Should I invest my money in Crude oil as the oil price changes every day

Crude oil investment is an emerging interest among the traders and investors due to high risk-high return schemes. Want to know whether you should invest in this commodity? Know through this informative article more about this global commodity and how it is traded in the markets.

Middle East countries are the main suppliers of crude oil and gas in the global oil and gas market. The huge demand for crude oil is coming from the Asian countries like China and India after united states. Middle East countries supply almost 60% of the world's total oil. Oil is a global commodity and traded with the US dollar. Crude oil investment is an emerging interest among the traders and investors due to high risk-high return schemes. Investors witnessed turbulence in global oil prices due to Middle East crisis. Crude oil is a global commodity and traded in exchange with US dollars. However, investment and trading in crude oil are associated with high risks. Global hedge funds are focusing to diverse their portfolio by investing their money in crude oils.

Crude oil prices are calculated on a real-time basis which traded in the future and options market. Prices of Crude oil may fluctuate due to various reasons. Let's know more about investing in crude oil.

Why crude oil price fluctuates?

From the basic economics' point of view, crude oil prices may fluctuate due to supply and demand. If the total demand for crude oil is certainly higher than the global production then the prices may go up. Apart from the supply-demand basic mechanism, crude oil prices been affected by the geopolitical tensions. If there is any shutdown plan my a major oil-producing refinery then oil prices may have a little bit impact.

How crude oil is bought and sold by the investor?

Like other commodities, crude oil is also traded in the stock exchanges in the form of different tradable instruments like the future and options market. While underlying crude oil prices go up, the future price also goes up. It helps both investors as well as hedge fund managers to make a decision. Crude oil importers use future instruments to hedge their positions.

Are crude oil can be purchased like stocks?

Crude oil futures and options can be bought with margin funding. Spot crude oil cannot be purchased, but some crude oil-backed ETFs are there, where you can invest like a stock in the crude oil. Crude oil options can be used to hedge your positions in the future market.

Are these investments safe?

Investment in any commodity is subjected to market risks. Crude oil fluctuations due to geopolitical tensions, supply-demand reason, and even currency fluctuations may impact your investment. Daily production output also affects the underlying price. If there are any possibilities that any oil-producing country may cut their production, then the future price will go up and automatically the underlying prices also increases.

What is the difference between crude oil futures and spot prices?

Future prices are always traded with some premium values and have a fixed expiry date when you have to settle your positions. In the futures market, you have to pay only a portion of money for your total investment, widely known as margin money. A future and options instrument settles on the day of expiry. Options chain has much more premium than the futures but it depends on the time remaining for expiry and the strike price.

Who can participate in this trading?

You can trade in the Indian market, as crude oil futures are traded in our stock exchanges. Your stock broker may guide you in this regard on how to open a commodity trading account. Brokerage and other fees related information you will get from your broker. Before opening a trading account, you must inquire about their license from the respective agencies and stock exchanges.


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