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 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.
With oil futures contracts, trading is done in units of barrels and generally includes a number of grades for use both in the United States and internationally. The standard contract is 1,000 barrels of oil. For investment portfolios, the contract is typically 500 barrels of crude oil, which is half the size of a usual 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 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.
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. - 23223
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.
With oil futures contracts, trading is done in units of barrels and generally includes a number of grades for use both in the United States and internationally. The standard contract is 1,000 barrels of oil. For investment portfolios, the contract is typically 500 barrels of crude oil, which is half the size of a usual 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 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.
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. - 23223
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 @ 7:37 AM
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