How To Loose Money With Contango

This contango effect as it is sometimes refereed to has to do with ETF or ETN funds not tracking the actual futures price. In a sense the futures price does not include storage cost so it is not the real price. If you have any intentions of trading any commodities using a buy and hold waiting for the price to rise strategy and you have no idea what I am talking about you might want to read this.

• When commodities go up, the commodity ETFs often don't
• Why gold forward rate inversion is important

USO and UNG are prime examples of this.
In my opinion there is no conspiratorial BS going on.
But actually an opportunity and that means someone is getting hosed you just want to be on the right end of that.

maylee said:

This contango effect as it is sometimes refereed to has to do with ETF or ETN funds not tracking the actual futures price. In a sense the futures price does not include storage cost so it is not the real price. If you have any intentions of trading any commodities using a buy and hold waiting for the price to rise strategy and you have no idea what I am talking about you might want to read this.

• When commodities go up, the commodity ETFs often don't
• Why gold forward rate inversion is important

USO and UNG are prime examples of this.
In my opinion there is no conspiratorial BS going on.
But actually an opportunity and that means someone is getting hosed you just want to be on the right end of that.

Click to expand...

Yep, good point. Certain commodity ETF's have more shorts than shares that even exist, an artificial downward pressure on prices. gold and especially silver have far more shorts being played than longs. Why would someone want to keep the price of gold down?

ETF's were good ideas gone bad in some cases. Paper trading as if it were actually the underlying commodity. Investors cannot demand physical gold and silver out of GLD or SLV, they pay in cash only. Says so right in the prospectus. But you might have to pay storage fees on your "Gold".

Part of the internal losses are storage fees. Exxon Mobil or BP will actually take delivery of the oil or natural gas, they have there own storage facilities and they sell to end users. And another is getting pick of by traders who know exactly when the fixed programed rolls of the ETFs futures contracts will take place and take full advantage of it.

Politicians are going to do zero to help with this so it is buyer beware. Congress gets ‘F’ on ETF reform



http://www.marketwatch.com/story/congress-gets-f-on-etf-reform-2011-10-23