A contract that allows an investor to purchase to buy a commodity at a specified price at a specified time is what is referred to as a futures contract. An oil futures contract is a futures contract that deals with the price of oil, which can be extremely volatile.
Oil futures contracts are often used by producers and users of the commodity in order to hedge against fluctuations in prices. As an example, a transportation company may purchase an oil futures contract in the hopes that the price of oil will rise, with this rise in value of the contract offsetting any losses that could come with the additional cost of fuel.
There is also the opportunity for investors to use futures contracts for speculation and profit. If you are interested in investing in these financial instruments, you are probable wondering how to buy oil futures.
Investing in oil futures is not for every investor, and you should thoroughly research every potential investment to assess its suitability for your situation and risk-tolerance. Speak with a personal financial adviser at industry leader ETrade, to find out if this strategy is right for you.
How To Buy Oil Futures
The first step in learning how to buy oil futures is finding a reputable broker. You must ensure that the broker is in good standing with the FTA – Futures Trading Association. You should choose a broker that offers competitive commissions on trades, top-notch trading platforms, and the option to speak with a real person.
Online broker ETrade offers these services and more, and is worth looking into if you are interested in oil futures trading.
You should research whether oil is trading over its 200 day moving average, which is an important technical indicator that professional traders use to discern whether a commodity is bearish or bullish. If oil is trading above its 200 day moving average, it is more likely to be rising further, while if it is falling below its 200 day moving average, it is likely to continue to fall.
How To Buy Oil Futures: Checking Oil Trends
When learning how to buy oil futures it is important to keep up with the trends in oil. You can accomplish this by checking the weekly charts, as well as reviewing historical charts. You will then draw a trend line across the lows and another one across the highs.
This creates a channel, and when you purchase a contract, the channel should be sloping upwards, and you should aim to purchase the contract near the bottom of the channel, not the top.
You should then use a limit order to buy the oil futures contract when it touches the bottom trend line. This type of order is an automatic order that will trigger when the market drops to the line. This keeps you from having to watch the market.
You should also set your stop loss order to close your position if it turns out that you were wrong about the market’s direction.
An excellent all-in-one site for investing in oil futures is online broker ETrade. This discount broker offers a vast array of products and services for its clients to use to maximize their chances of investing success.
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