You don’t have to be a rich Texan or Saudi oil baron to profit from oil. There are plenty of opportunities available to the average investor. Some of them involve speculative trading that is perfect for people looking for a big payoff, though it can be risky. Other investments are more suited for people who want a stable, conservative investment.
Here are three investments to consider.
Oil Futures: High Risk/High Reward
People who are looking for a very risky yet potentially very rewarding investment will love oil futures. These are traded on the NYMEX (New York Mercantile Exchange), not the regular stock market (NYSE or NASDAQ.)
Futures differ from stocks in that you aren’t buying shares in a company. What you are buying, or selling, is a contract to purchase a lot of oil at a specified date in the future. Companies who refine oil want to lock in a price for their product in case there is a decline in the price of oil, so they sell a contract. Speculators purchase these contracts in hope that the cost of oil will rise in the meantime. That contract can be sold again and again among traders until the contract’s expiration date.
This is very risky. If you misjudge the future price of oil, then you will lose money. It is only something that you should consider if you are willing to devote an immense amount of time to analyzing global oil demand, market fluctuations, and even geopolitics.
Purchasing Stock In Oil Companies
If you’re not interested in a risky, time consuming activity such as futures trading, then consider buying stock in a company that develops, refines, or transports oil. When you buy stock in one of these companies, you don’t have to worry about an expiration date, as with future contracts. You are in it for the long haul.
A major benefit to buying stock in an oil company is that many of them pay dividends. This means that you can collect money without having to sell the stock. If you’re looking for income and safety, then oil stocks are the way to go.
Gas and Oil Partnerships
MLP (Master Limited Partnerships) were devised to handle tax regulations. They are different than stock in that you are not a shareholder, you are a partner. The significance of this mainly has to do with the way profit is taxed.
These partnerships are safe, stable, and pay a nice dividend. These companies are not likely to double in value, like some speculative stocks you might find, but they will pay a consistent dividend. So, if you are someone looking for stable income, then an oil and gas partnership might be the way to go.
For more help, contact a business like Fusion Resources LLC.Read More