The Risks and Rewards of Investment Clubs
While being part of an investment club will build your confidence with the stock market and work to reduce your personal risk, there is no way to make investing completely safe or stock markets easy to understand. With unpredictable swings in prices, bull and bear phases, and stories about people making and losing millions overnight, stock markets can be an intimidating to a beginning investor. This is part of the reason why many investment clubs begin. They are a good place to start out, to keep your risk reasonable, and to study the market.
Remember, investment clubs don’t remove risk. Whenever you invest your money in the stock market you could lose that money. There are no guarantees. You have to be very aware of the fact that you could lose your investment overnight. If your financial goal is to save money safely so that you can retire, there may be other investment choices that may serve you better.
However, if you’re willing to take some risks, and give your money a chance to increase in far greater amounts than most other investment options, you have the perfect personality to be part of an investment club.
People who are part of an investment club are willing to take reasoned chances so that they can make a good profit, all the while enjoying the entire process of the stock market. But they are also sane and rational when it comes to their money, wanting to retire with a nice sized nest egg. Investing in the stock market is one way to make large sums of money while having fun.
However, when you invest in the stock market you need to be prepared for there to be periods of time where you’re operating at a loss. During those periods when the market is slow you may think you’d be better off putting your money into a savings account. But if you’re patient, and ride out these patches, your profits are likely to be much higher than just accumulated interest.
When you’re part of an investment club you’re combining your money with other investors who will patiently wait with you through the slow periods of the market for your investment profits to pick up again. This combined value of your investment helps you to realize greater profits. And the support of the group will enable you to wait out the downturns in the market.
Need more reasons to consider joining or starting an investment club? Consider these:
You have the chance for much better results and profits than when you invest your money in annuity savings or into the bank. Your money will also be much more liquid, allowing you to take advantage of more profit making opportunities. You’ll have more control over where your money goes, what you do with it, and how much of it you want to invest, and where.
You have the ability to realize some dreams in your life that you may not be able to meet without the profit that you could make from investing. Playing the stock market can mean taking some of your dreams and making them a reality.
You’ll become much more knowledgeable about the investing and business environment. If you already have an interest in investing then being part of an investment club is a great way to learn more and to share your interests with other people. You’ll be able to meet on a regular basis with people who are learning about the stock market right beside you.
When you invest in the stock market you’re taking your finances into your own control. You won’t be counting on the government for your future financial needs.
You need to weigh the risks and rewards of being in an investment club with your own thoughts and feelings about money and savings. If you find that the rewards outweigh the risks, then you will find that an investment club may be the perfect way for you to take charge of your finances and work towards the profits the stock market brings to many committed investors with a group of people who will understand and support your choices.
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Making Money From Option Trading With Implied Volatility - Part 2
Option trading remains a mystery to many new traders. There are elements to option trading that traders should know about to make trading easier. In this article, I give an example of how an options trader might use implied volatility in his trading. Then, I discuss implied volatility charts and how they are created.
There is a definite connection between time value and volatility. As an option moves further away from its strike price time value decreases. Since the option has less time value, it will also have lower implied volatility. In making this observation, we can see the link between the volatility and time value. Once we understand this relationship, we can use this to our advantage in our option trading. So, let’s look at an example of how this might be useful.
Let’s suppose that we have a calendar spread on XYZ stock. To create the spread, we sold the December 50 call for $2.00 and purchased the March 50 call for $4.50 when the stock was at $50. The net result is a debit of $2.50 to our account. Typically, traders like to place his type of trade when the volatility in the options sold is higher than the volatility of the options purchased. All things being equal, this lets them know that they are selling more time value than they are purchasing. Traders sometimes refer to this as volatility skew.
Now, let’s say that after we place our calendar spread the stock begins to move up. As it does, the intrinsic value of our options increase and the time value of our options decrease. So, let’s say that we have about two weeks left before the December 50 call options expire and the stock has moved up to $55. The December 50 call options are trading for $5.75. This means that the time value of this option has decreased by $1.25 while the intrinsic value has increased five dollars.
If we allow the December 50 call option to remain in the money, it is likely that we will be exercised at options expiration. Also, as the option’s time value continues to decrease, it also increases the likelihood that the option will be exercised. In order to prevent this from happening, the trader could purchase the December 50 call option initially sold while selling an option with more time value.
Suppose the trader purchases the December 50 call option for $5.75 and sells the February 55 call option for $5.70. The result is a net debit to the account of five cents. So, we collected $1.25 of time value on the December 50 calls and sold an additional $5.70 worth of time premium when we sold the February 55 call options. This means that we collected a total of $6.95 of time premium. As with the options example from last week, this was accomplished by covering the option after its time value and volatility had decreased due to market movement and selling an option that has more time value and higher volatility.
Implied Volatility charts
Novice traders sometimes look at implied volatility charts without really understanding how they are created. This usually comes to light as they begin to realize that volatility can be calculated for any option. And, the volatility value will likely be different for each option. So, if this is the case, where does the implied volatility value come from that is used to create these charts?
Typically, implied volatility charts are created by using options which are at the money and will expire within the next 30 days. So if we look at the last point on a implied volatility chart, the volatility value would be derived from the option that was at the money as of the close of the trading day.
For example, let’s suppose that we are looking at an volatility chart for XYZ Company. Today XYZ Company closed at $25. If we use and options pricing model on the $25 option, we can derive the volatility. If we do this every day, we can create a chart of daily implied volatility.
A good understanding of volatility is important to option trading. Seasoned options traders understand how to use implied volatility to consistently make money. Once you understand what it is and how to use in option trading, you can take steps to place the odds of making money in your favor.
Sam Perdue has been actively trading the markets for over 13 years. For more information, please see http://www.tradingsynergy.com or http://www.tradingsynergy.com/option_trading.htm
The Origin of the Stock Market Formula
The search for automatic investing techniques - schemes which would produce profits by giving investors advance indication of market swings, based on a mechanical interpretation of market data - has been going on for quite some time. One of the earliest methods was the “Dow Theory,” a set of rules for interpreting market action drawn up by William Peter Hamilton about 40 years ago, which were roughly based on the writings of Charles H. Dow.
The search for mechanical market techniques accelerated after the 1929 crash which had revealed not only the treacheries of emotion but also the frequently appalling inadequacy of even the most reputable investment advisers. The well-known debacle of the closed-end investment companies during the period following the crash - including those managed by some of the best-known names in Wall Street - indicated to many observers the near-impossibility of reliably predicting the course of stock prices.
Stock market forecasters did not stop forecasting during this period, but their results were far from outstanding. A famous study by Alfred Cowles, covering the period from 1928 through 1943 and including 6,904 forecasts of the market as a whole made by 11 experts, showed a score, on average, of about two-tenths of one percent better than random guesswork.
Investors did not stop losing money, either. Results of an exhaustive research project conducted by Paul Francis Wendt covering the period 1933-38 (on balance, an upward period for the market), indicated that only 21.8 percent of a sample of typical customers came out with a profit.
Beginning in the thirties, large numbers of automatic investing techniques were developed, bringing into existence dozens of charts, tables, trend lines, moving averages, breadth and depth indicators, complicated mathematical computations, economic indexes, banking data curves, adaptations from the recondite areas of physics and chemistry, and plenty of others. By now, it seems that every available set of statistical data has been put to some use as a forecaster of stock market trends, no matter how tenuous the connection.
Some of these “timing devices” are intended to work automatically, and others are subject to considerable interpretation. Some are only sporadically successful, others are worthless, and a great many of them tend to be quite complicated. The principal difficulty with such methods is that they make no allowance for errors. As we have seen, one of the characteristics of formulas is that they do not aim for one hundred percent accuracy, and always make allowances for the probable, while hedging against the possible. A formula method can, however, be combined with a timing device.
Eventually, the idea of an automatic formula - which would not be designed to predict market swings with any accuracy, but would still dictate a reliable investment policy, prevent large losses and produce a steady profit over any market cycle - became increasingly attractive.
Originators of formula plans, therefore, eschewed “forecasting” as far as possible, and based their policies on the single assumption that the market would continue to fluctuate - in some cases specifying approximate limits, but without trying to predict their timing.
These earliest formulas, in the late thirties and early forties, were largely the handiwork of various institutions, primarily college endowment funds. An automatic formula was especially attractive to such investors. The investment committees, often composed of non-professionals and given to policy disputes, were more than anxious to rely on a formula which would allow them to agree on investment principles and also take them off the hook in case the institution’s investments didn’t fare too well.
Although the original impetus for formulas came from such large institutions, many of them have long since discarded the formula idea. On the other hand, a rising trend of popularity has been seen in the use of formulas by individuals, perhaps as a result of market experience in recent years, which has so often and so regrettably proved the experts wrong. A number of investment counselors, in fact, have adopted the policy of selling their services on the basis of formula investing techniques.
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Weighing Your Personal Situation When Investing In Stocks
Your age, the state of your health, the number of dependents you support, the kind of job you have, whether you are a man or a woman, what kind of goals you have set for yourself - all these, and more, are factors which will bear on your decision whether or not to invest.
There is no rule, no prescription governing these factors, either singly or in combination. Again, the decision is yours. It is well to wonder, however, whether your personal situation contains any elements which might conflict with your freedom, need, or desire to invest.
There is, for instance, no age more appropriate than another for investment. But it is conceivable that a young man might find family obligations, such as a new house, absorbing all his resources, that a middle-aged man might prefer to invest surplus funds in his business, and that an elderly man might feel he is too far along for the amount he is able to invest to bring him any significant return.
On the other hand, a young man, if he is able to invest at all regularly, can look forward to a fairly considerable estate in 30 or 40 years. A middle-aged man who finds the premiums for a new insurance policy higher than he feels like paying might decide that investments might help cushion the requirements of the years past 60. And an elderly man, with family responsibilities and obligations behind him, might decide that a sturdy stock returning a comfortable 5 or 6 per cent is better than the interest rate he can get at a savings bank.
Whether you are a man or a woman will not have much to do with your readiness to invest. For, surprising as it may seem, the Stock Exchange survey referred to earlier showed that there are more women shareholders than men. Out of the 12.5 million total, nearly 6.4 million, or 52.5 per cent, are women. Naturally, a good many of them are shareholders in name only; their husbands have bought the securities or willed them. But for many others, investment has become a normal and acceptable way to put money to work. There is no telling, either, how many women, having inherited stocks, have since taken a lively interest in investment as part of the responsibility of preserving their capital. Certainly brokers will tell you that woman customers are no longer the rarity they once were.
The kind of goals you have will very often be bound up in just such things as whether you are young or old, in business or retired, childless or the chief of a tribe; and the achievement of many of them will require money. If that is so, investment is worth serious consideration. Some people, of course, may prefer to invest in books, or paintings, or travel, and for them the attention that must be paid to investment, or the attractiveness of the financial reward may just not be worth their while.
The story is told of the two salesmen who met in the club car on the train. “How’s business?” asked the first. “Oh, very good,” said the second, “and yours?” “Fine, fine,” said the first. “Got orders for a thousand gross last week. I sell buttons.” “Really,” said the second. “I’ve had one order in the last three years.” “You call that good?” said the first. “Well,” answered the other, “you see, I sell suspension bridges.”
Like the salesmen, the investor must have a clear notion of his goals and expectations, must realize that what is normal and acceptable to someone else might not be what he would choose for himself.
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Investing: Dow Drops 2700 Points
It’s a headline that every stock market investor fears will happen. The markets crash and their hard-earned nest egg evaporates. They’re forced to go back to work and must resort to eating beans and rice. Is that fear justified? No.
Stock markets around the world dropped on Tuesday. The news media echoed that it was the biggest one-day drop since September 11th, 2001. The Chinese stock market dropped almost 10%. Here in the U.S., the major indexes were down over 3%. At one point the Dow Jones Industrial Average dropped over 150 points in one minute!
Should investors panic? No. The world is not coming to an end. The world’s economies continue to be strong and are growing. Interest rates are still low compared to historical standards. And yesterday’s decline follows 7 months where the markets recorded increases of 15%, 25%, 40%, and even 77%.
First, let’s put yesterday’s drop in proper perspective. I remember watching the ticker back in 1987 when the stock market tumbled. It’s something that I will never forget and is one of the reasons I have developed the systems and strategies I use to manage my client’s money today.
On Tuesday the Dow Jones Industrial Average dropped a little over 400 points. To equal the market drop in 1987, Tuesday’s total decline would need to be 2700 points. Tuesday, the Dow dropped 3%. In 1987 it dropped around 20%!
Second, there are going to be times when the markets make rapid adjustments. This applies not just to the stock markets, but to bond and real-estate markets as well. The introduction of electronic trading and the proliferation of hedge funds only add to volatility.
That may have been what occurred yesterday. Hedge funds can be leveraged as much as 30:1. That means if they have one dollar, they borrow thirty dollars more and invest it all. If the markets go up, a hedge fund can make enormous returns. If the markets drop too much then they get a ‘margin call’. That’s when those that lent the money decide they want it back–right away.
When someone trading on margin receives a margin call, typically they have to sell investments to generate the cash needed to cover the call. When you’re leveraged 30:1, it means you have to sell a lot of investments. Hundreds of millions of dollars can be sold in a matter of minutes with the use of electronic trading. That selling causes the market to go down, which causes others to receive margin calls. So they then have to sell.
Many of today’s mutual fund managers haven’t experienced a decline like 1987 or 2001. Initially, they hang in there. But as the markets drop further they succumb to the fear and decide to start dumping investments. In my opinion, that’s why the sell off picked up speed Tuesday afternoon.
That brings me to my second point. Who’s watching your money? When things go bad they can go bad in a hurry. That’s why it is so important that you know there is someone who is closely monitoring your money and will take action if necessary to protect it.
Unlike most managers, I employ multiple strategies in each account. Some are short-term, some medium term and others long-term. Days like yesterday illustrate the benefits of this multi-strategy approach. The money in short-term strategies was quickly moved to cash. Some sales actually took place the day before the big drop. Others occurred shortly after trading started. If 25% of an account is quickly moved to cash in such instances, that reduces the overall risk to the portfolio substantially.
Third, it’s important that you be selective in what you sell. Liquidating short-term positions allows me to hold on to high-dividend paying stocks and other investments that should comfortably weather the storm. Even if the market languishes, I hold strategies that pay dividends of 6-9%.
Lastly, after the market closed yesterday I saw a picture of a U.S. soldier carrying an Iraqi child needlessly killed. I talked with a client who was undergoing additional testing to see if she has cancer.
While it’s my job to monitor and manage my client’s money and your job to safeguard your nest egg, it’s important to remember in the end, there are things in life that are much more important than money.
Nationally-syndicated financial columnist and Certified Financial Planner Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He will answer your financial question FREE. at http://www.guardingyourwealth.com
Online Brokerage - There Are More Options Out There Than You Think!
Everybody knows the big online brokerages - Ameritrade, E-Trade, Charles Schwab, and Fidelity. Those in the know are familiar with the hot new online brokerage, OptionsXpress. And of course, there are the super-low cost online brokerages like FirstTrade, ScottTrade, and Sharebuilder.
But were you aware that there were many more online brokerages, and that some of them rated higher than their more famous counterparts in a recent study?
Online Brokerages - Some You Might Have Missed
One online brokerage you’re probably not familiar with is thinkorswim Webtrader. Despite it’s funny name, thinkorswim is an online brokerage that delivers serious service, or at least, that’s what Barron’s says.
Thinkorswim’s Webtrader platform ranked second, only to OptionsXpress, among the 14 most popular online brokerages in Barron’s most recent annual survey.
Another online brokerage you might not know is Muriel Siebert & Co. Muriel Siebert, the person, was one of the first women to become a big-time broker on Wall Street, and instead of retiring, she went on to found her own online brokerage.
Muriel Siebert & Co. ranked the highest of all 14 online brokerages in customer portfolio analysis and reports. This means that the company does a great job providing well-laid-out reports, updated in real-time, showing you your current balances and positions - definitely something to think about when selecting an online brokerage.
You know Ameritrade, but have you heard of Ameritrade Apex? It’s a special brokerage for premium accounts. E-Trade also has a premium brokerage called E-Trade Serious Investor.
Some of the lesser known online brokerages that you would be better off to avoid include Wall Street Electronics and Trade King. Each of these unknowns ranked in the bottom half of Barron’s survey.
Beyond the Web Browser
Serious, full-time traders tend to prefer software platforms over the more basic web-browser-based ones. With a software-based online brokerage, you install a program on your computer that has enhanced features and connectivity to the internet. Typically, these programs have a lot of charting capabilities that the browser-based online brokerages do not.
In Barron’s most recent annual survey, there was a tie for first-place among the software-based online brokerages. MB Trading and thinkorswim each scored 36.2 out of a possible 50.
MB trading was strongest in trade technology (advanced order routing strategies for big volume traders), trade execution (finding the best bid and ask prices), and costs. Thinkorswim fared best in research, customer portfolio analysis and reports, and customer service.
Other software-based online brokerages include TradeStation, Interactive Brokers, Terra Nova Trading, RushTrade, and ChoiceTrade. Some of the ones you might want to avoid are Fidelity Active Trader, Preferred Trade, CyberTrader, and E-Trade Power.
The worst of the bunch are ScottTrade Elite and AB Watley, which were particularly bad in trade technology and customer service, respectively.
Don’t Forget About OptionsXpress
OptionsXpress has been making a lot of noise lately, but it still isn’t nearly as well-known as Ameritrade and E-Trade. For that reason, it’s probably prudent to take a closer look.
In 2006, OptionsXpress was recognized by Barron’s as the top browser-based online brokerage - for the fourth consecutive year. It rated a 4.7 in trade execution, 4.1 in usability, 4.3 in offerings (stocks, options, mutual funds, etc.), 4.8 in research, 4.7 in customer portfolio analysis and reports, 4.4 in customer service, and 4.0 in costs.
The only category in which OptionsXpress didn’t do well was trade technology (3.8).
Although OptionsXpress charges $13.95 per trade, versus $7-10 with other online brokerages, you get what you pay for. Amertirade, for example, charges an additional $9.95 per month for real-time streaming quotes.
OptionsXpress gives you the quotes for free. It can be amazingly frustrating to try to buy a stock on Ameritrade and not even know what the stock is selling for at that very moment.
The good news is that you’re not limited to using one online brokerage. Most allow you to open an account with as little as $1,000 (or less). There are no fees associated with opening an account, checking it out, and then switching if you’re not satisfied.
So with that in mind, don’t limit your choices - go out there and find the online brokerage that’s right for you!
William Smith the author provides much more financial information on many subjects as well as the secret to his success in the market along with 5 Free power stock picks emailed daily so grab your Free subscription on his website at http://www.astockpicks.com/Our_Free_Stock_Picks.shtml (All is Free)
So You Think You Can Trade Stocks?
What does it actually mean to trade stocks? This was a question that I had in high school that no one could suitably answer for me. Barring a great at-home financial education, high school is probably the first time most of us consider what it would be like to trade.
Most senior classes have an economics program that has a unit on the stock market, and some even allow students to trade stocks on paper. This was my experience, and I thought I had a great strategy to trade. However, there were many myths and misconceptions that needed to be dispelled before I could actually begin to trade stocks.
Many newcomers and novices are unaware of some basic facts about the markets, and are afraid to ask. Worse yet, supposed authority figures oftentimes don’t even know the answers. This article is intended for anyone who would like to trade but has always been afraid to ask these simple questions.
What Does it Actually Mean to Trade Stocks?
In economics class, my plan to trade was simple, and “guaranteed” to make money (or so I thought). I found the “cheapest” (lowest price) stocks I could find in the newspaper - preferably around $1-2 per share - and looked for ones that were near their 52-week low. My strategy was to buy these stocks in huge volumes, and then sell them whenever they ticked up by a measly 1 percent.
For example, if I could buy 10,000 shares of a $1 stock, it would only have to go up $0.01 for me to make $100! Sure, the stock could go down, but what were the odds that a $1 stock would never see $1.01 again? I would just hold on to it until it hit $1.01 (or higher) and then sell. Oh, if only it were that simple to trade stocks.
There Are Commissions When You Trade Stocks - Both Buying and Selling
I knew that you were charged a commission to trade, and I factored this into my strategy. However, none of my teachers could tell me exactly what a “trade” was. I assumed that a trade was exchanging one stock for another - exchanging one thing for another is the definition of trade, after all.
But I had a sneaking suspicion that you might be charged to trade when you bought and when you sold, and of course, I was right.
Don’t be confused by the term “trade.” We normally don’t think of making a purchase at the supermarket as “trading.” We think of swapping an old TV for a newer bicycle at a garage sale as trading. But whenever you make a purchase, you are actually trading money for an item - and this is the definition of trading that matters when you want to trade stocks.
So the first flaw in my strategy was my underestimation of commissions. Instead of $15 roundtrip, it would be $30 to get in and out of my trade. That reduced my profit from $100 to $70. But it would get worse!
The Bid/Ask Spread When You Trade Stocks - The Silent Killer
When you trade, there is also something called the bid/ask spread. This means that the price to buy a stock is higher than the price to sell it at a given time. Market makers trade stocks from their own accounts in order to provide a fluid market, and this is their way of making money.
When you trade stocks of $1 companies, this can be a real killer. Since these companies are normally less liquid than big firms like Microsoft or GM, their bid/ask spreads are wider. So the $1 stock might cost you $1.03 to buy and yet you could only sell it for $0.97.
So much for my early plans to trade. Hopefully, this article answers some questions for you. If a strategy to trade stocks seems too good to be true, then it probably is.
William Smith the author provides much more financial information on many subjects as well as the secret to his success in the market along with 5 Free power stock picks emailed daily so grab your Free subscription on his website at http://www.5stockpicks.com/free_stock_picks.shtml (All is Free)
A Fanciful Way Of Illustrating The Basic Principles Of Option Trading
Among the many investment opportunities that exist, option trading stands as both one of the most exciting and risky as well as one that offers some of the best chances for a substantial return. In order to understand option trading, consider first the word “option.” An option is a choice. When you deal in options, you are making a contract that gives you the right, but not the obligation, to purchase a block of stock at a given price at a future date.
Let’s consider an example that could help explain how the option market works. In place of a block of stock, we will use a painting that we discover in a dusty corner of a flea market. The painting has a price of $50, but we do not have that much money available, and will not have it until the end of the week. So, we purchase an option from the owner to buy the painting for $50 by Friday afternoon. We pay him $5 dollars for that option.
Before the week ends, it is discovered that the painting is actually the work of a well known local artist, and has a value of $500. Since we have the option to buy the painting for $50, we quickly exercise our option. When we turn around and sell the painting for $500, we have realized a profit of $445. This is $500 minus $50 for the cost of the painting minus the $5 we paid for the option contract.
There is another way this story can end. Let’s suppose that before the week ends, we learn that the painting is known to have a famous curse, and every owner for the last one hundred years has died a horrible death within a week of purchasing it. We do not have any obligation to buy it, and simply by not doing so, we exercise the negative aspect of our option. We do lose our $5 investment, but that is the limit of our loses.
This fanciful example illustrates the basic principles of option trading. It is quite a bit more complicated in many ways, but these basic principles remain the same. Options are known as derivatives because the value derives from something else. In our example, the value of the painting is what has the underlying value, and the value of the option depends on it.
It is important to understand that options can also be the right to sell at a certain price as well as buy. An option to buy is known as a call. An option to sell is known as a put. Other useful terminology used in Option trading is the strike price. The strike price is the price that has to be reached before a call option can show a profit. In our painting example, the strike price would be $50.
There is much more that must be learned about option trading. It is in many ways an extremely risky investment. It is usually thought to be the kind of investment that is best suited for risk capital. Risk capital is exactly what it sound like, the money that you can afford to lose. With that thought firmly in your mind, you can investigate options in more depth, and you might find that the old adage of investing holds true. In order to really make a good profit, you need to be willing to take some risk. The more you understand about this fascinating investment, the less that risk will be.
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Future Option Trading - A Brief History and Overview
One of the most exciting and little understood markets available to the investor is the Futures Option Market, or Commodity Trading. It is similar to the Stock Options Trading market in many ways, but there are also some major differences. Some of the terminology used in Futures Trading also has a different meaning than the same term when applied to Stock Option Trading, and caution must be used to avoid confusion.
In the United States, all of the trading of future contracts are recorded and monitored by the Commodity Futures Trading Commission (CFTC). This agency was created by Congress in 1974 and replaced the earlier Commodity Exchange Authority. The CFTC acts as a watchdog over the entire market, and has considerable power in enforcing its rules and standards.
The Future trading market is often called the Commodity Market, or commodity exchange. This is because the underlying asset is a commodity rather than a share of stock. The commodity can be almost anything from a barrel of olive oil to the value of an index. The most important difference between a Future option and a stock option is that the contract in a Future option gives you the right and the obligation to purchase or sell the underlying asset at a certain price on a specified date. It is obligation that is the key difference, as the stock option is a true option, and no obligation exists.
The trading of commodities has a long history. Some claim the market can trace its origins back to the Roman era. It was certainly active in Japan several centuries ago where the trade was in rice and silk. The market began in the United States in Chicago in the early part of the nineteenth century. Chicago grew and became a centre for transportation and for the trading of the agricultural products of the growing Midwest. The massive amounts of produce that flowed into Chicago coupled with the primitive methods of transportation and communication created virtual chaos. The supply and demand of various commodities fluctuated wildly, and as they did prices rose and fell so quickly that everyone involved were constantly at risk. The market developed to provide some measure of protection from these risks.
The basic concept behind the market was the idea of “forward” contracts. The forward contract was basically a promise to buy now, but pay and deliver later. It brought order to the chaotic market place because suppliers were given some security that their products would be purchased at an acceptable price.
From this beginning, the concept of forward trading developed in the modern futures market. It has been regulated and brought under control, but it remains a volatile and expanding entity. The definition of commodity continues to expand. No longer is it restricted to grain and cattle, but now includes just about every disposable item, as well as non-tangibles like interest rates, and financial instruments. Economist debate over where the definition of commodity will reach its end. Is it an infinite concept? Are such things as human life and free time considered commodities?
One thing is certain. The Future Options Market is incredibly complex, and very little that happens in the world does not impact the prices of the future. Weather conditions impact agricultural output. Political events on the other side of the World impact oil prices. The global economy intertwines more and more each day as transportation and communication continue to shrink the globe.
All of this may appear extremely daunting to the beginning investor, but with a little bit of work with the terminology and the procedures of the market, a profitable and exciting investment option awaits.
Among the Many Investment Opportunities that Exist, Option Trading Stands as Both One of the Most Exciting and Risky as well as One that Offers Some of the Best Chances for a Substantial Return. Learn Options Trading Basics, Strategies and Pricing here at http://www.option-trading-fortune.com
What Is A Penny Stock?
A Penny Stock is a share that trades from a penny to $5. Penny Stock has a large reward prospective with some having gone from a penny to $20 and even more too.
Actually, these stocks commonly refers to any stock trading outside one of the leading major exchanges like the NYSE, NASDAQ, or AMEX, and is often considered to be critical.
In other words, the definition of a Penny Stock is a low-priced, speculative security of a very small company, no matter what of market capitalization or whether it trades on a securitized exchange like the NYSE or NASDAQ or an “over the counter” listing service.
A good example of the OTCBB or Pink Sheets too. The terms Penny Stock, microcap stocks, small caps, and nano caps are also all indeed new and are used interchangeably, however the stock status is determined by share price, not market capitalization or the listing service.
A Penny Stock basically has market caps under $500M and are considered extremely speculative, predominantly those that trade on low volumes over the counter. The Securities and Exchange commission warns that these stocks can trade on the odd occasion, which means that it can be difficult to sell Penny Stock shares once you own them.
Because it can be difficult to realize quotations for a sure Penny Stock, since they can be impossible to be accurately priced. Investors would be equipped for the probability that they can lose their whole investment.
Explaining The Penny Stock More Briefly
Many innovative investors lure to the appeal of these stocks due to the low price and potential for rapid gains which in some cases may be as high as several hundred percent in a few days time span. In the same way, severe drops also occur and many Penny Stocks can drop over 99% trait within the long term.
Therefore, the SEC warns that these stocks are a high-risk investment and investors could be aware of the risks involved. These risks include limited liquidity, lack of financial reporting, and maybe deception too.
Well! In terms of liquidity, since a Penny Stock has fewer shareholders, it is less fluid, meaning that it will not trade as many shares per day as a larger company. Any impulsive change in demand or supply of these stocks can lead to a whole heap of volatility within the stock price.
This lack of liquidity can send a stock price soaring up promptly or also come down rolling. Lack of liquidity and volatility also makes Penny Stock much more vulnerable to manipulation by the concerned management, market makers, or third parties.
A lack of liquidity can also make it extremely difficult to sell a stock, particularly if there is no people that day to trade in to these stocks.
In other words, unlike NASDAQ or the NYSE, there are only minimal listing requirements for a Penny Stock to remain on the splendid OCTBB, namely that they make their filings with the SEC on time.
In fact, companies that fails to meet minimum standards on one of the primary broader exchanges and are depicted and are often realist on the splendid OTCBB or the Pink Sheets.
In addition, Penny Stock trading on the excellent Pink Sheets has little to no regulatory or listing necessities. At least as compared to the major markets. There are no minimum accounting standards, change in notification of ownership of shares, and reported other material changes affecting the financial practicability of a company, all of which are designed to protect the shareholders interests.
These stocks therefore can be new in a number of counterfeit schemes, from pump and dump, short-and-distort, and selling chop stocks. The last being a scam in which shares acquired for pennies are then illegally sold to overseas or domestic retail investors.
Other schemes typical of Penny Stock scams include spam e-mails and junk faxes that tout ridiculous and fraudulent claims, crooked newsletter writers who promote a stock for a fee. Even message boards swarming with “buy now” postings about a Penny Stock from anonymous, paid posters, fake or misleading press releases issued by the company, or reservoir rooms full of cold-callers targeting naive, elderly, or foreign people, all in attempt to drive up the share price while the insiders sell.
While not all Penny Stock that are listed on the splendid Pink Sheets or the OTCBB are fraudulent, one article in a leading magazine estimated that “chop stocks make up to perhaps half the 85 million-share daily volume of the OTC Bulletin Board.”
Though some websites continue living and claim to offer unbiased research and recommendations. They will normally charge a nominal fee for access to their websites, and claim not to accept payment or shares to feature a company in their newsletters or say even the websites.
It could be noted for Penny Stock however that not a single conventional financial media outlet, from the Wall Street Journal to the stock listings printed in local newspapers, covers OTCBB or Pink Sheets stocks, apart from the occasional warning tale.
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