Cheat Sheet

Energy Investing For Dummies

From Energy Investing For Dummies by Nick Hodge [with Jeff Siegel, Christian DeHaemer, Keith Kohl]

Investing successfully in energy involves a lot of research into many different aspects of energy production and consumption. You can invest in commodities such as coal, oil, and natural gas, or you can purchase stock in an oil company or a company that builds natural gas power plants. You need to keep an eye on not only the energy markets but also the global economy and the news of the day.

Trading Energy Commodities

If you're interested in trading energy commodities (such as coil, oil, or natural gas) you'll need at least one of the following persons working for you depending on if you are making the decisions or you want to yield to a professional energy investor:

  • Futures Commission Merchant (FCM): An FCM can solicit and accept, buy, or sell orders for commodity futures and options. If you want to make all the decisions, all you need is an account with a Futures Commission Merchant.

  • Introducing Broker (IB): If you want to work with a professional to make commodity trading decisions, you should hire an Introducing Broker. This person will help you make decisions based on individual needs, and will submit the trades for you.

  • Commodity Trading Advisor (CTA): You can hire a CTA to give you commodity trading advice or give them full authority over your account. They can make decisions and execute trades without any input from you.

You can learn more about each at the National Futures Association or the National Introducing Brokers Association.

Additionally, you should know which commodities trade on which exchanges:

  • Chicago Mercantile Exchange (CME): crude oil, natural gas, coal, biofuels, electricity, refined products, and petrochemicals

  • Intercontinental Exchange (ICE): coal, crude oil, refined products, electricity, and natural gas

Identifying Top Energy Investment Resources

Energy commodity and stock prices change by the second. And the macroeconomic outlook can change just as quickly. What are crude oil prices doing today? What's the demand outlook for the next five or ten years? As an energy investor, you need updated answers to these questions and many more. The following websites are a good place to get current and reliable information:

  • Energy Information Administration (EIA): The most comprehensive collection of energy information anywhere, including reserve and pricing data, production rates, forecasts, and more.

  • International Energy Agency (IEA): An independent organization that advises 28 member nations on energy policy, focusing on the areas of energy security, economic development, environmental awareness, and engagement worldwide.

  • CME Group: Formed when the Chicago Mercantile Exchange merged with the Chicago Board of Trade, it now owns the New York Mercantile Exchange (NYMEX) and the Kansas City Board of Trade (KBOT).

  • Yahoo! Finance: This all-encompassing investment website provides information on individual companies and funds, including charting services, profiles, and trends in specific sectors.

  • Energy & Capital: A website and free daily newsletter with both analysis and opinion about all facets of the energy market from industry experts.

Energy Indexes That Investors Need to Watch

You can get a sense of how a particular sector of the energy market is doing by monitoring an index that tracks the performance of several companies operating within it. For an investor, that's great information to have. Here are some of the most-watched indexes in the energy market:

  • Dow Jones U.S. Select Oil Equipment & Services Index

  • Dow Jones U.S. Coal Index

  • Dow Jones Global Utilities Index

  • World Nuclear Association Nuclear Energy Index

  • Nasdaq Clean Edge Green Energy Index

More info on each is available from the company or organization that owns the index, or by searching the index on a financial website like Yahoo! Finance or Bloomberg. You should look at the holdings of each index to get a sense of the companies that operate in each space in case you want to invest in them individually.

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