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Just last week, we were discussing about Exchange Traded Funds or leveraged etf and its use. Especially, to save commission cost and reduce volatility. There are, however, instances where buying ETF will boost your return compared to buying one individual stocks. Purchasing Oil ETF and its corresponding stock is one example. The reason is simple. They drive their profit based on the average selling cost of oil for the particular month or year. If the cost of extracting a barrel of oil is $ 20 and current oil price is at $ 50/ barrel then, $30/ barrel is the company's gross profit. If oil price moves downwards, their profit will be reduced as well. Weather, political reasons and other outside factors may perform a part in this. Therefore, if you are feeling that oil price will move up in the coming years, what do you have to do? Buying an oil company will generally show you to company explicit risk and some will give you higher returns than oil price appreciation, some don't .
Oil ETF will move in tandem with oil price. If oil rises by twenty percent, then its corresponding ETF will move by an identical quantity. Thus, this makes it simpler on financier. They don't have to work out both oil price and the company particular issues like production, cost of extracting oil or even work unions.What oil ETF are you able to buy? There are two ETFs available for US financiers ; US Oil ( USO ) and iPath Goldman Sachs Crude Oil Index ( OIL ). You could likely select OIL, which is trading at a more reasonable price than USO. Click here for the newsletter on how to safely average 6% per month trading Exchange-Traded Funds:leveraged etf. |
