Author: Editor

Online Tools for Stock Trading and Investing

If you are risk-averse but want to become a successful trader and investor choose online tools for trading as an aid to reach your goals.

Online tools for stock trading and investing must tell you the information needed to make a successful trade and provide you advanced research to boost your profit. By using online tools for trading and investing in the stock market, or any other market can streamline the whole process, from choosing a stock to exit with profit. For example, when the ups and downs, even small changes, in the market are present you’ll need a tool to time them. Some of these online tools for stock trading can be very useful, valuable, and profitable for beginners.

What online tools for stock trading to add to your trading toolbox?

The most powerful tool is your knowledge of technical and fundamental analysis, that’s the truth. But some advanced technology can aid your trading. These online tools for stock trading are extremely important in your decision-making process, in buying and selling stocks. The technical analysis will show you the price trends of stock. So, you’ll need it to know to recognize trends for the particular stock to be able to decide will you buy it or not. But technical analysis isn’t enough. You’ll need more tools for stock trading.

You’ll need fundamental analysis. This tool will help you to evaluate the company’s strength to grow further. This information is also very important before you make any decision on whether to buy or sell the stock.

The importance of online tools for stock trading

In fundamental analysis, tools for stock screening are a good starting point. When you pick the stocks and add them to your investment portfolio, you’ll need tools to track them and manage your portfolio.

Tools for stock screening

Stock screening tools can identify companies according to your investment goals. They can provide you information about the company, industry, market capitalization. Stock screeners allow you a fast search for a stock based on the rules you’ve set. Almost all trading platforms have screeners. But you would like some with in-depth screening capacities that will help you to really recognize all trade opportunities. Also, you’ll need charts, market maps, and quotes. Moreover, by using them you’ll be able to examine revenue growth, valuation ratio, and many other ratios.

Portfolio tools

For example, portfolio tools. They will allow you to maintain the balance in your portfolio. Let’s say, the small-capitalization stock has a strong run. What is the role of the portfolio tool here? It will allow you to cut that stock and allocate your funds to other assets.
For technical analysis, the most important is to use interactive and advanced charting tools. If you use charts as one of the online tools for stock trading you can easily set trendlines and moving averages to determine the wanted pricing pattern.

Charting is essential for traders that use technical analysis. It gives them a possibility to evaluate past movements and to predict future performance by recognizing the patterns. When you can dig deep into the history of some stock, you’ll be able to understand when and why the stock was volatile, what forces them to move in a particular way. Some online brokers offer charting. When you do so you’ll be able to decide to buy or sell stock in an easy and trustworthy way.

Take advantage of stock trading technology

If you don’t use them, you are missing out maybe the best trade in your entire life. Everyone would like to boost returns. Some strong trading platforms could help you. Find a broker with a robust platform. Well, there can be some disadvantages. For example, brokers with superior trading platforms will charge you higher trading commissions. Maybe they will limit the number of trades, or demand the minimum number of your trades. Even more, some will require a minimum account balance to give you access to the platform.

Traders-Paradise fully recommends TD Ameritrade. Read more HERE.

Tools for idea generation

You might have different ways to come up with trade ideas. But you can also subscribe to some online services. In this way, you’ll have market updates in real-time, which is extremely important. This kind of service will provide you previews to initial public offerings, reports about rising growth stocks, stock trends.

Online tools for stock trading cover financial statements, company news, and reports that are written by experts. When you use them, you ‘ll have a precise idea of how the company is doing. Maybe you get some new trading ideas. The more analysis is available, the better.

The other online tools for stock trading

Choosing the right online tools for stock trading isn’t an easy task. You have to know what you want to get. Also, an important point is to recognize what you are not scared to lose.

But remember, not one tool will help you make an investment decision. Some online tools you should use to analyze your investments. For example, if you want to evaluate stock use assets valuation, discounted cash flow, P/E ratio, or EV/EBITDA (enterprise multiple) to determine the value of the company. Also, debt to equity, current ratios, and quick ratio are important tools. The next group of online tools for stock trading could be sales turnover, returns on equity and on capital, and assets turnover. All of them you can find also online.

Bottom line

These are some of the online tools for stock trading used for estimating the position of the company. But there are some tricky parts. Even if the company shows great results in all criteria you apply, you still don’t have to invest in it. You’ll need more, let’s say, tools. That’s your ability, your sense, your guts, feelings. Someone said that trading is more an art, not a science. If you aren’t an artist in the trading, you’ll end up with the poor results from your trades. Relying on online tools only can be wrong, almost the same if you never use them.

We don’t want to say you’ll need an esoteric, spiritual knowledge, but you have to feel the spirit of trading. You must have it in your bones to be really successful. Otherwise, you’ll be one in a crowd. But you would like to be exceptional. Remember, trading or investing doesn’t lie in an Excel sheet or trading platform. It lies in your heart, lives in your mindset, survives in your mind. Don’t get us wrong, results, numbers, all that math, algos are important. But you must feel trading. You have to live it.

5th June 2020
A Cash Account And A Margin Account

Investors that are buying securities do that by using brokerage accounts.

There are two main types of brokerage accounts but they are not the same, there is a difference between a cash account and a margin account. The most obvious is in its monetary requirements.

What is a cash account?

When using a cash account, all transactions have to be done with cash. In investing this represents a long position. As an investor, you must deposit sufficient cash to settle the trade. The other way to trade in a cash account is to sell your existing position but on the same trading day. Only then you’ll have available cash to settle the trade.

A cash account is quite simple.

With your permission, all or part of shares you own and hold on a cash account a broker can lend to the third party. This could be a smart decision since it could provide you the extra gains. This situation is known as share lending or securities lending. Moreover, if you hold the securities that are hard to borrow, your profit could be even more significant. There are always a lot of short-sellers that are in need of good stocks but don’t have enough money to buy them. Also, hedge funds are always interested in borrowing securities.

What is a margin account?

When you open a margin account you’ll have a chance to borrow and buy a new position or sell short. Actually, by using a margin account you’ll leverage your position and profit from betting against the value of the assets in the account. You can also use a margin account to withdraw cash. It would be some kind of loan. If you want to leverage your position, a margin account could be useful.

For example, by using a margin account you could take a short position in the stock that you believe the price will fall soon. When it happens, you’ll cover your short position by taking a long position in the same stock. This could be beneficial if the market goes in your direction because you’ll take profit on the difference between the cost of the initial short sale and the cost of stock bought at a lower price for your long position.

Where is the difference between a cash account and a margin account?

If you use a cash account for this action, you’ll need some strategy to hedge the income because you can use only cash for long positions. For example, you may set a stop order to sell the stock if it falls below a specific price. That will limit your downside risk.
On the other hand, a margin account must keep a certain margin ratio all the time. If the amount on your account drops below the limit, your broker will issue a margin call. This means, your broker will demand more securities or cash in order to get back the account value within determined limits. To maintain this amount you’ll need to add fresh cash or to sell some of the securities you already hold.

The key difference

To put a long story short, the main difference between a cash account and a margin account is that cash accounts don’t allow you to use the vast range of financing vehicles. You’ll not get a chance to borrow for investing. If you want that, you’ll need a margin account. Also, there are some other circumstances where you’ll choose to use a margin account. It isn’t convenient for investing only.

Opening a margin account means a credit arrangement with a broker. The benefit is that you can use the margin in various different ways.

What a margin account allows you?

The most important, a margin account allows you to borrow against the value of your stocks and make more investments. A margin account gives you the leverage since you can buy more assets than it is possible with the cash you have. Yes, the broker will take an interest in the margin loan. Limits on a margin loan may vary from broker to broker. But most of the brokerages will allow you to borrow up to 50% of the worth of your investments. Also, talk to your broker because not all your investments are fit for margin requirements.

Here is one example of the difference between a cash account and a margin account.

For example, you have $20.000 and want to buy a stock at $200 per share. So you have enough cash to buy these 100 shares. But if you have a margin account your broker could allow you to borrow an additional $20.000 which means you could buy 200 shares of that stock. Of course, you’ll own the broker $20.000 but you’ll borrow that money only if you believe the stock will rise in value. So, you’ll earn from selling them. That will be your profit after you give back a borrowed amount to your broker.

The risks of a margin

For example, your position falls in value, and you end up with large. In such a case the broker can demand you to close your position. No matter if you don’t want to do it. That is a great risk with a margin account.
Let’s use our example above. You bought 100 shares of stock at $200 but the stock suddenly falls to $100 per share. In the cash account, your 100 shares will be worth $10.000 instead of $20.000. In this scenario, with a cash account, your losses would be $10.000.
But if you have a margin account and purchased 200 shares by taking out a margin loan of $20.000, you’ll be in bigger problems.
First of all, you bought double as much stock, so your losses are double bigger. Moreover, your broker will notice that you owe a $20.000 margin loan on assets but now your assets worth only $10.000. So, our broker might request you to add more cash. If you don’t do that, the broker will sell your stock at $100 per share. Your losses will be locked but you’ll have no chance to cover them if the stock rebounds. That is also a difference between a cash account and a margin account.

Bottom line

By having a difference between a cash account and a margin account in mind you might choose to stick to your cash account. Why should you be worried about margin? But it could be the wrong decision. A margin account offers you more options but you have to check the volume of leverage you use. The other key rule is to never put your complete account at risk.

Understanding the difference between a cash and a margin account is a tricky part for beginners. However, if you know the risks, everything will be well

4th June 2020
Difference Between CUSIP And ISIN Codes

While the company’s reports may not all be true, nothing can be hidden if you use CUSIP for the US companies and ISIN for international trading.

CUSIP and ISIN codes are some of the most well-known securities identification numbers that are used to trade.

If we have in mind that both are codes used for securities to help settlement and clearing in trading, what is the difference between CUSIP and ISIN?
ISIN stands for International Securities Identification Number, while CUSIP stands for Committee on Uniform Security Identification Purposes. Both are displayed as codes Let’s look at the difference between CUSIP and ISIN.
We already explained in the previous post what CUSIP is, let’s explain what ISIN is to understand the difference between them.

What is ISIN?

It is a security code that consists of 12 alphanumeric characters. ISIN is used almost all over the world, but it is particularly known and used in Europe. So, we said it consists of 12 characters where the first two are the country code. It is followed by 9 alphanumeric characters which are the national security identifier, and we have one more digit, the 12th.

Difference between CUSIP and ISIN

Well, where is the difference between CUSIP and ISIN if both serve to help settlement and clearing in trading securities?

The first difference is that CUSIP, mostly used in the US, North America actually, consists of 9 alphanumeric digits. The first 6 letters outline the issuer, the next two digits represent the issue, the last figure is the check digit.

Both have the same purpose to uniform the identification of securities which are settled and traded.

ISIN is accepted for shares, futures trading, options, derivatives, and debt security that are traded and settled. This code looks something like this: two letters to identify the country, for example, Germany, so they would be GE. The next we have a national security identifier formed of nine digits, for example, “275946739” and as the last but not the least one check digit.

The country code is provided by the International Organization for Standardization or shorter ISO. The National Numbering Agency (NNA) provides the national security identifier for every country in particular.

What is the check digit?

The check digit is received by using the Modulus 10 Double Add Double system. This system converts the letters to numbers by adding their place in the alphabet to nine.

To calculate the check-digit, use the first 11 digits, and start at the last number and go from right to left. Each second digit you should multiply by 2. Letters are converted to numbers. You’ll have a string of digits as a result. All numbers over 9 separate into 2 digits. Add them up. The next step is to subtract from 10 and you’ll have the ISIN check digit.

For example, when the final result is 0, that means the check digit is 0.

Alphabetical letters are transferred to a numeric value. The letter A is 10 and the others are as following:

A = 10; B = 11; C = 12; D = 13; E = 14; F = 15; G = 16; H = 17, etc where Y = 34.

To summarize, convert letters to numbers by using the model above but start from the right last digit, every other digit multiply by 2. Subtract the result from the smallest number ending with 0 to get the check digit.

The check digit for CUSIP is calculated by converting letters to numbers by using their position in the alphabet. Every second digit multiplies by 2 to get the CUSIP check digit.

The importance of these codes to investors

ISIN codes are important for companies that have investors or want to raise the capital. The main purpose of the ISIN code is to clear and settle trades.

Both the ISIN number and the CUSIP number are an official code that is required today. The numbers will help you to identify the security. They are kind of a personal social security number for the companies.

For example, the ISIN number is necessary for cross border trading. Moreover, ISIN code has many purposes.

An ISIN or CUSIP number isn’t a ticker symbol that spots stock at the market. For example, the company may have several ticker symbols. That depends on trading platforms but its securities will have the same ISIN number. ISIN code is required but companies cannot create the ISIN code themselves. When a company wants to have an ISIN number it has to contact the numbering agency, for example, the Association of National Numbering Agencies (ANNA).

How to convert CUSIP to ISIN?

The CUSIP number is entirely included in the ISIN number. The ISIN is a larger code with 2 prefixed letters, for example, the “US” for the United States of America. CUSIP number doesn’t have this prefix because it is entirely a North American identifier.

For example, ISIN US0328974369 is extended from CUSIP 032897436. Keep in mind that this is an imaginary example, and as such not a real example. Let’s go further! You can notice that country code is added on the front of this numeric phrase, and the check digit is at the end. So. we can easily recognize that the issuer is from the US.

Let’s determine the digit at the end. Just a bit of math more.

Let’s convert letters to numbers.

U = 30, S = 28.

So we have

US0328974369 as 30280328974369

The next is to collect odd and even numbers.

30280328974369 = (3, 2, 0, 2, 9, 4, 6); (0, 8, 3, 8, 7, 3, 9)

Now we have to multiply the group containing the rightmost numbers (meaning the FIRST group) by 2:

3×2 + 2×2 + 0x2 + 2×2 + 9×2 + 4×2 + 6×2

which is

6 + 4 + 0 + 4 + (1+8) + 8 + (1+2)

Now, add up the individual digits

6 + 4 + 0 + 4 + (1+8) + 8 + (1+2) + (0 + 8 + 3 + 8 + 7 + 3 + 9) = 72

Then use the 10s modulus of the sum.

Bottom line

The CUSIP number is important to help the settlement and the trading securities. The CUSIP consists of nine characters, with letters and numbers. It is assigned to securities that are traded in the United States and Canada. CUSIP numbers are publicly available.

ISIN Numbers are expanded CUSIP numbers and represent the International Securities Identification Number system.

This is how the international system for the clearance of securities is established. The difference between CUSIP and ISIN is in 3 digits and we showed you what they are and how to calculate them. Both can simplify trading, selling, or buying securities, especially in international investing.

3rd June 2020
Index Trading What is It and How It Works?

In index trading, you are betting on the movement of the stock market as a whole.

In the stock markets, you don’t need to trade individual stock only, instead, you can choose index trading. Index trading is actually very popular in stock trading.

Let’s make clear what an index is. In short, it is a mix of tradable assets. The most popular indexes are the S&P 500, NASDAQ, Dow Jones Industrial Average (DJIA), etc. They are so-called benchmark indices. In the stock market, these indexes include the shares of individual companies.

Besides the opportunity to use the index as an indicator of the market condition, you can use it for real trading. But there is some characteristic of the index that you have to be aware of. An index doesn’t have real value, it is just a measure of the value of a part of the stock market.

How is possible index trading?

We know that trading, in most people’s minds means buying and selling a single stock, currency pair, or some other asset. Well, trading isn’t just buying or selling securities, you can trade indexes also. Yes, an index is a financial instrument that consists of numerous assets with their average value. As for the index meaning, they are a financial instrument that combines individual assets and represents their average value.

Index trading means speculating on price changes in a stock index benchmark, for example, the S&P 500, FTSE 100, the Dow Jones, etc.

In index trading, perhaps the most beneficial part is that you don’t need a huge capital. You don’t need to buy the whole index, meaning you don’t need to pay it at full price, you can pay, for example, 20% of its value. How is this possible? If you want to buy stocks you have to pay 100% of the value. Well, index trading is a derivative vehicle. The main difference between stocks and index trading is that you can hold stocks for years but in index trading, you don’t have such a possibility. Actually, you have but only if you enter the same position every month, for example. This means you can hold indexes for a specified period.

The other characteristic is that you are actually trading indexes options. Further, index options are settled in cash. It is common for index traders to use index options to hedge stock portfolios. Index options are also excellent when it comes to speculating the market. Index trading is basically the traders’ attempt to profit from the price changes of indices.

The examples of index trading

There are many indexes available that you can trade. Index traders can either focus on a single index or trade various indexes as a component of a more extensive strategy.
For example, stock indexes are the most attractive because they mix some of the most important companies. If the companies are strong with permanent growth, the index value will increase.

The stock indexes are the most popular types of index trading. A stock index is a collection of stocks that presents, let’s say, a summary of how a particular section of the stock market is doing. For example, a biotech stock index will track biotech stocks.
Index trading occurs when you don’t want to buy individual stocks Because you would like to have exposure to a whole section of the market.

There are numerous indexes, for example, FTSE100 (London), S&P/ASX 200 (Australia), AEX index (Amsterdam), CAC 40 (France), DAX (Germany), besides already mentioned above.

Why index trading?

Index trading is a comparatively protected form of trading with combined risk management. The risks of index trading are lower than the risks of trading individual stocks.

An index isn’t a manipulative financial instrument or it is at least. The price of an index will change along with the price changes of the constituent stock that make up a particular index.

The other reason is that you have an embedded money management system. Index trading simply means you don’t “put all your eggs into one basket.” Also, the risk is lower in this type of trading. It’s true that indexes can be volatile due to political events, economic predictions, or similar. But when an index is getting or losing 15% in value, the headlines will be full of that, trust us.

By index trading, you’ll be protected against the risk of bankruptcy. An index can not go insolvent. If an index’s part goes bankrupt, it will be replaced by the next company on the list. That is great protection of your capital because if you own a stock of the same company you could lose everything you invested in it. Also, you’ll benefit from the global financial condition. By index trading, you benefit from the index’s possibility of permanent rise.

For example, you invest $10.000 for a period of 2 months. At the end of that time, your gains will be 10% of the initial investment, or $1.000. Similarly, index trading permits you to profit from any kind of stock market changes. It doesn’t matter if the market grows or drops in value during these 2 months. Basically, you can profit in any market conditions.

How to trade indexes?

Position trading and trading with the trends are very effective strategies in index trading. A powerful approach could be to open the position and hold as long as possible. That is, in short, position trading. Major indexes have almost the same problems, reactions, so this could be a good approach.

Also, one of the strategies in this type of trading could be trading with the trends. It is suggested to use long-term charts with other technical tools. For example, pattern analysis or indicators are useful to develop your position trading strategy.

This kind of trading isn’t without risks. It is with the lower risks but still, some quantity of volatility is present. This is particularly true if you trade the stock indexes. So, you’ll need some risk management strategy. You can use some of the very powerful tools like stop-loss orders, trailing stop orders, or limit orders. Basically, in index trading, if you want to lock in profit, you’ll need everything possible that may help you to manage the trade according to your risk tolerance.

Bottom line

Traders know the names of the main global stock indexes. These indexes can also be traded through stock index CFDs. In fact, you can also buy and sell them in an alike way to how you trade stocks. Everything is almost the same, except the risk is much lower.

2nd June 2020
Why Read a Balance Sheet Before Investing

The balance sheet, used with income and cash flow statements, is an important tool for every investor and has to be read before investing.

By Guy Avtalyon

Every single investor must know how to read a balance sheet before investing in some company. It is one of the three most important reports that can tell you some valuable information about a company’s condition. The other two sources of such important information are the income statements and cash flow. If you know how to read a balance sheet, income statements, and cash flow reports, you’ll be able to make a proper investment decision.

While you read a balance sheet you’ll find out almost everything about the company’s financial status for a particular period. The balance sheet reveals what assets the company owns, what are its liabilities, how much in debts. Also, you’ll figure out how big is the owners’ capital, how many shareholders there are, etc.

The basic balance sheet calculation is:

Total Liabilities + Shareholder Equity = Total Assets

When you read a balance sheet of the company, you’ll notice that it consists of two parts as it is shown in the equitation above. This means the total assets of the company have to be equal to the sum of total liabilities and shareholder equity. In other words, the assets are balanced to the obligations at a particular point in time.

What info you can read in a balance sheet?

For example, information about the company’s financial condition at the end of the year. You have to evaluate a company and read a balance sheet before investing in a company. The balance sheet shows which are the company’s sources, debts, owners’ interests, etc. By examining the balance sheet and with the help of a few calculations, you can improve your odds of getting in a good investment.

For example, in the assets section, you’ll find the value of stocks the company owns, what are the company’s investments. Also does the company own real estate, how advanced is its equipment. You’ll find much other important info. But always keep in mind that you have to compare the amount of the cash and equivalents balance of the company. It is better if the company has a large amount of cash. That will provide a room to grow the business, and also, to pay dividends.

Read the balance sheet liabilities to estimate how much debt the company has. The lower is better, of course. Every investor should know if the company has some loans or deferred wages to its employees. This info might cause the investor to get into investment or stay away.

Also, you’ll figure out the amount of shareholders’ equity, the higher is better. But also, in this section, you can find how much money the company got from investors from the preferred and common stocks. The balance sheet shows the earnings the company has but has not been paid as dividends from the start-day to the particular period you are examining.

How to calculate the company’s debt-to-equity ratio?

To calculate the company’s debt-to-equity ratio you’ll have to divide the company’s total liabilities by its total shareholders’ equity.

Debt-to-equity ratio = total liabilities/total shareholders’ equity

If this ratio is below 1 that would mean the company has more equity than debts. So, you can easily conclude that investing in such a company carries less risk. Hence, if the debt-to-equity ratio is above 1 you can be sure the company has less equity than debts. That is in connection to financial problems that could push the company to a business crisis.

For instance, the company has $200.000 in total liabilities and $400.000 in shareholders’ equity. When we divide $200.000 by $400.000 to count a debt-to-equity ratio we will find it is 0.50. It isn’t the best but still quite acceptable debt level.

How to check if the company is able to meet short-term obligations

To calculate this current quick ratio you’ll need to divide its current assets by its current liabilities. Experts suggest, and we agree with them, the better is if this ratio is above 1.5.

For example, the company will be able to pay short-term debts if it has $50.000 in assets and $25.000 in liabilities.

$50.000/$25.000=2

This is a great ratio. But if the company with $50.000 in current assets has $35.000 in current liabilities, the outlook would be quite different.

$50.000/$25.000=1,42

This isn’t a good ratio because it shows the company doesn’t have enough short-term assets to pay its bills.

Also, if you read a balance sheet, you must read fine-prints. You didn’t pay attention? Well, you should. It can reveal some financial obligations that are not visible at first glance and that are not displayed in a balance sheet.

Read a balance sheet before investing

When you read a balance sheet, you’ll notice that the “current assets” are posted first. Because these are liquid assets, they are placed by order of liquidity. The criteria behind is which one can be turned into cash soon. For instance over the current year. The liquid assets are cash and its equivalents, inventory, accounts receivables, and

The next part of a balance sheet is “total assets.” These are holdings that can’t be quickly turned into cash in the current year. This includes land, equipment, marketable securities, prepaid expenses, intellectual capital, etc.

Likewise, current liabilities are shown first in the section of asset listing. For example, all debts in order of date dues, financial obligations expected within the current year. That could be outstanding interests, rent, salaries, and dividends. This list is followed by a list of total liabilities that incorporates pensions. Also, interest on bonds, the principal on bonds, etc.

The following is a total equity list also known as shareholder equity or net assets. This list incorporates saved or retained earnings, common and preferred stock, and extra paid-in funds.

What are the current assets?

Current assets have a duration of less than one year. In other words, they are accessible to turn into cash. Cash and cash equivalents such as checks and non-restricted bank accounts are the most important among current assets. Cash equivalents represent safe assets and can be easily turned into cash. Accounts receivables represent the short-term obligations that customers owe to the company. For example, when a company sells its product on credit, it will be in the list of current assets until the customers pay them off.

The inventory is also the current asset owned by the company. It can be everything that the company produces, raw materials, or other goods necessary in production.

What are non-current assets?

They present assets that couldn’t turn into cash within the one-year time frame. They could be tangible assets, for example, machines, computers, factories, land, etc. But, non-current assets can be intangible assets also. For example, licenses, patents, brand name, or copyright.

Why reading a balance sheet is important

The balance sheet is a valuable piece of information for investors but has some limitations. The first comes from its inability to give full insight into the company’s business history since it shows only a part of it. You’ll need to know more to have a full understanding of the company. For example, income and cash flow statements.

Anyway, read a balance sheet before investing in some company because it can give you a more clear picture of the company’s operations. If you read a balance sheet, you’ll understand what the company owes and owns. Its financial status will be clear to you. It is very important for investors to read a balance sheet, how to use it, how to analyze it. Reading a balance sheet will support your decision to invest or not in some companies.

1st June 2020
Online Lenders Frauds – How To Recognize Them

One-third of American adults have been faced an attempted fraud in recent years

By Guy Avtalyon

Any business that involves considerable amounts of money quickly exchanging hands is a fertile ground for scams and frauds and the same comes to online lenders frauds. Scammers always look for a chance to quickly make a buck with the least possible effort. And the lending industry is rife with scammers who fraudulently take out the loans. But such does not present an overt danger for people looking for loans. Big banks and financial institutions employ artificial intelligence and machine learning to fight against these types of frauds. But, a common consumer of the lending industry’s products has to be aware of a potential scam coming from the other side, fraudulent lenders.

How widespread are scams?

Seemingly with every day, a new type of financial product comes to market. And each of them presents a scammer with an opportunity for at least a couple of different scams. And you can be certain that there are some very creative fraudsters out there. In the lending industry, just due to the wealth of different products there is a wealth of different scams.

Many studies and reports indicate that about one-third of American adults have faced an attempted fraud in recent years. While scammers do not practice ageism, millennials do seem to be the hardest hit of all age groups. The FTC’s study conducted in 2017 based on the filed consumer complaints show that almost 40% of millennials have suffered financial losses due to fraud. While these findings are based only on people who filed a fraud complaint, it is quite higher than 18% among people of 70 or more years of age. While this study doesn’t give any definitive conclusions, it does paint a picture of people in their 20’s not being fully cognizant of the potential dangers on the financial markets.

How to avoid online lenders frauds

Fraudsters always prey on vulnerable people, and in the loans industry, it is people who desperately need money. The best way to protect yourself from a scam is to arm yourself with knowledge. Especially on how scammers will try to defraud you. While searching for an online lender that offers a product that suits your needs, you have rather slim chances to stumble upon a scammer. But, as in any other area of life knowledge is power and there is no safety in ignorance. Scammers will come hunting actively for their victims. And the only sure way to protect yourself is by knowing how to recognize a scam.

How to recognize an online lenders scam

In the majority of scams involving loans consumers are not targets for direct financial gains, but online lenders and similar financial institutions. Consumers are more often just a tool in the scammers’ arsenal. First and foremost as a source of a legitimate identity for fraudulently obtaining a loan. And that is the first precaution a person must have on their mind, how to protect their own personal information from identity theft. Scammers often try to obtain genuine personal information, personal documents, addresses, and social security numbers; and then use them for applying for personal loans from online lenders.

By stealing the identity of a person they can fraudulently obtain a loan, which then often a victim of the identity theft will have to repay. Such identity thefts are often done by simple phishing methods. Usually by sending forged emails with requests to resubmit your documents to your bank or such.

Who has the right to ask you?

While banks and many other institutions have a legitimate right to ask you to provide such information, they will not ask you by email to resubmit them. Most certainly not because “the fire in the office building in Delaware has destroyed your personal file” as claimed by an email in my Spam folder I got from [email protected]. And that’s another way how they mislead victims into giving them sensitive personal information. They send mass emails from slightly misspelled domains. And they don’t know whether you have an account at some bank or not. They will just send you the email because they have found your address among many they have purchased someplace. And you need to be very careful when reading these kinds of emails.

When I got the said email, I spent hours wondering why I got it when I’m not a Bank of America customer, before I’ve noticed that I’ve got an email from the Bank af Omerica. A friend of mine got an email from the Bank of Ameirca around the same time.

This is how scammers will try to dupe an Average Joe to provide them the ability to scam online lenders. And they do have tools in their arsenal they will use to try to defraud you personally by offering you fake loans. And here is a list of common red flags that some loan offers might be a scam.

Unsolicited loan offer

Whether by phone, email, or social networks a potential scammer might try to contact you and present you with a loan offer. This could be a legitimate offer. But, the legitimate offer will contain a way to contact back the company which is making the offer, a phone number, or website address. A scammer will continue to communicate with you in the same manner. Legitimate offers are always automated and replying to them will have no results. While scammers will be actively waiting for your reply. Just ask yourself, have you ever met a person who called some customer service and got a living person in less than 15-20 minutes? Scammers reply after 15-20 seconds. With such quick and polite responsiveness they aim to build up your confidence in them and provide them with personal information or money.

No interest in your payments history/credit score

While many legitimate online lenders offer bad credit loans, no reputable lender will neglect to do a proper check of your ability to pay back the loan. The payment history or credit score is just two of the factors they might take into account. The difference is that they will not take into account just them. Legitimate online lenders might ask you to provide the employment/income information, education, and such which they use to calculate the risk of offering you a loan. Scammers will never, as they don’t need it.

Online lenders are not registered in your state

Per the Federal Trade Commission’s regulations loan brokers and lenders must be registered in states in which they offer services to residents. And you must check the lender’s website for the list of the eligible states. You can also find the lists of registered lenders on the web pages of your state’s Department of Financial Regulations or Banking. And this is the easiest way to recognize fraud. Scammers cannot be found in the official registration databases.

Their website is not secure

Online lenders do care about the potential frauds and scammers who impersonate them. The simplest way they protect their own cyberspace identity is by employing SSL certificates for their domains. While these are first and foremost used for securing safe communication with their websites, they incidentally provide proof of authenticity of their websites. Such SSL certificate protected internet domains are easy to recognize, they start with https:// and on many internet browsers there will be a padlock before the address. When you see both of these two you can be certain that it is a web page of a legitimate company. The absence is not proof that it is a scammer, but the presence is proof it is not a scammer.

No physical address

Even purely online lenders do have physical addresses. They might conduct their operations only in cyberspace, but their employees still need to sit in some offices. Scammers don’t need them. Sometimes they do provide them, but a quick search of such will lead you to some empty land or a shabby looking shed in the middle of nowhere. Sometimes they will advertise with a P.O. box, which shouldn’t fill you with confidence about their legitimacy.

The pressure to act quickly

Scammers will always push you to accept their offer today, this very moment. They are in the hurry to close the deal before you realize what is going on. Legitimate online lenders have time to wait. Even if they impose some time limit for accepting their offer it could be a few weeks, not days or hours. Only scammers will try to push you into quickly accepting their offer.

Payments before approval

This is one of the tricks a scammer might try to employ which is similar to the Nigerian Prince fraud. Scammers, in this situation, are only interested in collecting such “fees”. While it might be some small amounts of $15-20, no legitimate lender will ask you for something like this. Online lenders or brick and mortar banks, it doesn’t matter, all of them, if they are legitimate companies, will deduct the fees from your loaned amount or include them in monthly payments.

How to protect yourself from online lenders scam

Getting a loan from an online lender is like crossing a street at a crossing. It is generally safe but has certain dangers if you are not looking both ways. There are just three things you should do to fully protect yourself from fraud. And two of them are things you should be doing already anyway, as a way to safeguard yourself from any type of fraud or dishonest business.
Never resubmit sensitive personal information, unless you can independently establish that it is a legitimate request for confirming your identity.
You should never pay fees in advance.
Finally, never accept loan offers for which you have less than a week to decide.

31st May 2020
The Settlement Period For Stocks – What is T+1, T+2, and T+3 Timeline?

When trading stocks, the settlement refers to the approved, an official shift from the buyers’ account to the sellers’ accounts. This never happens quickly, it will take a few days.

By Guy Avtalyon

The settlement period for stocks means that the trade became official at the end of one, two, or three days. For example, you aren’t an official owner of the stock on the day you bought it, you have to wait for 3 business days while your purchase becomes official, meaning to settle. The settlement period for the stocks refers to a period after the trade date. Terms T+1, T+2, T+3, are broadly used to indicate the settlement period is one, two, or three days after the trade of any type of security is executed.

Today, when almost all trades are done electronically, these terms are used to show that the stock you bought doesn’t yours officially until the third-day from the purchasing day. So, technology does not influence this, it is an exchange rule. To be honest, this is an important rule because it could happen that you bought or sold by mistake or you made some errors, so you’ll need some time to fix that.

Without a doubt, some people buy stocks accidentally, random. Later they would like to cancel their purchases when they notice a mistake or change their mind. In case the trade is a real mistake, both participants are agreed to correct the problem. And they would like to do that at the less cost possible.

Also, there is another group of people in the stock market that don’t want to pay stocks with some weird idea that their buying will be characterized as a mistake if they prolong the time to settle them. In short, they are expecting to obtain these stocks for free. Hence, the settlement period for the stocks is an important period for the sellers or exchanges to clear up such a trade.

The basics of the trade

There are three phases of any trade. First is the execution which is an agreement between buyers and sellers to buy or sell a stock for a specified price. When the buyers and sellers are agreed, the exchange registers the trade on its ticker tape.

The next step or phase is clearing. It is an accounting process. When you bought your stock, meaning the trade is executed, the exchange should send the detailed report to the National Securities Clearing Corporation to verify the accuracy.

The last step is the settlement. On the settlement date, the buyers execute payment for the stock and the sellers deliver it to the buyer. Typically, the settlement period for the stocks happens three days after execution.

Purpose of settlement period for the stocks

The settlement period for the stocks provides both sides of the trade to fulfill their side of the settlement. For example, the buyer will get more time for payment to do, also the seller might need time to fix something, like to deliver the stock certificate. Even today when the whole trading process is done digitally, the trade is official only after the number of days assigned by trade settlement rules. When the last day of the settlement period comes, the buyer becomes the true owner of the stock and registered as that.

What are T+1, T+2, and T+3?

Every time you buy or sell a stock, or some other asset, you’ll have two dates to keep in mind: the date of the transaction and the settlement date. This T refers to the date of the transaction. The figures T+1, T+2, and T+3 point the settlement dates of stock transactions that happen on a day of the transaction plus one, two, or three days

The day of the transaction or the transaction date is the day when you traded a particular stock, no matter if you bought or sold it. For example, you sold your stock on May, 29. That date is the transaction date. and nothing will change it.

The settlement period for the stocks is important for investors interested in companies that are paying dividends. The settlement date can decide which party will receive the dividends. If you are a buyer of the stock, keep in mind to settle the trade before the date of the dividend payment to get the right to receive the dividend.

The end in the settlement period for the stocks, the last day, is the day when the new owner is assigned and the ownership is transferred. The transaction date and settlement date will not occur on the same day. It depends on the type of security.

Consequences during the settlement period for stocks

You have to understand what the two-day settlement period for stocks means. Let’s say you are selling the stock and expect money immediately. That is not going to happen. Yes, you’ll see that money in your brokerage account but it will not be available until the trade settles. Only after the T+3 period, you can withdraw your money.

What could happen if you are the buyer and the stock price dropped during the settlement period? Or you don’t pay in the three days? That will not get you out of the trade and the consequences are serious.

If you do not pay for the stock during the three days, the broker will sell it at any price. So you’ll have to pay for losses and penalties.

Also, selling stock through the 3 days to profit and not paying for the stock is outlawed. It’s a so-called freeriding and refers to cash accounts. It’s better to use a margin account if you trade frequently.

Stockholder of record and dividends

When you buy stocks, you are not the stockholder of record until settlement completes. The investor who purchases stock, for example, two days before a dividend record date will not get the dividend. So you have to buy a stock at least three business days before the record date. In investors’ lingo, such a stock goes “ex-dividend”.

To decide which investor is qualified to get a dividend, the record date is part of a dividend announcement. The amount of the dividend and the payment date are included also. You must own the stock on the record date. Meaning the settlement date must be before or on the record date. The dividend payment date will occur a few days (sometimes a few weeks) after the previous date, the record date.

For example, a company declared a $0.50 dividend payable to stockholders of record as of Jun 4, 2020. To have the right to the dividend, you should buy stock on or before Jun 1, 2020. That is three business days earlier. The following day, Jun 2, is recognized as the ex-dividend date. It will be the first day when the stock will trade without that dividend attributed.

Why the settlement period for stocks is important?

There are several reasons. This rule is important to limit the probability of errors, even today in this digital world. Also, it keeps the markets in order. For example, if the market is in a downturn too long settlement times might cause your failure to pay for your trade. When we have a limited time for the settlement period for stocks, the risk of financial difficulties and losing money is reduced.

29th May 2020
Investment Portfolio Rebalancing – Why Should We Do That?

Even if you’re a less aggressive investor, you should rebalance your portfolio at least once a year.

By Guy Avtalyon

You invested your hard-earned money for the long term, you added your lovely stocks, bonds, whatever, and thought everything is done and suddenly somebody told you’ll need investment portfolio rebalancing. What? Should you find an accountant? What you have to do? How to perform that investment portfolio rebalancing? What does it mean, at all?

That is the main key, the fundamentals of investing. You have to do two main things: building it and investment portfolio rebalancing.

The investment portfolio is a collection of your investments. You hold stocks, bonds, mutual funds, commodities. The allocation of the assets you own has to be done based on your risk tolerance and your financial goals. But nothing is finished with the moment you bought your lovely assets. It is just a beginning. After a few years or sooner you’ll notice that different assets generate different returns and losses as well. Some stocks may have nice and high returns, so they become a large part of your portfolio. Much bigger than you wanted.

Assume you built up a 60/40 portfolio where 60% were in stocks. But after some time, you found that the value of those stocks represents over 80% of your portfolio’s overall value. What you have to do? Honestly, it is the right time for investment portfolio rebalancing.

Investment portfolio rebalancing means that you have to adjust your investments, you have to change the asset allocation of the portfolio to obtain your desired portfolio outlook.

Why is investment portfolio rebalancing important?

It will help you to keep your desired target asset allocation. In other words, to keep the percentage of assets you want to hold adjusted to your risk tolerance and to earn the returns you need to reach your investment goals. If you hold more in stocks, you’re taking on more risks since your portfolio will be more volatile. That might have a bad influence on your portfolio because the value will change with changes in the market.

But stocks look like a better investment than bonds due to their ability to outperform bonds as a long-term investment. That is the reason to hold more stocks than bonds in your portfolio but as a reasonable portion to avoid additional risk.

In periods when the stock market performs well, the portfolio’s money value that’s come from stocks will grow along with stock price rise. We already mentioned this possible scenario when your 60% of holdings in stocks rise to over 80%. This means your portfolio can become riskier. So, you’ll need investment portfolio rebalancing. How to do that? Simply sell stocks until you manage them to represent 60% of your portfolio. For the money received from that selling, you can buy some less volatile assets such as bonds, for example.

The drawbacks of investment portfolio rebalancing

However, there are some problems if you rebalance your portfolio during the time when the markets are doing well. Even more, it can be hard to sell stocks that are doing well, they are your winners and their prices might go even higher. What if you miss huge returns?

But consider this. What if they drop and you lose an important amount of money? Are you okay with that?

Remember, every time you sell any asset that is an excellent player, you are actually locking in gains. That’s real money and you can use it to obtain some stocks that are not such a good player but you’ll buy them at a bargain. Do you understand what you actually did? You sold high and bought low. You’re every single investor’s dream. You made it happen!

The real-life example

Our example of rising to 80% is rather drastically than a realistic one. Investment portfolio rebalancing ordinarily means selling 5% to 10% of your portfolio. We are pretty sure you are able to choose 5% of your winners and to buy some current losers but in the long run also winners. Investors usually buy bonds instead of stocks when rebalancing their portfolios.

Investment portfolio rebalancing is important because it provides you balanced asset allocation and, what is also important, in this way you’ll avoid additional volatility of your portfolio. If you’re the risk-averse type of investor this added risk might produce bad investment decisions. For example, you might sell stocks at a loss.

Investment portfolio rebalancing is the best way to follow your financial plan and obtain the best returns adjusted to your risk tolerance. Anyway, you don’t need to be overweight in stocks because the markets are cyclical, and it could be a matter of time when the next reverse will come.

Why rebalancing your investment portfolio?

Let us ask you. Are you having a car? Do you change the oil or broken parts from time to time? The same is with your investment portfolio even if it is the best created. As we said, the markets are cyclical and some parts of your portfolio might not play well in every circumstance. Why should you want to hold a stock that isn’t able to meet your investing goals or you bought it by mistake?
It isn’t hard to rebalance your portfolio, at least once per year. In short, that is investment portfolio rebalancing. If you think your investment portfolio is well-diversified among asset classes, just think again. Maybe it is diversified among asset classes but is it diversified within each asset class?

For example, why would you like to hold only Swiss biotech stocks? There is no reason. Moreover, it can be dangerous. It can hurt your investment portfolio a lot. It is better and safer if you hold a mix of different stocks, domestic and foreign from different sectors.

What if some of the investments grow in value while others decline?

In the short term, it is good. In the long run, it can be a disaster. That is the reason to rebalance your portfolio promptly and properly. Otherwise, your portfolio will be hurt as well as your overall returns.

For example, you own 50% in stocks and 50% in bonds. Sometime later, your stocks performed unsuccessfully and their value is lower now, but bonds performed outstandingly. So, what do we have here? Bad performers – stocks at lower value and bonds as excellent players at a higher value. Would you think to change the proportion in your portfolio? Of course, you would. So, what do you need to achieve that?

Let’s examine a different mix. For example, you may rebalance your portfolio and now it will be 40% in stocks and 60% in bonds. But what is the consequence if you don’t rebalance your portfolio and stay with your initial mix? You will not have enough capital invested in stocks to profit when stocks come growing back. Your returns will be below expected.

What if stocks were growing in value while bonds did unsuccessfully? Or, what if your portfolio turned into a collection of 60% stocks and 40% bonds, and quickly the stock market dropped? You’ll have greater losses, much bigger than it is possible with rebalanced the 50/50 mix. In short, you had more money in stocks. Your long-term gains are in danger.

To make a long story short, when rebalancing, you have to cut the over-performing stocks and buy more underperforming assets. The point is to sell overvalued stocks and buy less expensive but with good prospects. Do you understand this? We came up again to the winning recipe: buy low, sell high.

How often should you do that?

The answer is short, once or twice per 12 months mostly. Markets are cyclical and unpredictable. However, if you rebalance at an uncertain period of the year you’ll put your money at risk. Never avoid rebalancing your portfolio after significant market moves. Follow a 5-percent rule. Your investments should be within 5% of where they were when you build your portfolio. For example, if your initial portfolio was with 60% in stocks (you were smart to buy good players) and after several months they changed to 65% or over, it’s time to rebalance. In case you weren’t so smart and you bought poor performers and they changed to 55% or below, it is also time to rebalance. You have to prevent your portfolio from fluctuating more than 5%.
That’s the whole wisdom.

28th May 2020
How to Make Money With Forex?

Forex market is like any other market where instead of stocks or bonds people trade currencies and make money.

Trading in Forex is popular low capital trading but you have to know how to make money with Forex. The truth is that you don’t need a huge capital to get started. Also, the Forex market is available 24 hours during working days, but you can’t trade over weekends. Maybe the most common truth about every single person that enters the Forex market is that they are excited, eager to earn a lot, and fast, but only a few of them know how to make money with Forex.

How beginners in forex trading look like?

They are excited by the possibility of quick money earning and becoming rich. Beginners will easily sign up on some platforms without doing the necessary research. They are entering a position like gambling putting money somewhere and somehow, random, without a strategy. Even more, they don’t know how to place a trade, when to enter the position, where to set stop-loss orders or limits, or take profit. Actually they know nothing. And what happens? After several days when everything invested is lost, they will conclude the Forex is fraud and it is impossible to make money there. For them it is completely the truth. With this approach, they will never earn because they don’t know how to make money with Forex.

The other side of the Forex rainbow

Beginners could see successful Forex traders. But they are using tested and well-checked strategies. The strategies that they have developed or discovered thanks to a lot of trials and errors made for a long time. Yes, that’s the way! You’ll have to make many trials and mistakes to understand forex trading and understand how to make money with Forex.

Forex traders have a unique trading style, a unique system, and their own strategy. But they came up to them after deep research, hundreds of attempts, losing a lot of money before they found a profitable strategy that works for them and became successful traders. Well, we are sure that the most successful traders will never talk about their failures but now and then you can find someone ready to share that unpleasant experience. On the other hand, you’ll find a lot of them sharing their great stories about winning trades. Learn from them. Only the knowledge will allow you to make the proper strategy, consistent profits on it every single day. That is possible, of course. But you have to learn how to make money with Forex. And here are some hints.

How to make money with Forex?

If you are a complete beginner without knowledge but willing to start Forex trading and make money from it, the first thing you have to do is to read reputable books. Sorry folks, but knowledge is MUST. The point with reading books is that you’ll obtain theoretical knowledge. It is extremely important to understand the financial markets, otherwise, you’re not able to trade them especially if you want to stay there for the long run.

Good places for sharing knowledge are social networks. Join as many groups as you can and start the conversation. Don’t be shy to ask whatever you need to get better knowledge. Professional traders are also members of such groups and often, they’ll be glad to answer you. Also, interact with other rookies and share your knowledge but dilemmas also. Ask elite traders about the effects of leverage. That could be a very interesting conversation where you could find that trading with excessive leverage could be dangerous. You don’t believe it? Well, using leverage is good but if you use excessive leverage in your trading strategy that can end up as a failure. Using excessive leverage might mean that you are not realistic in expected returns on your investments.

What is leverage in Forex trading, in the first place?

In general, leverage enables you to increase the result of your trading efforts but without developing your resources. Leverage in Forex will simply boost your account while you actually don’t have that money. You are borrowing it to trade with even 1.000 times greater amount than your capital is. That is giving you access to the larger volumes than it is possible with your initial capital.
We are sure that you noticed banners on the trading websites that offer trading with 500:1 leverage. Well, it’s time to explain this in more detail. As we said, leverage is a kind of loan that a broker gives you. You use leverage in margin trading. And here we come to an important point. But leverage isn’t quite a loan even if it is one of the highest that traders can take.

This thing goes right this way

When you enter the forex market, the first thing you have to do is to open a margin account with your broker. Depending on the broker, the amount of leverage can be 20:1, 50:1, 200:1, 500:1 even more. Also, the amount of leverage will depend on your position size. For example, a 100:1 leverage ratio indicates that you have to deposit on your margin account, let’s say, $1.000 to be able to trade $100.000 of currency. These 100:1 leverage or 50:1 are for the standard lot size. If your position is at $50,000 or less the leverage would usually be 200:1.

But compare these leverages with, for example, the 15:1 leverage in the futures market. Well, you might think this forex leverage is too risky. Keep in mind that currency values normally switch by less than 1% within one-day trading. So, this huge leverage is possible because of small changes in the prices of currencies. If currencies are changing more in price, the broker would never give you that much leverage.

More math on how does Forex leverage work

Assume you have a small account with $1.000. A standard lot is 100.000 currency units. If you want to trade mini or micro-lots, this deposit size would allow you to open micro-lots. That is 0.01 of a single lot or 1.000 currency units with no leverage set in place. Nevertheless, you’re looking for a 2% return per trade, which is $20.

So, you decide to employ financial leverage to trade big. Your broker is giving you a leverage 200:1. This means you can open a position as large as 2 lots. To make the long story shorter, let’s do some math.

$1.000 x 200 leverage = $200.000

This equitation shows that you actually have a maximum size position of $200.000. That is 200 times the size of your deposit. So, instead of earning $1, you’ll earn $200. Also, you can lose even faster.
Let’s follow our example, and assume you opened an order with a 1.00 lot. What will happen if the market goes against you? You will have minus 100 pips and lose $1000. Your order will be automatically closed. So, you will lose only your total deposit but you’ll not have money to continue. That’s why it is better to trade a smaller position to reduce the risks.

Use a stop-loss order to reduce risk

This one is probably most important. You can find hundreds of Forex courses on the internet that promise you a strategy that will show you how to make money with Forex every day. A lot of them are scammers, trust us. They just want your money for the low-quality courses. The better way is to start with some simple and easy strategy. It’s not hard to build a suitable strategy.

For example, you notice that the EUR/USD currency pair will rebound from a current support or resistance level. Your first strategy should be to take the benefit of this trend. Later, you can adjust this first strategy by adding some details that will improve efficiency. For example, set a stop-loss when the price goes down to a particular percentage or number of pips to exit the position.

Here is what you have to look out when creating a Forex trading strategy.

Firstly, choose the currency pair. Pick it from the market you know, for instance, avoid currencies from exotic countries if you don’t know them well. If you trade only one currency pair you’ll have better chances to recognize trading signals. Also, your position size will determine the risk you are willing to take in every single position.
Further, find when to set your entry, will you go short or long. Never forget to set the exit level. You must know when to exit the position to maximize your profit and minimize potential losses.
Find when and how to buy or sell your currency pair.

Can you become rich with forex trading?

Some will tell you that it is impossible. And they would be right. The others will tell of course, and they would be right, also. The truth is that the Forex market may give you a chance to earn a lot. This market is much bigger than the stock market, for example. Also, it offers the highest leverage possible in any market. Also, you can trade every day. In essence, the Forex market is a place where small investors with small capital have a real chance to make fortune.

Trading forex is easy, but trading it with constant profit is difficult.

Opposite to what you’ve heard or read Forex trading will not turn your $1.000 account into $1 million. The amount you can earn is determined by how much risk you want to take. If you want to know how to make money with Forex, start with education. Sorry guys, it is necessary. When you learn the basics you can develop your skills further and you’ll start to make money for living by trading forex.

There are traders that are targeting even 100% profit per month. Yes, but the risk they are taking on is almost the same as the profit they are aiming for. In short, if you want to make a 100% profit per year, it’s possible to have a loss of 100% per year. Even if you are trading with an edge your profits will be small without leverage. On the other hand, with leverage, you can profit a lot, but you can produce extreme losses. The main point in forex trading is to buy a currency pair at a lower price and sell it at a higher price. The difference between is your profit.

For example, you have $1000 on your trading account and want to trade the EUR/USD pair with the exchange rate at 1.25. That means that for 1 euro you’ll take $1.25. Keep in mind that the prices are changing every day, from minute to minute. But you believe that EUR will increase versus the dollar.

Let’s assume, you buy 800 euros for your $1000. And the exchange rate changed from 1.25 to 1.35. That’s good for you, and you close the trade at this level and you can exchange your 800 EUR back to $1.080, and your profit is $80. But, if you used the leverage of 1:3000 you would get $24.000 in one single trade. So, you invest $1000 and trade $3.000 000! Pretty good!

Always keep in mind, if you want the higher profits you’ll have to take the higher risks.

Bottom line

One thing is completely true. If you never try you’ll never know how to make money with Forex. With an account with just $1.000 and leverage of 1:100, it is possible to make a lot of money in a single trade. All you have to do is to have at least 1% of the trade on your margin account to use this leverage which is one of the most profitable. That is how to make money with Forex.

27th May 2020
Trading Bonds – How to Start Making Money

A bond is a loan that the bondholder gives to the bond issuer. Governments, corporations, and municipalities issue bonds when they need cash.

Trading bonds may seem unusual and difficult. But it isn’t. Actually, the whole process can be quite simple. Anyone interested in trading bonds shouldn’t have a problem getting started. You can find plenty of opportunities in trading bonds and the bond markets. But some things are special for trading bonds and bond markets. If you are not familiar with them, trading bonds might be very confusing. Honestly, it is important to trade bonds so let’s see how to do that.

First of all, bond markets are much bigger than, for example, stock markets. One of the most important differences between bonds and stocks is that there is no exchange for trading bonds; it is done on the “over-the-counter” market but some kinds of bonds can be traded on exchanges. For example, convertible bonds are possible to trade on exchanges. Actually, trading bonds can happen anywhere where the buyers and sellers can make a deal.

Trading Bonds: The participants in trading

There are two types of participants in trading bonds: bond dealers and bond traders.

Traders can trade bonds among themselves, but trading is customarily done through bond dealers. Well, to be more precise, these places where you can trade bonds are dealers’ bond trading desks. Bond dealers are kind of intersection points. They have all types of connections available. Phones, computers are on their desks. But also, they are connected with some traders whose job is to gather all information about bonds, they are quoting prices for buying or selling bonds. To make the story short, these traders are responsible for creating the market for bonds.

Dealers and traders

Dealers’ job is to provide liquidity for bond traders and make it easier to buy and sell bonds with a limited concession on the price. But they have some other possibilities to take part in trading bonds. Dealers can also trade bonds between each other. Sometimes they do so through bond brokers, meaning anonymously. Dealers make money from the spread between the bonds buying and selling price. This also the way how they can lose money.

Bond trading can be very lucrative. That’s the reason why pension and mutual funds, financial organizations, and also governments are involved in trading bonds. When you have such powerful players in the market, it isn’t surprising that $1 million worth of bonds is small initial capital. The bond markets don’t have any size limit, trades may worth over $1 billion but also $100 million. That isn’t the rule for the institutional markets, there are no size limits for individual traders, also. Their trades are ordinarily below $1 million.

Trading bonds strategies

Trading bonds can be passive or active. Both approaches are legit and can produce you the gains.

You can make money from bonds in two ways. You can invest in them and hold and receive interest payments after the maturity date. It is usually twice per year. That is a passive way of trading bonds.

The other way to make money from bonds is by trading them. You can sell your bonds at a higher price than you bought them. For instance, you bought bonds at a nominal value of $20.000. After some time, their market value increases by 20% and you can sell them at $24.000. You’ll earn $4.000.

Bond laddering is also one of the more active strategies and very convenient to start trading if you hold bonds with different maturity dates. You can use the profit from bonds with shorter maturity dates to buy bonds with longer maturity dates. This is named “income stream” and you don’t need a lot of money to use this strategy. It is pretty much economical and cheap.

Bond swapping is another active approach to trading bonds and very attractive for skilled traders. Where is the catch? Let’s say one of your bonds isn’t a good player and it is more likely a losing one, it’s not going to recover. Traders usually are selling these bonds to get a tax write-off for the loss. The money gained from the selling bond they reinvest in high-yielding bonds. That helps them to build a firm portfolio.

The differences between the trading bonds and investing

In trading bonds you are actually speculating on the price changes during a short period in time. You are buying bonds only when you believe they will increase in price. And vice versa, you are selling them only when you believe their prices will drop. So, your profit is coming from the bonds’ price movements. Trading bonds is also when you use the advantage of leverage. To be honest, that might magnify your profits but also, you may be faced with great losses.

Investing in bonds means that you are holding bonds for a long time. You decided to hold them whatever is happening and you are taking the risk to lose your money if bonds prices decrease. When investing in bonds the profit will come from interest payments. Further, on the maturity date, you will put down the total value of your position.

Should you trade stocks or bonds?

Bonds and stocks are the most traded assets but in different separated markets. When trading stocks, you are actually buying ownership in some companies. When the company or companies are doing well, the value of your shares will grow.
When trade bonds, you are actually lending money to the issuer of the bonds for a fixed period of time. For that you’ll charge interest. Bonds are often seen as safer than stocks. People use them as saving for retirement, for example.
So, trading bonds is an investment strategy. You can use them as we mentioned above, but also, bonds are very useful if you want to diversify your portfolio.

What to look out

Buying bonds can be a difficult path when you aren’t purchasing them right from the underwriter or you are buying used bonds. What to look out, how to know you’re making a good deal?
Look out for the credit rating. It is important to know if the company can pay its bond. Standard and Poor’s and Fitch use a rating system that ranks bonds, the best quality is marked as AAA and the worst as D. Between these two marks you’ll find, in range of quality from good to less good, AA, A, BBB, BB, B, CCC, CC, C bonds.

Further, you’ll need to know the bond duration. That is an indicator of how unstable the bond can be in terms of changes in interest rates. If the duration is longer, that means a higher fluctuation when interest rates shift. The problem is in the nature of the bonds. If interest rates increase, the price of a bond decreases. Also, be careful when buying bonds through the brokerages. They will charge you the fees. Check it before any bond-buying. Use publicly available data on the pricing of bonds, or bonds with equal maturities, interest rates, and credit ratings.

Why trade bonds?

Trading bonds can boost the yield on your portfolio. The yield represents the total return you’ll receive if you keep a bond to its maturity, but you’ll want to maximize it. The point is to sell bonds with lower yield and buying bonds with better. You are selling bonds with low yield and buying another to earn from the spread. For example, you hold a bond that yields 4,75% and you noticed a similar bond but it yields 5,25%. That is 0,50% more. So, you can sell your bond and buy this better yielding one and you’ll have a spread gain – yield pickup of 0.50%.

Credit-upgrade trade is used when a trader assumes that a particular debt problem will be upgraded soon. When an upgrade happens on a bond issuer, the price of the bond will rise and the yield will decline. A credit-upgrade means that the company is marked as less risky. Traders want to catch this expected price increase and buy the bond before the credit upgrade. For this type of trade you’ll need some skills for credit analysis.

You might like to take credit-defense trade.

It is very popular. When uncertainty in the economy and the markets increase, some sectors are weaker to fulfill their debt obligations. If you hold this kind of bond, just take a more defensive position. Pull your money out of that sector, don’t hesitate to get out.

Also, you can trade your bonds to adjust a yield curve and change the duration of the bond portfolio you are holding. In this way, you’ll get an increase or decrease in sensitivity to interest rates, whatever you prefer. Keep in mind that the price of the bond is inversely correlated to the interest rate.

The reason for trade bonds might be the sector-rotation. For example, you want to reallocate your capital to bonds from the sector that is supposed to outperform the industry or some other sector. If you are trading bonds in the same sector, one strategy could be to switch bonds form cyclical to the non-cyclical sector or vice versa.

Bottom line

To trade bonds, you’ll need an account. Choose your bond, when trading bonds, you can buy or sell assets from all over the world.
Now, decide when you would like to open the position. Timing the opening and closing of trades plays the greatest role in how you are successful in the markets.
Open your position by using some online trading platform. Determine how much you want to put on the position and do you want to go short or long. Add stops and limits orders.
If your trade isn’t closed automatically by stops or limits, close it yourself to take profits or cut the losses. To calculate your profit or loss, subtract the opening price of your position from the closing price.

Simple as that.

26th May 2020