A Beginner’s Guide To Investing In Oil

Thanks to the Internet, you do not have to move to an oil rich country, such as Russia or the United States of America, to be able to invest in this commodity. Even better is that you do not need a lot of money to do it either. A good oil investments opportunity does not have to cost you the Earth.

How To Invest In Oil

How To Invest In Oil

There are a number of different ways that a person can invest in oil, with most of them not requiring you to physically hold the commodity. For example, you can invest in stocks that are related to oil, oil futures, and mutual funds. However, in order to be able to do any of these things, you must have a brokerage account.

1. Oil stocks

These allow you to invest directly in the companies that are involved in the extraction and production of petroleum from the Earth. It is important that you do lots of research before making a purchase of a stock or stocks in a particular company. It is prudent to have a diverse portfolio in index or mutual funds rather than just individual stocks.

2. Oil futures

This is an advanced way of investing in oil and allows oil producers to lock in a certain price for the commodity in advance. The same is also true for investors – the price at which they are purchasing the commodity at is also locked in. They are essentially contracts between the two parties to agree to exchange an agreed upon amount of oil for a certain price on a specified date.

So when trading these types of investments, it is actually the contract that you are trading, rather than the actual commodity. When there is a fluctuation in the price of oil, the contract could become more valuable and it is at that point that you should sell it for a decent profit. However, the opposite can also be true and you could end up losing money with this type of investment.

Risks of the Oil and Gas Industry

3. Oil mutual funds

These are like baskets of oil stocks that investors are able to purchase all at once. Index funds and exchange traded funds are a great way of easily and quickly diversifying your portfolio. However, this diversity is diminished when only investing in an oil mutual fund. Also if the industry was to suffer for whatever reason, oil mutual funds would perform worse than a more diverse investment fund.

How Much Money Do You Need To Invest In Oil?

Investing in oil can be done by most people regardless of their income – you do not have to be super rich. There are quite a few oil stocks that are well known and that trade for less than $100 each. EFTs also provide another cheap way of investing in oil. They are traded on an exchange and individual’s are able to buy these shares just like they can stocks. Lots of EFTs are valued at less than $30 each.