Candlestick Trading Blog

Understanding Options

2009-11-04T07:45:00.001-06:00

There is quite a bit to understanding options so in today’s article we will focus on a couple of things. First we will look at the definition of an option, a call option and a put option. Second we will take a quick look at some facts crucial to understanding options. Lastly, we will take a look at what it means when a company grants employees stock options, not to be confused with trading options.

An option is a contract (see options contracts) giving the owner the right but not the obligation to buy or to sell a security at a certain price on or before a specific date. Call options give the buyer the right to the underlying security at a specific price on or before a certain date, and put options give the owner the right to sell the underlying security at a certain price on or before a certain date. Investors buy a call option if they think that the price of the security is going to rise before the option expires. Options traders buy a put option if they think the price of the security is going down before the option expires.

Facts that every trader should know when options trading include the following:

The strike price is the price in which the stock or underlying security can be sold or bought per the options contract.

The expiration date of an option is the month that that the option expires. Options actually expire on the third Friday of the month.

Options are actually quoted in per share prices but they are only sold in 100 shares lots. This means that you would pay $400 for a call option that is quoted at $4.

Investors new to trading options should not confuse employee stock options with trading options. When a company grants stock options to its employees the following details are provided:

Grant price – this is the price in which the employee can purchase the stock. (This price is given on the day the stock options are granted) If an employee exercises the option and the grant price is lower than the stock market price on that day, then the options are “in-the-money.”

Shares – the employee is told the number of shares of a company’s stock that he or she is allowed to purchase under the options grant. Options are not only granted by publicly traded companies, but are also granted by companies that plan to go public in the future.

Vesting date – this date is the first date that options can be exercised and they must be exercised before the expiration date. Employees buy shares at the grant price when exercising an option regardless of the price the stock is trading at that day in the stock market.

Currency Trading Basics

2009-10-30T13:14:00.001-05:00

Currency trading is also known as forex trading and it consists of an online trading community that is growing very fast. The currency trading basics include information about the forex market as well as the popular forex markets and the popular currency abbreviations used by traders.

The forex market is the largest market in terms of volume and you can trade this market 24 hours per day. Traders are able to enter or exit the market whenever they would like and there are no commissions, lock limits, or daily fx trading limits. Currencies are always bought and sold in pairs directly between forex investors.

When learning about the currency trading basics it is important to learn about the different forex markets that are available to forex traders. These markets are listed below.

USD / JPY - US dollar to Japanese yen exchange rate
CHF / USD - The Swiss franc to US dollar exchange rate
AUD / USD - The Australian dollar to US dollar exchange rate
CAD / USD - The Canadian dollar to US dollar exchange rate
GBP / USD - The British pound to US dollar exchange rate
EUR / GBP - The Euro to British pound exchange rate
EUR / USD - The Euro to US dollar exchange rate
EUR / CHF - The Euro to Swiss franc exchange rate

There are also abbreviations for foreign currency pairs that forex traders must become familiar with. These are also listed below.

EUR/USD "Euro"
NZD/USD "Kiwi"
AUD/USD "Aussie"
GBP/JPY "Geppy"
USD/CAD "Loonie"
USD/CAD "Beaver
USD/JPY "Gopher"
USD/CHF "Swissy"

There are many successful forex traders that prefer to trade currencies simply for the fact that there are only 5 major currencies to keep track of. Many of these traders only focus on three currencies at a time rather than all five when trading currency. This helps these traders to focus in on their trades even further and it typically increases their chances of success.

As you continue to learn about the fx market there are terms that you should become familiar with such as stop order, trailing stop order, take profit order, day order, market order, and limit order. Continue your forex trading education and see if this is the market for you.

Stock Market Beginner

2009-10-27T16:42:00.003-05:00

If you are a stock market beginner, I suggest you prepare yourself for the roller-coaster of emotions all traders must learn to control. It is well noted that the markets capitalize on investor greed and fear. Fear makes investors get out of the market at any price, and greed causes them to buy at any price to get in. Your first educational goal should be learning all you can about your trading personality. The psychology of investing affects not only you, but the stock market as a whole. Which illustrates why learning emotional strategies is as important as trading strategies.

Are you an overconfident trader? As a stock market beginner, overconfidence can cause you to place too many trades. Confidence is otherwise a great character trait but placing too many trades causes more fees, and can lead to higher tax consequences, resulting in overall lower profits.

Are you a “me too” investor ? A common pitfall among new traders is the need to be part of the group. Everyone else is talking about the great ride they’re having on stock XYZ, causing you to feel a bit left out. Resist that urge to jump in and force a stock trade. Anyone can run with the pack. You want to lead the pack.

Are you a “late joiner”? Do you follow an investment on your potential trades list, only to watch the prime entry point pass by? Does that missed opportunity chew away at you until you join in way too late? You will find more trading prospects than you can possibly watch at one time. Successful stock investors understand the importance of following a proven trading strategy.

We are not suggesting that you strip yourself of all emotions. That wouldn’t be good either. Rather, learn to recognize both positive and negative feelings, and make yourself aware of how they affect your stock trading decisions. The best investors, and ultimately the most profitable, learn to balance these sensations and even put them to good use.

Don’t let your investing career get cut short because you didn’t learn to handle your emotions as you trade. Join us October 29, 2009 at 8:00PM Eastern Time as we welcome Adrienne Toghraie presenting the Evolution of a Master Trader on our free public stock chat session. (Or, listen to the recorded archive session)

Psychology of Trading

2009-10-22T15:30:00.003-05:00

The psychology of trading is a concept that many investors don’t necessarily know about. Unfortunately, as a result, many traders go through a lot of money and quickly that they otherwise would not have lost to the markets. Instead of focusing only on the technical aspects of trading such as technical indicators and trading strategies, investors must learn about psychology of trading and how it greatly determines their level of success.

While knowledge of trading and the markets is absolutely necessary, it is simply not enough. There are a lot of concepts associated with the psychology of investing that can not only greatly improve trading but that can also keep traders from developing bad trading behavior.

Additionally, traders learn that they need to focus on their actual trading and less on the possible results. Instead of worrying about whether or not the next trade will be profitable traders must focus on the task at hand. Trading anxiety occurs when traders worry about what the result of their trade will be. This anxiety can quickly cause a trader to make poor trading decisions. Too often these trades are based on greed or fear, rather than on technical indicators and strategy.

Also, when learning about trading psychology and trading behavior, the stock trader learns about the importance of having confidence in their trades. The focus is on meeting goals and measuring one’s progress on accomplishing those goals in order to build confidence. Keeping a trading journal is one way that many stock traders will accomplish this. Through documenting each trade and the progress made, this allows the trader to go back and to see what he or she has accomplished. It is also allows the trader to go back and see mistakes made. The truly successful trader will take those mistakes and will channel them into something positive. He or she will see that mistake as a learning opportunity and as a means for self improvement in one’s trading.

We are pleased to have Adrienne Toghraie presenting a free webinar on Thursday, October 29th, 2009. Topic; 'Evolution of a Master Trader' and what it takes to get there. Ms Toghraie is an internationally recognized authority in the field of human development. She is the noted Author of "The Winning Edge 2" and "Traders' Secrets". Information to join this open session, (or to listen to the archived recording after the 29th).

Options Volatility

2009-10-21T14:43:00.010-05:00

What is Options Volatility?
It is very important that options traders understand volatility as they learn how to trade options. Volatility tells the trader how much movement a stock is estimated to make over a specific amount of time. This helps the investor to determine whether or not an option is expensive or cheap in relation to its historical price. Through determining the volatility of a stock, investors are able to determine whether or not the option is likely to expire in or out-of-the-money.

There are actually two types of options volatility when trading options. There is implied volatility and historical volatility. Implied volatility is the view of where volatility will be in the future. Pricing models are used by investors when options trading in order to determine the fair value of an option. This value tells the investors if an option is undervalued or overvalued. The option will either have high volatility or low volatility and this is determined by comparing the current market price of the option to the fair value. If the market price of the option is less than this value, then the option is cheap. Conversely, if the price is more than this value then the option is considered to be expensive.

The historical volatility is the second type of option volatility and is it is calculated by using standard deviation. The calculation is statistical and it tells the trader how fast the price movements have been over a specific period of time. This deviation, which is used to determine this second type of volatility, measures the distribution of a group of data points from its average. The more spread out this data is the higher the deviation is and conversely, if the data is not as dispersed then the deviation is said to be lower. Basically, your options education should teach you that those assets that have price movements that are slow and expected are considered to have low volatility. Those assets that have large and recurring movements are considered to have high volatility.

In summary, some concepts that you should learn about if you would like to trade the options markets include implied and historical volatility, and standard deviation. There are also many other concepts to understand when learning how to trade options. Continue your options trading education and see if this method of trading works for you.

Selling Options

2009-10-16T12:30:00.004-05:00

Neutral Options Trading Strategies

Many investors considered selling options riskier than making straight equity trades. However, with proper options training, many experienced traders make additional profits from taking option trades with stocks already in their portfolio. While the majority of options held through expiration will expire worthless, they can still provide insurance for the underlying asset. As in any stock market position, the hardest part of selling options is determining which direction the market will move, and when.

Selling Covered Calls - Selling a covered call means that there are investors willing to pay for the right to take a stock if it reaches a much higher price. You should have at least 100 shares of the stock, as options are priced in 100 share lots. This can be a great stock market strategy to implement while waiting for a stock to reach your sell point. This technique can be used over and over, as an additional way to create income from the same stock.

Sell Straddle - This is a more risky stock option trading strategy to sell a call option and a put option on the same asset with the same price and expiration date. This results in a limited gain for an unlimited risk. Selling a straddle requires extreme caution and constant monitoring of the position, and you must be accurate on the price direction of the stock. A Sell Straddle is definitely not recommended for all investors; the risk reward ratio is not favorable to anyone but the most experienced trader.

Sell Strangle - Whether the market is stable or volatile, bullish or bearish, there is always a way to find a profit. Such is the case with a Sell Strangle. This technique requires the investor to sell a Call Option that is out-of-the-money as well as a Put Option that is also out-of-the-money; both the Call Option and the Put Option need to be on the same stock with the same expiration date. This is similar to a Sell Straddle but with a Sell Strangle, the strike prices are not the same.

Calendar Spread - When market conditions are neutral (neither bullish nor bearish), a Calendar Spread is another way to make money investing in stock. A Calendar Spread, also known as a horizontal spread or time spread, is an options selling strategy where strike prices are the same, but with different expiration dates.

Simple options strategies provide a tremendous source of income when the right trading strategy is applied to the correct price move. These simple trading techniques will be demonstrated thoroughly during the Candlestick Forum Option Trading program on October 17 and 18th. If you would like to learn how to dramatically increase your income while at the same time reducing your risk, take advantage of the trading knowledge that has been applied to over 20 years of candlestick application. Click here for more information.

Options Education

2009-10-13T15:44:00.006-05:00

Bearish Trading Strategies

As you learn how to trade options there are numerous strategies available for to you to use. In today’s article we discuss the bearish options trading strategies that options traders will use as part of your options education.

Bear Call Spread – This options strategy is used when the market is extremely volatile and moderately bearish. This strategy is also known as the Bear Credit Spread and is used when there are erratic movements in the bear market.

Bear Put Spread – This strategy is also used when the market is volatile and moderately bearish. This method is also known as the Vertical Bear Puts and it is used at times to realize profits when the market is looking to the money of the investor.

Buying Puts – When options trading, traders will use this strategy when they anticipate that a stock will decrease in price during a specific time period. The profit is recognized when the stock and its underlying put option decrease in price during a determined amount of time. You will learn that the profit potential is limited because a stock price can never go below zero.

Selling Calls – This stock option strategy is also known as selling bear calls and vertical bear calls. This strategy is bearish because the trader profits if they underlying stock decreases in value. The strategy requires the trader to buy out-of-the-money call options and sell in-the-money call options on the same stock with the same expiration date. The trader realizes maximum profits from selling calls when the in-the-money stock closes lower than it strike price at its expiration date.

Put Hedge - This strategy occurs when the trader buys put during a bearish market in order to protect stock shares that the trader is reluctant to sell and that are vulnerable to a decline in the market. Traders will use this strategy to insulate their portfolios from loss in a bearish market.

Simple options strategies provide a tremendous source of income when the right trading strategy is applied to the correct price move. These simple trading techniques will be demonstrated thoroughly during the Candlestick Forum Option Trading program on October 17 and 18th. If you would like to learn how to dramatically increase your income while at the same time reducing your risk, take advantage of the trading knowledge that has been applied to over 20 years of candlestick application. Click here for more information.

Buy Gold Online

2009-10-09T11:44:00.000-05:00

It is more difficult to invest in commodities than it is for investors to invest in stocks and bonds. Many investors find that it is more difficult to buy gold online (or other commodities) because stocks and bonds are easily transferable and accessible to investors. Commodities are typically seen as more complex than stocks and bonds because they are traded through options markets and futures markets.

When looking to buy gold you can purchase an exchange traded fund that copies the gold prices or you can trade futures or options in the commodities markets. You can also opt to buy gold as a physical asset as well. This is easier to do for the average investor because gold bullion can easily be purchased from either a bank or a dealer. This practice is considered somewhat outdated however.

Investors can also look into previous metals futures contracts when looking to buy gold online or to buy other commodities online. These precious metals futures contracts are legally binding and they require the delivery of gold or another commodity such as silver, at an agreed upon price. These contracts contain information such as the amount of the commodity, the quality of the commodity, as well as the time and place of delivery of the commodity. The prices are variable, and keep in mind that delivery of the actual physical commodity rarely occurs.

Hedgers (see hedging) actually use these futures contracts in order to manager their price risk on an expected purchase or sale of the physical metal. Speculators are also provided with the opportunity to partake in the markets with the requirements of any physical backing.

For those investors looking to buy gold online he or she must put future supply and demand issues out in front. He or she should also understand that gold investing can be very helpful during times of hyperinflation. Gold has been able to hold onto its purchasing power better than paper during times of hyperinflation. Keep in mind that hyperinflation has never occurred in the United States however it did occur in Argentina. This strength in purchasing power in not just relevant for gold however, it is true for most commodities.

Continue to learn about the gold market to see if gold investing is something you should look into. You may find that gold as well as other commodities will be a good addition to your portfolio.

Online FX Trading

2009-10-06T11:11:00.000-05:00

Online FX Trading Introduction

For those investors looking to participate in online FX trading this article provides some basic information that you should know. Trading forex is a great way to make money if you know what you are doing. Begin your forex trading education and read this article, then continue your forex trading education further once you have determine if this market is the right market for you.

There are numerous books and online resources that you can find information regarding the forex market. When deciding on what resources to utilize make sure that you cover the following: The basics of online FX trading and the forex market in general, fundamental analysis, and technical analysis.

Forex traders should also read the newspaper such as the Wall Street Journal or Financial Times. Additionally helpful resources are any publications that discuss political and economic events as well as publications that cover general news. There are also websites that cover the FX market specifically so that you can keep up-to-date on any new developments. It is very important that you find sites that offer this type of information to ensure successful online FX trading.

There are also online forums as well as mentoring programs that you can sign up for whether online or in person. You can find these mentoring programs online and some mentors will even offer one-on-one time with you if necessary. Many forex investors find these programs as well as online forums extremely helpful. Mentors and your fellow investors in these forums can provide you with information from personal experiences so that you avoid making mistakes that others have made in the past. It is a great way to draw on others’ experiences in a way that can improve your forex trading skills.

When online FX trading you will also need to find a forex broker that suits you. Once you found a broker you will then need to find forex trading software as well. You can open up a demo account first so that you can test drive the software to ensure that it works for you. You must learn how to use the trading platform to ensure that it has the functionality that you are looking for. With the demo account you don’t actually trade with real money but it can at least give you and idea of what you will have to work with. You must ensure that you do your homework when choosing your software. You don’t want to get stuck with a trading platform that you end up disliking.

Buy FX

2009-10-02T10:45:00.000-05:00

For those investors who are looking to buy FX there are two types of analysis that you should understand. In today’s article we will discuss fundamental analysis and technical analysis as well as some of the investment strategies involved with both types of analysis.

When you buy FX using fundamental analysis you are buying based on the value of the company. You will look at things such as the company’s earnings, their quarterly or annual review, inflation, interest rates and much more. Fundamental analysts study the forex market in attempts to predicting long term trends (see long term investing) rather than short term trends. They look at many different indicators regarding the value of currency including the following: Purchasing Manager Index (PMI), non-farm payrolls, retail sales, Consumer Price Index (CPI) and durable goods. Investors will also rely on information provided by their broker depending upon the type of broker they have.

When you buy FX using technical analysis you are buying forex based on price trends. You can buy 24 hours a day when forex trading since the markets are always open. This is one reason that forex trading is so popular. Technical analysis is based on past price movements to indicate future price movements and technical analysts don’t look at the fundamental factors affecting the price because they believe these factors are reflected in the price. Some of the common forms of technical analysis tools that are used include the following: Fibonacci indicators, Elliott waves, parabolic SAR, and pivot points. These are only a few of the technical indicators used in technical analysis. Forex traders will use a combination of technical indicators when trading rather than just one.

Investors who buy FX take the time to develop a proven forex trading strategy and they stick to it. Some experts will use a combination of both fundamental and technical analysis however it seems as if most stick to mostly one method of trading. Technical analysts must be sure that they define their entry and exit points and that they develop a trading plan and follow their trading rules. Focus and discipline as well as a good trading education are the keys to success.

Continue to learn about the forex market and the different types of analysis that you can use. Determine if you would like to practice investing in the long term with fundamental analysis or if short term trading using technical analysis is right for you.

Stock Recommendations

2009-09-29T11:14:00.000-05:00

Stock recommendations are few and far between. Just be sure that the resource you are obtaining hot stock market tips from is credible. There are schemes that exist in the world of stock investing and in today’s article we discuss two of these schemes. These include the pump and dump scheme as well as the short and distort scheme.

The pump and dump scheme occurs when there are attempts to boost the price of a stocks through stock recommendations based on false, exaggerated or misleading statements. Those who produce these false statements have already purchased the stock and have established their position in the company’s stock. They then sell their positions after the hype has led to a higher stock price. This is an illegal practice and it can lead to extremely heavy fines if the perpetrators are caught. The victims of such schemes lose a considerable amount of money because the stock price more often than not falls back down after the process is complete. This scheme used to be done through cold calling, but since the advent of the internet, they are often done online and they target micro and small cap stocks since they are easiest and fastest to manipulate.

Another scheme that deals with false stock recommendations includes the short and distort scheme. This scheme deals with short selling. While short selling itself is not only permissible and a great way to make money investing, short and distort schemes occur when misinformation is used by the seller in a bear market. Short selling stocks is the practice of borrowing stock in the hopes that the stock price will soon fall, allowing traders to buy it back for a profit.

This scheme occurs when sellers manipulate stock prices in a bear market by taking short positions and then using a smear campaign to drive the price of the targeted stock down. Basically these sellers buy stock and issue false statements that cause the target’s price to increase. While the pump and dump scheme is more known by stock investors because of the long bullish market, the short and distort scheme is known as well. It is important for traders who are looking for stock recommendations and who are new to short selling to be ware of this scheme to avoid becoming a victim.

While these schemes exist, they are no reason to avoid investing in the stock market. Awareness if the first step and if you are ever unsure of the information you are receiving you should go back and do your own research. Besides investing decisions that you make should only be based on your own research in the first place.

Bond Trading

2009-09-25T06:00:00.000-05:00

Bond trading requires some considerable financial knowledge in order to invest wisely. In fact some investors feel that it is more complex than investing in the stock market. In today’s article we discuss primary and secondary bonds as it relates to corporate bonds as well as exchanged traded funds.

When bond trading you should know the difference between primary and secondary bonds as it relates to corporate bonds. Primary bonds are extremely difficult to get when bond investing. Many are only able to do this through their connections, such as knowing a banker at one of the institutions that is managing the primary offering. Secondary bonds are easier to obtain than primary bonds. The secondary market is the buying and selling of bonds after the initial public offering and it is open to smaller investors. This market is almost completely an over-the-counter market where trades are mostly done on closed bond trading systems that are proprietary or that are done over the phone.

When investing in bonds in the secondary market you must go through a brokerage firm. While you do have a broker to help you, it is important that you still do your own research to find out if the price you pay for specific bonds is reasonable. You should research things such as the mark up or the spread when you buy bonds. The spread is the difference between what the broker pays for a bond and what he or she is selling the bond for. The spread is actually built into the price of the bond so it is difficult to determine how much profit the broker makes.

When bond trading it is important to know that the corporate bond the primary and the secondary market are considered to be two distinct levels. Basically a corporation sells bonds in order to raise capital. The company negotiates with investment bankers and large financial institutional investors in order to place those bonds in the market. Placing these bonds in the market is similar to coming up with initial offerings of stock to place on the major stock exchanges.

Exchange traded bonds are a very small percentage of the overall market, estimating at around less than 15%. These new exchange traded funds trade like stock on a public exchange and replaces some of the older automated bond systems. Smaller investors are seeing opportunities in these exchange traded bonds.

Investing in stocks and bonds is a great way to diversify your investment portfolio. Continue to do you research and find out which types of bonds you should invest in.

What are Bonds?

2009-09-22T06:53:00.000-05:00

When learning about the different types of investment options available you are sure to come across bonds. What are bonds? Bonds are debt securities that are similar to IOUs. When investing in bonds you lending money to a corporation, the government, municipality, or a federal agency. In exchange for the loan, the issuer of the bonds promises to pay a specific rate of interest during the life span of the bond as well as the face value of the bond once it matures.

In today’s article we discuss the different types of bonds that are available for the investor to invest in.

What are bonds?

Individual bonds – these bonds are mostly bought and sold in the over-the-counter (OTC) market. Some corporate bonds are listed on the New York Stock Exchange. This market has hundreds of securities firms and banks that trade bonds over the phone and via computers. Your investment advisor can help you when buying bonds of this nature.

Bond funds – these bonds are similar to stock funds in that they offer professional selection and management of a portfolio of securities. These types of funds provide portfolio diversification as well as many other things. Bond funds also provide the investor with the option of having interest payments either reinvested or distributed at certain times. These funds are actively managed and they do not have a specified maturity date. Open-ended bonds funds actually allow the investor to buy bonds and sell bonds or sell your shares of the fund whenever he or she would like. Bond funds net asset values fluctuate daily so your portfolio will fluctuate as well.

What are bonds?

Money market funds – these types of funds are pooled investments that are short –term and highly liquid securities. They are highly liquid since most of them allow investors to withdraw their money at any time. They include U.S. Treasuries, certificates of deposit, and municipal bonds. They typically consist of securities and other instruments that have mature in three months or less.

Bond unit investment trusts – when bond investing this bond unit investment offers a fixed portfolio of investments in municipal, mortgage, government, or corporate bonds. The investments that are part of the trusts are professionally selected and they are constant throughout the life of the trust. The minimum initial investments for these trusts are typically between one thousand and five thousand dollars. The trust usually ends when the last investment matures.

Trading Options Online

2009-09-18T08:12:00.000-05:00

Trading options online requires that you first understand options trading in general. Options contracts are agreements between two parties where one party agrees to sell a sock to the other party within a specific time frame at a specific price. When trading options you don’t actually own anything as you would when simply trading stocks.

Trading options online requires that you learn about calls and puts. Calls and puts are the two types of options market orders. In addition to calls and puts, new options traders must also learn terms such as purchase item, strike price, expiration date, and quantity as it relates to online options trading. These terms refer to the information that is found in an options contract and they are described below.

Calls – calls are contracts made by a buyer who offers the conditions under which he or she will buy a particular stock.

Puts – puts are contracts made by a seller who decides the conditions under which he or she will sell a particular stock.

Purchase item – the purchase item is the actual stock

Strike price – this is the price that is the target for the options contract

Expiration date – the expiration date is the date in which the contract is no longer binding

Quantity – this is usually groups of 100

Trading options online also requires that you know about some other terms such as leverage and limited risk. Leverage is the ability of the investor to buy in bulk and occurs when the investor is purchasing options. The agreement when buying options is only if the transfer of assets ever takes place. Also, the contract multiplier of 100 (which is the number of shares per options traded) allows even smaller investors to trade a large exposure, or leverage, on a small amount of capital.

Limited risk is another asset to options investing. Trading options allows you take a view on the market direction with limited risk while also having unlimited profit potential. This is because options traders have the right but not the obligation to exercise the contract for the underlying exercise price. If the options trader finds that the price is not what they are looking for at the time of expiration, then the buyer simply lets the contract expire without buying anything. This provides a great advantage to investors over the traditional stock trading.

Trading options online is a great way to make money trading. Continue your options trading education and see if it is an investment option that works for you.

Trading Futures Online

2009-09-15T01:12:00.000-05:00

Trading futures online requires that you speculate on the future direction of the price of the commodity that you are trading. When trading futures you don’t actually own anything and the terms to “buy” and to “sell” actually indicate the direction that the investor expects the future prices will take. Futures traders must only deposit enough capital into their trading account to ensure that he or she is able to pay for any potential losses.

The futures broker that you choose when trading futures online will always be in contact with you so you must take the time to find a brokerage firm that works for you. You must understand the investment philosophy and the services of the brokerage firm that you choose. You must ensure that you agree with this philosophy and that the fees for the services are reasonable to you as well. It is crucial to do your homework when selecting a brokerage firm and you must ensure that you take the time to do this. Some things that you should consider when choosing the firm of your choice include the following:

Number of years in business
Level of service
Level of commissions
Type of brokerage or the clearing arrangement
History of ethical business practices

There are basically two types of clearing arrangements for futures brokers that you can choose from when trading futures online. These include the Futures Commission Merchants (FCM) and Introducing Brokers (IB). The Futures Commission Merchants is a group of brokers that accept orders to buy or sell options or futures contracts. They also accept money or other assets from customers in connection with such orders. Introducing Brokers include commodity brokers who delegate the work of the actual trade execution, floor operation and the back office operations to a Futures Commission Merchant and they act as the intermediary for investment options.

Trading futures online is seen as a form of insurance for those who are investing and trading. Farmers will sell a specific crop if they anticipate that the cost will depreciate before harvest. On the other hand, a manufacturer who uses that crop may buy futures if they anticipate that the price of that crop will rise before going to harvest. Both parties are guaranteed their price and the futures trader will look to gain an advantage by either buying or selling the commodity for a profit.

There is a lot more to futures trading than the information contained in this article. Continue to research the futures market and find out if it is the market for you.

Online Trading Software

2009-09-11T05:40:00.000-05:00

For those investors who would like to begin trading stock online. You will need to find trading software online that suits your needs. There are so many available on line that it can be an overwhelming choice. It can be especially difficult if you are new to the internet in general or if you are new to stock trading. In today’s article we discuss some things to take into consideration if you are looking for online trading software.

The trading software that you choose is one of the most important pieces of automated trading. This trading software facilitates technical analysis as users download data, stock charts, and other technical indicators that are necessary to successful trading.

There are two types of trading software that you must learn about before you begin to trade stocks online. There is the client-side trading software and the server-side software. The client-side software is software that is installed on the investor’s computer and it is connected to the internet. This software should contain real live data and current news and it is more secure than the server-side software. The company providing the online trading software will charge a fee for the software and the data it provides but the applications provides the investor with much flexibility. The server-side trading software is installed on a remote server and the investor will visit a web page to access the software. The stock trader pays a small subscription fee to use this application and it should also provide real live data as well.

While online stock trading software does not guarantee profit it definitely helps the investor to save a considerable amount of time. It provides the investor with quick access to real live data which can help the investor to make well-informed quick decisions. The amount of research and quickness of accessibility provide the online trader with an advantage over traders who are not using online trading software. Investors can also find specialized software that is designed for the system developer to build a trading system.

Of course the disadvantage lies in the fact that internet stock trading software can be expensive. It is often exposed to security threats as well and it requires the investor to stay on top of regular updates to their system.

While there are both advantages and disadvantages to acquiring trading software online, many stock investors feel that the advantages far outweigh the risks. Just be sure to do your own research and determine what works for you.

Trade Stock Online

2009-09-08T08:20:00.000-05:00

Trade Stock Online with Penny Stocks

For those traders who would like to learn about penny stock trading this article provides tips that should help to lower the investment risk involved.

Trading volumes – Penny stock investing requires that you look for consistent high volume of shares being traded. You wouldn’t just look at the average volume. You need consistent volume so you must look at the number of trades per day. You should also look at liquidity when you trade stock online with penny stocks.

Investment risk – Just because you’re investing in penny stocks as opposed to regular stocks doesn’t mean you won’t lose big. You still must realistic about the stocks you are investing in and must be sure to do your research.

Profitability – You must look at and determine whether or not the company that you are adding to your list of penny stocks knows how to make a profit. Find out if the company will have to seek additional financing and why. Will they need to seek joint partnership at some point? Once you determine the company can make a profit, you should be in pretty good shape to trade stock online. The company should use that money to grow their business therefore increasing shareholder value.

Trading Strategies – penny stocks are extremely volatile so you must have a trading plan in place. This trading plan must include your trading strategies and your entry and exit plan. You must also be sure you are disciplined and that you follow the trading plan. Penny stocks will quickly rise and fall in value very quickly so you must have a strong plan and discipline to follow your plan.

Research – You must be sure that you don your own research before investing in stock online. There are scams that investors refer to as “pumping and dumping.” This occurs when insiders will load up on shares, then start to pump the company to unsuspecting newsletter subscribers. Then the subscribers buy stocks while the insiders begin to sell! You must watch out and ensure that this does not happen to you. Of course not all newsletters are bad, but you must consider the source of the newsletter. You must subscribe and track your own investments.

Portfolio Diversification - Many investors believe that you should not invest more than 20% of your portfolio into penny stocks when you trade stock online.

Continue to do your own research to determine whether or not penny stocks are something that you want to begin investing in.

Dow Futures

2009-09-04T03:00:00.000-05:00

Dow futures contracts trade on an exchange and they have built in leverage which allows traders to make a lot more money on fluctuating prices in the market. Futures contracts are legally binding agreements between two parties where each party agrees to exchange an asset based on a relationship to a pre-set price on an underlying index. These futures contracts serve as a counter-party of every position so you don’t have to worry about the investor who holds the other side of your position. This is because all of the futures contracts are cleared through the options exchange. Unlike options contracts, which give the holder the right but not the obligation to exercise the terms of the contract, in a futures contract, both the buyer and the seller must perform their part of the contract.

The Dow futures begin to trade on the Chicago Board of Trader at 7:20 a.m. central standard time. This is one hour and ten minutes before the stock market opens and it gives people an idea of the sentiment of the markets since it allows trading to take place before the actual stock market opens. What this tells investors is that if a company reports major earnings in the Dow Futures and the futures go very high, then chances are that the market itself will rise as well. This of course also means that if something occurs before the stock market opens that causes the futures to drop on the Dow, then chances are the stock prices will fall once the stock market opens.

As stated above Dow Futures have built-in leverage that allows traders to make a lot more money on price fluctuations in the market than they could by simply buying stock directly. These futures work on a 10 to 1 leverage which means that if you are trading at 8,000, a single futures contract would have a market value of $80,000. That means for every one dollar, the Dow Jones Industrial Average fluctuates and will either increase or decrease ten dollars. What this means is that the stock trader who thought the market would rally big would acquire these futures and make a major profit as a result of this leverage.

When learning about the stock market, trading futures contracts, and trading options, there is so much to learn that it can be overwhelming. Just take it one step at a time, focusing first on the stock market basics, and then go from there.

Forex Options

2009-09-01T02:56:00.002-05:00

Forex Options Information

There are two types of forex options that we will discuss today. These include SPOT options (single payment options trading), and traditional options. We will also discuss why many investors choose to trade options.

SPOT options are the type of option that allows an investor to set the conditions that must be met in order to receive a desired payout and also to set the size of the payout that he or she will receive if the conditions are met. When trading options using SPOT options there is typically a higher premium paid to the broker. When options investing you can also invest in traditional forex options. These allow the buyer the right but not the obligation to purchase from the option seller at a set price, and also at a specific price.

There are many reasons that investors opt to trade forex options. These reasons are listed below.

There is unlimited potential for profit
Less money is paid up front for a SPOT forex position
The downside risk is limited to the option premium
Options can be used to hedge against open SPOT positions to limit risk. (see hedging)
Investors are able to set the price and the expiration date when trading options.
There are numerous choices available with SPOT options including standard options, one-touch SPOT, no-touch SPOT, digital SPOT, and more. With the one-touch SPOT you receive a payout if the price reaches a certain level. With the no-touch SPOT you receive a payout if the price doesn’t reach a certain level. The digital SPOT allows the options forex investor to receive payout if the price is above or below a specific level.

While there are many reasons that investors like to trade using options, there are also some disadvantages that come with the options markets. These reasons are described below as well.

It can be difficult to predict the exact time period and price at which these movements will occur in the forex markets and other markets when trading options.
The premium also varies according to the strike price and the date of the option so the risk reward ratios vary.
SPOT options cannot be traded and once you buy one of these options you cannot go back, change your mind and sell it.

While there are advantages and disadvantages to the options trader, as long as you take the time to receive an options trading education, the advantages should outweigh the disadvantages.

Forex Hedge

2009-08-28T01:58:00.001-05:00

What is a forex hedge?
This type of hedge occurs when a currency trader enters into a trade with the goal of protecting an existing or an expected position from a move that is unwanted in the foreign currency exchange rates. How it works is that a forex trader who is short a foreign currency pair, can protect him or herself against upside risk. On the other hand, a trader who is long a foreign currency pair can find protection against down side risk.

There are primarily two ways that you can enter into a forex hedge when investing in the forex markets. You can either use foreign currency options or spot contracts. Foreign currency options one a very popular form of hedging currency because it gives the buyer the right but not the obligation to buy or sell the currency pair at a particular exchange rate at a specified time in the future. You can actually use your basic options strategies, including strangles and straddles, in order to limit losses.

Spot contracts are done by retail forex traders at they are your basic forex trade. They have a very short term delivery date so many don’t prefer to use spot contracts when hedging. In fact, spot contracts are usually the reason that this hedge is needed in the first place.

When putting together your forex hedging strategy there are four main components to consider. These include, analysis of the traders risk exposure, their risk tolerance, and their forex trading strategy. It is important to identify the types of risk taken with each position as well as the implications could be when taking on the risk in order to determine if the risk is too high or if it is low.

Traders also need to determine their own investment risk tolerance so they know how much of a position should be hedged. They need to determine the level of risk that they are comfortable with in order prevent trading anxiety from occurring, which will negatively impact their trading success.

Forex traders who practice forex trading and hedging must also determine what trading strategies they will use. They must determine which strategies are proven to be the most cost effective with the forex hedge.

Part of coming up with your trading strategy includes coming up with your forex trading plan. Be sure that once you develop your trading plan that you follow it! Too often traders spend time developing their trading plan only then failing to actually follow it.

Futures Commodities

2009-08-25T13:12:00.001-05:00

Futures Commodities Traits for Success

Futures commodities traders need to learn how to profit in every type of market condition. In today’s article we focus on traits that that will help the commodity trader to be successful in the futures market.

Have the necessary tools – the more equipped you are with the necessary trading tools the better you will perform when trading futures. You must ensure that you can access the market twenty four hours per day, that you have the software necessary to help you analyze the market quickly, and that you have access to real time quotes. These tools will enable you to react quickly to forever changing futures commodity market conditions.

Strong futures analysis – strong futures analysis requires that you to understand technical analysis and fundamental analysis. You should learn both types of analysis and decide which one you will utilize when investing in futures commodities. When using technical analysis you will learn about technical indicators that you can use to conduct your analysis. There are books and online forums as well as seminars that you can attend to learn more about both types of analysis when trading or investing in futures commodities.

Think for yourself – do your own analysis and research and make trading decisions based on your own analysis. Don’t follow the crowd or jump on the bandwagon of so called hot tips. Ensure that you create a trading plan and come up with those trading strategies that you believe in. Be sure that you don’t trade based on greed and fear and pay attention to what is happening in the world and the economy. While you may follow technical analysis you still should pay attention to what is happening around you.

Continued education – never stop learning about futures commodities. Continue to learn about new way of trading futures, and continue to attend seminars or other types of events where you can brush upon your learning. Seminars are great for networking with other investors so that you can compare notes and ideas. You can learn from other trader’s mistakes in order to increase your chances of success.

These are traits of successful futures commodity traders but there are many other traits as well. The basis for all traits is to stay informed. Stay informed about what is occurring in the commodities market, different trading strategies, as well as the different types of analysis. Never stop learning and continue to network with other individual investors in order to become a great trader.

Futures Trade

2009-08-21T06:52:00.000-05:00

When placing a futures trade there are many issues that you can run into. Futures traders must understand the common mistakes made as well as what they need to do in the futures market in order to make a profit. In today’s article we discuss some common mistakes made by traders in this market in hopes that it will help some traders to not make the same mistakes.

Protect yourself – many traders in this market fail to protect themselves. There is always investment risk involved when doing any type of trading so you must ensure that you find ways to protect yourself and incorporate it into your futures trading. Many investors will use stop loss orders to do this. Sell and buy stops can limit your losses. Many will also buy puts with attempts to keep your losses to a minimum while maximizing profits.

Follow your trading plan – many investors do not follow their trading plan and some don’t event take the time to develop one. If you do not have a futures trading plan you must stop trading immediately. Trading without a plan is like gambling. It can also lead to emotional investing (see psychology of investing) which inevitably results in profit loss. You learn to analyze the markets when you place a futures trade and you must learn to see signs of trends so that you can adapt to the market. Having a trading plan will provide you with consistency in your trades and profitability.

Never stop learning – the markets are continuously changing and there are always new things to learn. Just like any other industry you must stay on top of changing trends and new ideas. Be open-minded and try new trading strategies that you can implement into your trading plan. Don’t get left behind with old thinking and methodology if there is some new trading strategy out there that you can benefit from. Continued education is the key to successful trading.

Stay focused – when placing a futures trade you must stay focused. There are always going to be potential distractions but you need to have as few as possible as you trade futures or any other type of financial asset. Focus means discipline and both are absolutely necessary to achieving consistent trading success.

There are many more trading techniques and tactics to learn about when trading futures. Continue to learn about the futures market and see if it is a good fit for you.

Future Contracts

2009-08-18T08:31:00.000-05:00

Future contracts are contractual agreements to buy or sell particular financial instruments, such as commodities, at a pre-determined price in the future. Two parties agree to a set of terms in order to transact a set of financial instruments for future delivery at a particular price and they agree to the quality and the quantity of the underlying asset. Buyers of future contracts agree to buy an asset that a seller has not yet produced at a set price. Some futures contracts require physical delivery of the asset while others are settled in cash.

The futures market is very liquid, complex and is seen by many as risky. Once it is understood however many are able to make great profits. Most buyers and sellers that participate in this market enter primarily to hedge risk (hedging) or to speculate rather than to actually exchange physical goods.

When opening this type of contract, the futures exchange will give the minimum amount of money that must deposited into your margin account. This deposit is called the initial margin and once the contract is liquidated, you are refunded this initial margin amount plus or minus any gains or losses that occurred over the life of the future contracts. This initial margin amount is typically about 5% or more of the contract but they can change depending on market volatility.

There is also the maintenance margin, which is the lowest amount that an account can reach before more money needs to be added. The amount of money in your margin account fluctuates daily as the market fluctuates, but if your account drops below this maintenance margin amount, then brokers are required to make a margin call. This margin call requires that you deposit more money into your account to bring it back up to the minimum maintenance amount. (See margin buying)

Leverage, as it relates to future contracts is another factor to take into consideration in addition to margin. You can enter into a contract of this nature that is worth a lot more than your initial investment. Leverage refers to having control large cash amount of commodities with a small level of capital. Basically, what this means is that you can enter into a contract that is worth more that you initially have to invest, with a relatively small amount of cash. (See margin trading)

Buy Online Shares

2009-08-13T14:01:00.002-05:00

In today’s article we discuss stock market terminology that is helpful to those individuals who would like to buy online shares. See definitions below.

Outstanding shares – also known as “issued” stock outstanding shares are those stocks that are currently held by investors. These shares can be restricted shares that are owned by the company’s insiders and officers in addition to publicly held shares. You can see this information on a company’s balance sheet and it is used in the calculation of many different metrics such as earnings per share and market capitalization. The number of outstanding shares per company fluctuates as the company issues new shares, retires existing shares, as shares are repurchased or when other financial instruments are converted into shares.

Weighted average – when you buy online shares you should learn what the weighted average is. This average takes into account the amount of outstanding shares over a certain reporting period. The weighted average determines the importance of each quantity of the average and it is also used in calculations pertaining to the earnings per share and other financial calculations.

Issued shares – issued share are shares that are authorized and sold to as well as held by shareholders of a company. Just as defined above, they are also known as outstanding shares and can be insiders, the public or institutional investors. Before you buy online shares it is important to understand that a company issues shares in order to generate capital. The stock that is provided to insiders is part of their compensation and the amount of issued shares can be a part of the total amount of authorized shares of a company or it can be all of the authorized shares of a company.

Earning per share – the earning per share is the net income minus dividends on preferred stock divided by the average outstanding shares. The earnings per share indicate a company’s profitability and it is seen as the most important things when determining a share’s price.

Fully paid shares – when discussing stocks and shares, fully paid shares are paid once a company receives the full amount from shareholders. Shareholders are required to pay a certain amount for issued shares when a company issues those shares. They are fully paid when no additional money is required to be paid by the shareholders on the value of those shares. Fully paid shares are different from partially paid shares. Partially paid shares are those shares in which only a portion of the face value must be received by the company. Shareholders are still required to pay the remaining balance due to the company on those shares.

Dividend Yield

2009-08-12T10:04:00.001-05:00

When learning about finance it is important to understand terms such as dividend yield, ex-dividend, cum-dividend and more. In today's article we discuss some of the terminology associated with dividends.

Dividend yield – this is a distribution of a piece of a company's earnings. The board of directors decides on this distribution amount and they distribute it to their shareholders. The shareholders receive so many dividends per share and the shares are quoted as a percentage of the current market price. It is calculated by taking the annual dividends per share and dividing it by the price per share. It is the return on investment for a stock with the lack of capital gains.

When learning about stock dividends it is important to the first know the definition of a dividend itself. Dividends exist in the form of stock, property or cash and they are offered mostly by stable and healthy companies. Those companies that offer dividends don't typically have share prices that move up or down in price very much but the dividend makes up for that lack in movement. When looking to invest in dividends it is important to note that many high-growth companies will rarely offer dividends. This is because they reinvest their profits back into the company in order to continue growth. This is referred to as dividend reinvestment and is another term that you should familiarize yourself with in addition to the term dividend yield.

Ex-dividend – a stock is called an ex-dividend is an investor is confirmed by the company to receive the dividend payment. Basically, it is when the dividend belongs to the seller instead of the buyer. When trading shares, you will come across this definition.

Cum dividend – this is what happens when the buyer of a security entitled to a dividend that has already been declared but it has not been paid.

Dividend payout ratio – more mature and healthy companies have a high dividend payout ratio and it is calculated by taking the yearly dividend per share and dividing it by the earnings per share. Another way to calculate it is to take the dividends and divide them by the net income. In other words the dividend payout ratio is the percentage of the earnings that are paid to shareholders. This ratio gives the investor insight into how well the earnings actually support the dividend payments.

The dividend yield is one of many terms that investors will come across as they learn how to find dividend paying stocks. Continue your dividend education and learn about mutual fund investing and stock investing in order to build a diversified portfolio.