Strengths of Mutual Funds

The main strengths are of course diversification and liquidity. If you’ve been reading this site for any length of time you’ll know I’m a big promoter or diversitication. Not everyone agrees. I’m a bit more cautious than most. The general idea is that you spread the risk by by spreading your investments across different holdings as well as different areas. This means that if one is suddenly thrown into turmoil you won’t have to panic about losing all your cash. Liquidity gives you the option to cash out and run to the hills with the cash equivalent of your holdings! I’m not sure what you’d do in the hills with all the money but hey, that’s up to you.

Weaknesses of Mutual Funds

It’s a bit dull. Yes I said it. You can’t impress your friends with all the mutual fund goodness. If this is something that you’re into then back away now. I’m sure there’s some new tech company wanting your dollar. If it’s not then stick with me, we’ll get through this dullness to a pot of gold. That’s assuming the fund manager knows what’s he’s doing and with that comes another weakness of mutual funds. You lose the power of control as someone else is making all the decisions. I actually look at this as a bonus as it’s one less thing for me to worry about.

Mutual Funds are a necessary bore

Personally, I love index funds which basically buy up a whole portion of the stock market. The Motley Fool is a fan too so don’t just take my word for it. I’m off now to watch my mutual fund increase very slowly in value. Check back later for a full breakdown of types of mutual funds and just why I love index funds so much!

After the system of fixed exchange rates was stopped, the Chicago Mercantile Exchange (CME) began the currency futures trading in the year 1972. Throughout the 1970s, the futures trading market underwent rapid changes. With the establishment of International Monetary Market (IMM) in the same year, futures trading market is at $100 billion and ever growing. Most of the transactions are conducted electronically.

The trading market works similarly to other trading markets, that is, index and commodity trading markets and they deal with the trading rate. Also known as the Foreign Exchange future, the trading entails exchange of one currency with the other at a pre-determined specific date in the future at a price which was fixed on the day of purchasing the stocks. Usually, the ‘price’ of the investments is established on the basis of each unit of the other currency according to US currency.

Dealing with foreign currency futures is better than currency markets because the financial markets are more unreliable and volatile. For instance, there are problems of non – centralized pricing and currency brokers trading against their clients. Such problems are not seen in futures currency trading.

Popular Currencies for Trading
1. The Euro to US Dollar (EUR)
2. The British Pound to USD (GBP)
3. The Australian Dollar to US Dollar (AUD)
4. The Swiss Franc to USD (CHF)
5. The Canadian Dollar to USD (CAD)
6. The Euro to Swiss Franc (RF)
7. The Euro to British Pound (RP)

Two Uses

The foreign currency futures are used for two purposes –

Hedging
In simple terms, hedging is the means of securing investments in foreign exchange to receive guaranteed returns of predetermined price per unit, regardless of the fluctuations in exchange rate at the time of receiving the amount. This way, the investor is assured of fixed cash flow on the date of expiry. By hedging the amount, an investor is actually securing or locking the current exchange rate.

Speculation
The futures currency can be used for taking currency investment risks, that is, involvement in speculation and thereby hoping to gain from the profits, if any. For instance, if the closing price of EURO FX Futures on a particular date is $1.2673 and the opening price was $1.265, then the difference between the two is termed as ‘profit’ for the investor and immediately paid also. Many people use stock market software for this type of trading as well as for day trading strategies.

Overall, the futures currency market is a beneficial tool for investors to earn profits on their investments though hedging or speculation. Compared to others, it is stable and can gives you a great chance of making a profit in the long run. Check out information about currency option trading if you enjoyed this post.

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So let’s get started with this latest lesson. Penny stocks exacerbate the element of unpredictability and excitement in modern-day stock market investing. Although new investors are generally advised to restrain from investing in these stocks, history is littered with examples where these very stocks have helped millions of people make a substantial amount of money. This is why so many people want to try penny stocks. It seems easy, there is little risk and the profits can be huge.

In essence, penny stocks are high-risk securities belonging to small companies with limited footprint and are traded on Pink Sheets and OTCBB (Over the Counter Bulletin Board). While taking calculated risks can help you make money by investing in penny stocks, there are certain pitfalls which every investor/potential investor must be wary of to minimize losses. This goes for any type of investing. Don’t assume because you’re trading in small amounts that the risk is reduced. There is still a good chance that you could end up losing your money.

One of the problems with buying penny stocks is that they can seem deceptively lucrative. It is important to understand that not everyone can make a fortune by investing in these stocks. Just in exactly the same way that not everyone will be successful with value investing. If that were the case, the investment fraternity would comprise of millionaires. Small start-ups usually announce their arrival by getting their shares listed as opposed to launching an IPO simply because of economic constraints or the absence of a feasible business road map. While not all companies offer penny shares for this reason, it would be prudent do evaluate the present/future credentials of the firm. This is another issue I have with penny stocks. I’m unable to do the normal level of analysis that I would do to one major company where I feel that the stock price is undervalued. It just messes up my whole process for buying shares.

Another thing to look out for is complacency over the company’s financial performance. Although most new companies do make losses in the first few quarters or even years, an investor must regularly monitor the company’s performance. In cases of substantial losses, one must delve deep to find out the underlying reason for the same. Maybe there could be fundamentally wrong with the start-up. By the same token, it is worthwhile to observe how and where the company re-invests its profits.

Another common pitfall for buying penny stocks is failure to understand the dynamics. New investors invariably fall into the trap of buying mindlessly large quantities of the stocks, thinking that these are their best picks. The reasoning behind this is that these stocks are traded at such low prices that any upward changes could translate into seriously big numbers within a couple of day’s time. While this does make sense occasionally, one must realize that a penny share’s value can plummet equally fast, or even faster. There’s so many sites dedicated to the best penny stock picks purely because of this.

The final pitfall for buying penny stocks that I would like to highlight is lack of an investment plan. This is easily the most common pitfalls of penny stock investing. Most investors get disheartened by any loss they incur by way of penny stocks and as a result, exit the market in a hurry. Then there are those who continue to make sizable profits but refuse to book them primarily because of the greed factor. Discipline and adherence to an entry/exit plan is the key here as obscure and aimless investing leads to nowhere. This is one of the key points that’ll you’ll find on any stock market for dummies site.

Overall, I leave up to you to decide if investing in penny stocks are worth the trouble. There’s no doubt I’ll still get visitors to the site looking for quick and easy ways to buy penny stocks online. This is too many stories of people getting rich quickly from hardly any initial outlay. Make sure you are cautious of any stories like this is usually intended to sell you something. It could simply be penny stock brokers trying to gain new customers. It may even be a software company trying to sell you automated stock trading software with promises that you will get rich. From my experiences, there are no quick ways of making money in the stock market. It takes a lot of hard work, perseverance and patience. You have days when your stocks seem to be plummeting Ifand the whole world is tumbling down about your ears but especially with value investing, we have the assurance that you have a strong investment which will eventually pick up. If you decide against penny stocks have a read at my options trading for dummies guide or spread trading.

As we know starting out in the stock market can be pretty tricky and trading manually adds to this. Even for those who have already been trading for a long time, manual trading can be both taxing and time-consuming. For those reasons, different automated stock trading software is becoming more and more popular. You can certainly see this in other financial fields such as spread trading, options trading and day trading. But although using stock trading software might be very convenient, there are disadvantages that go hand in hand with the benefits of using an automatic trading software. There’s always a catch folks.

Firstly, what do you actually get for your cash and how much of it is actually automated. Come to think of it what is an automatic trading software? Basically this kind of software trades for an individual’s behalf even without the trader’s supervision. There are certain types of software that can be used to trade shares in different markets and in different times throughout the day. If you wish to trade globally, you have to understand that each country’s stock market will open at a different time. I wouldn’t worry too much about this at the moment as if you’re learning about stocks for beginners this might be a little bit advanced for you. On the other hand if you are interested then a trading system will allow you to participate in different stock markets conveniently. What all of these explanations essentially mean is that with the use of an automated stock trading system allows traders to reap profits without requiring the individual to be in front of the computer all of the time. A lot of trading softwares are user friendly, hence a beginner can easily learn how to use automated trading softwares the same way that an expert would. However I wouldn’t jump into this without learning the basics first. There’s still manual intervention required at least at the start to set up the correct variables for the software to work properly.

The main advantage to using automated stock trading software is that you get some of your time back. You don’t have to be monitoring all day every day. However, the software won’t be trading haphazardly so don’t worry that all your money is being spent without your knowledge. The trader can select a specific strategy that the software will adhere to when trading. Signals which the trader can set up may be used to alert the software that it’s alright to trade or otherwise. A signal to buy or to sell can be set up and can be generated according to the market conditions. All this is set up in the beginning and the software won’t deviate away from this unless you instruct it to do so. Most automatic trading software comes with a historical chart data so that traders can review their trading strategies. If it’s working you can stick with it otherwise it might be time to change your strategy. It might be worth looking at other types of investment and research day trading strategies.

However, using automated trading software does not guarantee financial success as a trader. If it did everyone would be doing it. It’s just not that easy. You cannot just rely on such software to generate correct trades and decisions all of the time. You need to have basic, if not extensive, knowledge about trading because you will have to set your software prior to using it. You need to be very confident with your software’s settings because the software will trade according to those settings. If you make a mistake with your research it will make a mistake with it’s buying and selling. It’s really relying on you to know what you’re talking about. At the same time, you’ll miss out on knowledge that comes with manual trading or non-automated trading systems.

Overall, automated stock trading software does have it’s place in the world but I guess I’m just a bit old fashioned and do it the hard way. Don’t expect software to do all the work for you. There’s still a lot of input required by you so don’t through away the stock market for dummies books just yet.

As with any kind of stock investing there are sites online that let you give it a try first in a fantasy stock market scenario. Several online brokers offer demo accounts where you can play around and get comfortable in this world. This is a good way to learn options trading without having to commit real money so I would recommend you try it out before getting out your credit card. I’m assuming you’d have learned that lesson from reading about the stock market for dummies.

So on to the basics! There are two types of options, a put and a call. A call is the right to buy a stock at a certain price by a certain date. A put is the right to sell a stock at a certain price by a certain date. However, there is no obligation to sell or buy the underlying security. The advantage of an option over a stock is that one option contract controls one hundred shares of stock at a fraction of the price. The disadvantage is that the option expires on a given date at which point it is either exercised or expires useless.

The first step in trading options is to find an option chain. This can usually be done at an online broker by selecting “trade option” and putting in a stock symbol, then requesting the option chain. The basic chain includes: strike price, bid price, ask price, last price, volume, and open interest.

The strike price is the price at which the security will be purchased (in the case of the call), or sold (in the case of a put). A strike price can be: in the money (ITM), which is less than the current security price, at the money (ATM), equal to the stock price, or out of the money (OTM), greater than the underlying security price.

The bid price is what a buyer is willing to pay for the option. The ask price is what a seller is willing to sell the option for. The difference between these prices is called the spread. Spread trading was covered in an earlier post so check that out if you’re interested.

The expiration date of an option is another element of the price. When the chain displays it usually lists options with expiration dates within the next three months. Option expiration takes place on the third Saturday of each month. Since Friday is the last trading day of the week, the last opportunity to exercise an option is the Friday before expiration day.

The price of the option is made up of two components: intrinsic value and time value. Intrinsic value is determined by the price of the underlying stock. The time value is determined by its time to expiration. Intrinsic value will increase or decrease along with the stock price. The time value decays as the expiration date approaches. Sounds a bit tricky if you’re just learning about how to buy and sell shares online.

There are differing strategies regarding trading options, i.e., whether to trade ITM, ATM, or OTM, and what expiration date to choose. Which of these strategies to use, and how to decide the best methodology, is something that should be studied before jumping into online options trading. As with anything money related, make sure you are comfortable in the market before risking any cash. Fantasy stock market scenarios are ideal for this. I’d even recommend doing this before you sign up for any of the penny stock brokers you’ll find online.

Making money with the securities markets has always been an effective way to generate income. By using various strategies such as market timing, individuals can make extra money, invest for their retirement or make a daily living trading securities. A profession that is often heard about but never explained is that of day trading. Day traders exchange securities on the stock market as well as other exchanges in order to turn a profit.

What is day trading?

The name for this type of investor may be a little misleading. They do not only trade stocks during the day nor are they called this because they trade every day. The practical definition of a day trader, also known as an active trader, is one who practices the strategy of buying and selling securities within the same trading day. This person will buy and sell securities such as shares of stock or positions and all transactions are closed before the end of the trading day. Although this seems like a simple concept, the actual practice is much more involved and complex.

A day in the life of a day trader.

This practice actually involves many different strategies for trading stocks, currencies, stock options or futures. For example shaving is a popular technique for generating rapid profits on thousands of shares of stock. A shaver may put their stock on the market for one tenth of a cent lower than competing investors. In the case of buying, they may increase their bids in the same increments. Some traders use borrowed money to perform their trades, a process known as margin trading. Still others may use a strategy known as scalping where positions are typically held for a few minutes before being sold. The concept behind most of these strategies is finding a security that appears to be in a state of change. A trader uses their judgment to determine whether the security will advance rapidly in value one way or the other and set up a trade to profit from it. An individual practicing this strategy may make thousands of transactions throughout a day and the integration of trading platforms over the internet makes it even easier for people to practice this at home.

What are the risks?

Just like with any activity in the securities market, trading daily using volatile securities can be risky. In fact it is one of the riskiest forms of investing and active or day traders are often looked at as daredevils or bandits by other market players. One of the safest ways to invest in the market is to buy many different stable investments and hold them for long periods of time. In contrast, day trading involves purchasing risky investments that may be volatile and selling them quickly. The potential for huge profits is there but there is also the potential for huge losses. Novice traders are strongly cautioned to do a lot of research and seek guidance before investing large amounts of money in securities that could tank in the same day. Margin trading or trading with other’s money is perhaps one of the riskiest strategies. Investors doing this run the risk of encountering a margin call or the circumstance where the margin posted to its respective account is less than the minimum margin requirement. When this happens a broker puts out a margin call and the investor must sell securities, often at a loss. This can get quite complicated especially if you’re still reading those stock market for dummies books.

Day trading for a living is an excellent way to make money. Many individuals can do this online from their homes. By increasing your knowledge of the securities markets and creating a set of rules for yourself to trade by, it can be a very profitable endeavour. Many people start out small investing relatively small amounts of money and dealing with securities that they are already familiar with such as stocks from a well known company. Much practice is required in order to make money day trading and individuals should always be aware of the potential risks. Day trading is one of many ways to buy and sell shares online but it’s important that you are aware of the risks involved. It’s certainly not a foolproof way of making money. Used alongside other techniques such as spread trading it can be a profitable way to trade.

If you’re looking for a little more information on day trading then check out Free Swing Trading & Day Trading Financial Content.

Some online brokers will let you buy shares in real time so you will know exactly how much your paying for stock. This has obvious advantages as you won’t end up with any nasty surprises when you get the bill in. On the other hand the companies that don’t offer real time transactions could save you money as they bundle up the trades and executes them all at once. This is usually at the end of the day so you have to way up the two options. Personally, I don’t make that many trades and when I do I want the price to be right. So I tend to stick to real time brokers. It’s really up to you and how you want to run with it.

In most cases, the shares will be held in a nominee account which means the broker owns the stocks on your behalf. Your name won’t appear on the companies register which means you will miss out on reports and certain perks that holding the shares might offer. Some airlines will offer you discounts if you’re a shareholder and stores will offer you discounts if you buy their goods. You are at the end of the day helping the company to grow by investing your money in them. If you’ve been lucky enough to buy stocks that pay dividends then the profits will also go into this account and you will be afforded the option of reinvesting the earnings back into the company. If you absolutely want the perks of owning shares then you can opt to keep paper copies but they are likely to be more expensive. It will also slow down the speed of your transactions as you’re back to dealing with paper again. Think this through before you decide to go for paper certificates of stock holdings. Is it really worth it? If you want to swap your stock holdings to another brokerage then you’re likely to be charged for this also. It’s another reason why it’s so important to get a good stock broker from when you first start buying and selling shares.

If you plan to be one of those traders who is frequently buying stocks and shares then it’s worthwhile asking if a company offers a discount based on the amount of trades you make. If you’re planning to be a day trader then I’d definitely ask this question as you could save yourself a fortune. The broker will make the discount back by the number of trades you make.

One company which I had holdings with recently introduced an annual management fee so be wary of hidden charges like this also. I have no idea why they would charge me for an account that’s been lying dormant for years. Perhaps it was for exactly that reason? Setting up this account wasn’t one of the best investment options available to me that’s for sure.

Anyway, finding a broker is really dependant on what you’re looking for but there’s a few things you should definitely take into consideration when looking for the best online share trading site.

• How fast cant they buy shares for you?
• How good is the quality of their information?
• Which markets do they trade in?
• Cost. Cost. Cost.

That’s the basic things to consider so make sure to research his properly before jumping in and making a decision. As I mentioned before, once you buy shares with a company they may charge you to transfer them to another broker.

I’ve included a point about markets that a stock broker may trade in. Foreign markets is something I haven’t really discussed so far at stocks for beginners. In some cases a broker may allow you to trade in other markets such as European or Asian. Check with the broker as sometimes it’s a requirement to fill in extra documentation for shares held in other countries. In most cases the broker won’t allow you to trade until you have filled in this information so don’t worry, they will advise you before you get yourself into any trouble. The point I made about the quality of their information is somewhat negated if you read the posts I wrote about Google Finance and investment advisor software. Google pretty much has all this covered.

A balanced mutual fund is quite a simple concept. It’s slightly different from a traditional mutual fund as it’s made up of more than just stocks. It could be a combination of money, bonds and stocks. The aim is not to hit some crazy high percentage of returns. It’s more about moderate returns with the emphasis on avoiding losses. It’s really geared towards investors who are looking for safety first with a modest return.

Balanced Mutual Funds

We all want huge returns though right? Of course we do. But a modest return in stock market terms might be much higher percentage than putting your money into a savings account with your bank. In fact with interest rates being so low I can pretty much guarantee that they will be. So don’t be put off by the (estimated) modest returns. Compare it to the interest rate you’d get from your bank and then decide if it’s worth it.

I’m sorry to say that there is another boring feature of balanced mutual funds. They don’t change the mix of assets all that much. There’s no goal such as an aggressive growth fund so it just plods along steadily at the same rate. There’s often a cap to how much is invested in one particular asset. It reduces risk by not having all your eggs in the one basket so to speak. At the same time it might reduced your gains as there will be a maximum amount to how much you invest in one stock. If it’s great, it doesn’t matter. You’ve still got a cap.

So where am I on balanced mutual funds? Personally, I think they’re a great investment. It’s not something you’re going to get rich quick from but that’s not the intention. It’s nice to have something like this ticking away in the background while you get on with buying stocks with your broker. It’s a great safety net and if you pay into it long enough you should end up with a nice return when you go to cash it in. Check them out, you won’t find them with any investment advisor software.

As always check out the reviews on Morning Star to find out the best option for you. Companies like Fidelity have balanced mutual funds coming out of their ears and the management fee is usually at a decent price so it doesn’t eat into your profits too much. LEtting someone else make the investing decisions for you is stock market for dummies but in this case, it has to be safety first. Why not get the professionals in to find the best shares to buy?

I’ve said it once but I’ll say it again. The best software around for everything stock market related is Google Finance. The best part about it is that it’s free. All the rubbish that these other guys want you to pay for is available for free if you take the time to create an account. When you do you’ll have access to Gmail and all the other web based Google software. Google News is excellent for keeping track of current events in the finance world.

The most useful part is the portfolio section without a doubt. You can dig into all kinds of stats and figures about stocks including over 40 years of past history. Everyone always says that past history shouldn’t be seen as an indication of future performance but I always think it’s agood palce to start before you really start doing some research. If you love your spreadsheets and have your own way of keeping track of your portfolio then Google Finance lets you export the raw data to Excel and you can do what you want with it there. It goes without saying that the stock screener is excellent. You can put in certain criteria such as price to earning ration or stocks that pay dividends and filter out companies that way. The stock screener is one feature that I use frequently and it has come in handy so many times in the past. It’s certainly one of the best investment options for beginners…well invest a little time setting up an account…you know what I mean.

So if someones been trying to sell you some stock screening software or a portfolio manager via an email sales pitch then ignore it. You can get it all free thanks to Google Finance.

From the 366 companies who are paying a dividence 72 of them are paying a higher percentage than last year. What does this mean? Well, profits must be up as they can afford to pay out even more to the investor. This is another good indicator of a good company. If the dividence pay out has gradually increased over a period of say 5 years you could be on to a winner. If you want to put a figure on this then look for dividends growing at a rate of 5% each year. This is just a start you of course have to look at the cash flows in and out of the business and get your head buried in those annual reports. One thing you do have to check is the dividends aren’t being paid out at a rate which is causing debt. That’s hardly a great sign.

McDonald’s is one company who have a great record of paying out dividends to its shareholders. Then we are talking about one of the global brands here with billions of dollars in profit each year. Walmart is another which is always worth a look. For some companies such as in the tech industry it might no tbe possible to see the figures for 5 years. These types of company have been notorious for not paying out dividends so have a look at say a period of three years to see if they have started doing this.

Finding companies which regularly pay out dividends can be a great place to start when identifying stocks to buy. Use one of the many stock screeners you can find online to filter out companies who don’t pay dividends and then work out the best investment options from there. From there you can try to find undervalued stocks and keep filtering out companies until you have a few winners.