Tuesday, August 28, 2007

National Savings - The Right Option For You?

When we deal with new clients, we encounter Premium Bonds frequently, but it's not very often that we see the many other products offered by National Savings and Investments (NS&I).

Some NS&I returns are currently looking quite attractive, and so it is worth perhaps looking at two such investments, Premium Bonds and Savings Certificates.

The purpose for NS&I offering savings accounts and bonds is to raise money for the government. The various offerings range from tax free to taxable, and of course are safe havens for your cash as they are backed by the UK Government.

Around a quarter of all the money invested in NS&I is held in Premium Bonds. Of course, strictly speaking, they are not investments as they are based not on earning interest but effectively a lottery in the form of a monthly prize draw.

Of course this means that you may be lucky, or not. The chance of you winning equates to a rate of 3.8% tax free.

But you are only risking the interest not the capital.

For a higher rate taxpayer assuming income tax at 40%, this is an equivalent rate of 6.33% gross.

Now let's look at Savings Certificates.

One of the problems for higher rate taxpayers is having a large chunk of their gains taxed at 40%. One of the major benefits of Savings Certificates is that they are tax free.

The fixed rate Certificate, for example the 2 year option, pays 3.95%. This comes out at 6.58% for a higher rate tax payer and 4.94% for a basic rate payer. There is also a 5 year option, which is currently paying 3.85%.

Turning to index linked certificates, the picture looks even more attractive. Due to increasing inflation, judged for these purposes to be 4.5%, the 3 year issue returns 1.35% above this. This gives a net return of 5.85% p.a. and a gross equivalent for a higher rate taxpayer of 9.75%! The rate is also the same for the 5 year product.

You can invest from 100 to 15,000 per issue, with no limit on reinvesting matured Certificates.

You can learn more about NS&I at nsandi.com

The Financial Tips Bottom Line:

Ensure that you take into account all the rates and products out there, particularly if you pay higher rate tax. NS&I could be ideal for you, especially if you are in a phase of your life where you don't need to take any risk with your capital.

Now could be a good time to review all your cash and bond based investments.

Ray Prince is an Independent Financial Planner with Rutherford Wilkinson plc, and helps UK Resident Doctors and Dentists get the best deals on mortgages, protection and investments, as well as helping them achieve their financial objectives. Just visit http://www.medicaldentalfs.com to get your free retirement planning guide.

Rutherford Wilkinson plc is authorized and regulated by the Financial Services Authority.

Think, Buy, Sell... Repeat As Needed

Generally, a trader should meet buying with selling and vice versa when it comes to the stock market. Typically, stocks (especially when considered on an intra-day basis) will only go so high, or so low, before tending to attract the next group of contrarian thinkers and switch direction. Often times crowds (such as the markets) are wrong in their actions and over react to the up or down side. When the "markets" as a whole are moving up dramatically or down dramatically, there is a strong case to be made that these actions ultimately will be wrong or will tend to reverse simply as the contrary views of things builds on each side of the fence.

If you can train yourself to go against your natural emotions, you'll tend to be able to keep a clearer outlook on the markets. When stocks are being bought, you have to train yourself to think, "These stocks are buying bid up too high - maybe I should sit back and wait". By the same token, when there is a great deal of panic selling in the market, you need to train yourself to think, "Wow, look at all these prices falling - I may find good deals here soon". It's more difficult than you think to be "happy" when the markets are falling and "cautious" when the markets are rising. However, normally taking this view of things will help improve your trading over the long haul. The old saying, "Buy when there is blood in the streets" stems from this basic idea of going against the masses on Wall Street.

People tend to have a desire to buy at the bottom and sell at the top. Not just near the top, but the "exact" top. It's simply human nature to want to be the best at something, and trading is no different. Most people that take up daytrading want to be the best they can be. However, aiming for exact tops and bottoms when buying stocks can be very detrimental to your overall trading.

I would much rather give away 10% at the top and 10% at the bottom. You will drive yourself crazy if you punish yourself for not selling at the high or buying at the low, as it's almost impossible for most people to do on any sort of consistent basis. Far more often than not, you'll simply end up missing the trade. Even missing a top or bottom by 20% is nothing to worry about. As many a successful trader has said, "You can worry about the tops and bottoms, and I'll worry about the remaining 60%". In fact, it's often much safer to wait until a stock clearly signals a move either up or down before taking up your position.

Some people use stop orders quite often, some people hardly use them at all. In my view, stops are best used to protect a nice profit and/or limit down side risk in a trade that isn't acting as you think it should. How a stop is used (or placed) is largely dependent on the individual stock and how the overall market is behaving at any given time as well.

Often times using stops also helps to remove some of the emotions from trading. It's far easier to place a stop on a trade than watch it trade tick-by-tick and try to decide the exact moment to get out.

What about taking profits at big gains? At some point, just like experiencing a large loss, you are likely to hit a really big winner. When this happens, consider taking 1/2 your gains off the table right away to reduce risk to the profit you have just made. This allows you to continue to profit, but protects a large amount of the money you have just made. Additionally, you may wish to consider selling enough of the position to recoup your original investment. This results in the remaining shares effectively being "free" and allows you to hold them indefinitely without any fear of a "loss" to your original capital (which has now been removed completely).

When shorting stocks, there are several points to always keep in mind. Never short a stock simply based on the stock price. To really be successful as a short player (i.e. someone that shorts stocks), you need to locate stocks that are extended with a significant void of fundamental reasons. There must be some reason for the stock to decline in the near term (e.g. declining profits, lack of direction, etc.). Simply shorting a stock "because it has a high share price" is just inviting danger.

Additionally, keep in mind that shorting stocks exposes you to additional risks that are not present when buying or going "long" a stock. These include having the stock called away from you, as well as being caught in a short squeeze. Also keep in mind that the very act of shorting a stock increases the pent up demand for the stock - namely the number of people that will ultimately have to repurchase the security down the road to cover.

Finally, a good rule of thumb is to never short a stock which may end up on the front page of the Wall Street Journal or some other major financial publication. Typically, the best short candidates are stocks that have moved up rapidly on little or not fundamental changes and which are generally not well know to the investment public at large. While it's true you can make money shorting well known, large cap stocks, it tends to expose you to additional risks not associated with smaller and less well known companies.

Good luck in the markets!

No permission is needed to reproduce an unedited copy of this article as long the About The Author tag is left in tact and hot links included. Questions and comments can be sent to Ray at marketing@TraderAide.com.

Ray Johns is the founder and Senior Market Editor of Daytraders.com, Proudly serving day traders & short-term investors since 1996, at http://www.daytraders.com

Daytraders.com is the publisher of the award winning Morning Stock Market Report and the home of the Internets finest real time trading desk. Ray has been on the forefront of trading and investing in the markets and has appeared as a guest on a number of radio and television shows including CNBCs Market Talk. If you would like a free trail of the newsletter and the live trading desk log on to Daytraders.com. Comments and questions can be sent to articles@daytraders.com.

Foreign Exchange Trading as a Home-Based Business

The foreign exchange trading community has grown in leaps and bounds in recent years as more and more investors are finding the incredible financial potential. It is regulated by the investor and is open 24 hours a day for business. In fact, forex trading has become so popular today that many investors are creating home-based businesses exclusively around this market. There is relatively little headache and hassle involved with the process and can also be executed from home with a personal computer and an internet connection.

One of most attractive advantages to the foreign exchange market that lies within the 24-hour access benefit is that this creates the option for a trader to take positions in the market without waiting for an opening bell to ring. Regardless of the time zone the trader is in, there is always foreign exchange trading experts ready to buy and sell currency prices. Providing this type of access gives the foreign exchange trader a huge advantage over other investment markets.

Foreign exchange trading is based on a pair principle in that every currency is traded in pairs. Every trade engages two separate currencies on what is called a two-way market. The financial advancements to be made in this type of trading are having an instinct based on current events that will depreciate a certain currency. The pair system works as a cause and effect relationship and as one currency makes gains on the market, the other currency suffers a loss. Foreign exchange trading allows revenue to be made both the losses and the gains in relation to the investor's currency.

A huge benefit to choosing forex trading is the relatively small selection of choices when compared to other investment choices such as mutual funds or the stock markets. When dealing with forex trading, most traders tend to begin with only one select currency and will graduate to trading three or four as they become more experienced.

Foreign exchange trading demonstrates the ability to track the trends that take place over both long and short periods. Every currency takes an individual course and reveals its own set of characteristics allowing the investor a peek at the future of a specific currency by looking into its past. This sets forex trading very high in the ranks of investment options because it provides an array of option and prospects within the foreign exchange market.

Most individuals that are just beginning to learn the foreign exchange trading market require the expertise of a foreign exchange broker. In order to trade, it is necessary to seek out a good broker and open a margin account on the foreign exchange market in order to participate. This margin account is an absolute necessity and these are settled every day. This means that when you lose profits they are taken out of that margin account and similarly when profits are gained, they are put into the margin account that same day.

Now that most of the advantages are obvious to potential investors, there are a few things to understand before setting out to invest in forex trading. First, make sure that the currency pair is well researched and the trends are paid particular attention to, as this can be a great tool with foresight. Remember, there is no good plan with foreign exchange trading or other markets without an exit plan! Know the limits and be disciplined enough to follow these strategies to bring success to any foreign exchange trading experience.

Troy Degarnham is the author and webmaster of http://www.forex-trading-brokers.info an informative website about Forex Trading Brokers.

Extensive help and tips on foreign exchange trading systems, software, signals, day trading, forex brokers, courses, and other secrets to help you gain financial freedom.

How The DOW Is Often Misused As An Indicator Of Likely Returns On An Individual Stock Investment

Every asset class at some time or other has its day in terms of being the investment that offers returns superior to all other types of assets. Real estate, gold, fine art, fixed income instruments such as bonds, even in recent times the so-called alternative assets of private equity and hedge fund investments can be kings of the hill. However, over any very long period of time measured in decades, all the evidence suggests that investing in stocks - equity stakes in publicly traded companies - is the best way to achieve real inflation-beating returns.

It is typical of writers in the investing genre to use the statistical history of the Dow Jones Industrial Average (the Dow) to indicate the wisdom of investing in stocks. At first blush, the choice of this index may appear to be strange, given that it contains just thirty stocks (out of many thousands of publicly traded companies) whereas broader indices such as the Standard & Poors (S&P) 500 and the Wilshire 5000 Total Market Index cover much more broadly-based groupings of stocks. However, the general usage of the Dow in this way reflects both its longevity, (it has been around for one hundred and eleven years now and has been a thirty-stock index since 1928), as well as its general acceptance by investors, the media and the general public.

When someone remarks that the market is up 35 points today, they do not mean that the S&P 500 is up by that amount, nor the NASDAQ 100, nor certainly the Wilshire 5000. If the market is up 35 points then you can be sure this refers to an increase that day in the Dow Jones Industrial Average. It is precisely for this reason that the use of the Dow, whatever weaknesses it may have in other ways, makes perfect sense as a day-to-day gauge of what the market is doing. In effect, precisely owing to this level of acceptance, the Dow is the most logical index to use to act as an indicator on movements within the market overall because, to all intents and purposes, the Dow is the market.

This general acceptance and longevity have the additional effect that the Dow is consistently used as a market proxy by investment writers wishing to demonstrate how over very long periods of decades and more investing in stocks has been the smartest investing practice. This is especially well illustrated by showing the upward advance of the Dow in graph form. The message is clear there is an obvious ever onward and upward progression of the index. This can be used to bolster the argument, very typically used by writers on investing, that if you had bought stocks say in November, 1972, when the Dow closed above 1,000 for the first time, then your investment would have been worth over thirteen times that initial investment in 2007 with the Dow today at well above the 13,000 level.

Leaving aside the fact that during the 35 years from 1972 to 2007 inflation would have eaten up a large portion of the nominal gain, (but also on the flip side the fact that over the same period dividend payouts would have made up a good part of any losses from inflation), our argument that the use of the Dow by investment writers in this way is misleading hinges on the fact that the Dow is itself in no way an immutable index. It is subjected to a kind of regular housecleaning by the editors of the Wall Street Journal who every few years bring into the Dow Jones Industrial Average companies that are dominant in the economy of the day, and throw out those that are not considered dominant enough, either generally or in their own industry sector. Therefore, they ease out the old-economy, smokestack, buggy-whip making has-beens of yesteryear, and replace them with the zippy bright new-economy stars in growth mode. This process over time can clearly be demonstrated by comparing the make-up of the Dow at the time that it first closed above 1,000 in 1972 and the make-up of the index today.

Then: Allied Chemical; Aluminum Company of America; American Can; American Telephone & Telegraphic; American Tobacco; Anaconda; Bethlehem Steel; Chrysler; DuPont; Eastman Kodak; Exxon; General Electric; General Foods; General Motors; Goodyear; International Harvester; International Nickel; International Paper; Johns-Manville; Owens-Illinois Glass; Procter & Gamble; Sears, Roebuck & Co.; Standard Oil of California; Swift & Co.; Texas Corporation; Union Carbide; United Aircraft; U.S. Steel; Westinghouse Electric; Woolworth.

Now: 3M Company; ALCOA; Altria Group; American International Group; American Express; AT&T; Boeing; Caterpillar; Citigroup; Coca-Cola; DuPont; Exxon Mobil; General Electric; General Motors; Hewlett-Packard; Home Depot; Honeywell International; Intel; IBM; Johnson & Johnson; JP Morgan Chase; McDonalds; Merck; Microsoft; Pfizer; Procter & Gamble; United Technologies; Verizon; Wal-Mart Stores; Walt Disney Co.

These different renderings of the Dow Jones Industrial Average demonstrate that the use of the index as if it is unchanging and somehow carved in stone can be misleading. The use of the index as a statistical proof of the history of the market is in truth compromised by the regular changes in its component parts. Yet it is convenient for those writing on long-term investing strategies to use the progress of the Dow over many years to demonstrate not just the general upward trend in the market over time, which is a fact, but much more tenuously that of individual stocks comprising the market.

Should a writer voice the opinion that an investment in the market in 1972 would be worth thirteen times that investment today, he or she would be ignoring the fact that any return would depend on which stocks had been selected for investment back in 1972. Buying into the market at that time could involve purchase of Dow component stocks that later did well, Dow component stocks that later did badly and are no longer part of the Dow and of course for the most part it would probably realistically mean investment in stocks that were not part of the Dow index then or now. Indeed, exactly the same issue would arise for a broader index such as the S&P 500 which is also constantly refreshed by additions of fast-growing companies and demotions of slower-growing ones. Moreover, companies that are acquired by larger, more successful companies are deleted and always replaced in the index by promising up-and-comers.

A straight comparison of an index at one point in time with the same index decades later masks the significant rotations of sectors within the overall market that are always taking place. Developments in technology, lifestyle choices and general business and consumer trends are subject to changes that can be cyclical in nature, as certain industries or companies and their products come in or out of prominence. Management miscues, competitive developments or even legal liabilities, (did we hear someone say Asbestos?) can also lay low a stock that looked promising at the time of investment and can make its performance over time very different from that of what is being referred to as the market.

The only way that comparisons of indices over many years as a measure of investment performance can truly be considered accurate is for the investor who puts his/her money into a market index fund which is managed to replicate the movements of the index on which it is based. Otherwise you really cannot directly extrapolate from the historical trend lines of any index, including the key Dow Jones Industrial Average, the likely success of any individual stock in which you may choose to invest over the very long-term. Put bluntly, individual stocks potentially have a shelf life and are perishable, even though the overall market over time may go marching on.

This article was written jointly by Aidan J. McNamara and Martha A. Brozyna

Aidan McNamara is associate publisher at The Deal LLC in New York, publisher of the weekly financial magazine The Deal as well as The Daily Deal and TheDeal.com. He holds an MA (with distinction) in Area Studies (Eastern Europe and Russia) from the University of London, 1981 and a BA in German from the University of Manchester.

Martha A. Brozyna received a Ph.D. in history from the University of Southern California in 2005 and a BA in history and political science from Rutgers University where she graduated Phi Beta Kappa in 1995.

McNamara and Brozyna are the authors of Contrarian Ripple Trading: A Low-Risk Strategy to Profiting from Short-Term Stock Trades, scheduled for publication by John Wiley & Sons in October 2007. Martha Brozyna published Gender and Sexuality in the Middle Ages: A Medieval Source Documents Reader in 2005 (McFarland & Co.)

The authors have additional information on themselves and their forthcoming book at their website http://www.ridetheripples.com

FOREX Trading Software Programs Improve Your Trading Skills

The foreign exchange market, or Forex, is where one currency is traded for another. This market is the largest financial market in the world, averaging a daily trade exceeding $1.9 trillion. The major players in this market are large banks, central national banks, governments, currency speculators, multinational companies, and other financial institutions.

The foreign exchange market is huge, and quite complicated, with a lot of factors affecting the exchange rates between currencies. And unlike the stock market, in which having inside information can play a huge part, the foreign exchange market operates on information which is available to every participant. Analyzing this data and following the trends can be done manually, but it is an extremely detailed and difficult job, and the likelihood of missing out on some profitable trends is high.

This is where Forex trading software comes in. These programs and software were created to help humans in the task of keeping track of every piece of information that is relevant to the Forex market. That task is actually well suited for a computer, as it involves a huge volume of information to be sorted and analyzed.

These software programs can take some of the drudgery out of the process by organizing the information and displaying it in more helpful charts and graphs. They can automatically retrieve the relevant information through an Internet connection, and then depending on your settings, use particular algorithms to interpret the data. The more sophisticated of these programs would then be able to offer detailed and in-depth analyses after the processing. Simpler programs would just determine if you should trade, and if so, what.

The simpler (and thus cheaper) Forex trading programs would be good tools to start with, for a beginner. Although they would lack some advanced features, this would also mean that the beginner would be less likely to be overwhelmed. Using these programs still allows for learning, as you can observe which factors combine to give the final analysis.

More experienced Forex traders can then move on to more advanced software with more options and details to work out. These will give more detailed predictions, but would also require a bit more work on the part of the user.

Max Walker is a keen and active day trader, and recommends using FOREX Trading Software

Online Futures Tradings

The futures markets are organized and used not only for speculation but also for hedging, which is a method of eliminating risks arising from fluctuations in prices. Hedging may be referred to as the practice of covering the risks attaching to transactions in the cash market by contra-transactions in futures trading. If a commodity is purchased for delivery after three months in the cash market, where the actual commodity is handled, the trader may hedge the purchase by selling it for delivery after the same period in the futures market.

If the price of the commodity rises, the trader may sell in the spot market and buy in the futures market. The gain made in the cash market is offset by loss in the futures market, and the commodity is obtained at the price originally conceived for it. On the other hand, an agreement to sell in the cash market may be hedged by means of a counter-agreement to buy in the futures market. However, for such offsetting of losses, it is necessary that the prices in the cash and futures markets move in sympathy with each other.

There may be two forms of hedging: hedge sale and hedge purchase. When a person buys a commodity in cash, he may at the same time sell futures of an equivalent quantity as a protection against a fall in price during the time he holds such stock. Such sale in the futures market is called a hedge sale. If a manufacturer sells some goods for cash, he may protect himself against an advance in the price by purchasing futures for an equivalent quantity.

The basic purpose of hedging is to secure protection against fluctuations in prices. This protection is secured by shifting the risks of price changes to the professional risk-takers, i.e., speculators. A manufacturer who manufactures goods according to a carefully prepared budget can save him from the upsetting results of a rise in the prices of raw materials by hedging in the futures market.

Futures Trading provides detailed information on Futures Trading, Online Futures Tradings, Futures Trading Software, Commodity Futures Tradings and more. Futures Trading is affiliated with Stock Day Trading.

Leap Right Into The forex Game with the Basics

"A day of worry is more exhausting than a week of work." -a forex trader

The forex, or foreign money exchange, is all about currency. Money from all over the globe is bought, sold and traded. On the forex, anyone can buy and transfer currency and could maybe come out ahead in the end. When dealing with the foreign currency exchange, it is conceivable to buy the currency of one state, sell it and make a gain. For instance, a broker might buy a Japanese yen when the yen to dollar ratio increases, hitherto trade the yens and buy invest in American dollars for a yield.

The forex and the stock market possess varied similarities, in that it involves buying and trading to make a gain, but there are some differences. Unlike the stock market, the forex has a much high liquidity. This means, much more money is shifting hands day-to-day. Another key distinction when comparing the forex to the stock market is that the forex has no place where it is exchanged and it never closes. The forex involved trading between banks and brokers all over the world and provides twenty-four hour admittance during the business week.

Other variation between the stock market and the forex is that forex transaction has much higher leverage that the stock market. When some person decides to put in in the forex, they can anticipate much higher yield when they are competent and recognize how it works. There can also be the possibility for bleeding much more money as well.

For those who are just getting started in the forex, myriad brokers supply the utility of exchange using the mini-forex system. This has a paltry minimum deposit, customarily $100. This makes it easier for those learning how to trade on the forex to suffer less of a fate of bleeding a lot of savings and to discover how the system goes.

There is a lot of jargon when dealing with the forex. Learning to exchange on the forex can be fairly daedalian for the apprentice trader. When anticipating at the names utilized in the forex, a symbol is composed of two parts. The first one that is used is one It is important to learn what currency symbols imply when mastering about the forex. There are many books and websites dedicated on teaching traders about using the forex.

For those using the forex, a stockbroker is normally a commendable idea. Brokers are professionals when it comes to trading on the forex and their familiarity is priceless, markedly to the new dealer. When it is time to find a broker, there are some factors to ruminate. One thing to scrutinize for when choosing a forex broker is to go with some person that offers low spreads. The spread is designed in pips, or the variation between the valuation at which currency can be purchased and the appraisal it can be sold at any set time. Because forex brokers do not charge a fee, they will make their money off of the spreads, or the difference. When picking a broker, look at this info and refer that with different brokers.

Furthermore, when looking at a forex broker, pay attention for one that is backed by a well known financial organization. forex bankers are generally attached with big banks or other types of financial institutions. If a broker is not with a big bank, keep searching. In addition, look for a broker that is registered with the Futures Commission Merchant (FCM) and that is regulated by the Commodity Futures Trading Commission (CFTC). Making sure that the broker is properly registered and backed by a large bank or institution ensures that you are getting a reliable broker that is experienced in trading on the forex.

When looking for a broker, check to be certain that the broker has access to the latest research tools and data. It is important that brokers understand and have access to charts, graphs, news and data that are in real time. This will ensure that the broker is making wise decisions based on accurate forex forecasting. Also, look for a broker that can propose a extensive range of account options. They have to offer mini-accounts with a negligible minimum deposit as well as a standard account. This will allow anyone keen in the forex the possibility to barter at a level where they perceive most at ease.

The information you just read was pulled from many different resources. You should continue searching for information until you believe you have a firm grasp of the subject. I do want to thank you for visiting and good luck.

An collector of chi generators, Joseph R. Plazo, Ph.D offers leadership executive coaching and helps people find great jobs in the Philippines.

Learn Forex - Trading Currencies On The Margin

For many people the key to Forex trading is the ability to trade on the margin. Without this ability, many small investors would not be able to trade the currency markets. But just what is trading on the margin and how does it work?

A margin account allows a Forex trader to open an account with a relatively small amount of money, and to then control large amounts of currency. In effect, opening a margin account with a Forex broker allows you to borrow money from the broker to control large currency lots. The degree to which you can borrow is known as leverage and is usually expressed as a ratio. For example, a leverage of 100:1 means that you can control assets worth 100 times your deposit.

By opening a 1% margin account and depositing just US $1,000 you can control standard Forex and lots of US $100,000. The ability to trade on the margin can clearly increase your profits, but it can also increase your losses with the possibility that you could lose more than your original deposit. Brokers, however, normally monitor margin accounts closely and will terminate a transaction which extends beyond the margin deposit.

While it is obvious that being able to trade US $100,000 with as little as US $1,000 provides for the possibility of both greater profit and greater loss, we need to look in a little more detail at just how this works.

Forex currencies are traded in much smaller lots than cash is. If we take the American dollar for example, a Forex quote might read $1.3256, rather than the $1.32 which you might expect. This is because in Forex trading currencies are traded in units down to four decimal places, with the smallest unit in Forex currency being known as the pip. In a standard US $100,000 lot therefore each pip is worth US $10.

If our example quote for the American dollar of $1 .3256 were to change to $1.3356 this would represent a change of 100 pips and a profit or loss of US $1000 and, if you were holding US $1000 of currency, a profit or loss of just US $10. This might be significant to a tourist but is unlikely to impress an investor. However, by using your US $1,000 on a 1% margin account to control US $100,000, your US $1,000 profit now looks far more healthy.

Of course your risks are also increased and, if the American dollar moves by just one cent against you on your 1% margin account, you stand to lose your entire account.

Fortunately there are a number of tools available to the Forex trader to help in minimizing any potential losses. One such tool is the stop loss order which automatically closes your position if the value of the currency reaches a level which you set.

One price that Forex traders have to pay for operating a margin account is that brokers normally have the right to override a transaction when they believe that it may result in an unacceptable loss. It may be the case therefore that, while you are riding out a downturn in the market in the expectation of a market reversal, your broker may close out your position and leave you with a substantial loss.

Let's say for example that you sell EUR/USD at 1.2144 (in other words sell 100,000 and a buy US $121,440) in the belief that the euro will fall in price. Your 1% margin account has a balance of $1, 250 and so after the transaction costing $1, 214.40 the balance in your account is $35.60.

After you have entered this position, and assuming that you have not set a stop loss, let's say that the euro gains 0.0263 for a price of 1.2407 making 100,000 worth US $124,070. The requirement on your 1% margin account is now $1, 240.70 and, depending on your broker's policy, the additional funds may be taken from your account or, with such a low balance, your position may be closed. In any event, if the euro continues to gain in value, you will need to add further funds to your account or risk your account being closed and losing everything.

Despite the risks of trading on a margin account it is this ability which makes Forex trading such an attractive proposition to so many people. You should not therefore be put off by these risks, but you certainly need to be aware of them and to know your broker's policy and to manage your account accordingly.

If you would like to learn Forex trading online or a looking for a mini Forex trading mentor then please visit ForexOnlineTradingSystem.info for further information.

Forex - News Trading For Profit

The foreign exchange (FOREX) market is the largest financial market in the world, moving approximately $2.0 trillion per day. That is a sum virtually unimaginable to most of us. Unless you are a mathematician, engineer or government economist, you will probably never even have a legitimate reason for writing a number with as many zeroes. Yet, you may now participate in this vast and dynamic market as a trader, even from the comfort of your personal computer at home. Depending on your trading approach, you may be informally classified as a day trader, swing trader, long-term trend trader, news trader or some combination of these. We will focus on the news trading category to highlight the potential for profiting from the FOREX.

A news trader depends on the expected price movement resulting from the release of certain economic news as a basis for trading currency. News reports have the potential to move the FOREX market in a major way. There is a lot of profit potential in the resulting volatility. A lot of the economic news on which a news trader depends is contained in various reports regularly issued by the government of various countries. The federal government of the United States is the source of many of these reports which are released, more or less, on a consistent and regular basis. Many of these reports, or commentary regarding them, can be accessed from the television, internet or via paid-subscription news services. Speed is often highly emphasized as a primary factor in the way the news is received. Some strategies depend a lot less, if at all, on the speed of receiving the news or on the direction of the market once it is received. There are certain reports that tend to affect the market more than others. One example is the non-farm payroll report.

Within the past ten years, the door has opened to allow individual investors to take advantage of the FOREX market by having their orders executed through a retail broker. Most of these brokers will provide some kind of online platform through which the retail customer will enter their trades. This can be done without the necessity of having to actually speak to the brokers representative. In addition, proprietary software packages are available that automate both news trading and day trading, easily interfacing with some brokers platforms. Most broker-provided platforms are usually open 24 hours per day, as is the FOREX itself, allowing for round-the-clock trading. The market is usually closed from Friday at 4:00 p.m. EST to Sunday at 4:00 p.m. Most of the regularly occurring news events are scheduled during the hours the market is open.

Trading the FOREX, though potentially lucrative, should not be undertaken without first receiving sufficient education through a solid training program. Such programs will cover not only the opportunities in trading, but will also arm the student with knowledge about potential pitfalls and ways to manage the inherent risks of the marketplace. Specific instruction is often given on whether to trade at or near the time for news releases. Within the past five years, more and more trainers and their systems have focused on various approaches for news trading. Previously, news trading was thought to be far too risky, due to the uncertainty and unpredictability of a fast-moving market at such times.

While there are still some purveyors who doubt the possibility of profitable results for trading the news, students of some programs have shown remarkable results by utilizing relatively simple strategies for high probability trades. Some are even able to achieve a twenty percent per monththats right, per monthreturn on their investment, trading the news just a few times per month. This kind of performance should make most fund managers drool. Whether this can be done on a consistent and regular basis is dependent on the training, discipline and strategies of the trader as well as on forces at work in the market.

While there are no guarantees of success in trading the news or utilizing any other approaches to the FOREX, some basic guidelines are in order to help the trader prudently navigate the undercurrents of the market. First and foremost is education. It is imperative that a potential FOREX trader get a good understanding of the various aspects of trading. Training does not have to be overly expensive, even for good programs. One training program offered by Winning Traders Association (WTA) of Downingtown, Pennsylvania costs less than $300, including lifetime support and twice-per-day training sessions. Sometimes, education may be as simple as reading and understanding a well-written book on the topic and followed up by asking questions of experienced traders, who can be found online. Brokers can also provide valuable courses and information. Since they are trying to attract your business, some brokers will offer free or discounted courses when you open up and fund a trading account with them.

Second, choose a broker with a good reputation among traders. Various online forums can be helpful in this regard. For example, does a broker put wide spreads on the currency pairs and does the broker increase the spread during or before a news release? A low spread is preferable to a higher spread, all other things being equal. The spread represents how much the broker gets paid, and, therefore, the more the broker makes, the less the trader can keep from the profits made. Try to determine if the apparent low spread is, perhaps, a trade-off for something else lacking in the brokers program. Take, for example, slippage, which is what happen when the broker cannot fill your order at the requested price, but then fills it at the next available price, sometimes too far outside of your range for profitability on the trade. The negative impact of this experience could be minimized, if the broker allowed the trader to opt out of the trade when the order cannot get filled in the requested price range. Often, there is no such opt-out or automatic order cancellation. In this scenario, having a low spread does not do the trader much good, if the broker cannot get the order filled at a reasonably profitable price level.

Third, do not yield to the temptation of greed by trying to get rich overnight. As in the stock, futures and other financial markets, it still rings true that pigs get fat and hogs get slaughtered. The innate proclivity of mankind for greed has been the downfall of many a trader. Proceed cautiously, patiently and prudently as a means of surviving one trade and being left standing to trade another day. To the extent possible, calculate your risks before entering the trade. No one can make all the pips to be made in the FOREX, so dont attempt it. Furthermore, it is well-known that one should not invest more money in a trade than one can afford to lose.

Fourth, stick with your game plan when trading. Even after learning highly successful strategies, test them in your demo account until you are very comfortable with the strategy. It is important to note that it is not always the most sophisticated strategies that make the most profitable trades. In fact, you will probably find that many of the simpler strategies are the ones which consistently rack up the winners. When you graduate to live trading with real money, continue to apply the high-probability strategies over and over again. While no trader can boast 100% winners all the time, the goal is to be consistently profitable over a period of time. In the end, you want to have more wins than losses with the average dollar amount of the wins exceeding the average dollar amount of the losses.

Finally, while news trading does not have to be an exclusive approach to trading in the FOREX market, it is certainly a powerful plan for helping to build your overall portfolio and should, therefore, be given serious consideration to add to other strategies in your arsenal for achieving financial success.

If you are ready to change your future by stepping into the exciting world of trading FOREX, go to winningtradersassociation.com for more information. Sandy Robinson, J.D. is part of the Winning Traders Association, an educational organization founded by John Beiler, President. The organization consists of a network of committed trainers and motivated traders willing to provide support to those interested in trading foreign exchange. Many of the members work from home.
Sandy Robinson, J.D.
Copyright 2007