Category: How to Start Trading – Beginners

Stock Options Everything You Need to Know

The stock options give the holder the right, but not the obligation, to buy (or sell) 100 shares on or before the options expiration date.

By Guy Avtalyon

Stock options are financial instruments. That can provide the investor with the flexibility need in almost any investment situation.

Stock options are contracts that convey to its holder the right, but not the obligation, to buy or sell shares of the underlying security at a specified price on or before a given date. After this specified date, the option stops to exist. The seller of an option is, in turn, obligated to sell (or buy) the shares to the buyer of the option at the specified price upon the buyer’s request.

The stock options give the holder the right, but not the obligation, to purchase (or sell) 100 shares of a particular underlying stock at a specified strike price on or before the option’s expiration date. The seller of the option is one who grants this right.

You can recognize two kinds of stock options: American and European. American options are different from European options. The European options permit the holder to exercise the option only on the date of expiry.

How do stock options work?

All options are derivative instruments. That means that their prices are derived from the price of another security. More precisely, the underlying stock price will determine the options price, it is derived from the stock price.

As an example, let’s say you purchase a call option on shares of Intel (Nasdaq: INTC) with a strike price of $40 and an expiration date of April 16. This option gives you the right to purchase 100 shares of Intel at a price of $40 on or before April 16th. Of course, the right to do this will only be valuable if Intel is trading above $40 per share at that point in time.

Every stock option represents a contract between a buyer and a seller. The seller has the obligation to either buy or sell stock to the buyer. Of course, at a specified price by a specified date. The buyer, on the other hand, has the right but not the obligation, to execute the transaction. On or before a specified date. If it isn’t in the best interest of the buyer to exercise the option when it expires, the buyer has no further obligations. The buyer has bought the option to execute a transaction in the future. Hence the name – option.

What is underlying security?

The particular stock on which an option contract is based is usually known as the underlying security. Stock options are categorized as derivative securities because their value is derived in part from the value and characteristics of the underlying security. A stock option contract’s unit of trade represents the number of shares of underlying stock which are covered by that option. The stock options unit of trade is 100 shares. This indicates that one option contract signifies the right to buy or sell 100 shares of the underlying asset.

What is the strike price?

The strike price, or exercise price, of stock options, is the specified share price at which the shares of stock can be bought or sold by the holder, or buyer, of the option contract. To exercise your option is to exercise your right to buy or sell the underlying shares at the specified strike price of the option.

The strike price for an option is initially set at a price that is reasonably close to the current share price of the underlying security.

What is the stock options contract?

A stock options contract is defined by the following elements: type (put or call), style (American, European and Capped), underlying security, a unit of trade (number of shares), strike price, and expiration date. All stock options contracts that are of the same type and style and cover the same underlying security are referred to as a class of options. All stock options of the same class are referred to as an option series. They have the same unit of trade at the same strike price and expiration date

Stock vs stock options

The difference between stocks and stock options is that stocks give you a small piece of ownership in the company, while stock options are contracts that give you the right to buy or sell the stock at a definite price by a particular date. There are always two sides to every option transaction: a buyer and a seller. For every call or put option bought, there is always someone else who is selling it. Many traders think of a position in stock options as a stock surrogate that has a higher leverage and less required capital. They can be used to bet on the direction of a stock’s price, just like the stock itself. But stock options have different characteristics than stocks. And there is a lot of terminologies that options traders must learn.

What are Put and Call?

A call is the option to buy the underlying stock at a predetermined price by a predetermined date. The buyer has the right I explained above. The seller of the call who is also known as the call “writer” is the one who has the obligation. If the call buyer decides to buy, the call writer is obliged to sell shares to the call buyer at the strike price. A call option contract grants its holder the right to buy a certain but specified number of shares of the underlying stock. That right has to be executed at the settled strike price on or before the date of the expiry of the contract.

For example, you bought a call option on ABC company with a strike price of $40, expiring in two months. That call buyer has the right to exercise that option, paying $40 per share, and receiving the shares. The writer of the call would have the obligation to deliver those shares and receive $40 for them.

Put options are the options to sell the underlying stock at a predetermined strike price. Until a fixed expiry date. That put buyer has the right to sell shares at the strike price. And the put writer is obliged to buy at that price.

Calls and puts, individual, or in combination, can provide different levels of leverage or protection to a portfolio.

What are employee stock options?

Many companies issue them for their employees. When used appropriately, these options can be worth a lot of money for you. With an employee stock options plan, you are offered the right to buy a specific number of shares of company stock.

All employees’ options have a vesting date and the expiration date. It’s impossible to exercise these options before the vesting date or after the expiration date.
You’ll recognize two types of stock options companies issue to employees:

NQs – Non-Qualified Stock Options
ISOs – Incentive Stock Options

With a non-qualified type, taxes are taken from your gains after you exercise the options. However, keeping too much company stock is considered risky. For example, if the company has financial problems, your future financial security could be in danger.

When long-term investors want to invest in a stock, they usually buy the stock at the current market price and pay full price for the stock. An alternative is to use stock options. Buying them allows you to leverage your purchases. Far more than is possible in even a margined stock purchase. In several investment situations, it might make sense to invest in stock options. Hence, rather than the underlying stock. Note, the basic fact of stock options trading. You are highly leveraging your investment. And it means your investment risk is also substantially increased.

12th November 2018
Types of Trade
3 min read
- Study your previous trades and recognize the types of trade you were entering.
Regardless of personal experience in trading, conversations and exchange of views with other traders are valuable. In one of such conversations, the topic was the types of trade. After many hours and a lot of coffee, we had one conclusion: There are 3 types of trade.

I need your attention for a minute. Let me explain this.

True is, whatever measure, guide or indicator you are looking for, whatever the time frame, there are only 3 types of trade.
I meet a lot of people thinking they’ve mastered trading. The problem is they didn’t understand the differences between the trades they took.

Sure thing is, it will be easier for you if you know the ultimate goal and what can you expect from the trade you took. And it is possible if you know the type of trade you just implemented. This is very important because your knowledge is what determinate where to place your stop loss and your take profit.

When a professional trader enters a trade, he knows exactly what he’s trading. And my trading friends and me, we can recognize 3 types of trade.
1. Reversal trade
2. Breakout trade
3. Pullback trade
Each of those trades has some special characteristics (I’ll tell you more about each of them). Depending on the market you’re trading, the success of each type of trades may be different. In Forex trading, the 3 types of trade work good.

Some traders are attracted to trade all of those types for a limited number of currency pairs. But others are specialized in only one of those trades. When a professional trader enters some trade, he must know what he is trading.

REVERSAL TRADE as the type of trade

A lot of traders think that implementing Reversal trades is composed of “calling a top” or “calling a bottom”. This isn’t quite true. Actually, the entry price of a reversal trade is often in a previous zone of support or resistance. Reversal trades are among the most popular types of trade because of their ability to be easily spotted. They take place in a ranging market.

As you can see the buyers were very aggressive on the chart above because they pushed the price up all the way to point 1 from an original support zone.

But, once the price hit a resistance zone (marked as 1), buyers started to take profit. And several traders began to short the currency pair and got more aggressive. They took control of the market. This had for the result to create a strong rapid decrease in price.

At point 2, the same result came, which was a good opportunity to enter a Reversal trade. The sellers placed their orders at that level and the buyers began to take profit because they knew the price had reversed in the past at the same level.

The stop loss would usually be placed above the highest point (A) and the take profit somewhere below the resistance zone. It is tolerable to expect a risk-to-reward of 1:2.

BREAKOUT TRADE as the type of trade

Breakouts trades as one of the types of trade are usually made by a strong continuous movement in a direction. Some traders call it an acceleration because the movement is fast.

As you can see, the main resistance zone is marked by green.

This is a typical example of Breakout trade.

Take a look, the bulls were confident and kept pushing the price higher and higher to point 1. At that price, the sellers became more aggressive and took control of the market until the buyers showed even more power. The level pointed with a 2 shows a price at which bears are known to get more aggressive in the market. But, they were not aggressive when the price reached that level.

Because there were no traders wanting to sell the currency pair aggressively, more and more traders went long, thus pushing the price higher and breaking through the resistance level.

The stop loss on that trade would usually go slightly below the resistance zone that was broken and the take profit somewhere above the zone. It is tolerable to expect a risk-to-reward of 1:2.

PULLBACK TRADE as one of the types of trade

Pullback trades are usually more solid because the retracement back to a previous price level represents a certain confirmation. ( Retracement is a temporary reversal in the direction of a stock’s price that goes against the prevailing trend. A retracement does not signify a change in the larger trend.)

As you can see, a pullback trade is characterized by a retracement, often to the previous support or resistance zone.

Take a look to the chart above, the price kept ranging between a support and resistance zone. At point 2, no one was aggressive enough to move the price significantly higher or lower.

Once the price broke above the resistance zone at point 3, several traders began to feel excited about their profit so far. Most of them thought that this high price might be a good opportunity to take a profit. But, as more and more people took profit on long trades, the price slowly decreased.

When the price got back to the previous resistance zone, some traders began to feel that this price was too low. Those traders then bought the currency pair once again (at point 4) to push the price up.

The stop loss on that trade would usually go slightly below the resistance zone that was broken and the take profit somewhere above the zone. It is tolerable to expect a risk-to-reward of 1:2.

But there are some other styles of trade speaking about styles of trade.

RUNAWAYS

A stock that goes up or down too fast has a greater potential for a short counter-trend. This is caused by investors who take profits. If you bought a stock and make a very good return in a short amount of time, you will likely want to exit the trade to lock in profits.

One type of trade is to play this process, shorting a stock that goes up too quickly or buying a stock that goes down too fast. This trade goes against the longer term momentum of the stock and is only a short-term trade. For savvy traders, it can be a lucrative move.

ANTICIPATIONS

Some chart patterns show a mood but lack a trend. For example, those familiar with charts will know that ascending triangles show optimism and descending triangles pessimism. However, they are consolidation patterns, which means the price, in general, is going sideways over time.

One of the types of trade is to anticipate a breakout by buying stocks in ascending triangles or shorting stocks in descending triangles. Since price volatility is low, the risk of the trade is less and the upside greater if the stock does what we expect of stocks in these patterns, breakout. This is for advanced traders.

How to use all these types of trades?

Look at the top of this post. When a professional trader enters a trade, he knows exactly what he’s trading.
But do you know too?

Study your previous trades and recognize the types of trades you were entering. Then ask yourself this simple question:
”Did I make this as well as I could?”

If you get YES as the answer, you are a very good trader. But if your answer is NO this will help you to make progress.

Risk Disclosure (read carefully!)
11th November 2018
Stop Loss Order – What is It?

2 min read

A Stop Loss is a type of closing order to automatically close a trade once prices hit a specific level in the market, normally for a loss It is one of the most popular tools for traders to minimize their risk

A Stop Loss order is automatic – so you don’t have to manually monitor your positions. This provides a certain level of control and comfort.

Experienced traders will testify that one of the keys to achieving success in financial markets over the long term is prudent risk management. Utilizing a stop loss is one of the most popular ways for a trader to manage their risk, around the clock.

What is a Stop Loss order?

A stop loss is a type of closing order. It allows the trader to specify a specific level in the market where if prices were to hit. The trade would be closed out by systems automatically, typically for a loss. This is where the name Stop Loss appears because the order effectively stops your losses.

In simple terms, Stop-Loss is an automatic order to buy or sell an instrument once its price reaches a specified level, commonly known as ‘the Stop Price’. The order is executed automatically, which saves you having to constantly monitor your deals. It also serves as protection from excessive losses.

When it comes to a market as volatile as a cryptocurrency, the hardest part is to reduce your losses. Many novice investors have quickly learned the importance of controlling losses. Some may have, sadly, had to learn it the hard way.

A stop-loss order is an order placed with a broker to sell a security when it reaches a certain price. They are designed to limit an investor’s loss on a position in a security. Most investors associate a stop-loss order with a long position. But it can also protect a short position. In this case, the security gets bought if it trades above a defined price.

How does a Stop Loss order work in practice?

The concept of a stop loss is quite flexible in terms of application in practice. In fact, there are a variety of applications to the concept of stop loss. Firstly, you can use it to keep a check on the risk of your trading positions. This is the basic role of a stop loss. Secondly, you can also apply this concept when the stock price is rising and use the concept of stop-profit or trailing stop losses to constantly keep upping your targets with inbuilt risk management.

The price at which a stop loss order is placed is a personal decision and depends on the trader’s risk tolerance. Traders should consider not setting their limit too low. Doing so would result in the orders getting filled too fast, even with normal market volatility. The price at which stop orders are placed should allow room for a currency pair to rebound in a favorable direction while providing protection from excessive loss.

What this means is that stop loss is not meant to eliminate all risk. The price should be set far enough into the ”loss” territory or at a place from where a return to profitability for that trade seems unlikely. A Stop Loss helps to manage your risk and keep your losses to an acceptable and controlled minimum amount.

How to set up a Stop Loss order

Setting a Stop Loss order is very easy. When you open a deal, you will see an option to ‘Add Stop-Loss’. Simply choose an amount you are willing to lose on the specific deal. Alternatively, set an exact in which the deal will automatically close.

The real challenge with Stop Loss is figuring out which rate to set, but with a bit of practice, you will discover that automatic orders are extremely useful.

Do stop losses provide complete protection?

They are one of the best ways to ensure your risk is managed and potential losses are kept to acceptable levels. Stop losses orders are great and can assist in a variety of ways including preserving your money, preventing your position to become worse or for guaranteeing profits. But they don’t provide 100% security.

They protect your account against adverse market moves, but they cannot guarantee your position every time. If the market becomes suddenly volatile and gaps beyond your stop level it’s possible your position could be closed at a worse level than requested. This is known as price slippage.

The advantages and disadvantages of the Stop Loss order

Novices will just bump the keyboard and hope their money is still there tomorrow. But not you. You’re ready to make some smooth love to the charts. Stop Loss order is an extremely important tool for traders. Experienced traders understand that Stop Loss orders are not a perfect solution. They should be used carefully because they can also limit potential profits by effectively closing a deal too soon.

The advantages: Stop order offers protection from excessive losses and enables better control of your account. It helps monitor multiple deals. Stop order is executed automatically, at any time and it’s easy to implement. And allows you to decide what amount you are willing to risk.

The disadvantages: Stop Loss order could result in deals closing too soon, hence limiting profit potential. Traders need to decide which rate to set, which could be tricky.

The bottom line

Having a losing position is certain, but you can control what you do when you are caught in that situation. The ultimate goal for online traders is to take advantage of price changes in order to profit. By carefully using Stop Loss order you can both minimize risks and maximize your profit potential.

Risk Disclosure (read carefully!)

8th November 2018
What is Spread in Trading?

It is important to keep in mind that spreads are changeable.

By Guy Avtalyon

What is spread in trading? Before you realize that, you should understand that in the foreign exchange market prices are represented as currency pairs or exchange rate quotations. The relative value of one currency unit is expressed in the units of another currency. BID is the exchange rate, applied to a buyer who wants to buy a quote currency. It is the highest price at which a currency pair will be bought. ASK is the price the lowest price that a currency pair will be offered for sale. BID is always lower than ASK.

The difference between ASK and BID is a spread. It represents brokerage service costs and replaces transaction fees.

When you study the financial markets, you’ll notice three different prices: the market price, buy price, and sell price. The difference between the buy and the “sell” price is spread. It’s a simple concept, but one that could have a significant impact on the profitability of your trades.
Spread is expressed in pips, to the fourth decimal place in currency quotation.

More about what is spread

In the most general sense, a spread is a difference between two similar measures. In the stock market, for example, it is the difference between the highest price – bid and the lowest price – ask.

But, for example, with bonds, the spread is the difference between the yields on bonds that have the same investment class but different dates of maturity. For example, if the yield on a long-term Treasury bond is 5%, and the yield on a Treasury bill is 2%, the spread is 3%.

The spread is also the difference in yields on securities that have the same maturity date but have a different investment quality. For example, there is a 4% spread between a high-yield bond paying 9% and a Treasury bond paying 5% that both come due on the same date.

The spread also indicates the price difference between two different derivatives of the same class.

For example, you can easily notice the spread between the price of the November corn futures contract and the February corn futures contract. The portion of the spread is the cost of “carry”. However, the spread extends and narrows, caused by changes in the market. Well, in this case, the corn market.

More answers to what is spread in trading

It is a difference between the asking price and an offer. For example, if the seller was asking $2 million but the offer was only $1,5 million, the spread would be $500,000.

Also, it is a difference between the cost of money and the earning rates.

For instance, a mortgage banker is able to borrow money at 6% interest because of its excellent credit and high net worth. It then loans that money out on moderately risky ventures at 14% interest. The spread is 8%.

What is spread trade?

A spread trade is the buying of one security and sale of related security as a unit (this is so*called legs) simultaneously. A spread trade is executed with options or futures contracts as the legs, which is most usual. But also traders can use other securities sometimes.

A spread is a difference between ASK and BID price. It represents brokerage service costs and replaces transaction fees.

These types of spreads are characteristic for Forex Trading:

Fixed spread – the difference between ASK and BID is kept constant and does not depend on market conditions. They are set by trading with firms for automatically traded accounts.

Fixed spread with an extension – a certain part of a spread is predetermined and another part may be adjusted by a dealer according to market.

What influences the Spread in Forex Trading?

There are several factors of spread influence in trading. The most important is currency liquidity. Popular currency pairs are traded with lowest spreads while rare pairs raise a dozen pips spread. The next factor is the amount of a deal. Middle size agreement is executed on quotations with standard tight spreads, while extreme agreements, no matter if too small or too big, are quoted with larger spreads due to higher risks.

On the volatile market, bid-offer spreads are wider than during quiet market conditions. Status of a customer also impacts spread as large-scale traders or premium clients enjoy personal discounts. Forex market characterizes high competition and as brokers are trying to stay closer to customers, spreads tend to be fixed on the lowest possible level.

Each trader should pay attention to spread management. Maximum performance can only be achieved when the maximum quantity of market conditions is taken into account. The successful trading strategy is based on effective evaluation of market indicators and specific financial conditions of a deal. The best tools for spread trading are a combination of forecasting, risk/return analysis, transaction cost evaluation. The spreads are changeable, so spread management strategy has also to be adaptable enough to fit market movements.

Like any other market, you’ll find spread in the Forex market. A spread is simply the price difference between where a trader may buy or sell an underlying asset. Or simpler Bid/Ask spread.

Spread’s costs and calculations

Since the spread is just a number, we need to know how to relate the spread into dollars and cents. If you can find the spread, finding this figure is very mathematically straightforward once you have identified pip cost and the number of lots you are trading.

For example, you can buy the EUR/USD at 1.3564 and close the transaction at a sell price of the 1.35474. That means as soon as our trade is open, a trader would have 1.4 pips of spread. To find the total cost, you have to multiply this value by pip cost and by the total amount of lots you trade. When trading a 10k EUR/USD lot with a $1 pip cost, you would incur a total cost of $1.40 on this transaction.

Remember, the pip cost is exponential. This means you will need to multiply this value-based off on the number of lots you are trading. As the size of your positions increase, so will the cost incurred from the spread.

What is important to know? It is important to remember that spreads are changeable. That means they will not always stay the same and will change from time to time. These changes come from liquidity, which may vary based off of-market conditions and expected financial data. To know current spread rates, always reference your trading platform.

30th October 2018
Blockchain transaction – How It Works?
What is a blockchain transaction, how it works, how is it useful for everyday life

By Guy Avtalyon

A blockchain transaction is a public record of all bitcoin transactions that have ever been executed. A block represents the current part of a blockchain. It records the recent information. When a block is completed, it becomes part of the blockchain. As a permanent database creating a new block. Blocks are connected to each other like a chain in real, consecutive order. Every following block contains a hash of the previous block. Blockchain Technology is one of the hottest and most interesting technologies in the present market.

The first blockchain transaction

The first transaction in the real-world took place on 22 May 2010. Laszlo Hanyecz made it. He bought two pizzas in Jacksonville, Florida for 10,000 BTC. In five days, the price grew 900%, rising from $0.008 to $0.08 for 1 bitcoin.

From a technical point of view, the most fundamental definition of a transaction is an atomic event that is allowed by the underlying protocol.

Speaking about bitcoin, transactions are ordinarily individual payments.

Lena sends John 10BTC.

If the word transaction conjures up a financial transaction in your mind, this is appropriate. The bitcoin blockchain is basically a list of all the bitcoin transactions since Bitcoin began. Bitcoin is only one of many blockchains. Not all blockchains limit their utility to payment transactions. Let’s say, transactions are payments when you think of the blockchain as a distributed ledger. The ledger that keeps a record of who owes who how much bitcoin.

Is the blockchain a data structure?

No, if you consider the blockchain as a data structure then a transaction would be just one of the events that update the data store. But there is a huge difference. Before invent of blockchain you had a situation that one event was able to update only one data table on one the particular machine. With blockchain, such a single event is updating a data table on every machine connected in the chain no matter where it is on the planet.

Blockchain Transactions are nothing special.

It is the same as in any other database. To keep it simple, a blockchain transaction is a transaction record in a blockchain. Just like you store a record in MySQL database. It’s exactly the same. The blockchain is a database. Transactions get stored in the form of blocks and the blocks form a chain to form the blockchain.

Is blockchain transaction safe?

Blockchain transactions are safer and more effective for most companies. And hence the demand for quality blockchain platforms which can be tapped for ensuring greater security.

Blockchain transactions are analogous to a wire transfer or cash transaction. Payment is done directly from one party to another. All without going through another financial institution. And without any third-party oversight. Payment processing is done over a private network of computers. Every single transaction is recorded in a blockchain, which is public.

Say, blockchain transactions are a feature of blockchain technology’s mainstream feature – cryptocurrencies.

Cryptocurrencies rely on the blockchain. Each block in the chain holds records. The records are the information of each and every transaction! The transaction’s information gets stored on blockchain ledgers.

What is blockchain in essence?
- A distributed ledger
- A consensus protocol
- A membership protocol
Blockchains transactions require consensus.
This means the participants must agree on who’s going to extend the blockchain, and how!

Public blockchains such as Bitcoin, Ethereum use consensus that looks like a crypto-lottery. For example, miners have proof-of-work which is crypto-puzzle and in that way get their lottery tickets. The one who wins this “game” gets the reward. The reward is permission to add one block to the blockchain and, also, such can print new money.
All miners try to approach to the longest chain.

This procedure is using to get consensus. It will take time, around 10 minutes. Transactions are not taken as fully confirmed for about one to two hours. After that point, they are adequate “deep” enough in the ledger.

Introducing an opposing account of the ledger, called as a fork, would be computationally exclusive. This stoppage is a susceptibility to the system. And also an important obstacle to the use of bitcoin-based systems. It is necessary for fast-paced transactions, such as monetary trading.

But we have to be honest, in spite of privacy-enhancing technologies such as encryption and identity management, someone can see blockchain transactions throughout network nodes. These produce metadata. So statistical analysis can reveal information even from encrypted data. As a result, it can allow for pattern recognition.

But quite frankly, away from someone cracking the cryptology. The blockchain transaction is one of the most secure digital capabilities available.

Advantages of blockchain transactions

Maintaining records of transactions is an essential function of all businesses. Hence, these records have to track the past performance of the company. And also, help with forecasting and planning for the future. And most organizations’ records take a lot of time and effort to create. That’s why the creation and storage processes are prone to errors. And these transactions have to be executed immediately. Yes, the settlement can take more time, from several hours to several days.

On the blockchain, the process of transaction verification and is recording. Let’s say, it is immediate and permanent. Because the ledger has distribution across several nodes. So, this provides the data to replicate and store instantaneously. On each node across the system.

What is recording in blockchain?

Recording in the blockchain means to note details of the transaction such as price, asset, and ownership. And also, they are verified and settled within seconds across all nodes. But, when registering the change on anyone ledger, you are registering simultaneously on all other copies of the ledger. Because each transaction is transparent. And permanently recorded across all ledgers. It is open for anyone to see. So there is no need for third-party verification.

Blockchain technology will disrupt the way we write. And enforce contracts, execute transactions, and maintain records.
28th October 2018
How To Make Money With Blockchain Technology?
The 21st century is all about technology, a new addition to the pack is Blockchain technology.
There are many ways you to make money with Blockchain

2 min read

The Blockchain is the revolutionary technology impacting different industries miraculously was introduced in the markets with its very first modern application Bitcoin. Bitcoin is nothing but a form of digital currency (cryptocurrency) which can be used instead of fiat money for trading. And the underlying technology behind the success of cryptocurrencies is termed as the Blockchain technology.

With the increasing need for modernization in our everyday lives, people need to accept new technologies. From using a remote for controlling devices to using voice notes for giving commands; modern technology has made space in our regular lives. Technology like augmented IoT that have gained tread in the past decade and now there’s a new addition to the pack i.e. Blockchain technology.

Actually, the 21st century is all about technology.

There’s a misconception that Bitcoin and Blockchain are one and the same, however, that is not the case. Creating cryptocurrencies is one of the applications of blockchain technology and other than Bitcoin, there are numerous applications that are being developed on the basis of blockchain technology. The blockchain is just a public ledger of transactions on the bitcoin network.

Before we tell you how to make money with blockchain technology, there are several things you have to know.

Though blockchain technology has evolved to many levels since inception, there are two broad categories in which blockchains can be classified majorly i.e. Public and Private blockchains.

At first, let’s keep a check on the similarities that both public and private blockchain have:
- Both Public and Private blockchain have peer-to-peer decentralized networks.
- All the participants of the network maintain the copy of the shared ledger with them.
- The network maintains copies of the ledger and synchronizes the latest update with the help of consensus.
- The rules for immutability and safety of the ledger are decided and applied on the network so as to avoid malicious attacks.
And let’s see the differences between them.

Public Blockchain – It is a permissionless ledger and can be accessed by any and everyone. Anyone who has access to the internet is eligible to download and access it, can check the overall history of the blockchain along with making any transactions through it. Public blockchains usually reward their network participants for performing the mining process and maintaining the immutability of the ledger. An example of the public blockchain is the Bitcoin Blockchain.

Public blockchains allow communities all over the world to exchange information openly and securely. However, an obvious disadvantage of this type of blockchain is that it can be compromised if the rules around it are not executed strictly. The rules decided and applied initially have very little scope of modification in the later stages.

Private Blockchain – Opposite to the public blockchain, private blockchains are shared only among the trusted participants. The overall control of the network is in the hands of the owners. The rules of a private blockchain can be changed according to different levels of permissions, exposure, number of members, authorization, etc.

Private blockchains can run alone or can be integrated with other blockchains too. These are usually used by enterprises and organizations. So we can say, the level of trust required amongst the participants is higher in private blockchains.

Ways to make money with Blockchain technology

Though Bitcoins and cryptocurrencies are the first popular application of Blockchain technology, they are not the only ones. The nature of Blockchain technology has led businesses, industries, and entrepreneurs from all around the world to explore the technology’s potential and make revolutionary changes in different sectors. The variety of blockchain technology-based businesses with paths to profitability is striking. Here are four that illustrate the width of innovation the blockchain marketplace is bringing to potentially profitable business ideas. While Millennials are certainly moving towards “alternative career paths” more often than their Generation X or Baby Boomer counterparts, there are countless ways for absolutely anyone to capitalize on the new wave of oncoming technology. Here, you’ll find an awesome starting point for making money and freelancing with blockchain technology.

Let’s see how Blockchain technology can be useful in actual implementation.

Mining

Mining cryptocurrency is considered the granddaddy of making bank on blockchain technology. Here’s a quick rundown of how the blockchain technology works in this example. Multiple transactions make up a block. Miners verify blocks through a process. They apply a mathematical formula to each block, turning it into something make money blockchain called a “hash.” Essentially, a hash is an alphanumeric sequence. The hash is then stored at the end of the blockchain. When each block’s hash is created, it uses the previous block’s hash. More or less, this is the digital version of a wax seal.

So, once a block has been “sealed off,” a flurry of activity happens. The first miner to produce the hash receives a reward. As more of the cryptocurrency is mined, the rewards are halved. The process itself is pretty straightforward. What’s not straightforward, though, is actually making it happen.

Since so many people have computers strong enough to mine, it’s far more difficult to make it a lucrative endeavor. Instead, mining pools have popped up. Mining pools are just groups of people working together to mine. If the pool wins, everyone in the pool has distributed a portion of that winning. That’s not to say, though, that mining smaller altcoins on your own isn’t a possibility.

Trading

This is definitely a lucrative way to make money with blockchain technology.

Cryptocurrencies reside on exchanges, just like fiat money. However, they have much more in common with stocks. Because cryptocurrency markets are so volatile, they can feel like more of a risk than they’re worth. But, to make money with them you just need to be aware of trends and do your research. Know the specific risks associated with trading. There are literally thousands of cryptocurrencies on the market.

On the flip side, if you choose to hold on to certain cryptocurrencies, you are considered a hodler.

Do your research. Read up on the market. Trading crypto is crazy fun, regardless of if you make money.

Freelancing

The models are different but one thing is consistent – the freelance marketplace is growing rapidly. For entrepreneurs looking to build startups on the blockchain technology, companies looking to find reliable, qualified freelancers looking for a fair and transparent platform with quick payments and low fees, the boom of cryptocurrencies and the blockchain technology is the new holy grail in freelance work exchange.

There are other ways you can make money with blockchain technology.
- Build your own blockchain
- Build something useful on top of someone else’s blockchain and sell it as a service
- Help someone who is building a blockchain or blockchain application to find a customer or sell their blockchain technology
- Invest in a business doing the above
- Learn more about blockchain technology and teach/run courses or webinars about blockchain
- Look for problems or businesses that have an urgent or important problem that could use a blockchain type solution and build a business case
- Get involved in an event – like a hackathon, conferences or workshop – in related industries like fintech, cryptocurrency, etc
- Volunteer or get experience working for various blockchain companies
- Download, install or register for a blockchain app and play around with it, see if there’s anything you could do with it
- Go online and explore blockchain forums, discussion groups or communities and see what opportunities may be available or advertised and speak with those groups/companies
Choose how big a wave you want to ride. If you are still learning, don’t go for that massive wave, it will kill you. You can have fun and make money from the smaller waves. Don’t let media hype distract you from this. Media make money talking about the megastars – such as Bezos and Zuckerberg – who are riding the mega waves. The story of somebody making a life-changing amount of money in a tiny niche market won’t sell page views, but yet there are millions of these stories and one of them can be you.

Bottom line: The blockchain technology seems to be growing with each passing day. Although, many claim this to be a bubble that will soon burst. However, the pace of improvement and increasing application in different fields shows that it is here to stay. There is no domain which in untouched with the impact of Blockchain technology. Companies in healthcare, medical, transportation, retail, etc. are eyeing towards this technology as a probable solution to the issue of safety. This has made more and more companies invest money in Blockchain companies. Hence, we have them earning more and more money.

Many companies are also investing in blockchain technology, and thus, it is garnering the attention of many. Blockchain came into existence in 2009, and since then it has never looked back. It is here to stay.

Risk Disclosure (read carefully!)
24th October 2018
Carry trade and how does it work?

How to capture the difference between the rates

By Guy Avtalyon

In this post, I’m gonna explain what is carry trade, how to trade this strategy, how to use it in Forex trading.

Niels Bohr, the famous Danish physicist, once joked that “prediction is very difficult, especially about the future.” No words could better express the difficulties associated with exchange rate forecasting. As anyone involved in the business of currency forecasting can attest, it can be a humbling experience.

‘Having endeavored to forecast exchange rates for more than half a century, I have understandably developed significant humility about my ability in this area.’ said Alan Greenspan, former U.S. Federal Reserve chairman. Some may think writing about the fortunes of the stock market is tricky, but try to observe currencies. That’s the challenge.

What is a carry trade strategy

A carry trade is a trading strategy in which a trader borrows money at a low -interest rate to trade the asset that is possible to generate a higher return. This strategy is very popular in forex trading.
This strategy counts on relative stability in asset prices. You know how an unfavorable exchange rate movement can easily wipe out the returns from the difference in the underlying interest rate.

This motivates some people to describe the carry trade as similar to picking up pennies in front of a fast-moving car.

What is the goal of the carry trade

The goal of this strategy is to make a profit from the interest rate differential. Sometimes that difference can be large. So adding leverage can literally tremendously multiply profits.

In currency trading, a carry trade is a strategy in which a low-yielding currency (one with a low-interest rate) is sold. And the funds raised are using to purchase a high-yielding currency. The purpose of this type of trade is to profit on the interest rate differential of the two currencies. In this strategy, traders use leverage to dramatically increase the profits earned through the carry trades.

Up to 2007 many traders borrowed in Japanese yen or Swiss francs. They were actually taking advantage of very low-interest rates in Japan and Switzerland and used the borrowed money to take long positions in other currencies that were backed by high-interest rates. For example, the Australian and New Zealand dollars and South African Rand were that currencies.

BTW, Japan has kept low-interest rates for quite a long time now. Australia and New Zealand have one of the highest interest rates in the developed world! In 2011 interest rates in Australia were as high as 4.5 percent!

Economists theories

Economists have developed a wide range of theories to explain how exchange rates are determined. Most studies conclude that for short- and medium-term horizons, up to perhaps a few years, a random walk characterizes exchange rate movements. But still better than most fundamentals-based exchange rate models. That studies find that models that work well in one period fail in others. They also find that models that work for one set of exchange rates fail to work for others.

A strategy that has attracted a lot of interest among international investors is the so-called foreign exchange (FX) carry trade.

FX carry trades entail going long a basket of high- yielding currencies and simultaneously going short a basket of low-yielding currencies. The empirical evidence suggests that the excess returns on this strategy have been fairly attractive.

Yet, investors need to be mindful that carry trades are prone to crash when market conditions become volatile. Hence, investors need to overlay simple carry trade strategies with well- thought- out risk management systems to help protect against downside risks.

How does a carry trade work in Forex?

Let’s assume that you went long on AUDJPY and kept the position open overnight until the next day. Basically you are buying AUD and selling JPY.

What happens the next day is that your forex broker will either debit or credit you the overnight interest rate differential between the two currencies. This rolling over of your current position is the carry trade.

Say, if the interest rate earned on AUD is 4.00% and JPY is 0.10%. Your profit from the interest rate differential is 3.9% per year! This is considered a positive carry trade. But there is also s negative carry trade. It happens when you, for example, buy JPY and sell AUD. So, you could end up with a negative interest rate differential.

This example is based on 1:1 leverage and assumes exchange rates remain constant for the whole year. Try to imagine applying leverage.

In the example above, if you had the leverage of 100:1, your return would now be 100 x 3.9% = 390% on just the interest rate differential!

When are carry trades successful?

We are still on the example of AUDJPY. If the central bank in Australia were to raise interest rates, then you would make even more gains. Therefore, you have to be mindful of the economic conditions in Australia. If the Reserve Bank of Australia is optimistic about the economy, then they will likely raise rates.

But, if the economy is slow and the RBA believes it needs to lower rates to stimulate the economy, then the AUDJPY as a carry trade would not be that successful. Meanwhile, if the AUDJPY exchange rate moved higher, in addition to higher interest rates, your long position on the pair would gain even more!

What is a Law of one price in a carry trading

The principle of “uncovered interest rate parity” states that the exchange rate of any two currencies should adjust in a way to exclude any chance of making a profit from an interest rate differential.

Furthermore, the Law of One Price states that the real carry cost of an asset should be the same in each country, meaning doesn’t matter from where you’re trading forex.

Carry trades can be greatly tough. Because the FX element of a cross-currency carry trade requires selling the low-interest-rate currency. But also, buying the high-interest-rate currency. In the core of the carry is the intention to make the exchange rate of the low-interest-rate currency fall relative to the other. If carry trades are enough large in volume they can remove any trend for exchange rates to equalize. That is exactly what generates profits in the longer run.

This directs us to believe that carry trades work best when risk aversion is low and investors are willing to invest in high yielding (risk) currencies.

You might be interested to find Leading Stock Exchanges In The World

11th October 2018
Who are the greatest stock traders of all time?

5 min read

Yes, we know. Lot of you would say Warren Buffet. Frankly, he isn’t even a stock trader, he’s a deal maker and a shark. Moving on.

What makes a trader ‘great’ in our eyes is intellect, knowledge, and experience, combined together to create a very real handle on the markets and the price movement therein. This means many years, and many, many trades.

Forget all stories about ‘great’ traders that hit it very big on one or two trades. Or about people that took advantage of a housing boom or tech bubble over the span of just a few years to make an absolute killing.

To us, this hints at a potential one-off situation, a case of good luck. Nothing more.

Anyone can hit it big on a single trade.

Often, this is even a result of taking too much risk, not understanding the basics of money management. Honestly, many traders are lauded as extraordinary, but a year or two later the opposite happened and they were back to square one.

You should differentiate a trader with a long track record with consistent returns from a trader with a small handful of trades yielding great riches.

We prefer, respect and seek to imitate are the individuals who have a significant track record, and consistency.

Trading on the exchange market is associated with big money, sometimes with fame and other pleasures of the modern world. However, we rarely have the opportunity to learn how to earn really big money in financial markets.

In our opinion, these are the greatest traders in the world, individuals who have all but proven definitively that they’re capable to play a real ‘edge’ in one of the most difficult games in the world.

Here is the list of the greatest stock traders of all time.

George Soros

Why as a first among all greatest stock traders?

Born in Hungary in 1930, he lived through the Nazi occupation of 1944–5, which resulted in the murder of over 500,000 Hungarian Jews. His own Jewish family survived by securing false identity papers, concealing their backgrounds, and helping others do the same. Soros later recalled that “instead of submitting to our fate, we resisted an evil force that was much stronger than we were, yet we prevailed. Not only did we survive, but we managed to help others.”

As the Communists consolidated power in Hungary after the war, Soros left Budapest in 1947 for London, working part-time as a railway porter and as a night-club waiter to support his studies at the London School of Economics. In 1956, he emigrated to the United States, entering the world of finance and investments, where he was to make his fortune.

Actually, Soros began his financial career at Singer and Friedlander in London at the age of 24. He graduated from the London School of Economics and after that became a legend of the financial industry. His most successful trade gave earned him a profit of $1 billion in a single day.

George Soros is the author of many books about investing and finances.

He actively works in the philanthropic area, he donated more than $7 billion for various organizations.

In 1970 he established the Soros Fund Management, which in the last few decades generated more than $40 billion in profits. Soros is currently one of the thirty wealthiest individuals in the world, as well as “the king of Forex trading”. To most of the financial trades, he is the biggest inspiration to follow. So, he is the ‘teacher’ to many traders. That’s why he is one of the greatest stock traders.

“My success in the financial markets has given me a greater degree of independence than most other people,” Soros once wrote. That independence has allowed him to forge his own path towards a world that’s more open, more just, and more equitable for all.

Andrew Krieger

This one of the greatest stock traders graduated from the famous Wharton Business School at the University of Pennsylvania, is a successful trader, known for his interest in New Zealand currency (NZD).

He left his position at Solomon Brothers and in 1986 joined Banker’s Trust. And immediately became a worthy employee, which rewarded him in higher capital limits ($700 million instead of standard $50 million!). His position allowed him to gain profit from the Black Monday crash in 1987. If you are old enough, you will never forget Black Monday.

On October 19th, 1987, the financial markets plummeted, with the Dow Jones falling almost 22%. Panic spread around the world, with most markets down by more than 20% by the end of October.

There was no reason for this.

In fact, the tumult in the markets became a self-fulfilling prophecy as investors ran for the doors. At the time of the crash, Andy Krieger was known as one of the most aggressive currency traders in the world.

He decided it was time to attack, and took a creative and unbelievably aggressive approach to take down the Kiwi dollar. He had access to huge leverage through currency options. With leverage as high as 400:1, he could bring unsustainable pressure to bear on New Zealand’s currency.

He created such a large short position that the Bank of New Zealand literally had no defense. After all, he claimed that his short position was so large that it was bigger than the entire New Zealand money supply. You have to have a strong nerve and complete confidence to do something like that. And Krieger had plenty of both and wot that bet.

After earning $300 million in selling the New Zealand currency, Andrew Krieger became famous in the trading field. In 1988 he started working for Soros Management Fund and later changed it to Northbridge Capital Management.

He is also known for his philanthropic work – after the tsunami in 2004, he donated $350,000 for the victims.

Stanley Druckenmiller

Stanley Freeman Druckenmiller was born on June 14, 1953, is another of the greatest stock traders. He is an American investor, hedge fund manager, and philanthropist. He is the former chairman and president of Duquesne Capital, which he founded in 1981. He closed the fund in August 2010 because he felt unable to deliver high returns to his clients. At the time of closing, Duquesne Capital had over $12 billion in assets.

From 1988 to 2000, he managed money for George Soros as the lead portfolio manager for Quantum Fund. He is reported to have made $260 million in 2008.

George Soros and Stanley Druckenmiller famously worked together on a trade to short the British pound in the 1990s, reaping a $1 billion. At the time, Druckenmiller ran Soros Quantum Fund and leveraged it by one and a half times to make the bet.

In one interview, a young Druckenmiller described Soros’ thinking when he made the enormous trade.

“If there’s one thing I’ve learned from him, it’s when you’re right and you know something, you really feel it, you can’t have enough,” Druckenmiller said. “And if I had to sum up his investing philosophy in one sentence, it’s that it’s not whether you’re right or wrong, you just have to have the maximum when you’re right, and that’s his unique and innate ability.”

Druckenmiller now runs the New York-based Duquesne Family Office.

He started there after closing his Duquesne Capital, which reportedly accumulated annual returns of 30%. Soros operates Soros Fund Management, with roughly $30 billion in family assets under management.

Bruce Kovner

Bruce Stanley Kovner was born in 1945. He is an American investor, hedge fund manager, and philanthropist. He is Chairman of CAM Capital, which he established in January 2012 to manage his investment, trading and business activities. From 1983 through 2011, Kovner was Founder and Chairman of Caxton Associates, LP, a diversified trading company
Kovner serves as Chairman of the Board of The Juilliard School and Vice Chairman of Lincoln Center for the Performing Arts. He also serves on the Boards of the Metropolitan Opera, and the American Enterprise Institute.

Kovner has reportedly attributed his money making success to “stupid governments”, implying that the policy mistakes of central banks and governments cause disequilibria in financial markets that can be exploited.

Kovner borrowed $3,000 on his MasterCard in early 1977 and began trading on his own. He made $1,000 on his first two trades copper and interest rate futures. Kovner says his earlier trading experience was the most memorable.

The first time he lost control of the trading process was in the soybean market. ‘’’It is seared into my memory. A shortage developed in soybeans, running his $4,000 position up to $45,000 in six weeks. In a moment of insanity, I discarded a hedge limiting losses if prices turned down, which they did. ’’In a panic, he liquidates his position, escaping with a loss of $23,000.’’

Yet he still had $22,000, five times what he started with. ‘’I had a huge gain but lost half before getting out? I lost half the profit in an hour. I closed out the trade and was physically sick for a week. In retrospect that was a very good thing, says Kovner. It helped me understand risk and create structures to control risk.”

A music lover!

He has best been known to treat friends to private performances at his New York City home by up-and-coming musicians, often from New York’s Juilliard School. Kovner grew up in the San Fernando Valley east of Los Angeles. When a bad case of writer’s block stymied his quest for a Harvard PhD., Kovner drove a cab to pay the rent, took harpsichord lessons at Juilliard and dabbled at a succession of pursuits while seeking this true calling. In 1976 he found it: currencies and futures speculating.

All the rest is the history of the greatest stock traders.

Jim Rogers

James Beeland Rogers Jr. was born on October 19, 1942. He is an American businessman, investor, traveler, financial commentator and author based in Singapore. Rogers is the Chairman of Rogers Holdings and Beeland Interests, Inc. He was the co-founder of the Quantum Fund and creator of the Rogers International Commodities Index (RICI).

Rogers does not consider himself a member of any school of economic thought but has acknowledged that his views best fit the label of the Austrian School of economics.

He started to invest in the 1960s with just $ 600. In the 1970s he joined forces with another legendary investor, George Soros. They founded the hedge fund named Quantum Fund. In the 1980s, Jim Rogers left the fund and began investing in his account.

Jim Rogers is a typical representative of long-term trading.

He is a living legend among traders. Usually, he keeps his positions for several years. But he is looking for shares that are likely to turn out better than the market. In the 1980s, he estimated well that stock markets would be on the rise in that decade.

Rogers invested in German shares. The German market seemed to him the most prospective because the German economy was booming, and the local stock market still did not move up, after the collapse which it experienced in 1962.
Rogers thinks patience is the most important thing in trading. Jim Rogers usually analyzes the market for important fundamental factors. Although he admits that sometimes he looks at charts, which often show panic of the crowd. He happens to do exactly the opposite when he sees a panicky downward movement or euphoric upward movement.

Jim Rogers’ strategy is not easy to describe in a few words. It’s just trading on common sense, as he says.

He is a frequent speaker at universities and guest on television programs on investing and business affairs and one of the greatest stock traders.

Paul Tudor Jones

He is a typical speculator and a legend on Wall Street. His assets are estimated at over 4.5 billion dollars.

In the 80s, he became famous for the documentary film “Trader”, in which he discovered the secrets of his methods used on the stock market.

Jones banned the film’s release, in which often he was nervous. But the film got into a wider group and you can find it without a problem on the Internet.

Paul Jones is a classic speculator who bases his decisions mostly on technical analysis. He works on the futures market. And he believes that to succeed you have to go a bit against the flow. Jones tries to buy in bottoms and sell at the tops, which is a bit opposite to the rest of the market participants.

He started as a broker on the New York Cotton Exchange.

So he can brag of earning a large commission in the first year of operation, which amounted to 1 million dollars. Later he worked as an independent trader on NYCE. hen in 1984 he founded a hedge fund, the Tudor Futures Fund. The fund started with assets worth $ 1.5 million. At the end of 1988, it was already over USD 300 million.

He achieved a three-digit rate of return for five years in a row. In October 1987, when the indices suffered a severe breakdown, Paul achieved a rate of return of 62%.

His method gives you the opportunity to purchase a given item at an attractive price, but it can also be very dangerous. Jones found out about it in 1979, when he worked as a trader on NYCE.

On the cotton market, prices fell to new minima and slightly rebounded. And Paul decided that this was the effect of activating stop-loss orders and open a large long position. The market after a shortstop continued to go down.

However, Jones increased his position, although he felt that he could make a mistake. He managed to close the position after a few days. And the loss incurred only on this transaction amounted to 60-70% of the total capital. Jones was so depressed about the situation that he almost gave up his membership in the NYCE. But, he did not give up.

Jones’s approach seems right to buy in holes and sell at the tops, not vice versa.

The most important matter in speculation is proper capital and risk management. Jones was convinced how important these elements were in a really painful way.

He showed a strong character when he decided to continue and it was a huge success.

Most of the financial traders are building their careers in silence, but there are a few that have become popular because of their great trades. But remember, their stories are full of hard work, dedication, and patience. They are people with the power of influence, whose moves had an impact on the whole industry.

What else we may conclude?

There is no only one, the best way to play in financial markets. Everyone has to find their own. However, regardless of which strategy we choose, we must have strict rules of conduct, which we stick to, which is the best in this profession. And maybe one day, become one of the greatest stock traders and deserve our names in the list the best of the best.

Risk Disclosure (read carefully!)

2nd October 2018
Select Mutual Funds By Using Relevant Criteria

Examine fees and exit loads, read the offer document, analyze portfolio and holdings but here is a lot more.

By Guy Avtalyon

When starting to make the investment decision it’s important to know what criteria to use to know how to select the right mutual funds. If you don’t know anything regarding mutual funds and you are interested to invest in mutual funds, you are always confused about where to begin.

That’s the beauty of investing in mutual funds! You do not need to be an expert or even a finance freak to start investing in mutual funds.

One of the most frequent questions is how to select the right mutual funds to invest in.

Who manages mutual funds?

Mutual funds are managed by professional managers.

But not all funds are equally well. There are many funds that are not able to beat the index. That’s why it’s really important for you to select the right mutual funds that will fulfill your investment goals.

Most beginners just look at past performance while researching the best mutual funds to invest. But there are two equally important factors to be checked before selecting any fund: The objective of the fund matches your investment goals and what are the different risks associated with the fund.

Mutual fund investing is a long-term ratio. It’s different from the direct investment in stocks, where people can change the stocks fast, mutual funds are a long time task. Most people hold their funds for over 8 even over 10 years. Hence, it’s important that you choose the right fund and avoid ones that might result in you to lose both time and money.

How to select the right mutual funds?

I’ll show you, step by step.

Read the offer document: One of the most voluminous documents, also known as the prospectus. The first and the biggest step while choosing a mutual fund is to read the offer document. From the top to the bottom.

There you can find all the important details like the fund’s objective, scheme type, past performance, details about the asset management company, classes of the underlying assets, etc. It’s not difficult to understand these documents.

Match the goal of the fund with your own. Every mutual fund has a specific aim. And based on that aim, they decide different factors like asset allocation (equity to bond weight), risks, dividend payouts, tax benefits, theme/sector focus, etc.
You have to read the offer document of the fund in order to identify whether the fund aims to meet your investment needs. If their aims are not pertinent to you, it might not be the right option to invest in those funds.

Examine fees and exit loads. The mutual funds will charge a fee for their services and to meet different expenses. This expense ratio can be 2-2.5%. Some mutual funds may charge you a fee upfront when you invest (entry load), or a deferred sales charge when you sell your shares (exit load). As a value investor, you should stay away from mutual funds with high fees and loads to avoid unnecessary costs.

What criteria to use to know how to select a mutual fund?

Examine the past performance of the fund. The past performance of a fund isn’t a guarantee of how well it will perform in the future. But it will give you an approximate idea about the returns and expectations. You should compare the funds’ past performance to the benchmark because it will give you a better idea of its actual performance. Stay focused on long-term performance (3 years or greater) and compare it with its competitors and index.

What else can you do?

Analyze portfolio and holdings. This may be a little tricky for new investors. The main question is how will you understand whether the holdings are good or bad? The key point is to make sure that the fund is investing in the type of securities in which you are interested. Analyzing the portfolio will give you a good idea if the fund is the right fit for you or not. There is also another trouble while analyzing the portfolio and holding. The portfolio can be changed from time to time. The manager may choose to buy or sell securities because the managers are independent. And if you are not regularly reviewing the fund, the current allocation might be a little different from the time when you invested in the fund. That’s why you should always review your fund every six months after purchasing to confirm that fund achieves your goals.

Check your fund manager. The fund manager is the one who makes all the major buy/sell choices on your behalf. That’s why you have to find out more about the fund manager. Find how long this fund manager is handling the fund. Check if the fund manager has other funds for managing. If the other funds are also doing alike good, then it is a good sign. But if just one fund is performing well, while the other funds are struggling, then it might be a problem.

Check the credentials of the fund house. You do not want to get involved with a troublesome fund house which might bring you problems.

The procedure to select the right mutual funds to invest requires a careful study of the fund. To whom you can trust? Better make your own decisions based on examinations.

And a very important note: Do not rush with investing. There are hundreds of mutual funds in the market. Take your time to analyze them and find out the one that best suits your goals.

Happy Investing!

1st October 2018
What is Mutual Fund Investment?

Can mutual funds give you better returns, are they safer investment choice, what are types of mutual funds? Read all here.

By Guy Avtalyon

A mutual fund is a company that puts together money from many people and invests it in stocks, bonds, or other assets. The investment portfolio of a mutual fund is a combination of stocks, bonds, and other assets. When an investor acquires shares of the fund becomes the owner of the part of these holdings.

Mutual funds investment can give you a better return in a much safer way

The performance of mutual funds depends mainly on the fund manager who manages the fund on your behalf. Making the decision based on knowledge, picking a well-performing fund manager is utterly important to your success. For all of that, you should need some basic information on mutual fund investment.

OK, you own the mutual funds comprising a collection of stocks and bonds. That is your upper hand.

Why? First of all, it allows you to buy in with notably less money than it would take to purchase the same portfolio of stocks/bonds on your own. Second, you spread the risks out there among a group of investors if something goes wrong.

How the mutual fund portfolio is structured

It isn’t one single stock or bond of one sector alone. Therefore you can reduce your risks of losing your money to a greater extent. Always keep in mind that you may be the worst loser in the stock market due to a periodical deep cut in share prices. True is, there is no full-proof method or strategy that is completely safe and without risks. That’s the fact. But, mutual funds have lower risks than many other investment options. This makes them suitable for novices, traders who lack proper knowledge and skills in the investment market.

Mutual funds often have much better rates of return than the average savings account at the local bank.

Besides that, you may have minimum risks in this type of investment compared to other more risky ventures.

Even more, if you have some idea of which sectors are performing well, you are at an advantageous position of choosing a good sectoral fund. But be cautious, you should select a well-rated company. Diversification is the key to a healthy portfolio and mutual funds will help you get a diversified portfolio.

This is one of the safest ways to invest your money in the long term if you are young enough and in no hurry for retirement because the most mutual funds do not have the high payoffs that many investors seek to include for their retirement planning.

What are the main types of mutual funds?

Essentially, there are three types of mutual funds with some variations on each:

Money market mutual funds are an open-ended mutual fund. These types of funds invest in short-term debt securities. This is regarded as safe as bank deposits yet providing a higher yield. These funds are great for long-term investors. This slow and stable access to investing is better than leaving your money in an interest-paying savings account.

Equity funds that may provide slow growth over time with some income along the way.

Fixed income funds are created to provide a current income. This is great for those who have retired or for investors who are extremely conservative.

Besides this, you need to have certain basic knowledge about diversifying your portfolio of rated mutual funds. That can give you an attractive return with the highest safety. In a roar bull market, investing in Diversified Equity Fund is the best option (60% of the total fund), then comes Balanced Fund (20%), followed by Midcap Fund (10%), Small-cap Fund (5%) and Liquid Fund (5%). If you’re a conservative trader, you may opt-in Debt Fund. But if you’re optimistic, you can go for index funds as a systematic investment plan. Index Fund can deliver you a very profitable return in a bull market. Why? Because index fund includes highly rated performing stocks with diversified sectors and reliable.

One of the benefits of investing in a mutual fund is that offers professional investment management and potential diversification

Ways to earn money by investing in a mutual fund:

Dividend Payments. A fund earns income from dividends on stock or interest on bonds. The fund pays the shareholders almost all the income, lower for expenses.

Capital Gains Distributions. The price of the securities in a fund may grow. By selling a security that has increased in price, the fund has a capital gain. At the end of the year, the fund shares the capital gains, lessen by any capital losses, to investors.

Increased NAV. When the market value of a fund’s portfolio rises, the value of the fund and its shares increases also. If the NAV is higher the value of shareholders’ investments will be higher too. NAV is calculated by adding up the current value of all the stocks, bonds, and other securities, including cash, in its portfolio. Then, subtract the manager’s salary and other expenses, and then divide that result by the fund’s total number of shares.

All funds carry some level of risk. It is possible to lose some or all of the money you invest. The reason is obvious, the mutual fund holds securities that can decrease in value. Dividends or interest payments are also changing along with changes in market conditions.

A fund’s past performance is not important because past performance does not predict future returns. But past performance will never tell anything about the future performances but can tell you how volatile or stable a fund has been in the past. If you find a fund had more volatility, that is a sign that there are higher investment risks.

Every mutual fund must file a prospectus and regular shareholder reports, that’s by the law. Read the prospectus and the shareholder reports before you invest. Also, the investment portfolios of mutual funds are managed by investment advisers. You should always check that the investment adviser is registered before investing.

28th September 2018