How to Invest in Oil Stocks

• 1). Get an online broker. There are several good ones to choose from. Some of these include E trade, Ameritrade, Interactive Brokers and Trade Station. You can set up an account over the Internet in a matter of minutes, and you can fund it via check, wire transfer and, in some cases, PayPal.
  
  
• 2). Purchase an oil exchange traded fund (ETF). Exchange traded funds have become very popular. Essentially, what they do is purchase several stocks in a given industry--in this case, oil--and are thus diversified so they are not as volatile as the commodity itself but still mirror its performance. To purchase the ETF you simply type in one of the stock symbols below into your broker's software and use "Create a Buy Order." An ETF allows you to purchase shares in oil just like you would a stock. Some of the more popular Oil ETFs are: Oil Services HOLDRs (OIH), United States Oil (USO) and Select SPDR Energy (XLE).
  
  
• 3). Buy a stock in an oil company. A number of companies deal directly in the drilling, transportation and selling of oil. Some of these include Chevron (CVX), Exxon Mobil (XOM), XTO Energy (XTO) and Noble Energy (NBL). Purchasing these can be a bit more risky than purchasing an ETF because you are not diversified. If there is bad news related only to that company, such as an analyst downgrade or an accident, then the stock could take a tumble. However, it does work both ways because if there is good news associated with the stock, it can skyrocket as well.
  
  
• 4). Use a stop loss. Whenever purchasing oil stocks, or any stocks for that matter, you should always use a stop loss in case you are wrong. A good rule of thumb is to set your stop about 25 percent below your entry point of the stock.