To invest in unleaded gas futures you just need to locate a commodity futures broker, complete the account application and disclosure forms and fund the account with enough money to cover the margin requirements. Before committing money to buying a high risk futures contract, it is important to understand how a gasoline futures contract functions.
Traders have a choice of three possible gasoline futures contracts. The standard RBOB gasoline futures contract is for the delivery of 42,000 gallons of unleaded gasoline at New York Harbor. The financial version of the RBOB gasoline futures mirrors the regular contract except settles for cash instead of the delivery of gasoline. The e-mini RBOB gasoline futures contract is also financial settlement and half the size -- 21,000 gallons -- of the regular gasoline futures.
A trader may want to consider one of the financial gas contracts to avoid the hassle making sure to close a position in time to avoid getting into a delivery situation. When a financial futures contract reaches expiration, a trader's account is either credited or debited for the profit or loss on the contract. Financial gasoline futures have monthly expirations out to 12 months. The physical delivery gasoline futures have contract dates out to 36 months, if a trader is looking for longer dated contracts. Also, options on gasoline futures only trade against the physical delivery contracts.
The value of a gasoline futures contract is the wholesale price of gasoline times the number of gallons in a specific contract. The price for quotes and trading is the price of one gallon with a minimum price fluctuation of 1/100th of a cent -- $0.0001. The minimum price fluctuation or "tick" works out to $4.20 for the standard sized contract and $2.10 on an e-mini contract. This means a 1 cent change in the wholesale price of gas equals a $420 or $210 change in the value of a gasoline futures contract.
Trading Gasoline Futures
To trade a gasoline futures contract, you place an order with your commodity futures broker to either buy or sell to open the trade. Trades may be placed by telephone or using computer trading software. A buy order puts you long gasoline and profits if the price rises. A sell order puts you short gasoline to profit from falling gas prices. The broker will require a margin deposit for each contract traded. As of 2011, the standard gasoline margin deposit is $11,500. The e-mini gasoline margin deposit is $5,700.
Profits and Losses
Once a gasoline futures position is opened, the trade starts to profit or lose money from the price of gasoline at the time of the trade. Trading costs and will be the equivalent of one or two ticks of price change. A trader new to futures should remember a small change in the price of gasoline can result in a large change in the value of the trader's position -- up or down. If the trade was initiated in the wrong direction, for example, gas goes down on a long position, losses can mount up rapidly. If a trade position loses too much money, the broker will require the trader to deposit additional funds.
- CME Group: RBOB Gasoline Futures
- CME Group: RBOB Gasoline - Financial Futures
- CME Group: Crude Oil, Natural Gas, Heating Oil and RBOB Gasoline E-Mini Futures Fact Card
- Chicago Mercantile Exchange Group. "RBOB Gasoline Futures Quotes." Accessed May 25, 2020.
- Energy Information Administration. "Oil and Petroleum Products Explained." Accessed May 25, 2020.
- International Human Resources Development Corporation. "Crude Oil and Natural Gas: From Source to Final Products." Accessed May 25, 2020.
- Chicago Mercantile Exchange Group. "RBOB Gasoline Futures Contract Specs." Accessed May 25, 2020.
Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.