Posted on 31 August 2011.
Investors can achieve sizable returns with crude oil futures trading. The volatility of the market means that quick surges in prices are possible and the ability to sell futures contracts ahead of delivery enables these investors to reap big profits because the price of the delivery was set at the time of purchase. The key to maximizing profits involves knowing when oil prices have reached their peak and are about to fall.
Crude oil futures trading is possible for investors from any background. Even though the amounts of oil are large, independent traders are able to engage in trading these futures because of the ability to leverage a big futures contract with only a fraction of the actual cost. This gives the investor control over the contract for that particular amount of crude oil.
There is risk in crude oil futures trading. A margin call can wreck an investor’s plans but the high liquidity of the futures market provides a trader with a lot of opportunity to sell. Furthermore, the chance to make such large gains in the short period of time that it takes oil prices to spike is encouraging to investors both large and small.
Traders rarely hold on to a crude oil futures contract until time of delivery. Instead, they buy a futures contract with a specified price for each lot of crude oil. The size of these lots is usually 1,000 barrels. They buy the contracts at a given price because they think the market price of oil will increase during the interval between purchase and delivery. Whenever they think these prices have peaked, they sell the contracts. This is usually possible due to the high liquidity involved in crude oil futures trading.
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