Like every commodity crude
oil has its own symbol, contract value and margin requirements. To successfully
trade a commodity, you must be aware of these key components and understand how
to use them to calculate your potential profits and loss. For instance, if you
choose to buy or sell a crude oil futures contract, you will see a ticker tape
handle that looks like, This is just like saying "Crude Oil (CL) 2008 (8)
May (K) at $105.52/barrel (105.52)." A trader buys or sells a crude oil
contract according to this type of quotation. Depending on the quoted price,
the value of a commodities contract is based on the current price of the market
multiplied by the actual value of the contract itself. In this instance, the
crude oil contract equals the equivalent of 1,000 barrels multiplied by our
hypothetical price of $105.52, as
In:$105.52x1,000barrels=$105,520Commodities are traded based on margin, and the margin changes based on market volatility and the current face value of the contract. To trade a crude oil contract on the New York Mercantile Exchange (NYMEX) a trader may be required to maintain a margin of $8,775, which is approximately 8% of the face value. The margin amount will change in different market conditions, but the amount of leverage provided by the futures markets makes it attractive for investors looking to gain exposure to oil prices
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