I would like to get into trading oil but can see it seems to gap down very frequently. How does this effect risk? Some of the gap downs would be untenable and this has made me wary of trading it? Any advise appreciated
Careful...unless you're talking about distributing 'Rimula X' I'd be wary. The LastGuy from Brisbane that got involved in Oil Speculation hasn't seen the light of day for a while... http://www.brisbanetimes.com.au/bus...er-pinged-in-50m-us-probe-20110525-1f3hd.html http://forums.silverstackers.com/topic-9964-brisbane-oil-speculator-pinged-for-manipulation.html
Oil is more difficult to trade because you can't trade spot - even in CFD markets. You are trading futures contracts, so the best you can do is stay in the near-month contract, or keep rolling over to make sure you stay in the near-month contract. Commosity futures such as oil brings an entirely new element to trading risk - that of cost-of-carry or contago, which can eat into longs. Also, you have to deal with the greeks, which can make them very volatile - this may be why it often gaps. As for risk management, one way to deal with it is to trade a longer timeframe with deeper pockets for your stops.
Probably a good instrument, but it doesn't track spot (because it's price is based on futures price) and it doesn't offer leveraged trades with liquidity.
