Sunday, October 7, 2007

Trading Oil and Gas Contracts Using CFDs

Many traders do not realise that Contracts for Difference can be used not just for stockmarket trading, but also in the forex and commodities markets, and one of the most liquid and exciting markets is crude oil and natural gas. CFDs are usually modelled in the same way as futures contracts, and consequently there are several contracts from which to choose in each category.

It is well known that the crude oil market is normally priced either as either Brent crude or US crude. The current spread between the two is about $3.5, Brent being higher, but this varies according to supply and demand, liquidity and other geopolitical issues.

Different contracts

Within each market, several expiration months are quoted and at the time of writing (June 2007) July, August and September CFDs are available. The difference in prices between the various contracts reflects the cost of carry and other seasonal factors as it would for all commodities.

What this means is that you do not pay financing interest on these CFDs, because all positions are rolled over into expiry and the contract values already price in the cost of carry.

What can you trade?

It is possible to trade various many different CFDs related to oil prices. These include:

Heating oil, for which there is a liquid US-based quote with several expirations

UK Oil and Gas sector CFDs

US Oil and Gas sector CFDs

Individual oil share CFDs including such varied names as Royal Dutch Shell, Statoil, Total-Fina, Exxon Mobil and many smaller oil company stocks around the world

US Natural Gas CFDs with various expirations

Calculating the margin on a US crude contract

As we analyse the US crude oil market every day in our US report, it is worth looking at this contract to calculate what margin is required on a trade.

The current most liquid contract is the July 2007 CFD, priced at $65.86 to $65.92

The margin requirement on most commodities is 3% of the total contract value.

The tick size is 0.01.

The contract value is calculated by this formula:

((Quantity) x (Price))/ Point= initial margin

Therefore if you were to buy 10 US Crude Oil CFDs at $65.92

(10 x 49.50)/ 0.01 x 0.03 = $1,978 initial margin.

The exposure per tick is worth $10.

For online traders, CFDs are an excellent way to gain exposure to the oil market as a speculative play, for hedging purposes, or when searching for good arbitrage possibilities. The markets are liquid and spreads are very attractive.

Mike Estrey is the Head of Research for Blue Index, specialists in Online CFD Trading, Contracts for Difference and Online Forex Trading.

Tips For Better Options Trading

If you trade, you may have heard of options. Trading options carries high risk and has many disadvantages for beginners and even seasoned traders. Therefore, it is wise to be cautious if you are considering options trading.

An option is a contract between two parties giving the taker or buyer the right, but not the obligation, to buy or sell shares at a specific price on or before a specific date. To have this right, the taker pays a premium to the writer or seller of the contract.

There are two types of options available: call options and put options.

Call options give the taker the right but not the obligation to buy the shares at a specific price on or before a specific date.

The put options give the taker the right but not the obligation to sell the shares at a specific price on or before a specific date. The taker of a put is only required to deliver the underlying shares if they exercise option.

There are a few advantages in option trading:

Put options allow you to hedge against a possible fall in the price of the shares you hold. You can consider taking it out as insurance against a loss in the share price.

By taking a call option, the purchase price for the shares is locked in. This gives the call option holder until the expiry date to decide whether he or she will or will not buy the shares. This is also applicable to the taker; he or she has to decide whether or not to sell the shares before the deadline.

The ease of trading in and out of an option position makes it possible to trade options with no intention of ever exercising them. If you expect the market to rise, you may want to buy call options, and if you are expecting a fall in the market, you may decide to buy put options. This means that you can sell the option prior to the expiry date to take a profit or limit a loss.

Options also allow you to build a diversified portfolio for a lower initial outlay than purchasing shares directly.

The income generation for options can get you profits over dividends by writing call options against your shares. By writing an option, you receive the option premium up front. While you get to keep the option premium, it is possible that you could be exercised against and have to deliver your shares to the taker at the exercise price. This strategy uses stock bought on margin.

By combining different options, or stocks with options, you can create a wide range of strategies.

You can earn extra income by writing options against shares you already own or are purchasing. This is one of the simplest and most rewarding strategies.

Using options gives you time to decide. Taking a call option can give you time to decide if you want to buy shares. You pay the premium, which is only a fraction of the price of the underlying shares.

The option then locks in a buying price for the shares if you decide to exercise. You then have until the expiry date of the option to decide if you want to buy the shares. This is the same as to the put option.

Keep in mind that, same as any other trades do not trade what you cannot afford to lose.

For more on Option Trading visit Susan also writes at Health and Fitness.

Two Uranium Exploration Companies Slug It Out in Utah's Lisbon Valley, Part One

After interviewing SXR Uranium One Chief Executive Neal Froneman, we realized it was important to cover developments in Utah, particularly in the Lisbon Valley. Each time Mr. Froneman talked about Wyoming, he nearly always included Utah in the same breath. Most of our focus for the first half of 2006 had been on the In Situ Recovery (ISR) method of uranium mining. Now, as the uranium spot price knocks on the $50/pound level, it appears conventional mining in the United States may return with a vengeance.

Utah is strictly high grade uranium underground mining, possibly offering some the consistently highest grades available in the United States. International Uranium Corporations announcement to reopen the White Mesa uranium mill, some 50 miles away from the Lisbon Valley, was the first step geared to renew interest in southeastern Utahs Paradox Basin. SXRs interest in the area was a significant second step. There may be several more reasons if the early drilling results of two junior exploration companies show promise deep below this semi-arid ground covered with juniper, sage brush, and sprinklings of Ponderosa and Pinyon pines trees.

Utah is a state where underground uranium mining was successful and continued until the spot price completely collapsed. Specifically, it was the Paradox Basin of the Colorado Plateau, which became world famous, partly because of a Hollywood movie about its most colorful pioneer, Charlie Steen. His home in Moab, Utah became the city of millionaires, a consequence of the uranium rush he launched with his discovery.

Lisbon Valley became the most heavily promoted uranium districts in the world, thanks to a then-penniless Charlie Steen, the unemployed petroleum geologist who discovered the Mi Vida uranium deposit on the southwest side of the Lisbon Valley anticline. On July 6, 1952, Charlie Steen cored through 14 feet of grayish-black pitchblende specimens of which he had only seen in museums. No one had ever before discovered pitchblende on the Plateau. With uranium grades up to 0.4 percent, this became one of the richest ore bodies mined in the United States.

Our recent investigation and interviews with two geologists revealed there could be an area play again developing in the Lisbon Valley uranium district. It is also known as the Big Indian Uranium District, named after the ore belt, and is located 30 miles south of Moab, Utah about halfway between Salt Lake City and Santa Fe, New Mexico. Excluding U.S. Energy, which holds prospective uranium properties on the west side of the Lisbon Valley Fault, there are three junior uranium exploration companies exploring or hoping to explore for uranium on the northeast side of the Lisbon Valley Fault. They hope to continue where Rio Algom left off, during the nadir of the twenty-year uranium depression.

Why are the Uranium Companies Exploring the Northeast Flank of the Fault?

While the west side of the fault has been the most productive uranium mining ground, Rio Algom discovered a mineralized zone in 1972 on the nose of the northeast side of the fault. For the next sixteen years, the companys Lisbon Mine produced about 24 million pounds of uranium from more than 5.6 million tons of ore at an average grade of 0.22 percent. True, the grades were higher on the western side of the fault an average grade of 0.35 percent U3O8.

Rio Algoms discovery and outstanding uranium production confirmed a little publicized notation in an obscure chapter, of a geological textbook, entitled, Geology and Exploitation of Uranium Deposits in the Lisbon Valley Area, Utah. Hiram B. Wood of the American Institute of Mining, and on behalf of the U.S. Atomic Energy Commission, wrote in 1968, An Extension of the Big Indian Ore Belt, similar in size and grade to the known ore belt, probably occurs in the downthrown block north east of the Lisbon Valley Fault at depths of 2400-2700 feet beneath the Dakota-capped surfaceleaving this area as the most favorable unexplored area remaining on the Lisbon Valley Anticline.

It should be noted that none of the major uranium ore bodies had outcrops. All of the discoveries were made by exploration drilling. Because of the stratigraphy, the mineable deposits were found at depths of more than 2000 feet. All of the anticlines in the Paradox Basin, of which Lisbon valley is one, are salt structures, said Richard Dorman, vice president of exploration for Universal Uranium, which is now drilling on the northeast side of the anticline. Dorman explained an anticline for the layman, Its where the earth gets bent up into a rounded dome.

It may be quite possible there is more uranium, according to the two uranium exploration geologists we interviewed for this feature. Both Universal Uranium and Mesa Uranium are drilling to identify and evaluate the Moss Bach sandstones in the Chinle formation. It was Charlie Steens uranium discovery overlying the Moss Bach member which started the massive prospecting rush into the district in the 1950s. The majority of the uranium production occurred along the northwest flank of the anticline. For forty years, more than 80 million pounds of uranium were mined from the 16 mile long by one-half mile wide trend of the western flank.

Exploration drilling is underway on the northeastern side of the anticline near the formerly producing Lisbon Mine. There are geological advantages in the exploration programs of both companies, Universal Uranium and Mesa Uranium. Universals smaller property position is six miles long and two miles wide, but closer to the fault. Mesas larger position is closer to the former Lisbon Mine, but is an arc shaped land position further from the fault. Global Uranium, which has not announced a drill program, is reportedly sandwiched in the area between the two.

COPYRIGHT 2007 by StockInterview, Inc. ALL RIGHTS RESERVED.

James Finch contributes to and other publications. StockInterviews Investing in the Great Uranium Bull Market has become the most popular book ever published for uranium mining stock investors. Visit

The Forex Trader Failsafe Checklist

The Forex market can lure the novice Forex trader into trading scenarios that appear very attractive at first glance but turn very quickly into a losing trade.

Many a Forex trader will relate to this experience:

  • Price has been in a consolidation channel for one or two hours.
  • You place an entry order to get taken in at the top or bottom of the channel.
  • Within a few minutes your trade is in and within a few minutes more you are looking at a loss of -10 pips, then -15 pips, and then your stop gets taken out.
  • Price hardly moved for hours but as soon as you got into a trade you were taken out within minutes for a loss leaving you bewildered and muttering, "What happened?"

In the early stages of gaining trading experience, it is good for the novice Forex trader to go by a checklist every time before entering a trade until certain habits become ingrained.

Just having a procedure in place that has to be executed before pulling the trigger on a trade can prevent the Forex trader from quickly entering a trade just because there are some sudden movements on the screen and the trader is worried about missing an opportunity.

Yes, disciplining oneself to take time and go through a checklist first may mean missing some good opportunities occasionally. On the other hand, it will prevent having losing trades frequently.

For a very cautious approach to trading the newer Forex trader can use this Failsafe Checklist to determine whether the potential trade setup is likely to be high probability or low probability.

FailSafe Checklist

Avoid Going Long If:

  • There is negative divergence on MACD on the 4 hour, 1 hour, or 15 minute chart.
  • MACD on the 4 hour or 1 hour chart is pointing down.
  • Price is well above the Central Pivot Point for the day in a Sell Area. (For a free pivot point calculator go here:
  • Price is below the 200 EMA (Exponential Moving Average) on the 4 hour and 1 hour chart but above the 200 EMA on the 15 minute chart. (With this setup on the 3 times frames price is bucking the overall trend and can turn against you at any time.)
  • Price is above a Fibonacci 50, 62, or 79 retracement (calculated from the last high and low)
  • Your stop is not below multiple layers of support such as a significant previous high or low, pivot point, or Fibonacci level.

Avoid Going Short If:

  • There is positive divergence on MACD on the 4 hour, 1 hour, or 15 minute chart.
  • MACD on the 4 hour or 1 hour chart is pointing up.
  • Price is well below the Central Pivot Point for the day in a Buy Area.
  • Price is above the 200 EMA on the 4 hour and 1 hour chart but below the 200 EMA on the 15 minute chart.
  • Price is below a Fibonacci 50, 62, or 79 retracement (calculated from the last high and low)
  • Your stop is not above multiple layers of resistance such as a significant previous high or low, pivot point, or Fibonacci level.

The Most Important Lesson Of All

Implementing this Failsafe Checklist strategy may reduce the number of trades the Forex trader participates in. However, here an important lesson is learned - patience! Waiting for a high probability setup can make many demands on a Forex trader's mental resources and emotional strength.

This is probably the most important lesson the new Forex trader will have to learn. Using a Failsafe Checklist like the one above can make the Forex trader slow down, engage in thorough analysis using the technical indicators available, and really start to make progress as a trader.

Why not print off the Failsafe Checklist and keep it beside the computer for consultation before pulling the trigger on any trade?

For additional tips on using the MACD indicator for safe trading click here:

The powerful 200 EMA strategy - easy for developing traders:

For a free pivot point calculator, Fibonacci calculator and the best free economic calendars click here:

Why Brokers Can't Tell You The Truth

Your broker is not a crook. He works for a company that will not allow him to do a good and honest job for you. Furthermore, if he tries to learn how to do it he is discouraged and if he actually does it he will probably be fired.

Pretty harsh words, but Ill prove it. Of course, your broker must deny it. Wall Street wants your money. They want to keep it. They want you to buy something, anything, and never sell. That is the Buy and Hold doctrine that is preached as the right way to invest.

This is the biggest lie of all. Go back in history of the stock market as far as you want and during any 10-year period there will be a bear market loss of from 20% to 40% or more. Any half-way intelligent broker can learn how to sell near (I did not say at) the top of the market and buy back in near (same caveat) the bottom.

Brokerage companies prefer you stay fully invested while your account shrinks rather than sell to be in cash to preserve your capital. Even if you dont make any trades they make about 1% each year. That may not sound like much, but multiply it by several hundred billion (thats a B). Mutual funds skim your account 2% each year. That is why ETFs (exchange traded funds) with their minuscule management fee are slowly strangling the mutual fund industry. The branch manager of most brokerage companies is paid his bonus based on the amount of invested funds. Money markets dont count can figure that out.

Brokers are not taught an exit strategy. The very simple method of stop loss protection for a customers account is discouraged. During the 2000-2003 bear market when the NASDAQ dropped 78% and the S&P was down 40% brokers did not know what to do and were told to HOLD. They really didnt know. Few of their company analysts also did not know and let clients lose half their money or more.

Brokers and customers were continually told, Never try to time the market. It is easy to do, but not told to brokers or financial planners.

Occasionally there will be an independent broker who will leave the shelter of his big brother brokerage company that is Wall Street dominated and go out on his own. They work from a small office or their home. They usually manage customers accounts on a fee basis and hardly ever lose a customer because they know how to protect client money.

Ask a broker or financial planner if they have an exit strategy. Then get them to put it in writing on company letterhead. (Bet he wont.) During the next bear market, and there will be one, remind him not to lose your money and to follow the plan he previously wrote. It is the investors money. He must be sure he is being protected and not lied to.

Al Thomas' best selling book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter and receive his market letter at and discover why he's the man that Wall Street does not want you to know. Copyright 2007 All rights reserved