Investing In Bonds

Investing on the stock exchange might be highly profitable. However, it comes with the hefty price tag. Brokerage firms are more than willing to offer you never before heard leverage or margin rates. Many tend to misuse this facility - their intention is noble; but what if the market does not move according to their calculations? In plainer terms, investing on the stock exchange can be highly rewarding as well as a risky affair. Not everyone has the mental strength to cope with the losses he or she may incur in the market. Hope is there in the form of bonds.
Any financial expert would promptly suggest a dozen advantages of bonds in comparison to the conventional investing mediums. Although the rate of return for your investments is considerably low for bonds, it is for the faint hearted. Please understand that the author is not trying to be-little the relative strengths of the bond investments. A major share of the American household still considers bonds as a safer form of investment. That proves the popularity of this investment medium during these times of turbulent economic activities.

It is possible to purchase bonds to safe keep it only to sell them later for an augmented price. Commoners do not have the provision to trade with the bonds. Bond trading is a common practice among central banks and other financial institutions. The value of the bond may rise or falter according to certain parameters. One of the major disadvantages of stocks is the unpredictable nature, especially during those days of high volatility. There are major criticisms surrounding the effectivity of bonds in comparison to stocks. This is true because with the right set of trading strategies, you can literally start minting money using the stocks by day trading.

Bonds are not immune from the risks. Imagine the plight of the stockholders if the company in whose name the bonds were taken goes bankrupt. They have no financial authority to turn to; something that is considered as an advantage for bonds (most countries have a certain institution to recompense the bond holders if anything like that should occur to their bonds). There is an indirect relationship in between the high interest rates and the value of the bonds. When one surges, the average value of the other diminishes. This is applicable to bonds that come with fixed rates.

Mutual fund companies are the initial ones to incur the wrath of the ever-changing prices of the bonds. The duration of the bond also plays a predominant role - the greater it is the lesser are the risks associated with it. Just as we had seen in commodity trading and financial derivative trading, it is possible to control or minimize the risk levels with the aid of hedging. A number of investment websites deal with the niche of investing on bonds. Spend time reading the articles along with the tips highlighted in these portals to select the best bonds that can prove to be a worthy investment.

Are People Really Receiving Their Salary Through Bitcoin?

Did you know people are having their salaries paid with Bitcoin? Not only are companies starting to offer Bitcoin paychecks to their employees, job boards are now popping up that specifically post jobs in which you can get compensated with Bitcoin.

For some time, supporters of the cryptocurrency were advocating to rule Bitcoin as actual currency. With pressure on how to classify Bitcoin for this year’s tax season, the IRS recently officially declared as property.

Now, people are taking it a step further to make Bitcoin widely known and accepted around the world. You can buy anything from clothes to pizza by using Bitcoin as your form of payment. The next step in the process of expanding Bitcoin’s presence on a global scale is under way, and it is coming from employers who pay their workers using the digital currency.

Company in Dublin started paying employees in Bitcoin

GSM Solutions, an electronic repairs firm in Dublin, Ireland, started paying five of its employees a portion of their salaries in Bitcoin. The company hosts Ireland’s first Bitcoin ATM and aims to set an example as to how the cryptocurrency can be accepted into the global currency market.

In a blog post from GSM solutions, Alan Donohoe, the managing director for the company, stated, “We set salaries in euros, so that the euro amount they get each pay period does not fluctuate with the price of Bitcoin.”

More companies are willing to pay via Bitcoin

A recent survey conducted by Harris Interactive on behalf of Yodlee, revealed that only 48 percent of people in America know what Bitcoin is. Despite the statistic, people are still trusting the cryptocurrency as a reliable source of income. In fact, the first Bitcoin job fair will take place on May 3, 2014, in Silicon Valley, a place well known for producing some of America’s most innovative companies.

Whether the public is ready for it or not, people are interested in receiving payment through Bitcoin. Coinality, the leading job and resume board for digital currencies, reported that over 1,800 job applications were generated within the first eight months of being created. New job openings are continuing to appear on the website every day, further showcasing demand for payments via Bitcoin.

Bitcoin advocates should still remain cautious when receiving it as a form of payment. Anyone who contemplates receiving all or a portion of their salary via Bitcoin should make a habit of converting a portion of their payment to an actual currency. There is no telling what the future holds for Bitcoin, especially since financial institutions like JPMorgan Chase are in the works of creating their own version of digital currency. In the same respect, it could prove rewarding if the value of Bitcoin increases. 

How to Get Faster Results from Your Forex Trading

Many new traders end up suffering from analysis paralysis. They’ll paper trade for months only to get bored with the process andthen quit.  They won’t have lost any realmoney but they’ll have wasted their education.

I would advise putting someskin in the game right from the beginning. The best way is to put a tiny amount of your account to work in a longtrade that pays you interest, daily. When I say a tiny amount, I mean tiny – like one mini-contract. 

You can do this, TODAY,with the following trade.  (This justhappens to be my favorite, by the way.)

Pull up a monthly chart ofthe AUD/JPY using your favorite charting software or website.  You can look at the chart I’m looking at below.

You'll see that the pairhas been in an upward trend for about 7 years. The reason for this is primarily because a) commodity prices have beenon the rise which helps the Australian economy which has prompted the RoyalBank of Australia to raise their overnight interest rate to an astounding 7.25% and b) The Bank of Japan is a net importer of commodities and is afraid toraise their overnight rate without negatively impacting their strugglingeconomy. The overnight rate of 0.5% makes the Yen an attractive currency topair with a stronger currency, such as the AUD, and initiate what is called acarry trade.

What should make the carrytrade attractive to the new trader is that you are paid a nice bit of interest(the difference between the higher overnight rate and lower overnightrate)  EVERY DAY THAT YOU HOLD THE TRADE!

The caveat is that thesetrades can unravel quickly.  So, afteropening this trade you still need to keep an eye on it.  But, remember, you are to trade a tiny amountin the beginning. And, of course, you want to have stops in place.

Now, notice from the chartthat the pair is at the bottom of the channel on this long term chart.  One would expect a bounce from this considering that the overall trend still seems to be intact.

Now, take a look at thedaily chart for the pair.  Over the past9 months starting in about August of 2007, the pair has been in a downwardchannel.  This is where the opportunitylies. 

The time to open the tradewill be when it breaks out of the channel to the upside.  When it does this, you can expect the uptrendto resume.  In that caseHealth Fitness Articles, you want to bein to enjoy the ride - and add some daily ca-ching in your account!

Junk Bonds: Everything You Need To Know

For many investors, the term "junk bond" evokes thoughts of investment scams and high-flying financiers of the 1980s, such as Ivan Boesky and Michael Milken, who were known as "junk-bond kings." But don't let the term fool you - if you own a bond fund, these worthless-sounding investments may have already found their way into your portfolio. Here's what you need to know about junk bonds.

What Is a Junk Bond?

From a technical viewpoint, a junk bond is exactly the same as a regular bond. Junk bonds are an IOU from a corporation or organization that states the amount it will pay you back (principal), the date it will pay you back (maturity date) and the interest (coupon) it will pay you on the borrowed money.

Junk bonds differ because of their issuers' credit quality. All bonds are characterized according to this credit quality and therefore fall into one of two bond categories:

• Investment Grade - These bonds are issued by low- to medium-risk lenders. A bond rating on investment-grade debt usually ranges from AAA to BBB. Investment-grade bonds might not offer huge returns, but the risk of the borrower defaulting on interest payments is much smaller.

• Junk Bonds - These are the bonds that pay high yield to bondholders because the borrowers don't have any other option. Their credit ratings are less than pristine, making it difficult for them to acquire capital at an inexpensive cost. Junk bonds are typically rated 'BB' or lower by Standard & Poor's and 'Ba' or lower by Moody's.

Think of a bond rating as the report card for a company's credit rating. Blue-chip firms that provide a safer investment have a high rating, while risky companies have a low rating. The chart below illustrates the different bond-rating scales from the two major rating agencies, Moody's and Standard & Poor's:

Although junk bonds pay high yields, they also carry higher-than-average risk that the company will default on the bond. Historically, average yields on junk bonds have been 4-6% above those for comparable U.S. Treasuries.

Junk bonds can be broken down into two other categories:

• Fallen Angels - This is a bond that was once investment grade but has since been reduced to junk-bond status because of the issuing company's poor credit quality. 
• Rising Stars - The opposite of a fallen angel, this is a bond with a rating that has been increased because of the issuing company's improving credit quality. A rising star may still be a junk bond, but it's on its way to being investment quality.

Who Should Buy Junk Bonds?

You need to know a few things before you run out and tell your broker to buy all the junk bonds he can find. The obvious caveat is that junk bonds are high risk. With this bond type, you risk the chance that you will never get your money back. Secondly, investing in junk bonds requires a high degree of analytical skills, particularly knowledge of specialized credit. Short and sweet, investing directly in junk is mainly for rich and motivated individuals. This market is overwhelmingly dominated by institutional investors.

This isn't to say that junk-bond investing is strictly for the wealthy. For many individual investors, using a high-yield bond fund makes a lot of sense. Not only do these funds allow you to take advantage of professionals who spend their entire day researching junk bonds, but these funds also lower your risk by diversifying your investments across different asset types. One important note: know how long you can commit your cash before you decide to buy a junk fund. Many junk bond funds do not allow investors to cash out for one to two years.

Also, there comes a point in time when the rewards of junk bonds don't justify the risks. Any individual investor can determine this by looking at the yield spread between junk bonds and U.S. Treasuries. As we already mentioned, the yield on junk is historically 4-6% above Treasuries. If you notice the yield spread shrinking below 4%, then it probably isn't the best time to invest in junk bonds. Another thing to look for is the default rate on junk bonds. An easy way to track this is by checking the Moody's website.

The final warning is that junk bonds are not much different than equities in that they follow boom and bust cycles. In the early 1990s, many bond funds earned upwards of 30% annual returns, but a flood of defaults can cause these funds to produce stunning negative returns.

The Bottom Line

Despite their name, junk bonds can be valuable investments for informed investors. But their potential high returns come with the potential for high risk.

How to Trade Currency for Profits

Foreign exchange trading, also known as Forex trading, has become more and more popular with investors and traders these days. With the ongoing recession in the capital markets, a lot of folks believe buying and selling of currencies is a safe investment. Whenever you look at the mechanics of a currency spot trade, the chance of making money is somewhere around 50%. With each currency spot transaction, someone loses money while the other individual makes some. Despite this, not everyone is profitable from trading currencies. As a matter of fact, it is estimated that almost 80% of all currency traders lose money in their attempts.

Using these statistics, one can easily assume that the 20% of profitable traders either have access to some kind of insider info or a mysterious way to manipulate the market. But even the United States, British, and Japanese governments have systematically failed in their previous attempts to manipulate the world's currency markets; which squelches that possibility all together.

The fact is, profitable currency traders are simply better at using accessible info than their unprofitable counterparts are. Profitable traders know how to choose the most applicable information from the enormous heap of economical data that's released by governments and institutions on a day by day basis. They understand how to head off information overload and zoom in on exclusively the most important facts and numbers that are most probable to have an effect on the currency market. With that in mind, these are the five major national economic reports that each successful trader looks at:

Unemployment Reports. Unexpected surprises in unemployment figures generally have a big impact on the Forex market. If, for example, the anticipated unemployment rate is 6% for a specific country, but the report shows an actual rate of 4%, then this can cause a strengthening of the national currency.

Interest Rates. Interest rates are directly related to the strength of a specific currency. When interest rates move up, it draws in foreign investors and will lead to a stronger currency. The opposite takes place when interest rates go downward.

Consumer Price Index. The CPI is a monthly report that measures the costs of goods in a country and compares this to salaries. An abrupt hike up in inflation is always damaging to the strength of a currency and so it's vital to maintain a close eye on this economic indicator.

Trade Balance. The trade balance measures how much a country exports and how much it imports. A trade deficit means that exports surpass imports and a country is sending out more money than it is taking in. This has a very noticeable impact on the demand for a countries currency. But one must remember that a trade deficit isn't always a bad thing. One must take into account the specific conditions of a country to see why a trade surplus or deficit exists.

Retail Sales. A monthly report of retail sales is possibly the most effective indicator of the average person's thoughts about his nations economy. Sentiment plays a highly critical role in spending patterns, which, in turn, affects the strength of a nations currency.

For currency traders who may plan on being intermediate or permanent players, successful Forex trading means that you need to gain some basic knowledge about worldwide economics and trade. Trading currencies without an awareness of the economic circumstances that bear upon a particular currency market will ultimately lead to losing money. To earn money with Forex trading over the long-run, you also need to learn how to adhere to stable trends and indicators and place your orders accordingly. That is the surest, if not the only way, of trading currency for profits.

Does this blog motivate you to start a forex trading? If you are interest, click here for more information.

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.

Investing In Shares

Shares are often surrounded by mystique but the principle behind them is simple and straightforward. Shares, also known as equities, provide you with part-ownership of a company so when you invest in shares; you are buying ‘a share’ of that business. Companies issue shares to raise money and investors buy shares in a business because they believe the company will do well and they want to ‘share’ in its success.

Companies do not have to be quoted on the stock market to issue shares. When businesses start out, many of them raise money from outside investors, who are given a share of the company in return. These investors tend to be friends, family or benefactors and their shares are known as unquoted because the companies are not listed on any stockmarket.

Even if a company states that it is a ‘PLC’ (Public Limited Company) it does not necessarily mean it is listed on a Stock Exchange.  This is just a legal status for the company.

When a company wants to raise money more widely, it can apply to become publicly listed or quoted on an exchange, such as the London Stock Exchange. Once it has gone through the approval process the company then has its shares admitted to trading on an exchange and its shares can be bought by individual investors and large, investing institutions, such as pension funds and life assurers. Companies have to satisfy certain legal and financial criteria before their shares can be listed on a stockmarket and the shares are known as quoted because their prices are quoted every day on a stock exchange.

Owning shares in a company means that you are entitled to a say in its affairs. All PLCs have annual meetings, where shareholders vote on matters such as the company’s accounts, directors’ appointments and pay packages.

Companies also hold meetings for shareholders when they are about to make big changes to their business, such as buying or selling parts of the company or raising fresh capital.

Trading in shares is executed by stockbrokers, who buy and sell shares on behalf of investors. Increasingly, investors buy shares over the internet, using online broking services.

Bond investing risks

So you think bonds are totally safe and predictable?

Many people believe they can't lose money in bonds. Wrong! Although the interest payments you'll get from owning a bond are "fixed," your return is anything but.

Here are the major risks that can affect your bond's return:

Inflation risk

Since bond interest payments are fixed, their value can be eroded by inflation. The longer the term of the bond, the higher the inflation risk. On the other hand, bonds are a classic deflation hedge; deflation increases the value of the dollars that bond investors get paid.

Interest rate risk

Bond prices move in the opposite direction of interest rates. When rates rise, bond prices fall because new bonds are issued that pay higher coupons, making the older, lower-yielding bonds less attractive. Conversely, bond prices rise when interest rates fall because the higher payouts on the old bonds look more attractive relative to the lower rates offered on newer ones.

The longer the term of the bond, the greater the price fluctuation - or volatility - that results from any change in interest rates.

There is a close connection between inflation risk and interest rate risk since interest rates tend to rise along with inflation. Interest rate shifts are also a concern for mortgage-backed bondholders, but for a different reason: If interest rates fall, home owners may decide to prepay their existing mortgages and take out new ones at the lower rates.

That doesn't mean you'll lose your principal if you hold such a bond. But it does mean you get your principal back much sooner than expected, forcing you to reinvest it at the newly lower rates. For that reason, the prices of mortgage-backed securities don't get as big a boost from falling rates as other kinds of bonds.

Note that price fluctuations only matter if you intend to sell a bond before maturity, or you invest in a bond fund whose manager trades regularly. If you hold a bond to its maturity, you will be repaid the bond's full face value.

But what if interest rates fall and the issuer of your bond wants to lower its interest costs? This brings us to the next type of risk . . .

Call risk

Many corporate and muni bond issuers reserve the right to redeem, or "call," their bonds before they mature, at which point the issuer is required to pay bondholders only par value. Typically, this happens if interest rates fall and the issuer sees it can lower its costs by selling new bonds with lower yields.

If you happen to own one of the called bonds, not only do you get less than the market price of the bond, but you also have to find a place to reinvest the money. Because of the risk that you won't get the income you expect, callable bonds usually pay a higher rate of interest than comparable, noncallable bonds. So, when you buy bonds, make sure to ask not only about the time to maturity, but also about the time to a likely call.

Credit risk

This is the risk that your bond issuer will be unable to make its payments on time - or at all - and it depends on the type of bond you own and the borrower's financial health. U.S. Treasuries are considered to have virtually no credit risk, junk bonds the highest.

Bond rating agencies such as Standard & Poor's and Moody's evaluate corporations and municipalities for their credit worthiness. Bonds from the strongest issuers are rated triple-A. Junk bonds are rated Ba and lower from Moody's, or BB and lower from S&P. (You can check out a bond's rating for free by calling S&P at 212-438-2400 or Moody's at 212-553-0377, or by checking some of the bond websites we identify in "Buying bonds.")

The highest-quality municipal bonds are backed by bond insurance companies, but there is a trade-off: Insured munis typically yield up to 0.3% points less than comparable uninsured munis. Further, the insurance only guarantees your interest and principal; it won't shield you against interest rate or market risk.

Some higher-coupon munis are also "pre-refunded," meaning that, for esoteric reasons, they are effectively backed by U.S. Treasuries. When a muni is pre-refunded by an issuer, its credit quality and price rise.

Liquidity risk

In general, bonds aren't nearly as liquid as stocks because investors tend to buy and hold bonds rather than trade them. While there is always a ready market for super-safe Treasuries, the markets for other bonds, especially munis and junk bonds, can be highly illiquid. If you are forced to unload a thinly-traded bond, you will probably get a low price.

Market risk

As with most other investments, bonds follow the laws of supply and demand. The more popular or less plentiful a bond, the higher the price it commands in the market. During economic meltdowns in Asia and Russia, for example, the price of safe-haven U.S. Treasuries rose dramatically.

You can't eliminate these risks altogether. Now that you understand them, you may be able to reduce their impact by some of the methods described in the next section of this lesson.

Changing Commodity Trading Strategies Can Be Dangerous

One of the pitfalls many commodity traders fall into is the constant changing of trading strategies. They often spend weeks researching a particular trading method and have good evidence that it should work. They will then start trading it with real money and eventually there will be some rough periods where it hits a string of losing trades. Then, of course, the strategy is abandoned and the hunt for a new trading strategy begins.

One of the main traits of a successful commodity trader is consistency. This means that you should keep using a trading strategy long enough to see if it works. The markets often rotate from trending to trading in a range (countertrend). A strategy could work well for a couple weeks while a market is trading in a range and then it performs poorly when the market begins trending. New traders will often abandon a system once they have a series of losing trades or they trade too many futures contracts after they have a series of successful trades – thinking they have a license to print money.

A recipe for disaster is dropping a strategy when it has some losing trades and then start trading another one. Normally, just when you drop a strategy is when it will start working again. Even worse, is the new strategy that you are trying to adjust for is probably going to have a down period when you begin trading it.

Many traders have gone through this - including myself. I learned a long time ago that I am more comfortable trading two strategies at once. For example, I use a trend following system for trading the e-mini Nasdaq futures and I use countertrend strategies for trading the e-mini S&P futures each day. This always keeps me trading in the direction of the trend on one market and I also have the opportunity for countertrend trades in another similar market.

I day trade these futures market each day and if one strategy isn’t working, the other usually is making money. Some days I often make money from both strategies and I rarely lose on both strategies in a given day. This keeps my returns more steady and I don’t have to think about changing strategies to catch changing market conditions.

Engulfing patterns and tweezers

Using candlesticks in conjunction with each other can indicate the market sentiment by highlighting a shift in power between the buyers and the sellers. Candlestick patterns can therefore provide signals, such as a reversal or a continuation of price action.

The engulfing pattern

An engulfing pattern is a strong reversal signal. There are bullish and bearish engulfing patterns and they are composed of two candlesticks – one bullish and one bearish. There are three main criteria for an engulfing pattern:

1. There has to be a confirmed uptrend or downtrend, even if it is short-term. The market must not be ranging (going sideways).
2. The body of the first candlestick must be smaller than the second one. The second body must engulf the preceding body. It is not necessary for the second body to engulf the actual wick of the first candlestick, although this does create an even stronger signal.
3. The second candlestick body must be opposite to the first candlestick body, i.e. if the first candlestick is bullish, the second candlestick must be bearish.

Note that the strongest engulfing pattern is one where the whole candle engulfs the prior day's range from high to low, not just the body, generating a strong signal of the imminent market reversal.

Bullish engulfing pattern

The following example shows a bullish engulfing pattern signalling the reversal of a downward trend and demonstrating how the sellers were overpowered by the buyers.

Bearish engulfing pattern

The following example shows a bearish engulfing pattern signalling the reversal of an uptrend and demonstrating how the buyers were overpowered by the sellers.

Tweezers top and bottom

Tweezers are formed by two candlesticks that have matching highs or lows. As the two wicks have the same height, it appears as a pair of tweezers; a discrepancy of a few pips is acceptable.

The market should be in a confirmed uptrend or downtrend for the signal to be a valid reversal.

Tweezers top

In the example provided below, there are two candlesticks at the end of an uptrend.

The wick of the first candlestick shows that the buyers have been overpowered by the sellers. The second wick represents a second attempt by the buyers to continue pushing the price up and then being overcome again by the sellers. After two unsuccessful attempts by the buyers to continue the trend upwards, the buying pressure eases off and the bears successfully push the price back to the downside.

Tweezers bottom

The following example shows a tweezers bottom pattern after a downtrend.

The wick of the first candlestick shows that the sellers have been overpowered by the buyers. The second wick represents a second attempt by the sellers to continue pushing the price back down and then being overpowered by the buyers. After two unsuccessful attempts by the sellers to continue the trend down, the selling pressure eases off and is eventually overpowered by the bulls.

Variations

The bodies or wicks do not have to be exactly the same size or even in consecutive order.

The important aspect when looking for a tweezers pattern is two wicks with equal highs. This indicates that either the buyers or the sellers were eventually overpowered, indicating a reversal.

Investment Types

Once you’ve made the decision to invest your money, there are two important decisions you need to make: how much to invest and where to invest it. It’s important to understand your options as well as the risks associated with each of them.

There are three main types of investments:

• Stocks
• Bonds
• Cash equivalent

You can invest in any or all three investment types directly or indirectly by buying mutual funds Another option is to invest in tax-deferred options, such as an IRA or annuity.

Stocks

When you invest in stocks, you’re buying a share of ownership in a corporation and become a shareholder. Companies sell shares of stock to raise money for start-up or growth.

There are two types of stock:

• Common stock – Shareholders have a percentage of ownership, have the right to vote on issues affecting the company and may or may not receive dividends.
• Preferred stock – Shareholders are generally entitled to dividends at specified intervals and in predetermined amounts, but they don’t typically have voting rights.

Investment returns and risks for both types of stocks vary, depending on factors such as the economy, political scene, the company's performance and other stock market factors.

Bonds

When you buy bonds, you lend money to the government or to a company. Bonds are issued for a set period of time during which interest payments are made to the bondholder. The amount of these payments depends on the interest rate established by the issuer of the bond (the government or company) when the bond is issued. This is called a coupon rate, which can be fixed or variable. At the end of the set period of time (called the maturity date), the bond issuer is required to repay the par, or face value, of the bond (the original loan amount).

Bonds are considered a more stable investment compared to stocks because they usually provide a steady flow of income. But because they’re more stable, their long-term return probably will be less when compared to stocks. Bonds, however, can sometimes outperform a stock’s rate of return, depending on the particular stock.

Keep in mind that bonds are subject to a number of investment risks including credit risk, repayment risk and interest rate risk.

Cash equivalent

Cash equivalent investments, such as savings accounts, money market funds or certificates of deposit (CDs), protect your original investment and let you have access to your money.

These types of investments generally deliver a more stable rate of return. On the other hand, the rate of return (after taxes are paid) is often so low that it doesn’t keep pace with inflation. They’re not designed for long-term investment goals such as retirement.

Here are some types of cash-equivalent investment types:

• Money market – A fund usually invested in Treasury bills, CDs and commercial paper from large established institutions. They are typically safe, liquid investments.1
• Certificate of deposit – A fixed period, interest-bearing investment with a bank or savings and loan. An FDIC-insured CD is a low-risk investment.
• Bank savings account – A bank account that generally provides a low, guaranteed, fixed rate of return.

The Insiders Who Fix Rates for Gold, Currencies And Libor

The system by which benchmark rates are fixed for interest rates, currencies and gold is an arcane and archaic one. There are two common elements when it comes to fixing such rates: One, the fixing is done in London, and two, the fix is implemented by a very select group. 

Consider the fix for the London Interbank Offered Rate (LIBOR), the benchmark rate that is used as a reference for trillions of dollars in loans and swaps. LIBOR reflects the short-term cost of funds for major banks active in London. Prior to Feb. 1, 2014, LIBOR was administered by the British Bankers’ Association (BBA). Each day, the BBA would survey a panel of more than a dozen banks, and ask each contributor bank to base its LIBOR submissions in response to the following question – “At what rate could you borrow funds, were you to do so by asking for and then accepting interbank offers in a reasonable market size just prior to 11 a.m. London time?” The submissions received were then ranked in descending order, with the submissions in the top and bottom quartiles excluded as outliers and the arithmetic average of the remaining contributions used to arrive at the LIBOR rate. Separate LIBOR rates for 15 different maturities of 10 major currencies were then reported at 11:30 a.m.

In the foreign-exchange market, the closing currency “fix” refers to benchmark forex rates that are set in London at 4 p.m. daily. Known as the WM/Reuters benchmark rates, these rates are determined based on actual buy and sell transactions conducted by forex traders in the interbank market during a 60-second window (30 seconds either side of 4 p.m.). The benchmark rates for 21 major currencies are based on the median level of all trades that are executed in this one-minute period.

The price of gold is fixed using a century-old ritual that dates back to 1919. As of 2014, there were five banks involved in the gold fix - Barclays, Deutsche Bank AG, Bank of Nova Scotia, HSBC Holdings and Societe Generale. The gold price is fixed twice a day at 10:30 a.m. and 3 p.m. London time. The fixing is done through teleconference between the five banks, with the current chairman (chairmanship rotates annually) announcing an opening price to the other four members, who then convey this price to their customers. Based on customer orders and their own trades, the banks then declare how many gold bars they want to buy or sell at the current price. The gold price is then adjusted upward or downward until demand and supply are approximately matched, i.e. the imbalance is 50 bars or less, at which point the gold price is declared fixed.

The archaic practices used to set these benchmarks were significant contributors to recently-unearthed rate-fixing abuse. These benchmarks are used to value trillions of dollars in contracts and trades, and collusion among a few players to set them at artificial levels distorts market efficiency, destroys investors’ confidence in fair markets, and enriches a handful at the expense of millions. 

How Suspicion Arose

The LIBOR and gold rates came under special scrutiny in the wake of the two major bear markets in the first decade of this Millennium. The end of each “bear” was marked by renewed zeal among regulators and market players to usher in policies that would prevent a repetition of the previous boom-and-bust cycle. Thus, in the aftermath of the 2000-02 bear market – whose casualties included Enron, WorldCom and a number of other companies enmeshed in accounting irregularities – Sarbanes-Oxley legislation was enacted to improve corporate governance, while regulations aimed at preserving the independence of investment research were also introduced.

In the wake of the 2008-09 global bear market, excessive risk-taking by financial institutions came under the regulatory spotlight. One effect of this heightened scrutiny was to expose the manipulative practices used by influential banks and institutions to fix benchmark rates for interest rates, currencies, and perhaps even gold. 

The primary motivation for manipulating benchmark rates is to boost profits. A secondary motivation, specifically with regard to LIBOR, was to downplay the level of financial stress that certain banks were under at the height of the 2007-2009 global credit crisis. These banks deliberately lowered their LIBOR submissions during this time to convey the impression that their counterparties had a higher degree of confidence in them than they actually did. 

Remedial Actions 

These issues may be avoided in the future, through measures such as benchmark administration by independent bodies and more effective regulation.

Administration by independent bodies: New York University’s Stern School of Business Professor Rosa Abrantes-Metz and her husband, Albert Metz, have published leading-edge research highlighting the problems with LIBOR and with the gold fix. Abrantes-Metz has expressed concern that a few individuals with apparently no oversight whatsoever have the power to set benchmark prices (for financial assets or instruments) in which they have multiple other interests. In a January 2014 article in the Financial Times, she suggested that benchmarks of the future should be based on actual trades whenever possible, and be administered by independent bodies without direct financial interests in the benchmark values. The setting of LIBOR has already followed this path, as it is being administered by the Intercontinental Exchange Benchmark Administration (IBA) unit from Feb. 1, 2014, and is now known as ICE LIBOR (formerly known as BBA LIBOR). While the methodology is little changed, some changes have been made to help ensure the integrity of the LIBOR rates, such as individual submissions not being published until three months after the submission date.

More effective regulation: In the LIBOR-fix and forex-fix scandals, there were concerns about collusion and manipulation for years before they were finally exposed. In both cases, regulators moved in only after journalists (and researchers like the Metzes) had already done the initial spadework. For instance, the LIBOR-fixing scandal was unearthed after some journalists detected unusual similarities in the rates supplied by banks during the 2008 financial crisis. As for the forex benchmark rates issue, it first came into the spotlight in June 2013 after Bloomberg News reported suspicious price surges around the 4 p.m. fix. A similar pattern is evolving with regard to the gold fix, with Abrantes-Metz and Albert Metz writing in a draft research paper released in February 2014 that unusual trading patterns around the time of the afternoon fix smacked of collusive behavior and warranted further investigation. More effective regulation is required to detect such trading anomalies. The mammoth forex market may also need better regulation to prevent blatant abuses like front running and colluding to drive exchange rates in one direction or to a specific level. 

Regulatory authorities have been quick to take action in the LIBOR-fix and forex-fix scandals. A number of prominent heads have already rolled in connection with the LIBOR-fix debacle, specifically at Barclays, where three top executives resigned in 2012. In December 2013, the European Union penalized six leading banks and financial institutions with a record EUR 1.71 billion fine for their role in the LIBOR scandal. In the forex-fix fiasco, at least a dozen regulators on both sides of the Atlantic are investigating allegations of forex traders’ collusion and rate manipulation, and more than 20 traders have already been suspended or fired as a result of internal inquiries.

The Bottom Line

At the end of the day, the antiquated processes of yesteryear that have been used to set benchmark rates for decades may need a complete overhaul to promote greater transparency and prevent future abuses. Abandoning the use of the term “fix,” with its distinctly negative connotation in financial markets, would be a good place to start.

What are Futures and Options? (Using technical analysis)

‘Futures’ are an agreed upon sell date for a quantity of a particular commodity at a particular time. ‘Options’ are similar to a ‘futures’ contract, with the exception that a buyer is not obligated to act on the terms of the initial agreement, but still retains the right to do so if he chooses.

New investors should be aware that there are also ‘futures options’ and ‘futures contracts,’ which are two distinct entities. To use traditional terminology, futures options are essentially options, and futures contracts are essentially futures. Because this terminology can be used interchangeably, it’s a good idea to be aware how these concepts are described when first entering into the trading market.

Futures are slightly riskier than options, primarily because futures require an action, whereas options allow for more equivocation and adjustment to current market trends. Naturally, the greater risk involved, the higher the potential return, or conversely, the greater the potential loss.

It should be noted that buying options usually incurs a premium, which is the fee that the trader earns from the transaction. This premium is based on the relative riskiness of the transaction. Those transactions that will almost certainly prove to be profitable carry a correspondingly high premium; those that are likely to fail will usually have a lower premium. Options are usually classified into ‘calls’ and ‘puts.’ A call option indicates that an investor believes a particular commodity will rise in value over a set period of time. A put option, on the other hand, indicates that the investor feels that the commodity will lower in value over a set period of time. In either case, a ‘strike price’ is set at the time of the purchase of the option. The investor has the choice of closing or converting the option before the set expiration date. Many investors choose to allow their options to close, instead of converting them. They then collect the subsequent profit.

Futures, on the other hand, are less flexible. Both the buyer and the seller must provide the agreed commodity at the pre-agreed price, regardless of market changes or fluctuations. If 6,000 bushels of wheat are promised at $5 per bushel over a year period, the terms can’t change until the futures contract is fulfilled. These two positions are usually known as the ‘short’ and the ‘long’ position. The short position is held by the provider of the commodity; the long position is held by the receiver of the commodity. A futures contract is valued against the actual performance of the market, and settled in cash at the end of each trading day.

As an example, if the short position agrees to provide the wheat at $5 a bushel, but the price of wheat on the market changes to $6, the short position has just lost a dollar on each bushel of wheat compared to what he could earn on the open market, while the long position has just saved a dollar on each bushel of wheat compared to what he could buy it for on the open market. At the end of each trading day, each party will either have their account debited or credited depending on the performance of the market until the futures contract expires.

However, the bulk of futures contracts do not involve the actual delivery of tangible items, but rather provide a means of taking a financial position on a potential transaction. For many commodities, depending on the position that the investor adopts and the subsequent performance of the market, futures contracts are an excellent way of guaranteeing a source of income.

How Interest Rates Affect Forex Trading

Forex rates are always on the move. When traders are new, sometimes the moves seem mysterious and random. There are many things that affect the movement of exchange rates between countries. One thing that is always an underlying factor that is constant is the interest rate on a currency. In general it's considered good practice anywhere to gain interest on your money. People all over invest in money market funds, and bonds, and all types of investment instruments that offer paid interest in return for the use of the money.

A huge advantage of having access to a forex trading account is that you can invest your money in foreign currencies that pay interest. This really works out when you find a country that has a low interest rate to pair against. A set up like this is called carry trading. Carry trading is when you pick a currency pair that has a currency with a high interest rate, and a currency with a low interest rate and you hold it in favor of the currency that pays more interest. Using daily rollover, you get paid daily on the difference in interest between the two countries. If you've employed some leverage, you can make a very good return versus the capital required to make the trade.

The question is, how do interest rates affect currencies?

The easy answer is that it makes global investors pour their money into countries so they can get a piece of the return. As interest rates go up, interest in that country's currency goes up. If a country raises interest rates over a long period of time, this can cause an extended trend against other currencies. Money just continues to pile into these currencies until there is any indication that the party might end soon.

The downside of this approach to trading is that it's very risk sensitive. Anything that could affect economies globally can shake an interest rate trade to the core. This type of shake up doesn't come often, but when it does, it leaves disaster in it's wake for anyone that isn't prepared. During the financial crisis of 2008, high interest currency pairs moved sometimes over 1000 pips a day as the world economy became very uncertain. For months after anytime any step of the recovery looked shaky, similar smaller flip outs would happen.

Sometimes a country will have a high interest rate but a falling currency. This is usually an indication that the amount of interest they are paying isn't worth the risk required. The other thing it can indicate is that there are signs that rates will be lowered soon.

As a forex trader, it's good to look at the full picture. How is the country doing economically? Why are they raising or lowering interest rates? Not to mention, you need to know about the country that you're pairing the high interest currency against. This is all a game of relation. Sometimes it's one of the currencies in the pair that is causing movement, and sometimes it's both, so it's always good to take the full picture into account.

There are always multiple factors that move a currency, but interest is one of the number one factors, only followed by risk. If you can understand those two factors when making trades, you'll be just fine as long as you don't over do it.