Skip to main content

How To Make Sense Of Crude Oil Futures

The stock market has traditionally proved to be a fantastic platform for investors to trade financial instruments, and similarly commodities are traded by way of an investment vehicle known as a "future". The "future" is a financial instrument that the investor uses to take a position on where the investor feels that the price of the underlying commodity will move in the future. The futures trader purchases this vehicle with the belief that the price of the commodity will either increase or decrease at a certain predetermined future date.

The purchase of a future is a contract that locks in the price today so that the purchaser can acquire the underlying commodity in the future at today's agreed upon price regardless of any possible market conditions in the future (the agreed upon date). Globally there are numerous futures markets, and for petroleum the largest markets are the New York Mercantile Exchange (NYMEX) along with the International Petroleum Exchange, which is now known as "ICE".

There is a lot of speculation that takes place on the futures markets, and this can have an effect on the price of crude oil. For example, if traders acquire large quantities of futures at prices that are higher than the current market price, this will cause for oil producers to hoard their supply currently at hand so that they can then dump it on the market in the future at the at the new higher price-this promptly cuts of the current supply of oil to the marketplace and simultaneously drives up both the future and present price of the commodity. Sometimes traders try to "Corner the market" by using this well known technique.

During the 1970s the Commodity Futures Trading Commission (CFTC) was established in the United States as a government body to regulate speculators and keep things in check so that prices do not spiral out of control. Gradually over time, the CFTC relinquished much of its regulatory power and control over the market.

Just like any other commodity, crude oil has its own ticker symbol and margin requirements for trading on the exchanges. If an investor/trader was trading a crude oil futures contract they will see something like this on the ticker tape:

CL8K @ 103.45

The text in the above bold faced font translates to read "Crude Oil (CL) 2008 (8) May (K) at $103.45/barrel." The value of an oil contract is determined by the current market price multiplied by the value of the contract. So in this example: $103.45 X 1000 oil barrels = $103 450




Source by Ashbee A. Bakht

Popular posts from this blog

The Basics of Cryptocurrency and the Way It Works

In the times that we're living in, technology has made unbelievable advancement as compared to any time in the past. This evolution has redefined the life of man on almost every aspect. In fact, this evolution is an ongoing process and thus, human life on earth is improving constantly day in and day out. One of the latest inclusions in this aspect is cryptocurrencies.Cryptocurrency is nothing but digital currency, which has been designed to impose security and anonymity in online monetary transactions. It uses cryptographic encryption to both generate currency and verify transactions. The new coins are created by a process called mining, whereas the transactions are recorded in a public ledger, which is called the Transaction Block Chain.Little backtrackEvolution of cryptocurrency is mainly attributed to the virtual world of the web and involves the procedure of transforming legible information into a code, which is almost uncrackable. Thus, it becomes easier to track purchases an…

Forex MegaDroid - The Trading Robot That Applies Two Trading Strategies

It is important for novice traders to gain the basic knowledge of Forex trading at the very beginning of their attempts. After you get the rough ideas of what those charts, tables and axis mean, then you should study in details about which trading style suits you the most. Currency trading involves completely different styles. People should opt for their own strategies, but basically there are two primary types of analysis: the technical and the fundamental. A few traders would choose one of the two, some will combine them, others just follow what the robot tells them. Forex Megadroid belongs one of the few automated programs that applies both trading strategies. Forex traders who choose to use technical analysis always base their analyzes on the currency market trend. They read charts and recognize the common patterns for the price movement. Different traders may employ various reporting system to make the analysis easy to read or update. For the users of technical analys…

Virtual Currency Games

Every little boy's (and many grown men's) dream of making a living by playing video games is edging closer to reality. The recent release of HunterCoin and the in-development VoidSpace, games which reward players in digital currency rather than virtual princesses or gold stars point towards a future where one's ranking on a scoreboard could be rewarded in dollars, and sterling, euros and yen.The story of the millionaire (virtual) real estate agent... Digital currencies have been slowly gaining in maturity both in terms of their functionality and the financial infrastructure that enables them to be used as a credible alternative to non-virtual fiat currency. Though Bitcoin, the 1st and most well known of the crypto-currencies was created in 2009 there have been forms of virtual currencies used in video games for more than 15 years. 1997's Ultima Online was the first notable attempt to incorporate a large scale virtual economy in a game. Players could collect gold coins …