ETFs have experienced a surge of popularity since they were first introduced to the market. Many investors utilize ETFs, or exchange traded funds to invest in an index or sector without having to invest in individual securities. There are ETFs that track a broad index such as the Dow Jones Industrial Average and the Standard & Poors 500, as well as specific sectors such as retail and technology.
Did you know there’s now even a gasoline ETF? Gasoline exchange traded funds are ideal for those traders and investors who want to speculate or hedge the price of gasoline.
How A Gasoline ETF Works
By using a Gasoline ETF, you will not have to buy only one or two gas-related stocks, or invest in expensive futures contracts. Certain Gasoline ETFs already have a variety of gas stocks built into the price, so you are spreading your risk, as well as positioning yourself for realizing potential profits from a rise in gasoline prices.
As you may expect, gasoline prices are very closely linked to oil prices. Crude oil and natural gas are two of the primary sources of energy. After refining, they provide fuel for cars and trucks and may also be utilized to produce electricity.
A Gasoline ETF will allow an investor directly in the prices of oil and natural gas or in the stocks of companies that produce, process or transport oil and gas. A portfolio of selected energy ETFs can provide broad investment exposure to oil and gas values.
There are many ETFs that allow you to invest in oil, more information can be found on my oil ETFs page.
I’m sure you know oil prices can be highly volatile. I know when I go and fill up my car with gas, the price is often different, often fluctuating greatly overnight.
Gasoline ETFs aim to track the price of gasoline using gasoline futures contracts. As you may be aware these futures contracts are often in contango or backwardation. Contango is where future contracts are priced higher and backwardation is where they are priced lower.
There is a good chance that all the contango and backwardation may even out in the long term, but, as with all investments it is certainly not a guarantee.
As a result of this fact, it can be difficult to track the price of gasoline as accurately as a commodity like gold where you can buy and store it.
However, many gasoline funds do a pretty good job of tracking gasoline prices over the long term.
Who Should Use A Gasoline ETF?
Gasoline ETFs are ideal for smaller investors who would not be able to afford the expensive futures contracts.
They are also useful if you run a business that involves buying a lot of gasoline, such as a shipping company. Gasoline ETFs can be useful for hedging against rising gas prices, so you have a better idea of what your gasoline bill is going to be in the future. In some instances this may make it possible for you to be more competitive.
Although a gasoline ETF will simplify your investments, keep in mind that you will still be required to research your trades and then monitor where your money is going, to ensure that you minimize any risks for losses down the line.
How do you trade a Gasoline ETF?
A gasoline ETF can be bought and sold just like any regular stock. Many ETFs will also let you go short, so you can profit when the price of gasoline falls. To find out more about your choice of broker, feel free to visit my discount stock brokers page.