Tag: Market

All market related articles are found here. Educative, informative and written clearly.

Shorting Stock – Explanation

Shorting a stock looks very simple. But, this isn’t a strategy for beginners.

By Guy Avtalyon

Shorting a stock is when a trader borrows stocks and quickly sells them. She or he does that in the hope that can buy them back later at a lower price and return them to the broker or lender. Of course, the trader pockets the difference in the stock price. Shorting is riskier than simply buying stocks. A trader that practice shorting is taking a short position, while investors that are buying and holding stocks have so-called a long position.

In other words, when some trader starts short selling, he or she borrows stocks from an existing stockholder through the brokerage. Than sells borrowed shares at the current market price and takes the cash.

What is shorting stocks?

Generally speaking, when you invest in stocks, you expect to profit from a company’s great times and increasing profits.

But this is a whole different type of traders, called shorts. They do just the contrary. They search the Internet for news about car industry recalls, for example, and look for ways to cash when the stock of such a company is falling.

It’s possible to make money when prices are going down. Of course, if you are willing to accept the risks which are big. One of the strategies to profit on a downward-trending stock is selling short. The hope behind shorting a stock is that its price will decrease or the company will go bankrupt. Of course, it can lead to total ruin for the stock owners.

Shorting a stock means you are profiting if the stock price drops inside the timeframe from your entering the deal and turning back the stock. But if stock price increases, you’ll take a loss. You can short almost every asset, stocks, ETFs, and REITs, but never mutual funds.

What short-seller do?

The short seller is a trader who is buying the stock back but at a much lower price. However, the short seller must promise to return the borrowed stock at some period in the future. Otherwise, the true owner or broker will never borrow the trader a stock.
Borrowed shares have no dividends until the short seller turns them back. Even more, he has to compensate for missing payments to the lender from his own pocket. So, when short-selling it is very important to have accurate information.

When you want to close your short position, you have the obligation to buy the same number of shares at the current price and return them to the lender. Your profit or your loss comes from the difference between the price you sold the stock and the price you bought them for.
The stock for short selling can come from the broker’s inventory, a client of the firm, or from another brokerage company. When the shares are sold, the profits are added to your account.

How to shorting a stock

That involves some important steps. One of them is a short-term strategy.

Selling short is essentially created for a quick profit in stocks that you expect to decrease in value.
The main risk of shorting a stock is a possibility for the price to increase, and as a result, you’ll have a losing trade and losses. The possible stock price valuing is theoretically unlimited. Therefore, you are maybe exposed to great losses in a short position.
Also, shorting stocks involves margin. Hence, a short-seller can be subject to a margin call if the stock price moves up. A margin call requires a short seller to deposit additional money into the account to fill the initial margin balance.
Also, there are some restrictions on who can sell short, which stocks can be shorted, etc. You must be familiar with the regulation if want to short a stock. For example, some limitations are put on stocks wit low price.

Who can short stocks?

First of all, it isn’t for amateurs.

Unlimited losses and a margin account can be exceptionally dangerous for an amateur trader. Especially you don’t completely understand the risk you’ll face whenever you enter a short position without protection.
Due to the possible large losses that short selling generates, brokerages lower this strategy to margin accounts. In case you use a cash account without margin, you’ll not be allowed to short selling.
If you’re not a short seller and don’t like your stocks to be borrowed, the best option is to open a cash account. That will hold away short-sellers to borrow your stocks without your personal permission.
This is usually good practice, anyway.

Is timing important for shorting a stock?

In short, yes. The most important for shorting a stock is to know which one or more could be overvalued, also when it may drop, and when it may rise in value.
Shorting a stock is possible because the stock can be overvalued. For example, the housing bubble in 2008. Firstly, we had an enormous increase in housing costs. So, when the bubble popped we had a correction in the stock market. Remember, stocks can be overvalued or undervalued. In shorting is important to know which one is overvalued.

How long to stay in a short position?

You can enter and exit a short position on the same day. Or you may hold on the position for several days or weeks depending on the strategy and how the stock is performing. Timing is especially important to short selling. But the possible influence of tax practice is important also. So, we have to say, this is a strategy that requires practice and study.

Tools for shorting the stock

Shorting a stock is a strategy that demands to identify winners and losers.
For example, you may choose to go long a carmaker because you expect it’s possible to take market share. But, at the same time, you can go short to another carmaker that might sink.
Shorting is useful to hedge the current long position. For example, you hold stocks of the company and you expect it to decline in the next few months. But you don’t want to sell that stock. So, you could hedge the long position by shorting that stock while expecting it to decrease. When the stock turn to grow again all you need is to close the short position.

But you must be very careful.

Shorting a stock appears as very simple. But, keep in mind, this isn’t a strategy for beginners. Only the advanced traders who recognize the potential problems should think about shorting.

A valuable tool is the “short ratio”, you can see it specified for each individual stock. The short ratio commonly means how many days the stock needs to cover all the short positions. However, there is another benefit to that figure. It reveals the number of shares that are currently shorted by traders in comparison to the number of shares that are available overall.
How to get this number?
Multiply the current short ratio by the 30-day average daily volume of stocks.
Just use it as a quick measure of investors’ sentiment towards a stock. For example, a high short ratio usually shows the belief that stock is falling. There are some exceptions, but understanding those exceptions is the key to victorious short selling.
Stay tuned!

7th February 2019
Why Bitcoin Has Jumped?

1 min read

On Monday morning Bitcoin has jumped almost 10%. The world’s largest cryptocurrency is back above $6,500. Last week, Bitcoin value seemed to be heading below psychological, $6,000 mark.

According to CoinDesk data Bitcoin jumped from $6,222 earlier today, October 15, to early highs of $6,732, adding almost $10 billion to bitcoin’s market capitalization in a few minutes. On some exchanges, the bitcoin price went up to over $7,200.

According to the same source, the sudden rise in the bitcoin price this morning was signaled by a sell-off of the dollar-linked tether digital coin, the only cryptocurrency which was down today. Bitcoin jumped to $7,200 on Bitfinex, Kraken, Binance, and OKEx, which are all platforms that support USDT. At the same time, Bitcoin moved above $6,700 on non-tether-enabled platforms.

To understand the nature of Bitcoin READ THIS: MONETIZING BITCOIN – THE TECHNOLOGY BEHIND BITCOIN AND ITS USES

How are they related?

Traders sell tether to buy other cryptocurrencies and a flood of tether sellers pushed down the tether price and boost the bitcoin price if traders are moving their money in that direction. The tether was down by some 3%.

Tether’s tokens are designed for stability and its price is usually close to the U.S. dollar price because Tether Limited, the company that issues the tokens, says each one is backed by a dollar in its bank accounts. But this proclamation is not independently verified.

Allegedly, tether’s tokens are designed for stability and its price is usually close to the U.S. dollar price because Tether Limited, the company that issues the tokens, says each one is backed by a dollar in its bank accounts. But this proclamation is not independently verified.

According to CoinMarketCap, the tether is the second most traded digital currencies after bitcoin.

Bitcoin’s price jump pushed up the other cryptocurrencies on the market. Ethereum price and the ripple (XRP) price both recorded around double-digit percentage gains.

This kind of short, keen changes in the bitcoin price is often an effect of trading bots who initiate a buy or sell order, then others follow. That activity causes a domino effect on the price. The same effect may be caused by whales, large holders of a cryptocurrency or some other asset, when they buy or sell a big enough lump at under or above the current market price.

This activity causes the market price of the asset to suddenly move to sale, often causing devastation for exchange operators.

Can this rise in the bitcoin price be a sign of Nasdaq’s return to form? Some market observers say yes. Nasdaq last week dropped towards the end of the week.

Whoever started this run against $USDT was a very large market participant. Isn’t it very strange that both, Bitcoin and tether, break out at the same time?

Or the point is to show that the stablecoin couldn’t keep its peg. Anyway, it is the top story of the day.

In other words, time will show. And the time is on the side of Bitcoin.

UPDATE (17/6/2019): Bitcoin rose and hit One-Year High

Risk Disclosure (read carefully!)

15th October 2018
How to Find Dividend Yields on Stocks’ List?

By Guy Avtalyon

The dividend yields are metric. For every single investor, the most important question is ‘How much money can I make’. At least, the reason to buy a stock or bond or ETF is to make money. It is important to understand what people mean when they talk about yield, return, and types of both. Investors have several ways to measure the money they expect to get, Depending on their investment strategies, investors have several ways to measure the money they expect to get. Managing risk is important.

What produces the dividend yields?

Yield is the earnings you can make with an investment in a period of time. It’s the cash you get from making the loan. For example, you loan a friend $1,000 for a year. And your friend agrees to pay you back that $1,000 in twelve months, as well as $10 a month. For that loan, you’ll get back the principal as well as an extra $120.

That means you’ll end up with 12% more money at the end of the year than you started with. This is easy to understand with loans and it’s similar to bonds, where the bond rate and payout periods determine what kind of money you get back and how often you’re paid.

Do bonds give yields?

But bonds are a little bit more complicated than loans because you can buy them from other investors. But the yield falls as the price rises because the yield depends on both the interest rate and the price you paid.

Let’s say someone else bought the loan to your friend for $1100 and the 12% interest rate stayed the same, they’d only get $20 for the year, or 1.82% interest. That’s a different yield from 12%, don’t you think.

What determines the yields?

The yield depends on both the interest rate and the price you paid. If you want a higher yield, you either need to earn more money from your investment every month or pay a lower price for the investment.

Hence, there are different types of yield you can measure. But, you must know how stocks produce yield, for this to make sense.

Do stocks give yields?

Stocks don’t pay interest, but stocks may pay dividends. The dividend yield is easy to compare to other investments if you know what you paid for a stock. The problem is you can’t measure what everyone else paid for it. There are more possible to see the current yield of a stock, which divides the annual dividend payout with the current price of the stock.

How to find dividend yields?

If you want a regular cash income from your stock portfolio, you’ll have to understand dividend yield. The dividend yield is a pivotal metric that enables investors to analyze stocks. According to stock capability to generate dividends traders are trading them at many higher prices. To define dividend yield, you’ll need to know the total of a stock’s dividend payments per year and the current stock price.
To calculate dividend yield you’ll have to add all the dividends paid per common share over the last year. Further, divide this amount by the current price. Then, multiply this result by 100 to discover the yield.

For example, if the stock trades at $10 per share, the dividend yield is $0.70 divided by $10 and times 100, which is 7%.
That would mean that for every $100 you invest in this stock, you receive income of $7 per year. Compare dividend yields of different stocks, and you’ll find the best investment choice.

What is the difference between dividend yields and returns?

But, not all stocks pay dividends. You might earn a great return that never pays you a penny. But it is possible you’ll get money from selling a share for more than you paid for it. The same goes for bonds.

Slowly, that combination of the profit you made from the sale plus any dividends you’ve received makes up your total return. Exactly as with yield, the price you paid is the most important factor in your return.

But notice that there is one more essential difference between yield and return.

The yield looks to the future.

What can you earn in a year, what dividends will you receive, what interest payments will you get? These are predictable, depending on the risk of the investment of course.

Return looks to the past.

It includes interest or dividend payments, but it also depends on the price at which you sold your investment.

What to maximize yield or return?

The real goal of understanding yield and return is to compare how similar investments meet your investing goals. Any investment that returns money to you, produce regular income. If you can live from the incomes of your investments, that can be a great modus operandi.

But if you want to build real wealth and you have enough for a long-term investment, total return is more important. But never ignore yield because it can be a great way to make better your returns. Pay attention to yield but look for good returns from share price realization as well.

Whatever, being careful about the price you pay for investment will help you improve your yields and total returns.

17th September 2018
How to Buy Stock Options??

Buying and selling stock options isn’t just new territory for many investors, it’s a whole new language, new world.

By Guy Avtalyon

Let’s see how to buy stock options. They are not new, there are historical findings that confirm their use during the Antiquity period.

You might suppose these options markets are another superfine financial instrument that Wall Street gurus created for their own dishonest purposes, but you would be wrong.

Actually, options contracts did not originate on Wall Street at all. These types of instruments exist for thousand – long before they began officially trading in 1973 under the name of the Chicago Board of Options.

Since you have a better understanding of what options are (calls and puts) let’s look at how to buy a call option in a more detailed explanation.

How to buy stock options

At first, place, how to buy a call option. To buy a call you must first recognize the stock you think is going up and find the stock’s ticker image.

When you get a quote on a stock on most sites you may click on a link for that stock options chain which lists every actively traded call and put option that exists for that stock.

Let’s go step by step:

1) Identify the stock that you think is going to go up in price
2) Review stock Option Chain
3) Select the Expiration Month
4) Select the Strike Price
5) Determine if the market price of the call option seems reasonable

Are there the options for all and every stock?

Well, this is a fantastic question because options cannot be traded for all stocks. Some of them don’t have the options. You can buy options for only the most popular stocks. They are tradable. Also, there is no possibility to always buy a call with the strike price that you want for some options.

Strike prices are generally, in intervals of $5 e.g. $30, $35, $40. Occasionally, you can find $34,5 or $32,5 available for popular stocks.

Also, there is no possibility to always find the expiration month you are looking for on the option for which you want to buy a call. Most of all, you will see the expiration months for the closest two months. Then every 3 months thereafter. Surprisingly, if you find the option that you want to buy a call on, you still need to make sure it has enough volume trading on it. Just to provide liquidity so that you can sell it if you decide to.

Are options frequently traded on the most stocks?

The most stock options are infrequently traded. Therefore have a higher bid/ask spread.

To buy a call you have to understand what the option prices mean and you have to find one that is reasonably priced.

If trading is at $22,5 a share in September and you are looking to buy a call of the November $32 call option, the call option price is regulated like a stock, fully on a supply and demand basis.

If the price of the call option is $0.5 then not many people are expecting to rise above $60; and if the price of that call option is $4,00, then you know that a lot of people are expecting that option to rise above $60. The most important thing to understand when you want to buy a call is that option prices are a function of the price of the underlying stock, the price, period left to expiration, and volatility of stock itself. The volatility and the expected volatility of the stock are keeping traders in different opinions and hence drives prices.
The most important\ thing to understand when you want to buy a call is that option prices are a function.

The function of the price of the underlying stock, the price, period left to expiration, and volatility of stock itself.

The volatility and the expected volatility of the stock are keeping traders in different opinions and hence drives prices.

Many genuine investors and traders wake up in the morning and sneak a peek at the stock futures to anticipate where the market will open in comparison to the previous day’s close.

What are the main characteristics of call options?

– The security on which to buy call options.

Suppose you think XYZ company stock is going to rise over a specific period of time. You can consider buying XYZ call options.

– The number of options contracts to buy.

Each option contract holds 100 shares of the underlying stock. Buying 3 call options contracts, for example, grants the owner the right, but not the obligation, to buy 300 shares (3 x 100 = 300)

– The strike price.

Strike price refers to the price at which the owner of options can buy, let’s say the stock when the option is exercised.

For example, XYZ company ‘s 100 call options allow the owner the right to buy the stock at $30, regardless of what the current market price is. In this case, $30 is the strike price (this is known as the exercise price too).

– The trade amount that can be supported.

This means the maximum amount of money you want to use to buy call options.

– The expiration month.

Options do not last forever. They have an expiration date.

Say, if the stock closes below the strike price and a call option has not been exercised by the expiration date. It expires worthless. And the trader no longer has the right to buy the underlying asset and the trader loses the premium paid for the option.

Most stocks have options contracts that last up to nine months. Traditional options contracts typically expire on the third Friday of each month. So, you must be aware of how to buy stock options.

–The price to pay for the options.

When you buy the stock for the stock price, you buy options for what’s known as the premium.

Premium is the price to buy options. In 100 XXX call options example, the premium might be $4 per contract.

It means the total cost of buying one XXX 100 call option contract would be $400 ($4 premium per contract x 100 shares that the options control x 1 contract = $400).

If the premium were $6 per contract, instead of $4, the total cost of buying 2 contracts would be $1,200 ($6 per contract x 100 shares that the options control x 2 total contracts = $1,200).

– The type of order.

Options prices are constantly changing, like stocks. So, you may choose the type of trading order with which to purchase some options contract.
There are several types of orders, including market, limit, stop-loss, stop-limit, trailing-stop-loss, and trailing-stop-limit.

14th August 2018
10 Things You Need To Know Before Choosing A Broker

One of the biggest decisions you’ll have to make is which exchange or broker to deposit funds with.

By Guy Avtalyon

What do you need to know before choosing a broker? A decision to choose the broker may be a nightmare for traders. If you read about them on various forums or read paid bad reviews, you can really find yourself stuck in that. One of the biggest decisions you’ll have to make is which exchange or broker to deposit funds with.

If you’re looking to buy a cryptocurrency in an ICO, the advice is to read the company’s prospectus for this information:

a) Who owns the company? A recognizable and popular owner could be a positive sign.

b) Are there other major investors who are investing in it? It’s a good indication if other famous investors want to invest in the currency.

c) Will you own a stake in the company or just currency or tokens? This distinction is important. Holding a stake means you’ll get to share in its earnings, while buying tokens simply means you’re allowed to use them, for example, like chips in a casino.

d) Is the currency already developed, or is the company looking to raise money to develop it? The further along with the product, the less risky it is.

What things you need to know before choosing a broker

Before you jump in all of this you have to check:

1) Demo Account: Before risking your own money, it is absolutely crucial you trade with a demo account. You need to know before choosing a broker if it offers a demo account Demo accounts are the best option a trader has to test a trading strategy and evaluate how they are as a trader. It might not be perfect, but it is better than the alternative of jumping straight into the deep water.

2) Accessibility: Before you sign a contract with a broker, test out their customer service and support. Are they accessible? If you have a problem whether it is technical or general, is there someone there whose only job is to provide you better service?

3) Legitimacy: It is important to check on the broker’s website for any additional financial information and statistics about the brokerage. If it is not there, check on the parent company’s site, and if you cannot locate this information, this should raise a red flag. This is information you need to know before choosing a broker.

Also, you can CHECK HERE

4) Resources: It is important to ensure that the platform competes with the market standard of including real-time charts, integrated technical analysis tools, live news, and updated market data, and sometimes support for trading systems.

5) Foundation: The number of online brokers is expanding fast, so you’ll need to check and double-check before signing anything. Particularly if it involves very large amounts of money. It is therefore important to investigate who and what is behind the brokerage and how strong its foundations are.

6) Competitive Spreads: After determining the integrity of the online broker, now you need to evaluate the quality of their offering. It is of absolute importance to find a broker with the smallest spreads. That will warrant maximum profit for you.

What else is important when picking a broker?

7) Leverage Flexibility: is one of the most important advantages of the market. But large leverage is not always the top option for all traders. The larger the leverage involves the higher risk. So if you have limited money, higher leverage will increase your opportunities, that’s sure. On the other hand, if money isn’t a problem, lower leverage is better to pick.

8) Account Types: Alike with the leverage, the type of account you choose will depend on your needs in trading. When choosing a broker, it is important it offers several types of trading accounts.

9) Lenient Margin Rules: If a brokerage has strict margin rules, you might encounter a sharp decline in one of your positions. So, before it gets a chance to recover and make you some profits, your broker can make a margin call. That can liquidate your account. This will result in great losses for you. It is important to know that broker’s margin rules are not too severe.

10) Emotionless Trading Features: You need to trade in a cold and calculated way so as not to let your emotion get the best of you. One of the guiding principles in successful trading is “Leave emotion out”. This is done by setting a broker’s trading platform and under no circumstances deviating from them. The main advice is don’t rush into it, check your broker against the above criteria, establish a trading strategy, examine the market using technical and fundamental analysis.

And experience of other traders too.

24th June 2018