Stocks can be considered a tool for building wealth, as they are a part of almost every investment portfolio. They represent the ownership of a company and are bought in the form of shares. Shares refer to the stock of a particular company. Your stake in a company depends on how many shares you possess, because these are considered a part of the company’s capital.

The popularity of investing in the stock market is increasing constantly. Today, investment in stocks and shares is not limited to the well to do; even the average middle-class is getting into it in droves. The opening up of markets with advanced trading technologies has made owning shares easy for everyone. However, if you are planning to invest, do not depend on luck to get you returns. Investment in stocks is considered a very risky affair. It requires a high rate of return. You need to use a well thought out strategy and necessary tools to invest in the share market.

The allure of investing in shares and stocks, however, does not mean that every would-be investor has the know-how of this often-slippery market. If you feel that the get-rich-quick theory applies to stocks and shares, then it is a misguided notion, because stocks are not the answer to instant wealth. Just like the real estate market, the share market also involves a lot of risk. Yet, people are often under the misconception that they will get rich instantly if they invest in shares.

You can buy a share in a stock when a company first enlists on the stock market – that is, at flotation or privatization. Alternatively, you can purchase shares once they are in circulation and are traded.

You could go to a stockbroker if you want to buy stocks. Stockbrokers do business with the stock exchange. They hold the shares in an account that is created in the name of the nominee. You can also keep your shares in the form of a paper certificate. Once the buying and selling of shares is over the transaction is made complete through an electronic system. This system is responsible for linking all the banks along with the stockbroker and registrars of the respective companies.

You can invest in international stocks as well. When a company performs trading in a stock market of another country, their stocks are known as International stocks. These stocks are traded like the UK stocks or, for that matter those traded in the Nasdaq in the US. All the stock exchanges in the world work in the same manner.

There is no guarantee when it comes to Investment in stocks but if you are ready to take a big risk then you can expect great returns on your investment. Despite the risk factor this form of investment has outperformed other investment options like bonds or saving accounts. So if you have the right strategy and you make the right moves in the stock market then nothing can stop the money from rolling in.

You keep on listening about this profit pulling business that requires no marketing or selling, merely an hour a day (at the most) and no special skill.

Yeah right!

At least that’s the 1st perspective it gives any person that has been in the internet for some time.

But Let’s get more into detail about E Currency Exchange.

How about being able to provide the flow of capital for “Internet Money” thus it may be applied as a backup or “real cash”?

You can generate as much as 1.5% to 4% in daily interests for you investment for suppling E-Currency Exchange. My interest peaked. Anybody can yield coumponded interest for a starting investment starting from 50 dollars.

Based on your personal story, it could be a little hard to believe that You and I can start with $50 and turn them into $400 in as little as 45 days. I’m 21 years old and it isn’t something I’m used to hearing. You’re really setting up your cashflow to function. I can now say it happens. And it requires no special skill. After all, your cash is the one doing all the hard work.

There is a tough part, of course. It’s a somewhat complex business to know at first. In fact it can become overwhelming in case you don’t perfectly know what in God’s name you’re doing. Start an account here, a second one there, find some stuff here purchase some stuff there. You could go kookie tackling how to learn it by yourself.

I was lucky enough to get it the easygoing way. If anyone guides you bit by bit, with a visual simulacrum of how he manipulates the system Every-Step-Of-the-Way then it becomes much easier,

“do this, Start this account, and then Open up this other account, put your money here, move it here, and watch how it boosts”

After anyone guides you by the hand like that and prepares you, it just becomes very simple. What is required is that you view the first video, then follow the instructions. Watch the next one, then do what you just saw. Watch the next video and… well you get the point.

An amazing detail about E-Currencies is that every person on the planet doing this system does the same thing to generate an income. We all do the same thing, so it’s something reproducible. If you’re headed at this direction, if you’re interested in learning just about everything on E Currency, I have to advice you invest in the shortest path and learn the proven formula instead of tackling to figuring out without any help.

Educate yourself, read as much as you can about it, if you can afford it, buy a course, if not, read in investment forums and learn this system from the people that are already making money from it.

I’ve writen detailed reviews for the best courses about e-currencies, visit my site (http://www.currencytrading-center.com) for the inside scoop on how to Invest in DXInone

Stock markets are wonderful. Stocks markets are nightmares. Should we love them or hate them?

Embrace them! but be patient and consistent. As every statistics will tell you, stocks (also known as equities) is the best performing investment products available, on a long-term basis. What exactly is Stock?

When you own a stock or a share, it means you own a piece of a company. For public companies, you can buy and sell their stocks freely in the stock market. Depends on demand and supply (which is driven by factors such as the business model, historical earnings, growth prospect, success or failure of new products, lawsuits, political instability and many others), the stock prices move up and down.

Why stock gives the best long-term investment return?

As one of the owners of the company, it is natural to see that you and fellow shareholders capture the most upside when the particular company is successful. On the other hand, if the company is in trouble, you take the most risk. For example, if the company is bankrupt, the remaining money is distributed in the following order: customers, creditors, shareholders, i.e. you are at the bottom of the line.

As you can see, stock is a high-risk, high-return type of investment. The level of risk also depends on the nature of company itself: stock of Citigroup is less volatile than, say, Yahoo.

If I am not a long-term investor, should I get into stocks?

Yes, but you can adjust the risk by adding other lower-risk investment product into your portfolio. You are safe as long as a comfortable level of cash is always available and ready. At the same time, inclusion of some stocks will give you a boost to your overall asset long-term.

Conclusion

It’s true that stock markets can be like roller coasters; but stock markets, if you ride it long enough, do not bring you back to where you start — it brings you to the next level.

By far, the largest trading market in the world is the foreign currency market. Speculators make up only a small part of the spot (cash market) and forward (futures market) currency exchange transactions. So if you are considering speculating in this area, be aware that you are trying to out-guess the brightest minds & supercomputers at large banks and hedge funds; along with the political whims & expediency of government treasury departments.

The common portfolio use for holding foreign currencies is to hedge against the fall of your home currency. For most people, their salary and all their assets are based in their home currency – and if that falls in value, so does their entire net worth and future earnings. For Americans, as an example, there has been a growing trade deficit with China for many years. And if China were to allow their currency to fluctuate, the U.S. dollar would fall against the Chinese yuan in concert with this trade deficit.

You can also include currency trading as an additional way to diversify your portfolio. I have read many, many books to learn about currency trading, and even day-traded the Swiss-Franc for six months. If you want to learn how to speculate with trading currencies, you can either try some technical analysis services (www.currencyprofits.net), or getting a Phd. in economics and finance, but I can’t guarantee that will increase your odds of success.

I made my only ‘very poor man’ currency trade prior to the establishment of the Euro currency in 2002. While driving in my car, I heard a speech over the radio by the German president that I felt was certain to cause a short-term fall in the German Mark. I drove to the nearest AAA Travel Office, and went to the ATM next door to withdraw $200 in cash to put in my pocket. Being a AAA member, I then exchanged the $200 for American Express Traveler’s Cheques that were denominated in German Marks. Four months later, the U.S. dollar had increased by 10% on the German Mark. So I took my German Mark cheques to exchange them back into dollars and cash out with a giant profit. To my disappointment, the fees for the buy & sell transactions added up to about 8%, leaving me with a giant $4 profit. So if you want to try the “Travelers Cheque” route, you’ll need a big trend to offset your transaction fees. More reference material for this article is available at http://investing.real-solution-center.com.

The next step up in initial cost is an ETF that is based on the Euro with the ticker symbol FXE. It is technically a trust, but it is traded exactly like a stock, and it fluctuates very close to the USD/Euro rate. When you think the dollar is going to fall against the Euro, just buy some of these shares to offset your currency risk, and you can start with one share for less than $200.

The next way to get access to foreign currencies is to get some FDIC insured certificates of deposit from Everbank.com. They offer CDs in over 10 different foreign currencies and a couple indices, and the minimum investment is only $10,000 for an interest earning account. So if you are tired of your bank’s low savings account rate, there are currencies that regularly offer a higher yield without undue currency exchange risk.

Risk a few small steps into foreign currency investments, and anything dollar-based will feel disappointingly tame. Plus, you’ll have bragging rights with your friends and dinner parties on your sophisticated investment portfolio.

Francis Kier has an MBA in finance and shares his two decades of experience with investing and personal finance. More of his investing articles are available at http://investing.real-solution-center.com.

Wizened Wall Streeters say that you’ll have more investing success if you remove emotion from your buy and sell decisions. Perhaps the most emotionless approach is program trading.

This is a generic term used to describe trading in stocks, options and futures based on price relationships and not on the underlying fundamental strength or weakness of the company or index. If you see the DOW suddenly turn from plus-50 to minus-50 without big-time breaking news, it’s probably the result of program selling. The same goes if a declining index spurts into positive territory within the span of a few minutes; that’s likely a buy program hitting the market.

That’s what happened Thursday, November 20, 2003 in the final hour of trading. The DOW and NASDAQ were nicely green when a sell program hit. Down they went, and by the close the DOW was down 71 and the NASDAQ off 17.

It’s completely legal and performed by all the major institutions. They have the capability to dump millions of shares in a sell program; conversely, they’ll grab millions of shares in a buy program when they are in an acquisitive mood.

The trades are usually triggered automatically at specific price or technical levels like the 50-day moving average or DOW 10,000. The trigger point is often chosen many days earlier. The computer does the work. It’s the ideal “set it and forget it” style of investing.

Many times program trading sets the stage for a strong or weak open to a trading session at the NYSE or NASDAQ. If you read in our e-mails that the S&P futures are soaring well ahead of fair value in pre-market activity, the odds are that institutions will automatically sell the futures at the open and buy the underlying stocks to set the stage for a big gap higher. The same can happen in reverse if the futures are collapsing.

If you hear a reporter on a financial station talk about “rotation” from one sector to another, he’s probably referring to one or a series of programmed moves. In that case, the institutions have picked a certain price level to shift from, say, cyclicals to small caps. The swap usually impacts most of the stocks in those sectors.

The sudden appearance of a buy program or two can also create a “short squeeze” in which traders decide to buy shares of stock to cover an eroding short position. The increased buying pressure, adding to the programmed buying, can dramatically increase the upward momentum.

Dueling buy and sell programs were staples of the 1990s bull market when volatility often ruled the exchanges. Even today, as much as 30% of NYSE daily activity is pegged to program trading. Whenever the market begins to rally, you may see more of this volatile action.

For a FREE report on HOW TO TRADE FAST, enter your email address at:

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Having been a finance person in the telecommunications industry for seven years, I would like to share my thoughts on this very dynamic industry. Are they a good buy now? If not, when, if at all?

Once a Pearl under the Straws

The telecom industry was once considered a “strategic” asset by government of many countries. Therefore, the fee and cost structures were closely guided and the operations normally run by pseudo-governmental monopolies.

To the outside world, telecom is a stable, low-profile, if not the most boring business, just like one of the utilities. In fact, the telecom was then a ridiculously profitable business – once the copper wire is in place, the company can charge the customer forever. Without competition, innovation was unnecessary and thus the R&D/maintenance cost was very low. The companies also charged the customers at a tolerable but unreasonably expensive level. Remember how much a long-distance call cost 10-20 years ago?

A darling in the late 90s, then…

As the deregulation of industry swept through the world in the 80s and early 90s, telecom companies went public and became darlings in the investment circle because of high profitability and bright future (read: Internet in the late 90s). But of course, money, greed and pride led to stupid mistakes: many telecom companies used their big pile of cash to buy unnecessarily huge capacities and bid up the 3G licenses to outrageous level. When the market crashed, they ended up in a bunch of state-of-the-art but rather useless fiber-optic pipes, an even more useless 3G license, and a very real, big pile of debt. Many of them almost went bankrupt.

In the 2000s, they became low-profile again, working hard to reduce the debt. By end of 2003 billions of debts were repaid and most companies were back in good shape.

Question: Have they become good buys again?

In my opinion, no, not now:

• Competition means lower profitability: Now that the telecom industry is fully deregulated (in developed countries at least), new nimble players have sprung up and profitability has become a lot lower.
• Internet is the killer: New, smart companies have introduced better, cooler and virtual free service via the internet. Examples: Skype and other providers of VOIP service. The traditional telecom service has become totally commoditized.
• Constant innovation is tough: Facing competition and threats from new technology, telecom companies need to find even better product to survive. 3G was a big thing, but no one so far can find a “killer” application that can realize the potential of 3G technology. Now, the “convergence” (combining telephone, broadband and television/media) is the latest theme, but any big innovation involves substantial capital spending and big risk.
• Market is saturating: In the past, the telecom industry has been quite successful in growing beyond its traditional products, e.g. mobile phones in the early 90s, and broadband in the late 90s. However, mobile phones markets are now saturated in developed countries (many Asian countries have >100% penetration rate), and broadband growth is slowing down. The next “thing” is supposed to be 3G, but it is a long way from critical mass.

Should we ignore the sector completely?

Well, no, because:

• Everything depends on timing and price: If you get in when everyone is getting out, e.g. in 2001-2003, you will get a pretty good return.
• Pick emerging markets: Telecom companies in emerging markets may still in the “honeymoon” phase, i.e. limited competition and tariff level (fees charged to customer) being protected by the government. At the same time, the emerging market has a lot of room to grow. Good examples are telecom companies in China and India, as well as Orascom, an Egyptian-based and London-listed company specializing in telecom operations in emerging markets around the world.
• Promising technologies: Nowadays mobile phone banking is widely-used in Japan, Korea and Philippines, and is getting popular in countries such as South Africa. This technology is most promising in developing countries and among migrant workers because it enables basic financial services (e.g. fund transfer, checking balances, bill payment) without even a bank account. Think of China Mobile’s 260 million users subscribing to such a service!

Conclusion

The telecommunications industry is a cyclical market — it has a breakthrough technology every 10 years or so, and the moment before this technology hits critical mass is the best time to buy. What are the technologies? Mobile phone banking could be one of them. It is difficult to spot the trend, but the potential reward is huge!

Do you sometimes feel that trading stocks isn’t going the way you think it should?

Just when you think you’re getting the hang of it, the market comes along and bodyslams you back to reality. It’s enough to make you think the market’s primary function is to make a fool of traders.

We’ve all been there. We make a buck here and give back a few bucks there. Then, all of a sudden, we give back several. The market did it again…it had its way with us.
It’s just not fair.

Or is it?

It’s always easy to rationalize our losses. The market did something unusual…the specialist ripped us off…only the big boys make money…

But consider this…all traders take losses…it’s part of trading. However, good traders make money. Sure they have losses but they don’t go back to square one wondering what happened. They expect to take losses.

And, if they make money, it’s because they know what they’re doing. But they know something many of us never think about. They understand something so basic it often escapes attention.

No, it’s not a new trading system…or indicator…or chart pattern. And it’s not anything your computer can crank out. And it’s not anything your broker will tell you. But it is a basic truth that has always been with us.

Let me tell you what I’m talking about…

I believe John Carter, author of MASTERING THE TRADE, said it best, “The financial markets are naturally set up to take advantage of and prey upon human nature. As a result, markets initiate major intraday and swing moves with as few traders participating as possible. A trader who does not understand how this works is destined to lose money.”

Think about this for a minute…

It may go a long way to explaining why many traders don’t make money. And to understand it is to realize we are often our own worst enemy where trading stocks is concerned.

Imagine…your own human nature is holding you back. Many of the things that make you what you are….your emotions…your behavioral patterns…your biases…are the very things that conspire to deplete your bank account.

They are what the market preys on to take advantage of our very nature. What’s more natural than fear and greed. And what’s more detrimental to trading than decisions based on these two emotions…you’re own silent saboteurs.

It’s easy to deceive yourself when buying a stock. It’s even easier to deceive yourself when you own the stock. Human nature goes into action to override decisions that are in your best interest.

Astute traders have said for a long time that the market works diligently at creating the most pain for the most people. It means the same thing. This is not a new concept. Winning traders have understood it forever.

So, if you’re interested in trading stocks, why not step back and take a good hard look at at this statement. In itself, understanding Carter’s statement is not the end all to trading success. But it is a good beginning because it involves a basic concept.

When you understand this statement, trading suddenly makes more sense. It’s not the haphazard affair that some people create. You don’t just throw money at the market and hope good things happen.

You begin to understand that trading stocks with a plan is the way to overcome emotions and habits that work against you.

It becomes easier to see why most traders often do the wrong thing… they’re fearful when they should be aggressive…and they’re aggressive when they should be fearful. It’s called trading on your emotions. It’s also called following the crowd. And it’s why the train leaves without you.

But it doesn’t have to…

Good things happen when you begin to understand how the market preys on human nature.

Currency trading is for real, but how many of you took advantage of it? I’d guess the answer is not many. I can understand that, change is difficult. Trying to get your hands around something new is challenging some times. But, for those of you who are playing in currency, how’s your track record? I might venture a guess, not as well as you’d like.

Although the currency markets move some 100 “pips” a day (the smallest increment of change) it’s often hard to pick the right direction for short term trading. If you are really good at it, there are positives. The trends tend to stay in place longer, the technical’s tend to give true readings. Although there are no market makers to jack you around, there are however silly things that can go on with spreads.

But still it’s trading and trades can go against you. Now, on the other hand, what would have happened if you stepped back from day to day scalping and looked at the overall big picture? Remember we predicted that the dollar would fall, and quite a ways? Where would you be if instead of trying to chip away for 8 pips a day, you’d have held the Euro long for the last month? You’d be rich, literally.

What’s my point? Just this, the forex market is very easy to get into. You can open a ‘mini” account for just 500 dollars. Even if all you did was buy one “lot” a month ago, you could have enjoyed a tremendous return. Think of it like this. If you buy a thousand shares of XYZ and it falls just a dollar, you are out a grand. This is common and no one thinks twice about it, you all know that indeed you will take losses. But yet taking 500 dollars and making a “macro” bet on currencies seems too dangerous to people. See my point?

I’m not preaching that you should al turn into rabid currency traders. But, when the macro trends are as clear as they have been lately, missing the opportunity to make a major score on a tiny investment, just doesn’t make sense. Consider currency trading folks, I didn’t talk about it to show how bright we are, I did it because I knew there was opportunity there. I just hope a lot of you took advantage of it!

For more FREE reports, visit

http://stocks2watch.blogspot.com

Most books and courses on the subject of currency trading say that it is normal for beginners to lose money at first. Some even go as far as to say that it is normal to have a losing streak that lasts several months! This philosophy stems from the rationale that after losing significant amount of money, you will have more experience and knowledge in your future trading endeavors. If you went by their standards, how much of your hard earned money will be left in a few months? This type of attitude sets you up to fail. Why enter a battle if you are destined to lose?

The only purpose for such advice is for currency and futures brokers and dealers to make money on the spreads and commissions that you will pay to them. More often you trade, more profits for your broker or dealer. Day trading in its purest form may have worked in the late 90`s for traders who were trading volatile high tech stocks. Some traders also called “Scalpers” were getting in and out of positions in matters of minutes, even seconds and were making their profits on small differences between bid and ask price. However, those days are now gone.

In currency trading, if you are planning to scalp, or if you are planning to jump in and out of positions all day long you will not last long. I can guarantee you that. Also if you plan to purchase an X amount of Euros, GBP, or Swiss Francs and just forget about them in a “buy and hold” fashion most likely you won`t get anywhere. Currencies do not behave in the same fashion as stocks or stock market indexes. Well, if you should not day trade and you should not buy and hold, what should you do? The best approach to currency trading is called swing trading or short term trading where you hold your positions for periods anywhere from few days to few weeks, and very rarely for a few months.

Please visit the website:

http://www.forexsimplesystem.com

During the 1990′s bull market, interest in stock dividends dropped to near zero. But with the collapse of the tech bubble, there has been a growing appreciation for stocks which pay dividends. Nevertheless, dividends are still often undervalued by many stock investors.

Dividends are stocks’ secret weapon. Studies show that dividends account for up to half of the total return of the stock market over long terms, a surprising fact considering how little publicity they get. There is no “Dividend Index” or anything like that which gets reported every day like the Dow and the NASDAQ.

Let’s look at some facts about dividends.

• Not all stocks pay them. The payment of dividends is a discretionary decision made by each company’s management and Board of Directors.

• But for companies that do pay them, dividend policies tend to persist. A company with a history of paying dividends will rarely abandon that policy. Many companies have been paying—and raising—their dividends for decades, and there is no sign that they will stop.

• Dividend-paying companies tend to be larger and older companies, with well-established cash flows that fund the dividend each year. Thus, they tend to be companies that are more stable, safer, and less volatile. Many of them are quite simply cash-generating machines. They share some of that cash with you by paying it out in dividends.

• At the current maximum Federal tax rate of 15%, dividends are the most tax-advantaged form of income available. Better than your salary and better than bond interest (both of which are taxed at your marginal tax rate, which is usually higher than 15%).

• The best dividend-paying companies often provide significant potential for price growth on top of their dividends.

But the best thing about dividends is that your yield will usually rise over time. Compare this to the fixed yield that bonds pay. This rising-yield phenomenon, to me, is the most intriguing aspect of dividend stocks.

How does the yield rise? It happens when the company raises its dividend. Many dividend-paying companies have a history—an implied policy—of increasing their dividend regularly. Often this is done in line with their earnings growth each year. So even a company with modest annual earnings growth of, say, 10% per year may increase its dividend 10% per year too. (In your job, how often do you get a salary increase of 10%?)

The increased dividend bumps up the percentage yield on your original investment. The math is simple. Say you purchase a $100 stock when its dividend yield is 3%. You buy 100 shares for $10,000, and the stock pays you dividends of $300 that first year. The next year, the company’s earnings increase 10% and the company follows its usual practice of raising the dividend to match: Up 10% to $3.30 per share. You get paid $330. Your yield—calculated on your original investment—has jumped to 3.3%.

Note that it no longer matters what ”current yield” is printed in the newspaper. That is based on the stock’s current price, whereas your yield is based on what you invested. If the stock’s price kept pace with its earnings growth (which is often the case), the current yield will still be depicted as 3%–but that only applies to new buyers, not to you.

If the 10%-per-year scenario keeps happening, in Year 3 your yield will be a little over 3.6%, in Year 8 it will have doubled from its original 3% to 6%, and in Year 16 it will be paying 12% on your original investment. That 12% yield exceeds the annual long-term return of the stock market itself, and far exceeds the fixed return available from any investment-quality bond.

Thus we see why dividends are stocks’ secret weapon. They are underpublicized, yet provide about half the total return of the market with more safety. And they go up.

Unfortunately, ”income” is often reflexively associated just with bonds. Many investors who are looking for income overlook the income available from stocks. But as we have just seen, stocks’ income potential often exceeds that of bonds. The Sensible Stock Investor recognizes this and takes advantage of dividend stocks in his or her portfolio.

Now, of course, all these good things do not come without a little risk. Whereas most (certainly not all) bonds are relatively risk-free, stocks always have market risk attached. But given the large, mature, stable nature of many dividend-paying companies, that risk is relatively small. Dividend payers tend to be less volatile than the market as a whole and certainly less than most high-growth stocks.

By the way, a high yield is not the only criterion for selecting good dividend stocks. A well-rounded approach will turn up stocks that not only have decent dividends to begin with, but also the potential for price appreciation. In other words, the Sensible Stock Investor keeps his or her eye on total annual return—with a strong dividend component.

Happily, with the end of the bubble deflation in 2002 and the passage of the maximum 15% Federal tax rate on dividends, companies themselves—not only investors—are rediscovering dividends. More and more companies are paying them, and many companies which already were paying them have strengthened their payout rates. Overall, it is a good time to be a dividend investor.

Buying on margin means that you are buying your stocks with borrowed money.

If you are buying stocks outright, you pay $5,000 for 100 shares of a stock that costs $50 a share. They are yours. You’ve paid for them free and clear.

But when you buy on margin, you are borrowing the money to purchase the stock. For example, you don’t have $5,000 for those 100 shares. A brokerage firm could lend you up to 50% of that in order to purchase the stock. All you need is $2,500 to buy the 100 shares of stock.

Most brokerage firms set a minimum amount of equity at $2,000. This means that you have to put in at least $2,000 for the purchase of stocks.

In return for the loan, you pay interest. The brokerage is making money on your loan. They will also hold your stock as the collateral against the loan. If you default, they will take the stock. They have very little risk in the deal.

One way to think of buying on margin is that it is often comparable to buying a home with a mortgage. You are taking out the loan in the hopes that the value will go up and you will make money. You are in control of twice the amount of shares. All you have to see is the additional profit exceed the interest you have paid the brokerage.

However, there are risks to buying stock on margin. The price of your stock could always go down. By law, the brokerage will not be allowed to let the value of the collateral (the price of your stock) go down below a certain percentage of the loan value. If the stock drops below that set amount, the brokerage will issue a margin call on your stock.

The margin call means that you will have to pay the brokerage the amount of money necessary to bring the brokerage firms risk down to the allowed level. If you don’t have the money, your stock will be sold to pay off the loan. If there is any money left, you will be sent it. In most cases, there is little of your original investment remaining after the stock is sold.

Buying on margin could mean a huge return. But there is the risk that you could lose your original investment. As with any stock purchase there are risks, but when you are using borrowed money, the risk is increased.

Buying on margin is usually not a good idea for the beginner or normal, every day investor. It is something that sophisticated investors even have issues with. The risk can be high. Make sure that you understand all of the possible scenarios that could happen, good and bad.

The Importance of News

· Exchange rate fluctuations are highly correlated with news.

· News that is unexpected tends to have a major impact on the market.

The most important aspect of interpreting news and its impact on the foreign exchange markets is the determination of the market’s expectations for that news. In the financial world, this is commonly referred to as the “market discount mechanism”. The correlation between currency markets and news is pretty clear. Expected news has little impact on exchange rates while unexpected news, especially when pertaining to potential changes in monetary policy, may have an immense impact. Short-term traders need to closely monitor financial publications like The Financial Times and The Wall Street Journal, as they are excellent gauges of current sentiment towards potential news events. Being aware of events and expectations allows traders to be fully prepared for, and profit from, the discounting of potential market moving events.

Event-Driven Trading

· It is difficult to determine the effect of news on currency movements.

· Traders need to avoid analyst bias and take special care when trading during economic releases

Event-driven trading is a fundamental based methodology that attempts to exploit the volatility associated with economic releases and political announcements. Often times it is quite difficult to determine the effect of news on currency movements, and because of this traders need to avoid biased analysis and adopt a defensive posture during these events. Generally, as fundamental news becomes available, the market as a whole will assimilate the news and move the exchange rates to more appropriate levels as market perceptions adjust accordingly. The event driven trader seeks to profit from this ensuing shift in price. Timing of event driven trades is obviously a key factor to success as positions entered prematurely or belatedly can have significant adverse impacts on P&L. For this reason, profitable event-driven traders usually incorporate some form of technical analysis that helps to validate the merit of the fundamental catalyst.

A Common Error

· News releases can lead to sharp volatility in FX, but this volatility can begin well in advance of the actual announcement.

· Much of this volatility occurs in the days leading up to the announcement.

Economic releases can lead to sharp increases in volatility in the currency markets. This rise in volatility can begin days in advance of an announcement and end days later. The most common mistake made by most novice traders is to enter positions after a particular announcement hits the new wires in an attempt to profit from the perceived good or bad news. What they fail to realize is that if an economic release meets expectations, there will likely be no reaction to the news because it is already ‘priced in’ to the market. The reaction of the market is based on the market’s expectations, not on whether the news was intrinsically good or bad.

Buy the Rumor, Sell the News

· Rather than trade on the announcement itself, some participants prefer to trade on the rumors that circulate before its release.

Bank dealers and institutional traders often adhere to the old Wall Street adage of “buy the rumor, sell the news”. Rumors of a positive report will typically begin to circulate among trading desks and hedge funds days before an expected release date. The institutions will then use this information to position themselves on the long side. When the news comes out as expected, they then sell their positions to a frantic public, profiting from the run-up to the announcement as opposed to guessing the reaction to it.

Historically smaller stocks outperform larger stocks. However, at the same time many more smaller stocks have fallen by the wayside than the larger more established stocks. As a reference point, a small stock is considered any stock with a market cap under 1 billion while a larger stock is a stock with a market cap over 5 billion. A company’s market cap is (current stock price x current shares outstanding).

Investing in small cap stocks is a way to increase your investment return, but you should keep a few important factors in mind. One of the most important things to consider is liquidity. Many small companies do not trade very many shares each day. The drawback of this is that the stock will likely be very volatile and have a large bid-ask spread (the difference between what you can buy the stock for and what you can sell the stock for). Even if the stock is a great company it may be difficult to buy and sell shares without moving the stock price up or down against you. My rule of thumb is to look for stocks that are averaging at least 100,000 shares being traded each day.

Another factor to consider when buying a small stock is the risk of dilution. Dilution is when a company issues more shares to obtain cash for growth and operations. If done properly, issuing new shares can help a company’s growth and profitability. However, if shares are issued unnecessarily or too quickly it can literally cut profits in half. Let me give you an example: A company has 20 million shares outstanding and it is earning 20 million dollars a year. The earnings per share of this company is $1.00 per share ($20,000,000 / 20,000,000 shares). Ok, but the company is planning a big expansion and it now needs to issue 20 million more shares. The earnings per share is now $.50 per share ($20,000,000 / 40,000,000 shares). After issuing the new shares, the company has to double its profits just to get back to $1.00 per share earnings.

The third thing to watch for when trading small stocks is inside ownership. Inside owners are people that work for the company that also own stock in the company. If key people that work at a company do not have a lot of shares in the company, find out why. When a company’s key employees have a significant amount of shares in the company they are likely confident in the future growth of the company. In addition, it is in their best interests to help the company succeed. Keep an eye out for any insiders that sell a large portion of their shares. This can often be a very negative sign.

Finally, when investing in small companies make sure they are reporting financial statements in a timely matter, if they are reporting them at all. Don’t rely solely on news releases to find out about a company. If financial statements are not available it is easier for people to create news to manipulate a stock’s price. This is especially true of very low priced stocks as it is much easier to accumulate a lot of shares. Personally, I will not invest in a company that does not provide access to financial statements. While there may be other factors to consider, following these 4 suggestions when buying small cap stocks will greatly increase your chances of success.