How to Invest in Petroleum Futures
- 1). Open a trading account with a brokerage that allows you to trade in futures as well as stocks. A full-service brokerage is not required, as the larger online trading brokerages offer futures trading.
- 2). Examine the petroleum market with the intention of determining if the price of petroleum will rise or fall. Look closely at production levels, conflicts in production regions, pricing trends, consumption trends -- anything that can affect the price of petroleum. Weigh the many variables, and decide on a position to take when you make your purchase based on your conclusions on the possible future price of petroleum.
- 3). Deposit enough funds in your account to cover the margin on your desired trade. The margin is the rate the futures exchange sets as a minimum amount necessary for you to place to purchase a contract. For example, a futures contract on petroleum at a 5 percent margin would require that you have that 5 percent in your trading account to open the trade. If the price of your contract falls, you will be required to make up the difference by placing more money into the account as margin maintenance.
- 4). Open a trade with your broker for petroleum by taking what’s known as a position, either a buy or sell order, on the commodity. Place a buy order if you believe prices will rise, and sell petroleum short if you feel they will fall. A buy order is a contract to buy petroleum at the current or higher price at a future date regardless of the market price. If the actual price is higher than your contracted buy price, you make a profit on the difference. Selling short is an offer to sell petroleum at the current or lower price at a future date. If the price is lower than your contracted price, you once again profit on the difference.
- 5). Close your trade with the broker when you no longer wish to have a position on the price of petroleum by taking the opposite position to the one you took originally. For example, if you sold short for a certain amount, you must buy the contract to close it. If the price has changed since you opened the contract, you may profit from the close. For example, if you took a buy position and the price rises, you collect a profit, and if you took a short position and the price fell, you’ll profit as well.
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