Voices in Finance » Trading

The Advantages of Employing a Stock Broker

J. Hamilton Fraser — Wed, 20 Jul 2011 19:14:03 +0000

If you are one of the many who would want to take advantage of the profit-generating capacity of the stock market, then employing the services of a stock broker will certainly do you good. There are many investors who only have the courage to invest in the stock market for a short time and then as soon as they have generated a good sum of money, they immediately back off for fear that they might lose what they have already gained. In dealing with a broker, you must treat them as a partner and not as a slave. You have a role to play and that is to make the final call. Their responsibility is to provide you with several of the best options out there.

There seems to be no stopping the number of banks and financial institutions that offer their brokerage services online. This activity has been brought about by the seemingly stable exterior that has been displayed by the stock market in spite of the recession. While this is indeed beneficial for small scale traders and investors, the question of choosing the right online brokers still hang in the air. One of the most effective methods of finding the best among the many options out there is the process of elimination. In this way, those that does not meet the standards of the investor could be gotten rid of. Those that make the short list can then be closely scrutinized and weighed in terms of their consistency with the goals and values of the stakeholder.

You might be tempted to simply get the services of the cheapest online broker however I assure you that this is not always a great move. Instead, employ the services of someone who already has ample experience in the industry since you surely would want him or her to know how to handle most of your future concerns and problems in the stock market. Moreover, make a list of questions for the remaining few on your list. Choose the one who will be able to give you the most positive answers that are congruent with your needs as an investor.

An Introduction to the Stock Market For Newcomers

J. Hamilton Fraser — Tue, 21 Jun 2011 20:11:02 +0000

It is important to learn about the basics of every business venture. Whether it is a small undertaking or a large one, learning the basics would help reduce the risk and provide positive results. Such is the same with stock trading. If you are a newbie investor interested to take part in the world of stock trading, here are some of the basics of the stock market for dummies.

The Stock Market for Dummies Lesson 1: What is a stock?

A stock (also known as capital stock, equity and equity security) is a representation of the amount of capital or investment that the owners put forth in order to establish their business. This is also a form of security for the creditors and investors on the business.

The Stock Market For Dummies Lesson 2: What is a share?

A stock is divided into shares at the very beginning of the establishment of the business. Each share therefore has a value based on the capital stock and on the number of shares released, which is called par value. If allowed by their region’s laws, a company can also release non-par stock or shares that have very low or no value. A share symbolizes a partial ownership of the company. So if a company releases 100 stock shares, a person who buys one share owns one percent (1%) of the company. This is one of the things you’ll learn if you use day trading software.

The Stock Market for Dummies Lesson 3: What are dividends?

When companies or businesses start earning because of their venture, they share the profit to the stockholders, which are part-owners of the company. The amount of dividends or the portion of the profit that is given to a shareholder is based on the number of shares he or she holds.

The Stock Market for Dummies Lesson 4: What is the difference between common stock and preferred stock?

Common stock – If you want to be able to hold certain company rights, such as the right to vote, then you should get common stock. The common stock is what is being referred to when discussing the highs and lows of a stock. This type of stock is also the easiest to trade because it is highly liquid.
Preferred stock – If you are more interested in earning profits via dividends, then you better get preferred stock. The preferred stock receives dividends first before other stocks. Investors usually buy preferred stocks for earnings.

To learn more about stock trading, you need to get your hands on a day trading software. There is nothing better than learning the basics first-hand.

Dow Jones Realtime

Mike — Thu, 12 May 2011 16:10:30 +0000

The Dow Jones indexes are some of the most popular and oft used indexes for US securities. The most well known Dow Jones index is the Dow Jones Industrial Average, which is calculated using the value of its 30 constituent stocks. Charles Dow, the founder of the Dow Jones & Company, first created the index. In 2010, the Dow Jones & Company sold 90% of stake, and the effective editorial control in the indexes, to the CME group of companies. It is the CME group that is the present editorial owner of the Dow Jones indexes through the company called Dow Jones Indexes.

Getting Dow Jones Real Time Data

Dow Jones realtime data is available for purchase from the Dow Jones Indexes as a paid service. This data can then be displayed and used on internet sites, handheld devices, tickers, television and other electronic services. Depending on your requirements, there are different types of licenses available for the real-time data.

The most popular index is the Dow Jones Industrial Average (DJIA), but you can also get real-time data for other indexes. Other indexes include the Dow Jones Transportation Average (DJTA), the Utility Average (DJUA), the Composite Average (DJCA, also known as the Composite), and the Global Titans 50 Index (DJGT50). Under the trademark Dow Jones, the company runs hundreds of other indexes.

For lay traders, there are a number of services that provide real time stock quotes. One such service is Google Finance, which provides real-time data directly from the NYSE. The Dow Jones realtime data is different from the data provided by the NYSE, and as such, Google Finance does not show the Dow Jones realtime data.

Trading Using Dow Jones Realtime Data

High frequency trading refers to security trading done with computer algorithms that shuffle large sums of money in a single trade. High frequency algorithmic trading also last for a relatively short time, many a times just seconds. Realtime Dow Jones index data can tell the traders more about the health of the market at any point during the day. This allows the traders to make better high-frequency trading decisions.

Though Dow Jones indexes cannot be purchased directly through the New York Stock Exchange, there are many Exchange Traded Funds (ETFs) which track different Dow Jones indexes. One such fund is the SPDR Dow Jones Industrial Average ETF. Realtime data allows for better investment decision when buying and selling ETFs too.

You can contact Dow Jones Indexes at RTData-Indexes@djindexes.com to query about buying the Dow Jones realtime data service.

Why Do Propane Prices Change?

J. Hamilton Fraser — Sat, 04 Sep 2010 20:08:11 +0000

What is the main reason for the fluctuations in propane prices?

This small article will make this point clear. One more point of discussion is that what should be done to anticipate such kind of price moves. Basically many factors are involved in the change of propane prices. As the general rule says, the prices can get affected by the change in demand and supply ratio. If the supply decreases the price increases. If there is high demand then also it increases the price of a commodity. When the use of propane increases because of the use of propane barbecue grills, its price will definitely increase. Its use as a transportation fuel also influences the price of propane. The distance, which the fuel has to cover to reach your local market, also has an impact on the pricing strategy. Its demand as well as the availability of its competing fuels also plays a significant role in deciding the price of propane.

Propane prices get influenced by the following factors:

Natural gas and crude oil prices: Propane gas is obtained as a by-product of unfinished oil refining as well as natural gas processing. The prices of propane gas generally echo the cost movements of crude oil, because it competes mostly with the fuels that are unfinished oil based.

Supply and demand rule: propane production may not be seasonal but the demand for propane is seasonal. In the summer season the demand is low and hence the inventory of propane is build up. In the winter the demand for this commodity increases to meet the heating requirements of the people. If the weather is very cold then the demand increases many folds. The local market may have to choose to import the fuel. If foreign sources are chosen to import the fuel it may take some weeks to get the fuel.

Location of supply:

Midwest produces most of the propane. The propane has no pipelines installed to ship it to various places. So the shipment cost also affects the propane cost. Thus these were the few vital factors that affect the pricing of propane.

Where to Trade if Your Stock is Delisted

J. Hamilton Fraser — Tue, 22 Jun 2010 21:29:56 +0000

The average investor will buy stocks that are listed on national stock exchanges. The trades are initially made through a broker, whether online or traditional, yet ultimately the trade is sent through an exchange. What many investors had failed to consider, until the recent market downturn, is that a stock can be delisted just as easily as it can be listed if it fails to meet the minimum requirements of the exchange.

A stock might be delisted for a number of reasons, including falling below the established threshold of number of outstanding shares, trading below a minimum share price, or the market value of all outstanding shares falling below a certain total value. Each exchange has different rules for listing and delisting stocks, and each usually have a grace period, such as 30 business days, before they delist a stock.

But what happens if a stock is delisted that you currently own? Can it be traded?

The answer is yes, it can be traded. Delisted stocks can be traded on either the Over the Counter Bulletin Board (OTCBB), or more often the Pink Sheets. Both carry significant risk and very little regulation. Trades through either of these services can usually be handled through your broker, even an online broker. Investors may purchase these shares because they expect the company to avoid bankruptcy and eventually recover its value. Some investors only trade shares of delisted stocks in hopes of profiting from an extremely under-valued company.

One thing to keep in mind if you hold a newly delisted stock is that institutional investors and funds often have restrictions on trading in stocks that do not trade on one of the major exchanges, such as the New York Stock Exchange (NYSE) or NASDAQ. Thus, those investors and institutions may begin to liquidate their positions, thereby devaluing the stock even further. Unless you are extremely confident in the companies ability to recover, you might consider cutting your loses and dumping the stock as soon as possible.

What to Know in Learning How to Trade Stocks

J. Hamilton Fraser — Sun, 20 Jun 2010 05:04:54 +0000

For anyone wishing to learn the basics of how to trade stocks in order to actively speculate in the stock market, we should start with a note of caution, the stock market is a dangerous and costly place for those who venture there without adequate knowledge and an understanding of how to manage financial risk by limiting each individual trading loss that will be encountered, something that happens to every trader, whether experienced or not.

The next thing to know is that it takes a lot of study and research to learn how to trade stocks and that cannot be accomplished in a short time or without real effort, it is fortunate that there are many resources available that can provide a lot of the necessary instruction and training in the subject free of charge.

I am just going to list here some of the things that need to be known before starting to trade in the stock market. Among the sources for the topics listed below are books such as William J. O’Neil’s “How to Make Money in Stocks”, a book that provides a comprehensive introduction to trading together with a proven winning system for trading. I would make this book’s contents the basis of a study program, master it, be ready to put its suggestions and advice into action and you will be well on the way for a successful start.

If you want to be a winner it is not a bad idea to emulate a winner, and O’Neil is a winner. The book sells at about $15 to $20 I believe, and any of the other O’Neil books on investment and trading are worth having. There are a few books by other author’s, some more basic such as those in the “For Dummies” series and quite a few others of similar content, all of which provide a lot of very good wide-ranging information.

At a level above that of the beginner, I would suggest a book such as “Mad Money” by the controversial Jim Cramer. Controversial or not, he fits the “emulate successful traders” category, he has amassed a considerable fortune in trading, that may be beyond the possibilities of the person who is still learning how to trade stocks, nevertheless almost all knowledge about the stock market and the way it works is valuable. And you have to start somewhere.

Some of what you need to know
There is so much to be learned that it is not possible to list it all, and its sources, and make sense of it right here, but a few randomly chosen topics in no particular order would include

An understanding of the market and its terminology
The stockbroker’s Trading Platform and its interface
How to place a trade, an order to buy or sell
Types of Orders, Market, Limit, Stop
How to place a stop
The stop and its value in risk management
How to obtain a quote
How to find suitable stocks to trade
How to determine when to buy
How to determine when to sell
Stock charts and chart patterns and chart analysis
Trading strategies, and types of trading, swing, momentum, earnings, range trading etc.
Risk management to limit the amount of loss and capture maximum gains, don’t sell too soon but don’t be greedy
Stock market Trends
Short selling
How to build a Watch List
Virtual trading, sometimes called paper trading
Mistakes to avoid
General Market Knowledge, the characters and the lore of the market

For more information on the stock market, check out How to Trade Stocks and Stock Market Basics.

Risks of Trading on Margin

J. Hamilton Fraser — Mon, 14 Jun 2010 19:14:58 +0000

Many brokers offer margin trading accounts. It’s way for small traders to leverage large amounts of money that they don’t have and to exponentially multiply their returns. It’s probably one of the most attractive features commodities trading, especially in the forex market.

In fact, especially in currencies, it wouldn’t make much sense for a small trader to enter the market unless they had a forex trading margin to work with. The fluctuations in the currency market is so minute, often by small fractions of a penny, that you require either huge trading capital or being able to leverage more buying power.

But you should be aware that there is equally a risk factor to trading on margin as well. As fast as you can make a lot of money with margin, you can also lose all of it very fast as well. So in order to make sure you don’t lose everything before you’ve really had a chance to get in the game, you should do a couple of things.

First of all, make sure you have enough on deposit to cover a considerable decline in your trading position. You have to make contingencies for the normal up and down volatility of this market. In order to ride out the temporary lows, you should make sure you have enough to keep the broker from pulling a margin call on you.

Secondly, you should practice your trading so you get a sense of how much of an extra buffer you need. Every trader has his own unique trading personality. Find out what yours is and how much buffer it’s going to require of you.

Even the best forex trading strategies out there require you to have a margin account to trade from. They wouldn’t make much financially without them. So to get the gains without losing your shirt, make sure you have these two things planned out beforehand. It might save your trading career.

Intuitive Investing and Trading

J. Hamilton Fraser — Sun, 13 Jun 2010 09:08:49 +0000

With all of the many different kinds of analysis methods out there, you would think that intuition has very little to do with it. But the reality that all successful traders and investors know is that intuition is what sets the winners and the losers.

That inner sense that is often very difficult to accurately express is what brings all of the plethora of information and analysis into a coherent, clear picture from which to make decisions. The trader’s ‘sense’ is what gives him the ability to absorb and process enormous amounts of information, data and variables to put it together into one common operating picture. There’s a clarity of thought that successful traders and investors have that is hard to teach or express.

I often hear Warren Buffett talk about his investment strategies. He finds a company, does a valuation on it, then looks to see if the market is undervaluing it. It’s such a simple process, but why can he do it so seemingly easily and smoothly while so many try to follow in his foot steps to no avail. It’s simple. He has an intuition that guides his analysis, and it’s something that is very difficult to transfer to others.

The same is true with successful traders, whether they work on the floor of an exchange, they trade from the office towers of their firm on Wall Street, or they day trade in their home offices. They all have an intuitive sense that most people can’t learn from just hearing them talk about it. It’s something that is innate. The good news is that most everyone can develop this intuition. But what it takes is going back to fundamentals and digesting them in a way that it becomes a part of you. And then each additional piece of learning on top of that must be processed in a way that is clearly understood. It can be done.

Most people just want a formula or a 5 step method to successful investing. They don’t care about understanding how or why the formula works. They just want to be robots. Surely that will bring them to ultimate failure in the markets. Again, go back to the basics and make sure you understand them. If you are in fundamental analysis, then learn each analysis ratio or piece of data and find out why that is important. If it is technical analysis you use, make sure you understand why certain metrics work or don’t work. Find out in what context they are successful and how to utilize them for your benefit. The best investing advice I can give you is to keep it clear and keep it simple. Then you can control the situation and trade from your gut as much as from your mind, whether you are forex investing, putting your money into stocks and shares, or investing in any other financial instrument.

How High Frequency Traders Use Latency Arbitrage

J. Hamilton Fraser — Tue, 25 May 2010 10:19:02 +0000

Latency Arbitrage is something that you may not necessarily be familiar with, but if you have anything more than a passing interest in the stock market, then you probably have heard of high frequency trading (after all, it has been in the news a lot recently, particularly following the May 6^th Flash Crash).

High frequency traders use latency arbitrage as one of their core strategies. In fact, it forms the basis of most of their other activities.

So what is it? Basically any form of arbitrage generally involves buying (or selling) an asset in one place while simultaneously selling (or buying) a very similar asset somewhere else, to take advantage of small price discrepancies. The key thing with arbitrage is that you keep an overall flat position so that your risk is all but eliminated.

Latency arbitrage is the same thing, except for the fact that instead of buying and selling assets in different locations, you are buying and selling the same asset at slightly different times (usually no more than milliseconds or even tens/hundreds of microseconds), by taking advantage of the latency between when you (as a high frequency trader) see bid/offer prices and when those prices are seen by the rest of the market.

How do high frequency traders get to see these prices before everyone else? Simple. They follow a two-pronged approach.

First, they capture a feed of raw data direct from the exchange rather than taking prices from the consolidated feed used by other market participants. The process of consolidation takes a number of milliseconds, so this enables the high frequency traders to pick up the data before everyone else sees it.

Second, they “co-locate” their servers at the exchange data centers, so that the data feed hits their black box trading systems as quickly as possible. Speed of light is a factor here. The further away from the exchange you are (i.e. the further the electronic messages have to travel), the more latency is introduced.

Just by doing these two things, high frequency traders are able to perform latency arbitrage, giving them the ability to consistently take small profits by trading ahead of the market, with almost zero risk.

Managing Your Mental Capacity As A Trader

J. Hamilton Fraser — Thu, 20 May 2010 06:44:08 +0000

Every trader has a mental capacity. Trading is mentally and emotionally very intense, and every trader needs to know and stay within their limits. Many in the securities trading world understands that successful traders exhibit the same qualities as elite athletes.

Their focus is extraordinarily strong, they understand how to hand rigorous mentally and emotionally draining activities, and they are determined to win at the end. And most importantly, they know how to get back up after they fall to rise above the rest.

Here are some ways to stay sane as you do your trading on a daily basis.

First recognize that we all have mental limits. There is only so much intense activity that we can do on an optimal level at a time. So understand where your limits are and know when to quit when you begin to lose your sharp edge.

Secondly, keep things very simple. Too many traders try to use very complex and hard to understand and execute strategies and systems for their trading. The underlying strategy might be good. But in the heat of battle, a complex strategy that is supposed to work maybe failed to be executed well enough to succeed. So keep this matra of KISS: keep it simple stupid.

If you can keep your strategy simple, you have the best changes to executing it well. In addition, you have the added benefit of it not killing you to execute on a daily basis. You need a trading strategy and system that is sustainable over the long term.

If you’re strategy makes you exhausted after every trade, then it’ll probably not be sustainable and you won’t be able to manage it. If you’re going to do this forex investment game, you want to stay alive for the long haul.

So, again, keep it simple. Trade only one or two trading pairs at a time. If you do trade two currency pairs, make sure they talk to each other. What I mean is that make sure they are related somehow.

For example, if you think the AUD/USD will somehow affect the CAD/EUR for whatever reason, that’s a good reason to trade both. But if they are significantly mutually exclusive at any given time, it may not be smart to have to mental tracks at one time.

Lastly, practice. The reason an elite athlete can handle and overcome in the intensity of the moment is because they practiced and built up their tolerance and expanded their limitations. If you haven’t already, get a forex demo account to practice before you start. It may not be the same thing as trading real cash, but that doesn’t stop the athlete from getting up at 5am to run 5 miles everyday.