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Forex or Stocks: Which Should You Be Trading?

Forex or Stocks: Which Should You Be Trading?

When you think of Forex, it is important not to confuse Forex trading with ‘playing the stock market.’ They are two very different things, and it is important to understand the difference. Let’s take a look at stocks and Forex.
Stocks

Stocks are traded on a stock market, such as the New York Stock Exchanges (NYSE) and the National Association of Securities Dealers Automated Quotation System (NASDAQ), and this has been so for as long as stock markets have existed. When you purchase stock, you are essentially purchasing a share, or shares, in the company that is selling the stock. Companies sell stock in order to raise money to grow the business. When you buy stock, you are investing in the business.

If the company that you’ve invested in does well, the value of your stock rises. If it doesn’t do well, the value drops, meaning that it will no longer be worth as much as you bought it for. Obviously, the entire successful notion of buying and selling stocks is to buy low, and to sell when the price is high. In many cases, this is the only way that you see a return on your investment, but many companies pay out dividends to their shareholders as well, where a percentage of the overall profit is paid out to investors, based on how much stock in the company the investor owns.

Stocks are traded through stock brokers. Stock brokers earn a commission on the stocks that they trade, which is paid by the investor. Stocks may be listed with one stock exchanges, or on several stock exchanges. Stocks can be either long term or short term investments, but ideally, they are long term investments. If you deal in stocks, you should have a diversified portfolio, covering several different industries, and including several ‘blue chip’ stocks, which have proven to remain steady over numerous years.

Short term stock trading is very risky. You may know the short term stock traders as ‘Day Traders.’ Day traders are short term stock traders who try to profit from the daily fluctuations in the stock market. They often buy and sell several different times during the day – buying low, and selling high.

Like Forex, some stocks can be bought on margin. This means that the trader borrowed the money to buy the stock. Margin rates typically run around 50%, meaning that the investor can borrow about half of the value of the stock.
Forex

Forex is the Foreign Exchange Market. While stocks may be bought for long or short term, trading currency is always short term trading, with investors buying and selling a currency within a 24 hour period. While Forex trades are made through brokers, they are essentially commission free, and the fees are based on a spread, which is the difference between the asking price of the currency and the selling price of the currency. You can visit ChangeCurrency.org and find our more about the ins and outs of how currency markets are set up, and how they work.

Forex is not a stock market, it is a financial market. In fact, it is the largest financial market in the entire world. While the Stock exchanges in the United States have transactions in the neighborhood of $100 billion per day, the Forex market has transactions in excess of $1.5 trillion dollars per day. While stock exchanges are located in specific places, such as New York, there is no specific place for the Forex. There are trading markets located around the world.

Another advantage of the Forex is that it is open twenty four hours per day, five days a week, whereas the stock markets are only open seven hours, five days a week. This makes Forex traders very happy, because they can buy and sell currencies whenever they feel that the time to buy or sell is right, instead of having to wait for the market to open.

The Forex is also a great deal more predictable than stocks, and it doesn’t take a great deal of money to get started with Forex trading. For instance, you can open a mini account for as little as $250!

An Option Strategy Based On Momentum and Price Movement

An Option Strategy Based On Momentum and Price Movement

This strategy attempts to identify points in time when upside or downside price movement is likely to have run its course, based on the percentage of price movement over a given number of days. It looks for momentum to reach or exceed a given overbought or oversold “threshold”, and then to reverse for one day.

This strategy calculates a “Momentum” value and a “Volatility” value for each trading day. The Momentum value is the weighted average change in price. The Volatility value is the Standard Deviation of the Underlying index.

The “Momentum” model generates a “Buy Calls” signal when:

A) The Momentum value falls to or below the “Buy Calls Trigger” and then reverses for one day, AND:

B) The Volatility value is below the “Volatility Cutoff” level.

The “Momentum” model generates a “Buy Puts” signal when:

A) The Momentum value rises to or above the “Buy Puts Trigger” and then reverses for one day, AND:

B) The Volatility value is below the “Volatility Cutoff” level.

The “Volatility Cutoff’ acts as a filter and is intended to prevent trading signals from being generated when volatility is very high. Buying premium when volatility is high exposes a trader to the risk that option prices will decline, regardless of market movement, if volatility declines sharply.

Parameters

A) Buy Calls Trigger -In order to get a signal from the Momentum strategy to buy calls, the calculated Momentum number must fall to or below the “Buy Calls Trigger” value and then reverse to the upside for one day.

B) Buy Puts Trigger -In order to get a signal from the Momentum strategy to buy puts, the calculated Momentum number must rise to or above the “Buy Puts Trigger” value and then reverse to the downside for one day.

C) Momentum Days -This is the number of days used to calculate the “Momentum” value AND how many days are used when calculating prices changes for each of those days.

D) Volatility Cutoff -The Volatility value that is calculated each day MUST be less than this value in order for a signal to be generated.

E) Exit Days -The position will automatically be exited after this number of trading days.

F) Option Strike -Determines how money strikes in or out-of the-money the options that are purchased as a result of trading signals.

Sending Money Transfers To Your Stock Broker? Read This..

Sending Money Transfers To Your Stock Broker? Read This..

Are you planning to send money to a stock broker overseas? Well, this guide will discuss the best practice for making international money transfers. The factors discussed will ensure that you do not make costly money transfer mistakes. These factors in most cases affect both the sender and the receiver.

Choose companies that are trusted

Choosing the right company to transfer your money is the first step to cutting down on the cost to send money as well as to send it safely. Governments are tightening their control on money transfer services to deal with terrorism.

That means you need to use companies that are allowed and licensed to send money to most countries. If you use the wrong company to send funds, they may be frozen for a set period before your recipient can withdraw them.

Hidden Money transfer fees

There are several ways that money transfer services use to meet their operation costs and make a profit. There are also charges that their agents add on to the service they offer. These are:

• Account Opening Fees
• Money Transfer Fees
• Agency Withdrawal Fees
• Account Maintenance Fees
• Exchange Fees
• Sending Fees

The above fees may not be stated outright, but you need to ask any money transfer service about them. These fees in most cases are stated in the form of a percentage. That makes them quite punishing when you are sending large sums of money.

Other money transfer services have set minimum charges for one to use their services, which make the transfer of small amounts quite expensive. If you haven’t fully understood the transfer fees plan of your preferred money transfer service, then you are not using the best practice for making international money transfers.

Here are some good articles for further reading on fees, and services.

http://www.forexrate.co.uk/transfer-money-abroad-beat-banks-natwest-lloyds-barclays-hsbc-nationwide.php

https://www.moneyadviceservice.org.uk/en/articles/bank-fees-at-a-glance#foreign-transaction-fees

Sending Options

Many money transfer services allow you to maintain a virtual bank account that allows you to operate an account in your receiving country of choice. Although such accounts are only available in select countries, they may be beneficial if your receiving country is among them.

One can choose to either use their local agents in the receiving countries, Debit Cards, or bank transfers. Bank transfers are the best for large amounts. Medium amounts can be withdrawn using Debits cards while small amounts can be withdrawn using agents.

Amount Limitations

With recent terror events around the world, countries are trying to control the flow of money around the world. That means that you cannot just send money to someone if they are not registered with a financial institution.

If they are not registered users, then they need to come with some form of identification. They also will be limited on how much they can withdraw each time. It is important to confirm what restriction the recipients must overcome to access the money immediately, and how much they can access at a time.

Customer service

Customer service is the final and one of the most important things to consider when sending money to someone. A poor customer service will not only frustrate the recipient in case there are problems but you as well.

You need to know you can get assisted at any stage of the transfer if it is not an instant transfer. Transfer of large sums of money is never instant in most cases because they use international bank transfer protocols.

Tips: Improve Your Chances Of Success In The Stock Market

Tips: Improve Your Chances Of Success In The Stock Market

Stock market investing can be a very challenging undertaking. Trading on the stock exchange takes time, knowledge, skill and a lot of patience in order to master the task. If you are not smart and skilled in your trading, you could end up losing in a big way.

There are a number of factors to keep in mind when delving into stock market trading. You will want to keep the following in mind in order to increase your chances of being successful in the stock market.

Never Trade With Money You Can’t Afford To Lose

Let’s face it – stock market trading is a gamble. Depending upon your experience, and sometimes luck, you have just as much of a chance of losing your money as you do of making any. Therefore it is imperative that you never gamble in the stock market with money that you need to survive.

The stock market is fluid and unpredictable. Using money that you need to put a roof over your head and food on the table is not only a gamble but a very bad idea. Always make sure that you are aware of the risks and have made sure you can take on the risk involved.

Start Out Trading In Small Increments

Larger trade can equal larger profits. But they can also realize sizable losses. Chose a reasonable sized trade to make sure you don’t endure a substantial loss.

If you make a trade that is so large it could wipe out all your money then this isn’t a wise trade. Start out small and scale up your trading from there. It never hurts to make several small profits.

Research Market Trends Before Trading

Before you start trading you will want to do a little research and check out the market trends. Take some time to see if the market is up or down and how it will work with your trading strategies. Being educated before you start can help you make the right decisions to help you realize profits.

Having a good plan before starting and making your trading decisions based on your research can help you conduct a success trade. This is the best way to avoid bad trading choices.

Have An Exit Plan Before You Begin

No matter what your trading strategy is or what your goal from the venture may be, it is imperative to consider an exit strategy before you even begin. Having a plan on when you will get out of the trade is an important step in a successful trade.

Trading is a fluid and volatile game. Timing is everything so understand when to get in is important but knowing when to get out is how the knowledgeable trader makes his money.

If you are buying stocks for the first time and you have been led to believe that this will be an easy way to make some quick money, you have been seriously misinformed. Stock market trading is not a get-rich-quick plan. You need to be knowledgeable, well researched, and have a clear plan of action when investing.

If you want to have a successful trading experience, you need to make sure you have taken into account all the factors that will affect your stock in order to make the best decision regarding your investment. But don’t be scared off by the challenge, with some research and hard-work, you can have a profitable trade and positive investment experience.

Ways To Buy Stocks Without Brokers

Ways To Buy Stocks Without Brokers

The most common way to buy stocks is through a broker. Whether it is using a traditional firm or opening up an account with an online discount broker, most investors prefer to buy and sell stocks this way. Regardless the type (traditional, discount, or online), your stock broker will handle placing trades on your behalf and in return receive a commission.

Although using a broker is the most common method for investing, there are a few ways to buy stock without a broker. Two other options for purchasing investments include direct stock purchase plans and dividend reinvestment plans. Each of these methods has their advantages and disadvantages which are explained below.

1. Direct Stock Purchase Plans

Many established blue chip companies offer a direct stock purchase plan as an option to own shares of their company. A direct stock purchase plan allows investors to buy shares directly from the company. For example, Procter & Gamble (PG) and McDonald’s (MCD) offer these plans which can take many of the hassles out of investing.

Most of these plans require a minimum initial deposit in order to join. There are some companies that even allow the investor to setup an automatic withdrawal every month from a bank account to purchase additional shares. This can be a great way to accumulate shares without wasting any time placing orders and monitoring your brokerage account.

If you plan to invest through direct stock purchase plans, it is important to understand they do have a few disadvantages. Purchasing shares from these plans should only be used by long term investors. Day traders and other short term investors are better off using an online discount broker to save the pain of moving in and out of stocks.

Another disadvantage to these plans is that an investor may end up having accounts spread out across many different companies. The advantage of using a broker is that all of your investments are consolidated into a single account, unlike the direct plans which have multiple accounts.

Each direct stock purchase plan is different, so it is a good idea to read up on the details of what each company offers.

2. Dividend Reinvestment Plan (DRIP)

Not all companies offer direct stock purchase plans, but there still is another way to buy stock without a broker. A company that does not offer a purchase plan may still offer a dividend reinvestment plan (DRIP). Investors can setup a dividend reinvestment plan directly through a participating company without the need for any other account.

A DRIP is used to reinvest all dividends back into additional shares of the same stock instead of receiving a cash payment. Depending on the company, most DRIP programs are quick and easy to setup and can be done directly through a company’s website. Some companies may require you to own at least one full share of their stock to participate in the plan.

Similar to direct stock purchase plans, there are a few disadvantages to setting up DRIPs. Since you will need to setup the plan directly through the company, you will need to have separate accounts for each stock you invest in. This can end up creating more work when an investor tries to track all of their investments.

Another problem with setting up dividend reinvestment plans is the amount of shares you will end up owning. If you only start with one share, it will take a long time to build a decent size holding in the stock.

There are a couple easy ways to buy stocks without a broker that investors can use. A direct stock purchase plan can be setup with a company to invest in their shares. This is an easy way to avoid the hassles of managing an account.

Another option is to open a dividend reinvestment plan directly with a company. A DRIP as they are called will automatically reinvest any dividend payments received back into additional shares of the stock. Once an investor purchases the minimum number of shares required to start (usually one), a DRIP is very easy to manage.

Investors who are tired of dealing with stock brokers can leverage either of these options to buy stock. However, there are a few disadvantages to these plans that investors must consider. Often times, the convenience of having a broker is just easier than buying stock directly from a company.

Stocks With Free Cash Flow – What It Means

Stocks With Free Cash Flow – What It Means

An important financial calculation to consider when you buy stocks is free cash flow. Also known as FCF, it is the measure of operating cash flow less any capital expenditures from a company’s operations. It represents the cash that a company is able to create once all expenses have been paid to maintain its assets.

It is important to invest in companies that have the ability to generate free cash flow. A company that has no cash is not able to develop new products, acquire smaller companies, reduce debt, nor pay its shareholders dividends. For investors who invest in dividend paying stocks, free cash flow is an extremely important factor when selecting investments.

cash-flowAll of the side effects of having positive cash (i.e. reducing debt, paying dividends) help to improve shareholder value. More importantly for income investors, it allows dividend paying stocks the ability to increase their distributions each year. Companies like Procter & Gamble (PG), Johnson & Johnson (JNJ), and McDonald’s (MCD) have consistently maintained positive free cash flow in order to continue growing their businesses while increasing their distributions to shareholders each year.

How to Calculate FCF

Free cash flow can be calculated by subtracting all capital expenditures made by the company during a period of time from the operating cash flow. The following equation can be used to perform the calculation –

FCF = (Operating Cash Flow) – (Capital Expenditures)

Let’s take example stock X and calculate the company’s free cash flow. For the year, the company reported 16,072 million in operating cash flow and 3,067 million in capital expenditures. Based on these reported numbers, the company’s FCF would look like this –

FCF = (16,072 million) – (3,067 million)

That means X had a free cash flow of 13,005 million or 13 billion USD. That same year, the company had approximately 3,099 million outstanding shares, which means the company had ~$4.20 in FCF per share, as opposed to $4.11 in reported earnings per share.

Earnings or Free Cash Flow

Much of the focus on Wall Street surrounds earnings per share and price to earnings ratios. While these numbers are an important measure of a company’s success, they don’t really tell the whole story. Companies are able to massage their earnings based on accounting to make them appear more favorable to shareholders. On the other hand, a company’s free cash flow cannot be massaged or made to appear more favorable to investors.
Negative Free Cash Flow

It is not always necessarily a bad sign if a company has negative free cash flows from time to time. This could be a sign that a company is making a large investment to grow the organization. If a company is successful with these investments, eventually it will turn into higher cash flow in the future.

When you are reviewing a company’s FCF, make sure you understand where the numbers are coming from. In a given reporting period, a company may have negative free cash flows. If you are able to detect the reason behind this change, then you can decide if the negative cash flow will help or hurt the company in the future.

Earnings can often be misleading numbers when it comes to identifying quality investments in the stock market. Based on accounting practices, certain items can be hidden from earnings numbers to make them look more favorable to investors. An alternative to earnings is to look at free cash flow which is much harder to change the appearance. Cash is an important indicator of how well the company is operating and can help give an indication of future growth of the organization and the potential for future dividend hikes.