Forex involves the trading of currencies. It is the largest financial market in the world and has an estimated daily turnover of 1.9 trillion dollars. This turnover is larger than all the worlds stock market on any given day.

The forex market does not have a fixed exchange. The forex market is considered an over-the-counter (OTC) market. The forex market is completely electronic and trades are executed over the phone or on the Internet. Until 10 years ago the forex market was the preserve of large financial institutions. Now an ever-increasing amount of individual traders thanks to the advent of the Internet and an increasing amount of online forex brokers are trading forex.

Currencies are always traded in pairs. A typical pair would be EUR/USD (Euro over US dollars). The first currency is the base. The second currency is the counter currency. The pair can be viewed, as the amount of the secondary currency that is needed to buy 1 unit of the first currency. If you were to buy the above pair you would buy Euro and simultaneously selling US dollars. If the pair were sold the reverse would happen you would sell the Euro and buy the US dollar. This might sound confusing but simply think of the pair as one item and you are buying or selling one item. If you think the Euro will go up against the US dollar you buy the EUR/USD pair. If you think the EUR will decrease against the US dollar you sell the EUR/USD pair.

When you see forex quotes you will see two numbers. If we use the EUR/USD as an example you might see 1.2350/1.2355 the first number 1.2350 is the bid price and is the price traders are prepared to buy euros against the US dollar. The second number 1.2355 is the offer price and is the price traders are prepared to sell the EURO against the US dollar. The difference between the bid and the offer price is the called the spread. The spread for the major currencies is usually 3 to 5 pips (explained later).

The most common increment of currencies is the pip. If the EUR/USD moves from 1.2350 to 1.2351 that is one pip. A pip is the last decimal point of quotation. Most currencies quoted to 4 decimal points. The exception is the Yen, which is quoted to 2 decimal points eg 139.41. The term pip is just forex lingo so if a forex trader says the EURO has gone up 20 pips against the US dollar add 20 points to decimal part of EUR/USD pair.

Forex is traditionally traded in lots also referred to as contracts. The standard size for a lot is $100,000. In the last few a mini lot size of 10,000 dollars has been introduced and this has become increasing popular. Forex trading is leveraged with most forex brokers offering 1% margins. This means you can control one standard lot of $100000 with $1000. Typically you would need a minimum of $2500 to open a standard size forex account.

A mini account can be opened with $300 with most forex brokers. To trade a one mini lot you need a margin of $100, which in turn controls $10000. If the currency goes up 1% and if you traded one mini lot of $10000 you would make $100 dollars or 100% of your original margin. Forex trading is a very lucrative market to get into and it is suggested that traders new to forex trading trade a mini account for an extended amount of time. Trading a mini account is a low cost entry to the forex market, as only $300 is required to open an account. You can still make money while you become more experienced in forex trading. You can trade one mini lot until you have made your first $100 dollars then start trading 2 mini lots. As you gain more experience you can trade standard sized lots.

Forex trading is becoming increasing popular with traders of other financial products. It can be traded in amounts a lot smaller than other financial products, which makes learning forex trading safer than other markets. Forex trading can be a very lucrative market, which no trader can dismiss.

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commodity trading book

A Winning Approach to Trading in the Stock Market

Many traders lose simply out of ignorance. They base their trades on hunches, news, or tips from friends, and do not define specific risk and profit objectives before placing trades.

Others have the merit of educating themselves but fall victims of their emotions. They hold on to losing positions hoping they will turn into winners and sell winners by fear of losing a small gain.

They overtrade to fulfill a need for action or by fear of missing out.

The consistent winners follow a winning approach:

They have a strategy to enter and exit trades
They use good money management
They take consistent actions, they follow a trading plan
They keep good records so they can review their actions
They avoid overtrading
They have a winning attitude

You need to a strategy to put the odds in your favor for each trade you take. Your strategy should be as objective as possible and include the following elements:

Entry: conditions required before you can enter a trade – may include technical analysis, fundamental analysis, or both.

Initial stop loss: price at which you will close the entire position if it does not go in your favor. The risk per share is the difference between the entry price and the initial stop

Initial price objective: price at which you will take some or all profits if the trade goes in your favor.

Trade management:

A set of rules that dictates your actions while a trade is opened. It may include trailing stops, closing position, etc;

For every action you take, the reason should be clearly described in your strategy.

Money management rules to keep losses small.

The goal of money management is to ensure your survival by avoiding risks that could take you out of business. Your money management rules should include the following: Maximum amount at risk for each trade. The different between your entry price and your initial stop loss is your risk per share. Your maximum amount at risk for each trade determines the share size.

Maximum amount at risk for all your opened positions.

Maximum daily and weekly amount lost before you stop trading & dash; avoid trying to trade your way out of a hole after a loosing streaks. During your learning phase, your goal should be to survive, not to make money. Start with low limits and raise them as you become a consistent winner otherwise you will simply go broke faster.

Good record keeping

Although the process of gaining experience cannot be rushed, it can be made much more efficient by keeping good records of your actions.

Good records will allow you to: Review your actions at the end of each day to make sure you followed you strategy, not your emotions.
Learn from your losses they cost you money, make sure you get the education in return.

You should also keep a journal of your observations.

A trading plan to keep emotions out of your decisions. During trading hours, emotions will turn smart people into idiots. Therefore you have to avoid having to make decisions during those hours. This requires a detailed trading plan that includes your strategy and your money management rules.

For every action you take during trading hours, the reason should not be greed or fear. The reason should be because it is in the plan. With a good plan, your task becomes one of patience and discipline.

You have to follow the plan without exception. Any valid reason for an exception – for example, correcting an oversight – should become part of the plan.

Overtrading

Sometimes the best thing to do is to do nothing. Not trading on those bad days is key to becoming a consistent winner; in some situations it is very tempting to overtrade: If you trade to fulfill a need for action, to relieve boredom.

If you find the proper setup but wait. If you fear you are missing out on a great trade or on a great market. If you want to make up for losses (revenge)

If you trade to feel like you are working instead of sitting around. Trading involves a lot of work other than the actual buying and selling.

You should not trade under the following conditions:

You are not following my trading plan
You have reached your daily or weekly maximum loss
You are sick or very tired
You are very emotional (upset, pressured to make money, self- esteem destroyed)
You are using new tools you are not completely familiar with
You need time to work on your trading plan

A winning attitude.

Losing traders look for a hang on hope, and avoid accepting small losses. Their trading is based on emotions. You must treat trading as a probability game in which you need to know what is going to happen next in order to make money. All you need to know is that the odds are in your favor before you put a trade.

If you believe in your edge, which is you believe that the odds in your favor for each trade you enter, then you should have no expectation other than something will happen.

Our attitude will have a direct influence on your trading results: Take responsibility for all your actions blame the market or world events.
Trade to trade well and for the love of trading, not to trade often and not for the money. The money will come as a result of trading well.

Reach your own decisions and follow them.

Never think that taking money from the market is easy and never assume that you know enough.

Have no particular expectation when you place a trade because you know that anything can happen.

Try to guess the future trading is a game of probabilities.

Use your head and stay calm get excited or depressed.

Handle trading as a serious intellectual pursuit.

Count how much money you have made or lost while you are in a trade – focus on trading well.

Trading Framework was designed to help you build those crucial elements into your trading.
www.tradingframework.com” target=”_blank”www.tradingframework.com

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commodity trading training

Its time to rewrite the history books. In Situ Leach Mining (ISL), or Solution Mining, was not first commercially started in Bruni, Texas in 1973 by Westinghouse, a consortium of oil companies and others. The birthplace of ISL was never South Texas, as some have claimed. It was begun in Wyoming, about 16 years before an ISL operation was started in Texas. Why there has been a whitewash over the true history of ISL is not our concern. This series is an in-depth investigation into how and why ISL mining came about, how it has been tested over a period of nearly 50 years, and why this type of uranium mining will play an important role in providing U.S. utilities with the raw fuel to power nuclear reactors for the next few decades.

In this modern era of uranium mining, extremely skilled engineers, hydrologists and geologists establish ISL mining operations. Most insiders compare an ISL operation to a water treatment plant. Its really that simple to understand. However, as with every modern industrial operation, the roots of ISL mining came about in a less genteel or sophisticated manner. In 1958, Charles Don Snow, a uranium mining and exploration geologist employed by the Utah Construction Company, was investigating a Wyoming property for possible acquisition for his company. During the course of that visit, he discovered a new method of uranium mining and helped pioneer its development into the modern form of ISL.

Since 1957, R.T. Plum, president of Uranyl Research Company, had been experimenting with a leach solution on his property at the Lucky June uranium mine. They mixed up the sulfuric acid solution and just dumped it on the ground, and soaked it through the material and collected it in a little trench at the end, Charles Snow told StockInterview. It wasnt very scientific. Snow added, They were just learning how, and I observed it and thought that the application could be made through some of the ore that we had in the Lucky Mc mine. The company was mining uranium this way because it was below the grades miners were used to, when mining. As Snow noted, It was not worth mining. But it was practically at the surface. He explained what they were doing at the Lucky June, There was an area where uranium leached out to the surface in a small area, and it had a clay under-bed. These people put solutions onto the surface, collected the solution, and ran it by resin beads to absorb the uranium.

While they only recovered about $3600 worth of uranium, roughly 600 pounds, Snow was impressed. He later wrote an inter-office memorandum in July 1959, with the subject header: Recovery of Uranium from Low Grade Mineralization using a leach in place process. In his conclusion, Snow recommended, From the preliminary information available, it appears that it will be possible to treat very low grade mineralization for recovery of uranium at a large net profit. He explained the process to his bosses, encouraging them to consider this as an option:

In brief, the process introduces a leach solution onto the surface of the ground and allows the solution to percolate down through the area to be leached. The solution is then recovered from wells and circulated through an ion exchange circuit with the barren solution being returned to the leach area. Recovery of the uranium is made by stripping from the ion exchange medium.

He wanted the Utah Construction Company to try this method of mining where there was low grade mineralization. Snow succeeded in convincing his bosses. That began yet another innovation for Utah Construction Company, the same company which helped construct the Hoover Dam, decades earlier, before it got into the uranium mining business.

Utah Construction Becomes the
First Commercial ISL Miner
Newspaper reports, through the 1960s, illustrate that ISL mining was in full bloom more than a decade before anyone in Texas began a commercial ISL operation. On June 18, 1964, the Riverton Ranger newspaper reported, The Shirley Basin mine is on a standby basis. The timbers are being maintained and the water pumped out. Total production comes from solution mining. Between 1962 and 1969, ISL was the only method producing uranium at Utahs Shirley Basin Wyoming. Later in that same article, under the section entitled, Gas Hills Solution Mining, it was reported, The Four Corners area is mined by solution mining techniques similar to those employed at Shirley Basin. Credit for this new mining method is also reported in that same article, Lucky Mc introduced the heap leach process of recovering values from low grade ores in 1960.

Charles Snow explained how his company made the transition from underground mining to solution mining, The underground mining at Shirley Basin was very expensive, and we were having a lot of heavy ground problems. The sandstone aquifers containing the uranium were uncemented and brittle, supported with timbers. In some places, it was too heavy to hold with timbers, said Snow. We had to use steel sets underground, and it was even mashing the steel sets. So the expenses were getting very high.

Water was flowing into the open drifts at prodigious rates. Snow recalled, Barney Greenly said, Lets try solution mining over here. They did a test, and it did operate quite well. They got some pretty good results. So the underground mine was shut down, and they went to a solution-mining program to produce the allocated pounds in the Shirley Basin area. The procedure was tested for a few years before a full-scale commercial production began. This fulfilled 100 percent of Utahs Shirley Basin uranium production allotment from the AEC.

There were problems at first. We started out initially using sulfuric acid, and we had some reaction with carbonates in the formation. Sulfuric acid plus calcium carbonate produces calcium sulfate, and this plugged up the formation. Calcium sulfate is gypsum, which was insoluble in the leach solution. It tended to plug up the formation and reduce the transmissivity of the fluid from the input hole to the output recovery hole.

To prevent interference with the porosity of the formation, Snow switched to nitric acid, but admitted, We were reluctant to use nitric acid because it was much more expensive than sulfuric. But they did, because the nitric acid solution did not form gypsum. Unlike present-day ISL methods used in Texas, Nebraska and Wyoming, Utah Construction did not use a carbonated leaching solution in their solution mining. Nitric solution was used during the 1960s and continued until the Lucky Mc switched over to open pit mining.

It all started as a heap leach experiment. We had quite a bit of low grade in Lucky Mc, Snow told us, so we thought we would try a heap leach experiment. Results were good on the test, and Utah pioneered ISL mining. Snow wrote in an August 2, 1960 memo, The favorable results of the heap leach project and other research indicate that the process can be successfully applied in many of the low-grade areas to recover much of the mineralization. Later in his report, Snow calculated reserves from random samples obtained from previous drilling at Lucky Mc, The estimated reserve for the block is 147,000 tons @ 0.0361 percent U3O8, or 106,616 pounds of U3O8. He estimated the program would cost $111,471. Using a value of $6/pound for U3O8, the anticipated returns were calculated as follows:

50 percent recovery: 53,318 pounds: $208,377
25 percent recovery: 26,654 pounds: $ 48,453

That was just the start. By the end of the decade, Shirley Basins solution mining operation was producing U3O8 at comparable levels to present day production at any of the major U.S. ISL facilities. In a paper presented by Ian Ritchie and John S. Anderson, entitled Solution Mining in the Shirley Basin, on September 11, 1967, at the American Mining Congress in Denver, Colorado, these Utah International executives explained the success of the Shirley Basin solution mining operation. In a summary explaining the companys activities, we discovered the Shirley Basin operation not only filled the Atomic Energy Commission (AEC) allocation requirements from 1962 through 1969 but we learned of the sizeable commitments into the future Shirley Basin was to fill:

In 1968 sales of uranium concentrate were made to purchases other than the AEC. One of the first sales was to Sacramento Municipal Utility District with a minimum of 950,000 pounds to a maximum of 1,100,000 pounds of uranium concentrate in 1971. Additional contracts were signed with General Electric Company and with Nordostschwerzerische Kraftwerke A.G. (Baden, Switzerland). The contracts called for delivery of 8,000,000 pounds of concentrate to GE between 1968 and 1975, and 500,000 pounds of concentrate to NOK commencing in July 1969.

Conclusion

The single reason solution mining stopped, well before the first commercial ISL operation began in Bruni, Texas in 1973, was because of the improved market forecast for uranium in the 1970s. Utah Construction switched to open pit mining because they needed to produce a lot more uranium. The nuclear renaissance of the 1970s demanded massive quantities of uranium to fuel the rapidly growing nuclear power industry.

Don Snows initial field tests, begun in the late 1950s, resulted in continuous production achieved by late 1962. Subsequently, production in the underground uranium mine was shut down by May 1962. The underground mine was maintained in a standby condition until 1965, when all underground operations were written off. Millions of pounds were mined by Utah Construction through its ISL operations in Shirley Basin. It wasnt heap leaching.

Sufficient evidence confirms that Wyoming, not Texas, first pioneered commercial ISL mining. Not only were well fields designed as early as 1960, but the entire concept of an ISL water treatment plant can trace its roots to Utah Constructions pioneer work. Everything from injection wells to production wells were pioneered in the early 1960s. We challenged Charles Don Snow that some have claimed it was heap leaching, not ISL mining. Snow shot back, No, we drilled holes in the ground and the material had never been mined. We got our ideas, certainly, from heap leaching, which came from the copper industry. Snow explained that after the solution mining experiment was successful, A recovery plant was designed and put into the hoist house, where they had had the underground mine. That was designed by Robert Carr Porter and Ian Ritchie. Snow added, In fact, Ian Ritchie and J.S. Anderson have a U.S. Patent on the well completion procedures that we used at Shirley Basin.

Snow pondered if his friend Jack Bailey may have exported the ISL technology to Texas. Jack Bailey was the Shirley Basin project manager for the underground mine when we switched over to solution mining, Snow said. He later went to work for Chevron, and Chevron had operations in Texas. I believe they even experimented with solution mining. Now, whether or not Jack was directly involved, I dont know. As it is with history, many of the old-timers are gone. We were told Jack Bailey had had a stroke a number of years back, and did not trace this further. There may have been others. Some of the people from that area (Shirley Basin) had gone to Texas, Snow recalled. There is documentation, it was published information, and a lot of people who went to Texas, came from the Wyoming area. So, Im sure there wasnt a paucity of information being transferred. Ironically, the Westinghouse-led consortium, which included U.S. Steel and Union Carbide, among others, was called Wyoming Minerals. Now we know exactly why they chose that name.

While there have been a number of ISL operations built and operated in Texas, there may be little future for uranium mining in that state, unless there are new discoveries. By a few, Texas has been inaccurately called the home of ISL mining. Perhaps that came about because ISL operations continued, during the uranium depression of the past two decades, with small amounts of production occurring in Texas. According to Energy Information Administration figures published in June 2004, uranium reserves in Texas stand at 23 million pounds of U3O8 based upon $50/pound uranium. By comparison, Wyoming and New Mexico reserves, using that same benchmark, reach as high as 363 million and 341 million pounds, respectively.

This may explain the rush by junior exploration companies, such as Strathmore Minerals (TSX: STM; Other OTC: STHJF), Energy Metals Corporation (TSX: EMC), UR-Energy (TSX: URE), Uranerz Energy (OTC BB: URNZ), Kilgore Minerals (TSX: KAU) and others, to Wyoming. The large quantities of pounds are in Wyoming, not Texas. It may also explain why Uranium Resources (OTC BB: URRE) has looked beyond Texas into New Mexico to develop its ISL operation, and Strathmore Minerals has quickly been advancing through its permitting stage on one of its properties in that state. It is fitting that the big past uranium producing states may again become tomorrows leading U.S. producers. In any event, the entire world of ISL mining owes a debt of gratitude to Charles Don Snow for his pioneering efforts in bringing a heap leach experiment into full fruition as modern-day in-situ mining.

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commodity futures options trading

There are four entities in the trading system. Trading members, clearing members, professional
clearing members and participants.

1. Trading members: Trading members are members of NSE. They can trade either on their own
account or on behalf of their clients including participants. The exchange assigns a Trading member
ID to each trading member. Each trading member can have more than one user. The number of
users allowed for each trading member is notify ed by the exchange from time to time. Each user
of a trading member must be registered with the exchange and is assigned an unique user ID. The
unique trading member ID functions as a reference for all orders/trades of different users. This ID is
common for all users of a particular trading member. It is the responsibility of the trading member
to maintain adequate control over persons having access to the firms User IDs.

2. Clearing members: Clearing members are members of NSCCL. They carry out risk management
activities and confirmation/inquiry of trades through the trading system.

3. Professional clearing members: A professional clearing members is a clearing member who is not
a trading member. Typically, banks and custodians become professional clearing members and clear and settle for their trading members.

4. Participants: A participant is a client of trading members like financial institutions. These clients
may trade through multiple trading members but settle through a single clearing member

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commodity trading company

Investors who bought during the top of the frothy commodities rally are now panicking or kicking themselves. Neither activity helps an investor or trader think straight. Below are a few tips in dealing with the current market shakeout.

1. If you believe you invested in the right stock(s), then turn off your computer and do something enjoyable. Exercise is a great stress reliever. The market has already begun its shakeout. If you didnt get stopped out, or failed to place earlier stops, your best opportunity lays ahead in picking up additional shares at a much lower price. Most of the experts weve interviewed tell us the next rally should start sometime between late July and Labor Day. In an attempt to interview the uranium guru James Dines in late May, we were told, Call back in a couple of months. That was a helpful clue that the markets were less than exciting. Mr. Dines is often eager to be interviewed, but recently he was not.

2. Do you believe the fundamentals which engendered the commodities boom have changed? If they havent, then the bullishness is only taking a breather. We dont see any fundamental change in the markets. Russia still wants nuclear power, and its oil production may be peaking. China hasnt announced the end of its nuclear expansion program. India wants to spend $40 billion on new nuclear reactors. If you are invested in uranium stocks, spot uranium jumped another dollar to $45/pound this past week. Hardly the end of the bull market.

3. If you worry about your investment in one stock or another, then stop watching the ticker and focus on the company fundamentals. Is the story still true or has it changed? See #7 A, B and C below.

4. Theres an old clich that the time to buy is when you feel like dumping everything you own in the category. At the exact moment you want to sell your entire portfolio of uranium stocks, it may be wiser to add to your holdings. This applies mainly to the retail investor. Most of the professionals did dump at the top and are now slowly accumulating the shares of the nave who waited until the washout to start selling off.

5. Has a major, earth-shattering event occurred? The last bull cycle in uranium ended with Three Mile Island (TMI). The last decent rally in the precious metals markets fell off a cliff after it was discovered Bre-X Minerals had perpetrated a fraud about its gold discovery in Indonesia. Something significant and newsworthy always transpires, and it is also far-reaching. That is the trigger. As with TMI and Bre-X, those were the first shots which launched a later chain reaction to end those bull markets.

6. Before pulling the sell trigger, ask yourself: Do I really want to give up these shares to a bargain basement hunter, who will make a killing on my losses?

7. Since most of you will still panic; please review the following basics for any of the uranium companies youve read about:

A) How much cash does the company have in the bank? During shakeouts, cash is king. Prescient companies, which completed their financings during the recent and robust rally, are sitting pretty. They can weather the short-term storm and are well-oiled to move forward when this correction bottoms and reverses. Those companies are the strongest ones to check out when this correction looks gloomiest.

B) Has the management remained the same? Unless the top financial and/or technical people blew out the door, in recent weeks, the story probably hasnt changed much. Companies which built a strong technical team are resilient and powerful. They will move forward.

C) Have the properties come up dry? One of the reasons you invested in a uranium company was because it announced it had pounds in the ground. Some companies have more than others. Some went to the expense and trouble of completing a National Instrument 43-101, which independently confirmed the quantity and quality of the uranium resource. If that changed and the company announced, Sorry, nothing there after all, or announced, Hey, we were kidding, thats one thing. If you havent heard that, or read a news release announcing that, then the uranium didnt walk away or move onto a competitors property. Its still there.

Next time, when the markets are racing higher, and you feel like you won the lottery, consider this bit of biblical advice. The old joke goes, When did Noah build his ark? The answer of course is: Before it began to rain.

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direct access trading

If you have always wanted to know more about this topic, then get ready because we have all the information you can handle.

Within the buy to cover orders, there are four options in which to place against your stock purchases. When you buy to cover on a stock order, you are in agreement that you will buy the stock at the latest share price; however, because there is a lag between the time you approve to buy the stock and the actual transaction, a price difference may occur. You could end up paying more than anticipated for each stock, or a considerably lesser amount per stock, which is what you are eager for. You can also buy to cover limit orders, which guarantees that you pay no more than the set limit price. However, if stock prices hold above the limit buy price, this type of buy to cover order will never be executed.

This type of transaction is mainly used by investors who want to get into a certain market. You may also want to buy, to cover stop orders in which case the stop orders become simple stock orders as soon as the value is at or above the stop price. This type of order is used to get you out of an unfavorable stock so that you will not have lost any profits. And, finally, you may want to buy to cover a limit order that converts to limit order only when the share value is at or above the stop price. You have to know each of the buy to cover orders so that you can make educated decisions about your investments.

From one decision period to the next in the stock market game, the markets can move up and down non-stop, which means that prices of shares are at a frequent changing point. You may think about purchasing a certain stock that is at $5 per share, and in the next day, the value per share has risen to $15 per share.

This is where the betting of the stock market comes into play. By erudition the advantages of the buy to cover orders, you can multiply your odds of earning money on the stock exchange rather than of losing money. The most obvious benefit to the entire buy to cover options is that they are in place to make you money, when executed properly. For example, you would not perform a stop loss on a stock that has steadily increased over a 5 month period. If you did this, you would force yourself to squander money to buy the stock in order to cover your mistake. You choose to buy 175 shares of stocks from Albertson’s, a grocery store chain, at $75 each, for an entire investment of $13,125. Over a four month period, you observe that the stocks have gained in profit, and you would like to do something to guarantee that you keep this earned profit. Not knowing better, you put a stop loss of $45 per stock without consulting with your stockbroker. From that position forward, if your stock decreases to $45 per stock, you have to sell it, and any earlier earned profit is null and void. The only chance you have in getting back that profit is if you are swift enough in the non-stop stock market game, to buy the Albertson’s stocks before somebody else does. However, even if you are able to do this, you have still suffered a great loss monetarily.

Educate yourself in the stock market game.

As with any game, there is some form of jeopardy involved, however, when you play the stock market game, you can avert a great deal of distress by simply taking the time to acquire knowledge about all types of orders you are able to place on your stocks. If you require help educating yourself about the types of orders to place on your stocks, you should consult your stockbroker in order to take professional advice before taking matters into your own hands, inevitably forcing yourself to lose some of your invested money’s profit. Thus, it is absurd to invest your hard earned money into any program before you know all the data necessary to make a well-informed, educated judgment.

If you could take the main ideas from this article and put them into a list, you would a great overview of what we have learned.

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commodity index trading

More investors are now inquiring about Coalbed Methane exploration companies. Just as uranium miners were flying well below the radar screen in early 2004, coalbed methane exploration may very well be the next very hot sector later this year and next. Historically, coalbed methane gas endangered coal miners, resulting in alarming fatalities early in the previous century. This is the fate suffered today by many Chinese coal miners in the smaller, private coal mines. Typically, the methane gas trapped in coal seams was flared out, before underground mining began, in order to prevent those explosions. Rising natural gas prices have long since ended that practice.

Today, coalbed methane companies are turning a centuries-long nuisance and byproduct into a valuable resource. About 9 percent of total US natural gas production comes from the natural gas found in coal seams. Because natural gas prices have soared, along with the bull markets found in uranium, oil, and precious and base metals, coalbed methane has come into play. It is after all a natural gas. But because it is outside the realm of the petroleum industry, coalbed methane, or CBM as many industry insiders call it, is called the unconventional gas. It may be unconventional today, but as the industry continue to grow by leaps and bounds, on a global scale, CBM may soon achieve some respect. Please remember that a few years ago, there was very little cheerleading about nuclear energy. Today, positive news items are running far better than ten to one in favor of that power source.

CBM is the natural gas contained in coal. It consists primarily of methane, the gas we use for home heating, gas-fired electrical generation, and industrial fuel. The energy source within natural gas is methane (chemically, it is CH4), whether it comes from the oil industry or from coal beds.

CBM has several strong points in its favor. The gases produced from CBM fields are often nearly 90 percent methane. Which type of gas has more impurities? No, it isnt the natural, or conventional, gas you thought it might be. Frequently, CBM gas has fewer impurities than the natural gas produced from conventional wells. CBM exploration is done at a more shallow level, between 250 and 1000 meters, than conventional gas wells, which sometimes are drilled below 5,000 meters. CBM wells can last a long time some could produce for 40 years or longer.

Natural gas is created by the compression of underground organic matter combined with the earths high temperatures thousands of meters below surface. Conventional gas fills the spaces between the porous reservoir rocks. The coalification process is similar but the result is different: both the coalbed and the methane gas are trapped in the coal seams. Instead of filling the tiny spaces between the rocks, the coal gas is within the coal seams.

One of the past problems associated with CBM exploration was the reliance upon expensive horizontal drilling techniques to extract the methane gas from the coal seams. Advanced fracturing techniques and breakthrough horizontal drilling techniques have increased CBM success ratios. As a result, a growing number of exploration companies are pursuing the early bull market in CBM. Market capitalizations for many of these companies mirror similar early plays we mentioned during our mid 2004 uranium coverage (June through October, 2004). Industry experts told us there would be a uranium bull market. Now, we are hearing the same forecasts about CBM.

SEVEN TIPS BY DR. DAVID MARCHIONI

We asked Dr. David Marchioni to provide our subscribers with his 7 Tips to help investors better understand what to look for, before investing in a CBM play. Dr. Marchioni helped co-author the CBM textbook, An Assessment of Coalbed Methane Exploration Projects in Canada, published by the Geological Survey of Canada. He is also president of Petro-Logic Services in Calgary, whose clients have included the Canadian divisions of Apache, BP, BHP, Burlington, Devon, El Paso Energy, and Phillips Petroleum, among others. He is also a director of Pacific Asia China Energy and is overseeing the companys CBM exploration program in China.

Our series of telephone and email interviews began while Dr. Marchioni sat on a drill rig in Albertas foothills, the Manville region, until he finished outlining his top 7 tips, or advices, on how to think like a CBM professional.

1) COAL SEAM THICKNESS

Is there a reasonable thickness of coal? You should find out how thick the coal seams are. With thickness, you get the regional extent of the resource. For example, there must be a minimum thickness into which one can drill a horizontal well.

2) GAS CONTENT

Typically, gas content is expressed as cubic feet of gas per ton of coal. Find how thick it is and how far it is spread. Then, you have a measure of unit gas content. Between coal seam thickness and gas content, you can determine the size of the resource. You have to look at both thickness and gas content. Its of no use to have high gas content if you dont have very much coal. The industry looks at resource per unit area. In other words, how much gas is in place per acre, hectare, or square mile? In the early stage of the CBM exploration, this really all you have to work with in evaluating its potential.

3) MATURITY LEVEL OF THE COAL

This is the measure of the stage the coal has reached between the minerals inceptions as peat. Peat matures to become lignite. Later, it develops into bituminous coal, then semi-anthracite and finally anthracite.

There is a progressive maturation of coal as a geological time continuum and the earths temperature, depending upon depth. By measuring certain parameters, you can determine where it is in the chemical process. For instance, the chemistry of lignite is different from that of anthracite. This phrasing is called coal rank in coal industry terminology.

4) PERMEABILITY

When you are beginning to think about CBM production, this and the next item must be evaluated. How permeable is the CBM property? You want permeability, otherwise the gas cant flow. If the coal isnt permeable at all, you can never generate gas. The gas has to be able to flow. If it is extremely permeable, then you can perhaps never pump enough water. The water just keeps getting replaced from the large area surrounding the well bore. The water will just keep coming, and you will never lower the pressure so the gas can be released.

5) WATER

In a very high proportion of CBM plays, the coal contains quite a lot of water. You have to pump the water off in order to reduce the pressure in the coal bed. Gas is held in coal by pressure. The deeper you go, typically the more gas you get, because the pressure is higher. The way to induce the gas to start flowing is to pump the water out of the coal and lower the water head of pressure. How much water are we going to produce? Are we going to have to dispose of it? If its fresh, then there may be problems with regulatory agencies. In Alberta, the government has restrictions on extracting fresh water because others might want to use it. One could be tapping into a zone that people use as water wells for farms and rural communities. Both water quality and water volume matter. For example, Manville water is very salient so nobody wants to put it into a river; this water is pushed back down into existing oil and gas wells in permeable zones (but which are also not connected to the coal).

6) FUNDING

To be able to access land and do some initial drilling, i.e. the first round of financing, it would cost a minimum of C$4 million. This would include some geological work and drilling at least five or six wells. In Horseshoe, that would cost around C$4 million (say 1st round of finance); in Manville, about C$9 million. This is under the assumption that the company doesnt buy the land. The land in western Canada is very expensive and tightly held. Much of the work is done as a farm in drilling on land held by another for a percentage of the play. (Editors note: During a previous interview, Dr. Marchioni commented about his preference for Pacific Asia China Energys land position in China because comparable land in western Canada would have cost $100 million or more.

7) INFRASTRUCTURE

The geology only tells you whats there, and what the chances of success are. You then have to pursue it. Can we sell it? Gas prices are local, meaning they vary from country to country, depending whether it is locally produced and in what abundance (or lack thereof). How much can we extract? How much is it going to cost us to get it out of the ground? Are there readily available services for this property? Will you have to helicopter a rig onto the property at some incredible price just to drill it? Will you have to build a pipeline to transport the gas? Or, in China as an example, are there established convoys for trucking LNG across hundreds of kilometers?

One addition, which we have mentioned in previous articles, and especially in the Market Outlook Journal, Quality of Management Attracts PR, it is important that the CBM company have experienced management. This would mean a management team that includes those who have gotten results, not only a veteran exploration geologist but a team that can sell the story and bring in the mandatory financing to move the project into production.

There are two primary reasons why many of these coalbed methane plays are being taken seriously. First, the macroeconomic reason is that rising energy costs have driven companies in the energy fields to pursue any economic projects to help fill the energy gap. Coalbed methane has a more than two decades of proof in the United States. The excitement has spread to Canada, China and India, where CBM exploration is beginning to take off. Second, the fundamental reason is that exploration work has already been done in delineating coal deposits. There are, perhaps, 800 coal basins globally, with less than 50 CBM producing basins. In other words, there is the potential for growth in this sector.

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A correction is a beautiful thing, simply the flip side of a rally, big or small. Theoretically, even technically I’m told, corrections adjust equity prices to their actual value or support levels. In reality, its much easier than that. Prices go down because of speculator reactions to expectations of news, speculator reactions to actual news, and investor profit taking. The two former “becauses” are more potent than ever before because there is more “self directed” money out there than ever before. And therein lies the core of correctional beauty! Mutual Fund unit holders rarely take profits but often take losses.
Opportunities abound! Heres a list of ten things to do and/or to think about doing during corrections of any magnitude:

1. Your present Asset Allocation should have been tuned in to your goals and objectives. Resist the urge to decrease your Equity allocation because you expect a further fall in stock prices. That would be an attempt to time the market, which is (rather obviously) impossible. Proper Asset Allocation has nothing to do with market expectations.

2. Take a look at the past. There has never been a correction that has not proven to be a buying opportunity, so start collecting a diverse group of high quality, dividend paying, NYSE companies as they move lower in price. I start shopping at 20% below the 52-week high water mark, and the shelves are full.

3. Dont hoard that smart cash you accumulated during the last rally, and dont look back and get yourself agitated because you might buy some issues too soon. There are no crystal balls, and no place for hindsight in an investment strategy.

4. Take a look at the future. Nope, you cant tell when the rally will come or how long it will last. If you are buying quality equities now (as you certainly could be) you will be able to love the rally even more than you did the last time as you take yet another round of profits. Smiles broaden with each new realized gain, especially when most folk are still head scratchin.

5. As (or if) the correction continues, buy more slowly as opposed to more quickly, and establish new positions incompletely. Hope for a short and steep decline, but prepare for a long one. Theres more to Shop at The Gap than meets the eye.

6. Your understanding and use of the Smart Cash concept has proven the wisdom of The Investors Creed. You should be out of cash while the market is still correcting. It gets less and less scary each time. As long your cash flow continues unabated, the change in market value is merely a perceptual issue.

7. Note that your Working Capital is still growing, in spite of falling prices, and examine your holdings for opportunities to average down on cost per share or to increase yield (on fixed income securities). Examine both fundamentals and price, lean hard on your experience, and dont force the issue.

8. Identify new buying opportunities using a consistent set of rules, rally or correction. That way you will always know which of the two you are dealing with in spite of what the Wall Street propaganda mill spits out. Focus on value stocks; its just easier, as well as being less risky, and better for your peace of mind. Just think where you would be today had you heeded this advice years ago

9. Examine your portfolios performance: with your asset allocation and investment objectives clearly in focus; in terms of market and interest rate cycles as opposed to calendar Quarters (never do that) and Years; and only with the use of the Working Capital Model, because it allows for your personal asset allocation. Remember, there is really no single index number to use for comparison purposes with a properly designed value portfolio.

10. Finally, ask your broker/advisor why your portfolio has not yet surpassed the levels it boasted five years ago. If it has, say thank you and continue with what youve been doing. This one is like golf, if you claim a better score than the reality, youll eventually lose money.

11. One more thought to consider. So long as everything is down, there is nothing to worry about.

Corrections (of all types) will vary in depth and duration, and both characteristics are clearly visible only in institutional grade rear view mirrors. The short and deep ones are most lovable (kind of like men, I’m told); the long and slow ones are more difficult to deal with. Most corrections are “45s” (August and September, ‘05), and difficult to take advantage of with Mutual Funds.
But amid all of this uncertainty, there is one indisputable fact: there has never been a correction that has not succumbed to the next rally… its more popular flip side. So smile through the hum drum Everydays of the correction, you just might meet Peggy Sue tomorrow.

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If you have heard fund managers talk about the way they invest, you know a great many employ a top down approach. First, they decide how much of their portfolio to allocate to stocks and how much to allocate to bonds. At this point, they may also decide upon the relative mix of foreign and domestic securities. Next, they decide upon the industries to invest in. It is not until all these decisions have been made that they actually get down to analyzing any particular securities. If you think logically about this approach for but a moment, you will recognize how truly foolish it is.

A stocks earnings yield is the inverse of its P/E ratio. So, a stock with a P/E ratio of 25 has an earnings yield of 4%, while a stock with a P/E ratio of 8 has an earnings yield of 12.5%. In this way, a low P/E stock is comparable to a high yield bond.

Now, if these low P/E stocks had very unstable earnings or carried a great deal of debt, the spread between the long bond yield and the earnings yield of these stocks might be justified. However, many low P/E stocks actually have more stable earnings than their high multiple kin. Some do employ a great deal of debt. Still, within recent memory, one could find a stock with an earnings yield of 8 12%, a dividend yield of 3- 5%, and literally no debt, despite some of the lowest bond yields in half a century. This situation could only come about if investors shopped for their bonds without also considering stocks. This makes about as much sense as shopping for a van without also considering a car or truck.

All investments are ultimately cash to cash operations. As such, they should be judged by a single measure: the discounted value of their future cash flows. For this reason, a top down approach to investing is nonsensical. Starting your search by first deciding upon the form of security or the industry is like a general manager deciding upon a left handed or right handed pitcher before evaluating each individual player. In both cases, the choice is not merely hasty; its false. Even if pitching left handed is inherently more effective, the general manager is not comparing apples and oranges; hes comparing pitchers. Whatever inherent advantage or disadvantage exists in a pitchers handedness can be reduced to an ultimate value (e.g., run value). For this reason, a pitchers handedness is merely one factor (among many) to be considered, not a binding choice to be made. The same is true of the form of security. It is neither more necessary nor more logical for an investor to prefer all bonds over all stocks (or all retailers over all banks) than it is for a general manager to prefer all lefties over all righties. You neednt determine whether stocks or bonds are attractive; you need only determine whether a particular stock or bond is attractive. Likewise, you neednt determine whether the market is undervalued or overvalued; you need only determine that a particular stock is undervalued. If youre convinced it is, buy it the market be damned!

Clearly, the most prudent approach to investing is to evaluate each individual security in relation to all others, and only to consider the form of security insofar as it affects each individual evaluation. A top down approach to investing is an unnecessary hindrance. Some very smart investors have imposed it upon themselves and overcome it; but, there is no need for you to do the same.

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