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 The Gold and Oil Guy: Understanding Exchange Traded Funds and Futures

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TheGoldAndOilGuy




Posts : 11
Join date : 2009-12-14

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PostSubject: The Gold and Oil Guy: Understanding Exchange Traded Funds and Futures   The Gold and Oil Guy: Understanding Exchange Traded Funds and Futures Icon_minitimeFri Feb 12, 2010 2:57 pm

Over the past month the gold and silver markets have taken a good drubbing. Silver has dropped from 19.50 to 15.00 and gold from 1227 to 1044 as the US Dollar has finally rallied after a long drawn out correction.
Since the advent of ETF’s market players have been able to invest in gold and silver for the first time without using Futures and investors have made the gold and silver ETF’s a very popular way of investing in the precious metals. The advantages of ETF’s are many versus buying a futures contract. Investors can hold them for the long haul, there is no contract switching every few months, investors can buy as much or as little as they want and there is no need to worry about a leveraged position. But are there any disadvantages to ETF’s versus a futures contract?

The chart below is the silver ETF with the symbol (SLV). Because the precious metals are a global commodity and one that has been in the spotlight lately, like most commodities they trade on a world wide scale 22-24 hours per day. Since ETF’s only trade during stock market hours there can be drastic changes to price when local markets open up the following day.

The Gold and Oil Guy: Understanding Exchange Traded Funds and Futures 1SilverETF

The arrows I’ve drawn show how the price of silver has been vulnerable to severe price drops on the open of trade in these stocks. The recent severe correction in silver is an excellent example of how prices can open much lower than the previous day’s close. Technicians call them price gaps when they appear on a chart pattern. Investors who are using the ETF’s to be long the metals call them EQUITY gaps because of the drop in price that occur affect their bottom line.


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Batman

Batman


Posts : 786
Join date : 2009-08-06
Age : 35
Location : NYC

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PostSubject: Re: The Gold and Oil Guy: Understanding Exchange Traded Funds and Futures   The Gold and Oil Guy: Understanding Exchange Traded Funds and Futures Icon_minitimeFri Feb 12, 2010 8:45 pm

Great Post. I appreciate you taking the time to highlight the differences between ETF trading and holding Futures contracts. I have had success trading the United States Natural Gas Fund (UNG) often as well as the United States Oil Fund (USO). However, I have yet to trade Futures contracts. I would like to as my fund grows in size. Is there any good literature you could recommend?
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TheGoldAndOilGuy




Posts : 11
Join date : 2009-12-14

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PostSubject: Futures Trading   The Gold and Oil Guy: Understanding Exchange Traded Funds and Futures Icon_minitimeTue Feb 16, 2010 5:15 pm

Batman: there is lots of free info out there on futures. I am launching a futures trading signals service where you will learn how to trade (technical analysis) and get trading alerts with members chat room, and email alerts. I will be giving out buy and sell signals for different commodities and indexes and you can either trade ETFs, options or futures. Should be a great service. You can optin to me notified when I launch it here: www.TheTechnicalTraders.com. Im only taking a limited amount of members so we dont move the market 100-200 traders. I current have over 800 signup for it pre-launch. If you want in down the road I will be sure to get you in as your found me on TLOT.com Smile
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Sauros

Sauros


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Join date : 2009-05-14
Age : 49
Location : London

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PostSubject: Re: The Gold and Oil Guy: Understanding Exchange Traded Funds and Futures   The Gold and Oil Guy: Understanding Exchange Traded Funds and Futures Icon_minitimeTue Feb 16, 2010 10:27 pm

TheGoldAndOilGuy wrote:
Batman: there is lots of free info out there on futures. I am launching a futures trading signals service where you will learn how to trade (technical analysis) and get trading alerts with members chat room, and email alerts. I will be giving out buy and sell signals for different commodities and indexes and you can either trade ETFs, options or futures. Should be a great service. You can optin to me notified when I launch it here: www.TheTechnicalTraders.com. Im only taking a limited amount of members so we dont move the market 100-200 traders. I current have over 800 signup for it pre-launch. If you want in down the road I will be sure to get you in as your found me on TLOT.com Smile

Hey guys, I've been following your posts (both of you) for a while and I believe that Chris' (the Gold and Oil Guy) style and analysis really fit Analyze Capital's trading philosophy. I'm sure his signals could give an additional edge to AC on top of your own analysis.

Chris, many thanks for the proposal! Highly appreciated.
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Sauros

Sauros


Posts : 516
Join date : 2009-05-14
Age : 49
Location : London

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PostSubject: Re: The Gold and Oil Guy: Understanding Exchange Traded Funds and Futures   The Gold and Oil Guy: Understanding Exchange Traded Funds and Futures Icon_minitimeTue Feb 16, 2010 10:49 pm

TheGoldAndOilGuy wrote:
The advantages of ETF’s are many versus buying a futures contract. Investors can hold them for the long haul, there is no contract switching every few months, investors can buy as much or as little as they want and there is no need to worry about a leveraged position.

A few word about the spread betting that replicates to a large extent the futures markets for a stake as small as $1 per point where futures generally are $10 per contract with a minimum of 100 contracts =$1,000 per point.
- Most of the futures markets (metals, soft commo, stock indices, sectors indices, forex, etc) are available on spread betting (actually i guess spread betting brokers hedge themselves on futures markets) with the same opening hours (limited gap risk as The Gold and Oil Guy mentioned)
- Most of the spread betting brokers propose a rolling version of their markets: no contract maturity and no need to roll every quarter. For instance, the rolling Dow Jones will be priced as the index during the opening hours and with a price computed on the value of the future between.
- Leverage? Well if you trade $1 on the Dow, it's equivalent to have a portfolio of $10,000 of Dow... and the margin requirements are as small as 0.5% ie leverage x200 The Gold and Oil Guy: Understanding Exchange Traded Funds and Futures Affraid
This said, if you are trading an account of a few grands, you are able to keep the leverage pretty low, meaning 1-2.

- Finally and I thank the Lord (of Trading) and the Queen for this every day: in the UK it's TAX FREE The Gold and Oil Guy: Understanding Exchange Traded Funds and Futures Icon_cheers
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