So, you want to invest in the oil market. You have heard that it is an excellent way to make money, but you are unsure what steps to take next.
As an investor, you can consider some factors before taking your next step in investing in oil markets.
Investing includes two options – either a long-term or a short term investment. For long term investment, investors may buy stocks of the company operating in the oil market.
The company gives them dividends after a specific time interval depending on how much profit they make during that period.
Two types of stock are available for purchase- call option and put option, where people have opportunities to possibly benefit more from their investments with less risk involved or vice versa.
So before buying them, you should learn thoroughly about these two terms.
While these strategies sound simple enough, there is another strategy that you can apply significantly when oil prices are fluctuating rapidly. It is known as the Straddle or No transaction strategy.
This method helps people estimate whether to invest in long term or short term investments based on how much profit they will be able to make with their investments because this will help you understand what’s going on.
There are many reasons one would invest.
If you choose to be part of a fund with multiple asset classes, which is diversified internationally, the Mena region might play a significant role in this strategy, for example.
Even if we take political risk into account – your investment would not be without risks as such (due to extreme volatility of currencies and products)
The Mena region has experienced significant growth since 2000, especially within the financial sector.
Even more remarkable is that investors had high returns despite market volatility over the past five years – less than 5% is the average.
As is with any other emerging market, liquidity is a bit of an issue – but not for Mena investors! Due to its market growth and political stability, the region has become a highly sought after destination in terms of investments.
The Middle East represents actual free trade where oil prices significantly impact the global economy and stable income.
There’s no doubt that Mena markets are currently one of the most stable investment destinations within emerging markets.
Forget about inflation or balance of payment deficits that might affect your capital in other regions such as Asia or South America.
Even if you choose to invest in countries like Bahrain, Qatar or Saudi Arabia, you’re guaranteed to have solid economic foundations with stable currencies.
Knowing the perks of investing in Mena, let’s talk numbers. Many investors are afraid to invest due to political situations. It is fair enough – but it shouldn’t impact your investment decisions regarding something as logical as Diversification.
Let me start by saying that not all stocks within the region are significantly affected by political changes in countries like Egypt or Tunisia, most notably financial institutions such as banks, insurers, and real estate firms.
So what about Mena straddles?
It is rather logical that companies that rely on oil products for their income will lose some of their capital due to oil prices.
Furthermore, this also affects other related products through supply & demand – electricity, for example (BMI energy index).
As mentioned before, political unrest can affect your investments, too- without any doubt.
Diversification and proper risk management are essential to minimize your losses even in times like these.
It’s important to note that Mena regions only provide a small fraction of the global economic output – if we acknowledge this, we can easily say that any instability within Mena does not affect the world market (on the contrary).
Diversification helps you avoid risks associated with single countries.
A stable political environment and solid financial institutions incline you to invest within the market without hesitation. Anything related to oil will be impacted by political unrest – but not necessarily your investments.
Link to Saxo broker Saudi Arabia for more information.