Oil Futures Contracts A Sound Bet
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 carry a legally binding agreement to purchase or sell a set amount of oil at a predetermined price. This price is projected and based on supply and demand. The price of oil fluctuates daily in a volatile market. Investors have the option of settling for cash or arranging for the delivery of actual oil to a set location.
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.
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.
Very often, oil futures contracts are used for hedging, especially amongst businesses that make products or services that use oil, in particular, the airline business. It is difficult to set a price for these products or services as the market is so volatile. But buying or selling future contracts for this commodity helps to reduce the risk and overcome constant fluctuation.
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. - 23200
Oil futures contracts carry a legally binding agreement to purchase or sell a set amount of oil at a predetermined price. This price is projected and based on supply and demand. The price of oil fluctuates daily in a volatile market. Investors have the option of settling for cash or arranging for the delivery of actual oil to a set location.
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.
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.
Very often, oil futures contracts are used for hedging, especially amongst businesses that make products or services that use oil, in particular, the airline business. It is difficult to set a price for these products or services as the market is so volatile. But buying or selling future contracts for this commodity helps to reduce the risk and overcome constant fluctuation.
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. - 23200
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 @ 5:10 AM
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