If you have an online currency trading strategy, then you should incorporate the advice given in this article to make bigger profits – and maybe even change a losing system into a winning one.

The advice we’re giving here is contrary to almost everyone else on this subject – keep in mind however that 90% of traders lose! So, let’s stay away from the losers and make some profits.

Get Set for Bigger Profits

So, what’s this insider secret anyway? – It’s about looking at money management in a different light.

Money Management and your Odds of Success

Most traders are virtually guaranteed to lose – because they have money management strategies that ensure they are constantly going to get stopped out by normal market volatility.

For example, many traders risk say 2% of their equity on a trade. On small accounts, this amounts to just a few hundred dollars. They enter the trade, and market volatility ensures their stop is hit. The market then goes back in the direction they had anticipated – and piles up thousands of dollars! Our trader though, thinks he was just unlucky – and tries again, but he wasn’t unlucky, and volatility will take him out every time.

Money Management Guaranteed to Lose

A string of small losses soon adds up, and the trader runs out of money – and his online currency strategy is at an end.

The trader may have been right, on where markets were going – but got stopped out of the trade – and ended up losing instead of winning.

Does this sound familiar? – It happens all the time.

How to Protect Equity and make Bigger Profits

Here are seven tips to incorporate into your currency trading strategy, to protect equity and build huge profits.

1. Don’t listen to advisors or brokers. Advisors don’t care if you win or lose – and brokers certainly don’t mind, as they work on the assumption you will lose anyway. The more commission a broker makes the better – and tight stops ensure this.

2. You need to risk more per trade – so you need to be very selective in trades. Forget day trading, and concentrate on the big, longer-term trends.

3. Keep in mind this truism – “with risk goes reward”. Without risk, there cannot be big rewards. Currency trading offers big rewards – but you have to be prepared to take the risk.

4. Taking a risk with no thought, and taking a calculated risk, is entirely different. If you are taking a bigger risk, you are not necessarily going to lose – it depends on the logic behind the trade – and the profit potential. That’s why you should trade sparingly – and concentrate on the big trends.

5. Use up to 10%, or maybe even more, on the trades you are confident in – these are the big moves – and you don’t want to be stopped out!

6. Don’t move stops up too quickly to protect equity – big currency trends last months or years – so give the trade room to move. You don’t want to get into a big trade, and get stopped out on the first correction – if you think the trade is going to be big, then have the courage of your conviction.

7. Use options as a vehicle – they’re great if used correctly – to give you staying power. Use at the money, or in the money options – with plenty of time value, for greater staying power. Options are a great tool, but NEVER buy out of the money options – or options that are close to expiry.

An online currency strategy consists of a number of components – and the one that lets down the bulk of traders, is money management. They try so hard to avoid risk, but end up creating it – and lose. Don’t make this mistake in your currency trading strategy – you need to take risks, pure and simple – and as the famous, US general George Patton said:

“Take calculated risks – that is quite different from being rash”

The fact is, most traders don’t believe this – they end up creating risk by trying to avoid it – and that’s why their currency trading strategies fail every time – don’t make the same mistake!

New! A valuable FREE Currency Trader CD containing 9 critical trading reports, tips, strategies and money management info. Visit our web site now and grab your CD http://www.tradercurrencies.com

Are you new to trading? Perhaps you wonder what the difference is between trading Stocks and trading Futures. Often when I meet someone new who inquires as to what I do, I get a response of “that’s like trading stocks, isn’t it?”

In some ways they are similar, but only minutely so. So let’s consider some of the major differences between the two.

Most individuals have likely traded stocks at one time or another. Usually, it is to buy in order to ‘own’ a percentage of a particular company or to liquidate such partial ownership. They pick up a phone to call a broker or go online to purchase or sell. The order is facilitated through an ‘exchange’, such as the New York Stock Exchange for example.

Buying and selling Futures is similar in this respect. You can call a broker or go online to buy or sell Futures contracts. The order is then facilitated througha commodity exchange, such as the Chicago Merchatile Exchange for example. Yet while buying a stock gives you part ownership in a company or portfolio of companies (as in a fund), buying a Futures contract does not give you ownership of a commodity or product. Rather, you are simply entering into a contract to purchase the underlying commodity at a certain price at a future time, noted by the contract. For example, buying one May Wheat at 3.00 simply creates a contract between you and the seller (whom you need not know as this is taken care of via the exchange) that come May you will take delivery of 5000 bushels of Wheat at $3 per bushel, regardless of what the price of Wheat at market happens to be come May. As a speculator simply trading to make a profit from trading itself and with no interest in actually taking delivery of product, you will simply sell your contract prior to delivery at the going market price and the difference between your buy price and sell price is either your profit or loss.

When you buy a stock, you are part owner of a company. When you buy a Futures contract, you simply are entering a contract. With stocks, you will pay for the stock at the time of your purchase plus broker commissions. When buying a futures contract, you are simply entering the buy side of a contract and no monies is paid other than commissions to your broker.

Stock exchanges and commodity exchanges are both membership organizations established to act as middlemen between the buys and sells of all types of traders, from business entities to the individual small trader. The stock exchange act to bring capital from investors to the businesses that need that capital. They facilitate the transfer of property rights (ownership in the various companies offering stock).The commodity exchange act to bring people willing to assume risk for the opportunity to make a substantial amount of money for taking such risk. This helps transfer the price risk associated with ownership of various commodities, such as Soybeans, or a service, like interest rates, from producers.

To buy stocks, you only need enough money in your account to purchase the stock outright plus commissions. Once you make the purchase, the money is removed immediately to make the purchase. With trading futures, since you are not actually purchasing anything but simply entering a contract to do so at a later time (which you will exit prior to avoid delivery), the broker will require a certain amount of margin (good faith deposit to cover any possible losses) in what is called a ‘margin account’. Each commodity has a different minimum margin requirement depending on several factors. Your broker may use the exchange calculated margin or require a different margin of their own. If the value of the commodity were to decrease and you are on the buy side of the contract, then your contract has lost value and your broker will notify you if your unrealized losses exceeds have gone beyond your minimum margin requirement. This is called a ‘margin call’. Naturally you would want to have more capital than simply the margin amount when trading futures to avoid these broker calls. The broker has the right (and likely will) liquidate your position if you are getting too close to not having enough to cover the losses in order to protect themselves.

With buying stocks outright, there is no potential for a margin call. You simply own the stock outright. So perhaps you may be wondering why anyone would bother buying futures contracts rather than stocks. The major answer is: LEVERAGE.

Leverage gives the trader the ability to control a large amount of money (or commodity worth a lot of money) with very little money. For example, if Live Cattle futures requires a minimum margin of $800 to trade a single contract, and a single contract represents 40,000 lbs at the current market price of say 75, you would be controlling $30,000 worth for a leverage of over 35:1. This is appealing to many traders and justifies the risk. What is that risk? Just as leverage can work in your favor, it can work against you at the very same ratio. Known as a ‘two-edged sword’.

You can increase the leverage of trading stocks if you trade with a margin account. This usually allows you to purchase stocks on margin at the usual rate of 50%. So for every dollar you have you can purchase $2 worth of stock. The leverage is 2:1. How this works is that the broker is actually ‘lending’ you the other 50%. Of course by purchasing stock with margin you can lose more than you have due to the leverage. And in this case you can end up getting a ‘margin call’ from your broker if your stock losses too much value. But trading stocks comes no where close to the kind of leverage you get trading Futures.

When you look at these two trading vehicles, the bottom line comes to MARGIN and LEVERAGE.

Learn more on how to lower your risk and increase your profit potential with other free articles found at our Precision Timing of the Futures, Commodity and Forex Markets site.

The IRS has joined with California’s local stock options backdating task force to investigate alleged backdating of stock options iwth an intent to defraud.

US Attorney Kevin V. Ryan announced the partnership. He said that the task force was formed in July of this year. It is made of members of the US Attorney’s Office, the FBI and IRS-Criminal Investigation in the Northern District of California.

The US Senate has been pressuring law enforcement authorities to face the fraudualent backdating of stock options, which appears to be prevalent despite the Enron scandal.

Ryan said hat it is important to the people of the nation and the financial markets that books and records are honest.

“Falsification or backdating of financial documents may call the integrity of companies’ financial statements into question, can constitute fraud on the company, shareholders and the market, and may give rise to tax violations,” said Ryan. “We will evaluate the facts of each case, and we will bring criminal charges when appropriate.”

Roger L. Wirth, the IRS-Criminal Investigation Special Agent for the investigation said that the IRS is committed to cracking down on options backdating.

“With the recent discoveries of significant fraudulent misconduct in connection with backdating of stock options, IRS-CI will work to help ensure both the companies and executives involved in such illegal activity are in compliance with the tax laws,” he stated.

“This task force is another example where by combining our resources together as a law enforcement community, we can have the greatest impact in stopping these criminal activities and hold the perpetrators accountable for their illegal actions.”

Any trader on line needs to set stops. But there are no hard and fast rules to follow. You,need to develop a system that fits your trading style. This means you need to follow your trading plan. However, there are a few tips I can share with you about stops that you might already know. Keep these in mind as you practice and cultivate the skill of setting stops.

First, find out if your broker has rules about where and how stops are set. For example, some brokers have a rule that protective stops must be set at a minimum amount below the current bid when you`re long, a stop sell, or above the current ask when you`re short, a stop buy to cover. The rule may be that a stop sell order must be at least .25 below the current bid.

This trade isn`t usually a problem with a high priced position. But, with a very cheap position, you, the trader on line, might not be able to set a tight stop unless you wait for the bid to move up. In addition, if the price of a position is dropping quickly, the bid may come too close to the stop you`re trying to place before you`re able to place it. This can cause your order to be rejected. Another rule some brokers have is that stops can`t be set more than a certain percentage lower than the current bid or, on a short, higher than the current ask. They may specify that a stop be set no more than 30 percent lower or higher. I have no idea why you, the trader online, would ever want to lose 30 percent of the value of your trade before stopping out, and I would never recommend setting a stop that low.

My second tip is to always review orders carefully before placing them. You`d think it would be impossible to place a limit order when you, the trader on line, mean to place a stop, but it`s easy to do when you`re in a hurry. You need to make sure you, the trader on line, don`t enter a limit order out of habit when you mean to place a stop loss. If you place a limit sell order at a price below the current bid, at the place where you meant to place your stop, it will execute right away and you`ll be out of the trade. Since a successful trader on line generally uses limit orders to enter a position; it`s not surprising that many traders have been known to place two limit orders in a row.

Last, don`t leave stops in place overnight. Many markets are volatile at opening. Most mornings, for instance, NASDAQ stocks either gap up or gap down from their prices at the previous day`s close, and then they swing wildly as overnight market orders are filled. For example, a stock could close at 33, open the next day at 32.80, drop to 31.94, and then bounce back up to 33.15 before stabilizing and finding its direction. It could also close at 33 after a good day, open the next day at 33.75, spike up to 34.50, and then drop back to 33.60. The possibilities are endless.

If you, the trader on line, have an overnight stop in place on a long position, it`s likely to be triggered by the morning`s volatility. This normally will stop you out at the low end just before the stock bounces back up. Remove your stops after the market closes, and reset them after the opening changes the next morning so they will protect you, the trader on line, from a real downside rather than routine volatility.

You might consider doing what one trader on line does, particularly when the market has no consistent direction. Avoid holding many positions overnight. Once you, the trader on line, gets better at expecting what will probably happen the next day, realizing there can always be overnight surprises, you`ll feel more comfortable making judgment calls. As always, if you, the trader on line, don`t have a good idea what will happen, it`s best to avoid the situation, and stay out of the position. In addition, if you`ll be unable to trade for several days, consider whether it makes more sense to set stops or to exit your positions altogether. Unless you`re in a great long term trend trade and the market has a definite direction, it may be better to exit all positions and start fresh when you return to trading. Your capital and profits will be safe, and new trading opportunities will be waiting for you.

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Discover the “secret formula” of trading that anyone can use to consistently generate BIG profits from the market by downloading your FREE copy of David’s new Ultimate Stock Trading Systems course.

Click Here To Download ==> Stock Trading Systems http://www.ultimate-trading-systems.com/stocks.html -=-=-==-=-=-=-==-=-=-=-=-=-=-=-=-=-=-=-

If you’re trading stocks or bonds, there are a whole range of strategies you can follow, which range from the long term buy and hold, right through to day trading using technical analysis. Options trading is very similar.

Understanding exactly what an option is one of the trickiest things to understand when you’re starting out. Basically, an option is a contract that gives you the right to buy (a call option) or sell (a put option) a stock or bond at a set price (the strike price) on or prior to a set date (the expiration date). You might need to read that a few times to get the hang of it!

There are different types of options available in the marketplace, with ‘American’ options able to be exercised anytime between purchase and expiration, and ‘European’ options only able to be exercised on the expiry date. Although the terms are geographical, nowadays the location where you buy options doesn’t automatically mean you’ve bought one type or the other. As a general rule of them, American-style options are mostly used for stocks and bonds, whereas European-style options are for indexes.

Officially, options expire on the Saturday after the third Friday of the expiry month of the contract. However as US markets are shut on Saturdays, that makes the Friday the effective expiry day. Talk about confusing!

Now that you have a basic understanding of what an option is and how it works, let’s take a look at some basic strategies. I’ll just focus on American-style options for stocks.

When you buy or sell an option, you basically have two choices – you can hold it to maturity, or you can choose to exercise it prior to expiry. A large proportion of investors do hold their options until maturity before exercising it to trade the underlying asset. Let’s look at an example.

You’ve purchased a call option for $1, with a strike price of $25. As options contracts are generally for 100 share lots, your purchase (ignoring commissions) would cost you $100, and you’d have the right to purchase $2500 of stock through the option. Now, if the expiry date arrives and the stock is worth $27, it makes sense to go ahead of buy the stock, because you only have to pay $25. That means you’ve made an immediate profit of $2 per share if you sell them again immediately on the stock market. However you still have to factor in what you paid to buy the option, which was $1 a share. So after your purchase costs are deducted, your overall profit is $1 a share. Well done!

But what happens if the share price doesn’t hit $27 – or even $26, which is your breakeven point for this option. Well, if there is still time to expiry and the share price is above $26 but appears to be dropping, it may be a good idea to exercise the option immediately so you can get out of the contract without loss. If the share price is under $26, you might still be able to sell the options for a smaller amount than you paid, for example 20c a share, and recoup some of your losses. If the option is now worthless, you basically just let the contract run in the hope that the price might jump up again, but accept that you’ve lost your $100. One of the good things about options is that you’ve only bought the option to purchase or sell – you’re not under any obligation to do either upon expiry. So your risk is limited to the amount you spend buying the option in the beginning.

One thing to be aware of is that option prices aren’t just influenced by the price movements of the underlying assets – they’re also affected by their time to expiry. As the expiry date approaches, option prices tend to drop rapidly. So if you have an option that you don’t want to hold until expiry, it may be worth selling out early to avoid being too badly hurt by the price dropping as expiry approaches.

Don’t throw that coffee cup at your screen, I’m only being
honest. Do some people get rich trading?…Absolutely. The
internet is filled with talented pitch men that can hype
anything from watching the stars to the latest and greatest
make you rich on auto-pilot software program for your
trading signals. (but the stars thing does work great with my
wife) Well, here today on the World Wide Web I am going to
reveal the Holy Grail of trading. The surprise is it won’t be
found sold on the ‘net in fact it is not a trading system at all.
It is (drum roll please) being honest with yourself. My
goodness, that’s not very exciting after all the hype we’ve been fed by the guru’s.

The truth is there are many trading systems that work,
but there are precious few people can be honest enough with
themselves to pick a system correctly. Most people that want
to trade start off by looking for that system that will beat the
market. Now I know that some systems out perform others and by
all means you should seek the best one. Where many struggling
traders miss the boat is they don’t understand the best system
is the one that matches your own personality. If one trader has
good discipline he may not need a system that is very rigid. On
other side of the discipline spectrum, a trader would need many
rules to protect him. If either of these traders try to trade with
other’s system they would probably fail. When you try to trade
a system that does not align with your need for discipline as an
individual you are destined to fight the very system your trading.
The holy grail that many seek is the ability to correctly identify
their strengths and weaknesses. This sounds simple but you would
be surprised at how many people will disregard certain weaknesses
that they do not want to admit to anyone, even themselves.
If more traders would first be brutally honest with themselves
and then design a system tailored to their own attributes we would have many more Rich traders.

Will you get rich trading? If you have the honesty to
choose the correct system, and the disciplineto follow
that system it may be possible.

Shadow-Trader
http://shadow-trader.blogspot.com/

Markets don’t trend all the time – there are periods where they tend to be in channels, and consolidating. These are the markets where swing trading can work well.

This article is an introduction to swing trading, and highlights the best timing indicator – to time you swing trades for big profits.

What is Swing Trading?

Swing trading sits in the middle, between day trading, and trend following – and swing trades normally last a few days. The swing trader will enter a position one way, and exit with a profit – and enter a possible position the other way.

The Swing Traders Best Market

For the swing trader, it’s best to trade, when a market is going nowhere fast.

Swing trading does not work in strong bull and bear markets – where price moves strongly in one direction – without a swing in the other direction, the swing trader will lose.

The problem with both swing trading, and long-term trend trading, is that success is based on identifying what type of market we’re looking at – i.e. bull, bear, or a period of consolidation.

Once you’ve identified a market as moving in a sideways channel – then it’s time to look for swing trading opportunities.

The Best Tool for Swing Traders

The best tool by far – the “stochastic indicator” – which is ideal for swing trading. The stochastic indicator is a momentum oscillator, which can warn of strength, or weakness in the market – often in advance of a final turning point.

The logic of the stochastic is based on the assumption, that when a market is rising, it will tend to close near the high – and when a market falls, it tends to close near its lows.

The Calculation

The stochastic oscillator as developed by Dr. George Lane, is plotted as two lines called %K, a fast line and %D, a slow line.

· %K line is more sensitive than %D

· %D line is a moving average of %K

· %D line gives the trading signals

Although this sounds confusing, it’s actually very similar to the plotting of moving averages.

For example, take %K as a fast moving average, and %D as a slow moving average.

The lines are plotted on a 1 to 100 scale. “Trigger” lines are normally drawn on stochastics charts at the 80% and 20% levels – this indicates when markets are overbought, or oversold.

Using Stochastics

The 80% value traditionally is used as an overbought warning signal, while the 20% is used as an oversold warning signal.

The signals are most reliable if you wait until the %K, and %D lines turn upward, below 5% before buying – and in reverse, above 95% before selling.

For swing trading, look to trade the crossover confirmations.

For example, buy when the %K line rises above the %D line, and sell when the %K line falls below the %D line.

Beware of short-term crossovers that may generate false signals. The best crossover is when the %K line intersects, “after” the peak of the %D line (a right-hand crossover).

Don’t worry if the above confuses you – you don’t need to understand the logic. When you look at stochastics on a chart, all you’re looking for is the visual signals – not the calculation behind them.

Do some research and practice, before trying swing trading with stochastics – but if you want an indicator to help you swing trade, and make some big profits – check stochastics out.

New! A valuable FREE Currency Trader CD containing 9 critical trading reports, tips, strategies and Dow Theory. Visit our web site now and grab your CD http://www.tradercurrencies.com

Buying options as an investment strategy offers distinct advantages, primarily, more
efficient use of ones’ capital.

Two stand out advantages of buying options: Leverage and limited risk.

Typically, when a trader identifies a possible directional trade, a risk/reward analysis
is made.

First, a determination of how much capital to commit to the trade (money management).

Next, an estimate is made of the potential gain if the trade is profitable. Then, an
estimate is made of the potential risk involved if a stop-loss point is triggered and
the trade is “stopped out” (trade management).

These are, necessarily, “working” hypotheses because when working with “stop orders”
nothing is “etched in granite”.

If the potential reward compares favorably to the amount at risk (at least 3:1, at a
minimum) the order is entered.

However, buying options, rather than positioning the underlying stock, to facilitate
the trade can not only improve the risk/reward ratio due to the option leverage, the
risk is no longer an estimate but a definite known quantity. A desirable feature, to
be sure.

Other advantages are the avoidance of margin debt interest expense, in the case of
using call options as a substitute for buying stock, and the total avoidance of owing
dividends, the “hassle” of borrowing stock, and no “up tick” rule, in the case of
using put options as a substitute for selling stock short.

And the total avoidance of margin calls in either case.

In buying options, one does pay for “time” value. Time value is highest with at-the-money
options. This can be reduced by positioning options that are in-the-money.

In-the-money options more correlate with or “track” the value of the underlying stock.
The deeper in the money, the higher the correlation.

This correlation relationship also provides another advantage when buying options versus
positioning stock.

If the option starts off two strikes in-the-money and the stock price moves against your
position, while you lose back “intrinsic” value you should also gain back “time” value
as the option moves closer to being at-the-money, thereby mitigating your loss.

For instance, a stock selling for $19.38 has in-the-money $17.50 calls available with
5 months time remaining trading at $2.70. That computes to $1.88 intrinsic value plus
$.82 time value.

Also available are out-of-the-money $20.00 calls with the same amount of time remaining
trading at $1.15, all time value.

Which is the better buy? The lower priced, more leveraged, out-of-the-money or the higher
priced, less leveraged, in-the-money?

The answer depends upon how high the trader thinks the stock will go.

The $17.50 calls cost more but already have a head start and are closer to break-even.
Once passed break-even, the leverage kicks in.

The $20.00 calls are further away from their break-even but, once passed that point the
leverage is also greater.

You tell me where the stock will go and I’ll tell you what the better buy is.

The down side risk is limited in either case. The total potential loss is probably not
greater than the planned stop-loss point would be. The “whip-saw” risk is completely
eliminated and the capital outlay is much less. The excess capital can rest securely
in U. S. Treasury bills earning interest.

The potential also exists for the trader to be able to engage in additional trading
strategies, such as “legging” into vertical or diagonal spreads, if the traders’ outlook
should change.

Penny Stocks can be a great investment, but you have to know what to look for, or sometimes more accurately, what to look out for. Buying Penny Stocks based on a recent email you received, or what you heard from someone you barely know, is not usually a good idea. Penny Stocks have historically been a source of wealth for many investors, but conversely have been the source of countless lost small fortunes. Determining what is good advice, mixed with all the hype, can sometimes be a very difficult process. You don’t have to be a stock market guru or brilliant investor to make a killing with Penny Stocks, but you do have to be willing to do your homework, and use a great deal of common sense to stay alive when you are swimming with the sharks in what can be dangerous waters.

There are many great small companies in existence today, struggling to stay afloat, that are tomorrow’s rising stars. Without the capital to grow and expand very few of our current generation of conglomerates would be more than a forgotten flash in the pan. Selling shares of a company can inject the needed capital into a niche business that may take it into the next level. However not all, if not most, of these tiny corporations will be around for very long. This creates an interesting situation for us, the investor or speculator. While the company in question may not be worth much today, what might that company be worth tomorrow? Hence the term speculation, which is the lifeblood of any Penny Stock trader.

Unfortunately, within this world there are a few unseemly characters, who seek to part you from your hard earned dollars. And, they will go to nearly whatever means is necessary to achieve their goal. PR firms, or Investor Awareness firms, are sometime hired to promote a small corporation’s stock in hopes of raising the share price. This in itself is not necessarily a sign of ill intent. Many times a small company may be very good at what it does, but for whatever reason finds itself unable to generate enough press interest in their successes to generate buying activity of their stock shares. However, this is occasionally done with the sole purpose of raising prices rapidly in an attempt to make quick profits on a very hollow company, one that has no real market or solid foundation. Hence the phrase, pump and dump. Pump and dump in a nutshell means, exaggeratedly “pumping” up the company in question with the primary intent of “dumping” their shares once the share prices begin to rise.

What can you do to protect yourself from being caught up in a pump and dump scenario? Most importantly you must use your own due diligence to wade through the hype. Ask yourself a few basic questions about the company in question. Are they making money? Are they creating new products? Are these new products going to be valuable in the future? The rules for trading Penny Stocks aren’t much different from those of trading large cap stocks. However, the risks can be much larger, but the rewards can be as well.

If you aren’t willing to do at least a bit of homework, investing in any stock is not a good idea. Never rely entirely on anyone’s advice, especially when dealing with Penny Stocks. But, if you take the time to research your investments, investing in Penny Stocks can be a very financially rewarding experience.

Arthur Browning is a long time stock investor and author, who actively contributes to the Penny Stocks website http://www.1centstocks.com.

Are you confused as to the question of how to deal with your incentive stock options? Or are you worried about owing a large amount of tax on options that you have not even exercised and do not have the cash to pay for it? Well, luckily, if you manage your affairs well and take on board some simple advice, you will be able to avoid owing too much tax on your stock options, and also postpone paying it until you have the cash to do so. Sounds complicated? Not necessarily so. In most cases, if you have a large amount of money tied up in stock options, then you should probably get some professional advice. Financial advisors can help you put together a strategy that maximizes the value of your options. This article is only intended to give you an idea of the steps that can be taken when tax planning with stock options.

First of all, you do not have to pay any tax owed immediately, if you do exercise your stock options. This is the case so long as you do not sell the stock you receive. If you exercise an option to buy some shares, then so long as you do not sell that stock, you do not have to pay any tax at that time.

The second piece of good news is that you can end up only paying 15 percent tax on the options when you do sell. This will apply if you hold on to the stocks for long enough to qualify for a long-term capital gain.

So things are starting to sound a lot better on stock options taxation. By postponing the tax owed until you sell the shares, you can avoid the hardship of having a tax fall due without any money coming in to pay for it. It is similar to the cases in the past where people received valuable paintings or other works of art in a will, and then immediately had to sell the painting in order to pay the tax that was owed on the inheritance. Also, 15 percent is quite a low rate of tax and it should also be remembered that this is the highest rate that can be payable on a long-term capital gain.

For more information, consult a qualified financial advisor. Financial advisors can help you better understand tax basics and tricks, and the withholding, reporting and filing rules governing your incentive tax options.

The first quarter of 2006 is over. Now is a good time to reflect on stock prices and the opportunities they present.

Bargains are scarce. Equities are expensive. In recent weeks, I’ve heard several fund managers say valuations are still attractive. I don’t agree. Generally speaking, valuations are unattractive. Returns on equity are higher than historical levels. A market-wide return on equity of 15% is unsustainable. Price-to-earnings ratios may not fully reflect how expensive stocks are. Price-to-book ratios are more alarming.

There are two additional concerns. Most discussions of the relative attractiveness of equities focus on the S&P 500 and forward earnings. The S&P 500 is not the most representative index. It may not be the best index to consider when looking at market-wide valuations.

Forward earnings are (necessarily) estimates. Where current returns on equity are unsustainable, projected earnings that use similar returns on equity may overstate the earnings power of equities in general. This can occur even where the estimates appear reasonable given current earnings. If you start with unsustainable base earnings, you are likely to overestimate future earnings even if you truly believe you are assuming very modest earnings growth.

Assets in general are pricey. Value investors have few places to turn if they continue to insist upon a true margin of safety.

Bonds are unattractive. Long-term inflation risks make U.S. treasury, corporate, and municipal bonds a fool’s bet. There is little to gain and much to lose. The know-nothing investor who buys a top-quality bond today and holds it for decades may very well find his purchasing power diminished.

There may be some select opportunities in foreign equities. But, these are difficult to evaluate. Foreign government obligations are also difficult to evaluate, but that isn’t much of a problem for value investors, because most foreign government debt is priced to perfection. You’ll have to be willing to take a lot of uncompensated risks if you want to own such bonds.

Of course, there are exceptions to every rule. There may be a few bonds out there that are attractive. There certainly are a few attractive stocks out there. But, even those stocks that look very attractive relative to their peers don’t look nearly as attractive when compared to past bargains.

Value investors face a difficult choice. They can assume stock prices will return to historical levels, and hold cash until the correction comes. Or, they can accept the reality they currently face.

There is no logical reason stock prices must necessarily return to historical levels. During the twentieth century, real after-tax returns in diversified groups of common stocks were very high relative to other investment opportunities. There have been various reasons given for why this occurred. Many have said these returns were possible, because of the higher risks involved in holding equities. Over the long-term, risks were somewhat higher than today’s investors seem to remember, but they were hardly severe enough to justify the kind of performance spreads that existed during much of the twentieth century.

True, if you bought at inopportune times, it was possible to remain in a fairly deep hole for a fairly long time. But, if you gave no real consideration to the timing of your purchases or the prospects of the underlying enterprises, you did better than many bondholders who chose their investments with the utmost care.

This is a disconcerting problem. It may be that most investors are overly sensitive to the risk of an immediate “paper” loss in nominal terms, and therefore overlook the much greater risk of a gradual loss of purchasing power. Issuing fixed dollar obligations may be the best bet for any business or government that seeks to swindle investors.

For the sake of the common stockholders, I hope many of the best businesses continue to issue such obligations when money is cheap. Corporate debt gets a bad name, because it tends to be overused by those who don’t need it and shouldn’t want it (and, of course, by those businesses that do need it but won’t survive even if they get it). The businesses that would benefit the most from the use of debt usually appear to have more cash than they could ever need. But, it’s best to think ahead. For truly high quality businesses, the cost of capital will fluctuate far more wildly than the likely returns on capital.

If, during the last hundred years, stocks really were far cheaper than they should have been, is there any reason to believe stock prices will return to past levels? The past is often a pretty good predictor of the future – but, not always. It’s difficult to say whether, over the next few decades, valuations will, on average, be higher or lower than they are today. However, it isn’t all that difficult to say whether, at some point over the next few decades, valuations will be higher or lower than they are today. The answer to that question is almost certainly yes. They will be higher and they will be lower. Maybe for a few years or a few months. Maybe for a full decade. I don’t know.

What I do know is that value investors will have opportunities to make investments with a true margin of safety. But, should they wait?

That’s the most difficult question. Today, I am not finding opportunities that look particularly attractive when compared to the best opportunities of past years. But, I am still able to find a few (in fact, a very few) situations where the expected annual rate of return is greater than 15%.

That will be more than enough to beat the market. It will also likely be enough to provide a material increase in after-tax purchasing power. That’s not guaranteed, but it hardly seems holding cash would offer the better odds in this regard.

So, is an expected annual rate of return of 15% good enough? Is it reasonable to bet on the good opportunity that is currently available instead of waiting for the great opportunity that may yet become available?

I’ll leave that for you to decide.

Copyright 2006 Geoff Gannon

Geoff Gannon writes a daily value investing blog and produces a twice weekly (half hour) value investing podcast at:
http://www.gannononinvesting.com

One of the least understood financial markets is the one for futures. That is in part a function of the fact that for many years it has been referred to as “commodity futures”, which has no doubt turned many would-be traders away, folks who don’t have any interest in things like Pork Bellies and Frozen Concentrated Orange Juice (to include a few from the popular Trading Places film). The other factor is the perceived complexity of the futures market. The fact of the matter, though, is that futures trading is incredibly diverse and not as difficult to do as many think.

Sure, for decades futures trading focused on the commodity markets. That’s a simple function of how they developed. Now, however, the focal point has shifted considerably. Yes, one can certainly trade agricultural good, energy products, and metals. These days, though, there is more action in things like interest rates, currencies, stock indices, and even stocks themselves.

What’s more, technological developments have made the futures market much more accessible to the individual trader. It is now possible for even lightly capitalized traders to operate effectively in the futures market, something difficult to do in years gone by. That has opened up a whole array of new opportunities for the individual to pursue their trading goals.

Consider this. Nowadays just about anyone can trade things like Gold and Crude Oil. These markets have made enormous runs in recent years. One could also take positions in the US Dollar at a time when it has shown persistent weakness, or in US Interest Rates as they were steadily increased.

As for futures being complicated – not really. Are they different than trading stocks? Sure. They are leveraged instruments. That means they present some very exciting opportunities for traders who use them in the context of well developed risk management strategies (which all traders should have anyway, regardless of market).

Futures prices move just like those in any other market. The same analytic techniques used to trade stocks or forex or any other market can be applied to futures. Their prices are, after all, based on those of the markets underlying them. That is why they are referred to as derivative instruments – they derive their value from other markets. Stock index futures track stock indices. Currency futures prices move with foreign exchange rates. Single stock futures follow the prices of the stocks they represent.

Naturally, this derivative nature does mean some differences in the actual trading of futures as opposed to the markets underlying them. The concepts involved, however, are easily understood. It is possible for one with a basic understanding of trading and the markets to grasp them quickly and be operating effectively in the futures markets within only a short period of time.

If you haven’t already done so – and if you’ve read this far it’s a fair bet that you haven’t – take the time to look at the futures market. They could very well provide you with the opportunity to make excellent strides in your profitability and risk management.

If you would like to learn more about the futures market and futures trading, go to http://www.theessentialsoftrading.com/FreeGuide-Futures.html to get your free 30 page guide, The Essentials of Futures Trading. It will tell you all you need to know to decide whether futures may be for you.

John Forman is author of the Amazon.com Top Selling book The Essentials of Trading (http://www.TheEssentialsOfTrading.com). He is a near 20-year veteran of the markets and has published literally dozens of articles trading methods and analytic techniques in magazines around the globe. He is currently the Managing Analyst & Chief Trader for Anduril Analytics (http://www.AndurilOnline.com).

In the first four parts of this series of investing in small cap stocks, you learned buying and selling strategies. Now once you carefully research and identify an industry or sector that you are convinced will grow exponentially over the next one to five years, how do you identify the best companies? In this bonus tips article, I’ll discuss how subscribing to the “a rising tide lifts all boats” theory can severely hinder your stock performance.

As of the writing of this article, spring 2006, many sectors look very promising. Precious metals, technology, nanotechnology, renewable/ alternative energy, and so on. But thinking that you can just buy any companies in high-growth sectors without doing considerable research can be disastrous. So here are three tips to help you out in this process.

Tip Number One: In the beginning, think more like an artist instead of an investor.

A creative mind is more important to success in investing than a purely analytical one. If you know creative thinking is not your strength, then interview financial consultants until you find one whose creativity impresses you. Without assessing an opportunity from a creative standpoint, the best stock opportunities will be left undiscovered. When first trying to uncover opportunities within an industry, simply sit down with a pen and a piece of paper and brainstorm.

For example, let’s consider the renewable/alternative energy sector that is making so many headlines today. After President Bush mentioned development of a renewable energy in his State of the Union address and when Bill Gates’s planned $84 million investment in Pacific Ethanol (PEIX) was reported, considerable buzz evolved around renewable energy stocks. To start, write down all the different sub sectors within this niche sector that come to mind. Your list might include wind energy, solar energy, nuclear energy, hydrogen and fuel cells, ethanol, biodiesel, biomass power, hybrid cars, and so on. The point of this exercise is to write down every idea that comes to mind, no matter how silly you may think it is at first glance.

Many times, this simple brainstorming exercise has helped me uncover exciting opportunities in sub sectors of industries that I was not even at first considering. For example, just hearing news about ethanol may lead you to a surprising discovery regarding the potential of wind energy.

Tip Number Two: Make a list of the positive and negative questions regarding the industry that interests you.

This exercise is an extremely important one because it is the exercise that will help you sort out the stocks with the most potential versus the ones with the least amount of potential. When first researching companies within a certain industry sector or sub sector, at first, every company may look promising. Using our above example, you may think that wind, solar, nuclear, and biomass energy all look like winners. However after doing this exercise, the picture will become a lot clearer for you. A partial list of your positive question list may appear as follows:

What is the estimated market size of this industry in the next five years?

Who are the potential buyers of this product?

Will sales of this product have domestic or global appeal?

Will this be a revolutionary product and why?

Any countries or markets already adopting this product and if so, what is the adoption and growth rate in these markets?

A partial list of your negative questions may appear as follows:

What is the timeline for adoption of this product?

Is it one to two years or more likely to be five to ten years from now?

How is research in this industry funded and are these companies’ funding sources sustainable and reliable?

Does the product have limited specific appeal or wide commercial appeal?

What is the political attitude towards this industry globally?

What are the driving forces of potential profit in this industry and how do the companies I am considering meet or benefit from them?

Again, in this exercise, don’t worry about writing down silly questions. It is more important to note every question that you can imagine until all avenues are exhausted. When you are finished compiling your question list, then go to the internet and start “Googling” away to find the answers to your questions to help you narrow down your list to the top three sub sectors. Again, using the energy example, you may discover that while there has been a lot of hype surrounding biodiesel, ethanol, and hydrogen and fuel cells, that wind, solar, and nuclear energy are the most realistic industries for immediate adoption and have already experienced some significant sales and applications (this is just a hypothetical scenario, and not necessarily the reality, to illustrate a point).

Furthermore you may discover that certain governments have already dedicated portions of their budgets to the development of specific energies, making those sub sectors more attractive. Studying government timelines for development of alternative energy sources can even provide a rough guideline to the immediate profitability potential of specific sub sectors. Then, given your findings, identify the top ten companies that are global leaders for each sub sector in your pared down list.

Tip Number Three: Answer the questions you prepared in step number two for your top ten lists.

All companies are not created equal. That is why it is so important to identify the right companies within the right sectors, because there are a lot of wrong companies within the right sectors. To illustrate my point, let’s consider precious metals. Some “mining” companies in the same precious metal niche can have drastically different operations and strategies that create huge gaps in their attractiveness. For example, one mining company may have huge overhead from ownership of heavy machinery and the costs of metal extraction. Another mining company may have zero production costs because it owns no mines, no equipment, and has just negotiated contracts with mining companies to purchase the metals that they extract. Because of these drastically different operations choices, two companies that appear similar on the surface may have net profit margins that differ by 40%.

Furthermore, one must understand where the potential benefits lie in such markets and research how well these companies’ strategies meet these challenges. Is the metal in question soaring in price? If so, has the company you are researching washed away most of tomorrow’s profits by locking in future sales at today’s metal prices? Or do they remain unhedged in their future sales, allowing them to benefit from the growing surge in metal prices? This one strategy alone could separate a huge winner from a huge loser although both companies reside in the same metal industry.

Even if you employ a financial consultant to invest your money, you need to probe to understand what your financial consultant understands. Because many financial consultants are salespeople, they hear about a growth sector and merely find a leading company in that sector and believe that you will benefit. Their recommendations and explanations may even sound logical to you, but never agree to buy into a stock position unless your consultant can specifically answer questions as to why the industry is poised to grow so much, and how the specific company he or she is recommending is strategically positioned to benefit from the growth of its industry. Remember, here you always want specific over general explanations.

In summary, (1) Creative thinking will uncover the best opportunities because often the best opportunities are not your original ideas, but are the ones associated with your original ideas; (2) Unconventional questions will assist you in drilling down wide lists of prospective companies into a narrow list of top prospects; and (3) It is not being invested in the right sectors that will give you great performance, but specifically being invested in the right companies with the right management with the right strategies and right opportunities within the right sectors that will yield great performance.

© 2006 Global Market Opportunities, Inc.

About the author:

This article may be freely reprinted on another website as long as it is not modified, changed, or altered in any way and as long as the below author byline is included along with the active hyperlink exactly as is.

J. Shin Kim is the founder of Global Market Opportunities. If you’re tired of measly 6%, 7%, or 10% annual returns from your stock portfolio, learn more about how to identify small and micro cap stocks that consistently and significantly beat the market indices by clicking the following link, Learn to Invest Money and Achieve Financial Freedom. Also, follow this link to subscribe to the FREE Global Market Opportunities investment newsletter.

We have demonstrated how well options function in unison with a
stock position. They enhance potential gains, provide profit
protection and limit the risk of the entire investment. They
enable us to manage risk in a single stock as well as an entire
portfolio. But, as good as options are in conjunction with
stocks, they can be even better when traded against each other.

Spreads are strategies that do not involve the use of any
security other than another option. Their positives are that
they are inexpensive, offer protection for both buyer and seller
and are in effect automatically hedged trades.

Spreads can provide large percentage returns with low risk and
can be entered into with small capital outlay. A spread involves
the purchase of one option in conjunction with the sale of
another option. There are many types of spreads. Some take
advantage of stock movements while others are set up to take
advantage of movements in implied volatility and even time
decay. There are calendar or time spreads, diagonal spreads,
ratio spreads and also vertical spreads, which we will discuss
in depth here.

Spreads are more advanced and sophisticated than the strategies
discussed in our beginner product “OPTIONS 101.” Where certain
spreads, like 1 to 1 vertical spreads, can be less risky than a
buy-write, there are more variables to consider and control
which makes trading the spread more complicated.

When you trade a spread you are dealing with three elements: the
spread as a whole (which you can buy or sell) and its component
parts – the option you buy and the option you sell.

Although the cost of most spreads is relatively inexpensive to
initiate, they can provide a large percentage return and there
is protection (limits) to both sides of the trade. Therefore,
even experienced investors can profit from learning about
spreads and their investment potential.

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Many people are turning to the stock exchange to make some extra money on their savings, or to even replace their normal income. Options are another tool you can use to trade on the stock exchange, and can be used for normal stocks, futures and indices. If you spend some time learning about how trading options works, it’s possible to make consistent, good returns on your money. For simplicity’s sake, I’ll use trading options on stocks for the examples that follow.

An option is really another way of saying you have the right, or the choice, whether to go ahead with buying or selling a number of stocks on a certain date. When you purchase the right to buy stocks, that’s known as a call option. When it’s a right to sell your securities, it’s called a put option. Initially, most people start out simply, either buying a call option for a stock they’re interested in purchasing anyway, or else buying a put option on stocks they already hold, to protect their investment if the price plunges suddenly. All of the contracts have an agreed price. So in the case of a put option, the stock may be trading at $5.00, and you buy a put option that gives you the right to sell the stock you hold at $4.50 in two months time, if you choose to exercise that option. This means that if the price drops to $4.00, you’ve protected yourself. If the price doesn’t drop, then you let the option expire and keep your shares.

Buying an option requires paying a premium. It’s important to calculate out how much you’re willing to pay for an option, so that it remains cost effective. Options are more expensive the further they are from expiry, and gradually their value falls as the expiry date approaches. The good thing about options is that you can spend a small amount of money (the premium) to control a large holding of stocks. If you spot a stock that you think is about to go up in price, rather than spending $10,000 buying the stock outright, you can purchase a call option for, say, $500. Then, if your analysis is correct and the stock goes from $5.00 to $6.00, you can exercise your call option to buy the stock at $5.50, and make an immediate profit.

If, however, you’re wrong, and the stock price doesn’t move or even falls, you can let the option expire and all you’ve lost is your premium. Again, using the above example of 2000 shares at $5.00 a share. If the stock falls to $4.00 and you’d bought the stock outright, you’d have lost $2,000. With the call option, though, all you’ve lost is the $500 you paid for the option. You go into the trade knowing the maximum amount you can lose – your premium.

Trading options takes some skill, so it’s often a good idea to start out by learning how to trade stocks successfully. Once you’re confident you can spot profitable trades, then you can look at using options to leverage your available funds.