Forex Trading

Forex versus Equities?

If you are interested in trading currencies online, you will find that the Forex market offers several advantages over equities trading.

24-Hour Trading

Forex is a true 24-hour market, which offers a major advantage over equities trading. Whether it’s 6pm or 6am, somewhere in the world there are always buyers and sellers actively trading foreign currencies. Traders can always respond to breaking news immediately, and P&L is not affected by after hours earning reports or analyst conference calls.

After hours trading for U.S. equities brings with it several limitations. ECN’s (Electronic Communication Networks), also called matching systems, exist to bring together buyers and sellers-when possible. However, there is no guarantee that every trade will be executed, nor at a fair market price. Quite frequently, traders must wait until the market opens the following day in order to receive a tighter spread.

Superior Liquidity

With a daily trading volume that is 50 times larger than the New York Stock Exchange, there are always broker/dealers willing to buy or sell currencies in the forex markets. The liquidity of this market, especially that of the major currencies, helps ensure price stability. Traders can almost always open or close a position at a fair market price.

Because of the lower trade volume, investors in the stock market are more vulnerable to liquidity risk, which results in a wider dealing spread or larger price movements in response to any relatively large transaction.

100:1 Leverage

100:1 leverage is commonly available from online forex dealers, which substantially exceeds the common 2:1 margin offered by equity brokers. At 100:1, traders post $1000 margin for a $100,000 position, or 1%.

While certainly not for everyone, the substantial leverage available from online currency trading firms is a powerful, moneymaking tool. Rather than merely loading up on risk as many people incorrectly assume, leverage is essential in the forex market. This is because the average daily percentage move of a major currency is less than 1%, whereas a stock can easily have a 10% price move on any given day.

The most effective way to manage the risk associated with margined trading is to diligently follow a disciplined trading style that consistently utilizes stop and limit orders. Devise and adhere to a system where your controls kick in when emotion might otherwise take over.

Lower Transaction Costs

It is much more cost-efficient to trade forex in terms of both commissions and transaction fees. Most forex brokers charge no commissions or fees whatsoever, while still offering traders access to all relevant market information and trading tools. In contrast, commissions for stock trades range from $7.95-$29.95 per trade with online discount brokers up to $100 or more per trade with full service brokers.

Another important point to consider is the width of the bid/ask spread. Regardless of deal size, forex dealing spreads are normally 5 pips or less (a pip is .0005 US cents). In general, the width of the spread in a forex transaction is less than 1/10 that of a stock transaction, which could include a .125 (1/8) wide spread.

Profit Potential in Both Rising and Falling Markets

In every open forex position, an investor is long in one currency and short the other. A short position is one in which the trader sells a currency in anticipation that it will depreciate. This means that potential exists in a rising as well as a falling market.

The ability to sell currencies without any limitations is another distinct advantage over equity trading. In the US equity markets, it is much more difficult to establish a short position due to the Zero Uptick rule, which prevents investors from shorting a stock unless the immediately preceding trade was equal to or lower than the price of the short sale.

Forex versus Equities? / Martin Chandra

Martin Chandra is a full-time investor. Get limited offers at here.

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Do You Really Know How To Buy Stocks?

Stocks can be referred to as inventories that can be anything, which a firm has and is not currently being pre-owned by the firm’s functions. Many departments resource within the company will have Stocks of something or the other.

To buy stock you should be familiar with the stocks available in the market. The factory can have Stocks of raw materials ready to produce, the office can have Stocks of stationery and the warehouse can have Stocks of finished goods.

In order to run a company and function smoothly Stocks are essential. There will also be people or companies who will be ready to purchase stock from you. In case, if the production had to be stopped every repeated time the firm ran out of raw materials, the time wasted then can cost the firm a fortune.

Similarly if a shop had no Stocks on the excellent shelves, customers could soon desert them or say drift away from their shop. The same is true of most areas the firm operates in – I am sure you can easily appreciate the importance of planning ahead and having suitable levels of stocks.

How to buy stocks?

To purchase stock in a company is comparatively easy once you’ve researched the stocks you’re interested in and have a broker or brokerage account to handle your purchase. This makes the effort to buy stock a bit easier.

You should always educate yourself fully and get the information to purchase stock and brokers on the Internet purchasing them. Decide on what you want in a broker or a brokerage account. Do you want to meet with someone face-to-face or want to be able to reach someone on the phone? Do you require Internet access?

Is price your only concern? Do you want to buy stock and sell only stocks, or could you also like to purchase stock and sell mutual funds, bonds or foreign stocks?

Choose a broker or brokerage firm to buy stock on your behalf based on your needs. Need a complete heap of advice? Start with a full-service brokerage before you purchase stock the least expensive brokers cannot offer advice. Fairly confidant and want low prices? Try an online brokerage then to satisfy your needs to buy stock.

Contact a broker or firm and ask for an application. Many firms offer online applications, although most require that you send review or wire money to actually open the account to get the details to purchase stock.

Deliver a check in person if possible to speed up the process to buy stock. Begin to sell and purchase stock once your account is open. Review statements you obtain and reevaluate your portfolio’s performance. The concept to buy stock is considered to be as current assets because many types of stocks can be converted into cash reasonably readily.

In particular to purchase stock of finished goods. However, they are generally the least liquid of the current assets. At times of recession or similar circumstances it may be very difficult for the firm to buy stock or sell stocks, and so although they may be listed as a certain value their true value may be lower.

Although the most admired and functional way to purchase stock and sell investments, opening a brokerage account is not absolutely necessary. Many investors aren’t aware of the alternative ways to buy stock and them along with mutual funds. Although working with a qualified broker definitely has advantages, it can be better, to get an acquisition to purchase stock directly.

A number of companies, offer direct stock acquisition plans. These plans allow investors to buy stock and shares of stock directly from the company.

Many have a minimum initial deposit but are happy to disown it in most cases, if someone that understands and has expert knowledge agrees to automatic monthly withdrawals from your checking or savings account. Thus, satisfying the need to purchase stock regularly.

Another way in which the company automatically helps to buy stock for you is by debiting your bank account each and every month. This can be an easy and relatively painless way to save and purchase stock according to your own convenience.

Hence, always think carefully and then only decide to buy stock.

Do You Really Know How To Buy Stocks? / William Smith

William Smith the author provides much more financial information on many subjects as well as the secret to his success in the market along with 5 Free power stock picks emailed daily so grab your Free subscription on his website at Buy Stocks (All is Free)

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Stocks – Are They Nothing More Than Pieces of Paper?

Contrary to popular belief, stocks are not just pieces of paper. When you own a portfolio of stocks, you really own tiny fractions of several companies.

If you think that this isn’t the case, just ask the lucky owners of Petco or Reebok stocks. In each company’s case, a larger company wanted to buy them. The only way to take over a company with publicly traded stocks is to buy all of the shares.

If you had Petco and Reebok stocks at $20 and $35 apiece, would you sell them to a larger company for less than that? Of course not. For $20 and $35? Probably not, since if you wanted those prices, you could have sold your stocks in the open market.

The only way for larger companies to take over smaller ones is to offer a premium to the owners of their stocks. In Petco’s case, for example, the stockholders received a 50 percent premium. That means if you had $10,000 worth of Petco stock, the very next day you would have had $15,000. Not bad for a day’s work!

Big profits like this can only happen when you take the initiative to start investing in stocks. But if you still think that stocks don’t have real value, read on.

What Gives Stocks Their Value?

Stocks go up in value because they are in demand. Stocks go down in value because they’re not in demand. This is the simple truth, but a misunderstanding of it leads to the notion that stocks are “just pieces of paper.”

Sometimes, stocks have an increased or decreased demand for no good reason. But the root value of stocks can be found in the value of their underlying businesses.

Stocks in Action – Fed Ex

For example, take a look at fairly stable company like Fed Ex (ticker FDX). It had annual profits of $1.8 billion in 2005. Since Fed Ex has 305 million shares of stock outstanding, this equals about $5.90 earnings per share (EPS).

Fed Ex’s share price is around $112 per share. This means it’s P/E ratio is about 19 (112 / 5.90 = 18.98), which is about the average P/E ratio for stocks in the S&P 500.

When you own a share of Fed Ex, you own a share of its profits. You own a share of the cash in its bank account, and you even own a share of its property, plant, and equipment. In the case of Fed Ex, you own a share of each of its trucks!

Now of course, if you own 100 shares of Fed Ex, that’s only 100 shares out of more than 300 million – even a million shares ($112 million worth) would be less than 1/3 of 1 percent of the company! In other words, your one share doesn’t entitle you to much decision-making power with what is done with that $5.90.

You might like them to buy more trucks, advertise more, or maybe even send you the check for $5.90 (a dividend). But you’re just a little guy, and nobody listens to the little guy. You can, however, vote in shareholder elections to decide the corporation’s board of directors.

The owners of stocks oversee the board, the board oversees the CEO, and the CEO oversees the company. That’s how owning stocks works.

The Real Value of Stocks – When Stocks Buy Other Stocks

So you can’t decide what to do with Fed Ex’s $5.90 in profits, because you only have 100 votes out of 305 million (you get one vote per share of stock that you own). But you know who could decide what Fed Ex would do? Someone who owned all 350 million shares.

Let’s say that the stock market took a real nose dive for some reason. That can happen. But let’s also say that Fed Ex’s business kept rolling along, generating profits in the $1.8 billion range like it did in 2005.

How low could the stock go? Imagine the stock went from $112 all the way down to $45. Now its P/E ratio would be 7.6 (45 / 5.90 = 7.6), assuming it continued to generate $5.90 in earnings per share. At this price, the entire Fed Ex company might be an attractive acquisition candidate for someone like UPS.

If UPS bought all 305 million shares of Fed Ex, it could do whatever it wanted with that $5.90 – it would be money in the bank. Better yet, by reducing competition and eliminating some overlapping costs, that $5.90 per share could easily turn into $6.50.

So how much would you sell your $45 share of Fed Ex for? Less than $45? Of course not. You’d be surprised, but UPS might be willing to offer as much as $65, if it thought it could get Fed Ex’s profits up to $6.50 (thereby recovering their investment in ten years).

Now you might be saying, “Hey, wait. I bought the stock at $112 and I’m supposed to be happy I can sell it for $65?” That’s not the point. The point is that stocks do have real value. If you’re a conservative investor, you want to buy stocks that are already beaten down and could potentially become acquisition candidates.

Just the possibility that someone could acquire an entire company keeps stocks from falling too low. And that’s what makes stocks more than just pieces of paper.

Stocks – Are They Nothing More Than Pieces of Paper? / William Smith

William Smith the author provides much more financial information on many subjects as well as the secret to his success in the market along with 5 Free power stock picks emailed daily so grab your Free subscription on his website at Stock Picks (All is Free)

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