Invest In Oil - To Seek Profit In Troubled Times

By James McKerr





Investing in oil can be seen as a great hedge against the current downturn in the worlds equity markets. The commodities markets have been booming in recent years as demand outstrips supply, fueled by the booming Asian economies or India and China. Many industry commentators have noted this commodities to be a mega trend which does not have many logical arguments to suggest it may end any time soon.

One great way to invest in oil is through an oil based exchange traded fund (ETF). These funds can be bought and sold the same as normal shares or stocks and are freely traded on exchanges. In recent years the number and liquidity of these products has increased dramatically meaning that the bid and offer spread has decreased and commission fees to trade them has fallen.

Oil Exchange traded funds try to emulate the price of crude oil directly. To do this the fund manager does not actually go out and buy barrels of oil and store them in a warehouse somewhere. Neither do they simply go out and invest the funds money in oil related stocks (mainly because these stocks are much more correlated to the wider equity markets). Instead they achieve the price replication by buying futures contracts, options and forward contracts in crude oil.

All of the derivative contracts mentioned above are highly liquid and exchange traded, therefore allowing the fund manager to closely replicate the market rice of oil. Most of these derivatives contracts are only available to buy and sell in large contract sizes, hence making them unattractive to the smaller investor. However by investing in an ETF the small investor can gain the same benefits of investing in oil futures.

If you want to find out more information about how to invest in oil or are interested in learning to trade commodities or smart stock investing please visit the authors website

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