Popular Forex Broker

UFXMarkets

Quick Take: UFXMarkets is a reliable broker with lots of special features like fixed spread trading opportunity with a wide range of trading instruments. Their one-click trading helps the trader to execute their trading decisions quickly.

GCM International Inc

GCM is a group of elite markets traders, experienced in trading the world’s largest financial market with huge turnover volume in a day. We foresee that the future trend in the capital markets, gold futures will continually transforming and challenging world of online trading. Hence, GCM is committed and will be one of the most outstanding trading services provider in the region.

Markets.com

Description: Markets.com offers a large mix of FX trading, (47 pairs) but it also offers several different CFD markets, allowing traders to get involved in gold, silver, oil, sugar, corn, wheat, or soybeans. 18 indices from around the world are offered for trading as well, and so are dozens of stocks from around the globe. Because of this, it is a good all-around trading solution for traders worldwide.

Xforex

Description: XForex.com is a forex dealer that offers advanced trading conditions in a fair and transparent environment. The broker is registered in several different countries around the world, and as such is a fair and trusted broker. XForex.com is a solid broker. The ability to trade so many currency pairs with a tight fixed spread makes this broker an attractive choice for traders who need stable trading environments. Also, the ability to trade spot metals is also a big advantage as the gold and silver markets have become quite attractive over the last several years.

Plus500

Description: Plus500 is a CFD service, and is one of the largest dealers in Europe, and is based in the UK. The dealer allows access to Forex, CFDs, ETFs, and Futures CFDs as well. Because of this, there are plenty of trading environments for the trader to explore. Plus500 is a great all-around broker for traders that are looking to trade the various worlds markets from one platform. Forex, CFDs, and stocks are all available. Add to that the ability to trade ETFs, and you really have the best of all worlds in one convenient platform.

Tips for investing in stocks

1. Stocks aren't just pieces of paper.

When you buy a share of stock, you are taking a share of ownership in a company. Collectively, the company is owned by all the shareholders, and each share represents a claim on assets and earnings.

2. There are many different kinds of stocks.

The most common ways to divide the market are by company size (measured by market capitalization), sector, and types of growth patterns. Investors may talk about large-cap vs. small-cap stocks, energy vs. technology stocks, or growth vs. value stocks, for example.

3. Stock prices track earnings.

Over the short term, the behavior of the market is based on enthusiasm, fear, rumors and news. Over the long term, though, it is mainly company earnings that determine whether a stock's price will go up, down or sideways.

4. Stocks are your best shot for getting a return over and above the pace of inflation.

Since the end of World War II, through many ups and downs, the average large stock has returned close to 10% a year -- well ahead of inflation, and the return of bonds, real estate and other savings vehicles. As a result, stocks are the best way to save money for long-term goals like retirement.

5. Individual stocks are not the market.

A good stock may go up even when the market is going down, while a stinker can go down even when the market is booming.

6. A great track record does not guarantee strong performance in the future.

Stock prices are based on projections of future earnings. A strong track record bodes well, but even the best companies can slip.

7. You can't tell how expensive a stock is by looking only at its price.

Because a stock's value depends on earnings, a $100 stock can be cheap if the company's earnings prospects are high enough, while a $2 stock can be expensive if earnings potential is dim.

8. Investors compare stock prices to other factors to assess value.

To get a sense of whether a stock is over- or undervalued, investors compare its price to revenue, earnings, cash flow, and other fundamental criteria. Comparing a company's performance expectations to those of its industry is also common -- firms operating in slow-growth industries are judged differently than those whose sectors are more robust.

9. A smart portfolio positioned for long-term growth includes strong stocks from different industries.

As a general rule, it's best to hold stocks from several different industries. That way, if one area of the economy goes into the dumps, you have something to fall back on.

10. It's smarter to buy and hold good stocks than to engage in rapid-fire trading.

The cost of trading has dropped dramatically -- it's easy to find commissions for less than $10 a trade. But there are other costs to trading -- including mark-ups by brokers and higher taxes for short-term trades -- that stack the odds against traders. What's more, active trading requires paying close attention to stock-price fluctuations. That's not so easy to do if you've got a full-time job elsewhere. And it's especially difficult if you are a risk-averse person, in which case the shock of quickly losing a substantial amount of your own money may prove extremely nerve-wracking.

Forex Trading - a Simple, Easy Tip to Increase your Profits

The simple tip below is ignored by most traders - yet if you include it in your trading plan, will see your risk decrease and profits increase and that's what all traders want!

Most novice traders don't use this tip and lose.

Learn the significance of this tip and use it and it is simply:

Trade with Price Momentum

Many traders like to predict where prices are going to go - but they should really be trading on the facts and that's exactly what looking at shifts in price momentum does.

It gives you clues to where prices may go next.

Lets Loom at a common error that novice traders make to illustrate the point.

Many traders love to buy dips to support and many will use trend lines or moving averages.

As prices approach the support level, they buy into the support and hope that it holds.

This is a huge mistake!

If you rely on "hope" you are going to lose.

This is why looking at price momentum is so important.

If the momentum of price starts to weaken into support and turns the odds of support holding have increased.

Acting on the Facts

To watch prices come into support and rather than diving in and taking a position - WAIT for price momentum to weaken into support and turn back up away from support.

This is the cue to take a position, as price momentum is now moving away from support and odds favour the bulls.

Why dont traders fo this more often?

Traders find this hard to do, as they don't like the fact they missed a bit of the move by waiting, but this is the only way to get the odds on your side.

Consider this:

Support obviously can either hold or break and you don't know which will occur in advance it's impossible to predict - you are simply guessing and that's a good way to lose.

If you look at price momentum you will be acting on confirmation that the odds are in your favour.

A trader who is patent and disciplined and acts on confirmation has a far better chance of success than one who guesses or predicts where prices may go.

So what are good indicators to look at?

The best indicator by far in our opinion is the stochastic indicator - we don't have enough room to cover it in detail here but it's a great indicator for graphically showing shifts in price momentum.

We like to combine the above indicator with the Relative Strength Index(RSI), another great momentum indicator.

We never take a trade unless price momentum points the same way as our trade.

Forex trading is an odds game and by using momentum indicators you will increase your chances of success and of course your profit potential.

Momentum Trading With Discipline

To engage in momentum trading, you must have the mental focus to remain steadfast when things are going your way and to wait when targets are yet to be reached. Momentum trading requires a massive display of discipline, a rare personality attribute that makes short-term momentum trading one of the more difficult means of making a profit. Let's look at a few techniques that can aid in establishing a personal system for success in momentum trading.

Techniques for Entry

The impulse system, a system designed by Dr. Alexander Elder for identifying appropriate entry points for trading on momentum, uses one indicator to measure market inertia and another to measure market momentum. To identify market inertia, you can use an exponential moving average (EMA) for finding uptrends and downtrends. When EMA rises, the inertia favors the bulls, and when EMA falls, inertia favors the bears. To measure market momentum, the trader uses the moving-average-convergence-divergence (MACD) histogram, which is an oscillator displaying a slope reflecting the changes of power among bulls and bears. When the slope of the MACD histogram rises, the bulls are becoming stronger. When it falls, the bears are gaining strength. 

The system issues an entry signal when both the inertia and momentum indicators move in the same direction, and an exit signal is issued when these two indicators diverge. If signals from both the EMA and the MACD histogram point in the same direction, both inertia and momentum are working together toward clear uptrends or downtrends. When both the EMA and the MACD histogram are rising, the bulls have control of the trend, and the uptrend is accelerating. When both the EMA and MACD histogram fall, the bears are in control and the downtrend is paramount.

Refining Entry Points

The above principles for determining market inertia and momentum are used to identify entry points in a precise style of trading. If your period of comfort corresponds to the daily charts, then you should analyze the weekly chart to determine the relative bullishness or bearishness of the market. To determine the market's longer-term trend, you can use the 26-week EMA and the weekly MACD histogram on the weekly chart.

Once the long-term trend is gleaned, use your usual daily chart and look for trades only in the direction of the long-term weekly trend. Using a 13-day EMA and a 12-26-9 MACD histogram, you can wait for the appropriate signal from your daily comfort zone.

When the weekly trend is up, wait for both the 13-day EMA and MACD histogram to turn up. At this time, a strong buy signal is issued and you should enter a long position and stay with it until the buy signal disappears. By contrast, when the weekly trend is down, wait for the daily charts to show both the 13-day EMA and MACD histogram turning down. Such an occurrence will be a strong signal to go short, but you should remain ready to cover the short position at the very moment that your buy signal disappears. 

Techniques for Exiting Positions

The major reason momentum trading can be successful in both choppy markets and markets with a strong trend is that we are searching not for long-term momentum but for short-term momentum. All markets trend within any given week, and the best stocks to trade are those that regularly exhibit strong intra-day trends. With that in mind, you must remember to step off the momentum train before it reaches the station.

As already mentioned, once you have identified and entered into a strong momentum trading opportunity (when daily EMA and MACD histogram are both rising), you should exit your position at the very moment either indicator turns down. The daily MACD histogram is usually (but not always) the first to turn, as the upside momentum begins to weaken. This turn, however, might not be a true sell signal but a result of the removal of the buy signal, which, for the impulse system, is enough impetus for you to sell.

When the weekly trend is down and the daily EMA and MACD histogram fall while you are in a short position, you should cover your shorts as soon as either of the indicators stops issuing a sell signal, when the downward momentum has ceased the most rapid portion of its descent. Your time to sell is before the trend reaches its absolute bottom. As contrasted with a carefully chosen entry point, the exit points require quick actions at the precise moment that your identified trend appears to be nearing its end. 

The Bottom Line

As you have probably already noticed, the impulse system of trading on momentum is not a computerized or mechanical process. This is why human discipline continues to hold so much sway on your degree of success in momentum trading: you must remain stalwart in waiting for your "best" opportunity to enter a position, and agile enough to keep your focus on spotting the next exit signal. 

The Three Kinds of Investors Who Should Sell Their Stocks Now

You should never make investing decisions based on what the market is doing, except for now, maybe.

Past experience and reams of studies tell us there is no way to time the market and that we should buy and hold. That said, there are a few exceptions to the rule. With the total United States stock market up nearly 200 percent from the 2009 lows and increasing worries about what some pundits are calling “bubblelike valuations,” there are a few reasons you should think about selling now.

You got lucky.

Did you buy an investment based on what you heard from your brother-in-law or a neighbor at a barbecue? Be honest! Sometimes, we trick ourselves into think that what we heard on CNBC was research instead of entertainment. Then, before we know it, we end up with some investment that’s exceeded just about every expectation. If you did nothing more than hear a tip from a friend or on the TV, that’s luck, not skill.

To use an extreme example people have been talking about lately, let’s say you placed a bet on Fannie Mae at the beginning of 2013. Remember Fannie Mae? It’s the poster child for the mortgage crisis along with Freddie Mac.

Both firms received huge amounts of cash from the government and were written off as dead by the market. In hindsight, it looks obvious: What a great opportunity! But if all you did was think, “Wow, that’s cheap,” with no research, well that’s luck. Lo and behold, Fannie Mae went from $0.30 to about $3. A ten-bagger, in market speak.

If you were lucky enough to buy Fannie Mae, now would be a good time to sell. To be clear, I’m not saying Fannie Mae will go up or down. I don’t know where it’s headed, but the point is, neither do you.

You got lucky, and it’s time to take your money and run.

You don’t know why you own something. Closely related to being lucky is the idea of being a collector of investments instead of an investor. If you don’t pay attention, you can end up with a portfolio suffering from multiple personalities where nothing works together particularly well. Maybe you inherited a bond from a grandparent or bought stock in a company where a friend used to work. Whatever the reasons, you now have a smorgasbord instead of a portfolio.

Chances are that smorgasbord has done well in the last year or two. That doesn’t make it a good portfolio.

Remember that almost every category of stocks has done well, so don’t confuse a rising market with your own personal genius. Now would be a good time to look at selling and using the money to build a portfolio on purpose.

You’re a systematic market timer. This sounds exciting! Like something those famous hedge fund managers claim to do. Before you get too excited, systematic market timing is the fancy way of saying you need to rebalance. If you already have a well-designed portfolio that you’ve built on purpose, what’s happening in the market may mean it’s time to sell.

For instance, your portfolio design may call for 60 percent stocks and 40 percent bonds. But since stocks have done really well in the last year, your portfolio may now be 70 percent stocks, even with the recent decline. So, in that case, you should be selling stocks and buying bonds to get you back to your 60/40 split.

The one caveat I’ll add is that rebalancing is not a daily or even weekly activity. So don’t get carried away. Systematic means just that. It’s selling based on specific criteria and not whenever the mood strikes, and it is going to be dependent on what’s happening in the market. An added benefit? Changing the way you think about boring rebalancing means the next time the cocktail conversation turns to making smart moves in the market, you can proudly proclaim that you’re a systematic market timer.

One caveat here: If you’re thinking about selling now, there’s a big difference between selling out of fear and selling by design. We want to take action based on a principle — like being diversified in the case of a big holding in an individual stock like Fannie Mae — instead of emotion. Otherwise you may find yourself in the awkward position described by Warren Buffett.

While he recognized that a rising tide — or market — covers a multitude of sins, you only find out who is swimming naked when the tide goes out. I’m betting we’d all prefer to be wearing our suits. So if you’re thinking about selling now, make sure it’s for a legitimate reason, not an emotional one.

3 Simple Tips for Triple Digit Profits

1. Reduce Your Trading Frequency

Many traders think the more they trade the more their profit potential will be and they don't like not being in the market in case they miss a big move. They end up trading to much and taking low odds trades and lose.

You don't get rewarded for how often you trade - you get rewarded for being right with your trading signal and that's it.

I know trades who trade only a few times a year and make triple digit profits.

Their not interested in the buzz of trading, just taking trades they know will be big trends they can hold and make money with.

2. Do Not Diversify!

You will here a lot about not putting your eggs all in one basket as a way to reduce risk but there is a problem - it dilutes profit potential and most traders who start trading in forex simply don't have big enough accounts to diversify.

When you see a high odds trade on your forex trading system then you need to focus on it and not be tempted take other marginal trades for the sake of it, this leads onto the next point.

3. Load the Trade Up

Another common wisdom is only risk 2% per trade - but for most forex traders this is too little and simply ensures they get stopped out by normal volatility.

Let's say you are trading a small account of $3,000, risking 2%, that's just $60!

You won't make much risking that.

Risk and reward go hand in hand, so the more you risk the more you can make.

This doesn't mean that you have to be rash but you need to take calculated risks at the right time and if you believe in a trade load it up.

If you have a small account then you should be risking between 10 - 20% on these trades. The high odds trades don't come around often, so you need to milk them for all there worth.

Finally....

If you don't like risk or try and restrict it to much, you will simply consign yourself to failure. You also need to have the courage to hit trades hard at the right time and be patient to wait for the high odds set ups to emerge.

If you are a trader who wants to make more money from their trading then the above 3 tips will help you do so and enjoy currency trading success. 

The Credit Crisis And The Carry Trade

Broadly speaking, the term "carry trade" means borrowing at a low interest rate and investing in an asset that provides a higher rate of return. For example, assume that you can borrow $20,000 at an interest rate of 3% for one year; further assume that you invest the borrowed proceeds in a certificate of deposit that pays 6% for one year. After a year, your carry trade has earned you $600, or the difference between the return on your investment and the interest paid times the amount borrowed.

Of course, in the real world, opportunities like these rarely exist because the cost of borrowing funds is usually significantly higher than interest earned on deposits. But what if an investor wishes to invest low-cost funds in an asset that promises spectacular returns, albeit with a much greater degree of risk? In this case, we are referring to the currency, or forex, markets, where carry trades quickly became one of the most important strategies. These trades allowed some traders to rake in big profits, but they also played a part in the credit crisis that struck world economic systems in 2008.

A New Millennium for Carry Trades

In the 2000s, the term "carry trade" became synonymous with the "yen carry trade," which involved borrowing in the Japanese yen and investing the proceeds in virtually any asset class that promised a higher rate of return. The Japanese yen became a favored currency for the borrowing part of the carry trade because of the near-zero interest rates in Japan for much of this period. By early 2007, it was estimated that about U.S.$1 trillion had been invested in the yen carry trade.

Carry trades involving riskier assets are successful when interest rates are low and there is ample global appetite for risky assets. This was the case in the period from 2003 until the summer of 2007, when interest rates in a number of nations were at their lowest levels in decades, while demand surged for relatively risky assets such as commodities and emerging markets.

The unusual appetite for risk during this period could be gauged by the abnormally low level of volatility in the U.S. stock market (as measured by the CBOE Volatility Index or VIX), as well as by the low-risk premiums that investors were willing to accept (one measure of which was the historically low spreads of high-yield bonds and emerging market debt to U.S. government Treasury Bills (T-Bills).

Carry trades work on the premise that changes in the financial environment will occur gradually, allowing the investor or speculator ample time to close out the trade and lock in profits. But if the environment changes abruptly, investors and speculators could be forced to close their carry trades as expeditiously as possible. Unfortunately, such a reversal of innumerable carry trades can have unexpected and potentially devastating consequences for the global economy.

Why the Carry Trade Works

As noted earlier, during the boom years of 2003-2007, there was large-scale borrowing of Japanese yen by investors and speculators. The borrowed yen was then sold and invested in a variety of assets, ranging from higher-yielding currencies, such as the euro, to U.S. subprime mortgages and real estate, as well as in volatile assets such as commodities and emerging market stocks and bonds.

In order to get more bang for their buck, large investors such as hedge funds used a substantial degree of leverage in order to magnify returns. But leverage is a double-edged sword - just as it can enhance returns when markets are booming, it can also amplify losses when asset prices are sliding.

As the carry trade gained momentum, a virtuous circle developed, whereby borrowed currencies such as the yen steadily depreciated, while the demand for risky assets pushed their prices higher.

It is important to note that currency risk in a carry trade is seldom, if ever, hedged. This meant that the carry trade worked like a charm as long as the yen was depreciating, and mortgage and commodity portfolios were providing double-digit returns. Scant attention was paid to early warning signs such as the looming slowdown in the U.S. housing market, which peaked in the summer of 2006 and then commenced its long multiyear slide.

Example - Leverage Cuts Both Ways in Yen Carry Trade

Let's run through an example of a yen carry trade to see what can happen when the market is booming and when it goes bust.
Borrow 100 million yen for one year at 0.50% per annum.
Sell the borrowed amount and buy U.S. dollars at an exchange rate of 115 yen per dollar.
Use this amount (approximately US0,000) as 10% margin to acquire a portfolio of mortgage bonds paying 15%.
The size of the mortgage bond portfolio is therefore .7 million (i.e. 0,000 is used as 10% margin, and the remaining 90%, or .83 million, is borrowed at 5%).
After one year, assume the entire portfolio is liquidated and the yen loan is repaid. In this case, one of two things might occur:
Scenario 1 (Boom Times) 
Assume the yen has depreciated to 120, and that the mortgage bond portfolio has appreciated by 20%.
Total Proceeds = Interest on Bond Portfolio + Proceeds on Sale of Bond Portfolio 
= ,305,000 + ,440,000 = ,745,000
Total Outflows = Margin Loan (.83 million principal + 5% interest) + Yen Loan (principal + 0.50% interest)
= ,221,500 + 100,500,000 yen
= ,221,500 + 7,500 = ,059,000
Overall Profit = ,686,000
Return on Investment = ,686,000 / 0,000 = 310%

Scenario 2 (Boom Turns to Bust)
Assume the yen has appreciated to 100, and that the mortgage bond portfolio has depreciated by 20%.
Total Proceeds = Interest on Bond Portfolio + Proceeds on Sale of Bond Portfolio 
= ,305,000 + ,960,000 = ,265,000
Total Outflows = Margin Loan (.83 million principal + 5% interest) + Yen Loan (principal + 0.50% interest)
= ,221,500 + 100,500,000 yen
= ,221,500 + ,005,000 = ,226,500
Overall Loss = 1,500
Return on Investment = -1,500 / 0,000 = -110%

The Great Unraveling of the Yen Carry Trade

The yen carry trade became all the rage among investors and speculators, but by 2006, some experts began warning of the dangers that could arise if and when these carry trades were reversed or "unwound." These warnings went unheeded.

The global credit crunch that developed from August 2007 led to the gradual unraveling of the yen carry trade. A little over a year later, as the collapse of Lehman Brothers and the U.S. government rescue of AIG sent shockwaves through the global financial system, the unwinding of the yen carry trade commenced in earnest.

Speculators began to be hit with margin calls as prices of practically every asset began sliding. To meet these margin calls, assets had to be sold, putting even more downward pressure on their prices. As credit conditions tightened dramatically, banks began calling in the loans, many of which were yen-denominated. Speculators not only had to sell their investments at fire-sale prices, but also had to repay their yen loans even as the yen was surging. Repatriation of yen made the currency even stronger. In addition, the interest rate advantage enjoyed by higher-yielding currencies began to dwindle as a number of countries slashed interest rates to stimulate their economies.

The unwinding of the gigantic yen carry trade caused the Japanese currency to surge against major currencies. The yen rose as much as 29% against the euro in 2008. By February 2009, it had gained 19% against the U.S. dollar.

Carry Trade Casualties

The carry trade pushes asset prices to unsustainably high levels when the global economy is expanding. But rapid and unexpected changes in the financial environment can result in the virtuous circle quickly turning into a vicious one. In 2008, global financial markets suffered record declines after being hit by a deadly combination of slowing economic growth, an unprecedented credit crisis and a near-total collapse of consumer and investor confidence.

Large-scale unwinding of the carry trade can also result in plunging asset prices, especially under tight credit conditions, as speculators resort to panic liquidation and rush to get out of trading positions at any price. Numerous hedge funds and trading houses had to contend with huge losses in the aftermath of the unwinding of the yen carry trade.

Banks may also be affected if their borrowers are unable to repay their loans in full. But as the events of 2008 proved, the broad decline in asset prices had a much larger impact on their balance sheets. In 2008, financial institutions around the world recorded close to $1 trillion in charge-offs and write-downs related to U.S. mortgage assets.

The global economy was also severely affected, as the collapse in asset prices affected consumer confidence and business sentiment, and exacerbated an economic slowdown. Nations whose currencies were heavily involved in the carry trade (such as Japan) would also face economic headwinds, as an unusually strong domestic currency can render exports uncompetitive.

The Bottom Line
Carry trades involving riskier assets are successful when interest rates are low and there is ample global appetite for risky assets. When boom times turn to bust, however, these trades have proved devastating for traders and for the broader markets.

Guide to buying bonds

How and where to invest wisely in the bond market

If you've stuck with the lesson to this point, you are probably interested in knowing more about how to purchase bonds. Here are the main ways:

Directly from the Feds

U.S. Treasuries are sold by the federal government at regularly scheduled auctions. You can buy them through a bank or broker for a fee, but why pay for something you can get for nothing? The easiest and cheapest way to participate in this market is to buy them directly from the GCM. 

Through a broker

With the exception of Treasuries, buying individual bonds isn't for the faint of heart. Most new bonds are issued through an investment bank, or "underwriter," rather than directly to the public. The issuer swallows the sales commission, so you get the same price big investors pay.

That's why, when buying individual bonds, you should buy new issues directly from the underwriter whenever possible - since you're getting them at wholesale.

Older bonds are another matter. They are traded through brokers on the "secondary market," usually over the counter rather than on an exchange, such as the New York Stock Exchange. Here, transaction costs can be much higher than with stocks because spreads - the difference between what a dealer paid for a bond and what he'll sell it for - tend to be wider.

You will seldom know what spread you paid, unfortunately, because the markup is set by the dealer and built into the price of the bond. There is no fixed commission schedule. One ray of sunshine: In early 2002 the Bond Market Association began posting some muni bond prices on its website. Alas, the prices include dealer markups because dealers protested listing commissions separately.

If you do plan to invest in individual bonds, you should probably have enough money to invest - say $25,000 to $50,000 at a minimum - to achieve some degree of diversification. If you have less, consider bond funds.

Exactly how you invest depends largely on your objective:

- If your objective is to achieve capital gains, concentrate on long-term issues. Reason: as noted in "Sizing up risks," the longer the term of a bond, the more pronounced are its price swings when interest rates move. That works to your advantage if interest rates fall. Your long-term bonds - especially zero-coupon bonds - will suddenly be worth a lot more. Of course, it works to your distinct disadvantage if interest rates rise; your portfolio drops in value. This kind of bond investing is essentially a bet that interest rates will fall, and its subject to all the same risks - including that of substantial losses - as any other market-timing strategy.

- If your objective is a steady, secure stream of income, adopt a more conservative approach. Specifically:

Stick to shorter terms. Bonds with maturities of one to 10 years are sufficient for most long-term investors. They yield more than shorter-term bonds, and are less volatile than longer-term issues.

Spread your money around. Invest in a variety of bonds with different maturities, either by buying a bond fund or buying a half-dozen or more individual bonds.

Build a laddered portfolio. Each rung of your ladder consists of a different maturity bond, from one year right on up to 10 years. When the one-year bond matures, you reinvest the money in a new, 10-year issue. In this way, you always have more money to reinvest every year, and you are somewhat protected from interest rate shifts because you have locked in a range of yields.

Through a mutual fund

It can make sense to buy individual bonds if you own a lot of them and hold them to maturity, but most people are better off buying bonds through mutual funds. The biggest reason is diversification. Because bonds are sold in large units, you might only be able to purchase one or a handful of bonds on your own, but as a bond fund holder you'll own stakes in dozens, perhaps hundreds, of bonds.

You will also get the benefit of professional research and money management. Another advantage: Dividends are paid monthly, versus only semiannually for individual bonds, and can be reinvested automatically. Lastly, bond funds are more liquid than individual bond issues.

The biggest drawback to bond funds - and it's a whopper - is that they don't have a fixed maturity, so that neither your principal nor your income is guaranteed. Fund managers are constantly buying and selling bonds in their portfolios to maximize their interest income and capital gains. That means your interest payments will vary, as will the fund's share price.

For this reason, don't choose a fund based only on its yield. Look at its total return, which combines the income the fund paid out with any change in the value of the fund's shares. Also, look for a fund with low expenses. (see also: "Different types of bond funds" and "Guidelines for choosing bond funds.")

Because bond funds with similar investment objectives tend to hold similar types of securities, which perform similarly, there are only two ways a fund manager can goose the yield: cut expenses or take on more risk. If a fund's yield is more than 1 percentage point higher than the average for its peers and the difference can't be explained by lower fees, the manager is probably dabbling in exotica. Top of page

Forex Market vs Bond Market

Both the FOREX market and the bond market can provide you with some good opportunities as an investor. While they are both options for you to invest in, these markets are completely different. Here are a few things to consider about the FOREX market compared to the bond market.

Commissions

One key difference between these two types of markets is in the way that commissions are handled. When you work with a bond broker, you are going to have to pay commissions for every bond that you purchase. Whenever you make a trade in the FOREX market, you will not have to worry about any commissions. Instead, the brokers are compensated through the bid/ask spread on each trade. This allows you to take on more transactions without negatively impacting your returns.

Market Hours

Another big difference between these two markets is in when you can trade. With the bond market, you are only going to be able to trade during the regular business day. In most cases, this will be from 8:00 AM ET to 4:00 PM ET. In some cases, you will be able to trade bonds after hours but your opportunities are not as good. With the FOREX market, you will be able to trade anytime that you want. The only time that the market is closed is on the weekends. Other than that, you can trade 24 hours a day if you want.

Liquidity

The liquidity of these two markets is very different. Sometimes, it can be difficult to find a buyer or seller in the bond market. Because of this, there are large swings in value between bonds from time to time. With the FOREX market, this is never an issue. There are always traders that are in the market at any given time. With over $2 trillion a daily volume, a lot of trading is going on in this market.

Taxes

When you get involved in these markets, the taxes will be handled differently. With bonds, you are going to receive regular interest payments from the bond issuer. This means that you will have to count this amount of money as regular income and pay taxes at your marginal tax rate. With the FOREX market, the taxes are handled differently. You will most likely be able to take advantage of paying the capital gains tax rate which is going to be less than your marginal tax rate in most cases.

Bear Markets

In a bear market, these two types of investments are going to act differently. In the bond market, there is really not a way to hedge against the value of your bonds decreasing. In the FOREX market, you will be able to place a short trade anytime that you want. This way, you will be able to profit from a bear market.

Analysis Overload

Typically, investors will have an easier time analyzing bonds than they will analyzing the FOREX market. With the FOREX market, there are countless indicators and systems that you can use to trade. Many times, this leads people to making bad decisions when it comes to trading.