Hello lads! Been awhile I've taken day off from financial and trading talks. I've been on "holiday" as there's nothing much excites me. First I would like to highlight today we have a special event where crude oil price falls to the negative region.
Wait?! Negative?! Which means you pay me to own crude oil?!
The price on the futures contract for West Texas crude that is due to expire Tuesday fell into negative territory -- minus $37.63 a barrel. That’s right, sellers were actually paying buyers to take the stuff off their hands.
Ok hold the horses. I'm going to give away a brief explanation about why is it not possible to obtain free crude oil and the same time getting paid from the seller. Before we go forward, let's have a look at below chart from the spot market.
Read more at ET Market News
Ok. So where is the negative price tags?! Give it to me my crude oil and pay me the money! Hah! When it's too good to be true, chances are?! It is. There's no free lunch in the market. When everything seems to be too good, it usually comes with a catch. The negative price tag you saw, is from the futures market.
Forget about the freebies
You see, I believe there are enough experts explaining why the oil price went below negative value. And you and I know, there's no such thing as negative because the moment you take up that contract, you're bound to bear a devastating future contract that has a huge cost may incurred in the FUTURE. I don't wanna go through that anymore, but they just know they can't hold that contract anymore, and it's like a time bomb ticking towards the end it does not explode but they will have to start paying for transportation fee. Reminds me there's one time someone bought a huge contract of corn, and when the futures contract matured, he has to bear a crazy amount of transportation fee to transport those corns and he'll have to find ways to dispose them off or there will be 2 container of corns sitting right infront of his house. And this is crude oil, what are you going to do with it?
Source from Pixabay
Technically, 1 barrel of oil is still 1 barrel of oil. Even nobody wants to buy it, it will still be $0, it should not go to negative. When it goes to negative value, meaning it becomes a liability. Someone will have to spend more money to further process it or get rid of it.
Get real with spot market
Ok. Despite no free candies, what can we do with the present situation? You and I both know, for the shortest period, we can't deal without crude oil. The transportation still required diesel, gas. What we can do now? Well, as we have always decided, break it down to different levels, and start buying the contracts on it's way down.
Let's get a demo account, kick it start, but do it as if it's real money you have in it. Which is why I put in 0.01 orders instead of going in gigantic positions! Don't forget, these brokers are bucket shops! They will jack up your orders by leverage, and kill your positions with margin call. If you do not know what is margin call? Do some study, we will come back to that someday. If you need a demo account, feel free to visit any FOREX broker. Once again, I did not ask you to trust them. If you read Rich Dad Poor Dad before, you should know there's a famous quote, the brokers are called broker because they're broke, and they're broker than you. I'm using Meta Trader 4, it's a trading platform with powerful indicators. We will see how this go, and I may be covering more about technical trading. And who knows later we will build our own robot and help us parking positions.
Cheers and have a good day.