How to trade oil binary options — all the secrets of trading

Oil is an instrument whose features are ideal for profitable strategies. How you can make money in Binary Options is in our story.

Black gold

Oil production has different costs, oil grades differ in chemical composition, and producers belong to both developed and developing countries. In addition to the impact of black gold prices on the economies of importing countries, the budget of many exporters is also heavily dependent on the exchange rate for hydrocarbons. As a result, the situation on the market resembles an international cartel agreement between the producing countries, under the supervision of OPEC.

14 exporting countries artificially reduce supply by allocating production quotas when the cost of hydrocarbons begins to decline. Despite the «shale revolution», which opened up new ways and increased the share of production of countries outside the cartel, OPEC seeks to maintain global influence, expanding to the state of OPEC +. This format provides for a temporary partnership of a number of states that are not directly part of the organization during the period of a decline in demand.

The cartel form of regulation gives the trader the predictability of oil dynamics. Relying on the decisions of the cartel, without indicators, market participants reliably determine long-term trends .

In contrast to the forecast of other instruments, oil is weakly dependent on numerous economic factors that introduce uncertainty in the analysis, if the exporting countries adhere to the agreements. Therefore, to open positions in binary oil options, a news trading strategy is often used .

Another common type of strategy for trading binary options for oil without indicators is spread arbitrage — the difference in the price of different varieties of «black gold».

Grade oil

In order to take into account the chemical heterogeneity of oil produced in different countries and bring it to some benchmarks for ease of assessment and sale, it is customary to distinguish three main grades in world markets:

• Brent is a North Sea grade that accounts for 70% of shipments;
• WTI — the overseas benchmark for oil produced in Texas (USA), which has long served as the world benchmark;
• Dubai Crude is a variety that unites the brand of «black gold» mined in the fields of the Persian Gulf countries.

In total, the OPEC classification includes 12 varieties, based on the prices of which it calculates its own index — the “basket”.

Oil on commodity exchanges and the Forex market

Brokers take oil quotes in binary options from CFD contracts , which, in turn, repeat the movement of black gold prices on the New York and London commodity exchanges (NYMEX and ICE). These are the centers of world trade for the most common «commercial grades» — WTI (Light Sweet) and Brent.

The trading session with hydrocarbons on Forex lasts from 01-00 Moscow time to 23-00 Moscow time, but on Fridays the trading ends one hour earlier. Accordingly, binary oil options can be bought intraday only in these time frames.

Taking into account the geography of trading, the main activity falls on the European (London — after 11-00 Moscow time) and the American session . Some binary options brokers may restrict (prohibit) trades at night during the Asian session due to lack of liquidity .

The intraday trading strategies considered below will take into account only the active trading interval from 11-00 to 21-00 Moscow time.

Spread WTI / BRENT

The constantly emerging difference in the dynamics of oil prices of different brands attracts the eyes of many traders who trade the market for arbitrage reasons.

In the forex market, arbitrageurs use a pair trading strategy , but you can use the «guide tactics» when positions are opened in one of the instruments, based on the analysis of the movement in another type of oil. At the same time, the «American» brand has recently become the «leading» one.

The drop in production costs and the specifics of shale oil production affects the WTI price, since the main centers of active field development are located in the Western Hemisphere. Therefore, spread discrepancies that previously gave a “decent delta” of arbitrage income are a thing of the past. After 2010, the spread sometimes reached zero values, coinciding tick to tick.

How to Trade Binary Oil Options Using WTI / BRENT Spread

Trading binary options using the WTI / BRENT spread is intraday and specific.

It concerns the choice of a broker, many of which trade only one type of oil — usually Brent. A trader can trade binary options only for one of the grades of oil, provided that the broker has a second grade in the terminal quotes .

Observing the pair movement of quotations, it remains to expect the appearance of multidirectional candles in order to predict the future price movement based on the fact that the «lagging» quotes will tend to converge.

Trading Binary Oil Options Based on Stock Data

Every Wednesday week, data on oil and gasoline stocks are published by the US Energy Security Administration. Experts and analysts predict this figure in advance, taking into account the decrease or increase in storage volumes.

Traders analyze data to look for the dynamics of an economy’s oil consumption in order to make a proactive conclusion about an oversupply or a shortage of demand.

Despite frequent errors in forecasts, they have enough analytical accuracy for the strategy of trading binary options on oil based on data on stocks, in order to be guided by opening a position. Another option that excludes guessing the direction is the use of a certain type of options.

• The underlying asset of the strategy is Brent oil;
• Option type — Higher / Lower (Call / Put) or Spread (Out of Range);
• Expiration time — from 15 minutes to an hour.

Before the forecast is released — Wednesday 17-30 Moscow time (or Thursday, if a holiday falls) in a few minutes, the trader opens the «Higher» option if analysts predict an increase in stocks, or «Lower» with a negative forecast. Expiration time 15 minutes.

According to statistics, the probability of the release of numbers diametrically opposite to expectations is 25%, in other cases (more than expected) the data plays into the hands of the trader.

In order not to guess in which direction the oil will “fly”, you can open a binary option with the condition of receiving a premium when the price goes “out of range” — on the news there is often a jump in volatility , bringing quotes far from the entry point.

With the economic calendar open on Wednesday, check for an EIA report and look at forecasts and past values ​​to understand the dynamics of the news.

For example, on May 31, a weekly report with a release time at 18-00 Moscow time — indicated a decrease in inventory, after an increase a week earlier.

Having chosen the rate of the desired premium, we automatically receive the size of the investment and open the contract down a few seconds before the end of the hour, following the direction of the forecast.

A strong movement on the news in 95% of cases brings the price far from the entry, especially since the actual drop in stocks turned out to be higher, so the option closes in “plus” after 15 minutes.

Oil news background

As already described above, oil is influenced by the specifics of cartel production management, which simplifies the forecast of the expected movement on the news:

• OPEC meetings and summits;
• Number of rigs;
• Production quotas compliance reports;
• Local military conflicts in the Gulf countries;
• The political situation in large oil-producing states.

If negative or positive news came to the oil markets, then the created trend will last for several days, so the trader can trade “Higher / Lower” options in one direction within the next day, using various strategies of intraday levels to determine the entry point on the quotes pullbacks .

Oil Binary Options Trading Tactics 5/10

In modern trading, the strategy of trading on simple moving averages is unreasonably «forgotten» . Having chosen the period taking into account the specifics of oil trading on international markets, a trader can get a fairly effective tactics for trading Binary Options.

• The underlying asset of the strategy is Brent oil;
• Option type — Higher / Lower (Call / Put);
• Expiration time — 3 hours;
• Timeframe: H1;
• Indicators: Simple Moving, Periods 5 and 10, RSI 5.

The active trading time for oil is 5 hours at the European and American sessions. The trader monitors the crossovers of the moving average from the London open, opens a binary option “Above” if the 5-period curve is up and there is no overbought (crossing of the 70 level) on the RSI. To work out the «signal», it is enough to set the expiration after 3 hours.

The strategy works on the assumption that the started movement in one of the sessions will be supported by «woken up traders» on the other side of the ocean. This will be indicated by matching moving averages. In order for the signal to show fewer false movements, a volatility filter is required .

Conclusion

The last given strategy is intended to prove that adaptations of simple strategieswork in binary oil options trading , because the black gold quotes are technical and predictable. But the trader must take into account the fundamental factors that are paramount and provide an unambiguous interpretation of events, forming medium-term trends.