How to Buy Oil Futures

Before considering how to buy oil futures it is vitally important to have a thorough understanding of just what futures are all about. Unlike buying stocks in an oil company, buying oil futures means that you have entered into a contract to buy a specified amount of oil at some future time. You are, in effect, projecting that the price of oil will be up when that contract matures. Although you may not actually hold the contract until the oil is delivered from the seller to the ultimate buyer, you are expecting that the price of oil will be of greater value when you sell your futures and when you purchase them. However, only members of the commodities exchange clearinghouses can stand on the floor to trade. Because of this there are steps you must take in order to buy oil futures.

Step One: Understanding the Importance of the Broker
When seeking information on how to buy oil futures the first step is to understand the importance of a licensed commodities/financial broker. A commodities broker will have not only the credentials and appropriate licenses to buy and sell oil futures but will also have expertise in the field. While the broker may not be the person who actually stands on the floor of the NYMEX, the New York Mercantile Exchange, your broker will at least be in partnership with a member of the exchange. This is perhaps the most important step you will take because choosing the right broker can be the difference between making money and losing every penny of your investment.

Step Two: Where to Find a Licensed Commodities Broker
Unlike trading futures in years gone by much business today is conducted electronically. One of the things you may want to consider when choosing a licensed commodities broker is finding an online broker to handle your transactions for you. Brick and mortar brokerages do have their place but usually in terms of high-level corporate investments. Private investors can easily use the services of an online brokerage because of the smaller scope of their investments. While you will still receive expert counsel, you will never need to leave the comfort and convenience of your home, or office as the case may be. As a matter of fact, because of the low overhead many online commodities brokers offer discounts which means that you will be paying smaller brokerage fees than you would if your transactions were handled through a brick and mortar brokerage.

Step Three: Buying and Selling Oil Futures
This step may be the most difficult for many people to understand. It is suggested that you start with the smallest investment possible in order to work through the process one time so that you can understand what is going on. Actually, what happens is your broker will purchase a certain amount of futures for you and will charge a brokerage fee. However, here is where many people get confused. Before you can sell those futures you must purchase more futures. Now the broker can sell the first contract so that you can cash out on your investment. Many private investors choose to put its money aside so that when the futures contract that is currently riding is ready to be sold they have that money on account to purchase the next futures contract. In this way you are constantly riding the futures market.

Learning how to invest in oil futures is not as difficult as it seems at first if you contract a reputable and knowledgeable commodities broker. The first few contracts may be a bit confusing but once you get the hang of it you will be trading at breakneck speeds. The futures market move quite quickly and many investors turn over the contracts within the 30 day time frame. It is one of the most exciting forms of trading on the market simply because of the speed at which everything happens. But the one thing to keep in mind in the very beginning is to start slowly with smaller investments until you learn how to invest in oil futures.

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