Oil Futures Contracts A Sound Bet
Oil futures contracts represent a sound investment, as they carry a variety of options and good risk management alternatives. Amongst the commodities, light sweet crude oil, which is commonly used in heating, diesel, jet fuel and gasoline is the most 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
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.
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 often used in risk management of portfolios. Investors, by buying or selling a security, purchase or sell a future security with the opposite risk. In this way losses and gains counterbalance each other and also balance the risk in a portfolio between current and future market prices. It goes without saying that a more balanced a portfolio, the less risk there is for a major 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.
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. - 23212
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
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.
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 often used in risk management of portfolios. Investors, by buying or selling a security, purchase or sell a future security with the opposite risk. In this way losses and gains counterbalance each other and also balance the risk in a portfolio between current and future market prices. It goes without saying that a more balanced a portfolio, the less risk there is for a major 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.
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. - 23212
About the Author:
Author Derek Powell has a lot of data about oil futures contracts. Check out http://www.thecommodityblog.com for up-to-date news.
posted by X - Men @ 1:09 PM
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