A:

Investors have many options

for getting involved with oil. These methods come with varying degrees of risk and range from direct investment in oil as a commodity, to indirect exposure in oil through the ownership of energy-related equities.

One direct method of owning oil is through the purchase of oil futures or oil futures options. Futures are highly volatile and involve a high degree of risk. Additionally, investing in futures may require the investor to do a lot of homework as well as invest a large amount of capital.

Another direct method of owning oil is through the purchase of commodity-based oil exchange-traded funds (ETFs). ETFs trade on a stock exchange and can be purchased and sold in a manner similar to stocks. For example, buying one share of the U.S. Oil Fund (AMEX:USO) would give you exposure to roughly one barrel of oil.

In addition, investors can gain indirect exposure to oil through the purchase of energy-sector ETFs, like the iShares Global Energy Sector Index Fund (PSE:IXC), and to energy-sector mutual funds, like the the T. Rowe Price New Era Fund (PRNEX). These energy-specific ETFs and mutual funds invest solely in the stocks of oil and oil services companies and come with lower risk.

For more on this topic, read An Introduction To Sector Funds, Futures Fundamentals: Introduction and ETFs Provide Easy Access To Energy Commodities.

This question was answered by Tony Daltorio.

RELATED FAQS

  1. How do you calculate the excess return of an ETF or indexed mutual fund?

    Read about how to calculate and interpret the expected return generated by an exchange-traded fund (ETF) and an indexed mutual ...
  2. Does an ETF pay out the full dividend that comes with the stocks held in that ETF?

    Learn if ETFs pay out the full dividend that comes with the stocks held in that ETF. Understand the difference between qualified ...
  3. What does the underlying of a derivative refer to?

    Find out more about derivative securities, what an underlying asset is and what the underlying assets refer to in stock options ...
  4. What kinds of derivatives are types of contingent claims?

    Read about contingent claim derivatives, such as options contracts, whereby the payout of the transaction is dependent on ...
RELATED TERMS
  1. Exchange Traded Derivative

    A financial instrument whose value is based on the value of another ...
  2. Catastrophe Equity Put (CatEPut)

    Catastrophe equity puts are used to ensure that insurance companies ...
  3. Open Trade Equity (OTE)

    Open trade equity (OTE) is the equity in an open futures contract.
  4. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  5. Benchmark Crude Oil

    Benchmark crude oil is crude oil that serves as a pricing reference, ...
  6. Lion economies

    A nickname given to Africa's growing economies.

You May Also Like

Related Articles
  1. Mutual Funds & ETFs

    Top 4 ETFs That Will Help Diversify ...

  2. Chart Advisor

    Long-Term Charts Suggest The Next Move ...

  3. Mutual Funds & ETFs

    Top 7 ETFs Designed for Retirement Income

  4. Chart Advisor

    Commodity Traders are Watching These ...

  5. Chart Advisor

    The Stock Market's Uptrend Is Set To ...

Trading Center