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
Oil futures contracts are subject to a legal agreement to purchase, or to sell a certain amount of oil at a set price. The price is determined according to supply and demand, which we have seen in recent times to be based on a variety of factors and highly volatile. An investor has an option to settle for cash or can arrange to have an actual oil shipment delivered to a specified place.
Trading in oil futures contracts is specified in units of barrels. Usually this involves a number of grades, which are used both in the United States and internationally. a standard contract equates to 1000 barrels of oil, but for investment portfolios, the agreement usually relates to 500 barrels of crude oil, i.e. half the size of a standard 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.
Oil futures contracts exist in many forms. A short hedge contract allows investors to buy futures to sell oil, whereas a long hedge contract allows investors to buy futures to buy oil. It is usual to find a mix of both in a portfolio. For a number of years, there has been increased interest in oil as it is considered a better option to stocks.
Oil futures contracts are very often used for risk management of portfolios. When investors buy or sell one security, they purchase or sell a future security with the opposite risk. In this manner, the gains and losses counteract each other and balance the risk in a portfolio between the current market price and the future price. The more balanced a portfolio, the less chance there is for a major loss.
Oil futures contracts are commonly used for hedging, most especially amongst businesses that make products or offer services that use oil, in particular utility companies and airlines. Whilst it is difficult to set a price for these products or services buying or selling futures contracts in this way helps to reduce the risk and overcome the constant fluctuations in pricing.
Investors who hope to make a profit based on future prices will often speculate with oil futures contracts. Banks and other financial institutions generally make up the majority of speculators and are thus important to the trading market. - 23222
Oil futures contracts are subject to a legal agreement to purchase, or to sell a certain amount of oil at a set price. The price is determined according to supply and demand, which we have seen in recent times to be based on a variety of factors and highly volatile. An investor has an option to settle for cash or can arrange to have an actual oil shipment delivered to a specified place.
Trading in oil futures contracts is specified in units of barrels. Usually this involves a number of grades, which are used both in the United States and internationally. a standard contract equates to 1000 barrels of oil, but for investment portfolios, the agreement usually relates to 500 barrels of crude oil, i.e. half the size of a standard 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.
Oil futures contracts exist in many forms. A short hedge contract allows investors to buy futures to sell oil, whereas a long hedge contract allows investors to buy futures to buy oil. It is usual to find a mix of both in a portfolio. For a number of years, there has been increased interest in oil as it is considered a better option to stocks.
Oil futures contracts are very often used for risk management of portfolios. When investors buy or sell one security, they purchase or sell a future security with the opposite risk. In this manner, the gains and losses counteract each other and balance the risk in a portfolio between the current market price and the future price. The more balanced a portfolio, the less chance there is for a major loss.
Oil futures contracts are commonly used for hedging, most especially amongst businesses that make products or offer services that use oil, in particular utility companies and airlines. Whilst it is difficult to set a price for these products or services buying or selling futures contracts in this way helps to reduce the risk and overcome the constant fluctuations in pricing.
Investors who hope to make a profit based on future prices will often speculate with oil futures contracts. Banks and other financial institutions generally make up the majority of speculators and are thus important to the trading market. - 23222
About the Author:
Author Derek Powell has a great deal of information about oil futures contracts. Check out http://www.thecommodityblog.com for up-to-date news.
posted by X - Men @ 10:54 AM
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