Sole Trader Definition The 13 Secrets About Sole Trader Definition Only A Handful Of People Know

Part I. FINANCIAL INFORMATION



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Item 1. Abridged Banking Statements.

 

Index to Abridged Banking Statements



 

 

 

United States Oil Fund, LP

Condensed Statements of Banking Condition

At September 30, 2018 (Unaudited) and December 31, 2017

 

 

See accompanying addendum to abridged banking statements.

 

United States Oil Fund, LP

Condensed Agenda of Investments (Unaudited)

At September 30, 2018

 

Notional

Amount

Number of

Contracts

Value/

Unrealized Gain

(Loss) on Open

Commodity

Contracts

% of

Partners’

Capital

Principal

Amount

Market

Value

 

 

See accompanying addendum to abridged banking statements.

 

 

United States Oil Fund, LP

Condensed Statements of Operations (Unaudited)

For the three and nine months concluded September 30, 2018 and 2017

 

Nine months ended

September 30, 2018

Nine months ended

September 30, 2017

 

* Absorption assets does not beat paid in affectionate of 5%.

 

See accompanying addendum to abridged banking statements.

 

 

United States Oil Fund, LP

Condensed Anniversary of Changes in Partners’ Basic (Unaudited)

For the nine months concluded September 30, 2018

 

 

See accompanying addendum to abridged banking statements.

 

 

United States Oil Fund, LP

Condensed Statements of Banknote Flows (Unaudited)

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For the nine months concluded September 30, 2018 and 2017

 

Nine months ended

September 30, 2018

Nine months ended

September 30, 2017

 

See accompanying addendum to abridged banking statements.

 

 

United States Oil Fund, LP

Notes to Abridged Banking Statements

For the aeon concluded September 30, 2018 (Unaudited)

 

NOTE 1 — ORGANIZATION AND BUSINESS

 

The United States Oil Fund, LP (“USO”) was organized as a bound affiliation beneath the laws of the accompaniment of Delaware on May 12, 2005. USO is a article basin that issues limited affiliation shares (“shares”) that may be purchased and awash on the NYSE Arca, Inc. (the “NYSE Arca”). Prior to November 25, 2008, USO’s shares traded on the American Stock Barter (the “AMEX”). USO will continue in perpetuity, unless concluded eventually aloft the accident of one or added contest as declared in its Seventh Adapted and Restated Agreement of Bound Affiliation anachronous as of December 15, 2017 (the “LP Agreement”). The advance cold of USO is for the circadian changes in allotment acceding of its shares’ per allotment net asset bulk (“NAV”) to reflect the daily changes in allotment acceding of the atom bulk of light, candied awkward oil delivered to Cushing, Oklahoma, as abstinent by the daily changes in the bulk of the futures adjustment for light, candied awkward oil traded on the New York Mercantile Barter (the “NYMEX”) that is the abreast ages adjustment to expire, except back the abreast ages adjustment is aural two weeks of expiration, in which case it will be abstinent by the futures adjustment that is the abutting ages adjustment to expire (the “Benchmark Oil Futures Contract”), less USO’s expenses.

 

USO’s advance cold is not for its NAV or bazaar bulk of shares to equal, in dollar terms, the atom bulk of light, candied awkward oil or any accurate futures contract based on light, candied awkward oil, nor is USO’s advance cold for the allotment change in its NAV to reflect the allotment change of the bulk of any accurate futures adjustment as abstinent over a time period greater than one day .

 

United States Article Funds LLC (“USCF”), the accustomed accomplice of USO, believes that it is not applied to administer the portfolio to accomplish such an advance ambition back investing in Oil Futures Affairs (as authentic below) and Added Oil-Related Investments (as authentic below). USO accomplishes its objective through investments in futures affairs for light, candied awkward oil and added types of awkward oil, diesel-heating oil, gasoline, natural gas and added petroleum-based fuels that are traded on the NYMEX, ICE Futures or added U.S. and adopted exchanges (collectively, “Oil Futures Contracts”) and added oil-related investments such as cash-settled options on Oil Futures Contracts, forward contracts for oil, austere bandy affairs and over-the-counter (“OTC”) affairs that are based on the bulk of crude oil, diesel-heating oil, gasoline, accustomed gas and added petroleum-based fuels, Oil Futures Affairs and indices based on the aloft (collectively, “Other Oil-Related Investments”). As of September 30, 2018, USO captivated 23,968 Oil Futures Contracts for light, candied awkward oil traded on the NYMEX and did not ascendancy any Oil Futures Affairs for light, candied awkward oil traded on the ICE Futures Europe.

 

USO commenced advance operations on April 10, 2006 and has a budgetary year catastrophe on December 31. USCF is amenable for the administration of USO. USCF is a associate of the National Futures Affiliation (the “NFA”) and became registered as a article basin abettor with the Commodity Futures Trading Bureau (the “CFTC”) able December 1, 2005 and a swaps abutting on August 8, 2013. USCF is also the accustomed accomplice of the United States Accustomed Gas Fund, LP (“UNG”), the United States 12 Ages Oil Fund, LP (“USL”), the United States Gasoline Fund, LP (“UGA”) and the United States Diesel-Heating Oil Fund, LP (“UHN”), which listed their bound affiliation shares on the AMEX beneath the ticker symbols “UNG” on April 18, 2007, “USL” on December 6, 2007, “UGA” on February 26, 2008 and “UHN” on April 9, 2008, respectively. As a aftereffect of the accretion of the AMEX by NYSE Euronext, anniversary of UNG’s, USL’s, UGA’s and UHN’s shares commenced trading on the NYSE Arca on November 25, 2008. USCF is additionally the accustomed accomplice of the United States Abbreviate Oil Fund, LP (“DNO”), the United States 12 Ages Accustomed Gas Fund, LP (“UNL”) and the United States Brent Oil Fund, LP (“BNO”), which listed their bound affiliation shares on the NYSE Arca beneath the ticker symbols “DNO” on September 24, 2009, “UNL” on November 18, 2009 and “BNO” on June 2, 2010, respectively. USCF is additionally the sponsor of the United States Article Index Armamentarium (“USCI”), the United States Copper Index Armamentarium (“CPER”), the United States Agriculture Index Armamentarium (“USAG”) and the USCF Canadian Awkward Oil Index Armamentarium (“UCCO”), anniversary a alternation of the United States Commodity Index Funds Trust. USCI, CPER and USAG listed their shares on the NYSE Arca beneath the ticker symbols “USCI” on August 10, 2010, “CPER” on November 15, 2011 and “USAG” on April 13, 2012, respectively. UCCO is currently in allotment and has not commenced operations.

 

On August 7, 2018, the Board of Directors of USCF accustomed and accustomed the closing and defalcation for anniversary of USAG, DNO and UHN calm with a plan of liquidation for anniversary of USAG, DNO and UHN. Anniversary of the United States Article Index Funds Affirmation (“USCIFT”), of which USAG is a series, DNO and UHN filed a accustomed address on Form 8-K anachronous August 8, 2018 with the SEC that included, as an exhibit, the columnist release, the applicative plan of liquidation, and, in the case of DNO and UHN, a archetype of the apprehension of required abandonment from the bound affiliation beatific to shareholders. In addition, anniversary of USAG, DNO and UHN filed a prospectus supplement with the SEC anachronous August 8, 2018. Anniversary of the filings is additionally accessible on USCF’s website at www.uscfinvestments.com.

 

The defalcation date for anniversary of USAG, DNO and UHN was September 12, 2018 and the accretion of the liquidation were beatific to all absolute shareholders of USAG, DNO and UHN, respectively, on or about September 13, 2018, with a consecutive administration of added defalcation accretion beatific to UHN shareholders on or about September 18, 2018. Anniversary of USAG, DNO and UHN additionally filed a post-effective alteration to the allotment anniversary with the SEC to abolish the offering of registered and unsold shares of USAG, DNO and UHN, respectively, and the NYSE Arca filed Forms 25 to aftereffect the withdrawal of the listings for shares of anniversary of USAG, DNO and UHN.

 

In addition, USCF is the sponsor of the USCF Funds Trust, a Delaware accustomed trust, and anniversary of its series, the United States 3x Oil Armamentarium (“USOU”) and the United States 3x Abbreviate Oil Armamentarium (“USOD”), which commenced operations on July 20, 2017.

 

 

All funds listed previously, added than UCCO, are referred to collectively herein as the “Related Accessible Funds.”

 

USO issues shares to assertive authorized purchasers (“Authorized Participants”) by alms baskets consisting of 100,000 shares (“Creation Baskets”) through ALPS Distributors, Inc., as the business abettor (the “Marketing Agent”). The acquirement bulk for a Creation Basket is based aloft the NAV of a allotment affected anon afterwards the abutting of the bulk trading affair on the NYSE Arca on the day the acclimation to actualize the bassinet is appropriately received.

 

In addition, Accustomed Participants pay USO a $1,000 fee for anniversary acclimation placed to actualize one or added Conception Baskets or to redeem one or added baskets (“Redemption Baskets”), consisting of 100,000 shares. Shares may be purchased or awash on a nationally accustomed antithesis barter in smaller increments than a Conception Bassinet or Accretion Basket. Shares purchased or awash on a nationally accustomed securities exchange are not purchased or awash at the per allotment NAV of USO but rather at bazaar prices quoted on such exchange.

 

In April 2006, USO initially registered 17,000,000 shares on Form S-1 with the U.S. Antithesis and Barter Bureau (the “SEC”). On April 10, 2006, USO listed its shares on the AMEX beneath the ticker attribute “USO” and switched to trading on the NYSE Arca beneath the same ticker attribute on November 25, 2008. On that day, USO accustomed its antecedent per allotment NAV by ambience the bulk at $67.39 and issued 200,000 shares in barter for $13,479,000. USO additionally commenced advance operations on April 10, 2006, by purchasing Oil Futures Contracts traded on the NYMEX based on light, candied awkward oil. As of September 30, 2018, USO had registered a absolute of 3,127,000,000 shares.

 

The accompanying unaudited abridged financial statements acquire been able in accordance with Aphorism 10-01 of Adjustment S-X promulgated by the SEC and, therefore, do not include all advice and comment acknowledgment adapted beneath about accustomed accounting attack in the United States of America (“U.S. GAAP”). The banking advice included herein is unaudited; however, such banking advice reflects all adjustments, consisting alone of accustomed alternating adjustments, which are, in the assessment of USCF, all-important for the fair presentation of the abridged banking statements for the acting period.

 

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The banking statements acquire been prepared in acquiescence with U.S. GAAP as abundant in the Banking Accounting Standards Board’s (“FASB”) Accounting Standards Codification. USO is an advance aggregation and follows the accounting and advertisement advice in FASB Topic 946.

 

Revenue Recognition

 

Commodity futures contracts, advanced contracts, physical bolt and accompanying options are recorded on the barter date. All such affairs are recorded on the articular cost basis and apparent to bazaar daily. Abeyant assets or losses on accessible affairs are reflected in the condensed statements of financial activity and represent the aberration amid the aboriginal adjustment bulk and the bazaar bulk (as bent by exchange settlement prices for futures affairs and accompanying options and banknote banker prices at a agreed time for advanced contracts, physical commodities, and their accompanying options) as of the aftermost business day of the year or as of the aftermost date of the condensed financial statements. Changes in the abeyant assets or losses amid periods are reflected in the abridged statements of operations. USO earns assets on funds captivated at the babysitter or a futures bureau merchant (“FCM”) at prevailing bazaar rates earned on such investments.

 

Brokerage Commissions

 

Brokerage commissions on all accessible commodity futures affairs are accrued on a full-turn basis.

 

Income Taxes

 

USO is not accountable to federal income taxes; each partner letters his/her allocable allotment of income, gain, accident deductions or credits on his/her own assets tax return.

 

In accordance with U.S. GAAP, USO is required to actuate whether a tax position is added acceptable than not to be abiding aloft assay by the applicative demanding authority, including resolution of any tax accompanying appeals or activity processes, based on the abstruse claim of the position. USO files an assets tax acknowledgment in the U.S. federal administration and may book assets tax allotment in assorted U.S. states. USO is not subject to assets tax acknowledgment examinations by aloft demanding authorities for years afore 2015. The tax anniversary accustomed is abstinent as the better bulk of anniversary that has a greater than fifty percent likelihood of actuality accomplished aloft ultimate settlement. De-recognition of a tax anniversary advanced accustomed after-effects in USO recording a tax accountability that reduces net assets. However, USO’s conclusions regarding this activity may be accountable to analysis and acclimation at a afterwards date based on factors including, but not bound to, on-going analysis of and changes to tax laws, regulations and interpretations thereof. USO recognizes absorption accrued accompanying to unrecognized tax allowances and penalties accompanying to anonymous tax allowances in assets tax fees payable, if assessed. No absorption bulk or penalties acquire been accustomed as of and for the period concluded September 30, 2018.

 

 

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Creations and Redemptions

 

Authorized Participants may purchase Creation Baskets or redeem Accretion Baskets alone in blocks of 100,000 shares at a bulk according to the NAV of the shares calculated shortly afterwards the abutting of the bulk trading affair on the NYSE Arca on the day the acclimation is placed.

 

USO receives or pays the proceeds from shares awash or adored aural two business canicule afterwards the barter date of the acquirement or redemption. The amounts due from Authorized Participants are reflected in USO’s abridged statements of banking activity as receivable for shares awash and amounts payable to Accustomed Participants aloft accretion are reflected as payable for shares redeemed.

 

Authorized Participants pay USO a transaction fee of $1,000 for anniversary acclimation placed to actualize one or added Conception Baskets or to redeem one or added Accretion Baskets.

 

Partnership Capital and Allocation of Partnership Income and Losses

 

Profit or accident shall be allocated among the ally of USO in admeasurement to the cardinal of shares anniversary partner holds as of the abutting of anniversary month. USCF may revise, adapt or contrarily adapt this adjustment of allocation as declared in the LP Agreement .

 

Calculation of Per Allotment NAV

 

USO’s per allotment NAV is affected on each NYSE Arca trading day by demography the accustomed bazaar bulk of its absolute assets, adding any liabilities and adding that amount by the absolute cardinal of shares outstanding. USO uses the closing bulk for the affairs on the accordant barter on that day to determine the bulk of affairs captivated on such exchange.

 

Net Assets (Loss) Per Share

 

Net assets (loss) per allotment is the difference between the per allotment NAV at the alpha of anniversary aeon and at the end of anniversary period. The abounding boilerplate cardinal of shares outstanding was computed for purposes of advice net assets (loss) per abounding boilerplate share. The abounding boilerplate shares are equal to the cardinal of shares outstanding at the end of the period, adapted appropriately for shares added and adored based on the bulk of time the shares were outstanding during such period. There were no shares captivated by USCF at September 30, 2018. 

 

Offering Costs

 

Offering costs incurred in affiliation with the allotment of added shares afterwards the antecedent allotment of shares are borne by USO. These costs accommodate registration fees paid to authoritative agencies and all legal, accounting, press and added costs associated with such offerings. These costs are accounted for as a deferred allegation and thereafter amortized to bulk over twelve months on a straight-line base or a beneath aeon if warranted.

 

Cash Equivalents

 

Cash equivalents accommodate money bazaar funds and brief deposits or time deposits with aboriginal adeptness dates of six months or less.

 

Reclassification

 

Certain amounts in the accompanying condensed banking statements were reclassified to accommodate to the accustomed presentation.

 

Use of Estimates

 

The alertness of abridged financial statements in acquiescence with U.S. GAAP requires USCF to accomplish estimates and assumptions that affect the appear bulk of assets and liabilities and acknowledgment of accidental assets and liabilities at the date of the abridged banking statements, and the reported amounts of the acquirement and costs during the advertisement period. Absolute after-effects may alter from those estimates and assumptions.

 

New Accounting Pronouncements

 

In November 2016, the FASB issued Accounting Standards Amend No. 2016-18, “Statement of Banknote Flows (Topic 230): Belted Cash” (“ASU 2016-18”), which amends ASC 230 to accommodate advice on the allocation and presentation of changes in belted banknote and belted banknote equivalents on the anniversary of banknote flows. The ASU is able for anniversary periods alpha afterwards December 15, 2017, and acting periods within those anniversary periods. At this time, administration has evaluated the implications of these changes on the banking statements and adopted with no absolute impact.

 

 

NOTE 3 — FEES PAID BY THE FUND AND RELATED PARTY TRANSACTIONS

 

USCF Administration Fee

 

Under the LP Agreement, USCF is responsible for advance the assets of USO in accordance with the objectives and behavior of USO. In addition, USCF has abiding for one or added third parties to accommodate administrative, custody, accounting, alteration bureau and added all-important casework to USO. For these services, USO is contractually answerable to pay USCF a fee, which is paid monthly, according to 0.45% per annum of boilerplate circadian absolute net assets.

 

Ongoing Allotment Fees and Added Alms Expenses

 

USO pays all costs and costs associated with the advancing allotment of its shares consecutive to the antecedent offering. These costs accommodate allotment or added fees paid to authoritative agencies in affiliation with the activity and auction of shares, and all legal, accounting, press and added expenses associated with such activity and sale. For the nine months concluded September 30, 2018 and 2017, USO incurred $93,326 and $260,603, respectively, in allotment fees and added alms expenses.

 

Independent Directors’ and Officers’ Expenses

 

USO is amenable for advantageous its portion of the directors’ and officers’ accountability allowance for USO and the Accompanying Accessible Funds and the fees and expenses of the absolute admiral who additionally serve as analysis board associates of USO and the Accompanying Accessible Funds. USO shares the fees and costs on a pro rata base with anniversary Accompanying Accessible Fund, as declared above, based on the about assets of anniversary Related Public Armamentarium computed on a circadian basis. These fees and costs for the year ending December 31, 2018 are estimated to be a absolute of $324,000 for USO and, in the accumulated for USO and the Accompanying Accessible Funds, $536,200.

 

Licensing Fees

 

As discussed in Agenda 4 below, USO entered into a licensing acceding with the NYMEX on April 10, 2006, as adapted on October 20, 2011. Pursuant to the agreement, USO and the Accompanying Accessible Funds, added than BNO, USCI, CPER, USOU and USOD, pay a licensing fee that is according to 0.015% on all net assets. During the nine months concluded September 30, 2018 and 2017, USO incurred $209,789 and $313,398, respectively, beneath this arrangement. 

 

Investor Tax Advertisement Cost

 

The fees and costs associated with USO’s audit costs and tax accounting and advertisement requirements are paid by USO. These costs are estimated to be $1,850,000 for the year catastrophe December 31, 2018. Tax advertisement costs alter amid years due to the cardinal of shareholders during any accustomed year.

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Other Costs and Fees 

 

In accession to the fees declared above, USO pays all allowance fees and added costs in affiliation with the operation of USO, excluding costs and costs paid by USCF as categorical in Note 4 – Affairs and Agreements below.

 

NOTE 4 — CONTRACTS AND AGREEMENTS

 

Marketing Abettor Agreement

 

USO is affair to a business abettor agreement, dated as of March 13, 2006, as adapted from time to time, with the Business Abettor and USCF, whereby the Business Abettor provides certain business casework for USO as categorical in the agreement. The fees of the Business Agent, which are borne by USCF, include a business fee of $425,000 per annum added the afterward allurement fee: 0.00% on USO’s assets from $0 – $500 million; 0.04% on USO’s assets from $500 actor – $4 billion and 0.03% on USO’s assets in antithesis of $4 billion. In no event may the accumulated advantage paid to the Business Abettor and any associate of USCF for distribution-related casework exceed 10% of the gross accretion of USO’s offering.

 

The aloft fee does not accommodate website construction and development, which are also borne by USCF.

 

Brown Brothers Harriman & Co. Agreements

 

USO is also affair to a custodian agreement, anachronous March 13, 2006, as adapted from time to time, with Brown Brothers Harriman & Co. (“BBH&Co.”) and USCF, whereby BBH&Co. holds investments on anniversary of USO. USCF pays the fees of the custodian, which are determined by the parties from time to time. In addition, USO is affair to an authoritative bureau agreement, anachronous March 13, 2006, as amended from time to time, with USCF and BBH&Co., whereby BBH&Co. acts as the authoritative agent, alteration abettor and registrar for USO. USCF additionally pays the fees of BBH&Co. for its casework beneath such acceding and such fees are determined by the parties from time to time.

 

Currently, USCF pays BBH&Co. for its services, in the aloft capacities, a minimum bulk of $75,000 annually for its custody, armamentarium accounting and armamentarium administration services rendered to USO and anniversary of the Accompanying Accessible Funds, as able-bodied as a $20,000 anniversary fee for its alteration bureau services. In addition, USCF pays BBH&Co. an asset-based allegation of (a) 0.06% for the aboriginal $500 actor of the Accompanying Accessible Funds’ combined net assets, (b) 0.0465% for the Accompanying Accessible Funds’ accumulated net assets greater than $500 actor but beneath than $1 billion, and (c) 0.035% already the Accompanying Accessible Funds’ accumulated net assets beat $1 billion. The anniversary minimum amount will not administer if the asset-based allegation for all accounts in the accumulated exceeds $75,000. USCF additionally pays BBH&Co. transaction fees alignment from $7 to $15 per transaction.

 

Brokerage and Futures Bureau Merchant Agreements

 

On October 8, 2013, USO entered into a brokerage acceding with RBC Basic Markets, LLC (“RBC Capital” or “RBC”) to serve as USO’s FCM effective October 10, 2013. The acceding with RBC requires it to accommodate casework to USO in affiliation with the acquirement and auction of Oil Futures Affairs and Added Oil-Related Investments that may be purchased and awash by or through RBC Basic for USO’s account. In accordance with the agreement, RBC Basic charges USO commissions of about $7 to $8 per round-turn trade, including applicative exchange, clearing and NFA fees for Oil Futures Affairs and options on Oil Futures Contracts. Such fees accommodate those incurred back purchasing Oil Futures Affairs and options on Oil Futures Affairs back USO issues shares as a aftereffect of a Conception Basket, as able-bodied as fees incurred back selling Oil Futures Affairs and options on Oil Futures Affairs back USO redeems shares as a aftereffect of a Accretion Basket. Such fees are additionally incurred when Oil Futures Contracts and options on Oil Futures Affairs are purchased or adored for the purpose of rebalancing the portfolio. USO also incurs commissions to brokers for the acquirement and auction of Oil Futures Contracts, Added Oil-Related Investments or short-term obligations of the United States of two years or beneath (“Treasuries”).

 

 

For the nine months ended

September 30, 2018

For the nine months ended

September 30, 2017

 

The abatement in absolute commissions accrued to brokers for the nine months concluded September 30, 2018, compared to the nine months concluded September 30, 2017, was due primarily to a lower number of crude oil futures affairs actuality captivated and traded.

 

NYMEX Licensing Agreement

 

USO and the NYMEX entered into a licensing agreement on April 10, 2006, as adapted on October 20, 2011, whereby USO was accustomed a non-exclusive authorization to use assertive of the NYMEX’s acclimation prices and annual marks. Beneath the licensing agreement, USO and the Accompanying Accessible Funds, added than BNO, USCI, CPER, USAG, USOU and USOD, pay the NYMEX an asset-based fee for the license, the acceding of which are declared in Note 3. USO especially disclaims any affiliation with the NYMEX or endorsement of USO by the NYMEX and acknowledges that “NYMEX” and “New York Mercantile Exchange” are registered trademarks of the NYMEX. 

 

 

NOTE 5 — FINANCIAL INSTRUMENTS, OFF-BALANCE SHEET RISKS AND CONTINGENCIES

 

USO may appoint in the trading of futures contracts, options on futures contracts, austere swaps and OTC swaps (collectively, “derivatives”). USO is exposed to both bazaar risk, which is the accident arising from changes in the bazaar bulk of the contracts, and acclaim risk, which is the risk of abortion by accession affair to accomplish according to the acceding of a contract.

USO may admission into futures contracts, options on futures affairs and austere swaps to accretion acknowledgment to changes in the bulk of an basal commodity. A futures contract obligates the agent to bear (and the client to accept) the approaching charge of a authentic abundance and blazon of a commodity at a authentic time and place. Some futures affairs may alarm for concrete charge of the asset, while others are acclimatized in cash. The acknowledged obligations of a client or agent may about be annoyed by demography or authoritative concrete charge of the underlying article or by authoritative an offsetting auction or acquirement of an identical futures adjustment on the aforementioned or affiliated exchange before the appointed date of delivery. Austere swaps are agreements that are acceptable to be austere by a clearinghouse, e.g., ICE Bright Europe, and accommodate the efficiencies and allowances that centralized allowance on an barter offers to traders of futures contracts, including acclaim accident intermediation and the adeptness to annual positions accomplished with altered counterparties.

 

The acquirement and auction of futures contracts, options on futures affairs and austere swaps crave allowance deposits with an FCM. Added deposits may be all-important for any loss on adjustment value. The Article Barter Act requires an FCM to choose all chump affairs and assets from the FCM’s proprietary activities.

 

Futures contracts, options on futures contracts and austere swaps involve, to capricious degrees, elements of bazaar accident (specifically article bulk risk) and acknowledgment to loss in antithesis of the bulk of aberration margin. The face or adjustment amounts reflect the admeasurement of the absolute exposure USO has in the accurate classes of instruments. Added risks associated with the use of futures affairs are an amiss correlation between movements in the bulk of the futures affairs and the bazaar bulk of the basal antithesis and the achievability of an illiquid bazaar for a futures contract. Affairs and affairs options on futures affairs exposes investors to the risks of purchasing or affairs futures contracts.

 

All of the futures affairs captivated by USO through September 30, 2018 were exchange-traded. The risks associated with exchange-traded affairs are about perceived to be beneath than those associated with OTC swaps since, in OTC swaps, a affair charge await alone on the acclaim of its corresponding individual counterparties. However, in the future, if USO were to admission into non-exchange traded contracts, it would be accountable to the credit risk associated with counterparty non-performance. The acclaim accident from counterparty non-performance associated with such instruments is the net abeyant gain, if any, on the transaction. USO has acclaim accident beneath its futures affairs back the sole counterparty to all calm and adopted futures affairs is the clearinghouse for the barter on which the accordant affairs are traded. In addition, USO bears the accident of banking abortion by the allowance broker.

 

USO’s cash and added property, such as Treasuries, deposited with an FCM are advised commingled with all added chump funds, accountable to the FCM’s segregation requirements. In the accident of an FCM’s insolvency, accretion may be bound to a pro rata allotment of absolute funds available. It is accessible that the recovered bulk could be beneath than the absolute of banknote and added acreage deposited. The defalcation of an FCM could aftereffect in the complete accident of USO’s assets acquaint with that FCM; however, the majority of USO’s assets are held in investments in Treasuries, cash and/or banknote equivalents with USO’s babysitter and would not be impacted by the insolvency of an FCM. The abortion or defalcation of USO’s custodian, however, could aftereffect in a abundant accident of USO’s assets.

 

USCF invests a allocation of USO’s cash in money bazaar funds that seek to advance a abiding per allotment NAV. USO is exposed to any accident of accident associated with an investment in such money bazaar funds. As of September 30, 2018 and December 31, 2017, USO captivated investments in money bazaar funds in the amounts of $121,000,000 and $150,000,000, respectively. USO also holds banknote deposits with its custodian. Pursuant to a accounting acceding with BBH&Co., uninvested brief banknote balances are swept to adopted branches of U.S. regulated and domiciled banks amid in Toronto, Canada; London, United Kingdom; Grand Cayman, Cayman Islands; and Nassau, Bahamas; which are accountable to U.S. adjustment and authoritative oversight. As of September 30, 2018 and December 31, 2017, USO captivated banknote deposits and investments in Treasuries in the amounts of $1,502,515,203 and $1,841,256,955, respectively, with the babysitter and FCM. Some or all of these amounts may be accountable to accident should USO’s babysitter and/or FCM cease operations.

 

For derivatives, risks appear from changes in the bazaar bulk of the contracts. Theoretically, USO is apparent to bazaar accident according to the bulk of futures contracts purchased and absolute accountability on such affairs awash short. As both a client and a agent of options, USO pays or receives a premium at the alpha and then bears the accident of abortive changes in the bulk of the adjustment basal the option.

 

USO’s policy is to continuously monitor its acknowledgment to bazaar and counterparty accident through the use of a array of financial, position and acclaim acknowledgment reporting controls and procedures. In addition, USO has a activity of acute analysis of the acclaim continuing of anniversary agent or counterparty with which it conducts business.

 

The banking instruments captivated by USO are reported in its abridged statements of banking activity at bazaar or fair value, or at accustomed amounts that about fair value, because of their awful aqueous attributes and concise maturity.

 

 

NOTE 6 — FINANCIAL HIGHLIGHTS

 

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The afterward table presents per share performance abstracts and added added banking abstracts for the nine months concluded September 30, 2018 and 2017 for the shareholders. This advice has been acquired from advice presented in the abridged banking statements.

 

For the nine months ended September 30, 2018

(Unaudited)

For the nine months ended September 30, 2017

(Unaudited)

 

 

Total allotment are affected based on the change in bulk during the period. An alone shareholder’s absolute acknowledgment and arrangement may alter from the aloft absolute returns and ratios based on the timing of contributions to and withdrawals from USO.

 

NOTE 7 — FAIR VALUE OF FINANCIAL INSTRUMENTS

 

USO ethics its investments in accordance with Accounting Standards Codification 820 – Fair Bulk Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for barometer fair bulk in about accustomed accounting principles, and expands disclosures about fair bulk measurement. The changes to accomplished convenance consistent from the appliance of ASC 820 chronicle to the analogue of fair value, the methods acclimated to admeasurement fair value, and the broadcast disclosures about fair bulk measurement. ASC 820 establishes a fair bulk bureaucracy that distinguishes between: (1) bazaar actor assumptions developed based on bazaar abstracts acquired from sources absolute of USO (observable inputs) and (2) USO’s own assumptions about bazaar actor assumptions developed based on the best advice accessible beneath the affairs (unobservable inputs). The three levels authentic by the ASC 820 hierarchy are as follows:

 

Level I – Quoted prices (unadjusted) in alive markets for identical assets or liabilities that the advertisement article has the adeptness to admission at the measurement date.

 

Level II – Inputs added than quoted prices included aural Akin I that are appreciable for the asset or liability, either anon or indirectly. Akin II assets include the following: quoted prices for similar assets or liabilities in alive markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs added than quoted prices that are appreciable for the asset or liability, and inputs that are acquired principally from or corroborated by appreciable bazaar abstracts by alternation or added agency (market-corroborated inputs).

 

Level III – Airy pricing input at the altitude date for the asset or liability. Airy inputs shall be acclimated to admeasurement fair bulk to the extent that appreciable inputs are not available.

 

In some instances, the inputs acclimated to measure fair bulk adeptness abatement aural altered levels of the fair bulk hierarchy. The akin in the fair bulk bureaucracy aural which the fair bulk altitude in its absoluteness avalanche shall be bent based on the everyman ascribe akin that is cogent to the fair value altitude in its entirety.

  

 

The afterward table summarizes the appraisal of USO’s securities at September 30, 2018 appliance the fair bulk hierarchy:

 

 

During the nine months concluded September 30, 2018, there were no transfers amid Akin I and Akin II.

 

The afterward table summarizes the appraisal of USO’s securities at December 31, 2017 appliance the fair bulk hierarchy:

 

 

During the year concluded December 31, 2017, there were no transfers between Akin I and Akin II.

 

Effective January 1, 2009, USO adopted the accoutrement of Accounting Standards Codification 815 — Derivatives and Hedging, which crave presentation of qualitative disclosures about objectives and strategies for appliance derivatives, quantitative disclosures about fair bulk amounts and gains and losses on derivatives.

 

Fair Bulk of Acquired Instruments

 

Derivatives not

Accounted for

as Hedging

Instruments

Condensed

Statements of

Financial

Condition Location

Fair Value

At September 30,

2018

Fair Value

At December 31,

2017

 

The Aftereffect of Acquired Instruments on the Abridged Statements of Operations

 

For the nine months ended

September 30, 2018

For the nine months ended

September 30, 2017

Derivatives not

Accounted for

as Hedging

Instruments

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Location of

Gain (Loss)

on Derivatives

Recognized in

Income

Realized

Gain (Loss)

on Derivatives

Recognized in

Income

Change in

Unrealized

Gain (Loss) on

Derivatives

Recognized in

Income

Realized

Gain (Loss)

on Derivatives

Recognized in

Income

Change in

Unrealized

Gain (Loss) on

Derivatives

Recognized in

Income

 

 

NOTE 8 — SUBSEQUENT EVENTS

 

USO has performed an appraisal of subsequent events through the date the abridged banking statements were issued. This appraisal did not aftereffect in any consecutive events that apprenticed disclosures and/or adjustments.

Item 2. Management’s Altercation and Analysis of Financial Condition and After-effects of Operations.

 

The afterward altercation should be read in affiliation with the abridged banking statements and the addendum thereto of the United States Oil Fund, LP (“USO”) included abroad in this anniversary address on Form 10-Q.

 

Forward-Looking Information

 

This anniversary address on Form 10-Q, including this “Management’s Altercation and Analysis of Banking Activity and After-effects of Operations,” contains forward-looking statements apropos the affairs and objectives of administration for approaching operations. This advice may absorb accustomed and unknown risks, uncertainties and added factors that may annual USO’s absolute results, achievement or achievements to be materially different from approaching results, achievement or achievements bidding or adumbrated by any advanced statements. Forward-looking statements, which absorb assumptions and call USO’s approaching plans, strategies and expectations, are about identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project,” the abrogating of these words, other variations on these words or commensurable terminology. These advanced statements are based on assumptions that may be incorrect, and USO cannot assure investors that the projections included in these advanced statements will appear to pass. USO’s actual after-effects could alter materially from those bidding or adumbrated by the advanced statements as a aftereffect of various factors.

 

USO has based the advanced statements included in this anniversary address on Form 10-Q on advice accessible to it on the date of this anniversary address on Form 10-Q, and USO assumes no obligation to amend any such advanced statements. Although USO undertakes no obligation to alter or update any advanced statements, whether as a aftereffect of new information, approaching contest or otherwise, investors are advised to argue any added disclosures that USO may accomplish anon to them or through letters that USO in the approaching files with the U.S. Antithesis and Barter Bureau (the “SEC”), including anniversary letters on Form 10-K, anniversary letters on Form 10-Q and accustomed letters on Form 8-K.

 

Introduction

 

USO, a Delaware bound partnership, is a article basin that issues shares that may be purchased and awash on the NYSE Arca, Inc. (the “NYSE Arca”). The investment objective of USO is for the circadian changes, in allotment terms, of its shares’ per allotment net asset bulk (“NAV”) to reflect the circadian changes, in allotment terms, of the atom bulk of light, candied awkward oil delivered to Cushing, Oklahoma, as abstinent by the circadian changes, in the bulk of the futures adjustment for light, candied awkward oil traded on the New York Mercantile Exchange (the “NYMEX”) that is the abreast ages adjustment to expire, except back the abreast ages adjustment is aural two weeks of expiration, in which case it will be abstinent by the futures adjustment that is the abutting ages adjustment to expire (the “Benchmark Oil Futures Contract”), added absorption becoming on USO’s accessory holdings, beneath USO’s expenses. “Near month contract” agency the abutting adjustment traded on the NYMEX due to expire. “Next ages contract” agency the aboriginal contract traded on the NYMEX due to expire afterwards the abreast ages contract.

 

USO’s advance cold is not for its NAV or bazaar bulk of shares to equal, in dollar terms, the atom bulk of light, candied awkward oil or any particular futures adjustment based on light, candied awkward oil, nor is USO’s advance cold for the allotment change in its NAV to reflect the allotment change of the bulk of any accurate futures adjustment as abstinent over a time period greater than one day . The accustomed accomplice of USO, United States Article Funds LLC (“USCF”), believes that it is not practical to administer the portfolio to accomplish such an advance ambition back advance in Oil Futures Affairs (as authentic below) and Other Oil-Related Investments (as authentic below).

 

 

USO invests primarily in futures contracts for light, candied awkward oil, added types of awkward oil, heating oil, gasoline, accustomed gas and added petroleum-based fuels that are traded on the NYMEX, ICE Futures or added U.S. and adopted exchanges (collectively, “Oil Futures Contracts”) and to a bottom extent, in acclimation to accede with authoritative requirements or in appearance of bazaar conditions, added oil-related investments such as cash-settled options on Oil Futures Contracts, advanced affairs for oil, austere bandy affairs and over-the-counter (“OTC”) swaps that are based on the bulk of oil, added petroleum-based fuels, Oil Futures Affairs and indices based on the foregoing (collectively, “Other Oil-Related Investments”). For accessibility and unless contrarily specified, Oil Futures Contracts and Added Oil-Related Investments collectively are referred to as “Oil Interests” in this anniversary address on Form 10-Q.

 

USCF believes that bazaar arbitrage opportunities will annual circadian changes in USO’s allotment bulk on the NYSE Arca on a allotment base to carefully clue circadian changes in USO’s per allotment NAV on a allotment basis. USCF added believes that circadian changes in prices of the Criterion Oil Futures Adjustment have historically carefully tracked the circadian changes in atom prices of light, candied awkward oil. USCF believes that the net aftereffect of these relationships will be that the circadian changes in the bulk of USO’s shares on the NYSE Arca on a allotment base will closely track the circadian changes in the atom bulk of a butt of light, candied awkward oil on a allotment basis, added absorption becoming on USO’s accessory holdings, beneath USO’s expenses.

 

USO seeks to accomplish its advance objective by advance so that the boilerplate circadian allotment change in USO’s NAV for any aeon of 30 alternating appraisal canicule will be aural plus/minus ten percent (10%) of the boilerplate circadian allotment change in the bulk of the Criterion Oil Futures Contract over the aforementioned period.

 

Regulatory Disclosure

 

Accountability Levels, Position Limits and Bulk Aberration Limits . Appointed adjustment markets (“DCMs”), such as the NYMEX and ICE Futures, acquire established accountability levels and position banned on the best net connected or net abbreviate futures affairs in article interests that any person or accumulation of bodies beneath accustomed trading ascendancy (other than as a hedge, which an advance by USO is not) may hold, own or control. These levels and position banned administer to the futures affairs that USO invests in to accommodated its advance objective. In accession to accountability levels and position limits, the NYMEX and ICE Futures additionally set circadian bulk aberration banned on futures contracts. The circadian bulk aberration absolute establishes the best bulk that the bulk of a futures adjustment may vary either up or bottomward from the antecedent day’s acclimation price. Already the circadian bulk aberration absolute has been accomplished in a particular futures contract, no trades may be fabricated at a bulk aloft that limit.

 

The accountability levels for the Benchmark Oil Futures Adjustment and added Oil Futures Affairs traded on U.S.-based futures exchanges, such as the NYMEX, are not a fixed ceiling, but rather a alpha aloft which the NYMEX may exercise greater analysis and ascendancy over an investor’s positions. The accustomed accountability akin for investments for any one ages in the Criterion Oil Futures Adjustment is 10,000 contracts. In addition, the NYMEX imposes an accountability akin for all months of 20,000 net futures affairs for light, candied awkward oil. In addition, the ICE Futures maintains the aforementioned accountability levels, position banned and ecology ascendancy for its light, sweet awkward oil adjustment as the NYMEX. If USO and the Accompanying Accessible Funds beat these accountability levels for investments in the futures affairs for light, candied awkward oil, the NYMEX and ICE Futures will adviser such acknowledgment and may ask for further information on their activities including the absolute admeasurement of all positions, advance and trading strategy, and the admeasurement of liquidity resources of USO and the Accompanying Accessible Funds. If accounted all-important by the NYMEX and/or ICE Futures, USO could be ordered to reduce its Awkward Oil Futures CL affairs to beneath the 10,000 distinct ages and/or 20,000 all ages accountability level. As of September 30, 2018, USO captivated 23,968 NYMEX WTI Awkward Oil Futures CL affairs and did not ascendancy ICE WTI Awkward Oil Futures contracts. USO exceeded accountability levels of the NYMEX during the nine months concluded September 30, 2018 back it captivated a best of 34,327 Awkward Oil Futures CL contracts, on the NYMEX, above the “any” ages limit. No activity was taken by the NYMEX and USO did not reduce the cardinal of Oil Futures Affairs captivated as a result. USO did not beat accountability levels imposed by the ICE Futures during the nine months concluded September 30, 2018.

 

 

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Position banned alter from accountability levels in that they represent anchored banned on the best cardinal of futures affairs that any actuality may ascendancy and cannot allow such banned to be exceeded afterwards accurate CFTC ascendancy to do so. In accession to accountability levels and position banned that may administer at any time, the NYMEX and ICE Futures appoint position banned on affairs captivated in the aftermost few canicule of trading in the near ages adjustment to expire. It is absurd that USO will run up adjoin such position banned because USO’s investment strategy is to abutting out its positions and “roll” from the abreast ages adjustment to expire to the abutting ages contract during a four-day aeon alpha two weeks from cessation of the contract. For the nine months concluded September 30, 2018, USO did not beat any position banned imposed by the NYMEX and ICE Futures.

 

The adjustment of article absorption trading in the United States and added countries is an evolving breadth of the law. The assorted statements fabricated in this arbitrary are subject to modification by aldermanic activity and changes in the rules and regulations of the SEC, Banking Industry Authoritative Authority (“FINRA”), CFTC, NFA, the futures exchanges, allowance organizations and added authoritative bodies.

 

Futures Affairs and Position Limits

 

The CFTC is about banned by statute from acclimation trading on non-U.S. futures exchanges and markets. The CFTC, however, has adopted regulations apropos to the marketing of non-U.S. futures affairs in the United States. These regulations admittance assertive affairs on non-U.S. exchanges to be offered and awash in the United States.

 

The CFTC has proposed to accept banned on speculative positions in 25 concrete article futures and advantage affairs as able-bodied as swaps that are economically agnate to such affairs in the agriculture, activity and metals markets (the “Position Absolute Rules”). The Position Absolute Rules would, amid added things: analyze which affairs are accountable to abstract position limits; set thresholds that bind the size of abstract positions that a actuality may ascendancy in the atom month, added alone months, and all months combined; create an absolution for positions that accumulated bona fide ambiguity transactions; appoint responsibilities on DCMs and bandy beheading facilities (“SEFs”) to authorize position banned or, in some cases, position accountability rules; and administer to both futures and swaps above four accordant venues: OTC, DCMs, SEFs as able-bodied as assertive non-U.S. amid platforms. The CFTC’s aboriginal attempt at finalizing the Position Absolute Rules, in 2011, was auspiciously challenged by bazaar participants in 2012 and, back then, the CFTC has re-proposed them and solicited comments from bazaar participants assorted times. At this time, it is cryptic how the Position Limit Rules may affect USO, but the aftereffect may be abundant and adverse. By way of example, the Position Absolute Rules may negatively impact the adeptness of USO to accommodated its advance objectives through banned that may arrest USCF’s adeptness to advertise additional Creation Baskets of USO.

 

Until such time as the Position Absolute Rules are adopted, the authoritative architectonics in aftereffect above-mentioned to the acceptance of the Position Absolute Rules will administer affairs in commodities and accompanying derivatives. Beneath that system, the CFTC enforces federal banned on belief in nine agricultural products (e.g., corn, aureate and soy), while futures exchanges authorize and accomplish position banned and accountability levels for other agronomical products and assertive activity articles (e.g., oil and accustomed gas). As a result, USO may be limited with annual to the admeasurement of its investments in any bolt accountable to these limits.

 

Under absolute and afresh adopted CFTC regulations, for the purpose of position limits, a bazaar actor is about required, accountable to assertive attenuated exceptions, to accumulated all positions for which that actor controls the trading decisions with all positions for which that participant has a 10 percent or greater affairs absorption in an anniversary or position, as able-bodied as the positions of two or added bodies acting pursuant to an accurate or adumbrated acceding or compassionate with that actor (the “Aggregation Rules”). The Aggregation Rules will additionally administer with annual to the Position Absolute Rules if and back such Position Absolute Rules are adopted.

 

 

OTC Swaps

 

In October 2015, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the FDIC, the Farm Acclaim Administration, and the Federal Housing Finance Bureau (each an “Agency” and, collectively, the “Agencies”) appropriately adopted final rules to authorize minimum allowance and basic requirements for registered bandy dealers, aloft bandy participants, security-based swap dealers, and aloft security-based bandy participants (“Swap Entities”) that are accountable to the administration of one of the Agencies (such entities, “Covered Bandy Entities”, and the collective final rules, the “Final Allowance Rules”).

 

The Final Allowance Rules will accountable non-cleared swaps and non-cleared security-based swaps amid Covered Bandy Entities and Bandy Entities, and amid Covered Bandy Entities and financial end users that acquire absolute swaps acknowledgment (i.e., an boilerplate circadian accumulated abstract of $8 billion or added in non-cleared swaps affected in accordance with the Final Allowance Rules), to a binding two-way minimum antecedent allowance requirement. The minimum amount of the antecedent allowance adapted to be acquaint or calm would be either the bulk affected by the Covered Bandy Entity using a connected agenda set alternating as an addendum to the Final Allowance Rules, which provides the gross antecedent allowance (as a percentage of absolute abstract exposure) for assertive asset classes, or an centralized allowance archetypal of the Covered Bandy Article conforming to the requirements of the Final Allowance Rules that is accustomed by the Bureau accepting administration over the accurate Covered Swap Entity. The Final Allowance Rules specify the types of accessory that may be acquaint or calm as antecedent allowance for non-cleared swaps and non-cleared security-based swaps with banking end users (generally cash, assertive government, government-sponsored enterprise securities, assertive aqueous debt, assertive disinterestedness securities, assertive acceptable about traded debt, and gold); and sets alternating haircuts for assertive accessory asset classes.

 

The Final Allowance Rules crave minimum variation allowance to be exchanged circadian for non-cleared swaps and non-cleared security-based swaps amid Covered Bandy Entities and Bandy Entities and amid Covered Bandy Entities and all banking end-users (without attention to the swaps acknowledgment of the particular financial end-user). The minimum aberration allowance bulk is the circadian mark-to-market change in the bulk of the bandy to the Covered Swap Entity, demography into anniversary aberration allowance advanced acquaint or collected. For non-cleared swaps and security-based swaps between Covered Bandy Entities and banking end-users, aberration allowance may be acquaint or calm in banknote or non-cash collateral that is advised acceptable for antecedent allowance purposes. Aberration allowance is not accountable to allegory with an independent, third-party custodian, and may, if acceptable by contract, be rehypothecated.

 

The antecedent allowance requirements of the Final Allowance Rules are actuality phased in over time, and the aberration allowance requirements of the Final Allowance Rules are currently in effect. The Fund is not a Covered Bandy Article beneath the Final Allowance Rules, but it is a banking end-user. Accordingly, the Fund is currently accountable to the aberration allowance requirements of the Final Allowance Rules. However, the Armamentarium does not have material swaps acknowledgment and, accordingly, the Armamentarium will not be accountable to the antecedent allowance requirements of the Final Allowance Rules.

 

The Dodd-Frank Wall Street Ameliorate and Consumer Protection Act (the “Dodd-Frank Act”) adapted the CFTC and the SEC to accept their own allowance rules to administer to a bound cardinal of registered bandy dealers, security-based bandy dealers, aloft bandy participants, and aloft security-based swap participants that are not accountable to the administration of one of the Agencies. On December 16, 2015 the CFTC accomplished its margin rules, which are essentially the aforementioned as the Final Allowance Rules and acquire the aforementioned accomplishing timeline. The SEC has yet to finalize its allowance rules.

 

Mandatory Trading and Allowance of Swaps

 

CFTC regulations crave that assertive swap transactions be accomplished on organized exchanges or “swap beheading facilities” and austere through adapted clearing organizations (“derivative allowance organizations” (“DCOs”)), if the CFTC mandates the axial clearing of a accurate chic of bandy and such bandy is “made accessible to trade” on a bandy beheading facility. Currently, swap dealers, aloft bandy participants, article pools, assertive clandestine funds and entities predominantly affianced in activities that are banking in attributes are adapted to assassinate on a bandy beheading facility, and clear, assertive absorption bulk swaps and index-based credit absence swaps. As a result, if USO enters into an absorption bulk or index-based acclaim absence bandy that is subject to these requirements, such bandy will be adapted to be accomplished on a bandy beheading adeptness and centrally cleared. Mandatory clearing and “made accessible to trade” determinations with annual to added types of swaps are accustomed in the future, and, back finalized, could require USO to electronically assassinate and centrally bright assertive OTC instruments presently entered into and acclimatized on a bi-lateral basis. If a bandy is adapted to be cleared, antecedent and aberration allowance requirements are set by the accordant allowance organization, accountable to assertive authoritative requirements and guidelines. Added allowance may be adapted and captivated by USO’s FCM.

 

Other Requirements for Swaps

 

In accession to the allowance requirements described above, swaps that are not adapted to be austere and accomplished on a SEF but that are accomplished bilaterally are additionally subject to assorted requirements pursuant to CFTC regulations, including, amid added things, advertisement and recordkeeping requirements and, depending on the cachet of the counterparties, trading affidavit requirements and altercation resolution requirements.

 

 

Derivatives Regulations in Non-U.S. Jurisdictions

 

In accession to U.S. laws and regulations, USO may be accountable to non-U.S. derivatives laws and regulations if it engages in futures and/or bandy affairs with non-U.S. persons. For example, USO may be impacted by European laws and regulations to the admeasurement that it engages in futures affairs on European exchanges or derivatives affairs with European entities. Added jurisdictions appoint requirements applicative to futures and derivatives that are agnate to those imposed by the U.S., including position limits, margin, allowance and barter execution requirements.

 

Money Bazaar Reform

 

The SEC adopted amendments to Aphorism 2a-7 under the Advance Aggregation Act of 1940, as adapted (“1940 Act”) which became able in 2016, to ameliorate money market funds (“MMFs”). While the new aphorism applies alone to MMFs, it may alongside affect institutional investors such as USO. A allocation of USO’s assets that are not acclimated for allowance or accessory in the Futures Affairs currently are invested in government MMFs. USO does not ascendancy any non-government MMFs and, decidedly in ablaze of contempo changes to the aphorism administering the operation of MMFs, does not advanced advance in any non-government MMFs. However, if USO invests in added types of MMFs besides government MMFs in the future, USO could be abnormally impacted by advance in an MMF that does not advance a abiding $1.00 NAV or that has the abeyant to appoint accretion fees and gates (temporary abeyance of redemptions).

 

Price Movements

 

Crude oil futures prices were volatile during the nine months ended September 30, 2018. The bulk of the Criterion Oil Futures Adjustment started the period at $60.42 per barrel. The aerial of the aeon was on June 29, 2018 back the bulk accomplished $74.15 per barrel. The low of the period was on February 13, 2018 when the bulk alone to $59.03 per barrel. The period concluded with the Criterion Oil Futures Contract at $73.25 per barrel, an admission of about 21.23% over the period. USO’s per allotment NAV began the period at $12.08 and concluded the period at $15.47 on September 30, 2018, an admission of about 28.06% over the period. USO’s per allotment NAV accomplished its aerial for the period on September 28, 2018 at $15.47 and reached its low for the period on February 9, 2018 at $11.86. The Benchmark Oil Futures Adjustment prices listed above began with the February 2018 contracts and concluded with the November 2018 contracts. The increase of approximately 21.23% on the Benchmark Oil Futures Adjustment listed aloft is a academic acknowledgment alone and could not absolutely be achieved by an agent captivation Oil Futures Contracts. An advance in Oil Futures Affairs would charge to be formed advanced during the time aeon declared in acclimation to simulate such a result. Furthermore, the change in the nominal bulk of these differing Oil Futures Contracts, abstinent from the alpha of the period to the end of the period, does not represent the absolute benchmark results that USO seeks to track, which are added absolutely declared beneath in the area blue-blooded “ Tracking USO’s Benchmark .”

  

During the nine months concluded September 30, 2018, the awkward oil futures bazaar was in a accompaniment of backwardation, acceptation that the bulk of the abreast ages awkward Oil Futures Contract was college than the bulk of the abutting ages awkward Oil Futures Contract, or affairs added abroad from expiration. On days back the bazaar is in contango, the bulk of the abreast ages awkward Oil Futures Adjustment is about lower than the bulk of the abutting ages awkward Oil Futures Adjustment or affairs added abroad from expiration. For a altercation of the appulse of backwardation and contango on absolute returns, see “Term Structure of Awkward Oil Prices and the Appulse on Absolute Returns” below.

  

 

 

Valuation of Oil Futures Affairs and the Computation of the Per Allotment NAV

 

The per allotment NAV of USO’s shares is affected already anniversary NYSE Arca trading day. The per allotment NAV for a accurate trading day is appear afterwards 4:00 p.m. New York time. Trading during the bulk trading affair on the NYSE Arca about closes at 4:00 p.m. New York time. USO’s administrator uses the NYMEX closing bulk (determined at the beforehand of the abutting of the NYMEX or 2:30 p.m. New York time) for the contracts held on the NYMEX, but calculates or determines the bulk of all added USO investments, including ICE Futures affairs or other futures contracts, as of the beforehand of the abutting of the NYSE Arca or 4:00 p.m. New York time.

 

Results of Operations and the Crude Oil Market

 

Results of Operations. On April 10, 2006, USO listed its shares on the American Stock Barter (the “AMEX”) beneath the ticker attribute “USO.” On that day, USO accustomed its antecedent alms bulk at $67.39 per allotment and issued 200,000 shares to the antecedent Authorized Participant in barter for $13,479,000 in cash. As a aftereffect of the accretion of the AMEX by NYSE Euronext, USO’s shares ceased trading on the AMEX and commenced trading on the NYSE Arca on November 25, 2008.

 

Since its antecedent alms of 17,000,000 shares, USO has registered nine consecutive offerings of its shares: 30,000,000 shares which were registered with the SEC on October 18, 2006, 50,000,000 shares which were registered with the SEC on January 30, 2007, 30,000,000 shares which were registered with the SEC on December 4, 2007, 100,000,000 shares which were registered with the SEC on February 7, 2008, 100,000,000 shares which were registered with the SEC on September 29, 2008, 300,000,000 shares which were registered with the SEC on January 16, 2009, 1,000,000,000 shares which were registered with the SEC on June 29, 2009, 500,000,000 shares which were registered with the SEC on April 28, 2015, and 1,000,000,000 shares which were registered with the SEC on February 29, 2016. Shares offered by USO in the subsequent offerings were awash for banknote at the per allotment NAV as declared in the applicative prospectus. As of September 30, 2018, USO had issued 2,723,100,000 shares, 113,500,000 of which were outstanding. As of September 30, 2018, there were 403,900,000 shares registered but not yet issued.

 

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More shares may acquire been issued by USO than are outstanding due to the accretion of shares. Unlike funds that are registered beneath the Advance Aggregation Act of 1940, as amended, shares that acquire been adored by USO cannot be resold by USO. As a result, USO contemplates that added offerings of its shares will be registered with the SEC in the approaching in apprehension of added issuances and redemptions.

 

As of September 30, 2018, USO had the following Authorized Participants: ABN Amro, BNP Paribas Antithesis Corp., Citadel Antithesis LLC, Citigroup All-around Markets Inc., Credit Suisse Antithesis USA LLC, Deutsche Coffer Antithesis Inc., Goldman Sachs & Company, JP Morgan Antithesis Inc., Merrill Lynch Professional Allowance Corp., Morgan Stanley & Aggregation Inc., Nomura Antithesis International Inc., RBC Basic Markets LLC, SG Americas Antithesis LLC, UBS Antithesis LLC, Virtu Banking BD LLC and Wedbush Antithesis Inc.

 

 

 

For the Nine Months Concluded September 30, 2018 Compared to the Nine Months Concluded September 30, 2017

 

For the nine

months ended

September 30, 2018

For the nine

months ended

September 30, 2017

 

Portfolio Expenses. USO’s expenses abide of advance administration fees, allowance fees and commissions, assertive alms costs, licensing fees, registration fees, the fees and costs of the absolute admiral of USCF and costs apropos to tax accounting and advertisement requirements. The administration fee that USO pays to USCF is affected as a allotment of the absolute net assets of USO. The fee is accrued daily and paid monthly.

 

Average absorption ante becoming on short-term investments captivated by USO, including cash, banknote equivalents and Treasuries, were college during the nine months concluded September 30, 2018, compared to the nine months concluded September 30, 2017. As a result, the bulk of assets becoming by USO as a percentage of boilerplate circadian absolute net assets was higher during the nine months concluded September 30, 2018, compared to the nine months concluded September 30, 2017.

 

The decrease in absolute fees and other expenses excluding administration fees for the nine months concluded September 30, 2018, compared to the nine months ended September 30, 2017 was due primarily to USO’s smaller size as abstinent by absolute net assets.

 

The abatement in absolute commissions accrued to brokers for the nine months concluded September 30, 2018, compared to the nine months concluded September 30, 2017, was due primarily to a lower number of Oil Futures Affairs actuality captivated and traded.

 

 

For the Three Months Concluded September 30, 2018 Compared to the Three Months Concluded September 30, 2017

 

For the three

months ended

September 30, 2018

For the three

months ended

September 30, 2017

 

Portfolio Expenses. USO’s expenses abide of advance administration fees, allowance fees and commissions, assertive alms costs, licensing fees, registration fees, the fees and costs of the absolute admiral of USCF and costs apropos to tax accounting and advertisement requirements. The administration fee that USO pays to USCF is affected as a allotment of the absolute net assets of USO. The fee is accrued daily and paid monthly.

 

Average absorption ante becoming on short-term investments captivated by USO, including cash, banknote equivalents and Treasuries, were college during the three months concluded September 30, 2018, compared to the three months concluded September 30, 2017. As a result, the bulk of assets becoming by USO as a percentage of boilerplate circadian absolute net assets was higher during the three months concluded September 30, 2018, compared to the three months ended September 30, 2017.

 

The decrease in absolute fees and other expenses excluding administration fees for the three months concluded September 30, 2018, compared to the three months ended September 30, 2017 was due primarily to USO’s smaller size as abstinent by absolute net assets.

 

The abatement in absolute commissions accrued to brokers for the three months concluded September 30, 2018, compared to the three months concluded September 30, 2017, was due primarily to a lower number of futures affairs actuality captivated and traded.

 

 

Tracking USO’s Benchmark

 

USCF seeks to administer USO’s portfolio such that changes in its boilerplate circadian per allotment NAV, on a allotment basis, closely track the circadian changes in the boilerplate price of the Benchmark Oil Futures Contract, additionally on a allotment basis. Specifically, USCF seeks to administer the portfolio such that over any rolling aeon of 30-valuation days, the boilerplate circadian change in USO’s per allotment NAV is aural a ambit of 90% to 110% (0.9 to 1.1) of the boilerplate circadian change in the price of the Criterion Oil Futures Contract. As an example, if the average daily movement of the price of the Benchmark Oil Futures Adjustment for a accurate 30-valuation day time aeon was 0.50% per day, USCF would attack to administer the portfolio such that the boilerplate circadian movement of the per allotment NAV during that same time aeon fell amid 0.45% and 0.55% (i.e., amid 0.9 and 1.1 of the benchmark’s results). USO’s portfolio management goals do not accommodate aggravating to accomplish the nominal bulk of USO’s per allotment NAV according to the nominal price of the current Benchmark Oil Futures Adjustment or the atom bulk for light, candied awkward oil. USCF believes that it is not applied to administer the portfolio to accomplish such an advance ambition back advance in Oil Futures Affairs and Added Oil-Related Investments.

 

For the 30-valuation canicule concluded September 30, 2018, the simple boilerplate circadian change in the Benchmark Oil Futures Adjustment was 0.422%, while the simple boilerplate daily change in the per allotment NAV of USO over the aforementioned time aeon was 0.428%. The boilerplate circadian aberration was 0.006% (or 0.6 basis points, area 1 base point equals 1/100 of 1%). As a allotment of the circadian movement of the Criterion Oil Futures Contract, the boilerplate absurdity in circadian tracking by the per allotment NAV was 3.034%, acceptation that over this time aeon USO’s tracking error was within the added or bare 10% ambit accustomed as its criterion tracking goal. A cogent allocation of the akin of USO’s relative tracking absurdity as a allotment of the criterion was due to periods of collapsed bulk returns. 

 

Since the admission of the offering of USO’s shares to the accessible on April 10, 2006 to September 30, 2018, the simple boilerplate circadian change in the Benchmark Oil Futures Adjustment was (0.022)%, while the simple boilerplate circadian change in the per allotment NAV of USO over the aforementioned time period was (0.022)%. The boilerplate circadian aberration was 0.000% (or 0.0 base points, area 1 base point equals 1/100 of 1%). As a percentage of the circadian movement of the Criterion Oil Futures Contract, the boilerplate absurdity in circadian tracking by the per allotment NAV was 0.134%, acceptation that over this time aeon USO’s tracking error was aural the added or bare 10% ambit established as its criterion tracking goal. The afterward two graphs authenticate the alternation amid the changes in USO’s NAV and the changes in the Criterion Oil Futures Contract. The aboriginal blueprint exhibits the circadian changes in the aftermost 30 appraisal canicule ended September 30, 2018. The added blueprint measures anniversary changes back September 30, 2013 through September 30, 2018.

 

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS  

 

  Click to enlarge

 

 

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS 

 

  Click to enlarge

 

An accession tracking altitude of the acknowledgment achievement of USO adjoin the acknowledgment of its Benchmark Oil Futures Adjustment can be affected by comparing the absolute acknowledgment of USO, abstinent by changes in its per allotment NAV, adjoin the accustomed changes in its per allotment NAV beneath the assumption that USO’s allotment had been absolutely the aforementioned as the circadian changes in its Criterion Oil Futures Contract.

 

For the nine months concluded September 30, 2018, the absolute absolute acknowledgment of USO as abstinent by changes in its per allotment NAV was 28.06%. This is based on an initial per allotment NAV of $12.08 as of December 31, 2017 and an catastrophe per allotment NAV as of September 30, 2018 of $15.47. During this time period, USO made no distributions to its shareholders. However, if USO’s circadian changes in its per allotment NAV had instead absolutely tracked the changes in the circadian absolute acknowledgment of the Criterion Oil Futures Contract, USO would acquire had an estimated per allotment NAV of $15.36 as of September 30, 2018, for a absolute acknowledgment over the accordant time aeon of 27.15%. The difference amid the absolute per allotment NAV absolute acknowledgment of USO of 28.06% and the accustomed absolute acknowledgment based on the Benchmark Oil Futures Adjustment of 27.15% was an absurdity over the time aeon of 0.91%, which is to say that USO’s absolute absolute return outperformed the criterion result by that percentage. USO incurs costs primarily composed of the administration fee, brokerage commissions for the affairs and affairs of futures contracts, and added expenses. The appulse of these expenses, annual by interest and allotment income, and net of absolute or abrogating execution, tends to annual circadian changes in the per allotment NAV of USO to track slightly lower or higher than circadian changes in the bulk of the Criterion Oil Futures Contract.

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By comparison, for the nine months ended September 30, 2017, the absolute absolute acknowledgment of USO as abstinent by changes in its per allotment NAV was (10.85)%. This was based on an antecedent per allotment NAV of $11.71 as of December 31, 2016 and an catastrophe per allotment NAV as of September 30, 2017 of $10.44. During this time period, USO fabricated no distributions to its shareholders. However, if USO’s circadian changes in its per allotment NAV had instead absolutely tracked the changes in the circadian absolute acknowledgment of the Criterion Oil Futures Contract, USO would acquire had an estimated per allotment NAV of $10.44 as of September 30, 2017, for a absolute acknowledgment over the accordant time period of (10.85)%. There was no aberration amid the absolute per allotment NAV absolute acknowledgment of USO of (10.85)% and the accustomed absolute return based on the Criterion Oil Futures Adjustment of (10.85)%, which is to say that USO’s absolute absolute acknowledgment performed exactly the aforementioned as the criterion result. USO incurs costs primarily composed of the administration fee, allowance commissions for the affairs and affairs of futures contracts, and added expenses. The appulse of these expenses, annual by absorption and dividend income, and net of absolute or abrogating execution, tended to annual circadian changes in the per allotment NAV of USO to clue slightly lower than circadian changes in the bulk of the Criterion Oil Futures Contract.

 

 

There are currently three factors that acquire impacted or are best acceptable to impact USO’s adeptness to accurately clue Criterion Oil Futures Contract. 

 

First, USO may buy or advertise its holdings in the again current Benchmark Oil Futures Adjustment at a bulk added than the closing acclimation bulk of that contract on the day during which USO executes the trade. In that case, USO may pay a bulk that is higher, or lower, than that of the Criterion Oil Futures Contract, which could annual the changes in the circadian per allotment NAV of USO to either be too high or too low about to the circadian changes in the Criterion Oil Futures Contract. During the nine months concluded September 30, 2018, USCF attempted to abbreviate the aftereffect of these affairs by gluttonous to assassinate its acquirement or auction of the Benchmark Oil Futures Adjustment at, or as abutting as accessible to, the end of the day acclimation price. However, it may not consistently be possible for USO to access the closing acclimation bulk and there is no affirmation that abortion to access the closing acclimation price in the approaching will not abnormally impact USO’s attempt to clue the Benchmark Oil Futures Adjustment over time.

 

Second, USO incurs costs primarily composed of the administration fee, allowance commissions for the affairs and affairs of futures contracts, and added expenses. The impact of these costs tends to annual circadian changes in the per allotment NAV of USO to clue hardly lower than circadian changes in the bulk of the Criterion Oil Futures Contract. At the aforementioned time, USO earns allotment and absorption assets on its cash, cash equivalents and Treasuries. USO is not adapted to administer any allocation of its assets to its shareholders and did not make any distributions to shareholders during the nine months ended September 30, 2018. Absorption payments, and any added income, were retained aural the portfolio and added to USO’s NAV. Back this assets exceeds the akin of USO’s costs for its management fee, allowance commissions and added costs (including advancing allotment fees, licensing fees and the fees and expenses of the absolute admiral of USCF), USO will apprehend a net crop that will tend to annual circadian changes in the per allotment NAV of USO to clue hardly college than circadian changes in the Criterion Oil Futures Contract. If concise interest rates acceleration aloft the accustomed levels, the akin of aberration created by the crop would increase. Conversely, if concise interest rates were to decline, the bulk of absurdity created by the crop would decrease. Back concise yields bead to a akin lower than the accumulated costs of the administration fee and the allowance commissions, again the tracking absurdity becomes a abrogating cardinal and would tend to annual the circadian allotment of the per allotment NAV to underperform the circadian allotment of the Criterion Oil Futures Contract. USCF anticipates that absorption rates may abide to increase over the abreast approaching from absolute lows. It is anticipated that fees and costs paid by USO may abide to be lower than absorption becoming by USO. As such, USCF anticipates that USO will abide to beat its criterion until such a time back absorption becoming at atomic equals or declines beneath the fees and expenses paid by USO.

  

Third, USO may hold Other Oil-Related Investments in its portfolio that may abort to carefully clue the Benchmark Oil Futures Contract’s absolute acknowledgment movements. In that case, the absurdity in tracking the Benchmark Oil Futures Adjustment could aftereffect in circadian changes in the per allotment NAV of USO that are either too high, or too low, about to the circadian changes in the Criterion Oil Futures Contract. During the nine months concluded September 30, 2018, USO did not ascendancy any Added Oil-Related Investments. If USO increases in size, and due to its obligations to accede with authoritative limits, USO may advance in Added Oil-Related Investments which may acquire the effect of accretion transaction accompanying costs and may aftereffect in added tracking error.

  

Term Structure of Awkward Oil Futures Prices and the Appulse on Absolute Returns. Several factors actuate the absolute acknowledgment from advance in futures contracts. One factor arises from “rolling” futures affairs that will expire at the end of the accustomed ages (the “near” or “front” ages contract) advanced anniversary ages above-mentioned to expiration. For a activity that entails captivation the abreast month contract, the bulk accord amid that futures adjustment and the abutting ages futures adjustment will appulse returns. For example, if the bulk of the abreast ages futures adjustment is college than the abutting futures ages adjustment (a bearings referred to as “backwardation”), then absent any added change, the bulk of a abutting ages futures adjustment tends to acceleration in bulk as it becomes the abreast ages futures contract and approaches expiration. Conversely, if the bulk of a abreast ages futures adjustment is lower than the abutting ages futures contract (a bearings referred to as “contango”), again absent any added change, the bulk of a abutting ages futures contract tends to abatement in bulk as it becomes the abreast ages futures adjustment and approaches expiration.

 

As an example, accept that the bulk of crude oil for absolute delivery, is $50 per barrel, and the bulk of a position in the abreast ages futures adjustment is additionally $50. Over time, the bulk of crude oil will alter based on a cardinal of bazaar factors, including appeal for oil about to supply. The bulk of the abreast ages futures adjustment will additionally alter in acknowledgment to a cardinal of bazaar factors. If an investor seeks to advance a position in a abreast ages futures adjustment and not booty charge of physical barrels of awkward oil, the investor charge advertise the accustomed abreast ages futures adjustment as it approaches cessation and advance in the abutting ages futures contract. In acclimation to abide captivation a position in the accustomed abreast ages futures contract, this “roll” advanced of the futures contract charge be accomplished every month.

 

Contango and backwardation are natural market armament that acquire impacted the absolute acknowledgment on an advance in USO’s shares during the accomplished year about to a hypothetical direct advance in awkward oil. In the future, it is acceptable that the accord amid the bazaar bulk of USO’s shares and changes in the atom prices of light, candied awkward oil will abide to be impacted by contango and backwardation. It is important to agenda that this allegory ignores the abeyant costs associated with physically owning and autumn awkward oil, which could be substantial.

 

 

If the futures bazaar is in backwardation, e.g., back the bulk of the abreast ages futures adjustment is higher than the bulk of the abutting ages futures contract, the investor would buy a abutting ages futures adjustment for a lower bulk than the accustomed abreast ages futures contract. Bold the bulk of the next ages futures adjustment was $49 per barrel, or 2% cheaper than the $50 abreast ages futures contract, then, hypothetically, and assuming no added changes (e.g., to either prevailing crude oil prices or the bulk accord amid the atom price, the near ages adjustment and the abutting ages contract, and, blank the appulse of bureau costs and the assets becoming on banknote and/or cash equivalents), the bulk of the $49 abutting ages futures adjustment would acceleration to $50 as it approaches expiration. In this example, the bulk of an advance in the abutting ages futures adjustment would tend to beat the atom bulk of awkward oil. As a result, it would be accessible for the new abreast ages futures adjustment to acceleration 12% while the atom bulk of crude oil may acquire risen a lower amount, e.g., alone 10%. Similarly, the atom bulk of crude oil could acquire collapsed 10% while the bulk of an investment in the futures adjustment adeptness acquire collapsed accession amount, e.g., alone 8%. Over time, if backwardation remained constant, this difference between the atom bulk and the futures adjustment bulk would abide to increase.

 

If the futures bazaar is in contango, an investor would be affairs a abutting ages futures adjustment for a higher price than the accustomed abreast ages futures contract. Again, bold the abreast ages futures adjustment is $50 per barrel, the bulk of the abutting ages futures adjustment adeptness be $51 per barrel, or 2% added big-ticket than the advanced ages futures contract. Hypothetically, and bold no added changes, the value of the $51 abutting ages futures adjustment would abatement to $50 as it approaches expiration. In this example, the bulk of an investment in the added ages would tend to underperform the atom bulk of awkward oil. As a result, it would be accessible for the new near month futures adjustment to acceleration alone 10% while the atom bulk of awkward oil may acquire risen a college amount, e.g., 12%. Similarly, the atom bulk of crude oil could acquire collapsed 10% while the bulk of an advance in the added ages futures adjustment might have collapsed accession amount, e.g., 12%. Over time, if contango remained constant, this aberration amid the atom bulk and the futures adjustment bulk would abide to increase.

 

The blueprint beneath compares the circadian price of the abreast month crude oil futures adjustment to the bulk of 13 th month crude oil futures adjustment (i.e., a adjustment one year forward) over the aftermost 10 years. Back the bulk of the abreast ages futures adjustment is college than the price of the 13 th month futures contract, the bazaar would be declared as actuality in backwardation. Back the bulk of the near month futures adjustment is lower than the 13 th month futures contract, the bazaar would be declared as actuality in contango. Although the bulk of the abreast ages futures adjustment and the bulk of the 13 th month futures contract tend to move together, it can be apparent that at times the abreast ages futures adjustment prices are college than the 13 th month futures contract prices (backwardation) and, at added times, the abreast ages futures adjustment prices are lower than the 13 th month futures contract prices (contango).

 

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS 

 

  Click to enlarge

 

 

An accession way to appearance the aforementioned data is to decrease the dollar bulk of the 13 th month crude oil futures adjustment from the dollar bulk of the near month crude oil futures contract, as apparent in the blueprint below. Back the aberration is positive, the bazaar is in backwardation. When the aberration is negative, the bazaar is in contango. The crude oil bazaar spent time in both backwardation and contango during the aftermost ten years.

 

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS  

 

Click to enlarge  

 

An advance in a portfolio that owned only the abreast ages awkward oil futures adjustment would acceptable aftermath a altered aftereffect than an advance in a portfolio that owned an according cardinal of anniversary of the abreast 12 months’ of awkward oil futures contracts. About speaking, back the awkward oil futures market is in backwardation, a portfolio of alone the abreast ages awkward oil futures adjustment may tend to acquire a college absolute return than a portfolio of 12 months’ of the awkward oil futures contract. Conversely, if the awkward oil futures bazaar was in contango, the portfolio absolute alone 12 months’ of awkward oil futures affairs may tend to beat the portfolio captivation only the abreast ages awkward oil futures contract.

 

Historically, the awkward oil futures markets have accomplished periods of contango and backwardation, with backwardation actuality in abode about as about as contango back oil futures trading started in 1982. Afterward the all-around banking crisis in the fourth division of 2008, the awkward oil bazaar moved into contango and remained in contango for a aeon of several years. During genitalia of 2009, the akin of contango was unusually steep as a accumulated of baggy U.S. and all-around appeal for awkward oil and issues involving the concrete busline and storage of awkward oil at Cushing, Oklahoma, the primary appraisement point for oil traded in the U.S., led to almighty aerial inventories of crude oil. A accumulated of bigger busline and accumulator capacity, forth with growing appeal for awkward oil globally, moderated the annual accession and led to bargain levels of contango by 2011. However, at the end of November 2014, all-around awkward oil inventories grew rapidly afterwards the Alignment of Petroleum Exporting Countries (“OPEC”) absitively to avert its bazaar allotment against U.S. shale-oil producers, consistent in accession aeon during which the awkward oil bazaar remained primarily in contango, sometimes steep contango. This aeon of contango connected through December 31, 2017 back U.S. and all-around oil inventories beneath rapidly. OPEC’s contempo acceleration in oil assembly has had little aftereffect on the awkward oil bazaar and a backwardated bazaar resulted in 2018.

  

Periods of contango or backwardation do not materially appulse USO’s advance cold of accepting the circadian allotment changes in its per allotment NAV clue the daily percentage changes in the bulk of the Criterion Oil Futures Adjustment back the appulse of backwardation and contango tend to equally impact the circadian allotment changes in bulk of both USO’s shares and the Criterion Oil Futures Contract. It is impossible to adumbrate with any bulk of authoritativeness whether backwardation or contango will action in the future. It is acceptable that both conditions will action during altered periods.

 

Crude Oil Market. During the nine months concluded September 30, 2018, awkward oil prices traded in a ambit amid $59.20 to $74.15. Awkward connected a bull-run that began in June of 2017 and is up 41.77% over the accomplished year. Awkward has alternate about 180% back multi-year lows were reached in aboriginal 2016. As of quarter-end, U.S. awkward accumulator was 13% lower than a year ago, and 24.6% beneath the near-all-time high set aftermost year. Accumulator has additionally collapsed beneath the five-year boilerplate level. During the third division of 2018, prices fell 12.33% from $74.15 to $65.01 afore airy to $73.25 by the end of September. The alteration during the aboriginal bisected of the quarter was acquired by apropos about ascent supplies, alike as OPEC captivated to its charge to arrest production. From mid-August through the end of the quarter, bullish affect dominated, apprenticed by expectations that falling assembly in Venezuela and approaching sanctions on Iran would advance to a accumulation squeeze, and that a charge from OPEC to accomplish up for the shortfall would not be abundant to accommodated demand. This occurred alike as U.S. awkward oil assembly connected to set records, reaching 11.1 actor barrels per day by quarter-end. A backwardated bazaar has connected to advice futures traders. In July, the abatement on added ages affairs about to advanced ages affairs grew as aerial as $2.55 afore abiding to more average levels by quarter-end. On average, the advance amid the two affairs was about $0.83. Looking ahead, expected demand advance charcoal able for the moment. However, uncertainties about barter conflicts could advance to temporary dislocations in accumulation and demand, and, should barter conflicts aftermost a abiding bulk of time, again all-around bread-and-butter growth is acceptable to be impacted, which would abnormally appulse appeal for energy. Longer term, abounding analysts are anxious that the severe reductions in basic expenditures on analysis and assembly over the accomplished three years could advance to a curtailment of crude oil in the abreast future.

  

Crude Oil Bulk Movements in Comparison to Added Activity Bolt and Advance Categories. USCF believes that investors frequently admeasurement the bulk to which prices or absolute allotment of one advance or asset chic move up or bottomward in bulk in concert with accession advance or asset class. Statistically, such a admeasurement is usually done by barometer the alternation of the bulk movements of the two altered investments or asset classes over some aeon of time. The alternation is scaled amid 1 and -1, area 1 indicates that the two investment options move up or bottomward in bulk or bulk together, accustomed as “positive correlation,” and -1 indicates that they move in absolutely adverse directions, accustomed as “negative correlation.” A alternation of 0 would beggarly that the movements of the two are neither absolutely nor abnormally correlated, accustomed as “non-correlation.” That is, the advance options sometimes move up and bottomward calm and added times move in adverse directions.

 

For the ten-year time aeon amid September 30, 2008 and September 30, 2018, the table beneath compares the anniversary movements of awkward oil prices adjoin the anniversary movements of the prices of several added activity commodities, such as accustomed gas, diesel-heating oil, and unleaded gasoline, as able-bodied as several major non-commodity advance asset classes, such as ample cap U.S. equities, U.S. government bonds and all-around equities. It can be apparent that over this accurate time period, the movement of awkward oil on a anniversary base apparent able alternation with unleaded gasoline and diesel-heating oil, abstinent alternation with the movements of ample cap U.S. equities and all-around equities, limited correlation with accustomed gas, and abstinent abrogating alternation with U.S. government bonds.

  

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

 

Source: Bloomberg, NYMEX

 

 

 

The table beneath covers a added recent, but much shorter, ambit of dates than the aloft table. Over the one year aeon concluded September 30, 2018, movements of awkward oil displayed moderate alternation with diesel-heating oil and bound to abrogating alternation with movements with ample cap U.S. equities, U.S. Government bonds, all-around equities, unleaded gasoline and accustomed gas.

  

*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 

 

Source: Bloomberg, NYMEX

 

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Investors are cautioned that the historical price relationships amid awkward oil and assorted added activity commodities, as able-bodied as added advance asset classes, as measured by alternation may not be reliable predictors of approaching bulk movements and alternation results. The after-effects pictured aloft would have been altered if a altered ambit of dates had been selected. USCF believes that awkward oil has historically not demonstrated a able alternation with equities or bonds over connected periods of time. However, USCF additionally believes that in the approaching it is possible that awkward oil could acquire connected appellation alternation after-effects that announce prices of awkward oil added carefully clue the movements of equities or bonds. In addition, USCF believes that, back abstinent over time periods beneath than ten years, there will consistently be some periods where the alternation of awkward oil to equities and bonds will be either added acerb absolutely activated or added acerb negatively correlated than the connected appellation absolute after-effects suggest.

 

The correlations amid awkward oil, natural gas, diesel-heating oil and gasoline are accordant because USCF endeavors to advance USO’s assets in Oil Futures Contracts and Added Oil-Related Investments so that circadian changes in allotment acceding in USO’s per allotment NAV associate as carefully as possible with circadian changes in allotment acceding in the bulk of the Criterion Oil Futures Contract. If assertive added fuel-based commodity futures affairs do not carefully associate with the crude-oil futures contract, again their use could advance to greater tracking error. As acclaimed above, USCF additionally believes that the changes in allotment acceding in the bulk of the Criterion Oil Futures Contract will carefully associate with changes in allotment acceding in the atom bulk of light, candied awkward oil.

 

 

Critical Accounting Policies

 

Preparation of the abridged financial statements and accompanying disclosures in acquiescence with accounting attack about accustomed in the United States of America requires the appliance of adapted accounting rules and guidance, as able-bodied as the use of estimates. USO’s application of these behavior involves judgments and absolute after-effects may alter from the estimates used.

 

USCF has evaluated the attributes and types of estimates that it makes in advancing USO’s condensed banking statements and accompanying disclosures and has bent that the appraisal of its investments, which are not traded on a United States or internationally accustomed futures barter (such as advanced affairs and OTC swaps) involves a analytical accounting policy. The ethics which are acclimated by USO for its Oil Futures Affairs are provided by its article agent who uses bazaar prices back available, while OTC swaps are admired based on the present bulk of estimated approaching banknote flows that would be accustomed from or paid to a third affair in acclimation of these derivative affairs above-mentioned to their charge date and admired on a circadian basis. In addition, USO estimates absorption and dividend income on a circadian base appliance prevailing ante becoming on its banknote and banknote equivalents. These estimates are adapted to the actual amount accustomed on a anniversary base and the difference, if any, is not advised material.

 

Liquidity and Basic Resources

 

USO has not made, and does not anticipate making, use of borrowings or added curve of acclaim to accommodated its obligations. USO has met, and it is advancing that USO will abide to meet, its clamminess needs in the accustomed advance of business from the accretion of the auction of its investments, or from the Treasuries, banknote and/or banknote equivalents that it intends to ascendancy at all times. USO’s clamminess needs include: redeeming shares, accouterment allowance deposits for its existing Oil Futures Affairs or the acquirement of additional Oil Futures Contracts and announcement accessory for its OTC swaps, if applicable, and acquittal of its expenses, abbreviated beneath under “Contractual Obligations.”

 

USO currently generates cash primarily from: (i) the auction of baskets consisting of 100,000 shares (“Creation Baskets”) and (ii) assets earned on Treasuries, banknote and/or banknote equivalents. USO has allocated essentially all of its net assets to trading in Oil Interests. USO invests in Oil Interests to the fullest admeasurement accessible afterwards actuality leveraged or clumsy to amuse its accustomed or potential margin or accessory obligations with annual to its investments in Oil Futures Affairs and Added Oil-Related Investments. A cogent allocation of USO’s NAV is captivated in banknote and banknote equivalents that are acclimated as allowance and as accessory for its trading in Oil Interests. The antithesis of the assets is captivated in USO’s anniversary at its babysitter coffer and in Treasuries at the FCM. Assets accustomed from USO’s investments in money bazaar funds and Treasuries is paid to USO. During the nine months concluded September 30, 2018, USO’s costs did not beat the income USO becoming and the banknote becoming from the sale of Conception Baskets and the accretion of Accretion Baskets. During the nine months concluded September 30, 2018, USO did not need to use added assets to pay expenses. To the admeasurement costs beat income, USO’s NAV will be abnormally impacted.

 

USO’s investments in Oil Interests may be accountable to periods of illiquidity because of bazaar conditions, authoritative considerations and added reasons. For example, most article exchanges absolute the fluctuations in futures affairs prices during a distinct day by regulations referred to as “daily limits.” During a distinct day, no trades may be accomplished at prices aloft the circadian limit. Already the bulk of a futures contract has added or decreased by an bulk according to the circadian limit, positions in the affairs can neither be taken nor liquidated unless the traders are accommodating to aftereffect trades at or aural the authentic circadian limit. Such bazaar altitude could prevent USO from promptly liquidating its positions in Oil Futures Contracts. During the nine months concluded September 30, 2018, USO did not acquirement or liquidate any of its positions while circadian banned were in effect; however, USO cannot adumbrate whether such an accident may action in the future.

 

Since March 23, 2007, USO has been responsible for costs apropos to: (i) administration fees, (ii) allowance fees and commissions, (iii) licensing fees for the use of bookish property, (iv) advancing allotment costs in affiliation with offers and sales of its shares consecutive to the initial offering, (v) added expenses, including tax advertisement costs, (vi) fees and costs of the absolute admiral of USCF and (vii) added amazing costs not in the accustomed advance of business, while USCF has been amenable for costs relating to the fees of USO’s Business Agent, Administrator and Babysitter and allotment costs apropos to the antecedent alms of shares. If USCF and USO are bootless in adopting acceptable funds to awning these corresponding costs or in analysis any other source of funding, USO will abolish and investors may lose all or allotment of their investment.

 

 

Market Risk

 

Trading in Oil Futures Affairs and Other Oil-Related Investments, such as forwards, involves USO entering into acknowledged commitments to acquirement or sell oil at a authentic date in the future. The accumulated bazaar bulk of the affairs will decidedly exceed USO’s approaching cash requirements since USO intends to abutting out its accessible positions above-mentioned to settlement. As a result, USO is about only subject to the accident of accident arising from the change in bulk of the contracts. USO considers the “fair value” of its acquired instruments to be the abeyant accretion or accident on the contracts. The bazaar accident associated with USO’s commitments to purchase oil is bound to the accumulated bazaar bulk of the affairs held. However, should USO admission into a contractual commitment to advertise oil, it would be adapted to accomplish charge of the oil at the adjustment price, repurchase the adjustment at prevailing prices or achieve in cash. Back there are no banned on the approaching bulk of oil, the bazaar accident to USO could be unlimited.

 

USO’s exposure to bazaar accident depends on a cardinal of factors, including the markets for oil, the animation of absorption ante and adopted barter rates, the liquidity of the Oil Futures Affairs and Added Oil-Related Investments markets and the relationships amid the affairs captivated by USO. Drastic bazaar occurrences could ultimately advance to the accident of all or essentially all of an investor’s capital.

 

Credit Risk

 

When USO enters into Oil Futures Contracts and Added Oil-Related Investments, it is apparent to the acclaim accident that the counterparty will not be able to accommodated its obligations. The counterparty for the Oil Futures Affairs traded on the NYMEX and on best added futures exchanges is the clearinghouse associated with the accurate exchange. In general, in accession to allowance adapted to be acquaint by the clearinghouse in affiliation with austere trades, clearinghouses are backed by their associates who may be adapted to allotment in the banking burden resulting from the abortion of one of their associates and, therefore, this added associate abutment should decidedly reduce credit risk. USO is not currently a associate of any clearinghouse. Some adopted exchanges are not backed by their clearinghouse members but may be backed by a bunch of banks or added banking institutions. There can be no affirmation that any counterparty, clearinghouse, or their associates or their banking backers will amuse their obligations to USO in such circumstances.

 

USCF attempts to administer the acclaim risk of USO by afterward assorted trading limitations and policies. In particular, USO about posts allowance and/or holds liquid assets that are about according to the bazaar bulk of its obligations to counterparties beneath the Oil Futures Contracts and Added Oil-Related Investments it holds. USCF has implemented procedures that include, but are not bound to, executing and allowance trades alone with creditworthy parties and/or acute the announcement of accessory or allowance by such parties for the anniversary of USO to absolute its acclaim exposure. An FCM, back acting on anniversary of USO in accepting orders to purchase or sell Oil Futures Affairs on United States exchanges, is adapted by CFTC regulations to alone anniversary for and segregate as acceptance to USO, all assets of USO apropos to domestic Oil Futures Affairs trading. These FCMs are not allowed to commingle USO’s assets with their added assets. In addition, the CFTC requires futures bureau merchants to ascendancy in a defended account USO’s assets accompanying to foreign Oil Futures Affairs trading. 

 

In the future, USO may acquirement OTC swaps, see “Item 3. Quantitative and Qualitative Disclosures About Bazaar Risk”  in this quarterly report on Form 10-Q for a altercation of OTC swaps.

 

As of September 30, 2018, USO held cash deposits and investments in Treasuries and money bazaar funds in the bulk of $1,623,515,203 with the babysitter and FCM. Some or all of these amounts captivated by a babysitter or an FCM, as applicable, may be accountable to accident should USO’s babysitter or FCM, as applicable, cease operations.

 

 

Off Antithesis Area Financing

 

As of September 30, 2018, USO had no accommodation guarantee, acclaim abutment or added asymmetric area arrange of any affectionate added than agreements entered into in the normal advance of business, which may accommodate apology accoutrement apropos to assertive risks that annual providers undertake in assuming casework which are in the best interests of USO. While USO’s acknowledgment beneath these apology provisions cannot be estimated, they are not accustomed to acquire a absolute appulse on USO’s banking position.

 

European Absolute Debt

 

USO had no direct acknowledgment to European sovereign debt as of September 30, 2018 and has no direct acknowledgment to European absolute debt as of the filing of this quarterly address on Form 10-Q.

 

Redemption Bassinet Obligation

 

In acclimation to accommodated its advance objective and pay its acknowledged obligations declared below, USO requires clamminess to redeem shares, which redemptions charge be in blocks of 100,000 shares alleged “Redemption Baskets.” USO has to date annoyed this obligation by paying from the banknote or banknote equivalents it holds or through the auction of its Treasuries in an bulk commensurable to the cardinal of shares being redeemed.

 

Contractual Obligations

 

USO’s primary acknowledged obligations are with USCF. In acknowledgment for its services, USCF is advantaged to a administration fee affected circadian and paid anniversary as a anchored percentage of USO’s NAV, currently 0.45% of NAV on its boilerplate circadian absolute net assets.

 

USCF agreed to pay the start-up costs associated with the accumulation of USO, primarily its legal, accounting and added costs in affiliation with USCF’s allotment with the CFTC as a CPO and the allotment and advertisement of USO and its shares with the SEC, FINRA and NYSE Arca (formerly, AMEX), respectively. However, back USO’s antecedent alms of shares, alms costs incurred in affiliation with registering and advertisement additional shares of USO acquire been anon borne on an advancing base by USO, and not by USCF.

 

USCF pays the fees of the Business Agent and the fees of BBH&Co., as able-bodied as BBH&Co.’s fees for assuming authoritative services, including those in connection with the alertness of USO’s abridged banking statements and its SEC, NFA and CFTC reports. USCF and USO acquire additionally entered into a licensing acceding with the NYMEX pursuant to which USO and the Accompanying Accessible Funds, added than BNO, USCI, CPER, USAG, USOU and USOD, pay a licensing fee to the NYMEX. USO additionally pays the fees and costs associated with its tax accounting and reporting requirements.

 

In accession to USCF’s management fee, USO pays its allowance fees (including fees to an FCM), OTC banker spreads, any licensing fees for the use of intellectual property, and, consecutive to the antecedent offering, allotment and added fees paid to the SEC, FINRA, or added authoritative agencies in affiliation with the activity and auction of shares, as able-bodied as legal, printing, accounting and added costs associated therewith, and amazing expenses. The closing are costs not incurred in the accustomed advance of USO’s business, including expenses relating to the apology of any actuality adjoin liabilities and obligations to the admeasurement acceptable by law and beneath the LP Agreement, the bringing or arresting of accomplishments in law or in disinterestedness or contrarily administering activity and incurring acknowledged expenses and the acclimation of claims and litigation. Bureau payments to an FCM are on a contract-by-contract, or annular turn, basis. USO additionally pays a allocation of the fees and costs of the absolute admiral of USCF. See Note 3 to the Notes to Condensed Financial Statements (Unaudited) in Item 1 of this anniversary address on Form 10-Q.

 

The parties cannot advanced the amount of payments that will be adapted beneath these arrange for approaching periods, as USO’s per allotment NAVs and trading levels to accommodated its advance cold will not be accustomed until a approaching date. These agreements are able for a specific appellation agreed upon by the parties with an advantage to renew, or, in some cases, are in aftereffect for the continuance of USO’s existence. Either party may abolish these agreements beforehand for assertive affidavit declared in the agreements.

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As of September 30, 2018, USO’s portfolio consisted of 23,968 WTI Awkward Oil Futures CL Affairs traded on the NYMEX. As of September 30, 2018, USO did not ascendancy any Oil Futures Affairs traded on the ICE Futures. For a account of USO’s accustomed holdings, amuse see USO’s website at www.uscfinvestments.com.  

 

 

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