Using Oil Futures in an Investment Portfolio

You can easily enter into an oil commodity market by buying stocks of oil companies. It is a booming market with the price of oil skyrocketing. An investor who looks for the opportunity to enter into an oil commodity market always want to know when there is a right time to do so. Your Personal Financial Mentor provides you the necessary information about when to enter into a market and the most suitable products to invest in.

One of the most profitable yet the riskiest investment in the oil commodity market is the investment in Oil Futures. You must have heard about the derivatives of the stock market, including Forward, Futures and Stock Options. Oil Futures are also the derivatives that give the holder a right to purchase oil at a specified price stated in a future contract. You can also benefit from Oil Future if oil prices continue to increase by holding it for a certain period and selling it, to an interested investor, while it appreciates in value.

Oil futures are one of the most traded derivatives in an oil commodity market. They have an ability to make healthy profits. The price of oil can fluctuate dramatically in a short span of time and as a result, the investor who made the investment in oil futures can benefit from a sudden appreciation in a value of their investment. Therefore, during the period of high prices, everyone would prefer to purchase it at a lower price which is possible with oil futures as it offers a specific price in a certain period.

Oil futures trade in high volumes every day and are one of the most liquid investments. Also, they provide a good investment strategy even for those who feel that oil prices will go down. If you are taking a leap into these derivatives, it is important for you to do research in order to make quick investment decisions and all your research should be based on the future oil prices. By investing in oil futures, you can develop a good trading strategy and can create a well diversified portfolio where you have a very strong chance of gaining high profits.

But it is important to understand that futures are volatile investments and oil future is no exception. The value of future changes more significantly than the value of stock. Therefore, they are highly sensitive to a small change in an oil commodity market and can lose their value very quickly. Moreover, the price of future is influenced by many factors, such as natural disasters, rumours and major stories, political agendas and wars. Since the oil price and prices of future go side by side, these factors make an investment in oil, riskier than any other investment.

However, governments and companies are looking for new sources of providing energy, such as green energy which is becoming very popular as a result of growing concern for the environment and global warming. These alternative resources can have a dramatic effect on oil prices if they gain popularity. Although, it does not seem to happen in a near future, yet it still remains a threat. Also, oil consumption is increasing day by day and no one is sure when the supply of oil will be fully consumed. It is not projected to happen in another forty years but no one knows what happens after that. Therefore, the investor should consider these factors when making investments in an oil commodity market.

Categories: Oil Commodity Market

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June 26, 2013 Using Oil Futures in an Investment Portfolio