Oil Stocks How To Trade Them

Energy prices and energy stocks always seem to be in the news. Despite the recent global economic crisis, oil and its related energy products still dominate the markets. With all this interest, let’s take at look at oil stocks.

The world does not move without oil. It is the means in which goods and services are transported. Yes the Internet can replace some of that movement, but if you have been following the oil markets, you will see demand is still growing.

There are many ways to trade oil stocks. It will all depend on your trading style. Are you long-term trader or a short-term trader? Do you go looking for cheap stocks and undervalued stocks or do you try to trade momentum? Momentum trading are investors who but high and try to sell even higher.

You can purchase individual oil stocks like ExxonMobil and ConocoPhillips. This is investing with a rifle. You will be scanning companies in the oil sector looking for the stock most likely to increase in price over other companies. This is a very discipline approach to investing in oil stocks. This type of investor needs to be very patient in doing their research for an undervalued oil stock. You will need to sift through company stock reports and quarterly filing with the S.E.C. to discover a diamond in the rough. An investor will probably subscribe to several stock market new letters to see what others are saying about the stock. You can simply sign up for trial subscriptions to see if a newsletter is right for you. You will need to look at the company’s prospects versus other oil companies. The advantage of this type of trading is that you can focus your oil investment and it is easier to follow. Another benefit of this type of oil investing is selecting a stock that pays dividends. An oil company that can pay its stockholders a cash dividend out of its current income shows that this company feels it has a strong balance sheet and good prospects of future earnings. Many individual oil stocks will allow the reinvestment of dividends into additional shares of stock for no cost or a very low cost. This will allow you to increase your stake in your oil stock.

Another method of investing in oil stocks is to invest in oil mutual funds. By investing like this, you are essentially “hiring” a management team to invest in oil for you. Oil mutual funds you should have an expense ratio of less than 1%. Anything higher will really eat into your oil investment return. You can use Morningstar to find the top performing oil stock mutual funds over the last several years. Some of the leading mutual fund families are Vanguard mutual funds, USAA mutual funds and TRowePrice Mutual Funds. These mutual funds will select a basket of oil stocks to invest in. By investing like this, your oil investments are diversified as opposed to the rifle method above of investing in individual oil stocks.

Oil ETFs are a cross between individual oil stocks and oil mutual funds. Mutual funds can only be traded at one price and that is set at the end of he day. This is known as the net asset value or N.A.V. that you see listed in the financial papers and online stock sites. Mutual funds do not allow you to trade through out the day as you can with a regular oil stock. Oil ETFs are similar to oil mutual finds in that they are made up of a basket of oil stocks. The difference is that this etf can be traded like a stock. That means that you can enter orders for and etf like a stock. You can buy or sell at the market, enter limit orders and even enter stop loss orders. An oil etf can give you the flexibility of an oil stock along with the diversification of an oil stocks mutual fund.

To round out your investment portfolio, you should add oil stocks. They are very liquid and easily traded. Discover which type of investor you are, research your stocks by examing different stock newsletters you can find online and begin your oil stock trading.