Disclosure
An investment in the units issued by United States Natural Gas Fund, LP ("USNG") involves risks. These risks can significantly impact the market value of the units. Some of the risks you may face are summarized below.
- Unlike mutual funds, commodity pools or other investment pools that actively manage their investments in an attempt to realize income and gains from their investing activities and distribute such income and gains to their investors, USNG generally does not expect to distribute cash to limited partners.
- USNG is not a registered investment company so unit holders do not have the protections afforded by the Investment Company Act of 1940.
- There is a risk that USNG will not earn trading gains sufficient to compensate for the fees and expenses that it must pay and as such USNG may not earn any profit.
- If USCF permits USNG to become leveraged, investors could lose all or substantially all of their investment if USNG’s trading positions suddenly turn unprofitable.
- An unanticipated number of redemption requests during a short period of time could have an adverse effect on the net asset value of USNG.
- Investing in Natural Gas Interests subjects USNG to the risks of the natural gas industry and this could result in large fluctuations in the price of USNG’s units.
- The price of natural gas may fluctuate on a seasonal and quarterly basis and this would result in fluctuations in the price of USNG’s units.
- An investment in USNG involves the risk that the changes in the price of USNG’s units will not accurately correlate with the changes in the price of the Benchmark Futures Contract. If this were to occur, investors may not be able to effectively use USNG as a way to hedge against natural gas-related losses or as a way to indirectly invest in natural gas.
- USNG engages in the trading of futures contracts, options on futures contracts, cleared swaps and over-the-counter (“OTC”) swaps (collectively, “derivatives”). USNG is exposed to both market risk, which is the risk arising from changes in the market value of the contracts, and credit risk, which is the risk of failure by another party to perform according to the terms of a contract.
- USNG’s exposure to market risk depends on a number of factors, including the markets for natural gas, the volatility of interest rates and foreign exchange rates, the liquidity of the Futures Contracts and Other Natural Gas-Related Investments markets and the relationships among the contracts held by USNG. Drastic market occurrences could ultimately lead to the loss of all or substantially all of an investor’s capital.
- Futures contracts and cleared swaps involve, to varying degrees, elements of market risk (specifically commodity price risk) and exposure to loss in excess of the amount of variation margin.
- Additional risks associated with the use of futures contracts are an imperfect correlation between movements in the price of the futures contracts and the market value of the underlying securities and the possibility of an illiquid market for a futures contract.
- The more assets USCF manages, the more difficult it may be for it to trade profitably because of the difficulty of trading larger positions without adversely affecting prices and performance and of managing risk associated with larger positions.
- When USNG enters into Futures Contracts and Other Natural Gas-Related Investments, it is exposed to the credit risk that the counterparty will not be able to meet its obligations. The counterparty for the Futures Contracts traded on the NYMEX and on most other futures exchanges is the clearinghouse associated with the particular exchange. USNG bears the risk of financial failure by the clearing broker.
- USNG will be subject to credit risk with respect to counterparties to OTC contracts entered into by USNG or held by special purpose or structured vehicles.
- USNG may be subject to liquidity risk with respect to its over-the-counter contracts.
- Unlike most exchange-traded futures contracts, cleared swaps or exchange-traded options on such futures, each party to an over-the-counter contract bears the credit risk that the other party may not be able to perform its obligations under its contract
- Even if collateral is used to reduce counterparty credit risk, sudden changes in the value of OTC transactions may leave a party open to financial risk due to a counterparty default since the collateral held may not cover a party’s exposure on the transaction in such situations.
- USCF invests a portion of USNG’s cash in money market funds that seek to maintain a stable net asset value. USNG is exposed to any risk of loss associated with an investment in these money market funds.
- Proposed regulation by the CFTC and SEC as promulgated under the Dodd-Frank Act, would change operational requirements by USOF, increasing cost and changing operational procedures which could negatively impact USOF.
- Regulation of the commodity interests and energy markets is extensive and constantly changing; future regulatory developments are impossible to predict but may significantly and adversely affect USNG
- Trading on non-U.S. exchanges may differ from trading on U.S. exchanges in a variety of ways and, accordingly, may subject USNG to additional risks. Importantly, non-U.S. futures exchanges are not subject to regulation by the SEC or CFTC, but rather are regulated by their home country regulator.
- International trading activities subject USNG to foreign exchange risk.
- USCF’s trading system is quantitative in nature and it is possible that USCF might make a mathematical error. In addition, it is also possible that a computer or software program may malfunction and cause an error in computation.
*Some risks listed above may be mitigated due to rules proposed by the CFTC and SEC as promulgated under the Dodd-Frank Act. For a discussion of these risks and others, please see the current Prospectus .
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