Oil Futures Contracts Are 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.
The major exchanges for oil futures contracts are the New York Mercantile Exchange and the Intercontinental Exchange. Trading could be for oil delivery in a few months or several years in the future. Typically, three months is the norm for a contract.
Several types of oil futures contracts exist. A short hedge contract, allows investors to buy futures to sell oil, whilst a long hedge agreement allows investors to buy futures to buy oil. Normally a portfolio includes a mixture of both, and for many years now, there's been an increased interest in oil amongst investors who consider them a better option to stocks.
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.
Speculation is a major part of the makeup of the market where it relates to oil futures contracts. Investors hope to make a profit based on future price levels for the commodity. The major banks make up the majority of the speculators on a daily basis and are key players in the trading market. - 23208
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.
The major exchanges for oil futures contracts are the New York Mercantile Exchange and the Intercontinental Exchange. Trading could be for oil delivery in a few months or several years in the future. Typically, three months is the norm for a contract.
Several types of oil futures contracts exist. A short hedge contract, allows investors to buy futures to sell oil, whilst a long hedge agreement allows investors to buy futures to buy oil. Normally a portfolio includes a mixture of both, and for many years now, there's been an increased interest in oil amongst investors who consider them a better option to stocks.
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.
Speculation is a major part of the makeup of the market where it relates to oil futures contracts. Investors hope to make a profit based on future price levels for the commodity. The major banks make up the majority of the speculators on a daily basis and are key players in the trading market. - 23208
About the Author:
Author Derek Powell has a lot of data about oil futures contracts. Check out http://www.thecommodityblog.com for latest news.
posted by X - Men @ 8:09 AM
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