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Sunday, August 23, 2009

Starting Out In Day Trading

By Davin Greenway

Day trading has made fortunes for many stock traders; this is one of the few types of trading where large profits can be made quickly by those with a limited amount of capital. However, there is always risk associated with investing and traders can lose large sums as well as reap sizeable profits, leading many to be wary of this market. A lot of day trading ebooks focus on futures these days.

Even though the futures market has a reputation as one of the riskier investment avenues, there are many experts who say that futures trading need be only as risky as you allow it to be. With carefully planned investment strategies, there is a lot to be gained while keeping risks to a minimum.

What Are Futures?

Futures are contracts, and they are able to be transferred. Through these you purchase a stock at a set price, and he who holds the contract has to make the purchase, and the seller must deliver on the contents of the contract. Futures are different from options because you absolutely have to buy and sell rather than letting the buyer and seller make that choice.

Profiting from futures involves speculative trading based on fluctuations in the price of the asset on the open market. These fluctuations can represent gains or losses which may potentially be very large.

Emini contracts are very popular futures contracts to trade. Most ebooks and courses today are really some form of emini trading system.

How And Why Are Futures Traded?

Futures trading is very popular, especially amongst day traders because a lot of these contracts are able to be traded at a minimal investment and there's a lot of markets capable of being traded like that. Regardless of the outlook of the market, you are free to trade futures whenever you wish. A long trade will be done if one expects the market to go up, and it will be sold as soon as the value shoots up. A short trade will be done so as to get the maximum value out of it.

A trader that is good at what they do will manage to make a profit regardless. Many traders worry about what direction the market is moving in instead of what direction things are moving in because of this.

Trading futures is a risky venture, but if you know how the stock market works, then futures trading should be fairly simple. You need to be able to recognize the way the market is moving, and this will be very easy for anyone that is well seasoned in the stock trade.

It's not hard to get started in futures trading, but it's not something to be jumped into headfirst if you're not an experienced trader already. Educate yourself about the market and read everything you can about this potentially very rewarding investment venue before you make a serious financial commitment in futures trading. - 23208

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Discover Why Typical Covered Call Writing Strategies Don't Work In A Declining Stock Market

By Marc Abrams

Many websites and e-books on investment training strategies promise you incredible things. Writing Covered call options on stock is one of the most popular trading strategies taught today. These websites promise that you can earn up to 10% monthly returns using that very strategy. Sound good? Read on.

Under the right circumstances, impressive monthly returns can be achieved by selling out-of-the-money covered call options. This strategy has been successfully used by me. However, it is not without its disadvantages. The public has not been properly educated by the website and e-book marketers. This strategy is marketed as having low risk and being conservative. They leave you holding the bag when it all goes wrong.

Selling out-of-the-money covered calls works when the stock market is going up in value. They also work when the stock market is neutral, meaning the market trades sideways with little swing up or down. I don't know about you, but when was the last time the stock market traded sideways for any length of time?

We are currently in the midst of an extremely volatile market. The Dow frequently moves as much as 200 points either way in a single day. Hardly a profitable market for an out-of-the-money covered call writer. Your profits will start to evaporate once the stock you are holding starts to decline. I can assure you that profits can evaporate very quickly. I have seen the value of a stock drop from $10 to $1 over night! There is never enough premium on an option sale to cover that kind of decline.

The key to out-of-the-money covered call writing is to select stocks that will get called. Too many advocates of this strategy do not want the stock to get called. They want you to keep the stock so you can sell a covered call option on it the next month. This is a flawed strategy. You need to select stocks that are trending up in value, hence, a rising market. Those are the stocks that will maximize your profit. If the stock gets called, I know I ended up making my maximum anticipated return.

What if the stock shoots way up in value? If the stock shoots up through the strike price and remains there at expiration, it simply gets called away. Isn't that what you wanted to begin with? You may think you left money on the table by not being able to participate in those gains. If that upsets you then just buy the stock outright and don't sell covered call options on that stock. Instead, let the stock get called away and take your profit for the month. Then look for another stock to buy and sell calls on for the next month.

Remember, selling out-of-the-money covered calls can provide an excellent source if income in a rising stock market. However, the stock market we find ourselves in today is less than ideal for this strategy. There are, however, other strategies that will offer significant protection in a volatile or declining stock market. - 23208

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US Dollar Index Explained

By Ahmad Hassam

The US Dollar Index is used by traders to get the big picture of the overall trend of the dollar. It is widely quoted in the press and on quote services. The US Dollar Index is traded on the New York Board of Trade at Finex and at the Chicago Mercantile Exchange (CME).

The US Dollar Index is similar to the Feds Dollar Index which is a trade weighted index. The Federal Reserve Board had introduced the US Dollar Index in 2003. The index is the result of the Smithsonian Agreement that had replaced the Bretton Woods Agreement. The Fed gives value to each individual currency in the index based on how much it trades with the US.

However, the value of US Dollar Index and the Feds Dollar Index is different and it should not be confused with one another. The futures contract expires on March, June, September and December. The minimum tick on the US Dollar Index is 0.1 and equals $10.

Delivery is physical. It means that you receive dollars based on the value of the index on the second business day during the month of the expiring contract prior to the third Wednesday. The overall value of the contract on the index is 1,000 times the value of the index in dollars.

Delivery day of the US Dollar Index Futures Contract is the third Wednesday of the contract month. No trading limits are placed on the US Dollar Index. Trading hours are from 8.05 AM to 3:00 PM. There is overnight trading also from 7 PM to 10 PM.

The US Dollar Index was modified at the inception of the Euro. It is weighted in a way thats similar to the Feds trade weighted index as follows: Euro 57.6%, Japanese Yen 13.6%, Great Britain Pound 11.9%, Canadian Dollar 9.1%, Swedish Krona 4.2% and Swiss Franc 3.6%. The US Dollar Index is best used as an indicator of trends in the currency markets.

However, the US Dollar Index is not as good a trading vehicle as the individual currencies. The best way to trade the index is by using the currency mutual funds. One of the secrets of knowing trading success is understanding what kind of a person you are.

Spot forex trading is not for the weak nerved. If you are afraid of taking a coffee or bathroom break for the fear the market will move against you and in a blink of an eye you will end up with a margin call, then you need to invest in currency mutual funds based on US Dollar Index and relax.

You are taking away the big part of the risk involved in trading currencies by trading these currency mutual funds. You can have a pretty good idea as to how your fund is going to close at the end of the day if you check the dollar index a few times during the day. - 23208

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Foreign Exchange Analysis: Which Method Is effective?

By Brad Morgan

Two methods of FX market analysis prevail:

1. The method of analysis that concerns itself with assessing the nature and the ramifications of socio-economic and political undercurrents on the FX market is called FUNDAMENTAL ANALYSIS.

2. When the analysis is centralized especially on the use of charts and graphs to study price movements and to identify trends, this is called TECHNICAL ANALYSIS.

So which is the more suitable analysis? If you check out forums and websites you will chance upon many traders heavily supporting one or the other. Those who like to lean on charts will tell you that the only way to make money with currency trading is to find out trends and jump onto them as fast as possible.

However, those who approve fundamental analysis will maintain that the solitary drivers of the market prices are socio-political and economic aspects, a fact that has been proven time and again in almost all of the movements. They describe that any interdependence between the charts and real time movements are only by chance.

That declaration should be taken with a grain of salt. While the direct and broader effects of economic changes is unmistakable, in post major announcements stage and relatively event and change free times, technical analysis may be of aid in predicting movements.

But if you place all your conviction in technical analysis, unforeseen announcements in influential financial news will presumptively catch you off guard. Since you would be relying on charts and not news, you can end up picking the least favorable time to trade. Such a contingency could be cataclysmic.

The result therefore is that short term trading can benefit from finding out trends via technical analysis while the large price movements are mostly created by socio-economic or political aspects. Keeping both eyes open is the more sensible proposal as it empowers one to use mathematics to predict short term movements while monitoring current news and eventualities that would effect movements on a longer term and greater degree. After all money in the FX market is made when one executes trades based on predicted movement and that prediction comes to pass.

If we correlate the forex market to an elastic object, it can go in either direction and occasionally, return to the original position. Fundamentals alter the market. The extent of the movement and its return point is predicted by technical analysis.

Hence you would be well advised not to be a believer in either style of analysis. Formidable returns are realized better when fundamental and technical analysis are utilized together. - 23208

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What A Forex Currency Trading Beginner Should Know

By Jane MacRae

If you are a Forex currency trading beginner, your first order of business is to get yourself informed. Forex trading can truly be highly profitably. However, without knowing its essentials, you will not earn one single dollar from it and may even lose your investment.

The Forex market is one of the biggest financial investment market in the world. Many think that the stock market is huge, but it can not quite measure up the size of the Forex market. Even if we add the futures market to the stock market, the Forex market would still have a bigger amount of money being traded every day.

The door of the Forex market was opened to highly wealthy people only in the past, and you would be asked to present millions of dollars before your entry. Thanks to the presence of online trading companies, average investors can also have their share in this exciting field today. That being said, you still need to be able to afford the risk of financial loss.

When doing Forex Trading, people are actually buying and selling different currencies in the world. You buy one currency while sell another. As such, currency trading always involves pairs, and quotes of currencies also come in one currency against another. The major players include the U.S. dollar and the Canadian dollar (USD/CAD), the Euro and the U.S. dollar (EUR/USD), the U.S. dollar and the yen (USD/JPY) and the Australian dollar and the U.S. dollar (AUD/USD).

The advantage of Forex trading is multi-folded. The transactions are fast because everything is electronic. You also are assured that there are often people who would want to trade with you. This is simply because there are so many people who are trading everyday and every hour of the day. You can buy and sell at anytime whenever you want to.

Leverage is another attractive aspect of currency trading. With a nearly unbelievable ratio of 200:1, you leverage capacity is simply huge. With very minimal initial cash you can already manage a large amount of currency. This is probably the main reason why the market is quite attractive for those who want to increase their earnings impressively.

It is wrong, however, to think that you can immediately get rich in Forex trading. People can lose too in currency trading. Those who do are often those who act impulsively with the hopes of getting rich instantaneously. If you do not take the time to learn the inner wheels of Forex trading and the technical aspects of leveraging, then you could lose everything you have put into currency trading.

As a Forex currency trading beginner, the best way to make sure that you have a rewarding and fulfilling experience with currency trading is to prepare yourself before diving into actual trading. If you are a small-time online investor, you can pick an online company that can help you learn. Many of them will allow you to first practice trading with imaginary currencies without any substantial cost or loss to you. Position yourself as a beginner and learn from the seasoned player, you will have a good chance of becoming an expert in this field. - 23208

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