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Monday, November 10, 2008
Chicago, Dubai Pact Creates Central Platform for Oil Trades
Dunstan Prial
FOXBusiness
CME Group (CME), which owns and operates two U.S. derivatives exchanges, announced an exclusive partnership Monday with the Dubai Mercantile Exchange, an energy futures and commodities exchange based in the Middle East, which will allow all three global benchmark oil products to trade on the same platform.
Under the agreement, the DME’s contracts will trade electronically on the CME Globex platform starting in the first quarter of 2009.
The companies said adding the DME’s contracts to the CME’s menu of products will increase transparency in often-opaque energy derivatives markets.
The plan is still subject to final DME board approval, the exchanges said in a statement. The CME Globex, an electronic trading system, offers nearly 24-hour access to a broad array of derivatives products in every major asset class in more than 85 countries and foreign territories worldwide, the companies said.
The transition of the DME Oman Crude Oil Futures Contract to CME Globex, according to the companies, will allow the world’s three crude oil benchmark products to trade on the same platform.
According to the statement, the DME Oman Crude Oil Futures Contract is increasingly being recognized as the first successful exchange traded contract for price transparency in “East of Suez markets,” and has joined West Texas Intermediate (WTI) and Brent crude oil futures contracts as the world’s benchmarks for crude oil.
“As growing demand from Asia continues to drive fundamentals in the oil industry, there is increasing need for a transparent mechanism to determine the price of crude imported into the region,” the companies said.
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Some mutual funds want you to pay for the privilege of them (or your investment adviser) taking your money to invest. It's called a load, and it works like a cover charge to get into a nightclub. Luckily, there are such things as no-load funds. As the name implies, shares of these funds are sold without a fee paid to a broker or investment advisor.
The entire amount you invest in no-load funds goes to work for your returns. On the other hand, with load funds, right off the bat you're charged commission (not to mention other fees incurred over the life of the investment). Let's say, for example, you invest $25,000 into a load fund that charges a 5% commission. This costs you $1,250 off the top, bringing your actual investment down to only $23,750.
The often-cited horse race analogy argues against investing in load funds. Here's the logic behind it: Would you place a bet on a horse that had to start a race 200 yards behind the others? Well, maybe you would if you got a tip from a sketchy, trench coat-clad man in a dark alley. However, under most circumstances, it's not smart to put your money on that handicapped horse.
But some argue that at times that man in the trench coat (aka your broker) knows more about the horses than you do, and has a better shot at picking a winner. Also, sometimes these fees are unavoidable because some funds are available only through investment advisers.
Cost-benefit analysis can help determine when a load fund is worth it (in other words, when it will score you a load) and when it is better to "do it yourself" and avoid the fees. Load-fund fees range depending on share class and can cover a variety of costs, such as paper work and fund management.
