Selling (Going Short) Uranium Futures to Profit from a Fall in Uranium Prices

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Part 3: Long or Short ? Order Types And Calculating Profits & Losses

Going long, Going short, Order types, and Calculating Profit & Loss

• Buying and selling

The basic idea of trading the markets is to buy low and sell high or sell high and buy low. I know that probably sounds a little weird to you because you are probably thinking “how can I sell something that I don’t own?” Well, in the Forex market when you sell a currency pair you are actually buying the quote currency (the second currency in the pair) and selling the base currency (the first currency in the pair).

In the case of a non-Forex example though, selling short seems a little confusing, like if you were to sell a stock or commodity. The basic idea here is that your broker lends you the stock or commodity to sell and then you must buy it back later to close the transaction. Essentially, since there is no physical delivery it is possible to sell a security with your broker since you will ‘give’ it back to them at a later date, hopefully at a lower price.

• Long vs. Short

Another great thing about the Forex market is that you have more of a potential to profit in both rising and falling markets due to the fact that there is no market bias like the bullish bias of stocks. Anyone who has traded for a while knows that the fastest money is made in falling markets, so if you learn to trade both bull and bear markets you will have plenty of opportunities to profit.

LONG – When we go long it means we are buying the market and so we want the market to rise so that we can then sell back our position at a higher price than we bought for. This means we are buying the first currency in the pair and selling the second. So, if we buy the EURUSD and the euro strengthens relative to the U.S. dollar, we will be in a profitable trade.

SHORT – When we go short it means we are selling the market and so we want the market to fall so that we can then buy back our position at a lower price than we sold it for. This means we are selling the first currency in the pair and buying the second. So, if we sell the GBPUSD and the British pound weakens relative to the U.S. dollar, we will be in a profitable trade.
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• Order types

Now it’s time to cover order types. When you execute a trade in the Forex market it is called an ‘order’, there are different order types and they can vary between brokers. All brokers provide some basic order types, there are other ‘special’ order types that are not offered by all brokers though, and we will cover them all below:

Market order – A market order is an order that is placed ‘at the market’ and it’s executed instantly at the best available price.

Limit Entry order – A limit entry order is placed to either buy below the current market price or sell above the current market price. This is a bit tricky to understand at first so let me explain:

If the EURUSD is currently trading at 1.3200 and you want to go sell the market if it reaches 1.3250, you can place a limit sell order and then when / if the market touches 1.3250 it will fill you short. Thus, the limit sell order is placed ABOVE current market price. If you want to buy the EURUSD at 1.3050 and the market is trading at 1.3100, you would place your limit buy order at 1.3050 and then if the market hits that level it will fill you long. Thus the limit buy order is placed BELOW current market price.

Stop Entry order – A stop-entry order is placed to buy above the current market price or sell below it. For example, if you want to trade long but you want to enter on a breakout of a resistance area, you would place your buy stop just above the resistance and you would get filled as price moves up into your stop entry order. The opposite holds true for a sell-stop entry if you want to sell the market.

Stop Loss order – A stop-loss order is an order that is connected to a trade for the purpose of preventing further losses if the price moves beyond a level that you specify. The stop-loss is perhaps the most important order in Forex trading since it gives you the ability to control your risk and limit losses. This order remains in effect until the position is liquidated or you modify or cancel the stop-loss order.

Trailing Stop – The trailing stop-loss order is an order that is connected to a trade like the standard stop-loss, but a trailing stop-loss moves or ‘trails’ the current market price as your trade moves in your favor. You can typically set your trailing stop-loss to trail at a certain distance from current market price, it will not start moving until or unless the price moves greater than the distance you specify. For example, if you set a 50 pip trailing stop on the EURUSD, the stop will not move up until your position is in your favor by 51 pips, and then the stop will only move again if the market moves 51 pips above where your trailing stop is, so this way you can lock in profit as the market moves in your favor while still giving the trade room to grow and breath. Trailing stops are best used in strong trending markets.

Good till Cancelled order (GTC) – A good till cancelled order is exactly what it says…good until you cancel it. If you place a GTC order it will not expire until you manually cancel it. Be careful with these because you don’t want to set a GTC and then forget about it only to have the market fill you a month later in a potentially unfavorable position.

Good for the Day order (GFD) – A good for day order remains active in the market until the end of the trading day, in Forex the trading day ends at 5:00pm EST or New York time. The exact time a GFD expires might vary from broker to broker, so always check with your broker.

One Cancels the Other order (OCO) – A one cancels the other order is essentially two sets of orders; it can consist of two entry orders, two stop loss orders, or two entry and two stop-loss orders. Essentially, when one order is executed the other is cancelled. So, if you want to buy OR sell the EURUSD because you are anticipating a breakout from consolidation but you don’t know which way the market will break, you can place a buy entry and stop-loss above the consolidation and a sell entry with stop-loss below the consolidation. If the buy entry gets filled for example, the sell entry and its connected stop loss will both be cancelled instantly. A very handy order to use when you are not sure which direction the market will move but are anticipating a large move.

One Triggers the Other order (OTO) – This order is the opposite of an OCO order, because instead of cancelling an order upon filling one, it will trigger another order upon filling one.

• Lot size / Contract size

In Forex, positions are quoted in terms of ‘lots’. The common nomenclature is ‘standard lot’, ‘mini lot’, ‘micro lot’, and ‘nano lot’; we can see examples of each of these in the chart below and the number of units they each represent:

• How to calculate pip value

You probably already know that currencies are measured in pips, and one pip is the smallest increment of price movement that a currency can move. To make money from these small increments of price movement, you need to trade larger amounts of a particular currency in order to see any significant gain (or loss). This is where leverage comes into play; if you don’t understand leverage totally please go read Part 1 of the course where we discuss it.

So we need to know now how lot size affects the value of one pip. Let’s work through a couple examples:

We will assume we are using standard lots, which control 100,000 units per lot. Let’s see how this affects pip value.

1) EUR/JPY at an exchange rate of 100.50 (.01 / 100.50) x 100,000 = $9.95 per pip

2) USD/CHF at an exchange rate of 0.9190 (.0001 / .9190) x 100,000 = $10.88 per pip

In currency pairs where the U.S. dollar is the quote currency, one standard lot will always equal $10 per pip, one mini-lot will equal $1 per pip, one micro-lost will equal .10 cents per pip, and a nano-lot is one penny per pip.

• How to calculate profit and loss

Now, let’s move on to calculating profit and loss:

Let’s use a pair without the U.S. dollar as the quote currency since these are the trickier ones:

1) The rate for the USD/CHF is currently quoted at 0.9191 / 0.9195. Let’s say we are looking to sell the USD/CHF, this means we will be working with the ‘bid’ price of 0.9191, or the rate at which the market is prepared to buy from you.

2) You then sell 1 standard lot (100,000 units) at 0.9191

3) A couple of days later the price moves to 0.9091 / 0.9095 and you decide to take your profit of 96 pips, but what dollar amount is that??

4) The new quote price for the USD/CHF is 0.9091 / 0.9095. Since you are now closing the trade you are working with the ‘ask’ price since you are going to buy the currency pair to offset the sell order you previously initiated. So, since the ‘ask’ price is now 0.9095, this is the price the market is willing to sell the currency pair to you, or the price that you can buy it back at (since you initially sold it).

5) The difference between the price you sold at (0.9191) and the price you want to buy back at (0.9095) is 0.0096, or 96 pips.

6) Using the formula from above, we now have (.0001 / 0.9095) x 100,000 = $10.99 per pip x 96 pips = $1055.04

For currency pairs where the U.S. dollar is the quote currency, calculating profit or loss is pretty simple really. You simply take the number of pips you gained or lost and multiple that by the dollar per pip you are trading, here’s an example:

Let’s say you trade the EURUSD and you buy it at 1.3200 but the price moves down and hits your stop at 1.3100….you just lost 100 pips.

If you are trading 1 standard lot you would have lost $1,000 because 1 standard lot of pairs with the U.S. dollars as the quote currency = $10 per pip, and $10 per pip x 100 pips = $1,000

If you had traded 1 mini-lot you would have lost $100 since 1 mini-lot of USD quote pairs is equal to $1 per pip and $1 x 100 pips = $100

Always remember: when you enter or exit a trade you have to deal with the spread of the bid/ask price. Thus, when you buy a currency you will use the ask price and when you sell a currency you use the bid price.

How to Profit From Uranium’s Coming Bull Market

Originally posted May 21, 2020

Nuclear energy gets a bad rep. But is it justified?

When you ask most folks their opinion on nuclear, they’ll mention Three Mile Island, Chernobyl or Fukushima Daiichi.

The memories of these disasters – and the negative press that followed – have pushed many to think nuclear power is lousy.

But let’s step back and take a look at the facts. It will let us see the opportunity ahead.

First off… nuclear disasters are rare. The worst on record was Chernobyl in 1986. The World Health Organization released a 600-page report on the disaster. Based on the work of hundreds of scientists, economists and health experts, it showed the total number of radiation-related deaths is likely to be around 4,000.

That’s a sobering statistic to be sure. But let’s compare it to deaths from our main energy source today – fossil fuels.

According to the WHO, millions of people die from the air pollution caused by fossil fuels each year. The long-term effects on our environment could be even worse.

We don’t say this because we are pro-nuclear or anti-coal. We mention these stats only because it’s clear nuclear energy is both cleaner and safer than many people believe.

Another common misconception? That nuclear is just a small piece of our energy mix. Yet in our chart above, you can see there are currently 100 operating reactors in the United States. In 2020, nuclear made up 20% of U.S. electricity. Fossil fuels generated 67% of our power.

Now here’s the part that’s key to investors…

A Powerful Resource on the Verge of a Comeback

Interest in nuclear energy is building again. In 2020, the U.S. Nuclear Regulatory Commission approved the construction of four new reactors. It’s the first time this has happened since the 1970s.

Governments across the globe are realizing nuclear is a cheaper, better option. And this should push the price of uranium higher.

Our Chief Investment Strategist, Alexander Green, recently summed up the profit potential here perfectly:

When a nuclear accident occurs, the price of uranium plummets. And the tsunami triggered by the Tohoku earthquake on March 11, 2020, was a bolt out of the blue.

The price of uranium has plunged from more than $70 a pound to less than $30 today.

Yes, the prices of competing energy sources oil and gas are exceptionally low right now. But human beings continue to pump more than 40 billion tons of CO2 into the atmosphere each year. As the world population grows – and the demand for reduced carbon emissions increases as well – nuclear power should make a comeback.

Alex goes on to suggest two uranium resurgence plays. Cameco Corporation (NYSE: CCJ) is arguably the safest bet.

Profit From Uranium

Valued at $4.5 billion, Cameco is the world’s top uranium business. It produces and sells uranium worldwide.

Over the past decade, its share price has dropped along with the price of uranium. But it’s worth noting that most commodities have tanked during this period. And like any market, commodities move in cycles. (For proof, see Sean Brodrick’s recent write-ups on gold and silver.)

That said… even with the huge drop in uranium prices, Cameco is still profitable. In 2020, it brought in $1.9 billion in sales and $45 million in net income.

The company is also very shareholder-friendly. Cameco has paid a dividend every year since 1996.

Uranium should start to swing back any day now. Lower prices in the interim mean now is a perfect time to get in. Don’t let overreaction to rare events scare you away from the next uranium bull market.

Uranium: When Price and Value Diverge, There Is Opportunity

Kitco Commentaries | Opinions, Ideas and Markets Talk

Featuring views and opinions written by market professionals, not staff journalists.

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When the price of pet rocks crashed in 1976, that didn’t make them a bargain.

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When the share price of my favorite silver stock dropped 50% over the last year, with no serious bad news from the company, that was a bargain. After this month’s rebound, I’m up 10% over my average cost. I still see it as a bargain.

The stock of one of my favorite gold plays also dropped about 50% last year, on bad news that was specific to the company. But the news didn’t change the value proposition of the speculation. By the math, it was a bargain—one that took courage to act on. As of yesterday’s close, I’m up almost 15% over my average cost on that one.

All of these are examples of the adage of markets being voting machines in the short term, and weighing machines in the long term. Less poetically, they are examples of price and value—which are not the same thing—diverging due to investor “sentiment” and then converging again. Sentiment, of course, can be manic or panic.

In the case of the pet rocks, whatever “real” value they had, it was far less than the price. Eventually, the price had to crash back to reality—and it did.

In the case of the gold and silver companies above, share prices didn’t have to rise to reality. Sudden disaster is always a possibility when it comes to mining. But the odds favored share prices rising back toward reality—and they did.

I learned this lesson early in my career. I had understood the difference between price and value… in theory. When my favorite cut of beef is discounted 50% in the supermarket—not because there’s anything wrong with it, but because the store is having a sale—I don’t complain, I stock up. It was my friend Doug Casey who showed me how to look for and profit from differences between price and value in the resource sector.

An early example was when First Majestic Silver—then a pure exploration play—killed one of its three, high-profile projects with disappointing drill results…

I don’t have the details because I deleted all my past work for Casey Research (which was theirs by contract). But I remember that it was an old, high-grade silver mine in Mexico where First Majestic thought there was a lot more metal left in the ground. When they drilled in the logical place to look, they found old mine workings no one knew about. No silver, just empty space. The geological theory was correct, but some old timers got there first and left no documentation. Maybe it was Pancho Villa’s boys, working on the sly.

The important part of this story is that the company had three similar assets with potential for large deposits. One got shot down in flames. Objectively, one could say that whatever First Majestic had been worth, it was reduced by one-third by these results. But the stock sold off by something like two-thirds. The company had shown that it could pick good targets—it wasn’t its fault that records of past mining were incomplete—and it had plenty of cash to go after the other two. It had become a bargain.

So I issued a strong “Buy” recommendation. If memory serves, shares were in the C$1.80 range. The stock later rose above C$20, making it better than a 10-bagger for me. The stock was already in the Casey portfolio at a lower price when I joined forces with Doug, so I’m not taking credit for that call. But the analysis and decision to put a new buy on the stock when it was oversold was mine.

A key part of this story is that First Majestic wasn’t just a bargain, but a very a compelling bargain. Lots of stocks go on sale—usually for good reasons that don’t make me eager to buy. It’s not every day that I get a strong feeling that something is so ridiculously oversold that it has become a very compelling bargain. (Oddly enough, “ridiculously overbought” is far more common, but that’s another topic for another day.) While I don’t have stats to show it, my sense is that when I do get this feeling, it usually results in some of my biggest wins.

I’m telling you this because I have that feeling today—about certain uranium stocks.

I’ve already written that the stocks that fell off a cliff when investors overreacted to Trump’s delaying action on helping US uranium miners present speculators with a great opportunity.

Nothing has changed since then, but people are writing in to ask what’s wrong with uranium.

The upward trend since early 2020 remains intact.

But the stocks keep getting cheaper. Why? Sentiment.

I can feel the panic setting in among the less courageous stock market gamblers out there. Uranium itself may close the week down 50 cents or so. That wouldn’t change anything fundamental, but it would fan the flames of panic.

There’s a very real chance that we’ll see a much bigger meltdown of stocks in great companies that are already oversold in the weeks ahead, making them even more compelling bargains.

I would not—and am not—selling anything now, however. I might be able to buy in at lower prices ahead, but that’s no sure thing. Uranium prices could pop any day, as companies that put off signing new contracts while Trump deliberated step up to the plate.

I don’t pretend to know the future. If you’ve been reading my work for any length of time, you know how I feel about the prediction racket so many financial pundits are involved in.

What I do know is that when something is ridiculously undervalued—especially if it’s for the wrong reason, as with these uranium stocks today—the odds favor share prices rising toward value.

This is what experiences such as my call on First Majestic 15 years ago have taught me.

And that’s why I’ve already doubled down on my favorite uranium pick today.

What if I’m wrong?

Well, about 30% of my personal portfolio is in these uranium stocks. (I’d never suggest that anyone speculate on something I’m not willing to risk myself.) If I’m wrong, I will lose a lot of money. My track record will take a big hit. This is very important to me. I don’t take it lightly.

But I’m not worried. That’s in some part because I don’t speculate with money I can’t afford to lose.

The bigger reason is that I do have that feeling… I think these uranium stocks will deliver in spades—and right now, you can buy them even cheaper than I did.

Which stocks? Well, that’s what subscribers to The Independent Speculator pay me to know.

But I’ve given you the idea for free. I hope you’ll remember that in the future.

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