How to Buy Oil Future Contracts

Oil futures contracts are contracts to purchase or sell a certain amount of oil at a future date. The price of futures contracts are determined by supply and demand in the market, which is influenced heavily by investor expectations as to the future value of oil. Making money by investing in oil is normally done by buying futures contracts and selling them at a later date after the value of oil has increased.

Instructions

1. Look for an investment broker that deals with commodities like oil futures. Most big brokerage houses will have brokers that can purchase or sell oil futures on the New York Mercantile Exchange on behalf of their clients. Similar to trading stocks, buying oil futures requires a broker that has access to the exchange to place an order on your behalf.

2. Consider using a discount online broker. Brick and mortar brokerage institutions are used by high level investors that want expert advice and human to human contact when making trades, but all of these amenities cost money, which amounts to higher brokerage fees when making trades. More recently, many convenient discount brokers are accessible online, which allow normal people to purchase and sell stocks and often commodities like oil futures in smaller increments with lower fees. Some popular trading sites, such as Scottrade and Hedgestreet, allow users to trade oil futures, while others may not.

3. Place an order to purchase oil futures through your broker. You will have to provide the necessary funds for purchasing the oil futures in order to make the trade. After the futures contracts are purchased, you must place another order through the broker to sell them in order to cash out of the investment.

Tips & Warnings

• Trading oil futures contracts is a very risky activity, since princes can shift dramatically and unexpectedly. Unlike stocks, which can be held for decades, futures contracts have a settlement date. When this date is reached, depending on the contract, a cash settlement may be made for the value of the contract, or it may result in physical delivery of the commodity.

Resources

• Info on crude oil brokers
• Info on oil futures and how they are traded