The world relies on energy products. We turn crude oil into gasoline to run our cars, trucks, planes, and ships. We use natural gas to run our power plants and provide electricity. We also burn natural gas and heating oil to warm our homes throughout the winter months.
All of those energy products are traded around the world and prices vary in response to supply and demand. For traders, speculating on the price of specific energy commodities is a way to make money.
If you’re thinking about diving into energy trading, this article will cover everything you need to know to get started. We’ll highlight three online brokerages that support trading in a wide variety of energy commodities. We’ll also help you get a handle on how the energy market works and what drives prices for specific commodities, like oil and natural gas, up or down. By the end, you’ll have the information you need to decide if trading energy is right for you and to develop a successful strategy.
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How to Trade Energy in 3 Quick Steps
In a hurry to start trading energy products? Follow these 3 steps to get set up for trading at an online brokerage away.
1. Open a Trading Account
Open a free trading account with our recommended broker. As part of the registration process, you will be required to submit your personal details for KYC.
2. Deposit Funds
Once you have completed the registration and your account has been approved, you can transfer funds to your account by one of the provided payment methods.
3. Demo and Live Trading
Begin trading on a demo account. A demo account allows you to trade in real-time but also learn about the mechanics of energy trading and understand basic terms.
67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Step 1: Open a Trading Account
The first step in trading energy commodities is to open up an account with an online brokerage. Importantly, there is more than one way to trade energy products. We’ll focus on trading contracts for differences (CFDs) since these allow you to speculate on the price of a commodity without forcing you to take ownership of it. That saves you the hassle and cost of moving and storing barrels of oil or gasoline.
Since energy commodities like oil and natural gas are extremely popular among traders, most brokerages support trading these products. Let’s take a closer look at three of our favorite online brokerages for trading energy commodities.
1. eToro - Best for Beginners
eToro is one of the best online brokerages for first-time commodity traders. That’s because this platform has a social aspect that enables you to see what other traders are buying and selling. You can even automatically copy and modify their positions, which is extremely helpful when you’re first developing an energy trading strategy. You can also follow the platform-wide conversation about where the prices of crude oil and natural gas may be heading.
This broker also offers user-friendly resources for technical analysis. The built-in charting software is relatively stripped-down, but that can be a good thing if you’re just starting out with CFD trading. Unfortunately, though, the research tools don’t grow as you develop a more comprehensive strategy, so you may eventually need to branch out to another platform.
Another thing to like about eToro for energy trading is that it’s fairly inexpensive. To start, there are no trading commissions. Instead, eToro makes money off the spread—the difference between what you can buy an energy product for and what you can sell it for. Spreads on eToro are relatively narrow, so you won’t spend a fortune just to trade.
- Beginner-friendly: Look to other traders to build a strategy
- Social Trading: Platform-wide conversation to stay informed about trends
- Inexpensive: Spreads on energy CFD trades are low
- Limited Selection: CFDs available for crude oil and natural gas only
- Basic Research: Technical charting capabilities aren’t very advanced
2. Plus500 - Low-Cost Trading
If your brokerage charges high amounts to buy and sell energy commodities, you can end up taking a loss even on a trade that seems profitable. Enter Plus500, which is one of the lowest-cost online brokerages for energy trading we’ve seen. The spread is extremely narrow, fees across the platform are inexpensive and the account minimum is just $100.
Unfortunately, Plus500 does sacrifice some trader-friendly features in exchange for keeping costs down. The platform doesn’t offer professional charting or research tools like many of its competitors. There is a basic analysis tool built-in, so it's advisable that you're an experienced trader as there are no learning resources either.
Still, Plus500 does a nice job when it comes to offering a wide variety of energy commodities. In addition to buying and selling CFDs for crude oil and natural gas, you can trade in Brent oil, heating oil, gasoline, and low-sulfur gasoline.
- Low Spreads: Pay less per trade with narrow buy/sell margins
- Wide Variety of CFDs: Buy and sell Brent oil, gasoline, and heating oil
- Highy Regulated: Plus500UK Ltd is authorized & regulated by the FCA
- No Professional Charts: You’ll need to go elsewhere for commodity research
- Does not offer MetaTrader4 or 5, and scalping and hedging is forbidden
3. CryptoRocket - Best for Technical Trading
CryptoRocket is built around cryptocurrency trading, but this brokerage also allows you to trade CFDs around US gasoline, UK gasoline, and natural gas. The main advantage to using CryptoRocket is that you get access to extremely powerful technical charting tools, including the popular MetaTrader 4 software. With this charting software, you can create custom indicators and develop an automated trading strategy for energy trading.
This brokerage also makes it easier to manage your money. You get same-day withdrawals, which few other online brokerages offer. Plus, CryptoRocket uses straight-through-processing, which means your trades go directly to execution. There’s no worrying about market makers or internal delays that could interfere with the timing of your trades.
Of course, all of this comes with a price. Spreads at CryptoRocket are surprisingly high for energy CFD trading. For gasoline, the spread is around $0.30 per contract, and for natural gas, it’s a whopping $0.70.
- Powerful Chart: Get access to MetaTrader 4 software
- Straight-through-processing: Trades are executed immediately
- Same-day Withdrawals: Get your money when you need it
- High Spreads: Up to $0.70 per contract for natural gas
Step 2: Learn How the Energy Market Works
Before you jump into trading energy CFDs, it’s important to understand what moves prices for commodities like oil and natural gas up or down. The factors affecting every energy commodity are slightly different, but in general energy prices come down to supply and demand.
The supply of oil, natural gas, and other energy commodities is one of the biggest factors affecting energy prices. When supply goes up, energy prices drop; when supply diminishes, prices rise.
A lot of things can affect the supply of energy, but two of the most important things you need to keep in mind are politics and changes in production.
Politics and political instability have a particularly significant effect on the supply of oil and gasoline. That’s because a huge amount of the world’s oil production is based in the notoriously unstable Persian Gulf region.
Oil prices shot up during the Gulf War and at the start of the Iraq War because instability in the region threatened continued production. At other times, political disagreements between the US, Europe, and major oil producing countries like Saudi Arabia have resulted in temporary embargoes that dramatically raise the price of oil.
Production changes can also be extremely important. This is true for every energy product, but the best recent example comes from natural gas. As hydraulic fracturing technology spread across the US, American production of natural gas increased many times over. That’s flooded the global market with natural gas and driven down the price for the past decade.
Fluctuations in the expected output of oil can also impact prices. For example, discovery of a massive new offshore oil field or a country increasing production on its existing fields can drive down prices on the global market.
Demand is the other side of the price equation. When global demand for energy increases, the price of energy increases as well.
The number one thing that impacts energy demand is global economic growth. As the global economy improves, developing nations are electrifying, buying cars, and increasing travel and construction. All of that economic activity requires energy, which drives up demand and leads to higher prices for oil and natural gas. During economic contractions, this growth slows down and energy prices decrease.
Step 3: Choose an Energy Trading Strategy
Another thing you’ll need to decide on before you start trading energy CFDs is how you plan to profit. There are as many strategies for trading energy products as there are traders, and it’s up to you to find a strategy that fits your risk tolerance and profit goals. To help, we’ll take a look at some of the basic decisions that will go into building an energy trading strategy.
Choose a Commodity
Your choice of energy commodity to trade will impact all of the other aspects of your strategy. That’s because there are different factors influencing the price of different energy products, and price fluctuations can vary widely across products.
For example, crude oil, Brent oil, and gasoline typically see much greater price swings than natural gas and heating oil. Both supply and demand are less consistent, and political changes play a much greater role in determining oil prices than they do in determining natural gas prices.
Ultimately, your choice of energy commodity to trade should reflect your desired risk-reward balance.
Technical vs. Fundamental Analysis
Another decision you’ll need to make is whether you want to focus on technical analysis or fundamental analysis. Technical analysis focuses on recent movements in the price of a commodity and uses this data to predict where the price is headed. Fundamental analysis, on the other hand, attempts to predict the true market price for an energy commodity based on current supply and demand conditions.
Neither strategy is necessarily better than the other, and most traders use a mix of the two to inform their trading decisions.
Trade the News
The news has an enormous effect on the price of energy. After all, just about everything that happens, whether it’s politics, international relations, changes in the economic outlook, or even the weather, has an effect on the supply or demand of energy products.
Energy traders should always keep one eye on the news and be thinking about how headlines are likely to impact prices. More risk-tolerant traders can take advantage of short-term price fluctuations caused by news headlines.
Day Trading vs. Swing Trading
Finally, you’ll want to think about what your time horizon for conducting energy trades is. Do you want to buy and sell CFDs on the same day, or are you planning to hold contracts for several days at a time to take advantage of more slowly developing price trends? Day traders typically don’t hold any positions overnight, while swing traders may hold energy CFDs for several days or even several weeks.
Step 4: Open an Energy Trade
To demonstrate how to open an energy trade, we’ll walk you through the process for purchasing crude oil CFDs with Plus500. Keep in mind that the process for opening a trade is similar across most online brokerages for any energy commodity.
Before getting started, you’ll need to set up and fund your brokerage account. After that’s done, use the search bar to pull up the crude oil CFD. You can also look for Commodities or popular trade instruments since energy products are among the most-traded CFDs.
To buy crude oil, select buy and then enter your trade parameters. You have the option to automatically sell your CFDs when the price rises or falls to specific prices. Take advantage of this feature to protect yourself against significant losses. When you’re ready, click ‘Buy’ and your trade will be executed.
Energy products like oil, natural gas, and gasoline are among the most widely traded commodities in the world. By trading CFDs for energy commodities, you can get direct exposure to changes in energy prices as an investment.
When trading energy commodities, it’s important to have a sound strategy in place. Thanks to this guide, you have the information you need to understand the basics of how and why energy prices move as well as an idea of how to build your trading strategy. When you’re ready to start trading, be sure to use a reputable brokerage like one of the three that we’ve recommended.
What’s the difference between WTI crude oil and Brent oil?
There are two different benchmarks for crude oil: Brent oil, which is produced in the North Sea, and West Texas Intermediate (WTI), which is produced in the US. Brent crude typically sets the price for oil produced in Europe and the Middle East, while WTI crude is used to set prices for oil produced in North America.
Do crude oil and gasoline prices always move in tandem?
Most of the time, crude oil and gasoline prices move together. That’s because oil is the biggest input cost for gasoline production. But, you can see the prices diverge at times when oil refining capabilities can’t keep pace with crude production or when refinery costs increase for other reasons.
Does the price for natural gas rise in the winter?
Natural gas prices do typically rise in the winter because this energy source is used in heating systems around the world. However, the seasonal price change is typically accounted for when CFDs are underwritten. That means that winter demand will need to be higher than expected to benefit from the seasonal influence on natural gas prices.
At what times can I trade oil and natural gas?
WTI oil and natural gas trade from 8pm Sunday to 5pm Friday (Eastern time). There’s a daily break in trading for one hour each evening from 5pm to 6pm.