solves a lot of problems when it comes to tax, simplicity, speed and the range of options.
For example, there is no capital gains tax, no stamp duty and no income tax on spread betting*.
You can, of course, place crude oil spread bets online. You can also get that personal service over the phone. There is the added benefit that some of the most popular markets can also be traded outside normal market hours. For example, during the week, you can trade both US Oil and Brent Crude Oil 24-hours a day.
As mentioned, any form of speculative investment does have its risks but there are a few steps you can take to reduce your level of risk. Keeping small stake sizes is a useful risk management technique.
Also, adding a Guaranteed Stop Loss to your spread bet can help to reduce the risks. If you start losing money on a market and the market continues to move away from your position then your spread bet will be closed. So whilst you will have lost money on the trade, you won’t lose any further funds even if the oil market continues to move against your original trade.
Before you trade though, note that spread bets do carry a high level of risk. Before trading, ensure that spread betting matches your investment objectives. Familiarise yourself with the risks that are involved. If necessary, seek independent advice.
* According to current UK and Irish tax law. Tax law can be changed or may differ depending on your personal circumstances.
A leading financial author based in the heart of London’s Financial District. Thomas Bainbridge is a respected commentator on the commodities markets.