Candlestick Trading Blog: June 2009

June 28, 2009

Option Trading

Option trading deals with options contracts that give the buyer the right but not the obligation to buy or sell an underlying asset at a set price on or before a specific date. In today's article we provide a list of facts about trading options as well as the different options strategies available to investors. • Options are derivatives since they derive their value from an underlying asset. • Options markets include four different participants. These include buyers of calls, buyers of puts, sellers of calls, and sellers of puts. • Calls give the holder the right to buy an asset at a specific price within a specific set amount of time and puts give the holder the right to sell an asset at a set price within a specific period of time. • Stock options contracts represent 100 shares of the underlying stock. • The total cost of an option is referred to as the premium, which is determined by factors including the strike price, the stock price, and the time that remains until the options contract expires. • Buyers are typically referred to as holders and sellers are typically referred to as writers. • There are two main classifications of options known as American and European. • The strike price is the price at which the underlying stock can be purchased or sold when stock option trading. • Investors will use stock options when speculating and hedging. • Long-term options are known as LEAPS. There are several option trading strategies including bullish, neutral and bearish option strategies. We list them below. Bullish Strategies • Buying Calls • Selling Calls • Bull Call Spread • Bull Put Spread Bearish Strategies • Buying Puts • Selling Calls • Bear Call Spread • Bear Put Spread • Put Hedge Neutral Strategies • Selling Covered Calls • Sell Straddle • Sell Strangle • Calendar Spread There is a lot to learn when learning about online options trading. Continue to research and learn more about options, take online courses, attend seminars, and join online forums. It is important to meet others who practice trading options as well. Find out if online options trading is right for you. Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

June 23, 2009

Trading Forex Online

Trading forex online is a great way that many investors make money and there is a lot of information that you should know before you begin to trade forex. Forex, also referred to as FX, is the market in which currencies are traded and it is the most liquid and the largest market in the world. It is estimated that the total average traded value is more than $1.9 trillion per day. The forex market is open 24 hours per day, five days per week where currencies are traded worldwide. The major financial centers are London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney. There are generally three types of forex traders including short-term traders, medium-term traders, and long-term traders. We describe each type of trader below. Short-Term Traders – These traders, also known as scalpers or day traders, practice trading forex online by taking advantage of small price movements with a large amount of leverage. These traders will open and close trades within minutes and there is either quick profits or losses when forex trading. This type of FX trading is risky in that it requires large capital due to the amount of leverage required to make a profit from such small price movements. Medium-Term Traders – These traders, also known as swing traders, typically hold their positions for one or more days. These traders require lower capital than with day trading because leverage is typically only necessary to increase profits. Long-Term Traders – These traders hold positions for months and even years and they base their decisions of fundamental analysis. (Short and medium-term traders base their decisions on technical analysis). Long-term traders require large capital in order to cover volatile movements against their open positions. When learning about trading forex online you must know that currency is traded in pairs. The value of currency is determined by the comparison to another currency. When trading currency, this currency pair tells the trader how much of the quote currency is needed in order to purchase one unit of the base currency. The base currency is the first currency that is quoted in the currency pair when currency trading. It is also the considered the domestic currency that will be used to determine profits and losses. It is for this reason that it is also referred to as the primary currency. For example, if you were looking at the USD/CAD currency pair, the US dollar would be the base currency and the Canadian dollar would be the quote currency. There is a lot more to learn about when trading forex online. Continue your forex trading education and determine if it is the right market for you. Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

June 21, 2009

Margin Buying

Margin Buying Introduction Margin buying provides a great opportunity for stock investors to make huge profits using less money. It is a very common trading strategy that greatly increases a stock traders buying power but it must be used with great caution and knowledge since it also comes with very high investment risk. A trader's success depends on many factors but these factors are very manageable as long as you take the time to educate yourself and have discipline in your trading. Margin buying allows the stock trader to spend more money that he or she actually has. The trader must put down a certain amount of money to be used as collateral and then he or she borrows money from their stock broker to make up the difference for the total cost of the stock that is being purchased. Again, margin trading is a great way to make a lot of money off of a pretty small initial capital. There are some basic terms that investors will come across when learning about buying stocks on margin. These terms are explained below. Margin Account – this is a type of trading account where stocks can be purchased for a combination of cash and a loan when margin buying. The investor must deposit a minimum balance of about $2,000 to $5,000 into the margin account initially. This is to serve as collateral against what he or she borrows from the broker, and then the owner is asked to either sell a portion of the stock or add more cash if the value of their stock drops sufficiently. Margin Call – a margin call is a demand for additional funds due to adverse price movement when margin buying. This is what happens when you get a call from your broker to add more funds to your account when the value of the stock decreases sufficiently. Margin Rates – margin rates are the interest rate charged on a margin account and it varies from one broker to the next. While it is typically tied to the prime interest rate, it usually ranges from 6.5% to about 10%. Of course you can find lower rates if you go with a discount broker as opposed to a full service broker. There are many advantages to margin buying such as increased buying power with less money, more profit with less invested, and a trader can borrow up to half (50%) of his purchasing price as initial margin. This type of stock trading is more suited more those traders who have a lot of experience and/or trading knowledge. This is due to the risks that are associated with trading on margin such as the fact that you have to payoff interest on margin, you lose big when you lose, trader have much less control with falling stocks prices. Just be sure that you do your homework, have a trading plan, and that you trade with discipline when trading on margin. Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

June 16, 2009

Margin Account

A margin account is a brokerage account in which the broker lends the investor the cash to purchase securities. When buying stocks on margin you use leverage in order to increase your gains, however if you are not careful you can increase your losses as well. Trading on margin is a great tool for experienced investors to use but it is very risky. If you decide you open this type of account instead of a regular trading account, there are some terms that you should know. First, the initial margin is the amount that you may borrow for those securities that may be purchased on margin. This can be up to 50% of the purchase price of these securities however some brokerage firms require more than 50% of the purchase price. This rule is according to Federal Reserve Board. The minimum margin, according to the Federal Reserve Board, requires that you deposit with your brokerage firm a minimum of $2,000 or 100% of the purchase price, whichever is less. There are those firms however that requires the investor to deposit more than $2,000. There is also the maintenance margin which is the amount of equity that must be maintained in a margin account. For the New York Stock Exchange and the NASDAQ, after an investor has bought securities on margin, the minimum required level of margin is 24% of the total market value of the securities in the account. This is a minimum however and many brokerage firms have an even higher maintenance requirement ranging from 30 to 40%. For those investors who are new to margin trading it is important to recognize the risks involved. You have to understand that you can lose more money than you have invested and that you may have to deposit additional cash or securities in your account in order to cover market losses. Additionally, you may be forced to sell some or all of your securities when decreasing stock prices reduce the value of your securities. Your brokerage firm may also decide to sell some or all of your securities without out working with your first to pay off the loan that was made to you. You must ensure that you know how a margin account works and what happens if the price of the stock that you purchased on margin falls. You should know what you firm charges for the interest on borrowed money and how that will affect your return on investment. You must also know what a margin call is and what that means to you. Before you begin trading on margin ensure that it fits in with your investment goals, your risk tolerance and your financial resources. Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

June 14, 2009

Brokerage Account

When setting up a brokerage account there are certain things that you should look into. You obviously need to first decide on the actual brokerage firm that you will use. Selecting an online broker can and should take time and research. Below are those items that you should look into when selecting an online broker. Differential Pricing and Account Minimums – Many brokers will require that you maintain a minimum trading account balance. Others will also charge a lower price if you maintain a certain account balance or trade above a certain number. Automatic Investing – Some brokerage firms offer automatic investments. This is only an option that appeals to some investors who are okay with a stock broker or other type of investment manager executing trades on their behalf, according to an automatic schedule. Assisted Trades – When opening a brokerage account look into the fee for assisted trades if you think you need that service. Some brokerage firms will charge extra for calls made to ask them to place a stock trade. Just be sure to find out if that is an option and if so what the fee would be for that service. Inactivity Fee – Most trading brokers charge an inactivity fee if you don't trade for a specific period of time. Find out if the firm you choose has this fee and if so what the specific period of time is for your brokerage account so that you avoid the fee. Customer Service – There are reviews available for different brokerage firms that tell you other investor's opinions and their experiences with the firms. Online stock trading forums also will give you an idea sometimes into how brokers react when you need to rely on them for services. Dividend Reinvestment – Dividend reinvestment allows investors to gain benefits involved with compounding your dividend returns over long periods of time. Some firms will allow you to do this by holding fractional shares in a company. Promotional Offers – Many firms will offer incentives for you to leave your current broker and to switch to them. Some may give you cash back other rewards for making the switch. Exchange Traded Funds – Exchanged traded funds (ETFs) are not available at brokerage firms. When opening a brokerage account ensure that the firm you choose offers ETF trading if you plan to do that. A lot of people assume all brokerage firms offer this service but there are many that do not offer it as one of their investment options. Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

June 9, 2009

Currency Trading Online

Currency trading online has become increasingly popular and more and more forex investors are jumping on the band wagon. If you are interested in learning to trade forex online, this article provides a general overview that should be helpful in getting you started. Before begin to invest in the forex market, you will need to consider taking an online forex trading class. There are many available online as well as many forex trading books that will help you learn the basics of FX as well as the techniques involved with currency trading online. Many of the online forex trading books also include a free trial of their forex software for you try out. In addition to the books, online forex trading programs will also include a 30-day trial or a subscription to their trading software. Most companies will allow investors to try out their software first before committing to anything. These programs will teach you the basics and should have tutorials so that you can practice what you are learning. You should be able to perform test trades as well to get you familiar with the software and with the forex trading strategies that you are learning. You should also ask around to fellow investors of friends who practice currency trading online for references. They can provide you with a place to start. In addition to trying out the forex trading software, many companies that offer currency trading online also offer simulation trading. This is basically software that allows you to practice trading without risking real money. The program is set up so that you play the market just as you normally would, and you simulate a foreign currency trade using the exact amount of funds you would in real life, using the trading strategies you have developed and using different technical analysis tools. It is a great way for you become familiar and comfortable with FX trading before risking losing real money. You also get to determine if the software is a good fit for you. Perhaps you don't like the software and find that you need to find a new program. The programs are very similar in nature, so you should be able to switch over to another program relatively easy. Currency trading online provides real time access which is one of the most attractive features of this type of trading. Continue your forex trading education and find software that works for you. Good luck! Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

June 5, 2009

Trading Day

Trading Day for a Day Trader Day trading stocks is the buying and selling of stock within the same trading day and trades are typically closed out by the end of each day. Other financial instruments such as stock options, currencies, commodities and futures contracts are day traded as well. Some day traders may place several hundred trades each day while some day traders may trade a significantly lower number. It really depends on the trading style. Some traders may focus on short term stock trading in which they trade within seconds and minutes ever day. They buy and sell stock several times throughout the day. These traders receive very deep discounts due to their high volume of stock trading. Some day traders focus their trading day on momentum or trend trading. This type of trading typically results in fewer trades per day as traders patiently wait for the right trade for that day. As mentioned previously, when day trading, traders will close out of their positions before the close of the stock market. They do this in order to avoid price gaps which are the difference in stock price between the previous close and the next day's open. Some stick to this rule very firmly while others follow it a little more loosely. Some day traders will stay in a position overnight as long as it is still in a winning position and the trend is showing this. They choose to stick with the rule of thumb "let your profits run" that is followed by stock traders. These traders believe that if they close out too early on a trading day then they are going against market wisdom. Some day traders will borrow money in order to day trade, called margin trading. When buying stocks on margin often times the trading account will be charged interest for holding positions overnight. This discourages day traders who buy stocks on margin, from holding positions overnight. In fact, the margin that is required to hold a position overnight is typically about 50% of the stock's value! Due to this, the day trader must follow their exit strategies and implement stop loss orders in order to ensure that they limit their losses. This is not the place to have false hopes as it can cost you big! Continue to read about day trading to see if this trading style is a good fit for you. You should also read about swing trading as well as the different stock trading strategies involved with both types of trading. Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

June 2, 2009

Sell Shares

How to Sell Shares When looking to sell shares, common stock shares, you will find that it is not a difficult process but it is still important to understand exactly what to do. Common stock is owned by shareholders and for each share that is bought, the shareholder is entitled to one vote. It is also referred to as voting stock by many stock investors. Common stock is different from preferred stock. Preferred stock does not gives voting rights to shareholders however preferred shareholders receive paid dividends before common shareholders. The most common type of stocks and shares that are bought and sold each day on the stock market are common stocks. To sell shares of common stock you should either go through a brokerage firm or through a bank. Those investors who may be looking to sell their shares of stock in a company but do not plan on buying or selling stock in the near future, can go to their local bank. All you have to do is take the stock certificate to a bank in which you already have a bank account, ask for the investment officer, and then have the trade placed to sell common stocks at the current stock price on the open market. As soon as the stock clears, and it is delivered (three days later), the money is then available to the investor who sold the stock. Another way to sell shares of common stock is to go through a brokerage firm. You would have to open a brokerage account in order to do this, so this option is for the investors who I planning on buying and selling shares again in the near future. There are many different brokerage firms available so it will require research on the investor's part to find a firm that works for them. Don't just pick any firm, be sure that you get referrals, check references, and compare and understand commission fees. There are many different options available to investors depending upon their needs. Investors will also need to decide if they want to go with a full-service broker or a discount broker. This will depend on the investor's needs as well. Online discount brokers are available for those looking to sell stock online with little to no guidance from a live broker. Full-service brokers are available and can offer more one-on-one attention however that comes with a heftier price for commissions. Online Stock Market Reviews presented live via the internet by Stephen Bigalow	Website Specials

Candlestick Trading Blog

Links

Archives