Short-term traders seek volatility because a volatile price environment provides bigger moves and more profit potential. The moves also typically happen quickly, which means quicker trades. One way to find volatile stocks is to do nightly research and see which stocks had big movement recently that may continue, or may breakout and become volatile. A simpler way to find the most volatile stocks is to focus on stocks that are consistently volatile. The following four NYSE and Nasdaq stocks have average intra-day movement of more than 6% per day over the last 100 days. By looking at a longer average, such as 100 days, it is likely the price will continue to be volatile for days and weeks to come. All the stocks also have daily average volume greater than 4M shares.
FireEye (Nasdaq:FEYE) is one of the most volatile stocks for day and swing traders. Over the last 30 days its intra-day movement is 8.71% and trades more than 5.5M shares. Since the stock topped at $97.35 on march 5, the trend has been strongly down. Those seeking volatility are predominantly focused on short positions. Very high volume between on May 7 and 8 may indicates a selling climax and a bottom is near, yet betting on that with this major decline underway is very risky. The dominant short-term play remains to get short at intra-day resistance levels, or short on breaks to new lows (as long as strong downward momentum continues on the daily chart), and participate in the daily percentage swings.
SolarCity (Nasdaq:SCTY) has average intra-day movement of 6.94% over the last 30 days, and average daily volume exceeding 5M shares. The long-term trend is up, but a decline starting in March has pushed the price down into support for that uptrend between $45 and $50. Therefore the stock is at an inflection point, which could create an even more volatile environment as the price whipsaws back and forth. A drop below $45 indicates the longer-term uptrend is likely over, while a move back above $62 signals another up wave is underway.
SouFun Holdings (NYSE:SFUN) has average intra-day movement of 6.41% over the last 30 days, and average daily volume exceeding 5M shares. The trend is currently down across long and short-term timeframes. Therefore, opportunities currently lie on the short side. While intra-day opportunities will vary, from a swing trading perspective moves back toward prior resistance present short-trade opportunities. Resistance areas include $12 to $12.50 and $14. Stops are placed $0.75 above these areas, with targets below the recent lows. A rise above $14.75 indicate a short-term bottom is likely in place.
GT Advanced Technologies Inc. (Nasdaq:GTAT) has average intra-day movement of 6.09% over the last 30 days, and average daily volume exceeding 8M shares. Strong selling in May has pushed the price below support at $15, and could continue to fall into the $10 region. Short-term opportunities lie with the downtrend, as rallies currently present opportunities to get short for swing traders. Rallies into $16.50 to $17 are likely to be met with selling pressures; stops are placed above $18. Day traders can look for breaks to new lows each day as long as the strong downward pressure continues on the daily chart.
The Bottom Line
The most volatile stocks intra-day present opportunities for day and swing traders looking for trades with the potential for big profits in a short amount of time. Volatility is a double edged sword though. Losses also mount quickly in these stocks when caught on the wrong side. With more than 6% movement each day, position size should be strictly managed and each trade should account for only a small portion of available trading capital. Use stops, but in a volatile environment even a stop loss order may not execute at the expected price (slippage), resulting in a bigger loss than anticipated. These stocks present great opportunity, but are only for those traders willing to also take on potentially large risk.
Target date mutual funds can be an alternative to bonds and CDs for investors who do not wish to actively manage their savings. This is because these funds periodically reallocate their holdings to a more conservative mix over time as the fund holder approaches the target date – usually retirement. This relatively new category of funds has become a mainstay in the professionally managed product market because of its convenience and general correlation to fiduciary standards. Investors who are looking for an investment alternative that runs on autopilot should become acquainted with these unique vehicles.
History of Target Date Funds
Target date funds first appeared in November 1993 when Barclay’s Global iShares introduced its LifePath Portfolio. Their market share was greatly expanded when the Pension Protection Act of 2006 specified that approved default investments must be offered inside all qualified retirement plans. Because the structure of target date funds met all of the fiduciary requirements that were laid out in this legislation, they became a vehicle of choice for many money managers. Automatic plan enrollment by many employers further increased the flow of money into these funds. Between 2006 and 2013, the total assets in target date funds mushroomed from just over $110 billion to nearly $600 billion.
How They Work
Target date funds are typically constructed as funds that invest in other funds covering several categories of assets, including debts, equities and even alternative investments in some cases. As mentioned previously, these funds are designed to gradually transition from a growth-oriented portfolio allocation at issuance to more conservative holdings as the target date approaches. Most target date funds are used primarily as retirement-funding vehicles, although they are also found in some 529 plans. Some target date funds are actively managed, while others passively invest in various market indices. The rate at which these funds shift their assets is known as their “glide path,” and all funds fall into one of two categories. “To” funds structure their glide rate to achieve the most conservative allocation right at the target date, while “through” funds will not reach their most conservative allocation until after the target date in order to provide a hedge against inflation.
Morningstar now ranks more than 600 target date funds, about a third of which it categorizes into gold, silver and bronze tiers. Some target date funds are only available inside certain plans, such as the Lifecycle Funds that are available exclusively to employees of the federal government in the Thrift Savings Plan (TSP). Others are offered to the general public through brokerage channels, such as those offered by T. Rowe Price.
An example of how target date funds work is shown using the Lifecycle Funds:
The Lifecycle (L) Funds in the TSP are managed by Blackrock Capital Advisors. They represent an amalgamation of the other five core funds in the TSP:
- G Fund – Invests in a non-marketable government bond with guarantee of principal.
- F Fund – Invests in the Barclay’s Capital Aggregate Bond Fund, which consists of publicly traded government securities, corporate and some foreign bonds (low risk).
- C Fund – Large cap fund. Invests in the Standard & Poor’s 500 Index (moderate risk).
- S Fund – Small cap fund. Invests in the Dow Jones Total Stock Market Return Index, which consists of the other 4500 companies in the Wilshire 5000 Index (high risk).
- I Fund – International Fund. Invests in the Morgan Stanley Europe, Australasia and Far East Fund, which holds stocks in companies in 22 other developed countries outside the United States (high risk).
The L Funds can be classified as passively managed “to” funds that are designed to start paying out at the target date. Every L Fund matures at the beginning of a calendar decade. The current L Funds are the L2020, L2030, L2040 and L2050. There is also an L Income Fund for those who will need retirement income either now or before 2015. The other funds are initially allocated with a strong bias toward the three stock funds. The portfolio managers at Blackrock Capital will then reallocate a small percentage of the money in the three stock funds into the two bond funds every 90 days until the target date, at which time 80% of the fund assets are allocated to the bond funds with the remainder split among the stock funds.
Pros and Cons
The hands-off approach offered by target date funds gives investors who eschew active investment management an easy way to put their retirement or other investment-savings plans on autopilot. But the limitations that come with these funds also need to be understood in order to get the most out of them. These funds can also differ substantially in regard to their level of risk and allocation of assets, even among those with the same target date. Few to none offer any type of guarantee of principal, despite their current status as default savings vehicles for qualified retirement plans.
Shareholders need to check the allocation of their target date funds periodically to see how heavily weighted they are in equities; a fund that still has 40% of its assets in stocks five years before the target date may not be an ideal choice for conservative investors. Those who are unsure of how their fund may look when the time comes for them to make withdrawals should look at the target date funds offered by their carriers that have already reached their maturity.
The hands-off approach offered by target date funds gives investors who eschew active investment management an easy way to put their retirement or other investment savings plans on autopilot. But the limitations that come with these funds need to be understood in order to get the most out of them. These funds can also differ substantially in regard to their level of risk and allocation of assets, even among those with the same target date. Few to none offer any type of guarantee of principal, despite their current status as default savings vehicles for qualified retirement plans. If the allocations of a fund seems too risky, another alternative may be more suitable.
Some funds levy hefty sales charges and management fees, while others are sold as no-load offerings with minimal ongoing expenses. And many investors have clearly not bothered to do their homework on the funds into which they put their money. A 2012 study conducted by the SEC revealed that only a third of respondents understood that these funds will not provide guaranteed income during retirement. In addition, because they have a wide and changing product mix, people with other assets invested outside these funds need to remember to include their target fund holdings when they do asset allocation and review how their portfolios are balanced.
The Bottom Line
The amount of money pouring into target date funds shows no sign of slowing. One management consulting firm estimates that the total assets in these funds could grow to close to $4 trillion by 2020 – about half of all money invested in any kind of retirement or pension plan in the U.S. Investors who use them must do their homework to ensure the fund they choose genuinely matches their risk tolerance, investment objectives and time horizon. For more information on target date funds, consult your stockbroker or financial advisor.
It's only a matter of time before historically low interest rates begin rising. Although industry experts agree this is likely to accelerate sometime later this year, it’s difficult to predict exactly when rates will rise and just how high they’ll climb. For this reason, savvy bond investors should ready an arsenal of strategies to hedge against rising rates. Preparation is paramount, as strategy development and execution take time to properly implement.
Trimming Duration
Topping the to-do list, investors should reduce long-term bond exposure while beefing up their positions in short- and medium-term bonds, which are less sensitive to rate increases than longer-maturity bonds that lock into rising rates for longer time periods. But flipping to a shorter-term lower-yielding bond model has a trade-off, as short-term bonds provide less income earning potential than longer-term bonds. One solution to this conundrum is to pair short-term bonds with other instruments, including floating-rate debt such as bank loans, and Treasury Inflation-Protected Securities (TIPS), whose adjustable interest rate is less sensitive to rising interest rates than other fixed-rate instruments.
TIPS are adjusted twice a year to reflect changes in the U.S. Consumer Price Index, a benchmark for inflation. If price levels rise, the coupon payments on TIPS react similarly. As for floating rate loans, these instruments invest in riskier bank loans, whose coupons float at a spread above a reference rate of interest. Thus, they adjust at periodic intervals as rates change.
A few top TIPS ETFs include the Schwab U.S. TIPS ETF (NYSE Arca:SCHP), SPDR Barclays TIPS (NYSE Arca:IPE), iShares TIPS Bond ETF (NYSE Arca:TIP) and PIMCO 1-5 Year U.S. TIPS Index ETF (NYSE Arca:STPZ).
Similarly, three big floating-rate debt ETFs are the iShares Floating Rate Note Fund (NYSE Arca:FLOT), SPDR Barclays Capital Investment Grade Floating Rate ETF (NYSE Arca:FLRN) and Market Vectors Investment Grade Floating Rate ETF (NYSE Arca:FLTR).
The smaller yields of short-term bonds have had the ancillary effect of triggering greater U.S. investment interest in European periphery bonds. These higher-income-yielding government bonds offer refuge from emerging-market economic uncertainty. And prospective stimulus programs from the European Central Bank are further ramping up the demand for these securities even more.
Taking More Risk
Investors with the nerve can choose to turn up the dial on risk with their fixed income investments by considering corporate debt, either investment-grade or non-investment grade. Protect against greater credit risk and volatility, though, by diversifying industries and issuers. Aside from traditional bonds, savvy investors should look at dividend-producing stocks, preferred shares, real estate investment trusts and convertible bonds.
Climbing the Ladder
Above all, the tried-and-true “bond ladder” method is the most-often-recommended strategy by advisors and financial planners alike. Bond ladders are successions of bonds -- each reaching its maturity at discrete intervals (three months, six months, 12 months, etc.). As interest rates climb, each bond is redeemed and reinvested in the newer, higher-rate bond. The identical procedure is likewise employed with CD laddering. An investor with $500,000 in a money market account earning 1% interest carves out $400,000 to buy four separate $100,000 CDs that mature every 60 days, beginning in two months. Under this scenario, the investor re-invests the maturing CD into either another CD of identical maturity, or into any one of differing maturities, in accordance with his liquidity/cash flow needs.
Other Opportunities
While shrewd fixed income investing is the most traditional way of capitalizing on spiking rates, equity investors may also cash in by targeting end consumers of raw materials. Since raw material costs tend to hold steady or decline when rates rise, companies using them, either in their daily operations or as components of their finished goods, often enjoy corresponding growth in profit margins. Beef and poultry producers also stand to gain among escalating interest rates because they’re likely to see increased demand, resulting from higher consumer spending coupled with shrinking costs. And real estate stocks also tend to do well in this climate, making homebuilding and construction companies attractive plays as well, at least until the barrier of pricier mortgages prevails.
Forex investors should think about increasing their exposure to the U.S. dollar. The greenback gains momentum against other currencies when interest rates begin rising and foreign capital is channeled towards dollar-denominated instruments, such as notes, bonds and Treasury bills.
Refinancing Window
While it makes good fiscal sense to maintain a liquid fixed-income strategy, it’s equally smart for homeowners to refinance mortgages at current rates. Securing a 5% mortgage then harvesting a healthy yield on your bond ladder is a ticket to profits. It’s also prudent to cement low rates on car loans and other long-term debt while you can.
Generally speaking, climbing rates mean conservative instruments start paying higher rates. The price of junk bonds and other high-yield offerings typically fall more precipitously than those of government or municipal issues, hence the risk of high-yield instruments ultimately may outweigh superior yields, compared to their lower-risk alternatives.
The Bottom Line
Knowing when low interest rates will bottom out and begin their ascent is a difficult call. But those who fail to prepare for interest rate moves will likely miss out on significant profit potential and see their cash holdings lose relative value. The best strategy should be a combination of several inflation-hedging strategies.
Buy gold options to attain a position in gold for less capital than buying physical gold or gold futures. Gold options are available in the U.S. through the Chicago Mercantile Exchange (CME), so if you've wondered how to invest in gold, here's a shorter-term and less capital intensive way to do it.
How to Invest in Gold: Calls and Puts
Use options to profit whether gold prices rise or fall. Believe the price of gold will rise? Buy a gold call option. A call option gives the right, but not the obligation, to buy gold at a specific price for a certain amount of time (expiry). The price you can buy gold at is called the strike price. If the price of gold rises above your strike price before the option expires, you make a profit. If the price of gold is below your strike price at expiry, you lose what you paid for the option, called the premium.
Put options give the right, but not the obligation, to sell gold at a specific price (strike price) for a certain amount of time. If the price of gold falls below the strike price, you reap a profit of the difference between the strike price and current gold price (approximately). If the price of gold is above your strike price at expiry, your option is worthless and you lose the premium you paid for the option.
It is not necessary to hold your option till expiry. Sell it at any time to lock in a profit or minimize a loss.
Gold Options Specifications
Gold options are cleared through the CME, trading under the symbol OG. The value of the options is tied to the price of gold futures, which also trade on the CME. 40 strike prices are offered, in $5 increments above the below the the current gold price. The further the strike price from the current gold price, the cheaper the premium paid for the option, but the less chance there is that the option will be profitable before expiry. There are more than 20 expiry times to choose from, ranging from short-term to long-term.
Each option contract controls 100 ounces of gold. If the cost of an option is $12, then the amount paid for the option is $12 x 100 = $1200. Buying a gold futures contract which controls 100 ounces requires $7,150 in initial margin. Buying physical gold requires the full cash outlay for each ounce purchased.
To buy gold options traders need a margin brokerage account which allows trading in futures and options, provided by Interactive Brokers, TD Ameritrade and others.
Gold options prices and volume data are found in the Quotes section of the CME website, or through the trading platform provided by an options broker.
The Bottom Line
Calls and puts allow traders a less capital intensive way to profit from gold uptrends or downtrends respectively. If the option expires worthless, the amount paid (premium) for the option is lost; risk is limited to this cost. Trading gold options requires a margin brokerage account with access to options.
Although indexing (a passive investment strategy) has been used by institutional investors for many years, it is still relatively new for the typical individual investor. Because ETFs use predominately passive strategies, the first question any investor should consider is whether to take an active or passive approach to investing.
Rationale for Active Investing
The predominant investment strategy today is active investing, which attempts to outperform the market. The goal of active management is to beat a particular benchmark. The majority of mutual funds are actively managed.
Analyzing market trends, the economy and the company-specific factor, active managers are constantly searching out information and gathering insights to help them make their investment decisions. Many have their own complex security selection and trading systems to implement their investment ideas, all with the ultimate goal of outperforming the market. There are almost as many methods of active management as there are active managers. These methods can include fundamental analysis, technical analysis, quantitative analysis and macroeconomic analysis.
Active managers believe that because the markets are inefficient, anomalies and irregularities in the capital markets can be exploited by those with skill and insight. Prices react to information slowly enough to allow skillful investors to systematically outperform the market.
Rationale for Passive Investing
Passive management, or indexing, is an investment management approach based on investing in exactly the same securities, and in the same proportions, as an index such Dow Jones Industrial Average or the S&P 500. It is called passive because portfolio managers don't make decisions about which securities to buy and sell; the managers merely follow the same methodology of constructing a portfolio as the index uses. The managers' goal is to replicate the performance of an index as closely as possible. Passive managers invest in broad sectors of the market, called asset classes or indexes, and are willing to accept the average returns various asset classes produce.
Passive investors believe in the efficient market hypothesis (EMH), which states that market prices are always fair and quickly reflective of information. EMH followers believe that consistently outperforming the market for the professional and small investor alike is difficult. Therefore, passive managers do not try to beat the market, but only to match its performance.
Passive or Active Management – Which is the Best Approach?
A debate about the two approaches has been ongoing since the early 1970s. Supporting the passive management argument are the researchers from the nation's universities and privately funded research centers. Wall Street firms, banks, insurance companies and other companies that have a vested interest in the profits from active management support the other side of the argument.
Each side can make a strong logical case to support their arguments, although in many cases, the support is due to different belief systems, much like opposing political parties. However, each approach has advantages and disadvantages that should be considered.
Active Management - Advantage/Disadvantage
The main advantage of active management is the possibility that the managers will be able to outperform the index due to their superior skills. They can make informed investment decisions based on their experiences, insights, knowledge and ability to identify opportunities that can translate into superior performance. If they believe the market might turn downward, active managers can take defensive measures by hedging or increasing their cash positions to reduce the impact on their portfolios.
A disadvantage is that active investing is more costly, resulting in higher fees and operating expenses. Having higher fees is a significant impediment to consistently outperforming over the long term. Active managers, in an attempt to beat the market, tend to have a more concentrated portfolio with fewer securities. However, when active managers are wrong, they may very significantly under-perform the market. A manager's style could be out of favor with the market for a period of time, which could result in lagging performance.
Passive Management - Advantage/Disadvantage
The main advantage of passive investing is that it closely matches the performance of the index. Passive investing requires little decision-making by the manager. The manager tries to duplicate the chosen index, tracking it as efficiently as possible. This results in lower operating costs that are passed on to the investor in the form of lower fees.
A passively managed investment will never outperform the underlying index it is meant to track. The performance is dictated by the underlying index and the investor must be satisfied with the performance of that index. Managers are unable to take action if they believe the overall market will decline or they believe individual securities should be sold.
These four stocks all had greater than 5% moves on Friday, May 23 and could be setting up for more strong moves as they break the current price patterns.
Isis Pharmaceuticals (Nasdaq:ISIS) jumped 11.46% on May 23, and is on the verge of breaking a strong downward trendline and moving beyond a former swing high at $28.08. Add to this the higher low in May and there is a case for a rally to the upside, at least in the short-term. The trend remains down but a close above $28.08 creates a short-term bullish case and provides an initial target of $34.50 to $35. The weekly chart shows a long-term uptrend, so a rally off the recent lows could set up a longer-term trade as the price attempts to retrace much of the recent decline. The 50% retracement level--a viable target--is at $41.75. Drop back below $23 though, and beware.
Isis Pharmaceuticals (Nasdaq:ISIS) jumped 11.46% on May 23, and is on the verge of breaking a strong downward trendline and moving beyond a former swing high at $28.08.
Hewlett-Packard (NYSE:HPQ) has been in an uptrend since late 2012, and consolidating below $34 since the start of April. This stock can move choppily, so a close above $34 may not cause a surge higher--like the 6.10% rise on May 23--but rather simply indicates the uptrend is continuing. The initial target for the next wave is $35.85 based on the trend channel over the last seven months. A larger channel provides a target for the long-term trend near $39. A drop below $31 doesn't negate the long-term uptrend but does indicate the opportunity is no longer ideal for active traders since a larger pullback could develop.
Hewlett-Packard (NYSE:HPQ) has been in an uptrend since late 2012, and consolidating below $34 since the start of April.
Sina (Nasdaq:SINA) was trading near $48 for most of May, then tanked on May 22 only to rally 8.16% on May 23, creating a high volume bullish engulfing pattern. This pattern occurs near a support area based on major lows in 2012 and 2013. Despite the trend being currently down there is potential for a high reward to risk trade on the long side. A move back above $49.75 establishes the potential that the bears have lost control, at least for the short-term. A rally could take the stock into the $65 area over the coming months. A drop back below $42.40 makes the long trade too much of a wild card, since a further decline below the 2012 low at $41.14 could send the price significantly lower.
Sina (Nasdaq:SINA) was trading near $48 for most of May, then tanked on May 22 only to rally 8.16% on May 23, creating a high volume bullish engulfing pattern.
Over the long-term Lions Gate Entertainment (NYSE:LGF) is in an uptrend, but over the last 9 months has been channeling lower. The price recently broke above a consolidation at the bottom of the channel, indicating a rally toward the top of the channel near $31. If the price can move above the channel it sets in motion another long-term wave of the uptrend, which should test and exceed the high at $37.81. The main risk here is that the downward channel continues and the price drifts lower. One way to mitigate this risk is to take profit on a portion of the long position at the channel top, and hold the rest of the position for the long-term target near $37 or above. Cut losses on a drop below $24.50; a similar set-up may occur down the road when (or if) the price stabilizes along the bottom of the channel again.
Over the long-term Lions Gate Entertainment (NYSE:LGF) is in an uptrend, but over the last 9 months has been channeling lower.
The Bottom Line
Big moves have recently brought about potential trades in these four stocks. The trade in Hewlett-Packard is with the trend, but the other trades are against current momentum. When buying into a downtrend there needs to more evidence than simply a strong up day; in the case of these stocks such evidence exists. Place stop below recent swing lows to limit risk on long trades, and keep the position size manageable so one loss doesn't significantly draw down account capital.
There are many different markets available for day trading, including futures, options, currencies, and stock markets. Most people are aware of the stock markets, but few non traders are aware of the many other markets that are available to day traders, many of which are much more popular than the stock markets.
Popular markets
Some of the most popular markets include the following:
- Futures based on currencies (Euro, British Pound, Swiss Franc)
- Futures based on stock indexes (DAX, Nasdaq)
- Futures based on commodities (oil, gold, wheat)
- Options on futures
- Currencies (Euro to US Dollar, Euro to British Pound)
Note that there are no stock markets listed in the above list. This is because the SEC (the US securities and exchange commission) has placed restrictions on the day trading of US stocks. Details of these restrictions can be found in the day trading glossary.
Exchanges and Brokerages
All of the day trading markets are provided via exchanges such as the following:
- CME (Chicago Mercantile Exchange) in the US
- CBOT (Chicago Board of Trade) in the US
- DTB (Deutsche Boerse) in Europe
- MONEP (Euronext Paris) in Europe
The exchanges set the contract specifications for the markets, and process all of the trades on their markets. The exchanges can be accessed directly, but day traders usually use direct access brokerages, which allow the day trader to access all of the different exchanges directly but via the same trading interface. Some popular direct access brokerages are Interactive Brokers, and Transact Futures.
Choosing a Market
Which markets you choose to trade will depend upon several factors, including your initial financial state, your trading system, your personality, and your geographical location. Some markets are better suited to new day traders, and some markets are better suited to experienced day traders. As a beginning day trader, you will want to start with a market that has low margin requirements, a low tick value, and moves at a medium pace.
When you are choosing your first day trading market, there are several factors that need to be taken into consideration. These include your initial trading deposit, your personality, your profit and loss potential, and your location. Your first market should be a futures market because they are the most suitable markets for day trading, but you can choose almost any type of futures market that you prefer (stock index, currency, commodity, etc.). The following are the criteria that you should look at when choosing a market, along with markets that match these criteria.
Initial Trading Deposit
When you open your trading account with your brokerage, you will deposit an amount of money that will be used to calculate your available trading margin (the amount of money that you can trade with). Depending upon the amount of the deposit, some markets will not be available. Some popular day trading markets that will be available if only the minimum amount ($5,000) is deposited are:
- EUR - The EUR futures market
- GBP - The GBP futures market
- CAC40 - The CAC40 index futures market
- HSI - The Hang Seng index futures market
- YM - The mini Dow Jones futures market
- ZG - The Gold 100 troy ounce futures market
- ZI - The Silver 5000 ounce futures market
One market that is missing from the above list of popular markets is the DAX (The DAX index futures market). This is because the DAX has a minimum margin requirement of 8,000 EUR, so it is only available to traders that have deposited additional money into their trading account.
Trading Personality
Some traders like to have time to make their trades, while others are perfectly content to have to make their trades quickly. This does not mean that the quick traders think about their trades less, but does mean that they are confident in their trades, and can make them without hesitation. Many beginning day traders have a natural fear of making a trade, and will not be able to make their trades quickly enough for some markets. Some popular markets that are suitable for all types of traders are:
- EUR - The EUR futures market
- GBP - The GBP futures market
- CAC40 - The CAC40 index futures market
- YM - The mini Dow Jones futures market
- ZG - The Gold 100 troy ounce futures market
- ZI - The Silver 5000 ounce futures market
One market that has been removed in this list is the HSI (The Hang Seng index futures market), because it can move very quickly, and is therefore not suitable for all types of day traders.
Profit and Loss
Each market has a different tick size (minimum price change), and tick value (amount of money per minimum price change). Day traders that are near their markets margin limit (see trading account finances above), will not have much flexibility in their profit and loss potential. Some popular markets that have tick sizes and tick values low enough for beginning day traders are:
- EUR - The EUR futures market
- GBP - The GBP futures market
- HSI - The Hang Seng index futures market
- YM - The mini Dow Jones futures market
- ZG - The Gold 100 troy ounce futures market
- ZI - The Silver 5000 ounce futures market
- The European index futures markets, the DAX and the CAC40 are both missing from this list because they have tick values of 25 EUR and 12.50 EUR respectively, whereas most of the US markets have lower tick values, such as the EUR at $12.50, and the YM at only $5.
Geographical Location
Your geographical location will make a difference to which markets you can trade, because of the different market's trading times (unless you want to trade in the middle of the night). Day traders in Europe have access to the European open and the US open, but only part of the afternoon session of the Asian markets. Day traders in the US have access to the US open, and possibly part of the Asian markets. Day traders in Asia have access to the Asian open, and the European open. Popular markets that are available to traders in different locations at some time throughout the day are:
- EUR - The EUR futures market
- GBP - The GBP futures market
- DAX - The DAX index futures market
- CAC40 - The CAC40 index futures market
- YM - The mini Dow Jones futures market
- ZG - The Gold 100 troy ounce futures market
- ZI - The Silver 5000 ounce futures market
Recommendation
The best markets for beginning day traders to trade are those that meet all of the following criteria:
- Low initial and maintenance margin
- Smooth and steady moves
- Low tick value (value per minimum price change)
- Accessible to traders in different locations
and having taken the above mentioned markets, and many other markets into consideration, the markets that best meet all of these criteria are the EUR, and the YM.
If you are a European trader, then the market that I recommend is the EUR (EUR futures market), and if you are a US trader, then the markets that I recommend are either the EUR (EUR futures market) or the YM (mini Dow Jones futures market).
You have learned the forex trading beginner strategy and started to trade. You understand the concept of money management, protecting your account and that trading with a strategy is essential to your success in the forex market. However, you are not done.
While it is true that compiling and analysing data with your trading journal is key to finding a successful strategy, a key tool to have in your forex trading arsenal is the experience of other traders.
Using the forum as a means to ask questions and post your trades for analysis is a great way to get objective feedback from other traders; remember, we are all in this together. By taking the data you record and combining it with the knowledge of others, you are utilising both self-reflection through your trading journal, as well as the experience gained by other traders.
Asking questions leads to a more rounded strategy
It is well-known that you should always be asking yourself questions. For example:
- What was the reason that I entered into this trade?
- Is there anything I have overlooked that would have prevented me from entering into the trade?
- Was there anything that could have influenced my emotions when I entered into this trade?
Instead of trying to only answer these on your own, taking these questions to experienced traders will help you gain valuable insight from others who have had to ask themselves the same things.
Here at GCM, we provide this beneficial tool through our trading forum. In the forum you will find traders from all different backgrounds and experience. From those who are just starting out, to those who have a wealth of knowledge and experience. You can exchange ideas, post screenshots of your trades and ask questions that will help you become a better forex trader.
While banks have thousands of people at their disposal to create and trade strategies, most retail traders are on their own. You are your own bank, so why not make use of the tools you have at your disposal?
Applying mathematical ratios to the figures in a company's financial statement can help you build a picture of how a company works, as well as alerting you to potential trading and investing opportunities.
Companies do not exist in a vacuum, however, and a number of external elements will make certain ratios more or less useful depending on the economic climate, government actions and market sentiment.
Even within a company, there may be events – such as the appointment of a new CEO or the launch of a new product – that are difficult for investors to foresee. Things like this can blow out of the water any trading decisions you have made based on analysis of old financial statements.
It is important therefore that you apply financial ratios with caution, remaining aware of their limitations and of other factors that could override them.
No two companies are the same
No two companies are exactly alike, and that is especially so when they are operating in different industries.
As discussed in the previous lessons, capital-intensive companies like airplane manufacturers rely more heavily on debt, have less liquid assets and tend to grow more slowly than, for example, software companies.
These factors will affect how ratios such as debt to equity or return on capital should be interpreted when you are deciding whether to buy or sell their shares.
Companies that carry a lot of inventory, which they can in theory sell quickly for cash, (retailers, for example) similarly require a different approach when interpreting things like the current ratio than when you are looking at a construction company.
Size matters
Companies also require a different approach depending on their size.
Small-cap companies often pay more for their debt than large-caps, and this will affect the way formulas like interest coverage ratios need to be interpreted. They also tend to have faster growth prospects, and this will change the way things like the discounted cash flow model are calculated.
A change in destiny
A company’s destiny can change with just one key event, making analysis of its historical performance virtually redundant.
When apple launched the iPod, for example, everything from its price to earnings ratio to the fair value that analysts assigned it changed dramatically.
A new CEO can also introduce dramatic changes at a company that will have been difficult for investors to factor in to their analysis ahead of the event.
New leadership at a company can trigger big restructurings, including whether it borrows more heavily or pays off debt and how it approaches other costs. Therefore, financial performance ratios in particular could undergo rapid change while other ratios such price to book may now become misleading.
Market sentiment and macro factors
Market sentiment can change very quickly and the risk appetite of other traders can have a big impact on the price of shares you have invested in, regardless of the fundamental factors you have studied when making your analysis.
Tolerance for risk can increase
There are times when investors have a stronger than usual appetite for risk – for example when an economy is expanding, interest rates are low and stock markets in general are climbing.
At these times they will be more prepared to take a gamble on companies that investors might normally ignore. This could include high-risk small-caps, or firms whose financial performance or health ratios are shaky.
This can quickly push up the share price of companies that based on your fundamental analysis you had decided to avoid investing in or, if you are a CFD trader, to short for a profit.
Risk appetite can decline
Conversely, if other traders become risk averse, a stock that you have analysed in detail and decided is fundamentally strong may be punished along with its peers as investors exit stock markets.
Economic cycles can change
Similarly, a change in the economic cycle, in taxation, in government legislation or even the weather can affect individual sectors disproportionately and drive share prices in directions that may seem irrational if you focus exclusively on companies' financial statements.
Bitcoins (BTC) are essentially a form of money, but the difference compared to the notes and bankcoins that you use in daily life, is that bitcoins are purely digital (or virtual).
The money that you use everyday is usually exchanged via banks and financial institutions, as well as psychically handling cash.
Bitcoins, however, are exchanged through what is called a peer-to-peer network of computers. This is similar to any file-sharing system that people use to transfer large files (movies, songs or games) with each other through the internet.
In other words, each computer in the system works as a 'client' for other computers. This means that bitcoins are not controlled by any central authority or government.
Whereas a central government or authority would monitor payments and create the money that circulates in the economy, the bitcoin network itself monitors payments and produces the supply of bitcoins.
How can you use bitcoins?
In order to use bitcoins, you have to download a free software from the internet which is called the 'digital wallet'. You use this wallet like your normal online bank account, except that you make and receive payments which are denominated in bitcoins.
Transactions are carried out directly from user to user – there are no banks or financial institutions in between. This is just like you handing your friend some cash, but it is done electronically instead.
This is faster and with zero costs compared to conventional payment systems, where central institutions charge fees for their administrative services (for clearing and settlement).
Bitcoins are considered to be anonymous. In fact, those who use them are identified only through series of random numbers and letters which are assigned to their digital wallets.
There is no way to identify who holds a specific wallet. This means that transactions also remain anonymous.
If you want to exchange bitcoins with conventional currencies such as the United States dollar, the British pound or the euro, you can do it by using several dedicated exchanges.
What are the purposes and uses of bitcoins?
Bitcoins can be a way to buy items. In fact, many normal businesses are accepting payments in bitcoins. Some examples include consumer electronics, hotels and travel resorts.
Besides serving practical purposes, traders have recently begun to buy and sell bitcoins to make a profit.
Due to their growing popularity, bitcoins have significantly increased in value and this has led to traders being able to speculate on the future price.
As more and more people are attracted to the market, bitcoins can also be seen as a potential store of value. For instance, after the Cyprus banking crisis occurred in mid-March 2013, investors bought bitcoins in their search for an alternative place where to store their wealth.
How the bitcoin system works
Bitcoins transactions are verified through 'digital signatures'. This means that when you spend bitcoins, you use two keys: one public and one private.
When you send bitcoins to someone, you create a transaction which contains the public key of the new owner and you sign this transaction with your private key.
Through these two steps, the transaction is broadcast anonymously to the entire network of bitcoins users. At this point, everybody knows the new owner of the currency and that the transaction is matched by the holder's private key.
This mechanism provides security against thieving, but it does not prevent a user from spending a bitcoins twice – a problem known as 'double spending'.
In order to solve this issue without resorting to a central authority, the bitcoins network relies on the so-called 'miners'.
Miners process and verify all the network transactions in 10 minutes 'blocks'. These blocks are then added to a public ledger (the 'block chain') which records all successful transactions.
The task of mining is extremely complex. It requires substantial technical knowledge, as well as a lot of computing power and considerable electricity supply.
For this reason, miners receive a reward for successfully adding a new block of transactions to the block chain. This reward consists in 25 bitcoins.
Besides rewarding the miners for successfully adding a new block to the block chain, this process also represents the way in which bitcoins are created and injected in the system.
In other words, the bitcoins supply is generated and controlled through the very same mining activity.
The growth of bitcoins as an industry
When bitcoins were first launched, $1 could have been enough to buy over 1,000 BTC. In other words, they were not worth much at all. Today, the situation is completely different. In fact, since its inception, the value has increased to a high of over $250.
Bitcoins show clear potentials for growth. This would be encouraged by several factors such as: the greater use of electronic commerce and virtual communities on the internet; the fact that bitcoins provide high level of anonymity, low transaction costs and a quick process of clearing and settlement.
However, obstacles to this growth are: the risks posed to price stability and financial stability; the possibility that regulators would clamp down the bitcoins project due to the risks it presents.
Certificates of deposit might not seem like a good place to keep your money when interest rates are low, but they do offer security and stability. They’re covered by FDIC or NCUA insurance, and you can’t lose money unless you cash out before the CD matures and incur an early withdrawal penalty. Many CDs also pay better interest rates than many savings accounts, helping you to better keep up with inflation or even outpace it. If you’re looking for safety, here are six strategies that will help you earn as much interest as possible from CDs even when rates are at rock bottom.
Laddering
To create a CD ladder, you purchase CDs that mature at regular intervals. The first might mature after one year, the second after two years, the third after three years, the fourth after four years and the fifth after five years. The benefit of staggering your CDs’ maturity dates is that if interest rates rise, you’ll be able to get a new CD at a higher interest rate without waiting too long for one of your CDs to mature or incurring early withdrawal penalties. As each CD in your ladder matures, you reinvest it in a new five-year CD (or whatever the longest term in your ladder is). For more on this topic, see How To Create A Laddered CD Portfolio.
By contrast, if you purchase only five-year CDs to get the highest available interest rate, and a year later rates go up, you’re either stuck earning a lower rate on all your money for the next four years or you’ll have to pay an early withdrawal penalty, which might negate the additional interest you’d earn from purchasing a new CD at a higher rate. With a ladder, while your longer-term CDs might end up paying below market rates, your money won’t be tied up in them too long because one will mature each year and give you the opportunity to reinvest at then-current, higher rates. Laddering in a low interest rate environment also means that your longer-term CDs can match or outpace inflation, and your shorter-term ones don’t tie up your principal for too long in case interest rates increase in the near term.
Limited-Time Offers
CD laddering also makes it easier to take advantage of short-term promotions for CDs with above-market rates since you’ll regularly have funds from a matured CD to reinvest. However, since promotional rates might only last for a week or two, your CD’s maturity date might not match up with one of these special offers. If it doesn’t, you can take the additional savings you’ve accumulated since you last purchased a CD and add another CD to your ladder at the promotional rate.
Here are some examples of the types of special promotions you might come across:
-In December 2013 and January 2014, Pentagon Federal Credit Union offered 3.04% APY on five-year CDs at a time when the next-highest rate available at any bank on five-year CDs was 2.16% APY.
-For one week in early May 2014, Hanscom Federal Credit Union offered 6.0% APY on a starter CD that lets customers deposit $5 to $500 per month for one year. The effective APY was about 3.3% since customers couldn’t invest all their principal up front, but that was still much higher than the best going rate of 1.25% APY on one-year CDs.
Online CDs
The biggest banks don’t pay anywhere near the best interest rates on CDs. Banks you might not have heard of, like General Electric Co.'s (GE) GE Capital, CIT Group Inc.'s (CIT) CIT Bank, Barclays (BCS), and VirtualBank, a subsidiary of Spain's Banco Sabadell, pay some of the highest rates, far outpacing national averages. These CDs are available online, so you can purchase them even if there isn’t a branch in your area. As of May 20, 2014, here’s how their rates compare:
Bank Minimum 1-Year CD APY 5-Year CD APY
Chase $1,000 0.02% 0.35%
Citibank $500 0.20% 0.50%
Bank of America $1,000 0.03% 0.15%
GE Capital Bank $500 1.10% 2.25%
CIT Bank $1,000 1.02% 2.25%
VirtualBank $10,000 1.07% 2.31%
Barclays $0 0.80% 2.25%
Rate-Bump CDs
Rate-bump CDs, also called rising-rate CDs or bump-up CDs, let you request a higher interest rate once or twice during the CD’s term if market interest rates rise. Examples include the Achiever CD at CIT Bank and the Raise Your Rate CD at Ally Financial Inc.'s (ALLY) Ally Bank. You’ll have to keep an eye on interest rates, because the bank won’t automatically increase your rate; you must request the increase. There’s no guarantee that rates will increase, or that they’ll increase enough for you to notice the difference in the interest you earn, so make sure the CD’s starting rate is competitive.
CIT’s rate-increase CD requires an initial deposit of $25,000 and allows you to increase your rate once. You can choose a one-year CD paying 1.05% (CIT’s regular one-year CD pays 1.02% and has a $1,000 minimum) or a two-year CD paying 1.20% (CIT’s regular two-year CD pays 1.17% and also has a $1,000 minimum). In this case, you aren’t sacrificing a higher rate to get the rate-increase feature; not only do the rate-increase CDs’ rates slightly exceed CIT’s regular CD rates (albeit with a far higher minimum deposit requirement), they also compare favorably to the best CD rates in the market.
Ally offers a two-year CD that lets you raise your rate once, and a four-year CD that lets you raise your rate twice. Neither has a minimum deposit requirement. The two-year rate-bump CD pays 1.10% APY, while the four-year rate-bump CD pays 1.30% APY. For two- and four-year terms, Ally only offers rate-bump CDs, not regular CDs, but its two-year rate is competitive with the best CD rates out there.
Low Early Withdrawal Penalty CDs
An early withdrawal penalty is a fee banks impose when you withdraw your CD’s principal before the CD’s maturity date. The EWP might be six months’ interest on a 12-month CD, for example, so if you’ve had your CD open for fewer than six months, the penalty will partly come out of your principal, which is the only way you can lose principal when investing in CDs. But if you choose a CD with a lower EWP, you might be able to come out ahead by cashing out when interest rates increase and reinvesting in a better-paying CD.
EWPs vary significantly among banks, and the same bank does not offer the lowest penalties across the board on all CD terms. Also, as with rate-bump CDs, you want to make sure your EWP CD pays a competitive rate since you may not actually take your money out early. Some of the best CDs for achieving this goal as of May 2014 are as follows: AloStar Bank of Commerce has high rates and a mere 30-day penalty on one-year CDs, and a 90-day penalty on 18- and 24-month CDs. VirtualBank has some of the lowest early withdrawal penalties, and some of the highest interest rates, on three-, four- and five-year CDs, which have an EWP of just six months’ interest. Ally even offers a no early withdrawal penalty CD, but its rate is identical to Ally’s online savings account rate so there’s no advantage to choosing the CD.
Loyalty Rewards
In general, you’ll earn the best rates if you don’t keep all your CDs at the same bank. There is no one bank that offers the highest CD rates across the board for all CD terms, and the banks that pay the best rates can vary from week to week.
There is one case, however, where it can make sense to stay with the same bank, and that’s to earn a loyalty reward. When your CD term ends, banks usually automatically roll your principal and interest from the matured CD into a new CD of the same term at then-current market rates. Right after your CD matures, you’ll have a grace period of seven to 10 days to withdraw all your money without penalty. At this point, you should shop around for the institution that’s offering the best rate on the CD you want to buy.
A few banks try to prevent you from taking your money out by offering a loyalty reward in the form of a higher interest rate. For example, Pentagon Federal Credit Union offered such a reward last February, giving consumers who renewed their CDs rates 0.15% to 1.02% higher, depending on the CD’s term, than what it was paying to customers opening new CDs.
The Bottom Line
In a low interest rate environment, you need to make sure you’re not locking yourself into low CD rates long term, since rates might increase, and that the returns you’re earning beat or exceed inflation, since inflation erodes the value of your money over time. Achieving this dual goal is a difficult balancing act; longer-term CDs are most likely to pay enough to protect against inflation but they lack flexibility. Using a variety of strategies, including laddering, looking for promotional rates, purchasing online CDs, choosing rate-bump CDs and low early withdrawal penalty CDs and seeking out loyalty rewards can help you come out ahead and earn a real return that’s better than what a savings or money market account would pay while still keeping your money safe.
