Crude Oil Futures

Of all the futures markets, crude oil futures rank among the most traded and of course the most popular. In fact, all you need to do is keep up with the daily market quotes and you will see that crude oil prices are quite obviously among those always quoted while other futures markets may be mentioned only a few times a week. They are not only traded on a single market and can be traded, in similar fashion to Forex, almost around the clock.

Why Crude Oil Futures are Popular
It should go without saying that the primary reason that crude oil futures are so popular is because of the fact that the world would just stop functioning in that absence of it! Consider all the political tensions in recent decades and you will see how the fear of an embargo sends prices soaring. Since this a particularly volatile market it is great for hedgers and speculators. On the other hand, it is of prime interest to the general public as well because there is literally no area of our lives that is not affected by oil.

Understanding the Risk in Crude Oil Futures
Although it is a popular market, crude oil futures is not a market that just anyone should invest in. Its volatility does provide the potential for significant gain but it also carries with it equal risk for loss. For this reason it is recommended that you only invest any capital that you can afford to lose, commonly referred to as ‘risk capital.’ This is one mistake that many investors make. They see the potential to realize great profits so they invest everything into a volatile market. It is far better to invest a significant portion of your money in safer ventures. Before investing your risk capital in crude oil futures take the time to understand how they work.

Learn What Drives the Crude Oil Futures Market
Perhaps the best tool you will find when looking to invest in the crude oil futures market is any one of a number of publications on futures forecasts. You can easily find crude oil forecasts for free online with a little browsing and these reports will analyze the market based on geopolitical events which may or may not affect the price of crude oil in the near (and perhaps distant) future. After all, that’s what the futures market is all about.

The Relevance of Crude Oil Prices
One of the mistakes which many new investors in crude oil futures make is in not understanding how crude oil is priced. There is a considerable difference in the quality of crude oil which will directly impact the final selling price of the barrel of oil and therefore the crude oil futures net losses or gains. For example, crude oil that is denser and has a higher concentration of sulfur would necessarily require more refining which makes it less desirable and therefore cheaper to buy. Conversely, crude oil with less sulfur and not as dense would require significantly less refining so it could sell for more money. These are the types of factors which would affect crude oil futures and something you should understand before making an investment.

Just keep in mind that although there is a good deal of money to be made in crude oil futures, there is also the potential to lose money as well because it is a volatile market. Only invest what you can afford to lose. If you are looking for a safe investment then think in terms of CD’s and Money Market accounts which will provide a small amount of profit. However, if you are looking for a bit of risk in order to realize higher gains, crude oil futures are a great investment once you understand the market.

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