Where Can I Trade Gas and Oil Legally?

Crude oil is one of the world’s most widely traded commodities. Its high liquidity provides profitable opportunities using long-term and short-term strategies across different market conditions and economic cycles.

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However, not all individuals can easily access the crude oil market. Some regulators restrict commodity trading by retail traders, often because they believe it is too risky because of leverage and volatility.

This article explores whether crude oil trading is legal in different countries.

Why Could Crude Oil Trading Could Be Illegal in Your Region? 

One of the aims of all regulators is to protect investors, which often includes protecting them against excessive risk. Commodity trading, including crude oil trading, is usually leveraged, for example, through futures contracts, which makes it inherently riskier. As a result, some regulators want to restrict or ban commodity trading by retail traders and only allow institutions or high-net-worth individuals to trade it.

Therefore, each regulator will have differing standards about allowing brokers to let their clients trade commodities.

Is Crude Oil Trading Legal in the USA? 

Yes, Crude Oil trading is legal in the USA:

1. Most crude oil trading in the US is done through futures contracts traded on regulated exchanges, such as the Chicago Mercantile Exchange (CME). Traders can only access US futures contracts through CFTC or NFA-regulated brokers.
2. Crude oil futures and options contracts are 1000 barrels for standard contracts, 500 for mini contracts, and 100 for micro contracts.
3. Margin requirements are approximately 10%.
4. Another popular way to trade crude oil is through Exchange Traded Funds (ETFs) that track its price.
5. Some individuals trade the stocks of companies in the energy or oil sectors, which will be highly correlated to crude oil prices. For example, when the price of crude oil and other energy commodities increases, oil and gas companies’ share prices also tend to move up.

USA Regulatory Framework 

The US has multiple regulators overseeing its financial markets: the SEC, FINRA, CFTC, NFA, and others. However, the regulators overseeing the futures markets where most retail crude oil trading occurs are the Commodity and Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA).

All Futures brokers serving US-based customers must register with CFTC and operate under their rules.

Commodity Futures Trading Commission (CFTC) 

The CFTC is a US regulatory agency operating under the legal framework of the Commodity Exchange Act (CEA). The agency regulates U.S. derivatives, including futures, spot Forex, swaps, and selected option contracts.

However, the CFTC delegates much of its oversight operations to the National Futures Association (NFA), a self-regulatory organization.

National Futures Association (NFA) 

The National Futures Association is the self-regulatory organization for U.S. derivatives, including futures contracts such as Crude Oil futures.

CFTC & NFA standards help give traders a transparent and fair marketplace and minimize the risk of fraud.

CFTC and NFA’s functions include:

1. Issuing licenses allowing eligible brokers to offer services in the US. Futures brokers state their CFTC and NFA registration on their websites. Individuals can check a broker’s NFA regulations on the NFA’s verification portal, Background Affiliation Status Information Center (BASIC). The CFTC also maintains a “RED list” containing names of foreign entities that appear to act in a capacity requiring CFTC registration but are NOT CFTC-registered.
2. Ensuring the industry’s financial stability by requiring brokers to have minimum operating capital, including maintaining a $20 million security deposit—significantly higher than any other global regulator.  The high threshold results in only large and established companies choosing to be CFTC-regulated, leaving smaller brokers to focus on different regions.
3. Trade integrity. Trade execution and slippage in regulated exchanges must follow set procedures and reflect actual market conditions.
4. Segregated accounts. This means separating client funds from the broker’s operations. It is one of the most effective measures to protect client capital.
5. Security. Brokers must protect the reliability and confidentiality of customer orders and account information.
6. Fraud prevention. The CFTC has an active Division of Enforcement (DOE) that has reclaimed billions of dollars stolen through fraudulent practices by financial institutions. Its whistleblower program directly accepts complaints from the public about suspicious activity .

Is Crude Oil Trading Legal in India? 

Yes, Crude Oil trading is legal in India:

1. Indians can trade crude oil through futures and options contracts on the Mumbai-based Multi Commodity Exchange (MCX), India’s largest derivatives exchange.
2. MCX crude oil futures and options contracts trade in units of 100 barrels for the main contract and 10 barrels for the mini contract.
3. The margin requirement is a minimum of 10%.
4. Individuals can access crude oil futures and options contracts on the MCX through SEBI-regulated brokers.

Indian Regulatory Frameworks 

The Securities and Exchange Board of India (SEBI) is India’s financial markets regulator and regulates the Multi Commodity Exchange (MCX), where brokers can access crude oil futures for their clients.

SEBI’s core function is “to protect the interests of investors in securities and to promote the development of and to regulate the securities market.” To achieve that, SEBI:

1. Ensures investors receive accurate and timely information about the securities markets.
2. Develop the secondary market by introducing initiatives to promote liquidity, transparency, and efficiency.
3. Promotes fair practices and acts against fraudulent and unfair trade practices.

SEBI’s powers cover three main areas that allow it to function effectively as a regulator: quasi-judicial, quasi-executive, and quasi-legislative.

Quasi-judicial powers: SEBI can adjudicate disputes by conducting hearings, examining evidence, and passing orders. It can use consent orders to facilitate settlements between parties and enforce compliance without resorting to prolonged legal proceedings.

Quasi-executive powers: SEBI can enforce compliance with securities laws and regulations. Its available mechanisms include imposing fines and penalties. It can gather information and inspect records to investigate potential securities law violations.

Quasi-legislative powers: SEBI has the authority to create rules and regulations for the securities market. This has made SEBI a dynamic regulator that can adapt to emerging challenges and changing market dynamics.

Is Crude Oil Trading Legal in Indonesia? 

Yes, it is legal to trade crude oil in Indonesia.

Since there are no domestic Indonesian exchanges for crude oil trading, Indonesians can use brokers that access overseas exchanges, such as the USA’s Chicago Mercantile Exchange, which carries crude oil futures and options.

If you are an Indonesian trader using an offshore broker, the broker’s regulatory jurisdiction and registration will determine its rules, not Indonesian regulations. I recommend always choosing a broker covered by a strong regulator, particularly brokers registered with US, Canadian, UK, or Australian regulators. These countries have top-tier regulators that require brokers to operate at the highest global standards to protect customers’ capital and provide fair trading conditions. For example, brokers operating under these countries’ regulators will always have segregated accounts that separate client funds from the brokers’ operations.

One advantage of considering overseas brokers is that there is more choice. For example, some brokers offer commodities, Forex, equities, and crypto, all in one account. You can choose brokers offering different market access, minimum account sizes, trading platforms, levels of customer service, etc.

Indonesian Regulatory Frameworks 

Indonesia’s regulators' primary focus is ensuring the securities industry’s stability, market transparency, and consumer protection. There are two central Indonesian financial regulators: Otoritas Jasa Keuangan (OJK), also known as the Financial Services Authority, and the Bank Indonesia (BI). The OJK/FSA is the primary regulator for the financial markets.

Is Crude Oil Trading Legal in Canada? 

Yes, crude oil trading is legal in Canada.

There are more ways for Canadians to access the markets than in most other countries. Looking at crude oil trading in particular:

1. Canadians can open accounts with US-based Futures brokers regulated by the CFTC & NFA. This gives access to crude oil futures listed with the Chicago Mercantile Exchange (CME).
2. Canadians can trade crude oil ETFs that closely track the price of crude oil.
3. Contracts for Difference (CFDs) are allowed in Canada. CFD brokers typically offer a full range of commodities, including crude oil trading.

CFD Broker vs. Futures Broker for Crude Oil 

Canadians actively trading commodities such as crude oil can choose between a US-based Futures broker or a CFD broker. Each has distinct features.

1. US-based futures brokers usually require account deposits in U.S. dollars. Converting currencies at retail banks can become expensive for traders who make frequent deposits and withdrawals.
2. Canadian CFD brokers let clients keep account balances in Canadian Dollars. Because money does not cross a border, there may be fewer charges for making deposits and withdrawals.
3. Futures brokers typically have higher minimum account balances than CFD brokers.
4. Futures contracts generally have tighter spreads than CFDs.
5. CFD brokers often offer hundreds of securities in different markets, such as global equities, crypto, major Forex pairs, non-USD and exotic Forex pairs, agricultural commodities, energy, metals, bonds, etc. This prevents traders from opening multiple accounts to access many different markets.
6. Futures are traded through regulated exchanges. CFDs are over-the-counter markets where customers rely on the broker’s pricing and executions, which can vary between brokers.
7. Some Canadians feel more comfortable using a Canadian broker with local customer service and domestic regulations. I live in Toronto and have personally met my CFD broker’s customer service representative!

Canadian Regulatory Framework 

The Canadian Investment Regulatory Organization (CIRO) oversees Canadian retail brokers, including CFD brokers that offer crude oil trading. They aim to “promote healthy capital markets by regulating fairly and effectively so that investors are protected and confident investing in their futures.”

CIRO is a relatively new regulator, created in 2023 after combining the functions of two previous regulators: the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association (MFDA).

According to CIRO, it “sets and enforces rules for the business and financial conduct of Canadian investment and mutual fund firms and their representatives across Canada. All registered representatives are subject to high proficiency standards, training, and supervision by member firms.

The compliance teams examine firms for compliance with conduct, trading, prudential, and operating rules and work with them to ensure they continually meet high standards while providing financial services to their clients.

Enforcement staff investigate possible breaches of CIRO rules and discipline firms and individuals when regulatory misconduct is identified. Discipline can include fines, suspensions, and permanent bans or termination for individuals and firms.”

Bottom Line 

Crude oil is one of the most highly traded and liquid commodities, offering profitable trading opportunities in longer and shorter timeframes and across different market conditions and economic cycles. Many countries’ regulators allow crude oil trading through futures, Exchange Traded Funds (ETFs), or Contracts for Difference (CFDs). The US-based Chicago Mercantile Exchange (CME) lists crude oil futures and options that can be accessed globally through CFTC and NFA-regulated brokers. CFDs have more flexibility by offering more flexible contract sizes than futures. However, CFDs sometimes have higher spreads than futures contracts. Not all countries allow CFDs, particularly the US.