5 Key Factors to Consider When Choosing an Online Broker
/Lydia Wanjiru/ -- An online broker is quite essential for every investor. It is imperative to carry out a research to determine who an ideal online broker is. Here are a few factors to consider before you choose an online broker: 1. Minimum Initial Investment Most brokerages set a minimum initial investment or money that has to be deposited into the account to start trading. You can pick the best brokerage in the industry but fail to meet their minimum investment requirement. It is therefore vital for an investor to find out whether the amount of capital they have is sufficient to trade with a particular broker.
4 Basic Guidelines Useful in Trading Binary Options
/Lydia Wanjiru/ -- A binary option is a financial option that is considered to be an asset-or-nothing option, because the payoff is either you get a fixed amount of compensation or nothing at all when the option expires. It is also referred to as all-or-nothing or fixed-return options (FROs) and provides access to commodities and foreign exchange, indices, and stocks. Binary options are based on a Yes or a No proposition about whether an underlying asset will be above or below a certain price at a certain time. If the trader believes that the asset price will be below a certain price, he sells the option and if he believes it will be above a certain price he buys the option.
5 Key Investing Stages To Help You Achieve Financial Freedom
Sept. 18, 2017 /Lydia Wanjiru/ -- If you want to succeed financially, you must invest. Plan your financial short-term and long-term goals and objectives. It is no brainer that every journey must have a destination. In your financial journey, you need to put into consideration a number of things to achieve your goals at the end of it. This guide will give you a number of steps to take to help you to achieve financial security.
8 Common Types of Investment Risks
One of the biggest fears that engulf everybody when they think of investing is the loss of their hard-earned money. A risk is inevitable as every investment involves some degree of risk or taking some calculated risk. It is believed that the higher the risk the higher the returns. A risk is the level of uncertainty that a particular investment will gain if you invest in it or the level of a potential financial loss that you are likely to incur if you invest in a particular asset. Every investor should be concerned about the investment risk as much as they are concerned about the possibility of returns. Investing requires understanding the level of risks involved. Here are risks that every investor should be aware of: 1. Business risk Any business is exposed to uncertainties due to the economic downturns. A stockholder invests in the business when they purchase a portion of ownership in a company and a bondholder lends money to a business. If the business does not grow or do well and becomes bankrupt and its assets are liquidated, the common stockholders are among the last to get the proceeds from the dissolution. The bondholders are paid first, then the preferred shareholders and the ordinary shareholder gets the balance or the leftover which can be almost to or nothing. If you purchase individual stocks, you get exposed to business-specific risk and this can be reduced through asset diversification or buying a put option. 2. Market risk Market risk is also known as the systematic risk and affects all securities the same way. Market risk is caused by a factor that cannot be mitigated through diversification. 3. Price Volatility risk The stock price fluctuates up and down due to factors of supply and demand which are influenced by factors such as economic changes, changes in the company management. One way to measure volatility is the use of a beta and can approximate particular security returns against the returns of a benchmark such as S&P 500. 4. Inflation risk Inflation is the general upward movement of prices and reduces the investor purchasing power or the purchasing value of money. Inflation risk is caused by the decline in value of the stocks cash flow due to inflation or the chances that the cash flows from an investment will not be worth as much in the future. You can mitigate this risk by investing in inflation-protected securities such as inflation-indexed bonds or Treasury inflation-protected securities (TIPS). You can mitigate this type of risk through purchasing appreciable investments. 5. Interest Rate risk Interest rate risk arises due to fluctuations in interest rates and thus mostly affects the bond owners. A bonds measure of the interest rate risk exposure is determined by how sensitive its price is to interest rate changes in the market. The sensitivity depends on the bonds time to maturity and the coupon rate of the bond. 6. Liquidity risk Liquidity risk is the risk that arises due to inability to convert a security or a hard asset to cash when desired without loss in capital or income in the process because of limited opportunities. A good example is difficulties encountered when selling a real estate property at any given moment should an urgent need arise. An individual investor, a company or a financial institution is thus incapable of meeting short-term financial obligations. 7. Political/Social/Legislative risk These are risks that may occur due to the instability in the country due to the political environment, social changes or unfavorable government actions. 8. Currency/Exchange risk This is a risk that an investor is exposed to due to changes in the price of the currency against another. Investors should take risks that they can afford and look for ways to mitigate the risk that their securities are exposed to.
4 Things To Do Before You Trade Penny Stocks
Penny stocks are shares that are traded for $5 each or less. Majority of these penny stocks are on the major stock exchanges such as NASDAQ, NYSE, American Stock Exchange, and the Bulletin board. The Bulletin Board is the best to get higher quality penny stocks. However, there are a few smaller ones which trade on the dark markets such as Pink Sheets, OTCQX and OTCQB. Focus on the high-quality companies which trade on the major trading exchanges to avoid losses and refrain from trading in the dark markets. Also, avoid free stock picks that promoters are pushing you to buy as they could be scams. Most of the genuine companies increase in size and price without a promoter.
4 Common Types of Orders when Trading in Stocks
It is important for every stock investor to know the different types of orders in the stock market and when it is appropriate to apply them especially when you want to sell or buy stocks through a brokerage firm. Trade orders are instructions that are given to brokers to buy or sell a stock. All trades must have two orders which consist of an order to get into the trade or the buy order and an order to exit the trade or the sell order.
8 Popular Types of ETF to Include in Your Portfolio
An Investor should always seek for opportunities to increase their portfolio and capitalize on such opportunities. The need to hedge your investments against risks and other emerging issues is a valid reason to increase your portfolio exposure and to work on your investment strategies. Here is a list of the most popular types of ETFs to consider adding into your portfolio.
3 Ways to Buy Stock without a Full-Service Broker
Trading a stock is in most cases done via brokerage firms. The investor first finds a reputable brokerage firm to facilitate the process. The full-service broker charges a hefty commission that eats into your investment returns. For these among other reasons, you may be compelled to decide not to use a stockbroker or avoid having a brokerage account to reduce the costs. The direct investment option has some pros and cons which you will need to weigh given your unique circumstances and preferences. Here are three major ways to buy a stock without a stock broker: 1. Invest through direct stock purchase plan (DSPPs) The use of DSPPs also known as no-loads stocks allows investors to invest with a fixed dollar amount each month regardless of the stock price, a strategy called DCA. The investor is able to purchase shares directly from a company with the help of a transfer agent. The stock price fluctuates and so the number of shares purchased varies because of the fluctuating prices per month. This method reduces the possibility of investing a large amount of dollars at the wrong time. An investor invests in companies that are well established for over a long period of time. The drawback of this strategy is lack of diversity unless you invest in a number of different companies across a variety of industries. 2. Invest through Dividend Reinvestment plans Another way to eliminate the broker is to enroll in a stocks dividend reinvestment program commonly known as DRIP. DRIP allows the investor to reinvest the cash dividends paid out by the company by buying additional shares, changing either nominal fees or nothing at all depending on the individual plan specifics. DRIPs allow investors to purchase a fractional share which is lucrative as you don’t hold onto cash outs instead you invest it. The downside of this strategy is that the investors don’t have a chance to diversify their portfolio. DRIP does not give the investors control over the purchase date of shares. You can choose either the full or the partial enrollment plan. The full plan lets you reinvest the entire monthly dividend while the partial plan allows only a portion of the dividends to be reinvested back into the company and the other portion is paid to you. 3. Use an online broker It is much cheaper to use an online broker compared to a full-service broker though online brokers do not offer comprehensive investment advice. Discount online brokers charge small commissions and investors have control over their accounts. Investors do their own research which can help them decide when to trade. Choose a site with a good technical support, open an online brokerage account, determine your risk tolerance and select the account type to trade with which can either be cash or a margin account. Fund your account with dollars and start trading. Bottom line Another unconventional way is where an investor can acquire a single share through a specialized gifting service. An investor, in this case, has a relationship with an asset management company, who gets the Registered Investment Advisor to have one of the firm's institutional brokers place a trade on behalf of the client and then it is transferred as a gift to a child or family member through the DRS. The recipient of the equity would then be able to buy a stock without a broker. Investors can opt for a cash-only brokerage account as opposed to the margin account and make sure they are covered by SIPC insurance.
6 Major Types of Strategies Traders can Opt for in Forex Trading
Trading Forex (FX) involves trading of currencies where you can buy one currency while selling another for speculation purposes. Forex trading just like any other investment involves taking calculated risks. When trading forex, you can make profits or losses. You need to master the best forex strategies that can work for you to benefit from forex trading. Currencies tend to fluctuate due to various factors like geopolitical, economical and more. The aim of trading in currencies is to make profits from the changes in prices.
3 Ways to Trade Forex
Forex exchange is an international market for trading currencies. According to a survey by the Bank for International Settlements in 2016, the average daily forex trading was 5.1$ trillion and of this, spot trading made up $2.6Traders have trillion.
4 Steps to Become a Successful Forex Trader (for dummies)
/Lydia Wanjiru/ -- To become a successful forex trader, you need to learn, practice and set a clear plan for the trade. Getting into the forex business is easy and you can follow a few simple steps. You need to learn how to mitigate losses while maximizing profits which you can achieve by identifying good trade setups that have a positive risk and reward set up.
5 Significant Reasons to Trade Forex
Forex or the foreign exchange market is a decentralized or over-the-counter (OTC) market whereby currencies are traded at current or determined prices. This market brings together central banks, investment banks, commercial banks, hedge funds retail traders among other professions. According to the Bank of International Settlements (BIS) last triennial survey, the size of the forex market turnover was $5.2 trillion as of 2016. The forex market is thus the biggest financial market in the world. Here are top 5 reasons to trade forex/currencies: 1. Diversification Investing in FX market allows investors to balance their portfolio more particularly if it is heavily centered in the US equities. Currencies move relative to each other and therefore the returns in the forex trade are two ways, because an investor can make profits if the currencies drop or rise depending on how they had predicted the possible movement. 2. Market Transparency, Liquidity and Accessibility Forex traders have access to their account at all times 24/7 and on a real-time basis. The events and the news that impact the currency movements are available for every investor globally. It is possible for any investor from any part of the world to do their own analysis on how certain events are likely to impact a given currency by following the monetary flows and events that influence a country economic stability. The forex market is growing and is highly liquid and decentralized as there is no central trading location or exchange. Most of the forex trading is done through electronic trading networks and thus allowing market participants to react to economic events and currency movements. 3. Leverage FX trading allows for the use of leverage of up to 50-1 which means that investors have the ability to control a large amount of one currency using a small percentage of its true value. The use of leverage creates a greater opportunity to profit when used prudently though can work or fail you. 4. Regulation In the year 2000 and 2008, the U.S Congress passed legislation that require firms that act as counterparties to retail forex transactions, as well as forex pool operators, CTAs and introducing brokers to register with the Commodity Futures Trading Commission (CFTC) and to become members of the self-regulatory organization for the U.S. derivatives industry, the National Futures Association (NFA). Good regulation is an excellent boost to the confidence of the forex traders. 5. No Commission Fees Most FX accounts trade without exchange fees, data licenses, and commissions. Besides paying the cost of paying establishing spread between the buying and the selling price, there are no other major charges. There may be charges however if you opt to use a dealer as they can charge you for the services provided. Dealers are required to disclose their charges to their customer prior starting to trade and they should pay no more than two pips on majors. Among other reasons to trade forex are that it helps to hedge against the political and event risk, acts as a global economic hedge and also offers a potential for capital appreciation.
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