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Energy trading

May 25, 2023

Energy commodities are the natural resources used to power transport, electricity, heating technology; virtually all human activity worldwide. Because of this, energy commodities are in high demand globally, and the constant supply and demand make these markets ripe with opportunity for traders.

If you’ve ever wondered what energy trading involves or how you trade energy, read on for our in-depth guide into the industry, the types of trading available, and how to get started with making trades yourself.

Energy commodities

Commodities are the natural materials that much, if not all, of the global economy is built upon. They are both hard and soft commodities, which are divided into four categories:

  • Energies – such as crude oil, heating oil, petrol and natural gas.
  • Precious Metals – like gold, silver and palladium which are mined from the earth. 
  • Agriculture – These are crops and plants which are grown and harvested for human consumption. Examples include sugar and wheat for food production, and wood for lumber and other building materials. 
  • Livestock and meat – Cattle, sheep and hogs which are raised for use as food, or for other products like gelatine and leather.  

Of these categories, energies represent some of the most highly traded and in-demand commodities, because we rely on them for so much of our daily activity. Without energies, key systems such as transportation, technology, computers, mobile phones and manufacturing machinery would all grind to a halt. It’s no wonder that energies trading is such a potentially lucrative and popular market for investors to become involved with. 

There are both renewable and non-renewable sources of energy, both of which can be traded on global markets, these are:

  • Renewable energy — which includes solar power, wind power, hydropower and geothermal power.
  • Non-renewable energy — which covers crude oil and other petroleum products, natural gas, coal and nuclear energy. 

What is the energy trading market?

The energy market is the ecosystem of buying, selling and speculating on energy commodities that takes place in foreign exchanges around the world. The market sets a price for different commodities, based on factors which affect supply and demand. Traders then open or close positions based on their expectations for energy price movement. 

There are various factors to analyse when it comes to what moves the price of energy.

  • Growth in emerging markets — In most developed nations, the demand for energies remains fairly flat. In developing nations however, growth is expected to rise sharply over the coming decades. This increased demand will affect the price of all energy commodities, especially those which rapidly growing nations choose to invest in for the future.
  • Population growth — One factor that can have a major impact on the price of energy is population growth. On a global scale, the earth’s population is only set to rise, which increases competition for available energy resources. This has the potential to impact all nations, but particularly developing powerhouses like China and India, who face both exploding population figures and an increased migration from rural areas to more energy hungry urban cities.
  • Energy penetration — While energy is a huge global market, there are still large swathes of the developing world which have no access to electricity. As these regions are developed and industrialised, energy penetration will increase, and along with it, demand.
  • Industrialisation and developing economies — As new global powers emerge in the coming decades, the way they choose to industrialise and the energies they prefer will rapidly increase in demand. In order to make sound long term investments when trading energy, it’s crucial to keep abreast of the energy technologies that emergent countries like China and India are choosing to supply their domestic energy needs with.
  • Energy efficiency — Finally, energy trading in the future will need to contend with the developed world’s quest for better energy efficiency, including investment in renewables to replace older forms of power. This could produce both flat growth for non-renewables in the developed world, and an increased demand for renewable sources of energy.

How does energy trading work?

In the UK, the energy trading market offers various ways for investors to gain exposure to this huge sector. The most straightforward method is to trade the raw materials, or commodities, themselves. This involves the buying and selling of actual energy assets on a volatile and highly liquid market. However, as most traders don’t have the capacity to physically take possession of large amounts of raw materials, this is perhaps the least popular way of trading in the energy market. 

Different types of energy also have different best practices when it comes to trading. Learning how to trade oil, which is a very highly traded commodity and extremely volatile, may involve very different strategies to trading a commodity like heating oil, which may be more stable and confined to a domestic market.

Energy stocks

With so many major corporations in the energy sector, energy trading via related stocks is a popular way to get involved in the market. Energy stocks in various companies can be bought or sold at a spot price, or traders may choose to bundle a collection of stocks together in order to speculate on price action within the market.

This second method of energy trading is achieved via derivative products, such as energy market spread betting (which is not taxed in the UK), or energy CFDs (contracts for difference, which are taxed in the UK).

Energy ETFs

Another way to trade energies is with energy ETFs, or exchange traded funds. These are investment funds that can give individual traders better access to the underlying assets in a particular market, including stocks.

ETFs are a good way to spread any risk across several assets rather than just one share, because they bundle together multiple stocks in order to shield you from the poor performance of a single one. Energy ETFs also allow you to diversify your portfolio by giving you access to multiple assets at once. 

How to trade energy 

How you decide to trade energy will depend on your goals. You may want to gain exposure to more markets, diversify your portfolio, ride out a volatile market for some short term gains or invest in a longer term strategy. Each different approach can be potentially profitable, but all require you to carefully research market trends, perform fundamental analysis, make use of technical tools and heed expert advice. 

Not all energy trading moves in line with the price fluctuations of the commodity itself. For example, a drop in the price of crude oil may be caused by instability and increased demand, in which case traders may choose to close their positions to reduce further losses. But in the case of oil company stocks, reduced supply could be good for business in the long term, and thus drive up share prices. Understanding the relationship between these factors is essential for trading energy successfully. 

How to become an energy trader with VT Markets

Because energy commodity markets are both highly volatile – allowing you to profit from short term price movements – and often considered a ‘safe haven’ for investors during periods of economic instability, they’re a popular option for traders.

If you want to get started with trading energy stocks, energy commodities or energy ETFs, you may want to first start practising opening and closing positions in a realistic trading environment, without the risk. By creating an obligation free demo account with VT Markets, you can do just that. Once you’ve set up your demo account, you’ll have 90 days to get to know the energy trading market, and begin to understand the way different factors move the price for energy commodities like oil CFDs, energy company stocks and more. 

Using a powerful energy trading platform

Because energy markets are highly liquid and often volatile, you need to trade with a powerful platform that will quickly execute your orders, and has automatic risk management tools like stop-loss orders in place. 

VT Markets uses the powerful MetaTrader 5 (MT5) platform to give our clients access to their trading platform from the comfort of their own computer or mobile device. Not only is it fast and convenient, but MT5 comes with a range of trading tools, including expert advisors, Forex signals and an economic calendar to help you manage your portfolio and perform your own technical analysis and research with ease. 

Staying up to date with energy market news

As well as monitoring price charts, indexes and trend graphs, a strong energy trading strategy should also take into account breaking energy commodity news. You’ll need to stay on top of the latest news that will impact the energy sector, as well as updating yourself with expert analyses that interpret the impact these developments will have on different energy markets. Remember, trading energy stocks may require further analysis – stocks won’t always move directly up or down in line with the commodity price itself. At VT Markets, we offer daily market analysis that clearly outlines what impact breaking news will have on your portfolio. 

Ready to start trading energy commodities?

If you’re ready to trade energies in an intuitive and transparent live trading environment, then VT Markets can get you started and ready to open your first position in just a few minutes. Open your live trading account today, and start finding the right opportunities in the energy market to take your portfolio to new heights.


What is energy trading?

Energy trading is the buying and selling of assets and financial derivative products related to energy commodities; which include crude oil, coal, natural gas, wind power, solar power and hydropower. 

Because of frequent fluctuations in price and volume, energy markets are popular options for traders. The energy sector is also home to some of the largest blue-chip companies in the world, making energy trading through relevant company stocks another attractive option for investors. 

How do you trade energy?

There are numerous ways to trade energy commodities and gain exposure to this huge market in order to diversify your investment portfolio. In order to do so successfully, you’ll need a powerful trading platform like MT4, a strong fundamental analysis and the right tools to perform your own technical analysis. AT VT Markets, we make it easy to access the right trading tools and expert analysis, so you can study the markets and gain confidence in trading energies in the global markets.
If you’re looking for more advice before you start trading energies, feel free to contact our team and discover more about our world leading broker services.