What is a bitcoin worth?
For the growing band of people who follow the virtual currency, the answer is self-evident: The price of a bitcoin this week surpassed $780, a record.
On Jan. 1, you could have bought a bitcoin for merely $13.50. At Friday afternoon's price of about $730, that bet would have grown about 54-fold.
The bitcoin phenomenon, and the technological innovation that made it possible, is interesting—but for investors large and small, the more pertinent question is whether they should buy the virtual currency or avoid it.
Is bitcoin another flash in the pan? Or are the early investors onto something -- that will make them rich? WSJ's Jason Bellini has #TheShortAnswer.
Unlike traditional money, bitcoin exists only online. To create, or "mine," the currency, computers guess solutions to complex math problems and send them to other computers on the bitcoin network. (More on that below.)
As time goes on and more coins are mined, it becomes more difficult to create bitcoins. Right now, about 12 million bitcoins have been found, with about 9 million yet to be discovered.
Once created, bitcoins can be traded on currency exchanges or used as money to purchase goods and services from merchants that accept it.
Its limited supply has made bitcoin attractive to people worried about inflation, while its anonymous nature makes it a favorite among those making illegal transactions.
On Monday and Tuesday, bitcoin's strengths and weaknesses were discussed in Congress, with U.S. Senate committees hearing testimony from federal officials who attempted to explain how bitcoin worked, what its legitimate uses are and why it has been attractive to criminals.
Even Federal Reserve Chairman Ben Bernanke weighed in, writing in a letter to a Senate committee that bitcoin and other virtual currencies "may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system."
Yet some economic historians are already comparing bitcoin fever to legendary manias of the past.
Larry Neal, a professor emeritus of economics at the University of Illinois, is in the midst of writing a textbook on the history of international finance. He says he's thinking of including a passage on bitcoin and how it embodies investors' struggle for returns.
"Where's the backing that would persuade random strangers to accept this?" says Mr. Neal, who in his book "I Am Not Master of Events" wrote about a currency bubble in 18th-century France that ended with investors losing most of their money.
But on the flip side of the coin are investors such as Raoul Pal, a former hedge-fund manager and founder of the Global Macro Investor, a macroeconomic research service. This month, Mr. Pal issued a research report to his subscribers that concluded with the words: "Trade Recommendation: Buy Bitcoin."
Mr. Pal admits there's a likelihood that bitcoin ends up being worthless. But there's also a chance, he says, that it ends up taking over at least part of gold's traditional role as a store of value.
Other bitcoin proponents believe it could become an integral part of the remittance market, since bitcoins can be sent to relatives abroad with lower fees and less hassle than traditional money-transfer services.
Bits and Pieces
Mystery still surrounds Bitcoin. Its creator -– or creators -– has remained anonymous and specific details surrounding the history of the virtual currency remain fuzzy. Still, buzz is growing. Here's a rough timeline of the Bitcoin evolution.
If it replaces some or all of gold's role, given the limited supply of bitcoins relative to that of gold, the potential upside for bitcoin is huge, possibly hundreds of times the current price, Mr. Pal says.
In other words, a small amount of bitcoin is a kind of lottery ticket. It will probably be worth nothing, but if it's worth something, it could be worth a lot.
That gives individual investors two legitimate choices. The safest, and least expensive, route: "Just ignore the whole thing," says Mr. Neal.
But for the more daring: Buy one or a fraction of one, or a handful of bitcoins, with money that's set aside for speculation and can be lost, says Mr. Pal.
Here's a guide to how bitcoin works, how it's performed as a speculation so far and why it might not be a terrible idea to buy a tiny stake.
The Forex market is the world's biggest trading market and demonstrates a growing trading volume which has risen from about $500 billion dollars in 1989 to $2 trillion today. It is also a very liquid market which is not attached to any specific trading floor and operates 24 hours a day across the world making it effectively a permanently open market. As one market closes its doors another is opening and you can follow the markets across the world as you trade and more or less ignore the fact that your own home market will close at the weekend.
It is not surprising therefore that Forex trading attracts a wide and growing variety of both big and small traders who enjoy a wide choice of trading strategies based upon the many different factors which affect foreign exchange rates. Indeed for many traders coming into the market it is the many different factors which affect foreign currency exchange rates which they find most attractive as it allow them to use an enormous range of tools when working in this amazingly exciting market.
Perhaps the largest influence nowadays however on the growth of the market and on its popularity can be found in automation which is simpler than ever before to achieve and which brings along with it many more advantages than disadvantages.
Automatic foreign currency trading allows trading to be conducted anywhere in the world in real time and all but eliminates the losses so often seen in manual systems which are trying to operate in such a volatile and fast moving environment. Anyone who has experienced trading using manual systems will know only too well the annoyance resulting from a series of losses caused by nothing more than a time delay when selling or buying.
Automated Forex trading also permits you to operate in a wide range of different currency markets simultaneously without any regard for the time zones of the markets in question. If you are in the US at 2 o'clock in the morning then automated trading allows you to conduct business with traders on the other side of the world in several different countries at the same time without any problem.
For many traders one problem is the management of risk and this is also reduced as we move towards automated trading. Manual systems sometimes leave traders nervous about whether payment will be made following the conclusion of a trade but because payments will now be synchronized in real time this is a lot less likely. Indeed, as automatic systems continue to be developed settlement systems will also be updated and any risks are likely to be virtually eliminated in the near future.
Technology has advanced considerably in recent years and will continue to do so for many years to come. Most importantly, access to that technology simply and cheaply from our own homes, or nowadays even when we are away from homeFeature Articles, means that we can all now handle our investments with ease. For those operating in the currency trading world automatic Forex trading will undountedly come as a welcome addition to an already great investment vehicle.
One may not immediately be aware of it, but stock investing is a means to stable personal financial status. It is not unnatural for people at this day and age to look for opportunities to augment their income. Someone who works for a living, is more often than not unsatisfied with what he is earning from his day job. The nine-to-five work arrangement may sure provide for his daily expenses, but rarely does he manage to save a good amount of it. Most of the income from employment is spent on necessities, barely leaving any amount to allocate for extra income. For those fortunate enough to have surplus income, they invest the money by depositing it in a bank and letting the money grow via the bank's imposed interest rates.
However, the income generated via this rather traditional way is not as profitable as one may think. Usually, the inflation rate is higher than the interest rate which makes the bank alternative a losing deal. It is this seemingly lack of opportunity to grow one's savings which drives most of the working men and women to take on extra jobs other than their regular apartment. This is one way of increasing one's income and savings, but eventually it takes its toll on the health of the working individual, as his rest period and time off work is severely compromised. There are those who have saved a significant amount of money start their own business, only to see this grandiose plan flounder because of sheer inability to handle a business. All these high-effort but low-return means to get your hands into more money leaves us with one overlooked alternative that relatively requires less effort but offers the biggest bang for your buck: stock investing.
.jpg)
It is not difficult at all to succeed in stock investing. It is usually a matter of choosing what companies to invest in and when to invest in these companies. It is always wise to invest in financially and operationally sound companies. At the end of the day, even the hottest stocks may turn cold after the volatile market forces have run its course. A good company to invest in has a good product or service to go with it. Reputable companies, the so-called blue chip companies, may have stocks that are higher in price. But these are the stocks that are the envy of all investors, because it is optimal in terms of risk and profit.
As mentioned earlier, stock investing is not only knowing the companies but also knowing the timing of investment. Smart investors are on the look-out for fluctuations that may prove to be the very opportunities to increase the monetary equivalent he is playing in the stock market. Thus it is advisable to watch out for the business environment in order to be made aware of the conditions that may prove to be pivotal in holding or selling the stock. In this manner, stock investing is much like surfing: spotting when or when not to ride the waves.
Nowadays, stock investing can already be done by the man on the street. One does not need brokers to successfully invest in the stock market. There are online stock broker services that initially help the investor to get started. But once stock investor gets the hang of stock investing, he can directly to the investing and trading with the aid of the online portal.
When you take a closer look, the alternative means of extra income via stock investing is just a spin-off of earning from a business. Instead of putting up your own business and investing your life-savings on it despite the uncertainty, it makes perfect sense to invest in another's business without the uncertainty. It is a calculated bet on a business entity, pinning one's hopes that this company will win him the big prize. In a nutshell, an investment made to a company is being made when one does stock investing, as stocks are the basic unit of investment. You let the companies you have invested in make use of your well-earned money, so they can further expand their operations and thus generate more income for the benefit of itself and for the investor. The second richest man in the world, Warren Buffett, has made his millions from stock investing. This is quite an invitation to most of us not familiar with investing in the stock market.
If you are a neophyte investor, perhaps you have never invested in bonds before. Before you invest, you need to understand some of the risks associated with investing in bonds. Most people assume that all fixed-income investment instruments are completely risk free, but this is not the case. Even if you are an experienced investor, you may not be aware of all the potential shortcomings of bonds. For the purposes of this discussion, we are going to carefully examine the pitfalls and risks associated with bonds.
The most important risk factor you need to take into account is the interest rate. Even if you are new to investing, you are probably aware that every 6-8 weeks, the Federal Reserve (also known as the Fed) meets to evaluate the current condition of the economy. At each meeting, the Fed renders a decision regarding interest rates. If inflation has been increasing, the Fed will need to raise interest rates. If inflation is moderate or contained, the Fed will likely maintain the current interest rate level. However, if the economy is slowing down and there is very little inflation or maybe even deflation, then the Fed might decrease interest rates to stimulate the economy by making it easier for businesses to borrow money.
The reason why the current and future level of interest rates are important for bonds is because as interest rates go up, bond prices go down, and vice versa. If you are able to hold a bond until maturity, then interest rate movements do not really matter, because you will redeem the principal upon maturity. But often, investors have to sell their bonds well before the maturity date. If interest rates have moved up since you bought the bond, and you sell it prior to maturity, then the bond will be worth less that what you paid for it.
It is also important to understand the claim status of the bond you are buying. Claim status refers to your ability to recover your investment in the event the bond issuer goes bankrupt. If you are buying a government bond, such as a Treasury Bill, claim status is irrelevant, because the odds of the Federal Government going bankrupt are slim and none.
If you are buying a corporate bond, however, there is always a chance that the issuer could go out of business. In the event of liquidation, bondholders are given priority over stockholders. However, there are often several classes of bondholders. Senior note holders can often claim against certain kinds of physical collateral in the event of bankruptcy, such as equipment (computers, machines, etc.). Regular bondholders claim after senior note holders. You should check your bond portfolio to determine what class your bonds are in. If you can not determine the class of your bonds, call your broker.
Next, you should always check the three most basic features of a bond; the coupon rate, the maturity date, and the call provisions. The coupon rate is the interest rate. Most bonds pay an interest rate semiannually or annually. The maturity date is the date that the bond will be redeemed by the issuer; simply put, the maturity date is when the company must pay back to you the principal you loaned to them. The call provisions refer to the rights of the issuer to buy back your bond prior to maturity. Some bonds are non-callable, while others are callable, meaning that the company can buy your bond back before maturity, usually at a premium.
Finally, you should also understand that if economic conditions become more favorable after you a buy a bond, and interest rates start to go down again, the issuer will likely issue a lot more bonds to take advantage of the low interest rates, and will use the proceeds to try to buy back any callable bonds it issued previously. So, when interest rates go down, there is an increasing likelihood that your bond will be redeemed prior to maturity, if in fact the bond is callable.
I hope this information will help you formulate a strategy for making wise decisions when investing in bonds. Even though bonds are normally classified as fixed-income securities, you now understand that there are risks associated with them. So, follow all of the procedures outlined in this article when evaluating the risk characteristics of bonds, and you will do fine.
Earning residual income has become one of the most popular business models for Internet marketers. Why go through all the effort to get someone to buy just one widget when you can get him or her to pay for your widget and the widget sharpening service every month?
Prospective customers usually need to see your ad, product or service several times before they feel comfortable enough to buy. That means getting your ad in front as many people as possible. It's a numbers game that must be played but why not at least put it to work for you?
For your first work at home business you may want to keep costs down and work on just producing any amount of income, while still learning the ropes. With residual income opportunities, since someone else is earning a residual income from your efforts, you should have plenty of support and training from the program you choose.
Do not go into a residual income opportunity assuming that all you need to do is sign on and pay a small monthly fee and others will do the work for you. If you go in with this mentality you will most likely fail to produce the results your looking for.
What to look for in earning residual income opportunities
Look for as much of a turn-key business system as you can find. The Internet has produced many programs, some are legitimate money making opportunities, and many are scams or schemes. So do your research before spending any money on programs that promise earning residual income.
Legitimacy is the first thing to look for with any program you are considering. Do a Google search for the program and if it shows up in online Internet marketing forums see what is being said about it. If it has a good reputation on the Internet marketing forums and is well established then you should be in good shape.
Training is another thing to look for within the program, especially if you're new to Internet marketing. It should have a good training website and resources to promote the products and the opportunity itself. Don't necessarily think that your sponsor will have the time to walk you through everything, as they have a business to run themselves. They should however be able to answers a few questions and point you in he right direction to get the information you need.
Earning a residual income is one of the best methods to start an online business and learn the basics of Internet marketing. One thing to remember if you are new to Internet marketing or any network marketing in general is that earning residual income online will take time and effort. Don't expect instant results, and don't think you can buy your way in.
One thing is certain, if you don't start building the foundations to earning a residual income, you never will earn one.
Unlike the experience of buying a first home, when you’re looking to move up, and already own a home, there are many factors that can complicate your situation.
Not only is there the issue of financing to consider, but you also have to sell your present home at the right time in order to avoid either the financial burden of owning two homes or, just as bad, the dilemma of having no place to live during the gap between closings.
In this blog, I outline the six most common mistakes that homeowners have made when moving to a larger home. Knowledge of these
six mistakes, and the strategies to overcome them, will help you make informed choices before you put your existing home on the market.
Keep these six points in mind. Proper pricing is always the key to selling any home.
Avoid these common mistakes:-
1. Looking though rose-colored glasses.
Most of us dream of improving our lifestyle and moving to a larger home. The problem is that there's sometimes a discrepancy between our hearts and our wallets. You drive by a home that you fall in love with only to find that it's already sold or that it’s more than what you are willing to pay. Most homeowners get caught in this hit or miss strategy of home searching when
there's a much easier way of going about it. For example, find an agent or a system that will put you in the home that fits your needs and wants. This help to cross-matches your criteria with ALL available homes that are on the market. Also,This helps homeowners take off their rose-colored glasses and, affordably, move into the perfect home.
2. Failing to make necessary repairs and improvements.
If you want to get the best price for the home you're selling, there will certainly be things you can do to enhance it and make it more desirable. These repairs and improvements do not necessarily have to be expensive. But even if you do have to make a minor investment, it will often come back to you ten-fold in the price you are able to get when you sell. It's very important that these improvements be made before you put your home on the market. If cash is tight, investigate an equity loan that you can repay on closing.
3. Not selling your existing home first.
I always recommend selling before you buy your next home. This way you will not find yourself at a disadvantage at the negotiating table, feeling pressured to accept an offer that is below-market value because you have to meet a purchase deadline. If you've already sold your home, you can buy your next one with no strings attached.
If you do get a tempting offer on your home but haven't made significant headway on finding your next home, you might want to put in a contingency clause in the sale contract which gives you a reasonable time to find a home to buy. If the market is slow and you find your home is not selling as quickly as you anticipated, another option could be renting your home and
putting it up on the market later - particularly if you are selling a smaller, starter home. You'll have to investigate the tax rules if you choose this latter option. But, if your home is priced right, you should have no problem selling it regardless of the level of market activity.
4. Failing to get a mortgage pre-approval.
Pre-approval is a very simple process that many homeowners fail to
do first. While it doesn't cost or obligate you to anything, pre-approval gives you a significant advantage when you put an offer on the home you want to purchase because you know exactly how much house you can afford, and it’s saves time when you’re ready to make your move. With a pre-approved mortgage, your offer will be viewed far more favorably by a seller - sometimes even if it's a little lower than another offer that's contingent on financing. Don't fail to take this important step.
5. You already found your ideal home, what to do now?
Your biggest dilemma when buying and selling is deciding which to do first. You don't want to end up with the terrible situation of owning two houses, or worse, owning none! Point number 3 above advises you to sell first, but what if you found the ideal home before your house has sold and you want to write an offer NOW? Simply, write the offer contingent upon the sale of your existing home.
6. Failing to coordinate closings.
With two major transactions to coordinate -- together with all the people involved such as mortgage experts, appraisers, lawyers, loan officers, title company representatives, home inspectors or pest inspectors -- the chances of mix-ups and miscommunication increase dramatically. To avoid a logistical
nightmare, ensure you work closely with your agent.
Keep these six points in mind when you start looking for a new
home. They'll make your life easier, and will save you a lot of money.
Ideally, investors try to buy a stock when the price has reached a support level (a level at which the price is as low as it will go) and sell the stock when it hits a resistance level (a level at which the price is as high as it will go). This is easier said than done. Most investors end up missing out on a continual rise by waiting for a stock to plummet first, or sell way to early by underestimating how high the price will go. In this blog, I will focus on the two most popular strategies that you can use to invest without having to worry about market timing.
Dollar cost averaging (DCA) is an investing technique intended to reduce exposure to risk associated with making a single large purchase. According to this technique, shares of stock are purchased in a specific amount on a specified periodic basis (often monthly), regardless of current performance. The theory is that this will lead to greater returns overall, since smaller numbers of shares will be bought when the cost is high, while larger number of shares will be bought while the cost is low.
An example of DCA would be as follows: If I want to buy 1,200 shares of IBM stock using DCA, then I might decide to purchase 400 shares of IBM per month over the course of the next three months. Hypothetically, during month one, the price of IBM may be $105 per share, and then it might drop to $95 per share during month two, and then rise to $100 during month three. If I bought all 1,200 shares during month one, I would have cost me $105 per share. But, by spreading the purchase over a three month period, I managed to buy IBM at an average price of $100 per share.
The primary drawback of using DCA is that you may not be maximizing your overall return. If there is an indication that a certain stock is currently undervalued and might shoot up in price, you would actually make less money using DCA than if you had bought all the shares in the beginning before the price skyrocketed. So, it is not always a winning strategy to spread your purchases over a period of time.
Value averaging, also known as dollar value averaging (DVA), is a technique of adding to an investment portfolio to provide greater return than similar methods such as dollar cost averaging and random investment. With the method, investors contribute to their portfolios in such a way that the portfolio balance increases by a set amount, regardless of market fluctuations. As a result, in periods of market declines, the investor contributes more money, while in periods of market climbs, the investor contributes less.
Here is an example of DVA: I want to invest in Yahoo using DVA. For the sake of argument, we will say that Yahoo is currently $10 per share. I determine that the value of the amount I am going to invest over the course of 1 year will rise, on average, $1,000 each quarter as I make additional investments. If I use DVA, I invest $1,000 to start. If, at the end of the first quarter, the share price has risen to $15 per share, that means that the value of my investment is now $1,500, which means I will only have to invest $500 at the start of the second quarter in order to bring the total amount of my investment for the first and second quarter to $2,000. So, I am investing less as the stock price increases.
Dollar value averaging usually works better than cost averaging because value averaging results in less money being invested as the stock price goes up, whereas with cost averaging you continue to invest the same number of dollars regardless of the share price. But, neither of these strategies are necessarily full-proof. Make sure you know something about the company you are going to invest in before you go forward.
The foreign exchange trading community has grown in leaps and bounds in recent years as more and more investors are finding the incredible financial potential. It is regulated by the investor and is open 24 hours a day for business. In fact, forex trading has become so popular today that many investors are creating home-based businesses exclusively around this market. There is relatively little headache and hassle involved with the process and can also be executed from home with a personal computer and an internet connection.
One of most attractive advantages to the foreign exchange market that lies within the 24-hour access benefit is that this creates the option for a trader to take positions in the market without waiting for an opening bell to ring. Regardless of the time zone the trader is in, there is always foreign exchange trading experts ready to buy and sell currency prices. Providing this type of access gives the foreign exchange trader a huge advantage over other investment markets.
Foreign exchange trading is based on a pair principle in that every currency is traded in pairs. Every trade engages two separate currencies on what is called a two-way market. The financial advancements to be made in this type of trading are having an instinct based on current events that will depreciate a certain currency. The pair system works as a cause and effect relationship and as one currency makes gains on the market, the other currency suffers a loss. Foreign exchange trading allows revenue to be made both the losses and the gains in relation to the investor's currency.
A huge benefit to choosing forex trading is the relatively small selection of choices when compared to other investment choices such as mutual funds or the stock markets. When dealing with forex trading, most traders tend to begin with only one select currency and will graduate to trading three or four as they become more experienced.
Foreign exchange trading demonstrates the ability to track the trends that take place over both long and short periods. Every currency takes an individual course and reveals its own set of characteristics allowing the investor a peek at the future of a specific currency by looking into its past. This sets forex trading very high in the ranks of investment options because it provides an array of option and prospects within the foreign exchange market.
Most individuals that are just beginning to learn the foreign exchange trading market require the expertise of a foreign exchange broker. In order to trade, it is necessary to seek out a good broker and open a margin account on the foreign exchange market in order to participate. This margin account is an absolute necessity and these are settled every day. This means that when you lose profits they are taken out of that margin account and similarly when profits are gained, they are put into the margin account that same day.
Now that most of the advantages are obvious to potential investors, there are a few things to understand before setting out to invest in forex trading. First, make sure that the currency pair is well researched and the trends are paid particular attention to, as this can be a great tool with foresight. RememberArticle Submission, there is no good plan with foreign exchange trading or other markets without an exit plan! Know the limits and be disciplined enough to follow these strategies to bring success to any foreign exchange trading experience.
Oftentimes, certain opportunities present themselves within companies of different sizes. This lesson will introduce you to the different types of companies, the benefits and risks of each type, and how to structure your portfolio for your individual risk levels.
First of all, we will explain what market cap is and how you can determine the size of a company.
Determining how large or small a company is
The most common method of calculating the value of a company is to look at its market capitalisation – often referred to as the "market cap".
The market capitalisation of a company is the value of a company based on the total value of all its outstanding shares.
Market capitalisation formula: outstanding shares x share value = market cap
So if a company had 100,000 outstanding shares and they were worth $10 each, then the market capitalisation would be $1,000,000.
The market capitalisation therefore shows how much it would cost to purchase the entire company at the current share value, in other words, buying all of its shares. When a company's share price goes up or down, the market capitalisation will increase or decrease respectively.
Market cap allows you to see how much the company is worth
An individual share price does not tell you how much the company is worth as a whole. A company with a lower value of stock may actually be worth more than one with a higher share value, if it has more of them outstanding.
In this sense, it allows you to make a quick judgement of a company, without having to look into details such as the company's balance sheet, equity and debt value.
Companies are grouped together based on market cap
Working out the size of a company's value allows investors to group together certain companies in order to diversify their investments. The groups are divided into small-cap, medium cap and large-cap companies.
Small-cap companies
Small-cap companies usually have a market value of between $500 million to $2 billion, however, this is not set in stone.
They are usually new companies that are not followed as much or are not as widely recognised as larger companies.
Advantages of small-cap companies
Small-cap companies can present good opportunities as their shares are usually much cheaper to buy.
With the exception of periods of economic turmoil, small-cap companies can outperform companies of a larger size due to their greater growth potential.
During periods of economic growth, traders may turn their attention to smaller companies because confidence is high and they are likely to increase their risk tolerance for greater returns.
Finding an edge with small-cap companies
With smaller companies, many investors may buy or sell shares based on a more personal approach. For example, customers of some companies may have more of an insight into how a company operates. They will usually be the first to see new products or services that the company may offer. They may even have a sixth sense of upcoming changes, just simply being involved with it.
Increased volatility of share price gives a sign
The volatility of smaller companies can often make it easier to sense when a change is coming. The lower liquidity of smaller companies means volatility can often be much higher and so a sudden increase in price action can be a giveaway that other traders are interested in their stock.
Disadvantages of small-cap
Small-cap companies are generally associated with higher risk, because they are usually new. There is a greater chance of a small company going out of business than mid-cap or large-cap companies that have established brands.
Small-cap companies pay little in the way of consistent dividends to investors. This is because they need to reinvest profit back into the company to grow. This is not to say they do not pay dividends at all, because sometimes they may do so in order to attract new investors. However they are less likely to do so on a regular basis.
Trading small-cap shares can be more difficult because they have less liquidity than mid-cap and large-cap companies. This is due to the fact that less people trade them. This can make their share price more volatile and make it more difficult to get the desired price.
Mid-cap companies
Mid-cap companies are those that have a market capitalisation of around $2 billion to $10 billion.
In some cases mid-cap companies are former large-cap companies that have seen a decrease in share value, but they still have the potential to grow.
Advantages of mid-cap
A mid-cap company is seen as the middle of the road in terms of risk, because there is less potential that they go out of business than in the case of small-cap companies.
Once a company has reached the size of a mid-cap, they usually have access to higher levels of funding than small-cap companies, which is an advantage during times of economic hardship.
Mid-cap companies have growth opportunities through product development and customer acquisition, compared to larger companies that may have reached their limit of organic growth.
They are also more likely to pay dividends more consistently than small-cap companies.
Finding and edge with mid-cap companies
As well as having the above advantages over small-cap companies, mid-cap companies can still hold many of the benefits that smaller firms do as well.
For example, in periods of growth in the economy, mid-sized firms also do well because of their growth potential.
It is often easier to analyse the potential of medium sized companies because their balance sheets and financial statements are generally much smaller and can be easier to read than companies of a larger size. This makes it easier to determine what they are working on, in terms of new products, and what their prospects are for the future.
Mid-cap companies have more access to a decent amount of funding and so if a trader determines that a new product development could result in significant revenue increase, then this could result in a decent return for a trader looking to buy those shares.
Disadvantages of mid-cap companies
The growth prospects of mid-caps can be lower than those of small-cap companies.
Although less risky than a small-cap stock, they are more risky than large-caps. This is because mid-caps are more exposed to adverse changes in economic conditions than large-cap companies.
Despite the growth potential that a mid-cap company has over a large-cap company, a mid-cap company can become stagnant. Determining which mid-caps will actually grow into large-cap companies can be difficult.
There is also less liquidity trading mid-caps than large-cap stock.
Large-cap companies
Large-cap companies, also known as blue chip companies, have a market capitalisation of over $10
Advantages of large-cap companies
Large-cap companies are usually seen as the safest investment for those looking to gain a stable return, as they usually pay dividends on a more consistent basis than small or mid-cap companies.
Large-cap companies have access to greater funding and cash, which make them more secure in volatile economic circumstances. During economic downturns, you may actually see an influx of investment into these companies because of their safety.
Liquidity is higher for large-cap companies, resulting in lower volatility and a better chance of securing the price you want when you trade them.
A firm that has reached this size usually is able to invest further into developing products that already have a brand behind them. When large firms make an announcement that they have developed a new technology or a cutting-edge product, there is usually a positive response from trader and investors.
Finding an edge with large-cap companies
Finding an edge for large-cap companies is more difficult to find than small or mid-cap companies, because there is little in the way of public information that will not be available for all those that are trading it.
Those looking for an edge to determine which large-cap companies will usually analyse the company in-depth to determine if the company is undervalued or not. Sometimes this can be enough, because some traders are more willing to analyse companies more than others.
For example, large-cap companies produce very large and complicated company and earnings reports. A trader that will go through this information in-depth may determine something that shows the company is undervalued and find an opportunity.
Disadvantages of large-cap
Large companies have the least potential for significant growth, because they have usually reached a limit in their ability to acquire new customers organically.
Due to the fact that these shares are the most popular and well established, they are generally the most expensive. This means you will be less likely to purchase larger quantities of them.
There is still risk in investing in large-cap and despite historic performance, there is no guarantee that having a low risk blue chip portfolio will give consistent stable returns.
For example, banks were once seen as stable large-cap companies. However, since 2008, many banks have seen their share prices collapse, dividends suspended and their existence even threatened because of the sudden instability of the banking sector.
Diversifying your trading into different caps
Diversifying your portfolio among companies of different capitalisation can avoid your portfolio being too one sided. Having a higher percentage of large-caps would limit your potential for growth, whilst a high percentage of small-cap companies can be too risky.
When you are looking to trade, or invest into, different shares, it is a good idea not to expose yourself to only one aspect of the market.
Many traders and investors advocate that it is a good idea to have large companies in a portfolio for consistent returns, but also hold a selection of mid and small-cap stock for growth potential and large gains.
Talking Points:
- Scalping strategies can be broken down into three components
- Always consider market direction and the trend
- Plan entries around retracements or breakouts
Many traders want to implement a scalping strategy, but don’t know where to get started. The truth is, you can develop a simple scalping strategy in as little as three steps. Today we will review the three components of a scalping strategy. Let’s get started!
Find The Trend
The first step to scalping is finding the trend. Finding the trend is vital because it helps create our trading bias for a currency pair. For example, if the pair is creating a series of higher highs, traders would only want to look for buying opportunities. This is opposed to a graph that is moving towards lower lows, when sell positions are preferred.
Using the example below, we can see the USDCAD has been trending upwards with the creation of a series of higher highs and higher lows. This means that scalpers should look for opportunities to buy the market.
Time Your Entry
The next step in developing a scalping strategy is to decide on an entry mechanism. Normally, scalpers will choose from either a retracement strategy, or a breakout strategy. In an uptrend, retracementtraders focus on pullbacks in the trend, in order to buy at a lower price. This is opposed to a breakout trader that will only buy when the market breaks a key level of resistance as price forms a higher high.
Below we can see two points that scalpers could consider as entry points. First, if price moves and forms a higher low, this swing could be an opportune retracement for trading. Next on the USDCAD you can see the breakout above the weeks previous high. This point on the graph would provide an opportune point for breakout traders to scalp in the direction of the trend.
Manage Risk
The last step of any trading strategy is to manage risk. While there are a variety of ways to place stops, traders should also consider the told risk associated with their trade. Normally a good frame of reference is to risk no more than 1% of your trading balance on any 1 position. This way, in the event of a position being stopped out, the majority of your account balance is remaining to look for other trading opportunities.
Now that you are familiar with the 3 basics steps to designing a scalping strategy, it’s important to find the components that work for you. You can get started developing your own strategy with a Free Forex Demo with GCM. This way you can develop your trading skills while tracking the market in real time!
Not sure what a small cap is or why you should care?
There are thousands of stocks to choose from, so investors usually like to put stocks into different categories: size, style and sector.
By size
A company's size refers to its market capitalization, which is the current share price times the total number of shares outstanding. It's how much investors think the whole company is worth.
XYZ Corp., for example, may have 2 billion shares outstanding, and a stock price of $10. So the company's total market capitalization is $20 billion. (Technically, if you had an extra $20 billion lying around, you could buy each share of stock, and own the whole company.)
Is $20 billion a lot or a little? No official rules govern these distinctions, but below are some useful guidelines for assessing size.
Large-cap companies tend to be established and stable, but because of their size, they have lower growth potential than small caps.
Over the long run, small-cap stocks have tended to rise at a faster pace. It's much easier to expand revenues and earnings quickly when you start at, say, $10 million than $10 billion. When profitability rises, stock prices follow.
There is a trade-off, though. With less developed management structures, small caps are more likely to run into troubles as they grow -- expanding into new areas and beefing up staff are examples of potential pitfalls. Of course, even corporate titans get into trouble.
By style
A "growth" company is one that is expanding at an above-average rate, much as tech companies did in the 1990s.
Catch a successful growth stock early on, and the ride can be spectacular. But again, the greater the potential, the bigger the risk. Growth stocks race higher when times are good, but as soon as growth slows, those stocks tank.
The opposite of growth is "value." There is no one definition of a value stock, but in general, it trades at a lower-than-average earnings multiple than the overall market. Maybe the company has messed up, causing the stock to plummet -- a value investor might think the underlying business is still sound and its true worth not reflected in the depressed stock price.
A "cyclical" company makes something that isn't in constant demand throughout the business cycle. For example, steel makers see sales rise when the economy heats up, spurring builders to put up new skyscrapers and consumers to buy new cars.
But when the economy slows, their sales lag too. Cyclical stocks bounce around a lot as investors try to guess when the next upturn and downturn will come.
By sector
Generally, different sectors are affected by different things. So at any given time, some are doing well while others are not.
In most cases, finance, health care and technology tend to be the fastest growing sectors, while consumer staples and utilities offer stability with moderate growth. The other sectors tend to be cyclical, expanding quickly in good times and contracting during recessions.
Leverage is the single most valuable tool for Forex traders; it allows traders to create a lot of money using only a small initial deposit. Without leverage, Forex trading would be limited to major players like banks, hedge funds, and very wealthy private investors - the retail trading crowd would be sorely limited. With that said, leverage is also the greatest reason so many retail Forex traders lose money.
Leverage is a tool and like any other tool it can be dangerous if used improperly. A risk management plan is a necessary step for traders looking to help use leverage correctly. Managing your risk is both the most challenging and most important element of trading, so we're going to give you a little bit of guidance on how to best manage your risk to help ensure a long trading career.
Capital preservation is the key to a successful trading career. What does that mean? The money in your account, your capital, is your lifeblood as a trader. Without it, you obviously cannot trade, and the more of it you lose, the harder it is to recover. Risk management and capital preservation are two sides of the same coin; you have to manage your risk in order to preserve your capital. As corny as it may sound, trading is a marathon, not a sprint. There is no get rich quick scheme for forex, trading is about patience and hard work.
There are dozens, if not hundreds of risk management "systems" out there, some more valuable than others. All we're going to do here is show you the difference between risking 1% of your account on a trade versus 10%. Generally, a trade should risk between 1-3% of your account at most, and all your open trades should never be risking more than 3%. What that means is that if all of your open trades were to be stopped out, the damage to the overall value of your account would be 3% of less. That means you can open 1 trade that is risking 3%, 3 trades each risking 1%, 6 trades risking 0.5% each, etc.
The reason this management is necessary is simple: trading is very difficult. You will have losing streaks, it's inevitable. Losing streaks are fine, but a 5 trade losing streak, risking 10% a trade? You just halved your account. Let's take a look at some specific examples, to show you what I'm talking about. The three scenarios I play out below all involve a 5 trade losing streak - hardly an impossible occurrence when trading forex.
As you can see from the numbers above, a five trade losing streak will virtually cut your account in half if you're risking 10% a trade, while losing 5 in a row while risking 1% will leave your account mostly intact.
The flip side of this is of course is you have a 5 trade win streak, you're account will grow much faster if you're risking 10% a trade than if you're risking 1%. The issue, however, is that forex trading is hard, and most of the time you will have more losing trades than winning trades. All it takes is one bad month to wipe out an account if you're trading at 10% risk per trade. Forex trading is about slow, consistent account growth. The best way to make money trading forex is to protect your account, protect your capital, and manage your risk.
As always, if you're having trouble managing risk, or figuring out how to best protect your account, please feel free to ask any of the strategists here at GCM inc for advice, and consider our one-one coaching program, which includes a healthy amount of risk management training.
Despite their inherent durability, there are different risks involved with investing in commodities, especially when one considers the different aspects of the initial investment, the type of loan or margin at which the commodity is purchased, and in some cases, the nature of the commodity itself.
Although market forces do not impact commodities in the same way they impact stocks, they do play a role. If an investor has allocated a significant portion of his portfolio into eggs, for example, and a biological blight renders an entire month’s supply of eggs unusable on one continent, the difference between the expected performance of the commodity and the dismal reality will cause that investor to lose substantial amounts of money, depending on the types of contracts that investor has secured.
However, this is not an automatic loss for the investor. Consider the following scenario. If the biological egg blight occurred in Europe, but the investor had invested in unusually high demand futures in the United States, the investor would actually reap enormous profits from his investment when Europe’s lack of supply forced the continent to import eggs from other countries. Europe’s significant demand would bolster egg prices in the United States, thereby dramatically increasing egg performance over standard industry expectations.
Of course, this scenario requires unusual acuity and luck on the part of the investor. Consider the reverse scenario, which is just as likely. This same investor has invested in high egg supply futures in Europe. When the blight occurs, the supply drops astronomically. Should the investor have purchased futures, as opposed to options on this commodity, he will be required to sell his futures at a pre-appointed date for an agreed value. When he attempts to sell his high European egg supply futures in a climate of enormous demand, he will lose a tremendous amount of money because the market simply does not match the anticipated futures.
In each case, there is really no way for the investor to know whether eggs will experience high supply or high demand in Europe when he buys the initial future or option contract. In this way, commodities can be a risky investment, because they are prone to natural disasters and other events that no ordinary human can predict.
However, there are always ways to mitigate risk. In each version of this scenario, the investor chose futures which required the market to behave in unusual ways. It should be noted that investors can choose to invest in commodities with a high volatility ranking to increase their chance of windfalls, but that this strategy can also backfire and result in tremendous losses. Many commodities have low volatility rankings, and will therefore perform in a fairly predictable way.
Additionally, there are so many ways to invest in commodities—including a yield curve approach, where an investor buys the same type of commodity with different future maturity dates—that an experienced investor will probably be able to balance any high volatility commodities with steadier performers.
An investor must also consider the benefits of the specific financial tools he uses to acquire the commodities, such as “futures” versus “options.” Each poses its own risks, from the amount of the initial investment to the agreed sell date. Depending on what financial institution the future or option is purchased from, an investor may be subject to variable margin fees. While each of these topics will be explored in-depth in subsequent sections of this guide, an investor should know this: while risk is certainly a factor in investing in commodities, the nature of the investor and the amount of information he is willing to gather will largely determine how successful his investments are. In other words, commodities can be a wonderful investment, but a certain degree of risk is always part of every transaction. Nothing, unfortunately, is ever fully guaranteed.
One of the biggest problems for the new Forex trader (and quite a few experienced traders) is that they are no real rules to Forex trading. Now in some ways that's one of the beauties of forex trading and it's nice to have the freedom to trade when you want to, to enter and exit positions whenever you feel like it, to increase or decrease an existing position and simply not to trade at all if you don't feel like it.
But within this freedom there also lies considerable danger.
No matter what we do in life there is no doubt that we do much better if we have a clear objective in mind and a roadmap to get us there. However, even though having a road to follow is essential, it is also important that we have a set of rules to follow to keep us on that road and to stop us from taking a wrong turning and ending up heading off course or driving up a dead end road.
In Forex trading there's no doubt at all that traders who follow a strict set of rules meet with far greater success than those who simply 'wing it'. Also, if you speak to traders who do follow a set of rules they'll tell you that, nine times out ten, when they have a bad day it's because they don't follow the rules and, when they have a good day, it's because they stick to them like glue.
The problem is that, since Forex trading doesn't really have any rules, you have to create a set of rules for yourself.
Now exactly what rules you will lay down for yourself will depend very much on your own trading plan and your rules will need to be reviewed whenever you update your plan - which you should do on a regular basis. So what sort of rules are we looking at?
Well, you might for example decide that you will never enter a trade without ensuring that you have a stop loss order in place. You might also decide that you will only enter a trade if certain analytical conditions are met. In other words, you will not enter a trade simply because you have a feeling about it, but will only do so if the numbers tell you that you should do so. In addition, you might decide when you are in a profitable trade you will move your stop when your profit reaches a pre-determined level in order to protect your position.
These are just a few ideas and your own list will need to meet your own particular trading strategy. However, whatever shape your list takes and however long or short it is, it is vitally important that you draw up a list, having thought about it very carefullyBusiness Management Articles, and that you then stick to it and also review it at regular intervals.
