Oil Futures Contracts Make a Sound Investment
Oil futures contracts are a solid investment, because they give you a variety of options with good risk management strategy. Of all the commodities, light sweet crude oil, commonly used for heating, jet fuel, diesel fuel and gasoline is the most popular around the world. It is commonly traded
With oil futures contracts, you have a legally binding agreement to purchase or sell a particular amount of oil at a certain price at a future time. The price is based on supply and demand at any given time. As the market has shown, supply and demand of oil fluctuates almost daily. Those who invest in future contracts have the option of a cash settlement or having the actual oil delivered to a specified location.
The unit of measure for an oil futures contract is a barrel. Typically, this will involve a variety of grades, consumed both internationally and in the USA. A typical contract equals 1000 barrels of oil, but for investment portfolio purposes, the agreement dictates 500 barrels of crude oil, and which is half the size of a typical futures contract.
There are two major exchanges for oil futures contracts -- the New York Mercantile exchange and the Intercontinental exchange. Trading may relate to delivery taking place several years from now, but typically relate to delivery in three months.
There are several types of oil futures contracts. With a short hedge contract, investors buy futures to sell oil. In a long hedge agreement, investors buy futures to buy oil. Generally, a portfolio would include a mix of both. For several years, there has been increased interest in oil among investors who consider them a viable option to stocks and bonds.
Oil futures contracts are used most often in the risk management of portfolios. As investors buy and sell a security, they purchase or sell a future security with the opposite risk. This means that losses and gains balance each other and balance the risk in the portfolio between current and future market rates. If a portfolio is balanced there is less risk for loss.
Often times, oil futures contracts are utilized for hedging, particularly among businesses that make products or offer services that use oil, such as a utility company or an airline. But it's difficult to set a price for these products or services because oil prices change so frequently. Buying or selling future contracts for the commodity helps to minimize the risk and address constant fluctuations with oil prices.
Oil futures contracts are often used for speculation, where investors hope to make a profit based on future prices of the commodity increasing or decreasing. Financial institutions, including banks, generally make up the major portion of speculators and are an important piece to the trading market. - 23159
With oil futures contracts, you have a legally binding agreement to purchase or sell a particular amount of oil at a certain price at a future time. The price is based on supply and demand at any given time. As the market has shown, supply and demand of oil fluctuates almost daily. Those who invest in future contracts have the option of a cash settlement or having the actual oil delivered to a specified location.
The unit of measure for an oil futures contract is a barrel. Typically, this will involve a variety of grades, consumed both internationally and in the USA. A typical contract equals 1000 barrels of oil, but for investment portfolio purposes, the agreement dictates 500 barrels of crude oil, and which is half the size of a typical futures contract.
There are two major exchanges for oil futures contracts -- the New York Mercantile exchange and the Intercontinental exchange. Trading may relate to delivery taking place several years from now, but typically relate to delivery in three months.
There are several types of oil futures contracts. With a short hedge contract, investors buy futures to sell oil. In a long hedge agreement, investors buy futures to buy oil. Generally, a portfolio would include a mix of both. For several years, there has been increased interest in oil among investors who consider them a viable option to stocks and bonds.
Oil futures contracts are used most often in the risk management of portfolios. As investors buy and sell a security, they purchase or sell a future security with the opposite risk. This means that losses and gains balance each other and balance the risk in the portfolio between current and future market rates. If a portfolio is balanced there is less risk for loss.
Often times, oil futures contracts are utilized for hedging, particularly among businesses that make products or offer services that use oil, such as a utility company or an airline. But it's difficult to set a price for these products or services because oil prices change so frequently. Buying or selling future contracts for the commodity helps to minimize the risk and address constant fluctuations with oil prices.
Oil futures contracts are often used for speculation, where investors hope to make a profit based on future prices of the commodity increasing or decreasing. Financial institutions, including banks, generally make up the major portion of speculators and are an important piece to the trading market. - 23159
About the Author:
Author Derek Powell has a great deal of information about oil futures contracts. Check out http://www.thecommodityblog.com for latest news.
posted by X - Men @ 10:56 AM
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