Trading Spot Oil?
January 26th, 2007 by Justin
In recent articles I’ve discussed the two primary options for trading the price of oil directly. One is oil futures, and the other the oil ETF (exchange traded fund, symbol USO). I recently became aware of another option, which is as close as a private investor can get to trading spot oil, to my knowledge.
I work in the market for spot foreign exchange, or FX, so I’m fairly familiar with the distinction between spot and futures. At first glance, this offering from ABN-Amro (one of the largest Dutch banks) with technology developed by OANDA (a major spot FX broker or market maker) seems to be the first available spot market for individuals in oil.
ABN Amro marketindex is a platform currently available to only German and Austrian residents. It offers multiple markets, including spot currencies, spot precious metals, and cash-traded indexes and bonds.
marketindex offers trading in brent crude as well, cash-settled and traded like a spot instrument. However, their description of the instrument makes me wary of trading it:
Crude oil futures are traded on the New York Mercantile Exchange (NYMEX) and on the Intercontinental Exhcnage (ICE), the electronic marketplace for engery trading.
The marketindex Crude Oil price will be a theoretical cash price with no comparable equivalent and will be derived from the Brent Crude Oil Future price traded on ICE (IntercontinentalExchange).
This reminds me of CFDs and spreadbetting, where you are trading a market maker’s (or bookie’s) version of something, but essentially are betting against the house. True, the house (in this case marketindex) may hedge out your trades using oil futures or another energy instrument. But if you’re making money, particularly on short-term trades, then chances are it’s difficult for the counterparty to profit as well.
More important, why trade a fake spot contract when you can simply trade futures itself, most likely at lower cost.
