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How to Start Trading Brent Oil

Date Modified: 19/05/2024

Are you an aspiring energies trader but don't know how to start Brent trading? You're not alone.

Brent oil (EB) trading carries its own intricate uncertainties: what moves Brent prices, what is physical delivery, why speculators matter, and more.

However, this uncertainty can provide some clarity when you have the know-how to utilise various commodity trading methods.

This article aims to arm you with knowledge that helps you evaluate which Brent trading instruments may best suit your risk appetite, budget, and trading style, among other things. We aim to transform your initial uncertainty into better-informed trading decisions by addressing the following areas:

  • What is Brent trading today and how important its derivatives are for setting global crude oil prices.
  • The role of major players and speculators and how their trading affects the Brent market.
  • Brent oil's multilayered and interconnected derivatives and how they benefit the Brent market.
  • Diverse ways to trade Brent oil, including Brent spot, futures, CFDs and oil-related stocks.
An illustration of Crude Oil trading

What Is Brent Trading?

Brent trading developed in 1980 following the launch of the International Petroleum Exchange (IPE) in London. A year later, in 1981, the forward Brent market commenced trading paper contracts linked to physical Brent cargoes. However, Brent crude oil futures contracts were only linked to the forward market in 1988, marking the official launch of Brent crude oil futures markets. Today, in 2024, most Brent crude futures are traded on Europe's Intercontinental Exchange (ICE), the most common place to reference the price for "Brent crude". In the US, they are traded on New York's Mercantile Exchange (NYSE).

A timeline of the Petroleum Stock Exchange

According to the Palgrave Handbook of International Energy Economics, 2022, Brent oil is critical for setting global oil prices. Brent prices are set by active market players, including large traders or trading arms of oil companies, and can be used by others to price physical Brent crude and hedge. However, the role of speculators is also deemed important, as they add liquidity to the market, albeit potentially increasing volatility.

For speculators, Brent trading is the act of buying or selling Brent oil in an attempt to profit from changes in the price of Brent crude. It concerns speculating on future price movements using Brent crude trading products that require no deliverable contracts.

To start Brent trading, one must learn the main factors moving Brent crude prices, technical indicators, and how to read price charts, among other things. Understanding the differences between Brent markets and their complex instruments is also very important before initiating any trading activity on any given day in any given asset class.

How to Trade Brent

As one of the most traded and liquid markets and the leading Benchmark for crude oil, traders must have a good grasp of this valuable commodity and its derivatives to understand better how to trade Brent.

The Brent crude market is divided into the paper market for forward oil contracts and the Dated market for delivery of the physical commodity with assigned loading dates. These two layers consist of four markets. The physical Dated Brent cargo market constitutes the first layer of the Brent benchmark. In contrast, the other layer comprises the Brent forward market, Brent futures contracts, and Brent swaps and options. The forward Brent market is actually used to set the price for dated Brent cargoes with a maturity of 10 to 30 days, as buyers need at least one month's notice to arrange tankers and coordinate with oil terminals.

The interconnectedness of the markets allows participants to hedge risks and manage exposure to Brent oil price fluctuations. According to Chicago's Mercantile Exchange (CME Group), Brent and its derivatives have evolved to address short and long-term risks in the North Sea crude oil market as production over the years has declined and other grades have been added to the Brent blend. For example, the Oxford Institute for Energy Studies conducted a study published in 2019 which showed that Brent contracts for difference (CFDs) were developed to hedge the basis risk between Brent forward contracts and Dated Brent spot prices, as the entire causality is based on a cash-and-carry arbitrage relationship. Most CFDs are based on Brent crude futures contracts.

Brent oil market structure

However, Brent crude oil can be traded using various derivatives. Some of the most prominent ways to trade Brent oil are Brent spot, Brent crude futures contracts, and Brent CFDs, including stock CFDs related to Brent oil. Here's a comparison table based on some features traders must be aware of:

Feature

Brent Oil Spot Trading

Brent Futures

Brent CFDs

Brent Share* CFDs

Symbol

EB

BZK4

EB CFD

Examples: Shell (RDSA-L), PetroChina (0857.HK)

Underlying Asset

Real Brent crude oil

Set amount of real Brent crude oil

Brent crude oil price

Shares of Brent crude oil-related companies

Delivery/Expiration

T+2 settlement, no expiration

Future date, rollover common

No daily expiration, rollover

No daily expiration, rollover

Ownership

Own the barrels

Physical delivery (often avoided)

No ownership of actual shares

No ownership of actual shares

Trading Leverage

None (no borrowing)

Leveraged (margin required)

Leverage involved

Leverage involved

Risk Level

Considered less risky

Riskier due to leverage

High risk due to higher leverage

High risk associated with high leverage

Physical Delivery

Immediate to buyer

Required (mostly avoided)

No

No

Market Price Reflection

Current spot price

Expected future price

Current price fluctuations

Price movements of company shares

*Availability depends on the operator.

What Is Brent Oil Spot Trading?

Brent oil spot trading refers to Dated Brent trading, the Brent crude with specified loading dates. It references Brent crude oil spot cargo traded from oil fields in the North Sea and represents the current market price; the Brent oil spot prices the commodity can be bought or sold immediately. Trading spot involves almost instant delivery to a buyer without any future delivery or expiration date. In fact, most spot market transactions have an ICE Brent settlement date of T+2, meaning they settle within two business days.

Brent spot trading means trading the real underlying Brent oil, where one owns the barrels. Oil traders can take advantage of short-term price fluctuations in the Brent oil market through spot trading with their own funds. It involves no borrowing money to leverage or short-sell, so spot trading is considered less risky.

On the other hand, actual futures contracts and CFDs are leveraged products since traders only need to deposit a margin (a fraction of the total crude oil contract value). Examining Brent spot vs futures trading or Brent oil CFDs is similar to comparing unleveraged and leveraged trading, which is derivatives trading that mirrors the price of Brent crude oil and involves borrowing funds from a broker to gain more buying power.

Spot trading advantages over margin trading

Trading Brent Futures

Brent crude futures contracts allow traders to agree on a price for a set amount of Brent oil to be delivered at a future date. Brent crude oil futures prices reflect expected changes in oil supply and oil demand, the risk-free rate of return, and storage and transportation costs until the futures contract matures. Brent oil futures trading requires traders to physically deliver or take delivery of oil, so most traders roll over their positions to a later month instead of taking delivery.

The Brent forward market enables traders to trade oil cargo sizes for a few months ahead (e.g. the March 2024 forward contract expired on the last business day of January 2024). This allows speculators to profit if the actual price differs from the futures price. When the futures price is above the spot price it is called “Contango”, while “Backwardation” is when it is lower than the spot price.

Brent contago and backwardation

ICE Brent crude oil futures contracts can be cash-settled against an index price in the forward Brent market, the ICE Brent index. The index represents the 30-day price average of the physical market for the relevant delivery month. The settlement price is calculated based on a 2-minute weighted average price from 19:28 London time.

Trading Brent CFDs Explained

CFD trading permits traders to speculate on the price of Brent without owning the physical asset. Profits and losses from the price difference between a position's opening and closing are part of an agreement with the CFD broker. Brent CFDs vs futures primarily differ in their expiration (futures expire, CFDs do not require expiration) and structure (futures are exchange-traded and are longer-term investments). Trading Brent oil CFDs involves higher leverage than traditional trading, letting traders control larger positions with less capital and exposing them to higher risks.

CFD futures traders have to pay a spread when trading. Some other costs can include commissions and other fees. There is usually no trading commission for trading commodities and forex, but CFDs include incorporated spread rates. CFD oil trading does not involve daily expiration but is subject to an automatic rollover to the next day without the closing of positions.

Trading CFD Shares Related to Brent

By trading CFD shares related to Brent oil*, investors can gain exposure to the energy commodity trading market and potentially benefit from Brent oil price movements without owning the shares. Trading share CFDs of major oil companies is another way to speculate on Brent prices.

Several oil trading companies are exposed to Brent crude markets in diverse ways, providing numerous options for trading CFD shares. A recent journal on Energy Economics went as far to confirm the 'one great pool' hypothesis, which relates to the co-integration of Brent and WTI Crude Oil (CL) prices. The authors argued that WTI and Brent oil prices are driven by the same dynamics, suggesting a similar spillover between markets despite the occasional regional variations; WTI is extracted in the US, whereas Brent is extracted in the North Sea. Although the list of CFD shares related to Brent oil markets could be enormous, below we reveal a few North Sea trading companies and some others correlated to Brent markets via North Sea oil activities along with their respective industries*:

To start trading Brent shares or Brent crude oil derivatives, traders must choose a reliable broker, analyse market trends using both fundamental analysis and technical analysis and have an effective crude oil day trading strategy, among other things. However, they will be less likely to succeed if they fail to understand how to start trading Brent oil and its derivative oil products. Plus500 stock CFDs trading can occur in the live markets or using a CFD demo account, where your trading journey can begin at no risk.

*Availability dependent on the operator.

How to Start Brent Trading with Plus500

If you are interested in how to get into oil trading, you can start Brent trading with Plus500 by following these steps:

  1. Open a Trading Account: Sign up on the Plus500 trading platform or Plus500 trading app and complete the registration process.
  2. Verify Your Account: Verify your identity and complete any required verification steps per regulatory requirements.
  3. Deposit Funds: Deposit the minimum required amount to start trading Brent crude oil on Plus500.
  4. Search for Brent Crude Oil (EB): Once your account is funded, search for the Brent oil ticker symbol "EB" in the list of available instruments on the platform.
  5. Start Brent Trading on Plus500: Click on the Brent Crude Oil (EB) instrument, analyse the market conditions aided by the Brent crude oil price chart, set your trade parameters and execute Brent oil buy or sell trades.
  6. Manage Risk: Traders can use risk management tools to place stop-loss orders and take-profit orders when trading Brent CFDs on Plus500.

Naturally, Brent investing or Brent trading includes (but is not limited to) staying informed of market news, setting realistic goals, developing a trading plan, and continuously performing Brent crude oil analysis. Brent CFDs crude trading involves substantial risk, especially when leverage is involved, as traders can experience a higher risk of losses than their initial entry into this volatile market.

If you are not up to speed with Brent crude oil technical analysis or how to conduct oil market research, a Plus500 demo account may be a more appropriate option for you to start trading oil.

Conclusion

The Brent oil market and its related instruments are highly liquid, offering both short-term trading opportunities and long-term investment prospects. While experience helps, the barriers to learning how to start Brent trading are low. Even aspiring and professional traders can flourish with the correct understanding of the risks and rewards associated with Brent derivatives. Those seeking to participate through hedging, diversification and or price speculation can do so by trading Plus500 Brent oil CFDs.

FAQ

Why do people trade Brent oil?

A majority of retail and professional traders trade Brent oil for short-term investment, speculative trading, portfolio diversification, and/or exposure hedging.

How to trade Brent without experience?

Trading Brent is not appropriate for everyone, and all actors should have an acceptable level of knowledge of the various Brent contract specs and risks associated with trading before actively trading Brent oil CFDs.

What time does the Brent market open?

Brent crude trading hours in London begin at 12:00 AM (UTC) and end at 10:00 PM (UTC), making Brent trading available 22 hours a day, Sunday night to Friday. The market re-opens on Sunday at 11:00 PM (UTC).

What is the minimum deposit for Brent trading with Plus500?

You can start CFD Brent trading with a minimum of $100.

How to start trading Brent Oil CFDs with no money?

You can open a CFD demo account and experience a simulated trading environment where you can trade Brent oil CFDs with virtual funds.

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