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Location: Home / Technology / Pros & Cons of Investing in Oil Futures

Pros & Cons of Investing in Oil Futures

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If you’re a firm believer of making money from oil then you may want to invest your money in oil futures.

Oil future is a type of security where the holder is guaranteed a specific price for the commodity. The security will be honored as long as it’s exercised by the specified settlement date.

Making money is much like trading- you sell the security to those who want to purchase oil. When oil prices increase then you can sell it and turn in a profit in the end.

Table of Contents

Here’s a quick look on what you can expect when you put money in oil futures.

Oil Futures Pros

Should You Add Oil Futures?

The Right Time to Invest in Oil Futures

Here’s a quick look on what you can expect when you put money in oil futures.

Oil Futures Pros

Oil futures have been around for quite some time, and many have made substantial profits on the derivative. Oil prices are more volatile compared to stocks or Forex, so you might see vigorous movement in a short span of time.

They are also considered very liquid investments, which means you can quickly convert it into ready cash or trade it for something of equal value without any issue.

Oil futures are also limited in supply, which means it’s in constant demand and is unlikely to fall in value. The fact that oil is a finite resource should be reason in itself- even when the world is adapting to electricity and green energy for transportation there will still be a demand for the resource.

Lastly, investing in oil futures is relatively simple, and you can get started easily.

Follow up with deep research and you’ll be able to formulate a strategy of your own.

Should You Add Oil Futures?

The good thing about oil futures is that they can be added to any existing investment portfolio and fit right in.

If you’re already trading stocks or cryptocurrencies then it’s just a matter of managing another derivative. You can hire a broker or set up an online account, then keep an eye on the expiration date. Make sure to sell it before then or you’ll lose all the money.

Oil profit

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The Right Time to Invest in Oil Futures

Timing is essential if you want to make a profit in oil futures. Hesitating can be dangerous especially if you’re unsure on when to make the jump.

Indicators that it’s the right time to invest include oil supply, political development, economic variables and time of year.

Historically, summer months are when oil demand peaks due to travel trends. The same goes for winter, where it’s used to heat homes and business establishments. You’ll need to check on economic signals such as recessions, the pandemic and political stability where countries are concerned.

Lastly, you’ll want to check the oil supply before committing to an investment. Oil prices spike when the demand is high and supply is low, and vice versa. These factors should dictate your actions in the oil futures market.