Oil price volatility never remains restricted to just the energy sector. Volatile moves in the price of either WTI or Brent can very soon impact inflation forecasts, central bank policies, currency values, indices, and overall risk sentiments.
In this way, Africa traders can have many more opportunities to trade in oil CFDs, in addition to forex, commodities, indices, and even other CFD products. The multi-asset CFD broker JustMarkets allows traders to trade in multiple asset classes from a single platform.
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Why oil moves affect more than energy
Costs of oil have a large impact on logistics, transportation, production processes, and consumption. Higher prices mean higher expenditures for companies, thus putting more inflationary pressure. In turn, that might affect market expectations concerning interest rates if central banks are trying to contain inflation.
On the contrary, lower costs of oil may create a situation where there should be no worries about inflation and even expectations about softening monetary policy. Nevertheless, falling oil prices often indicate low global demand, and traders need to know the cause of the movement.
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The inflation chain
Oil impacts currencies because countries are impacted differently by it. An energy exporter may be favored by an increase in the price of oil as its currency can gain from higher export earnings. An energy importer country may have a hard time coping with increased expenses, decreased trade balances, and greater inflation pressures.
That is how oil prices impact the major currency pairs. An increase in oil may boost commodity-related currencies, enhance inflation-related trades, and boost safe-haven currencies in case of geopolitical tension. Oil declines favor risk appetites in the event of reduced inflationary pressure.
How oil volatility creates CFD trading setups
Market movements fueled by oil tend to occur in multiple asset classes at once. An abrupt increase in Brent or WTI could influence Gold CFDs, USD pairs, commodity currencies, and major indices’ CFDs. Increased oil costs could have a negative effect on equity markets as a result of reduced margins and tightening.
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Using the JustMarkets platform, traders are able to trade CFDs on commodities, forex, indices, stocks, cryptocurrency, and other financial instruments from one place. In doing so, they are able to observe how different markets behave and find trading opportunities in other places than on one asset.
For instance, a rise in oil amid a stronger US dollar and weakening of stock indices is an indication of the relatively low-risk period. Conversely, falling oil along with recovery of stock indices and declining inflation expectations may indicate a risk-on environment.
What traders should watch
Oil volatility becomes more relevant when applied in light of the macro environment. These include geopolitical risks, decisions by OPEC+, stock levels, production problems, inflation rates, central bank statements, and shifts in the level of global demand.
The best signals may arise when there is a consensus among several markets. If responses are mixed, investors must exercise extra caution.
Turning volatility into market insight
Changes in oil prices form one link in a broader chain between energy prices, inflation, monetary policies, currency movements, and risk sentiments.
As an African trader, knowledge about this chain may lead to some CFD trading opportunities. Using a wide array of CFD trading offered by JustMarkets, a trader can track any market movements related to oil and react accordingly.
Risk warning: Trading CFDs involves a high level of risk and may not be suitable for all investors. CFDs are leveraged products and can result in rapid financial loss.
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