How to Trade Oil Binary Options | Full Tutorial


An oil binary option is a type of derivative that allows traders to speculate on the short-term price movement of oil without owning the actual commodity. This guide will delve into the fundamentals of trading oil binary options.

Brief Guide to Start Trading Oil Binary Options

  • Step #1: Choose a Reputable Broker
  • Step #2: Conduct Market Analysis
  • Step #3: Decide on Your Position
  • Step #4: Select Expiry Time and Investment Amount
  • Step #5: Execute the Trade and Journal Your Results

How to Trade with Oil Binary Options: A Detailed 5-Step Process with Analysis

Assuming you are familiar with trading fundamentals such as basic macroeconomics, technical analysis, and proper risk management. Here’s a simple 5-step process you can follow to start trading oil binary options:

Step 1: Choose a Reputable Broker

First, you must select a broker that facilitates trading in oil binary options. It is crucial, however, that you choose a reliable and well-known binary options broker to ensure that your funds are safe. Here are two brokers we recommend based on their background information.

Broker:
Review:
Advantages:
The offer:
Yield: 97%+
12345
5.0/5
  • Welcomes international clients
  • Offers high payouts: 90% – 97%+
  • Professional-grade trading platform
  • Swift deposit process
  • Enables Social Trading
  • Provides free bonus incentives

$ 5

   Visit broker

(Risk warning: Trading is risky)

Yield: 95%+
12345
5.0/5
  • Min. deposit $10
  • $10,000 demo
  • Professional platform
  • High profit up to 95%
  • Fast withdrawals
  • Signals

$10

   Visit broker

(Risk warning: Trading is risky)

Broker:
5.0/5
12345
Yield: 97%+
Advantages:
  • Welcomes international clients
  • Offers high payouts: 90% – 97%+
  • Professional-grade trading platform
  • Swift deposit process
  • Enables Social Trading
  • Provides free bonus incentives
The offer:

$ 5

Visit broker

(Risk warning: Trading is risky)

Broker:
5.0/5
12345
Yield: 95%+
Advantages:
  • Min. deposit $10
  • $10,000 demo
  • Professional platform
  • High profit up to 95%
  • Fast withdrawals
  • Signals
The offer:

$10

Visit broker

(Risk warning: Trading is risky)

Pocket Option

Background: First, the platform is well-known among the binary options community for its website and mobile applications’ friendly user interface (UI) and wide range of assets and markets for trading. It is notably favored among beginners in binary options trading. 

Supported Oil Binary Options: Both WTI Crude Oil and Brent Oil

Trading Schedule: Available on both regular trading days and weekends

Quotex

Background: Second, Quotex is another notable platform in the binary options community; besides offering a beginner-friendly setup, it is also well-known for its more advanced offerings, which consist of comprehensive analytical trading tools handy for experienced and advanced traders.

Supported Oil Binary Options: Similar to Pocket Option, WTI Crude Oil and Brent Oil are available.

Trading Schedule: Available on both regular trading days and weekends

Step 2: Conduct Market Analysis

For oil binary options, you can focus on:

Recent News and Developments: Stay updated with the latest news affecting the oil market (e.g., geopolitical events, OPEC decisions, and production changes).

Supply and Demand Factors: Explore reports on oil supply levels, demand forecasts, and potential distribution disruptions.

Step 3: Decide on Your Position

Based on your market analysis, construct an informed decision on what direction you anticipate moving oil prices. Consider the following as well:

Trend Analysis: Use technical analysis tools to identify existing and potential short-term trends in the oil market. 

Market Sentiment: Gauge the general market sentiment towards oil, integrating any likely impacts from recent news or events.

Step 4: Select Expiry Time and Investment Amount

Choosing the proper expiration time and position size is critical to aligning with your market prediction’s timing while managing risk.

Shorter Expiry Times (e.g., a few seconds to minutes) are best suited when you expect a quick price reaction to a particular event.

Longer Expiry Times (e.g., 1 hour and above) are better for predictions based on more “gradual” market shifts.

Investment Amount: Regardless of how confident you are in trade, it is essential to manage your risked capital. A good starting rule is to risk only 1-2% of your total capital in any trade.

Step 5: Execute the Trade and Journal Your Results

Execution: Set your trade with the selected expiry time and investment amount. If the projection is bullish, select up or call. If it’s bearish, select down or put.

Journal: Afterwards, keep a thorough record of each trade, including your analysis, justification of your decision, the outcome, and the lesson/s you learned. This habit is invaluable for improving your “trading edge” over time.

➨ Sign up with the best binary broker Pocket Option now!

(Risk warning: Your capital can be at risk)

Pros and Cons of Trading Oil Binary Options

Pros

  • Capitalize on market volatility
  • Leverage macroeconomic events
  • Less exposure to long-term uncertainty
  • Simplified decision making
  • Flexibility of trading hours

Cons

  • Hypervolatility is not for everyone
  • Sensitive to external factors
  • Susceptibility to information asymmetry
  • Possibility of oversimplification
  • Potential to rely on “gut feel” when mixed signals arise
ProsCons
Capitalize on Market Volatility
Volatility can be seen from two perspectives. If you are well-informed regarding macroeconomic events and looking for a highly volatile market to capitalize on these sudden cases, then the oil market offers tremendous opportunities to do so.
Hypervolatility is Not For Everyone
The other perspective is that the high volatility in the oil market can be detrimental to those traders (especially beginners) who are unprepared for wild price swings and, thus, are better off sticking to relatively less volatile options such as indices.
Leverage Macroeconomic Events
Suppose you are adept at macroeconomic concepts and thus familiar with how a specific macroeconomic event affects the price of oil (e.g., a reduction in production quota can affect the market price of oil). In that case, you can act swiftly and bet on the direction it will likely go. 
Sensitivity to External Factors
Oil markets are extremely sensitive to external shocks, including geopolitical events and natural disasters. These can lead to steep price changes, even in the short term. Also, it is paramount to be quick in deciphering the short-term direction of the oil market.
Less Exposure to Long-term Uncertainty 
Since an oil binary option is extremely short-term (seconds to a few minutes without needing to buy the underlying asset), you can avoid the risks associated with holding a position for a more extended period, especially for highly volatile markets.
Susceptibility to Information Asymmetry
Despite your best efforts and access to prompt information, the oil market is challenging to predict, particularly over a very short period. Hence, you need to be incredibly precise. Otherwise, you may be too early (the whales have yet to react) or too late (the information has already been factored in the price).
Simplified Decision Making
Unlike trading oil itself, you do not need an elaborate price target and cut loss points; you simply have to narrow down to making an informed decision on whether oil will go up or down in a precise timeframe and not worry about what happens outside that explicit timeframe.
Possibility of Oversimplification
The binary options format of deciding whether the price of oil will go up or down, overlooking crucial market dynamics, or underestimating the complexity of the oil market can mislead traders, particularly beginners, to not adopt proper trade and risk management. 
Flexibility of Trading Hours
Lastly, oil binary options are accessible around the clock, allowing traders who usually cannot participate on regular market hours and days to participate during weekends. This also lets you capitalize on macroeconomic events that develop over the weekends.
Potential to Rely on “Gut Feel” When Mixed Signals Arise
Lastly, since the oil market is highly volatile and binary options sway you to react quickly based on the given information, there will be instances where conflicting information may arise due to information asymmetry, which may cause you to rely on your “gut feel” to decide. 
➨ Sign up with the best binary broker Pocket Option now!

(Risk warning: Your capital can be at risk)

Basic Facts You Need to Know About Binary Options Trading

Underlying Assets

You DO NOT own the asset (oil in this case). You merely track oil price movement, typically benchmarked against major “standards” such as the West Texas Intermediate (WTI) and Brent Crude.

How it Works

You bet on the direction of oil’s price (whether it will go up or down) within a fixed timeframe. If you are correct, you will earn the predetermined profit. On the contrary, you will lose your entire invested amount.

Oil trading

Value Proposition

Oil binary options present a simple way to gain exposure to/position in the oil market without owning this commodity. You can also take advantage of short-term micro-trends (whether fundamentally or technically).

Limitation

Unlike having a direct position in traditional oil trading platforms, which allow for longer-term investment strategies, oil binary options require predicting price movements within a shorter fixed time frame (as low as a few seconds).

Macroeconomic Considerations

The oil market is highly volatile and sensitive to sudden geopolitical events, demand changes, and supply disruptions. These include socio-political instability in oil-producing regions, OPEC production quota shifts, inventory levels, and global economic projections.

Best binary broker:
(Risk warning: Trading is risky)

Pocket Option - Trade with high profits

123455.0/5

Pocket Option - Trade with high profits

  • Welcomes international clients
  • Offers high payouts: 90% – 97%+
  • Professional-grade trading platform
  • Swift deposit process
  • Enables Social Trading
  • Provides free bonus incentives
(Risk warning: Trading is risky)

Strategies for Trading Oil Binary Options  

When trading oil binary options, most specific trading strategies can be classified under the following three main strategies:

Strategy #1: Pure Technical Analysis Strategy

Definition: First, this strategy employs 100% Technical Analysis. Many traders sufficiently proficient in technical analysis, specifically around price patterns, volume, and specific indicators, only look at the chart for opportunities and “interesting developments.” 

Rationale: The main argument for this strategy is that any news and events are already represented or reflected in the chart. Hence, reading the news and keeping up with the media can accumulate “noise” and often just a means to have a “confirmation bias.”

Strategy #2: Pure “News Trading” Strategy

Definition: Unlike Strategy #1, this strategy centers its trading decisions on following news and events and acting on this information. Traders who prefer this strategy usually have access to a premium suite of tools and platforms (such as Bloomberg Terminal) that alert them of new information. 

Rationale: The main argument for this strategy is that certain news and events cannot be captured (or at least not entirely) in a chart, especially sudden geopolitical developments that are not expected or completely random. Hence, acting upon these reports can provide an “edge” based on early access to information and forecasted market reaction.

Strategy #3: Technical Analysis + Pure “News Trading”

Definition and Rationale: This strategy, commonly called the “best of both worlds,” utilizes technical analysis and news trading in its trading decisions. One way to do this is by finding interesting chart setups using technical analysis and waiting for specific news or events as the “catalyst.” 

Caveat: However, the common pitfall of this strategy is developing a “premature judgment” or “bias,” where the news and events that supposedly serve as a catalyst become a mere confirmation. In addition, it is easier to fall into “analysis paralysis” due to information overload that can happen, particularly for beginners who have not established explicit trading systems and parameters and are unsure how to make a well-informed decision.

Key Risks of Trading Oil Binary Options

The following are five fundamental risks accompanied when trading oil binary options:

1. Volatility Risk – As we have covered, the oil market is highly volatile. This volatility can lead to rapid and wild price swings, making it particularly challenging to forecast price movements precisely over a short period.

2. Economic Risk – During economic downturns, oil demand typically falls, while during economic booms, demand picks up. Such changes – even on economic forecasts – can cause sudden price swings.

3. Geopolitical Risk – Macroeconomic events, such as demand and supply shocks and political instability, can cause erratic movements in oil prices. 

4. Interest Rate Risk – Rising interest rates generally strengthen the dollar, driving oil prices (priced in dollars) to be more expensive in other countries and thus potentially reducing demand.

5. Environmental Risk – Natural disasters can impact oil production and supply chain channels, causing further price volatility.

Conclusion

With all these things considered, we can see that oil binary options’ highly volatile nature constitutes both their pros and cons, opportunities and risks, and relevant strategies to take advantage of this very nature. Hence, a thorough and careful preparation utilizing the information we covered in this article will yield the most fruitful results.

➨ Sign up with the best binary broker Pocket Option now!

(Risk warning: Your capital can be at risk)

Most commonly asked questions:

Are oil binary options suitable for beginners?

While binary options can be simpler than other forms of trading, the high volatility of oil prices may not be suitable for beginners, particularly those new to trading. Nevertheless, for those eager to explore this, we recommend starting with a demo account to better understand the oil market dynamics before committing and starting with small capital.

What strategies can I use for trading oil binary options?

Three of the most common fundamental strategies are technical analysis, “news” trading, and combining these two. You can practice some of these strategies on a demo account to see which best suits your style.

Can I trade oil binary options on weekends?

The availability to trade oil binary options on weekends depends on the broker. The traditional oil markets are closed on weekends, but Pocket Option and Quotex brokers offer weekend trading on WTI Crude Oil and Brent Oil on their Over-the-Counter (OTC) platforms.

What factors affect the price of oil in binary options trading?

Current and forecasted geopolitical, economic, and environmental elements are some of the most prevalent factors that affect the oil price, particularly over the short term (which is most relevant to oil binary options).

What are the benefits of trading oil binary options?

Benefits include the ability to profit from rising and falling oil prices, fixed risk (you cannot lose more than your initial investment), and the simplicity of trading decisions (you only need to predict the direction of price movement).

About the author

Percival Knight
Percival Knight is an experienced Binary Options trader for more than ten years. Mainly, he trades 60-second trades at a very high hit rate. My favorite strategies is by using candlesticks and fake-breakouts

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