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What are oil futures?

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13th Nov 2009 by JonB

Oil futures give you the right to buy or sell a certain amount of oil for a certain price, at a certain amount of time in the future. For example, the full size NYMEX oil contract, which trades as CL, gives you the right to buy or sell 1,000 barrels of oil anytime before expiration which occurs on the third thursday of expiration month.

If CL is trading at $150 a barrel, then one contract would essentially be worth $150,000 (150X1000 barrels) at that time (of course the margin for trading it is only around $4,000). If you hold that contract and oil jump $5 and is trading at $155 a barrel, it is now wroth $155,000 or $5,000 more than you paid for it. Which isn't a bad profit considering you only had to put up $4,000 to make $5,000.

There is a mini oil contract as well, but it's not as widely traded.

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