Friday, October 5, 2007

The Six Sure-Fire Ways to Fail Trading Commodities, PART 5

Actual trading events where things went very wrong - and how to avoid them

The Six Sure-Fire Ways to Fail Trading Commodities:

5) Load Up With Everything You Have in Your Account

We’ve all read the same stuff about commodity trading money management...about how we should only risk 5-10% of our account one any single trading idea, etc. Much of the trading folklore is false, but this one idea is the truth.

During the last 2006 gold commodity market run up, I sometimes chatted with commodity futures brokers about the anonymous results of their clients who traded their own accounts. No names, just results. There was one futures and option trader who stood out. He was right about the gold market. He hated buying way out-of-the-money inflated options on futures (for good reason) and stayed with futures contracts only.

He was a brave soul who had about $100,000 to work with and held maybe 5 futures contracts for the long haul. As gold futures moved from the $500/oz area toward $650, he was making a good score. I was proud hearing of his ability to sit through the corrections and add more on the dips. He was up to about 12 futures contracts. His protective stops were down maybe 25 full points away from the action. His stops were safe at the time because the volatility was mild. His was a textbook campaign so far.

Then came the day when the gold futures market took its first sharp dip and stopped him out. He made about $60,000 on the trade, but was angry he got stopped out. The gold market took off again to the upside. He lost his discipline and started buying breakouts. Gold futures contracts went into a nasty chopping range for a month as he bought futures most days and got stopped out for losses.

He was livid. He then started buying larger and larger lots and moving his stops farther away. The market always figures a way to screw the majority at any one time and continued to take him out. In short order he gave back the $60K profit and some of his principal.

This was his second warning to stop and pull the plug on himself, but he didn’t get the message. The gold market had changed from a trending market to a chop. Finally he decided to change his tactics and join’em in the chop game. He started buying 20-lot futures in the middle of the night with stop loss orders a few dollars away. This wasn’t his game and he lost again, dropping another $50K. The market started to trend up again as he added more new money to his account to buy the breakouts. The days were running out for this gold bull leg. Gold future contracts were sometimes having daily swings of $50. It was totally Jaws V.

Then he decided he needed to buy gold call options to survive this intra-day and overnight volatility. He loaded up on strikes at 900 and 1000, far out-of-the-money. At about this time gold futures contracts finally made their top at over $700/oz as he correctly forecast in the beginning. He would have been up over $120K just by sitting tight.

Since that time, gold futures have declined sharply into the low $530 range. His option account eroded to worthless. While holding call options, he had gotten stubborn and decided the market would not boot him out, no matter what. Does this sound familiar?

What can we learn from this? He started out well, but unfortunately made a multitude of errors in the end. He had a fixed scenario, lost his discipline, traded too large for his account and bought far out-of-the-money gold options that were inflated in value. It’s sad, really. The saddest part is that he was correct on the direction of the gold futures market! He KNEW gold was going up and had started buying futures contracts in the lower $500/oz zone.

He was right as rain for several months and was doing fine. But the market changed from a trending, to a chopping, then finally to a bearish decline. This is quite normal in normal markets. Remember to always trade for a normal market! He was always looking for a classic gold-bug blow-off scenario. Sure it will happen again someday, but not often enough to risk money on it every time.

SOLUTION: The moral of this story is back to our 5%-10% money management rule. ALL the bad things in this tale could have been greatly softened if he risked only 10% or less on any one trading idea. He would still be trading. It’s no crime to get sloppy and lose our discipline. We are human and will always have trading issues. But an all-or-nothing attitude will sink us every time. (Read some of my lessons on "Win-Loss Ratios and Risk")

Part Six of Seven Parts - Next!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

Thomas Cathey directs the managed futures division of Thomas Capital Management, LLC. Get FREE, the complete 44+ lesson, "Thomas Commodity Trading Course" by visiting: It's brand new and fun reading... a "street-wise" trading e-course. Visit the main Thomas Capital Management trading website at:

Success Trading for New Traders: What Does Bid and Ask Mean?

Do you ever wonder exactly whats going on in the trading pits after youve sent an order to purchase stock? Youve no doubt seen market quotes either online or even in the newspaper. Have you noticed that there are always two sets of prices given? What exactly do those mean and where will my order get filled? Lets discuss the basics of the two prices you see.

Lets say youre trading stocks. The first price (usually the one on the left) is called a bid. This is the price at which the market is offering to buy the stock. If you sell your stock at the market, this is the price that youll get. The second price (usually located on the right) is called the ask. This is the price at which the market will sell you the stock. If you submit an open order to buy shares at the market, you will get them for the ask price. Another element that comes into play sometimes is the size of the bid and ask. Usually, theres an order size that comes with the bid and ask. If that size is exceeded then the price will usually change and generally, that small price change will move slightly against you since you're creating a demand for that stock.

The difference between the bid price and the ask price is called the spread. If you look at the spread of a large cap stock that trades over a million shares a day, and compare that to a small cap stock that only trades a thousand shares a day, youll see a huge difference. Stocks that are more liquid (or more activity) will have much smaller spreads than those with less activity. Thus, you will get a better fill (or deal) for a market order on a more liquid stock. One tool you can use to possibly improve your price is to use limit orders. If you want to buy XYZ at no more than $12 and the bid is $11.50 and the ask is $12.50, you can place a purchase order with a limit of $12. This means that the order wont be filled unless you can get it for $12 or better.

One word of caution with limit orders is that the market could run away without you if used with a buy order. And if your order is filled, youll be buying the stock on a downtick, which means it could be making a major move down. As a general rule, its not a good idea to use limit orders when selling stocks as the market could make a big move against you without ever hitting your limit price and youd be stuck with a big loss.

Chuck Cox is a Technical Writer and Industrial Scientist by professional with a background in statistics. He has used mathematical and statistical methods to invest and trade in the stock, futures, and options markets. Chuck has owned various businesses and presently operates several websites. To learn more about trading the markets, visit his website,

Commodity Futures Day Trading The S&P 500 and E-Mini - Observations - PART 4

Not all conventional commodity trading folklore is correct. Some is and some isn't. Much is anecdotal. Most of it is designed to make you feel comfortable in a trade. Feeling "comfortable" is the fastest way to the poorhouse in commodity trading. We are paid to provide liquidity and take on risk. Read on to see if you adhere to this basic and important market law.

More S&P 500 and E-Mini Futures Contract Observations: PART4

"The following e-mini futures action turned into a big chop, then a big rally the next day: After a clean out decline, wait for a series of bottoms with big volume buying activity. Wait for the sell-off to a bottom and sharp rally and then the volume dies. This is the safest place to buy. This was the forth bottom and the previous three bottoms had bearish volume patterns. The forth bottom changed - it had bullish volume patterns and then price rallied to the close."

It pays to step back and view the e-mini futures market in context. My notes keep repeating it's a mistake to buy the first panic spike. I'd gotten good at buying spikes and wondered why I always broke even or even lost doing it. Most of the time a huge e-mini futures climax is followed by several tries to test the bottom. It's easy to get chewed up in these bottom tests since they can last for several hours before a big turn.

The single spike low that holds and supports a big move was popular in the 90’s, but it seems to have been replaced by a series of double, triple and quadruple bottoms. Throughout the bottoming area, you will see a bearish volume pattern until near the end where it turns bullish within the formation. It’s often profitable to stay bearish and continue to sell rallies and cover at the bottom area. In fact, EXPECT big bottoms to be tested.

If you are early buying a bottom, don’t let these tests fake you out. If you are positioning long, expect them and even average in some more as long as the bottom area reasonably holds. The e-mini market may even spike the original low by one-half to a full point, but any more usually means a major break down and you want to be gone.

Remember that “major” e-mini day-trading lows occur only every 3-5 days or longer, so be selective when positioning for them. Personally, I have found big turning point positioning to be a waste of time and money from a day-trading point of view. It often leads to overnight holds and a bad next-day gap surprise. It’s better to let the longer term futures traders beat themselves up and get the occasional rewards. Playing these large, range-bound formations from the short side until they finally end is the best advice.

When the e-mini futures market starts trending, use this larger frame of reference (the recent bottom) to pick up a bias in a certain direction. Then simply buy the dips and exit at the climaxes over and over. After identifying a big turnaround, don’t try to outsmart the market by shorting or reversing your position against the trend.

This is a difficult idea to adhere to, because the e-mini market will always be having minor corrections and try to fool you into believing it’s turned back down. But after the minor correction is done, the market will move to new highs in line with the accumulation that took place in the last couple days.

Part Five of Five Parts - Next!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

Thomas Cathey - 27-year trading veteran heads the managed futures division of Thomas Capital Management, LLC. View his TimeLine Trading market predictions and get his complete 44+ lesson, "Thomas Commodity Trading Course" - they're all free. Main site:

How to Work with Arbitrage Trading

Arbitrage trading to most people many seem confusing for someone a first, and look hard. Well its not as hard and confusing as most think. It is quite simple actually. Arbitrage trading is well known around the world, and has many millions of people money for years and years.

The number one reason why very few people choose to use arbitrage trading is because its time consuming, and takes a lot of work to find out the arbs, and how to calculate them to find out how much profits you will make. This is all true but in the passed two years there have been a number of programs popping up on the Internet.

These programs resolve all the problems that most people find in sports arbitrage trading. Not only does it make it automatic but it does everything that would take someone hours to do in only minutes time.

Sports arbitrage trading is betting against two different bookkeepers that disagree on a sporting event. If you tried to do this on your own you would have to find the arb that the bookkeepers create, calculate how much money you will make, and find out where to place your trade.

If you use a software program you will eliminate all of these. Arbitrage trading software programs find the arbs for you, find the bookkeepers, caudate all profits you will make. The money you make with arbitrage trading is mostly tax free, and you will gain 1 - 10% on each trade you place. You can place as many trades as you would like each day all day. Arbitrage trading can be done from any where in the world as long as you have access to the Internet. You do not need to know anything about sports or arbitrage trading. Most software programs come with a step by step guide how to use there program, and you can be up and running in a few hours.

Imagine taking $500 and using arbitrage trading to turn it into $1,500 or even more a month. Sounds to good to be true? Well its not millions of people are doing it, and why cant you? What can and extra $500 or $1000 or even more a month do for you? I know it could pay for my car payment or help pay some other bills I can think of a million things this extra money could do for me and my family.

Learn how I make over a $1,000 a month using arbitrage trading. It's easy to due, and makes money to pay the bills. Visit Sports Arbitrage Trading to find out more information.

Stock Market Advice For Picking Hot Stocks

The best Stock Market advice you will ever read is to learn from mistakes when someone else has made them. So, this stock market advice list I made a list of some of the most common trading mistakes that are made. Even I`ve made some of these. If you have already made some of the mistakes, you can rest assured that you aren`t alone in making them. If you haven`t made them, then here`s a way to get around having to learn by making the mistakes yourself, by reading my stock market advice list.

The Stock Market advice tip #1, and worst mistake that people make is that they believe trading is the easy answer, a way to get rich quickly. People will often expect to become wizards in the market overnight, but they fail to realize that trading is like any profession; you must learn how to do it first.

For example, would you attend a weekend doctor`s seminar and expect to conduct heart surgery on Monday? Of course not! I am shocked at what people expect when they go to a weekend trading seminar. They think they will create wealth without having to work, invest or think, and it just doesn`t happen that way.

After treating trading like a get rich quick scheme, my next stock market advice tip #2 and most common mistake, is to approach the market without a plan. Without a trading plan, traders approach the market in an inconsistent manner. One day they trade stocks and the next they trade the foreign exchange. Or, they may use one set of indicators one day, and the next day they will throw these indicators out the window and take on a completely new set. Without a consistent approach, the only thing governing their trading decisions is really emotions, and that will doom them to failure.

If a new trader has managed to skip these last two mistakes, they often fall down when they try to go it alone. This is my Stock Market advice #3, all traders should find themselves a coach, or a mentor. Someone who can help them spot the errors in their system that they might not have noticed. An outside point of view can help you avoid other costly mistakes, and greatly increase your profits.

These are some common and quite basic mistakes. The next errors I`ll mention are ones that are just as prevalent in the trading industry, but they often occur once traders have been around for a while. I have some personal experience with these mistakes. Let`s call this stock market advice list, the three most expensive mistakes I`ve made.

My stock market advice mistake tip #4, or the first most expensive mistake, I made was to search for the Holy Grail of trading. This was an incredible waste of both time and money. During the first three years of my trading career, I spent over $25,677 on a library full of books, videos and seminars as well as spending thousands of hours in search of the perfect trading methods. Honestly, 95% of what I bought was pure junk I should have listened to my mentor earlier and realized the Holy Grail of trading is simply excellent money management!

My stock market advice mistake tip #5 or the second most expensive mistake I made was not having a predefined exit point. Early in my trading career, I remember trading a stock I thought had a high percentage chance of rising. I was too confident. I fully leveraged the position. Unfortunately, when things did not go as planned, I did not know when to exit, and was paralysed. I kept rationalizing why I should hold onto that stock. As the stock continued to fall, I made more and more excuses. At the very end, I remember thinking, I can`t take it anymore!

I sold out. That, of course, was the point the stock turned.

I learned two very valuable lessons that day. First, always have your exit points predefined. Second, big losses once started out as small losses, and it is much easier to take a small loss than a big one.

My Stock Market advice mistake tip #6 or the last most expensive mistake, I made is not one that took money out of my pocket; instead it was a mistake that made me leave money on the table. In fact, this reoccurring mistake cost me big.

Early on, I remember selling positions as soon as they showed a profit. I would not let my profits run, as I was too afraid to give the money back to the market. I figured the profit as mine. The result was that I ended up selling the stocks that were making me money.

It wasn`t until my mentor explained to me that when you are trading, and showing a profit, that is the point where you should be adding to the position, not closing it out, that I began to understand what I was doing. Once I started following his advice, my trading profits soared.

Trading is not an easy profession, but it give you great rewards. Avoid these common errors on my Stock Market advice list, create a simple, well-designed trading system, and learn your market. If you take the time to study the market, and learn from other`s mistakes as well as your own, you will become a successful trader.

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Managed Forex Account Verses Inline Trader Trading Pools

In the information that follows I will introduce you to a unique Managed Forex Trading Account alternative and some of the benefits you may realize by investigating it further. Unless you have been living under a rock over the past few years you have seen countless numbers of programs, seminars, courses, ebooks and television commercials touting the benefits of learning how to trade the Foreign Exchange Currency Market a.k.a "Forex". In the midst of the propaganda there seems to be a realistic ability for those who invest the time to learn sound strategies and techniques to generate consistent profits through this vehicle. Where a problem arises is through the abundance of ads, promotions and marketing messages that attempt to convince consumers that there is some secret Forex Trading Software or little known Forex Trading System that will make profiting rom the Forex Market a simple task.

The reality is that prior to April 26th 2007 the only viable option for "easy Forex Profits" was through a Managed Forex Trading account. This is where a person who has no interest in learning how to become a prolific trader simply deposits funds into a Forex Trading Account and signs a Limited Power Of Attorney giving the rights to make decisions on what trades will be placed on his account to a seasoned Forex Trader. The benefits of this type of arrangement seem very obvious, the investor can simply spend their time as they choose, the trader gets access to more funds to trade with and the trader receives a management fee of somewhere between 20-35% of the profits in most cases. Here are a few of the drawbacks.

A) The trader, although only being compensated when he makes a profit, does not lose anything when he loses the investors money on a trade or series of trades. He can actually "experiment" with new trading strategies etc. if he chose to with no repercussions because he is not using his own money to trade with!

B) Generally the minimum amount it costs to get involved with a Maged Forex Trading Account is $50,000.00. This alone prohibits access to this option from smaller investors.

C) You generally never know what your returns may be, you could make x amount of profit one month, lose money the next month or more and have great months sprinkled in.

Now lets look at what happened on April 26th 2007 that changed the rules and now offers what I feel is a more viable option to a Managed Forex trading Account. On April 26th 2007 an innovative company launched it's brand and consumer awareness campaign worldwide! This pioneer is Inline Trader led by President and co-founder Kenneth Nielsen. The company's vision is, according to Nielsen, to become the largest Forex Education & Training Community in the world! Here is what makes them unique. A member has two options with Inline Trader the first is to learn the proven techniques and strategies as outlined in the Inline Trader Resource Guide to become a seasoned Forex Trader where you keep 100% of the profits you make from your own efforts. The second option is to benefit from the expertise of seasoned Forex Traders by simply depositing funds in one of three company trading pools. These trading pools are a viable alternative to Managed Forex Trading Accounts for the following reasons.

A) You can invest as little as $500 into a pool as opposed to the general minimum of $50k with a Managed Forex Trading Account.

B) There is NO management fee charged to your account by the traders so you keep 100 % of the profits they make you!

C) Unlike Managed Forex where your profits can fluctuate or actually be on existent since your account can be subject to losses with the Inline Trader Pools you get a fixed return on investment even if the traders happen to take a loss for that month! You will always know what to expect from your investments with the Inline Trader program.

D) And this is my favorite. If you choose to share Inline Trader with others you can actually receive a bonus commission a share in the profits made on behalf of those you refer every time they generate a profit from the trading pools forever!

I think the choice is clear. The Inline Trader Trading Pool is most certainly a viable alternative to a Managed Forex Trading Account. To find out more information about Inline Trader please visit

Owen Brown All rights reserved. You may freely distribute this article provided that the copyright and this resource box must be included.

Owen Brown is a Residual Income Specialist, leader of the fastest growing team of Inline Trader Members and the Managing Director of Elements To Wealth Dot Com He has trained a number of entrepreneurs on Forex Trading Strategies and is an avid researcher of Passive Residual Income Opportunities. Owen has the rare ability to present complex information at a level that is easy to understand.

The Top Four Forex Brokers

This article contends that the best forex brokers are: Saxo Bank, GAIN Capital, GCI Financial Ltd., and CMS Forex. CMS Forex accepts no commission, demands a small amount of only $200 to establish a mini account, provides users with a Free Demo account, provides leverage as high as 400:1, and has a 3 to 4 pip spread on major currencies.

Saxo Banks offers 24 hour online trading, streaming news from three major providers, detailed analysis from in-house experts, direct online chat to dealers, and a secure trading environment.

GAIN Capital gives its asset managers robust technology, wholesale dealing spreads, consistent liquidity, fast execution, and access to a wide range of sophisticated tools. GAIN Capitals proprietary trading technology today supports over $60 billion in monthly trade volume. GAIN Capitals FOREXTrader has streaming prices in 14 currency pairs, real time profit and loss account information, sophisticated risk management tools, a variety of simple and complex order types, and full reporting capabilities.

Professional dealing practices and a service-oriented approach has earned GAIN Capital a reputation as a world class provider of foreign exchange services. Client and partners from over 110 countries currently rely on their technology, execution and clearing services, and administrative tools.

For individual investors, GAIN Capital operates, which offers advanced, yet easy-to-use trading tools along with lower account minimums and extensive educational resources.

GCI Financial is one of the worlds largest online brokers offering commission-free trading in Forex. GCI Financial offers Internet trading software, fast and efficient execution, and the low margin requirements. GCI Financials free trading software gives the investor the edge in execution, market information, and account management.

GCI Financial offers forex and indices on an online dealing platform. In their forex trading platform the trader can add and remove instruments from the ""dealing prices"" window to fully customize the trading.

Forex Broker Info provides detailed information on forex brokers, forex trading and market makers, and other forex-related topics. Forex Broker Info is the sister site of Incorporating in Florida Web.

Ireland Spread Betting

Spread betting has of late become increasingly popular in Ireland due to the opportunity it provides to make good profits from the investments. In fact, Ireland spread betting has increased so much in popularity that the traditional stock market feels threatened. Worldspreads, an Ireland spread betting company, which was running in heavy losses earlier, now not only makes profits but also is looking forward to making whopping profits in the coming years, due to the volume of trading. The increase in popularity of spread betting be it financial spread betting or any other, is owed to the many advantages it offers.

To start with, UK and Ireland spread betting offer attractive tax benefits, when compared to the traditional stock market. Spread bet in any of the platforms are exempt from capital gains tax between 10 percent and 40 percent of the profits made. Also, a spread bet isnt subjected to any stamp duty on share transactions. It is in fact, the cheapest way to make profits. There's no broker, no fees and no tax. You only pay the spread.

Financial spread betting companies offers the investors to bet on a variety of markets. You can trade in stocks, stock indices, commodities, forex, sector and even bonds. The theory of spread betting is the same in every market. The wider the spread the more expensive it is to trade. In financial spread betting, bets are made on the movement of stocks. Forex spread betting enables you to benefit from the foreign exchange (forex) market by trading in foreign currencies.

Commodity spread betting is based on commodities such as agricultural, grains, oils, livestock, wood, textiles, food products, metallurgical products, petroleum or chemicals among others. Financial spread trading on stock index include all the global indices such as the FTSE 100, German Dax, Japanese Nikkei and the US indices, Dow Jones, S&P 500 and the Nasdaq 100. Spread bet on a sector implies you trade in sectors such as Teleom, FMCG and Banking sectors among others. Spread bets are also offered on government bonds such as UK Gilts, the US Treasury Bond and German Bunds among others.

Before you start trading you need to understand the nuances of spread betting, be it Ireland spread betting, UK stock indices betting or any other, since otherwise you can incur unimaginable losses. Clean financial addresses all of your queries and concerns to start you with the basics, such as What is spread betting, Is it suitable for me, What are the risks involved and many such others. Make the most of the spread betting tips, news, views, analysis, reviews, articles and spread trading strategies for maximizing profits. Money doesnt grow on trees, they say, but if you understand the spread trading market, you will find making money much easier than even that!

Risk Warning: Spread betting carries a high level of risk to your capital and you may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

* Tax law is subject to change or may differ if you pay tax in a jurisdiction other than the UK.

The author is a banking professional and financial Spread betting Expert. He writes on various topics including share dealing in Uk & spread trading strategies providing expert views about Online spread betting market, Why Spread Bet & Financial Spread betting Tips. Just log on

Europe's Economy: The Challenges of High Unemployment and Sluggish Economic Growth

Millions of European citizens find themselves in a fantasyland of "wanting to keep things the way they were" even as the fundamentals of the European style of government continue to crumble. Europe simply cannot have things the way they were.

Nevertheless, millions of residents of "Old Europe," in particular France, Germany, Italy, and Spain, refuse to accept the reality of enhanced global competition and unaffordable government-sponsored social programs. Their anxieties are many, including a substantial outsourcing of jobs, persistently high unemployment, a weak educational system, an aging society, a declining overall population, and new global competitors, especially China, India, and numerous Eastern European countries.

Europeans face a barrage of issues, with limited means to escape economic sluggishness and high unemployment. Such was not always the case. European countries traditionally found many of their prized companies as formidable competitors. Many remain in this role, perhaps led by the German automakers. Reasonable levels of economic growth and low jobless rates were the norm in prior decades, but no longer.

The European Union

The broad objectives of blending together a unified Europe included the ability to compete globally as a more cohesive economic unit. Many successes were found, including the ability to dramatically reduce red tape and hassles involving trade among European nations.

The creation of a single currency for the European community has had mixed results. The euro currency enjoys broad acceptance as a major global currency (second only to the dollar). However, the loss of monetary flexibility among many of the smaller nations within Europe has been a major frustration.

Tomorrow in Europe

Growth prospects are modest as the European model of extensive social welfare, protected industries, high taxes, and few free market ideas remain its foundation. Companies by the thousands have shed jobs in Old Europe even as they added jobs in the Czech Republic, Slovakia, Romania, and Hungary.

Fewer Bodies

Europe also faces an actual decline in population. The European birth rate (as in Japan and Russia) is well below the "replacement rate" of 2.1 children for each woman of childbearing age. For Western Europe as a whole, the birth rate is now 1.5, with lower rates in Old Europe. A continuation of such low birth rates for years to come would lead overall populations sharply lower, and threaten the ability of taxpayers to finance future government social spending.

In all likelihood, stronger overall population growth is expected. However, it will be the result of higher birth rates in poorer Eurozone countries and stronger migration (both legal and illegal) into France, Germany, Italy, Spain, and so on.

High levels of Eurozone unemployment compensation and welfare have traditionally provided many citizens with an ability to survive while lacking jobs. Many have lived at public expense for years. Average jobless rates of 9 percent to 10 percent in Germany and 8 percent to 9 percent in France compare to rates half as high in the United States and Japan.

Life in Old Europe includes the "haves" (older high-wage unionized workers) and the "have nots" (millions of younger people who will move between limited employment opportunities and more "comfortable" jobless benefits than found in most parts of the world)--not a pretty picture for the young.

Eurozone Expansion

Bigger is better--or so has been the mindset of European leaders. The European Union comprised 12 member nations a decade ago. Membership today is roughly 25 nations, representing more than 450 million people. A cohesive group? Tens of millions of new member citizens speak different languages and represent vastly different cultures, including rising Islamic populations.

Citizens of richer nations seethe at the addition of 10 mostly poor nations during the past few years, with rising anxiety about the loss of their higher-wage jobs to those poorer countries which feature much lower wage levels.

Facing Reality

There is a quiet realization building across European political and business circles that in order to be competitive with North American and Pacific Rim companies, European companies must have greater flexibility in terms of hiring/firing practices, more open competition, and wider use of production incentives for workers. Lower tax rates and less government are also viewed as necessary.

Some progress is being made, with more upbeat growth prospects for those nations willing to embrace change. Data also suggests that a greater share of Eurozone growth is coming from rising domestic demand, a favorable development should the euro continue to appreciate versus the dollar in coming years.

The enormous unemployment rate disparity between Europe and the United States/Japan comes down to the issue of the entry and exit of labor in a free market. Pro-union governments and powerful labor unions have distorted the European labor issue. The reality is that once a company hires an additional employee in various countries, it is almost impossible or very costly to ever let them go.

So what do rational European company managers do in this hostile labor environment? They utilize alternatives to new hiring, including more overtime for current workers, greater use of automation, more use of less costly Central European or Pacific Rim labor, and greater investment into non-European companies that operate in more business-friendly locations.

Liberal European governments blame their high unemployment rates on job-reducing technology and increased competition from countries where wages are lower. However, they are unable to explain why unemployment rates in the United States and Great Britain are so much lower--countries subject to the same competitive pressures.

The realities of high unemployment and limited economic growth prospects are finally leading labor leaders to the bargaining table, with particular progress in Germany. German workers in various industries, principally manufacturing, have agreed to greater flexibility in exchange for promises that jobs will be maintained.

German workers are embracing more flexible and longer work weeks. In addition, more and more German and other workers are trading fixed (but declining) bonuses for something commonplace in the Western world--profit sharing. The ability of European nations to enjoy solid growth expectations in coming years is tied in part to such labor flexibility.

Economic futurist Jeff Thredgold is President of Thredgold Economic Associates, a professional speaking and economic consulting company.

Since 1976 Jeff's weekly economic and financial newsletter, Tea Leaf, has been helping people make sense of the tangled maze of the U.S. and global economy and financial markets in a light, approachable style. Sign up to receive the free Tea Leaf email newsletter and let Jeff Thredgold show you how to use this information to enhance your financial well-being for years to come.

Jeff is the author of econAmerica: Why the American Economy is Alive and Well...and What That Means to Your Wallet (Wiley, 2007), and On the One Hand...The Economist's Joke Book.

His career includes 23 years with $96 billion banking giant KeyCorp, where he served as Senior VP and Chief Economist. He now serves as economic consultant to $50 billion Zions Bancorporation, which has banks in 10 states.

What Small, Medium and Large Cap Stocks Mean To You

Stocks can be classified in terms of their size, small, medium and large cap stocks. Capitalization can be referred to as the market value of the company. We derived the market value of a company by multiplying market price of stock by the number of outstanding shares.

Large cap stocks refers to stocks of large companies with considerable earnings and large amount of common stocks.
Large cap stocks refers to companies that are listed on the Dow Jones Industrial Average and S&P 500 index.
Examples of such companies include IBM, Intel and Microsoft.
Large cap companies have a market capitalization of more than $5 billion Large cap stocks are often overpriced and over speculated.
These companies usually pay higher dividend, the prices of stock are generally less volatile and the prices of these stocks have less growth rate. This is of course with the exception of internet companies like Google who is in an industry which is extremely volatile.

Medium cap companies have a market capitalization of $1 billion to $5 billion Medium cap companies usually contain a lot of potential and often overlooked my many investors.

Small cap stocks refer to stocks of small companies with a market capitalisation of less than $1 billion.
Small cap companies are new companies who are just starting out on being listed on the stock market and generally tend to have a faster growth rate but also can be a lot riskier. They tend not to pay dividend but have a faster growing rate.

As one goes up the capitalization chart, prices of stocks will be higher and the risk will be lower. Small cap stocks > Medium cap stocks > Large cap stocks

A risk adverse investor will generally spread the investment across the three cap of stocks, small, medium and large cap to reduce the risks. If you expect higher returns and willing to take more risk, the best bet would to be investing in small and medium cap stocks. The safest bet is definitely the medium cap companies which have huge potential for growth and moderate risk levels.

ETF funds that track the performance / index of all small, medium and or cap companies might be of interest to you. An example for an index fund that tracks the performance of large cap companies is SPY. An example for medium cap companies is MDY and for small cap companies is IWM. Due to the popularity of such index funds, the index fund companies have been reported to charge very high rates. With the popularity of ETF funds, these fund management companies are increasing their management fees for ETF funds. Spend some tie researching at and you will be able to find other ETF fund companies other than that of SPY, MDY and IWM that offer significantly lower fund management rates.

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Canadian Coalbed Methane Stocks: 7 Things to Know Before Investing

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.


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.


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.


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.


This is the measure of the stage the coal has reached between the minerals inception 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.


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.


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).


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.


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.

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

Fraud-Pump And Dump Schemes Are Still Around

Pump and dump schemes have cost investors hundreds of millions of dollars in the past few years. The World English Dictionary defines them as, involving unscrupulous stock market manipulation: describes a fraudulent scheme in which unscrupulous stockbrokers, analysts, or stockholders highly recommend their own stocks in order to drive up the price before selling for a quick profit (slang). Although the definition describes a textbook scheme, it does not describe how this fraud is operating in the investment market today.

An advanced communication system has made these schemes much easier to perpetrate. A fraudster can take a position in a stock, promote (hype) the stock and sell after the price has increased; then sell the stock short on the way down. Since he must know how the price of the stock will operate to be effective, he has to control the reasons investors will buy and sell the stock.

The fraudster will use a microcap stock. Most of these stocks trade on the Over The Counter-Bulletin Board market (OTC-BB). These thinly traded stocks help in taking an initial position at a low price, controlling the information about the stock, and attaining large increases in the stocks price on small demand. The textbook approach was for the fraudster, often the broker, to tell other investors about the stock to create demand and increase the price. The fraudster will then sell (dump) his stock at a profit.

This scheme evolved by using boiler-room marketers, when the technology of telephone systems began to have automated dialing systems and inexpensive calling costs. This further evolved to the fax machine, which became popular and less expensive than the labor-intensive boiler-rooms. Once the internet became popular, it became the tool of choice for the fraudster. It is the most effective way to get information out to investors and often not disclose the fraudsters true identity.

One actual case went as follows. Fraudster one identified a small high-tech company, which needed capital to get its products to market. He had fraudster two, an investment banker he knew, approach the owner of the company about raising capital. The owner agreed and the investment banker suggested taking the company public by merging the company into a clean publicly-owned shell company, which was trading on the OTC-BB. Fraudster two arranged a $10 million investment from a third party into the now public company. An initial deposit of $800,000 was made into the company with the balance due upon closing. Fraudster one, two and several others, who knew about the fraud, took positions in the companys stock at very low prices.

Then the hype or pump started in earnest. The owner began reporting news of the new investment on the companys web site. The group of fraudsters, who had done this many times before, began posting information about the company in chat rooms and on web sites. They also purchased stock at increasing prices to encourage the run-up in price. The stock started at $ .10, but increased to over $10 within a few weeks.

It was now time for the dump or sale of the stock by the fraudsters. They not only began selling off their positions, but also sold the stock short, knowing it would continue to decline. After they sold their positions at a nice profit, fraudster two told the owner that the new investment had fallen through and this news hit the companys web site and chat rooms. The stock went into a free fall and bottomed below its original $ .10. Of course the fraudsters covered their short positions, making another tidy profit.

Did the owner know about the fraud? No, but he was encouraged to take part in the hype. He lost his investment and the company was bankrupt, having counted on the new investment. Of course the $10 million new investment was part of the fraud. How much did the group of fraudsters make on this fraud? No one knows for sure, but based on the volume and the price fluctuation, their profit is estimated in the millions.

The Securities and Exchange Commission has released these tips for avoiding stock scams on the internet: consider the source, find out where the stock trades, independently verify claims, research the opportunity, watch out for high-pressure pitches, and always be skeptical.

Mr. Cuthill's practice is limited to court-appointed positions in large fraud cases. His work has produced the return of millions of dollars of investors' funds. For more information about him go to