The Secrets Of Oil And Gas Trading
For an investor that is interested in investing in the oil and gas sector, there are several options available. You could go the more traditional route of investing
in mutual funds that invest in oil and gas or buying shares of an existing oil and
gas company. You could also do something more unconventional such as buying
your own oil and gas well or investing in oil and gas futures. Each one of these
options are definitely within the oil and gas sector however they are all
consideraby different and would require expertise in an the area that interests a
potential investor.
In terms of the energy sources available to us today, fossil fuel still remains the
most widely used form of energy. There are the obvious uses of petroleum
products such as the gas that we burn in a vehicle or the natural gas/propane used
to fuel some cooking appliances however there are also the more subtle uses of
fossil fuel such as the synthetic fibres in your carpet or the nylon material of your
jacket. Petroleum products are used in virtually every material we have today
whether that is in the direct manufaturing process or peripheral activities such as
the transportation of goods. Because fossil fuels are so widely used, many people
feel that investing in this sector is a prudent idea.
Purchasing oil and gas stocks is one of the easiest ways of accessing investments
in the energy sector. Most investors do not have the capital available to invest in
their own oil and gas well for example and many investors also have not had the
best experience overall with investing in mutual funds. Once again, because of the
factors listed above, investing in oil and gas stocks is accessible to most
investors.
Investing in oil and gas stocks takes some education and research as it would
with any other investment. If there is an energy company that you are potentially
interested in as an investment, there are some key factors to consider regarding
the company before investing. An eample of this would be considering where the
company has the majority of it's oil and gas holdings. A company in North America
or another relatively stable region politically may be considered less risky that a
region that is used to experiencing turmoil.
Focusing on a key area within the broader oil and gas sector may be another thing
to consider when investing in oil and gas. Some of the more specific areas to
consider within the energy industry may be oil and gas service companies,
exploration companies, transport companies and companies that are engaged in
refining petroleum products. Choosing one of these areas will likely allow you to narrow your scope and focus your research.
No matter which area of the oil and gas sector you choose to invest in, research
is another item to consider. There are many ways to research the industry in
general and specific areas or companies. There are likely books in your local
librabry, online research firms, industry newsletters, radio and TV programs, etc.
Even reading the business section of your local newspaper is often a very
effective means of gaining insight into the petroleum industry.
If investing in oil and gas stocks is of interest to you, another thing to consider is
specifically how you will invest in these stocks. You can join investment groups
that invest in stocks, use a traditional brokerage firm or review many of the
online trading options that would allow you to purchase stocks online. Many
options are available so once again, choosing the means of investing that works
best for you is suggested.
In summary, the world's appetite for fossil fuels is likely not going to diminish in
the near future. Because of the likely longevity of this industry, many investors
are looking to capitalize on the potential returns through oil and gas stocks. As
with any investment, there is considerable risk associated with oil and gas stocks
so getting educated and perhaps professional advice can never be a bad place to
start.
Many traders do not realise that Contracts for Difference can be used not
just for stockmarket trading, but also in the forex and commodities markets, and
one of the most liquid and exciting markets is crude oil and natural gas. CFDs are
usually modelled in the same way as futures contracts, and consequently there
are several contracts from which to choose in each category.
It is well known that the crude oil market is normally priced either as either
Brent crude or US crude. The current spread between the two is about $3.5, Brent
being higher, but this varies according to supply and demand, liquidity and other
geopolitical issues.
Within each market, several expiration months are quoted and at the time of
writing (June 2007) July, August and September CFDs are available. The
difference in prices between the various contracts reflects the cost of carry and
other seasonal factors as it would for all commodities.
What this means is that you do not pay financing interest on these CFDs, because
all positions are rolled over into expiry and the contract values already price in
the cost of carry.
What can you trade?
It is possible to trade various many different CFDs related to oil prices. These
include:
Heating oil, for which there is a liquid US-based quote with several expirations
UK Oil and Gas sector CFDs
US Oil and Gas sector CFDs
Individual oil share CFDs including such varied names as Royal Dutch Shell,
Statoil, Total-Fina, Exxon Mobil and many smaller oil company stocks around the world.
US Natural Gas CFDs with various expirations
Calculating the margin on a US crude contract
As we analyse the US crude oil market every day in our US report, it is worth
looking at this contract to calculate what margin is required on a trade.
The current most liquid contract is the July 2007 CFD, priced at $65.86 to $65.92
The margin requirement on most commodities is 3% of the total contract value.
The tick size is 0.01.
The contract value is calculated by this formula:
((Quantity) x (Price))/ Point= initial margin
Therefore if you were to buy 10 US Crude Oil CFDs at $65.92
(10 x 49.50)/ 0.01 x 0.03 = $1,978 initial margin.
The exposure per tick is worth $10.
For online traders, CFDs are an excellent way to gain exposure to the oil market
as a speculative play, for hedging purposes, or when searching for good arbitrage
possibilities. The markets are liquid and spreads are very attractive.
shopping masters
auto insurance
For an investor that is interested in investing in the oil and gas sector, there are several options available. You could go the more traditional route of investing
in mutual funds that invest in oil and gas or buying shares of an existing oil and
gas company. You could also do something more unconventional such as buying
your own oil and gas well or investing in oil and gas futures. Each one of these
options are definitely within the oil and gas sector however they are all
consideraby different and would require expertise in an the area that interests a
potential investor.
In terms of the energy sources available to us today, fossil fuel still remains the
most widely used form of energy. There are the obvious uses of petroleum
products such as the gas that we burn in a vehicle or the natural gas/propane used
to fuel some cooking appliances however there are also the more subtle uses of
fossil fuel such as the synthetic fibres in your carpet or the nylon material of your
jacket. Petroleum products are used in virtually every material we have today
whether that is in the direct manufaturing process or peripheral activities such as
the transportation of goods. Because fossil fuels are so widely used, many people
feel that investing in this sector is a prudent idea.
Purchasing oil and gas stocks is one of the easiest ways of accessing investments
in the energy sector. Most investors do not have the capital available to invest in
their own oil and gas well for example and many investors also have not had the
best experience overall with investing in mutual funds. Once again, because of the
factors listed above, investing in oil and gas stocks is accessible to most
investors.
Investing in oil and gas stocks takes some education and research as it would
with any other investment. If there is an energy company that you are potentially
interested in as an investment, there are some key factors to consider regarding
the company before investing. An eample of this would be considering where the
company has the majority of it's oil and gas holdings. A company in North America
or another relatively stable region politically may be considered less risky that a
region that is used to experiencing turmoil.
Focusing on a key area within the broader oil and gas sector may be another thing
to consider when investing in oil and gas. Some of the more specific areas to
consider within the energy industry may be oil and gas service companies,
exploration companies, transport companies and companies that are engaged in
refining petroleum products. Choosing one of these areas will likely allow you to narrow your scope and focus your research.
No matter which area of the oil and gas sector you choose to invest in, research
is another item to consider. There are many ways to research the industry in
general and specific areas or companies. There are likely books in your local
librabry, online research firms, industry newsletters, radio and TV programs, etc.
Even reading the business section of your local newspaper is often a very
effective means of gaining insight into the petroleum industry.
If investing in oil and gas stocks is of interest to you, another thing to consider is
specifically how you will invest in these stocks. You can join investment groups
that invest in stocks, use a traditional brokerage firm or review many of the
online trading options that would allow you to purchase stocks online. Many
options are available so once again, choosing the means of investing that works
best for you is suggested.
In summary, the world's appetite for fossil fuels is likely not going to diminish in
the near future. Because of the likely longevity of this industry, many investors
are looking to capitalize on the potential returns through oil and gas stocks. As
with any investment, there is considerable risk associated with oil and gas stocks
so getting educated and perhaps professional advice can never be a bad place to
start.
Many traders do not realise that Contracts for Difference can be used not
just for stockmarket trading, but also in the forex and commodities markets, and
one of the most liquid and exciting markets is crude oil and natural gas. CFDs are
usually modelled in the same way as futures contracts, and consequently there
are several contracts from which to choose in each category.
It is well known that the crude oil market is normally priced either as either
Brent crude or US crude. The current spread between the two is about $3.5, Brent
being higher, but this varies according to supply and demand, liquidity and other
geopolitical issues.
Within each market, several expiration months are quoted and at the time of
writing (June 2007) July, August and September CFDs are available. The
difference in prices between the various contracts reflects the cost of carry and
other seasonal factors as it would for all commodities.
What this means is that you do not pay financing interest on these CFDs, because
all positions are rolled over into expiry and the contract values already price in
the cost of carry.
What can you trade?
It is possible to trade various many different CFDs related to oil prices. These
include:
Heating oil, for which there is a liquid US-based quote with several expirations
UK Oil and Gas sector CFDs
US Oil and Gas sector CFDs
Individual oil share CFDs including such varied names as Royal Dutch Shell,
Statoil, Total-Fina, Exxon Mobil and many smaller oil company stocks around the world.
US Natural Gas CFDs with various expirations
Calculating the margin on a US crude contract
As we analyse the US crude oil market every day in our US report, it is worth
looking at this contract to calculate what margin is required on a trade.
The current most liquid contract is the July 2007 CFD, priced at $65.86 to $65.92
The margin requirement on most commodities is 3% of the total contract value.
The tick size is 0.01.
The contract value is calculated by this formula:
((Quantity) x (Price))/ Point= initial margin
Therefore if you were to buy 10 US Crude Oil CFDs at $65.92
(10 x 49.50)/ 0.01 x 0.03 = $1,978 initial margin.
The exposure per tick is worth $10.
For online traders, CFDs are an excellent way to gain exposure to the oil market
as a speculative play, for hedging purposes, or when searching for good arbitrage
possibilities. The markets are liquid and spreads are very attractive.
shopping masters
auto insurance
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