Traders want to trade uranium, and in this guide we cover exactly how and where you can do that, plus insights into the types of uranium financial instruments available.
We included a list of regulated brokers who offer uranium instruments.
Uranium has various use cases and is widely used as fuel, a nuclear base-material, as well as a building element for sturdy aircrafts and armours.
First we'll comment on on the pro-uranium sentiments most often cited by financial reporters.
Reasons Why People Invest in Uranium
In general, the best reason for investing in uranium is to bet on the growing energy needs of the world.
Specifically traders might consider a uranium investment for the following reasons:
- Increased Acceptance of Nuclear Energy as a Power Source
- Emerging Market Demand
- Portfolio Diversification
Increased Acceptance of Nuclear Energy as a Power Source
Since nuclear power is used primarily to produce electricity, its increasing acceptance by the power generating industry is the main reason traders should consider the commodity.
More than 30 countries host about 450 commercial nuclear power reactors with an installed capacity of about 400,000 megawatts electric (mWe).
Sixteen countries depend on nuclear power for more than 25% of their electricity needs, and some countries such as France depend on nuclear power for about 75% of their needs.
The price of uranium is likely to be influenced heavily by trends in nuclear power usage for electricity generation. The World Nuclear Association projects a 30% increase in electricity generation from nuclear power by 2030 and a 35% increase by 2035. These trends bode well for uranium prices.
Emerging Market Energy Demand
According to the International Energy Agency, by 2035 more than 90% of net energy demand will derive from emerging economies.
Demographic trends across the globe show migration patterns from rural areas into cities. In places such as China, rising industrialization has accompanied these population shifts.
The United Nations forecasts that by 2030, there could be a 36% increase in the number of global cities with populations over 1 million people.
New cities will require increasing amounts of electricity to power businesses and homes. As more countries seek to curb pollution while meeting energy demand, nuclear power demand could grow.
Investing in a critical resource such as uranium is a way to add diversification to a portfolio. Many of the factors that move demand for nuclear power are different than the factors that affect stock and bond prices.
In fact, for many segments of the economy, demand for electricity is inelastic.
As long as this remains the case, demand for uranium in power generation should remain strong.
Where to Trade Uranium
Here are commodity brokers available in that offer Uranium CFDs, shares, options, futures, and other tradeable instruments.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 73.0%-89.0% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Ways to Trade Uranium
Uranium traders have several ways to trade or invest in the commodity:
|Method of Investing||Complexity Rating (1 = easy, 5=hard)||Security Costs?||Expiration Dates?||Mgmt Costs?||Leverage?||Regulated Exchange?|
The contract trades globally on the CME Globex platform and has various expiration months.
Futures are a derivative instrument through which traders make leveraged bets on commodity prices. If prices decline, traders must deposit additional margin in order to maintain their positions.
At expiration, all of these contracts are financially settled.
Investing in futures requires a high level of sophistication since factors such as storage costs and interest rates affect pricing.
These financial instruments trade as shares on exchanges in the same way that stocks do.
Global X Uranium ETF (NYSEARCA: URA) invests in a basket of uranium miners.
In addition, VanEck Vectors Uranium + Nuclear Energy ETF (NYSEARCA: NLR) invests in both uranium mining and nuclear energy companies.
|Global X Uranium ETF||VanEck Vectors Uranium + Nuclear Energy ETF|
Shares of Uranium Companies
There are many publicly traded companies that mine, process and sell uranium.
While investing in companies can be a leveraged way to gain exposure to uranium prices, many of these companies can react to other factors such as demand for their particular products, competition, production costs and interest rates.
Also, factors such as company management and the overall stock market can affect these investments.
Another way to invest in shares of uranium companies is through the use of a contract for difference (CFD) derivative instrument.
CFDs allow traders to speculate on the price of companies involved in the uranium industry.
The value of a CFD is the difference between the price of the shares at the time of purchase and their current price.
Some regulated brokers offer CFDs on shares of uranium companies. Customers deposit funds with the broker, which serve as margin. See our guide to finding a legitimate CFD broker and how to avoid to scams.
Long Term Outlook on Uranium
There are three commonly cited reasons uranium prices could perform well in the years ahead:
- Emerging Market Growth
- Environmental Concerns
- Global Growth
Emerging Market Growth
China, India, Brazil, the Middle East and Africa are among the many fast-growing countries and regions that are becoming more industrial and urban.
As populations in these regions migrate from rural areas into cities, demand for power should soar.
As the global economy expands, pollution is becoming a greater problem. This should benefit cleaner power sources such as nuclear energy.
Global growth is a positive catalyst for uranium prices. As the world economy expands, demand for power should grow, and uranium prices should respond favorably.
However, traders should also consider the risks of investing in uranium:
- A global recession could weaken power demand.
- Lower coal and natural gas prices could slow down the adoption of nuclear energy by power companies.
- Another nuclear reactor accident could be a serious setback to the uranium industry.
Global economic or political turmoil could strengthen the US dollar and weaken demand for commodities.
Those wanting to invest in uranium might consider purchasing the commodity along with a basket of other commodities that includes base metals (i.e., copper, lead, nickel and zinc), precious metals, agricultural commodities (i.e., dairy, meats and grains) and other energy commodities such as oil, natural gas and electricity.
Purchasing a basket of commodities helps protect traders from the volatility of any individual commodity.
It also adds overall diversification to a stock and bond portfolio.
- Uranium as a Commodity – See our guide on Uranium usage, history, drivers of price and what experts have to say.
- The Chicago Mercantile Exchange (CME) offers a contracts on Uranium.
- Oil Trading Guide – The ubiquity & volatility make crude oil contracts a favorite of traders.
Credits: Original article written by Lawrence Pines. Major updates and additions in Aug 2020 by Marko Csokasi with contributions from the Commodity.com editorial team.