How to read an oil quote
Reading an oil quote is very similar to reading a Forex quote. It is represented the same way, e.g. UKOIL represents Brent Crude versus the US Dollar and USOIL represents West-Texas Intermediate versus the US Dollar.
Oil prices are quoted internationally in US dollars per barrel. A quote of 45.50 for UKOIL means that 1 barrel of Brent Crude oil is worth $45.50.
Bid, ask and the spread
Just like other markets, Oil, spot gold, and Forex quotes consist of two sides, the bid and the ask:
The BID is the price at which you can SELL.
The ASK is the price at which you can BUY.
The difference between the bid and ask prices is called the spread.
Trading oil – using UKOIL as an example
A typical quote you might receive for Brent Crude (UKOIL) is 50.55/62. This means that you could sell one or more lots of UKOIL at 50.55, or buy at 50.62. The spread you would pay in this example is the difference between the bid and the ask prices (50.62 - 50.55) = 0.07.
The size of the trade you place will determine the amount of profit or loss generated by a price movement. The smallest amount of Brent Crude (UKOIL) you can trade with FOREX.com is 1 lot, which represents 100 barrels. At 1 lot, the smallest price change possible (0.01) is equivalent to $1.00.
Let's look at some examples
Example 1:
You buy 1 lot of UKOIL at 50.55.
A few minutes later, the bid (or sell) price has risen to 50.90, and you decide to exit your trade.
You bought 1 lot at 50.55 and sold at 50.90, making 45 pips in the process (50.90 - 50.55).
Profit on your trade is calculated as 45 pips, at $1 per pip = $45.00
You buy 1 lot of UKOIL at 50.55.
A few minutes later, the bid (or sell) price has risen to 50.90, and you decide to exit your trade.
You bought 1 lot at 50.55 and sold at 50.90, making 45 pips in the process (50.90 - 50.55).
Profit on your trade is calculated as 45 pips, at $1 per pip = $45.00
Example 2:
You once again buy 1 lot of UKOIL at 50.55.
A few minutes later, the bid (or sell) price has weakened to 50.20 and you decide to close your position to cut your loss.
You bought 1 lot at 50.55, and sold at 50.20, a difference of 35 pips.
Loss on your trade is calculated as 35 pips, at $1.00 per pip= $35
Pips or points?
Like Forex and spot metal prices, oil prices are quoted in very small increments called points, or pips ("percentage in point"). A pip refers to the second decimal place for an oil quote, i.e. 0.01. Each pip represents 1 cent in dollar value
When calculating the value of your trade, remember that oil trades in lots of 100 barrels. This means that a one pip (1 cent) movement in the oil price represents a $1 price movement for each lot that you are trading.
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