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Without a niche, you may not exactly have a concrete plan how you can <span id="IL_AD2" class="IL_AD" style="border-bottom-width: 1px !important; border-bottom-style: solid !important; border-bottom-color: rgb(0, 153, 0) !important; text-decoration: underline !important; color: rgb(0, 153, 0) !important; background-image: none !important; background-attachment: scroll !important; background-origin: initial !important; background-clip: initial !important; background-color: transparent !important; cursor: pointer !important; position: static; display: inline !important; padding-bottom: 1px !important; font-family: 'Trebuchet MS', Arial, Tahoma !important; font-weight: normal !important; font-style: normal !important; font-size: 14px !important; background-position: 0% 50%; background-repeat: repeat repeat !important; ">make money online</span> with a web business, as you may not exactly have something that you will market. This is why before you fuss about your <span id="IL_AD3" class="IL_AD" style="border-bottom-width: 1px !important; border-bottom-style: solid !important; border-bottom-color: rgb(0, 153, 0) !important; text-decoration: underline !important; color: rgb(0, 153, 0) !important; background-image: none !important; background-attachment: scroll !important; background-origin: initial !important; background-clip: initial !important; background-color: transparent !important; cursor: pointer !important; position: static; display: inline !important; padding-bottom: 1px !important; font-family: 'Trebuchet MS', Arial, Tahoma !important; font-weight: normal !important; font-style: normal !important; font-size: 14px !important; background-position: 0% 50%; background-repeat: repeat repeat !important; ">marketing techniques</span> and whatnots, you should first think about which niche to pursue.</p><p style="font-family: 'Trebuchet MS', Arial, Tahoma; font-size: 14px; color: rgb(68, 68, 68); ">Now, this may sound simple, but if you really want to profit from this venture you're looking at, you may need to think thoroughly about how you will choose your niche. This is because with the right one, you can guarantee yourself profits, while failure to find the right one may end up not so well for you.</p><p style="font-family: 'Trebuchet MS', Arial, Tahoma; font-size: 14px; color: rgb(68, 68, 68); ">So, how do you choose the best niche? Here are some tips:</p><p style="font-family: 'Trebuchet MS', Arial, Tahoma; font-size: 14px; color: rgb(68, 68, 68); ">1. Start with something you are passionate about. The great thing about the make money online scene is that there are a lot of fields that you can focus in, giving you tons of options in which items or services to sell. If you started with your passion, you can instantly start learning about ways to properly market your products, instead of spending a lot of time learning the ropes in your niche. Starting with your passion gives you a better edge, as you may already know a thing or two about it, making you a great source of information that people will surely find useful.</p><p style="font-family: 'Trebuchet MS', Arial, Tahoma; font-size: 14px; color: rgb(68, 68, 68); "><span class="Apple-style-span" style="color: rgb(102, 102, 102); "></span></p><p style="font-family: 'Trebuchet MS', Arial, Tahoma; font-size: 14px; color: rgb(68, 68, 68); ">2. If you don't want to use the first tip, you can always search for a niche with high demand. All you need to do here is conduct a simple research and learn about what people need and want. Some of the high demand niches today have something to do with weight loss or making money through the web. However, if you're going for this method of choosing your area, make sure to choose one that is not totally swamped that competition is all over, or else your chances of making a sale would be slim.</p><p style="font-family: 'Trebuchet MS', Arial, Tahoma; font-size: 14px; color: rgb(68, 68, 68); ">3. make sure to offer something that will help people solve their problems. One of the biggest rules in the make money online scene would be to always make a point to sell items that will answer other people's problems. This will guarantee you sales and also help you build a solid and loyal following.</p><p style="font-family: 'Trebuchet MS', Arial, Tahoma; font-size: 14px; color: rgb(68, 68, 68); ">These are just the most basic tips in choosing a niche to market. Keep in mind that it is still up to you which one to go for.</p></span><p></p></div>foramshttp://www.blogger.com/profile/06266713990913900832noreply@blogger.com1tag:blogger.com,1999:blog-6878738958384573164.post-3260122971505558922010-06-21T23:50:00.000-07:002010-06-21T23:51:50.771-07:00Key Factor : Geo-Politics<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 11px; "><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">Do you hate the business section? Do your eyes glaze over at the mere mention of economic data and mind-numbing accounting numbers? Fear not. The currency market is the only market in the world that can be successfully traded on political news as well as economic releases. Because currencies represent <strong>countries rather than companies</strong>, they are political as well as economic assets and are therefore very responsive to any disturbance in the political landscape.</p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">The key to understanding speculative behavior with respect to any geopolitical unrest is that speculators run first and ask questions later. In other words, whenever investors fear any threat to their capital, they will quickly retreat to the sidelines until they are certain that the political risk has disappeared. Therefore, the general rule of thumb in the currency market is that <strong>politics almost always trumps economics</strong>. The history of FX is littered with examples of political trades. Let’s take a look at some examples over the past few years.</p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; "><strong>No-Confidence Vote Depresses Loonie</strong><strong><br /></strong><br />The end of May 2005 was not a happy time for the Liberal Party government of Canada’s Prime Minister, Paul Martin. After having guided the country to its best economic performance in 30 years, Martin was facing the fight of his life as his party prepared for a no-confidence vote stemming from accusations of past Liberal Party corruption. </p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">Meanwhile, Canada’s economy was becoming a star performer, spurred by the massive rises in the price of oil. As the number one exporter of crude to the US, Canada was benefiting mightily from this newfound wealth. Yet despite the great economic news, the Canadian dollar <strong>remained weak</strong> against the greenback as traders worried about the implications of the fall of the Liberals. </p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">On May 26, 2005, Martin’s government survived the no-confidence vote and the<strong>Canadian dollar rallied</strong>, causing the USD/CAD* to plunge 200 points in less than a week as the market once again focused on Canada’s stellar economic fundamentals.</p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; "><br /></p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; "><span class="Apple-style-span" style="font-size: 11px; "></span></p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; "><strong>BoJ Governor Fukui Responsible for Floundering Yen</strong><em><br /></em><br />At the beginning of June 2006, Bank of Japan Governor Fukui revealed to the Diet that he had invested 10 million yen in 1999 in a fund founded by financier Yoshiaki Murakami. Murakami was later indicted on charges of insider trading and although Fukui was not involved in any illegal activity, the mere appearance of impropriety in image-conscious Japan greatly damaged his reputation. </p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">As the principal of Japan’s monetary policy during its recovery from a decade-long battle with deflation, Fukui was considered one of the most powerful men in the currency markets. His forced resignation would do <strong>great damage</strong> to the prospects of further recovery in Japan.</p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">Meanwhile, Japanese economic data continued to show <strong>stellar economic performance</strong> as exports and business investment continued to grow, unemployment reached decade-long lows, and consumer sentiment improved. Talk spread through the markets that Japan would soon abandon its zero-interest rate policy and would actually have positive interest rates for the first time this century. </p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">Despite all the positive speculation, the <strong>yen floundered</strong>, continuing to decline against the dollar as traders feared that Fukui would have to step down. Fukui stolidly refused, and as the furor passed and the market realized that he would stay on, the yen’s strength returned, showing once again that when it comes to currencies, politics can often be more important than economics.</p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; "><span class="Apple-style-span" style="font-size: 11px; "></span></p><p align="left" style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">If you enjoy predicting changes to the political landscape, your talents could be well utilized as a Forex trader. Recently, we predicted a strengthening of the Canadian dollar and earned close to 70 points in less than 24 hours. At 10 to 1 leverage you could have profited along with us, making a <strong>7% return or $700 on a $10,000 trade</strong>.</p><p align="left" style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; "><strong>How OPEC Made Us 70 Points</strong></p><p align="left" style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">Geopolitical risk can mean wars, terrorist attacks, or missile launches, but it can also relate to milder yet still politically powerful events such as G7 meetings and OPEC announcements. In October 2006, Saudi Arabia announced that they would back OPEC’s plans to<strong> cut oil production</strong> by one million barrels a day after oil prices dropped more than 10% in just seven trading days. The cuts were to take effect on November 1, 2006, with more to come in December. </p><p align="left" style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">As Canada is a major exporter and producer of oil, we believed that this policy change would be <strong>very positive</strong> for the Canadian dollar. Therefore we went short the US dollar and long the Canadian on October 19, 2006. Over the next 24 hours, based upon the geopolitical theme, we earned close to <strong>70 points</strong> on the trade.</p></span><p></p><p></p>foramshttp://www.blogger.com/profile/06266713990913900832noreply@blogger.com0tag:blogger.com,1999:blog-6878738958384573164.post-30691482592272167622010-06-21T23:48:00.000-07:002010-06-21T23:50:04.192-07:00Key Factor : Economic Growth<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 11px; "><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">The next factor you need to consider when predicting a country's currency movements is its economic growth. The stronger the economy, the greater the possibility that the central bank will raise its interest rates to tame the growth of inflation. And <strong>the higher a country's interest rates, the bigger the likelihood that foreign investors will invest in a country's financial markets. </strong>More foreign investors means a greater demand for the country's currency. A greater demand results in an increase in a currency's value.<br /><br />Hence, a ripple effect: economic growth inspires higher interest rates inspires more foreign investment inspires greater currency demand which inspires an increase in the currency's value. </p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; "><strong>How Anemic Economic Growth Crashed EUR/USD 2,000 Points</strong></p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">For a good example of the impact of economic growth on the direction of currency rates, let’s look at the EUR/USD from 2005 to 2006. Economic growth is best measured by a country's Gross Domestic Product, or GDP. The United States and Eurozone represent two of the most prosperous regions in the world with GDPs running at $13 trillion and $11 trillion respectively.</p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">In 2005 and 2006, the <strong>difference in growth rates</strong> between the two major economic powers was clearly reflected in currency movements. In 2005, the Eurozone lagged significantly behind the United States in economic growth, averaging an anemic 1.5% rate throughout the year while the US expanded at a healthy 3% rate. Consequently, investment capital flowed <strong>from Europe to the US</strong> and the EUR/USD dropped by nearly 2,000 basis points by the end of 2005. In 2006, however, Eurozone growth perked up while US growth began to slow. At the end of 2006, Eurozone GDP actually overtook US growth rates, causing the EUR/USD to rally.</p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; "><span class="Apple-style-span" style="font-size: 11px; "></span></p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">We've used GDP's to forecast trends on several more Forex trades in the past. One great example is our November 14, 2006, United States dollar/ Japanese yen trade (USD/JPY).</p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; "><strong>67 Points in Four Hours</strong></p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">In the middle of November 2006, hurt by the contraction in its housing sector, the US economic data began to deteriorate. Rumor had it that the US might <strong>lower interest rates</strong> in the first quarter of 2007, which would encourage foreign investors to look elsewhere. </p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">Meanwhile, the Japanese economy was buoyed by the weak yen that made Japanese products affordable internationally and helped spur double digit growth in exports. On November 14, 2006, the Japanese GDP printed at much better than expected -- 2% versus the 1% forecast. We decided to take advantage of the <strong>strength of the Japanese economic growth</strong> vs. the relatively weak economic outlook in the US, so we went short USD/JPY at 117.82. As we hoped, that morning, in sharp contrast to Japan, US retail sales produced very weak numbers and the USD/JPY pair collapsed. We were able to collect <strong>67 points</strong> on the trade in less than four hours.</p></span><p></p>foramshttp://www.blogger.com/profile/06266713990913900832noreply@blogger.com1tag:blogger.com,1999:blog-6878738958384573164.post-24339204137383600232010-06-21T23:45:00.002-07:002010-06-21T23:48:26.950-07:00Key Factor : Interest Rates<span class="Apple-style-span" style=" ;font-family:Arial, Helvetica, sans-serif;font-size:11px;"><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; "><strong>Key Factor 1. Interest Rates.</strong><br />We use two methods to profit from the difference in countries' interest rates:</p><ul type="disc" style="font-size: 12px; "><li>interest income</li><li>capital appreciation</li></ul><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; "><em>Generating interest income. </em></p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">Every currency in the world comes attached with an interest rate that is set by its country’s central bank. All things being equal, you should always <strong>buy currencies from countries with high-interest rates and finance these purchases with currency from countries with low-interest rates.</strong> </p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">For example, as of the fall of 2006, interest rates in the United States stood at 5.25%, while rates in Japan were set at .25%. You could have taken advantage of this rate difference by borrowing a large sum of Japanese yen, exchanging it for US dollars, and using the US dollars to purchase bonds or CDs at the US 5.25% rate. In other words, you could have borrowed money at .25%, lent it out at 5.25%, and made a 5% return. Or you could save yourself all the hassle of becoming a money lender by simply<strong>trading the currency pair</strong> to affect the same transaction.</p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; "><em>Generating income from capital appreciation.</em></p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">As <strong>a country's interest rate rises, the value of the country's currency also tends to rise</strong> -- this phenomenon gives you a chance to profit from your currency's increased value, or capital appreciation. </p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">In the case of the USD/JPY spread in 2005 and 2006, as the US interest rates stayed higher than Japan's, the dollar continued to increase in value. Investors who traded yen for dollars gained from interest income (as explained in the section above) as well as the US dollar's capital appreciation.</p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; "><br /></p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; "><span class="Apple-style-span" style="font-size: 11px; "></span></p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; "><strong>Interest Rates Spark a 700 Point Rally</strong></p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">Another great example of the power of interest rates in the currency market occurred in August of 2006. At that time, the Bank of England surprised the market by raising its short-term rates from 4.5% to 4.75%. Interest rates for Japan were still at a low .25%. </p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">The rise in England's interest rates widened the interest rate differential on the popular GBP/JPY cross from 425 basis points to 450 basis points. Investment money flowed into Great Britain as traders bought up pounds to take advantage of the new spread. As the demand for the GBP increased, the value of the GBP increased, and the spread between the currencies increased. This domino effect lead to a <strong>700-point rally</strong>in the GBP/JPY over the next three weeks.</p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; "><br /></p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; "><span class="Apple-style-span" style="font-size: 11px; "></span></p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; "><strong>80 Points in Less than 24 Hours</strong></p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">More recently, we have used interest rate differentials to successfully predict several profitable trades for <em>Forex Advisor</em> members. </p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">The concept of interest rates can be used to trade currencies using both long- and short-term perspectives. On a long-term basis, we look for major themes. On a short-term basis, we look for <strong>surprises in the news</strong> that shift the market’s interest rate expectations. We were able to make <strong>two winning trades</strong> based on short-term interest rate flows in the Australian dollar/Japanese yen (AUD/JPY) currency pair on January 24, 2007. </p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">The trigger for our trade was the surprise drop in Australian consumer prices during the fourth quarter. The market was looking for hot inflation numbers but instead they received cold ones. Low inflation numbers meant the central bank of Australia was not likely to raise interest rates as expected. This news sent the Australian dollar tumbling hard against the Japanese yen, as traders speculated that the <strong>interest rate differential </strong>between the two currencies would no longer grow. </p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">The first trade we made on January 24 banked us 45 points. We took profit before the currency pair retraced and then sold it again when it showed further signs of weakness. The second January 24 trade produced an additional 35 points for a total of <strong>80 points</strong>.</p><p></p><p></p></span>foramshttp://www.blogger.com/profile/06266713990913900832noreply@blogger.com0tag:blogger.com,1999:blog-6878738958384573164.post-29159926110913537022010-06-21T23:45:00.001-07:002010-06-21T23:45:35.911-07:00Five Key Factors that Move the Forex Markets -- and How to Profit from Them<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 11px; "><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">Hi! We're Boris Schlossberg and Kathy Lien, and we've been making people money in Forex for over a decade. As Directors of Currency Research at GFT and long-time<a href="http://www.investopedia.com/">Investopedia.com</a> contributors, we've seen our share of wins and losses... Thankfully, over the years, we've also been able to learn from our less glamorous predictions and come up with a currency trading system that has earned us a very respectable success rate on Forex trades. </p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">Today, we're sharing our Forex trading system with you. We're going to show you how to analyze the movements of any currency pair using a simple checklist of <strong>five key currency-moving factors</strong>. These are the same factors that we use to analyze our own Forex picks. </p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; "><strong>Why Forex?</strong></p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">Although trading currencies originated as a way to purchase foreign goods and services, investors soon learned that there are <strong>huge speculative returns</strong> to be made by predicting the value of international currencies. Today, those who use the Forex market as an investment vehicle outnumber those who trade currencies to expedite world trade. In fact, as of December 2006, 80% of all trades in the currency market are made by investors or investment entities out to make a <strong>quick return</strong> on their extra cash.</p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">The Forex market is the <strong>most prolific</strong> market in the world, attracting trillions of dollars per day from central banks, corporations, hedge funds, and individual speculators. This <strong>fast-paced</strong> market operates 24/7, 5 days a week, beginning with trade in Wellington, New Zealand, and continuing on to Sydney, Australia; Tokyo, Japan; London, England; and New York, New York before the whole cycle begins again.</p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">Forex is exciting, and with the right guidance and a bit of luck you can earn 500%, 600%, even 2000% returns. <em>But Forex is not for everyone</em>. If you prefer the penny slots to the high roller tables, then the <strong>high-stakes </strong>world of Forex trading is probably not for you. Forex is best traded with money you have allocated as <a href="http://www.investopedia.com/terms/r/riskcapital.asp">risk capital</a> -- money you don't need for day to day expenses. </p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">So, if you'd like to spice up your more secure investments with a pinch of adrenalin and a dash of risk, try a few Forex trades. But first, let us show you how you can gain an edge in the market with the...</p><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; "><strong>Five Keys to Predicting Forex Market Movements</strong><br />To profit from the fascinating world of international trade, you must have a firm grip on the key factors that affect a currency's value. When making our trades, we analyze five key factors. In order of importance, they are:</p><ul style="font-size: 12px; "><li>Interest Rates</li><li>Economic Growth</li><li>Geo-Politics</li><li>Trade and Capital Flows</li><li>Merger and Acquisition Activity</li></ul><p style="font-family: Arial, Helvetica, sans-serif; font-size: 12px; ">If you can predict how each of these factors affect your currency trades, you have the foundation to make <strong>serious returns</strong>.</p></span>foramshttp://www.blogger.com/profile/06266713990913900832noreply@blogger.com0tag:blogger.com,1999:blog-6878738958384573164.post-89547004972952189792010-06-17T21:52:00.001-07:002010-06-17T21:52:36.885-07:00Reo Investing: Why The Reo Boom?<span class="Apple-style-span" style="font-family: 'trebuchet ms', verdana, arial, sans-serif; font-size: small; color: rgb(51, 51, 51); "><h2 class="postTitle" style="color: rgb(102, 102, 102); "><br /></h2><p class="postBody" style="color: rgb(119, 119, 119); ">REO properties are coming on the market faster than ever and investors and non-investors alike are taking notice of all the great deals! These properties are proving to be the true "deep discount" properties on the market making them a great option for investors or simply a great deal for would be home owners. So you may be asking "Why now? The real estate market has been down for several years." <b>Understanding market</b>conditions, how the market got to where it is and where it is possible going next is vital to your investing career and your success. There are several reasons we are seeing a huge influx of REO properties hit the market right now. <b>Didn't See it Coming</b> First and foremost, like most people, the banks didn't see this market coming. Sure, some predicted a "hiccup" in the market, but most had no idea how big or how long that "hiccup" would be or last. And, it took some time for them to really start to realize that they had a real problem on their hands. <b>Overload of Defaulted Loans</b> Once the banks realized that they had a real problem, they got overloaded with defaulted loans and simply were shell-shocked. The solution initially was to do nothing. They were simply in denial. <b>Thought they could ride it out the Storm</b> Another big factor is that they figured they would be able to simply ride out the storm. Why spend all the time, money, and resource to "take action" when the storm will just blow over. Well, the storm didn't just blow over and they eventually realized they would have to deal with the "bad child". <b>Simply Didn't Have the Staff or Processes</b> Once the banks decided to jump into action, they quickly realized the where jumping right into the middle of a huge black whole. They didn't have the process, staff, or even the knowledge to process the backlog of defaults they already had in hand; all while still be flooded with new defaults every day. <b>Waiting for Someone Else to Save the Day</b>: As with many folks, they figured someone else; mainly the federal government, would come in and save the day. As we all found out, that did not happen and the problem only kept getting worse. So now that we know how we got here, what will happen next? No one can truly predict the future but it does appear that banks are finally processing and completing the foreclosure process and taking the properties back at a much faster rate than over the last few years. Meaning, more REO deals will continue to hit the market at a feverish rate and should provide an ongoing funnel of great deals.</p></span>foramshttp://www.blogger.com/profile/06266713990913900832noreply@blogger.com0tag:blogger.com,1999:blog-6878738958384573164.post-48178872070337344822010-06-09T04:52:00.000-07:002010-06-09T04:53:56.180-07:0010 Tips For The Long-Term Investor<p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: normal"><span style="font-size:15.0pt;mso-bidi-font-size:11.0pt;font-family: "Arial","sans-serif";mso-fareast-font-family:"Times New Roman";color:black">While it may be true that in the stock market there is no rule without an exception, there are some principles that are tough to dispute. Let's review 10 general principles to help investors get a better grasp of how to approach the market from a long-term view. Every point embodies some fundamental concept every investor should know.</span><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black"><o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: normal"><span style="font-size:12.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman""><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: normal"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: normal"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: normal"><b><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black">Sell the losers and let the winners ride!</span></b><b style="mso-bidi-font-weight:normal"><span style="font-size:15.0pt;font-family:"Arial","sans-serif";mso-fareast-font-family: "Times New Roman";color:black"><o:p></o:p></span></b></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black">Time and time again, investors take profits by selling their appreciated investments, but they hold onto stocks that have declined in the hope of a rebound. If an investor doesn't know when it's time to let go of hopeless stocks, he or she can, in the worst-case scenario, see the stock sink to the point where it is almost worthless. Of course, the idea of holding onto high-quality investments while selling the poor ones is great in theory, but hard to put into practice.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black"><o:p> </o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:16.85pt"><b><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black">Don't chase a "hot tip"</span></b><b style="mso-bidi-font-weight:normal"><span style="font-size:15.0pt;font-family:"Arial","sans-serif";mso-fareast-font-family: "Times New Roman";color:black"><o:p></o:p></span></b></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black">Whether the tip comes from your brother, your cousin, your neighbor or even your broker, you shouldn't accept it as law. When you make an investment, it's important you know the reasons for doing so; do your own research and analysis of any company before you even consider investing your hard-earned money. Relying on a tidbit of information from someone else is not only an attempt at taking the easy way out, it's also a type of gambling. Sure, with some luck, tips sometimes pan out. But they will never make you an informed investor, which is what you need to be to be successful in the long run.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black"><o:p> </o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:16.85pt"><b><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black">Don't sweat the small stuff</span></b><b style="mso-bidi-font-weight:normal"><span style="font-size: 15.0pt;font-family:"Arial","sans-serif";mso-fareast-font-family:"Times New Roman"; color:black"><o:p></o:p></span></b></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black">As a long-term investor, you shouldn't panic when your investments experience short-term movements. When tracking the activities of your investments, you should look at the big picture. Remember to be confident in the quality of your investments rather than nervous about the inevitable volatility of the short term. Also, don't overemphasize the few cents difference you might save from using a limit versus market order.<span style="mso-bidi-font-weight:bold"><o:p></o:p></span></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black">Granted, active traders will use these day-to-day and even minute-to-minute fluctuations as a way to make gains. But the gains of a long-term investor come from a completely different market movement - the one that occurs over many years - so keep your focus on developing your overall investment philosophy by educating yourself.<span style="mso-bidi-font-weight:bold"><o:p></o:p></span></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black;mso-bidi-font-weight: bold"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: 16.85pt"><b><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black">Don't overemphasize the P/E ratio<o:p></o:p></span></b></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: 16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black;mso-bidi-font-weight: bold">Investors often place too much importance on the price-earnings ratio (P/E ratio). Because it is one key tool among many, using only this ratio to make buy or sell decisions is dangerous and ill-advised. The P/E ratio must be interpreted within a context, and it should be used in conjunction with other analytical processes. So, a low P/E ratio doesn't necessarily mean a security is undervalued, nor does a high P/E ratio necessarily mean a company is overvalued.<o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: 16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black;mso-bidi-font-weight: bold"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: 16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black;mso-bidi-font-weight: bold"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: 16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black;mso-bidi-font-weight: bold"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: 16.85pt"><b><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black">Resist the lure of penny stocks<o:p></o:p></span></b></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: 16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black;mso-bidi-font-weight: bold">A common misconception is that there is less to lose in buying a low-priced stock. But whether you buy a $5 stock that plunges to $0 or a $75 stock that does the same, either way you've lost 100% of your initial investment. A lousy $5 company has just as much downside risk as a lousy $75 company. In fact, a penny stock is probably riskier than a company with a higher share price, which would have more regulations placed on it.<o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: 16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black;mso-bidi-font-weight: bold"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: 16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black;mso-bidi-font-weight: bold"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: 16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black;mso-bidi-font-weight: bold"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: 16.85pt"><b><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black">Pick a strategy and stick with it<o:p></o:p></span></b></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: 16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black;mso-bidi-font-weight: bold">Different people use different methods to pick stocks and fulfill investing goals. There are many ways to be successful and no one strategy is inherently better than any other. However, once you find your style, stick with it. An investor who flounders between different stock-picking strategies will probably experience the worst, rather than the best, of each. Constantly switching strategies effectively makes you a market timer, and this is definitely territory most investors should avoid. Take Warren Buffett's actions during the dotcom boom of the late '90s as an example. Buffett's value-oriented strategy had worked for him for decades, and - despite criticism from the media - it prevented him from getting sucked into tech startups that had no earnings and eventually crashed.<o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: 16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black;mso-bidi-font-weight: bold"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: 16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black;mso-bidi-font-weight: bold"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: 16.85pt"><b><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black">Focus on the future<o:p></o:p></span></b></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black;mso-bidi-font-weight: bold">The tough part about investing is that we are trying to make informed decisions based on things that are yet to happen. It's important to keep in mind that even though we use past data as an indication of things to come, it's what happens in the future that matters most.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black;mso-bidi-font-weight: bold">A quote from Peter Lynch's book "One Up on Wall Street" (1990) about his experience with Subaru demonstrates this: "If I'd bothered to ask myself, 'How can this stock go any higher?' I would have never bought Subaru after it already went up twentyfold. But I checked the fundamentals, realized that Subaru was still cheap, bought the stock, and made sevenfold after that." The point is to base a decision on future potential rather than on what has already happened in the past.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black;mso-bidi-font-weight: bold"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: 16.85pt"><b><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black">Adopt a long-term perspective<o:p></o:p></span></b></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: 16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black;mso-bidi-font-weight: bold">Large short-term profits can often entice those who are new to the market. But adopting a long-term horizon and dismissing the "get in, get out and make a killing" mentality is a must for any investor. This doesn't mean that it's impossible to make money by actively trading in the short term. But, as we already mentioned, investing and trading are very different ways of making gains from the market. Trading involves very different risks that buy-and-hold investors don't experience. As such, active trading requires certain specialized skills.<o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: 16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black;mso-bidi-font-weight: bold"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: 16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black;mso-bidi-font-weight: bold"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: 16.85pt"><b><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black">Be open-minded<o:p></o:p></span></b></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black">Many great companies are household names, but many good investments are not household names. Thousands of smaller companies have the potential to turn into the large blue chips of tomorrow. In fact, historically, small-caps have had greater returns than large-caps; over the decades from 1926-2001, small-cap stocks in the U.S. returned an average of 12.27% while the Standard & Poor's 500 Index (S&P 500) returned 10.53%<span style="mso-bidi-font-weight:bold">.<o:p></o:p></span></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black;mso-bidi-font-weight: bold">This is not to suggest that you should devote your entire portfolio to small-cap stocks. Rather, understand that there are many great companies beyond those in the Dow Jones Industrial Average (DJIA), and that by neglecting all these lesser-known companies, you could also be neglecting some of the biggest gains.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black;mso-bidi-font-weight: bold"><o:p> </o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:16.85pt"><b><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black">Be concerned about taxes, but don't worry<o:p></o:p></span></b></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black;mso-bidi-font-weight: bold">Putting taxes above all else is a dangerous strategy, as it can often cause investors to make poor, misguided decisions. Yes, tax implications are important, but they are a secondary concern. The primary goals in investing are to grow and secure your money. You should always attempt to minimize the amount of tax you pay and maximize your after-tax return, but the situations are rare where you'll want to put tax considerations above all else when making an investment decision.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black;mso-bidi-font-weight: bold"><o:p> </o:p></span></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: 16.85pt"><b><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black">Conclusion<o:p></o:p></span></b></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: 16.85pt"><span style="font-size:15.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman";color:black;mso-bidi-font-weight: bold">There are exceptions to every rule, but we hope that these solid tips for long-term investors and the common-sense principles we've discussed benefit you overall and provide some insight into how you should think about investing.<o:p></o:p></span></p> <p class="MsoNormal"><span style="font-family:"Arial","sans-serif""><o:p> </o:p></span></p>foramshttp://www.blogger.com/profile/06266713990913900832noreply@blogger.com1tag:blogger.com,1999:blog-6878738958384573164.post-54174626590567718812010-06-09T00:47:00.000-07:002010-06-09T00:51:19.807-07:00Hedging Turns absolute Positive returns<span class="Apple-style-span" style="font-family:arial;"><b>Hedge Definition:</b></span><div><span class="Apple-style-span" style="font-family:arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family:arial;">An aggressively managed portfolio of investments that uses advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark).<br /><br />Legally, hedge funds are most often set up as private investment partnerships that are open to a limited number of investors and require a very large initial minimum investment. Investments in hedge funds are illiquid as they often require investors keep their money in the fund for at least one year.</span></div><div><span class="Apple-style-span" style="font-family:arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family:arial;"><a href="http://www.investopedia.com/terms/h/hedgefund.asp">Hedge funds</a> are like <a href="http://www.investopedia.com/terms/m/mutualfund.asp">mutual funds</a> in two respects: (1) they are pooled investment vehicles (i.e. several investors entrust their money to a manager) and (2) they invest in publicly traded securities. But there are important differences between a hedge fund and a mutual fund. These stem from and are best understood in light of the hedge fund's charter: investors give hedge funds the freedom to pursue absolute return strategies.</span></div><div><span class="Apple-style-span" style="font-family:arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family:arial;"><strong>Mutual Funds Seek Relative Returns<br /></strong>Most mutual funds invest in a predefined style, such as "small cap <a href="http://www.investopedia.com/terms/v/valueinvesting.asp">value</a>", or into a particular sector, such as the technology sector. To measure performance, the mutual fund's returns are compared to a style-specific <a href="http://www.investopedia.com/terms/i/index.asp">index</a> or <a href="http://www.investopedia.com/terms/b/benchmark.asp">benchmark</a>. For example, if you buy into a "small cap value" fund, the managers of that fund may try to outperform the S&P Small Cap 600 Index. Less active managers might construct the portfolio by following the index and then applying stock-picking skills to increase (overweigh) favored stocks and decrease (underweigh) less appealing stocks.<br /><br />A mutual fund's goal is to beat the index or "beat the <a href="http://www.investopedia.com/terms/b/bogey.asp">bogey</a>", even if only modestly. If the index is down 10% while the mutual fund is down only 7%, the fund's performance would be called a success. On the <a href="http://www.investopedia.com/terms/p/passivemanagement.asp">passive</a>-<a href="http://www.investopedia.com/terms/a/activemanagement.asp">active</a> spectrum, on which pure index investing is the passive extreme, mutual funds lie somewhere in the middle as they semi-actively aim to generate returns that are favorable compared to a benchmark.</span></div><div><span class="Apple-style-span" style="font-family:arial;"><br /><br /><strong>Hedge Funds Actively Seek Absolute Returns</strong><br />Hedge funds lie at the active end of the investing spectrum as they seek positive absolute returns, regardless of the performance of an index or sector benchmark. Unlike mutual funds, which are "<a href="http://www.investopedia.com/terms/l/long.asp">long</a>-only" (make only buy-sell decisions), a hedge fund engages in more aggressive strategies and positions, such as <a href="http://www.investopedia.com/terms/s/shortselling.asp">short selling</a>, trading in <a href="http://www.investopedia.com/terms/d/derivative.asp">derivative instruments</a> like <a href="http://www.investopedia.com/terms/o/option.asp">options</a> and using <a href="http://www.investopedia.com/terms/l/leverage.asp">leverage</a> (borrowing) to enhance the risk/reward profile of their bets.<br /><br />This activeness of hedge funds explains their popularity in <a href="http://www.investopedia.com/terms/b/bearmarket.asp">bear markets</a>. In a <a href="http://www.investopedia.com/terms/b/bullmarket.asp">bull market</a>, hedge funds may not perform as well as mutual funds, but in a bear market - taken as a group or asset class - they should do better than mutual funds because they hold short positions and <a href="http://www.investopedia.com/terms/h/hedge.asp">hedges</a>. The absolute return goals of hedge funds vary, but a goal might be stated as something like "6-9% annualized return regardless of the market conditions".<br /><br />Investors, however, need to understand that the hedge fund promise of pursuing absolute returns means hedge funds are "liberated" with respect to registration, investment positions, <a href="http://www.investopedia.com/terms/l/liquidity.asp">liquidity</a> and fee structure. First, hedge funds in general are not registered with the <a href="http://www.investopedia.com/terms/s/sec.asp">SEC</a>. They have been able to avoid registration by limiting the number of investors and requiring that their investors be <a href="http://www.investopedia.com/terms/a/accreditedinvestor.asp">accredited</a>, which means they meet an income or net worth standard. Furthermore, hedge funds are prohibited from soliciting or advertising to a general audience, a prohibition that lends to their mystique.<br /><br />In hedge funds, liquidity is a key concern for investors. Liquidity provisions vary, but invested funds may be difficult to withdraw "at will". For example, many funds have a lock-out period, which is an initial period of time during which investors cannot remove their money.<br /><br />Lastly, hedge funds are more expensive even though a portion of the fees are performance-based. Typically, they charge an annual fee equal to 1% of assets managed (sometimes up to 2%), plus they receive a share - usually 20% - of the investment gains. The managers of many funds, however, invest their own money along with the other investors of the fund and, as such, may be said to "eat their own cooking". </span></div><div><span class="Apple-style-span" style="font-family:arial;"><br /><br /><strong><!---->Three Broad Categories and Many Strategies</strong><br />Most hedge funds are entrepreneurial organizations that employ proprietary or well-guarded strategies. The three broad hedge fund categories are based on the types of strategies they use: <br /><br /><table width="90%" align="center" border="0"> <tbody><tr> <td><strong><em><!----><span class="Apple-style-span" style="font-style: normal;">1. Arbitrage Strategies </span><br /></em></strong><a href="http://www.investopedia.com/terms/a/arbitrage.asp">Arbitrage</a> is the exploitation of an observable price inefficiency and, as such, pure arbitrage is considered riskless. Consider a very simple example. Say Acme stock currently trades at $10 and a <a href="http://www.investopedia.com/terms/s/singlestockfuture.asp">single stock futures </a> contract due in six months is priced at $14. The futures contract is a promise to buy or sell the stock at a predetermined price. So, by purchasing the stock and simultaneously selling the futures contract, you can, without taking on any risk, lock in a $4 gain before transaction and borrowing costs.<br /><br />In practice, arbitrage is more complicated, but three trends in investing practices have opened up the possibility of all sorts of arbitrage strategies: the use of (1) <a href="http://www.investopedia.com/terms/d/derivative.asp">derivative</a> instruments, (2) trading software, and (3) various trading exchanges (for example, electronic communication networks and foreign exchanges make it possible to take advantage of "exchange arbitrage", the arbitraging of prices among different exchanges).<br /><br />Only a few hedge funds are pure arbitrageurs, but when they are, historical studies often prove they are a good source of low-risk reliably-moderate returns. But, because observable price inefficiencies tend to be quite small, pure arbitrage requires large, usually leveraged investments and high turnover. Further, arbitrage is perishable and self-defeating: if a strategy is too successful, it gets duplicated and gradually disappears.<br /><br />Most so-called arbitrage strategies are better labeled "relative value". These strategies do try to capitalize on price differences, but they are not risk free. For example, convertible arbitrage entails buying a corporate <a href="http://www.investopedia.com/terms/c/convertiblebond.asp">convertible bond</a>, which can be converted into common shares, while simultaneously selling short the <a href="http://www.investopedia.com/terms/c/commonstock.asp">common stock</a> of the same company that issued the bond. This strategy tries to exploit the relative prices of the convertible bond and the stock: the arbitrageur of this strategy would think the bond is a little cheap and the stock is a little expensive. The idea is to make money from the bond's yield if the stock goes up but also to make money from the short sale if the stock goes down. However, as the convertible bond and the stock can move independently, the arbitrageur can lose on both the bond and the stock, which means the position carries risk.<br /><br /><br /><strong>2. Event-Driven Strategies</strong><br />Event-driven strategies take advantage of transaction announcements and other one-time events. One example is <a href="http://www.investopedia.com/terms/m/mergerarbitrage.asp">merger arbitrage</a>, which is used in the event of an <a href="http://www.investopedia.com/terms/a/acquisition.asp">acquisition</a> announcement and involves buying the stock of the <a href="http://www.investopedia.com/terms/t/targetfirm.asp">target company</a> and hedging the purchase by selling short the stock of the acquiring company. Usually at announcement, the purchase price that the acquiring company will pay to buy its target exceeds the current trading price of the target company. The merger arbitrageur bets the acquisition will happen and cause the target company's price to converge (rise) to the purchase price that the acquiring company pays. This also is not pure arbitrage. If the market happens to frown on the deal, the acquisition may unravel and send the stock of the acquirer up (in relief) and the target company's stock down (wiping out the temporary bump) which would cause a loss for the position.<br /><br />There are various types of event-driven strategies. One other example is "distressed securities", which involves investing in companies that are reorganizing or have been unfairly beaten down. Another interesting type of event-driven fund is the activist fund, which is predatory in nature. This type takes sizable positions in small, flawed companies and then uses its ownership to force management changes or a restructuring of the balance sheet.<br /><br /><br /><strong><em><span class="Apple-style-span" style="font-style: normal;">3. Directional or Tactical Strategies </span><br /></em></strong>The largest group of hedge funds uses directional or tactical strategies. One example is the macro fund, made famous by George Soros and his Quantum Fund, which dominated the hedge fund universe and newspaper headlines in the 1990s. Macro funds are global, making "top-down" bets on currencies, interest rates, commodities or foreign economies. Because they are for "big picture" investors, macro funds often do not analyze individual companies.<br /><br />Here are some other examples of directional or tactical strategies:<br /> <blockquote>• <a href="http://www.investopedia.com/terms/l/long-shortequity.asp">Long/short strategies</a> combine purchases (long positions) with short sales. For example, a long/short manager might purchase a portfolio of core stocks that occupy the S&P 500 and hedge by selling (shorting) S&P 500 Index futures. If the S&P 500 goes down, the short position will offset the losses in the core portfolio, limiting overall losses.<br /><br />• <a href="http://www.investopedia.com/terms/m/marketneutral.asp">Market neutral </a>strategies are a specific type of long/short with the goal to negate the impact and risk of general market movements, trying to isolate the pure returns of individual stocks. This type of strategy is a good example of how hedge funds can aim for positive, absolute returns even in a bear market. For example, a market neutral manager might purchase Lowe's (NYSE:<a href="http://simulator.investopedia.com/stocks/LOW">LOW</a>) and simultaneously short Home Depot (NYSE:<a href="http://simulator.investopedia.com/stocks/q.aspx?s=hd">HD</a>), betting that the former will outperform the latter. The market could go down and both stocks could go down along with the market, but as long as Lowe's outperforms Home Depot, the short sale on Home Depot will produce a net profit for the position.<br /><br />• <a href="http://www.investopedia.com/terms/d/dedicatedshortbias.asp">Dedicated short</a> strategies specialize in the short sale of over-valued securities. Because losses on short-only positions are theoretically unlimited (because the stock can rise indefinitely), these strategies are particularly risky. Some of these dedicated short funds are among the first to foresee corporate collapses - the managers of these funds can be particularly skilled at scrutinizing company fundamentals and financial statements in search of red flags. </blockquote></td> </tr> </tbody></table><br /><br />You should now have a firm grasp of the differences between mutual and hedge funds and understand the various strategies hedge funds implement to try to achieve absolute returns. <!--printable = OFF--></span></div>foramshttp://www.blogger.com/profile/06266713990913900832noreply@blogger.com0tag:blogger.com,1999:blog-6878738958384573164.post-56772624779978575042010-06-09T00:23:00.000-07:002010-06-09T00:47:22.154-07:00Hedging Tips<b><i><p class="MsoNormal"><span class="Apple-style-span" style="font-family:Arial, sans-serif;font-size:6;"><span class="Apple-style-span" style="font-size: 19px; line-height: 21px;"></span></span></p><span class="Apple-style-span" style="font-family:Arial, sans-serif;font-size:6;"><p class="MsoNormal"><span style="font-size:14.0pt;mso-bidi-font-size: 12.0pt;line-height:115%;font-family:"Arial","sans-serif";color:black; mso-bidi-font-style:italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">Why Start A Hedge Fund?</span></span></span><span style="font-size:12.0pt;line-height:115%;font-family:"Arial","sans-serif"; color:black;mso-bidi-font-style:italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><br /></span></span><span class="Apple-style-span" style="font-weight: normal;"> </span></span><span class="apple-style-span"><span style="font-size:12.0pt; line-height:115%;font-family:"Arial","sans-serif";color:black;mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">There are many reasons why starting a hedge fund is the new American dream. Here are some of the most popular:</span></span></span></span><span class="apple-style-span"><span style="font-size:12.0pt;line-height:115%; font-family:"Arial","sans-serif";color:black"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></span></p> <ul type="disc"> <li class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal;mso-list:l0 level1 lfo1;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif";color:black; mso-bidi-font-style:italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">Almost everyone has read the news stories about the few hedge fund managers who have earned over $1 billion a year running their funds.</span></span></span><span style="font-size:12.0pt;font-family:"Arial","sans-serif""><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></li> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l0 level1 lfo1;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif";mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">Hedge funds grace the cover of mainstream media newspapers and magazines on an almost-daily basis.</span></span></span><span style="font-size:12.0pt; font-family:"Arial","sans-serif""><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></li> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l0 level1 lfo1;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif";mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">The secretive and exclusive nature of hedge funds has a draw, compared to many other areas of finance and investing, which can at times seem mundane.</span></span></span><span style="font-size:12.0pt;font-family:"Arial","sans-serif""><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></li> </ul> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt"><span class="apple-style-span"><span style="font-size:12.0pt;line-height:115%; font-family:"Arial","sans-serif";color:black;mso-bidi-font-style:italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">With a little bit of capital it is relatively easy to start a hedge fund. However, implementing risk controls, growing assets, hiring staff and running the organization as a profitable business while producing positive performance is very challenging. </span></span></span></span><span style="font-size: 12.0pt;line-height:115%;font-family:"Arial","sans-serif";color:black; mso-bidi-font-style:italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><br /><br /></span></span> <span class="apple-style-span"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">Between 4% and 10% of all hedge funds fail or close down each year, and countless others are half-started, abandoned or re-shaped into private investment pools for friends and family. This is not to say that starting a hedge fund is a bad idea, but it is important to realize that it is a very challenging endeavor - one that must be approached with the same long-term perspective required for running a business. </span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><br /><br /></span></span> </span><span style="font-size:14.0pt;mso-bidi-font-size:12.0pt; line-height:115%;font-family:"Arial","sans-serif";color:black;mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">Seven Tips for Hedge Fund Startups</span></span></span><span style="font-size:12.0pt;line-height:115%;font-family:"Arial","sans-serif"; color:black;mso-bidi-font-style:italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><br /></span></span><span class="Apple-style-span" style="font-weight: normal;"> </span></span><span class="apple-style-span"><span style="font-size:12.0pt; line-height:115%;font-family:"Arial","sans-serif";color:black;mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">If you are set on starting a hedge fund, there are dozens of factors that will determine your success. Here are seven tips or crucial areas of your new venture that you should be cognizant of and think through before showing any potential investors or partners your business plan for your fund.</span></span></span></span><span style="font-size:12.0pt;line-height:115%;font-family:"Arial","sans-serif"; color:black;mso-bidi-font-style:italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><br /><br /></span></span> <span style="font-family: Arial, sans-serif; "><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">1.</span></span></span><span class="apple-converted-space"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span><span style="font-family: Arial, sans-serif; "><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">Competitive Advantage</span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><br /></span></span> <span class="apple-style-span"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">Your hedge fund must have a</span></span></span><span class="apple-converted-space"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span></span><span class="apple-style-span"><span style="font-size:12.0pt;line-height:115%;font-family:"Arial","sans-serif"; color:black"><a href="http://www.investopedia.com/terms/c/competitive_advantage.asp"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">competitive advantage</span></span></a></span></span><span class="apple-converted-space"><span style="font-size:12.0pt;line-height:115%; font-family:"Arial","sans-serif";color:black;mso-bidi-font-style:italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span></span><span class="apple-style-span"><span style="font-size:12.0pt;line-height:115%; font-family:"Arial","sans-serif";color:black;mso-bidi-font-style:italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">over others in the market. This may be a marketing advantage, information advantage, trading advantage, or resource advantage. A marketing advantage could be close career-long relationships with hundreds of</span></span></span></span><span class="apple-converted-space"><span style="font-size:12.0pt;line-height:115%; font-family:"Arial","sans-serif";color:black;mso-bidi-font-style:italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span></span><span class="apple-style-span"><span style="font-size:12.0pt;line-height:115%; font-family:"Arial","sans-serif";color:black"><a href="http://www.investopedia.com/terms/h/hnwi.asp"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">high net worth investors</span></span></a></span></span><span class="apple-converted-space"><span style="font-size:12.0pt;line-height:115%; font-family:"Arial","sans-serif";color:black;mso-bidi-font-style:italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span></span><span class="apple-style-span"><span style="font-size:12.0pt;line-height:115%; font-family:"Arial","sans-serif";color:black;mso-bidi-font-style:italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">or</span></span></span></span><span class="apple-converted-space"><span style="font-size:12.0pt;line-height:115%; font-family:"Arial","sans-serif";color:black;mso-bidi-font-style:italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span></span><span class="apple-style-span"><span style="font-size:12.0pt;line-height:115%; font-family:"Arial","sans-serif";color:black"><a href="http://www.investopedia.com/terms/f/family-offices.asp"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">family offices</span></span></a><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">. An example of a resource advantage would be if you work for a large</span></span></span></span><span class="apple-converted-space"><span style="font-size:12.0pt;line-height:115%; font-family:"Arial","sans-serif";color:black;mso-bidi-font-style:italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span></span><span class="apple-style-span"><span style="font-size:12.0pt;line-height:115%; font-family:"Arial","sans-serif";color:black"><a href="http://www.investopedia.com/terms/a/assetmanagement.asp"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">asset-management</span></span></a></span></span><span class="apple-converted-space"><span style="font-size:12.0pt;line-height:115%; font-family:"Arial","sans-serif";color:black;mso-bidi-font-style:italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span></span><span class="apple-style-span"><span style="font-size:12.0pt;line-height:115%; font-family:"Arial","sans-serif";color:black;mso-bidi-font-style:italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">firm that would like to heavily invest in launching a hedge fund.</span></span></span></span><span class="apple-style-span"><span style="font-size:12.0pt;line-height:115%; font-family:"Arial","sans-serif""><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></span></p> <p class="MsoNormal"><span style="font-size:12.0pt;line-height:115%;font-family: "Arial","sans-serif""><o:p><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></o:p></span></p> <p class="MsoNormal"><span style="font-size:12.0pt;line-height:115%;font-family: "Arial","sans-serif";color:black;mso-bidi-font-style:italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><br /></span></span> <span style="font-family: Arial, sans-serif; "><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">2. Strategy Definition</span></span></span><span class="apple-converted-space"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><br />Some hedge fund startups underestimate the importance of clearly defining their fund's</span></span></span><span style="font-size:12.0pt;line-height:115%;font-family:"Arial","sans-serif"; color:black"><a href="http://www.investopedia.com/terms/i/investmentstrategy.asp"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">investment strategy</span></span></a><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">. <o:p></o:p></span></span></span></p> <ul type="square"> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l4 level1 lfo2;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif";mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">What is your strategy, and how will you define and explain your investment process to your own team and initial investors? Developing a repeatable, defendable, profitable investment process after taking the costs of running a hedge fund into consideration can be difficult. </span></span></span><span style="font-size:12.0pt;font-family:"Arial","sans-serif""><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></li> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l4 level1 lfo2;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif";mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">Ideas which have not been tested in the real markets don't hold very much water with investors and consultants, who see hundreds of wannabe hedge fund managers a year. </span></span></span><span style="font-size:12.0pt; font-family:"Arial","sans-serif""><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></li> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l4 level1 lfo2;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif";mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">It will help to do some hedge fund performance research if you haven't already and know which strategies are currently doing well, which are not and why this may be the case. </span></span></span><span style="font-size: 12.0pt;font-family:"Arial","sans-serif""><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></li> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l4 level1 lfo2;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif";mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">Are you launching your fund at a time when your strategy is in very high demand, or has the pendulum swung the other way for the time being? </span></span></span><span style="font-size:12.0pt;font-family:"Arial","sans-serif""><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></li> </ul> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt"><span style="font-size:12.0pt;line-height:115%;font-family:"Arial","sans-serif"; color:black;mso-bidi-font-style:italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">Start building a list of the other hedge funds that run the same strategy as your firm and conduct as much competitive intelligence on them as you are able to, ethically and legally.</span></span></span><span style="font-size:12.0pt;line-height:115%;font-family:"Arial","sans-serif"; color:black"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></p> <p class="MsoNormal"><span style="font-size:12.0pt;line-height:115%;font-family: "Arial","sans-serif";color:black;mso-bidi-font-style:italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><br /><br /></span></span> <span style="font-family: Arial, sans-serif; "><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">3.</span></span></span><span class="apple-converted-space"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span><span style="font-family: Arial, sans-serif; "><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">Capitalization And Seed Capital</span></span></span><span class="apple-converted-space"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><br />It is important that your new hedge fund be well capitalized. The amount of assets your fund will need to manage to become profitable will depend on three things:</span></span></span><span style="font-size:12.0pt;line-height:115%;font-family: "Arial","sans-serif";color:black"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></p> <ul type="disc"> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l2 level1 lfo3;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif";mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">team size</span></span></span><span style="font-size:12.0pt;font-family:"Arial","sans-serif""><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></li> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l2 level1 lfo3;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif";mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">investment partners</span></span></span><span style="font-size:12.0pt; font-family:"Arial","sans-serif""><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></li> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l2 level1 lfo3;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif";mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">unique cost structure</span></span></span><span style="font-size:12.0pt; font-family:"Arial","sans-serif""><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></li> </ul> <p class="MsoNormal" style="margin-bottom:20.0pt"><span style="font-size:12.0pt; line-height:115%;font-family:"Arial","sans-serif";color:black;mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">Some hedge fund managers claim profitability with less than $10 million in</span></span><span class="apple-converted-space"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span></span><span style="font-size: 12.0pt;line-height:115%;font-family:"Arial","sans-serif";color:black"><a href="http://www.investopedia.com/terms/a/aum.asp"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">assets under management</span></span></a><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">, while others claim that you must manage $110-125 million in assets to be considered a serious business venture that has some long-term prospects for survival. The number is probably somewhere in the middle, but everyone's business is unique, and due to performance fees you can sometimes see large profits with relatively low asset levels.</span></span><span class="apple-converted-space"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt"><span style="font-size:12.0pt;line-height:115%;font-family:"Arial","sans-serif"; color:black;mso-bidi-font-style:italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><br /></span></span> <span style="font-family: Arial, sans-serif; "><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">4.</span></span></span><span class="apple-converted-space"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span><span style="font-family: Arial, sans-serif; "><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">Marketing And Sales Plan</span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><br />Like any business, nothing happens until a sale is made. It is important to develop a sales plan for raising assets before you open your doors for business. One of the first steps in doing so will be deciding where you will try to raise assets. There are many potential sources of investors, including: </span></span></span><span style="font-size:12.0pt;line-height:115%; font-family:"Arial","sans-serif";color:black"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></p> <ul type="disc"> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l1 level1 lfo4;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif""><a href="http://www.investopedia.com/terms/s/seedcapital.asp"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">seed-capital</span></span></a><span class="apple-converted-space"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">providers<o:p></o:p></span></span></span></li> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l1 level1 lfo4;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif";mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">family and friends</span></span></span><span style="font-size:12.0pt;font-family: "Arial","sans-serif""><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></li> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l1 level1 lfo4;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif";mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">high net worth individuals</span></span></span><span style="font-size:12.0pt; font-family:"Arial","sans-serif""><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></li> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l1 level1 lfo4;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif";mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">financial advisors</span></span></span><span style="font-size:12.0pt;font-family: "Arial","sans-serif""><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></li> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l1 level1 lfo4;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif";mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">wealth-management offices and</span></span><span class="apple-converted-space"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span></span><span style="font-size:12.0pt;font-family:"Arial","sans-serif""><a href="http://www.investopedia.com/terms/r/ria.asp"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">RIAs</span></span></a><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></li> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l1 level1 lfo4;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif";mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">single- and multi-family offices</span></span></span><span style="font-size: 12.0pt;font-family:"Arial","sans-serif""><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></li> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l1 level1 lfo4;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif""><a href="http://www.investopedia.com/terms/f/fundsoffunds.asp"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">fund of hedge funds</span></span></a><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></li> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l1 level1 lfo4;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif""><a href="http://www.investopedia.com/terms/c/corporation.asp"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">corporations</span></span></a><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></li> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l1 level1 lfo4;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif";mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">foundations and</span></span><span class="apple-converted-space"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span></span><span style="font-size:12.0pt;font-family:"Arial","sans-serif""><a href="http://www.investopedia.com/terms/e/endowment.asp"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">endowments</span></span></a><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></li> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l1 level1 lfo4;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif""><a href="http://www.investopedia.com/terms/p/pensionfund.asp"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">pensions</span></span></a><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></li> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l1 level1 lfo4;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif""><a href="http://www.investopedia.com/terms/s/subadvisedfund.asp"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">sub-advisory</span></span></a><span class="apple-converted-space"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">relationships<o:p></o:p></span></span></span></li> </ul> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt"><span style="font-size:12.0pt;line-height:115%;font-family:"Arial","sans-serif"; color:black;mso-bidi-font-style:italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">Small hedge fund startups typically try to develop long-term relationships with seed capital providers, family and friends and</span></span><span class="apple-converted-space"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span></span><span style="font-size:12.0pt;line-height:115%;font-family:"Arial","sans-serif"; color:black"><a href="http://www.investopedia.com/terms/h/hnwi.asp"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">high net worth individuals</span></span></a><span class="apple-converted-space"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">(directly or through their financial advisors). Working with institutional-quality investors who might eventually invest $25-100 million at a time can be difficult until you have a two-to-three year track record and well over $100 million in total assets under management.<o:p></o:p></span></span></span></p> <p class="MsoNormal"><span style="font-size:12.0pt;line-height:115%;font-family: "Arial","sans-serif";color:black;mso-bidi-font-style:italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><br /><br />Some marketing and sales activities to complete and create before launching your fund include: </span></span> </span><span style="font-size:12.0pt;line-height:115%; font-family:"Arial","sans-serif";color:black"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></p> <ul type="disc"> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l3 level1 lfo5;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif";mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">newsletters</span></span></span><span style="font-size:12.0pt;font-family:"Arial","sans-serif""><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></li> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l3 level1 lfo5;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif";mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">website</span></span></span><span style="font-size:12.0pt;font-family:"Arial","sans-serif""><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></li> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l3 level1 lfo5;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif";mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">database-population process</span></span></span><span style="font-size:12.0pt; font-family:"Arial","sans-serif""><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></li> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l3 level1 lfo5;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif";mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">two-page</span></span><span class="apple-converted-space"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span></span><span style="font-size:12.0pt;font-family:"Arial","sans-serif""><a href="http://www.investopedia.com/terms/m/marketing.asp"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">marketing</span></span></a><span class="apple-converted-space"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">piece<o:p></o:p></span></span></span></li> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l3 level1 lfo5;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif";mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">20-page PowerPoint presentation</span></span></span><span style="font-size:12.0pt; font-family:"Arial","sans-serif""><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></li> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l3 level1 lfo5;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif";mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">professional logo</span></span></span><span style="font-size:12.0pt;font-family: "Arial","sans-serif""><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></li> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l3 level1 lfo5;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif";mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">letterhead</span></span></span><span style="font-size:12.0pt;font-family:"Arial","sans-serif""><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></li> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l3 level1 lfo5;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif";mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">business cards</span></span></span><span style="font-size:12.0pt;font-family: "Arial","sans-serif""><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></li> <li class="MsoNormal" style="color:black;mso-margin-top-alt:auto;mso-margin-bottom-alt: auto;line-height:normal;mso-list:l3 level1 lfo5;tab-stops:list .5in"><span style="font-size:12.0pt;font-family:"Arial","sans-serif";mso-bidi-font-style: italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">folders with logos for presentations </span></span></span><span style="font-size:12.0pt;font-family:"Arial","sans-serif""><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><o:p></o:p></span></span></span></li> </ul> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt"><span style="font-size:12.0pt;line-height:115%;font-family:"Arial","sans-serif"; color:black;mso-bidi-font-style:italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">Many of these are Business 101-type details, but they are often overlooked or poorly executed. Anyone who can really help your business grow sees hundreds, if not thousands, of hedge fund managers a year and it is easy for them to see which managers have invested their time and effort and which have thrown something together at the last minute. All marketing and sales materials should be produced under the direction of your chief</span></span><span class="apple-converted-space"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span></span><span style="font-size:12.0pt;line-height:115%;font-family:"Arial","sans-serif"; color:black"><a href="http://www.investopedia.com/terms/c/compliancedepartment.asp"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">compliance</span></span></a><span class="apple-converted-space"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">officer or compliance consultant, as there are many limitations and details that need to be approved and reviewed.<o:p></o:p></span></span></span></p> <p class="MsoNormal"><span style="font-size:12.0pt;line-height:115%;font-family: "Arial","sans-serif";color:black"><o:p><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></o:p></span></p><p class="MsoNormal"><span style="font-size:12.0pt;line-height:115%;font-family: "Arial","sans-serif";color:black;mso-bidi-font-style:italic"> <span style="font-family: Arial, sans-serif; "><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">5.</span></span></span><span class="apple-converted-space"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span><span style="font-family: Arial, sans-serif; "><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">Risk Management</span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><br /></span></span> </span><span style="font-size:12.0pt;line-height:115%;font-family:"Arial","sans-serif"; color:black"><a href="http://www.investopedia.com/terms/r/riskmanagement.asp"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">Risk management</span></span></a><span class="apple-converted-space"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">is an important piece of the puzzle is when running a successful hedge fund. Your firm must come up with a concrete and competitive method for managing both business and</span></span><span class="apple-converted-space"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span><a href="http://www.investopedia.com/terms/p/portfolio.asp"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">portfolio</span></span></a><span class="apple-converted-space"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">risk or you will come off as not being serious about your business or long-term growth goals. There are many consultants and consulting firms that do nothing but advise hedge funds on portfolio and operational risk-management issues.<o:p></o:p></span></span></span></p> <p class="MsoNormal"><span style="font-size:12.0pt;line-height:115%;font-family: "Arial","sans-serif";color:black;mso-bidi-font-style:italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><br /><br /></span></span> <span style="font-family: Arial, sans-serif; "><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">6.</span></span></span><span class="apple-converted-space"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span><span style="font-family: Arial, sans-serif; "><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">Compliance And Legal Assistance</span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><br />Hiring great legal counsel should be seen as an investment. An experienced hedge fund lawyer can help you avoid pitfalls and build relationships and invite you to networking events such as private-capital introduction dinners. It will also show others in the industry that you are investing in your own business because you aim to be in the industry for the long haul.<br /><br /></span></span></span></p><p class="MsoNormal"><span style="font-size:12.0pt;line-height:115%;font-family: "Arial","sans-serif";color:black;mso-bidi-font-style:italic"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><br /></span></span> <span style="font-family: Arial, sans-serif; "><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">7.</span></span></span><span class="apple-converted-space"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span><span style="font-family: Arial, sans-serif; "><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">Deciding On Prime Brokerage</span></span></span><span class="apple-converted-space"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><br />Many startup hedge fund managers underestimate the importance of choosing a</span></span><span class="apple-converted-space"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span></span><span style="font-size:12.0pt; line-height:115%;font-family:"Arial","sans-serif";color:black"><a href="http://www.investopedia.com/terms/p/primebrokerage.asp"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">prime brokerage</span></span></a><span class="apple-converted-space"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"> </span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">firm, which can act as a partner to their business. The prime broker is such an integral part of how your hedge fund will trade and operate that you should take several weeks or months to evaluate your options and weigh the costs and benefits of doing business with the various firms you meet with.<br /><br />It is usually wise to choose a prime brokerage team that is very motivated to serve your needs, but not so small that they physically cannot meet all of your trading and prime brokerage requirements. While capital-introduction services can be a great thing for your prime broker to offer, know that they often require a nine- to 12-month track record at a minimum before they can do much for you beyond helping explore seed capital sources. Once your team has proven itself, a good prime broker will help make introductions if you have great performance and a solid team behind the portfolio.<br /><br /></span></span> <span style="font-family:"Arial","sans-serif""><span class="Apple-style-span" style="font-style: normal;">Conclusion</span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><br /></span></span><span class="Apple-style-span" style="font-weight: normal;"> </span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;">starting a hedge fund is a challenging endeavor that takes a multi-year commitment to refining your strategy, building a team, and finding both trading and marketing niches where your firm can profitably operate. While many hedge funds fail before they become large enough to be viable businesses, following the tips above will help save you time and gain some early momentum in marketing your portfolio.</span></span><o:p></o:p></span></p></span><p></p></i></b>foramshttp://www.blogger.com/profile/06266713990913900832noreply@blogger.com0tag:blogger.com,1999:blog-6878738958384573164.post-86868486557827323642010-06-08T23:34:00.000-07:002010-06-08T23:57:46.003-07:00Stock Tips<p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span class="Apple-style-span" style="font-family:Arial, sans-serif;"><span class="Apple-style-span" style="font-size:-webkit-xxx-large;"></span></span></p><span class="Apple-style-span" style="font-family:Arial, sans-serif;"><p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-family:"Arial","sans-serif"; mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;">Often investors have to forgo the chance of raking in profits in the <a href="http://www.economywatch.com/trading/stock-tips.html" target="undefined"><span style="color:blue;">stock market</span></a> due to their inability to identify profit-making opportunities. <o:p></o:p></span></p><p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-family:"Arial","sans-serif"; mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;"><br /></span></p><p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-family:"Arial","sans-serif"; mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;"><br /></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><b><span style="font-family:"Arial","sans-serif"; mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;">Stock tips</span></b><span style="font-family:"Arial","sans-serif";mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;"> help investors recognize these opportunities. Stock tips advise investors on what stocks to purchase or sell during the course of a trading day. With <a href="http://www.economywatch.com/trading/stock-tips.html" target="undefined"><span style="color:blue;">stock advice</span></a>, novice traders/investors can venture into the market with confidence. Stock tips are usually given by professional traders and brokers, who are experts in stock market trading.<o:p></o:p></span></p><p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-family:"Arial","sans-serif";mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;"><br /></span></p><p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-family:"Arial","sans-serif";mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;"><br /></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-family:"Times New Roman","serif"; mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;"><o:p> </o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><b><u><span style="font-family:"Arial","sans-serif"; mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;">Stock Tips: Where to Find Them</span></u></b><span style="font-family:"Times New Roman","serif"; mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;"><o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-family:"Arial","sans-serif"; mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;">A good source of stock tips for individual <a href="http://www.economywatch.com/trading/stock-tips.html" target="undefined"><span style="color:blue;">investors</span></a> is a broker. Small brokerage firms are preferable for their personal attention and one-on-one guidance on investment strategies. However, some brokers are little more than salesmen, and one should not rely too heavily on their advice.</span><span style="font-family:"Times New Roman","serif";mso-fareast-Times New Roman"; font-family:";font-size:12.0pt;color:black;"><o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-family:"Arial","sans-serif"; mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;">Brokers have also started offering online stock tips. Online stock tips have become very popular, particularly among day <a href="http://www.economywatch.com/trading/stock-tips.html" target="undefined"><span style="color:blue;">traders</span></a>, who can log on and quickly receive reports on the market. The data provided by brokers online can include detailed analysis of investments and the current market trends.</span><span style="font-family:"Times New Roman","serif";mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;"><o:p></o:p></span></p><p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-family:"Arial","sans-serif"; mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;"><br /></span></p><p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-family:"Arial","sans-serif"; mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;"><br /></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-family:"Arial","sans-serif"; mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;">You can also receive stock tips from stock market reports on the Internet and major business websites, such as money.cnn.com, bloomberg.com and businessweek.com, which provide information on various changes in the stock market.</span><span style="font-family:"Times New Roman","serif";mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;"><o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><b style="mso-bidi-font-weight:normal"><span style="font-family:"Arial","sans-serif";mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;">Other ways of receiving stock tips are:</span></b><b style="mso-bidi-font-weight:normal"><span style="font-family: "Times New Roman","serif";mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;"><o:p></o:p></span></b></p><p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><b style="mso-bidi-font-weight:normal"><span style="font-family:"Arial","sans-serif";mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;"><br /></span></b></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal"><span style="font-family:Symbol;mso-fareast-font-family:"Times New Roman"; mso-bidi-Times New Roman";font-family:";font-size:10.0pt;color:black;">·</span><span style="font-size:7.0pt;mso-bidi-font-family:"Times New Roman","serif"; mso-fareast-Times New Roman";font-family:";font-size:11.0pt;color:black;"> </span><span style="font-family:"Arial","sans-serif";mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;">Browsing the websites of major investment publications</span><span style="font-family:"Times New Roman","serif"; mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;"><o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal"><span style="font-family:Symbol;mso-fareast-font-family:"Times New Roman"; mso-bidi-Times New Roman";font-family:";font-size:10.0pt;color:black;">·</span><span style="font-size:7.0pt;mso-bidi-font-family:"Times New Roman","serif"; mso-fareast-Times New Roman";font-family:";font-size:11.0pt;color:black;"> </span><span style="font-family:"Arial","sans-serif";mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;">Signing up for newsletters</span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal"><span style="font-family:Symbol;mso-fareast-font-family:"Times New Roman"; mso-bidi-Times New Roman";font-family:";font-size:10.0pt;color:black;">·</span><span style="font-size:7.0pt;mso-bidi-font-family:"Times New Roman","serif"; mso-fareast-Times New Roman";font-family:";font-size:11.0pt;color:black;"> </span><span style="font-family:"Arial","sans-serif";mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;">Government-based <a href="http://www.economywatch.com/trading/stock-tips.html" target="undefined"><span style="color:blue;">online stock</span></a>resources, such as those that can be downloaded from the US Securities and Exchange Commission (SEC) site, sec.gov.</span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal"><span style="font-family:Symbol;mso-fareast-font-family:"Times New Roman"; mso-bidi-Times New Roman";font-family:";font-size:10.0pt;color:black;">·</span><span style="font-size:7.0pt;mso-bidi-font-family:"Times New Roman","serif"; mso-fareast-Times New Roman";font-family:";font-size:11.0pt;color:black;"> </span><span style="font-family:"Arial","sans-serif";mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;">Joining stock market investment clubs<o:p></o:p></span></p><p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal"><span style="font-family:"Arial","sans-serif";mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;"><br /></span></p><p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal"><span style="font-family:"Arial","sans-serif";mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;"><br /></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal"><span style="font-family:"Times New Roman","serif";mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;"><o:p> </o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><b><span style="font-family:"Arial","sans-serif"; mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;">Alternatives to Stock Tips</span></b><span style="font-family:"Times New Roman","serif"; mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;"><o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-family:"Arial","sans-serif"; mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;">Relying completely on stock tips is not a good idea. Other ways to decide on which stocks to purchase are:</span><span style="font-family:"Times New Roman","serif"; mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;"><o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal"><span style="font-family:Symbol;mso-fareast-font-family:"Times New Roman"; mso-bidi-Times New Roman";font-family:";font-size:10.0pt;color:black;">·</span><span style="font-size:7.0pt;mso-bidi-font-family:"Times New Roman","serif"; mso-fareast-Times New Roman";font-family:";font-size:11.0pt;color:black;"> </span><span style="font-family:"Arial","sans-serif";mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;">Research the companies you are planning to <a href="http://www.economywatch.com/trading/stock-tips.html" target="undefined"><span style="color:blue;">buy stocks</span></a> of. You could do this by reading their annual reports and studying their performance in the latest quarter.</span></p><p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal"><span style="font-family:"Arial","sans-serif";mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;"></span><span style="font-family:Symbol;mso-fareast-font-family:"Times New Roman"; mso-bidi-Times New Roman";font-family:";font-size:10.0pt;color:black;">·</span><span style="font-size:7.0pt;mso-bidi-font-family:"Times New Roman","serif"; mso-fareast-Times New Roman";font-family:";font-size:11.0pt;color:black;"> </span><span style="font-family:"Arial","sans-serif";mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;">Looking out for stock picks announced by industry experts like Jim Cramer.</span></p><p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal"><span style="font-family:Symbol;mso-fareast-font-family: "Times New Roman";mso-bidi-Times New Roman";font-family:";font-size:10.0pt;color:black;"><o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal"><span style="font-family:Symbol;mso-fareast-font-family:"Times New Roman"; mso-bidi-Times New Roman";font-family:";font-size:10.0pt;color:black;">·</span><span style="font-size:7.0pt;mso-bidi-font-family:"Times New Roman","serif"; mso-fareast-Times New Roman";font-family:";font-size:11.0pt;color:black;"> </span><span style="font-family:"Arial","sans-serif";mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;">Reading reports published by investment banks.</span></p><p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal"><span style="font-family:"Arial","sans-serif";mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;"></span><span style="font-family:Symbol;mso-fareast-font-family:"Times New Roman"; mso-bidi-Times New Roman";font-family:";font-size:10.0pt;color:black;">·</span><span style="font-size:7.0pt;mso-bidi-font-family:"Times New Roman","serif"; mso-fareast-Times New Roman";font-family:";font-size:11.0pt;color:black;"> </span><span style="font-family:"Arial","sans-serif";mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;">Studying the market portfolios of expert stock traders like Warren Buffett.</span></p><p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal"><span style="font-family:"Times New Roman","serif"; mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;"><o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal"><span style="font-family:Symbol;mso-fareast-font-family:"Times New Roman"; mso-bidi-Times New Roman";font-family:";font-size:10.0pt;color:black;">·</span><span style="font-size:7.0pt;mso-bidi-font-family:"Times New Roman","serif"; mso-fareast-Times New Roman";font-family:";font-size:11.0pt;color:black;"> </span><span style="font-family:"Arial","sans-serif";mso-fareast-Times New Roman";font-family:";font-size:12.0pt;color:black;">Staying abreast of the latest happenings in the financial world.</span></p></span><p></p>foramshttp://www.blogger.com/profile/06266713990913900832noreply@blogger.com0tag:blogger.com,1999:blog-6878738958384573164.post-84041274757137027772010-06-08T23:33:00.001-07:002010-06-08T23:33:54.471-07:00Financial Options<p><strong><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Financial options</span></strong><span class="apple-converted-space"><span style="font-size:14.0pt;font-family:"Arial","sans-serif""> </span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">are those<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/financial-options.html" target="undefined" id="KonaLink1" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">derivatives</span></span></span></a><span class="apple-converted-space"> </span>contracts in which the underlying assets are<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/financial-options.html" target="undefined" id="KonaLink4" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">financial</span></span></span></a><span class="apple-converted-space"> </span>instruments such as stocks, bonds or an interest rate. The options on financial instruments provide a buyer with the right to either buy or sell the underlying financial instruments at a specified price on a specified future date. Although the buyer gets the rights to buy or sell the underlying options, there is no obligation to exercise this option. However, the seller of the contract is under an obligation to buy or sell the underlying instruments if the option is exercised.<o:p></o:p></span></p> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Two types of financial options exist, namely<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/financial-options.html" target="undefined" id="KonaLink2" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">call</span></span><span class="apple-converted-space"><span style="color:windowtext"> </span></span></span><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; border-bottom-color:initial;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">options</span></span></span></a><span class="apple-converted-space"> </span>and put options. Under a call option, the buyer of the contract gets the right to buy the financial instrument at the specified price at a future date, whereas a put option gives the buyer the right to sell the same at the specified price at the specified future date. The price that is paid by the buyer to the seller for exercising this level of flexibility is called the premium. The prescribed future price is called the strike price.<o:p></o:p></span></p> <h2><u><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">How is Financial Options Traded?<o:p></o:p></span></u></h2> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Financial options are either traded in an organized stock exchange or over-the-counter. The exchange traded options are known as standardized options. The<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/financial-options.html" target="undefined" id="KonaLink3" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">options</span></span><span class="apple-converted-space"><span style="color:windowtext"> </span></span></span><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; border-bottom-color:initial;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">exchange</span></span></span></a><span class="apple-converted-space"> </span>is responsible for this standardization. This is done by specifying the quantity of the underlying financial instrument, its price and the future date of the expiration. The details of these specifications may vary from exchange to exchange. However, the broad outlines are similar.<o:p></o:p></span></p> <h2><span style="font-size:14.0pt;font-family:"Arial","sans-serif""></span>Benefits of Financial Options<o:p></o:p></h2> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Financial options are used either to hedge against risks by buying contracts that will pay out if something with negative financial consequences happens, or because it allows traders to magnify gains while limiting downside risks.<o:p></o:p></span></p> <h2><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Risks of Financial Options<o:p></o:p></span></h2> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Financial options involve the risk of losing some or all of the contract price, if the market moves against the trend expected, and counterparty risks, such as broker<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/financial-options.html" target="undefined" id="KonaLink5" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">insolvency</span></span></span><span id="preLoadWrap5"></span></a><span class="apple-converted-space"> </span>or contractors who do not fulfil their contractual obligations.<o:p></o:p></span></p> <p class="MsoNormal"><span style="font-size:14.0pt;line-height:115%;font-family: "Arial","sans-serif""><o:p> </o:p></span></p>foramshttp://www.blogger.com/profile/06266713990913900832noreply@blogger.com0tag:blogger.com,1999:blog-6878738958384573164.post-73220712705963045802010-06-08T23:26:00.002-07:002010-06-08T23:32:55.936-07:00Nasdaq Futures<p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">The <b>Nasdaq futures</b> is a type of futures contract in which the underlying asset is the NASDAQ-100 Stock Index. NASDAQ-100 futures work on the same principles the S&P 500 futures. The NASDAQ-100 Stock Index Futures comprises 100 largest stocks that are traded on the NASDAQ system. The NASDAQ system also features some of the world’s best known technology companies like Google, Amazon, Apple, Cisco, Intel, Sun and Microsoft.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal;mso-outline-level:2"><b><u><span style="font-size:14.0pt; font-family:"Arial","sans-serif";mso-fareast-font-family:"Times New Roman"">How does Nasdaq Futures work?<o:p></o:p></span></u></b></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">The NASDAQ-100 Futures are traded on the NASDAQ system. With its inception in 1971, NASDAQ is the short form for National Association of Securities Dealers Automated Quotations. It is also known as the second largest stock exchange in the US.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">The value of Nasdaq futures pertains to minimal ticks of 0.5 that are worth $50. There is also a contract limit. No <a href="http://www.economywatch.com/options-and-futures/nasdaq-futures.html" target="undefined"><span style="color:windowtext">trader</span></a> is allowed to go for more than 10,000 net long or short at any given time. The margins of Nasdaq Futures are similar to that of S&P 500 futures.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">It is advisable to start with paper trading or opting for an <a href="http://www.economywatch.com/options-and-futures/nasdaq-futures.html" target="undefined"><span style="color:windowtext">online trading</span></a> simulator to understand the dynamics of the trade. Some of the effective techniques that could be applied for trading successfully in the Nasdaq futures include moving averages, the swing rule and pattern recognition.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal;mso-outline-level:2"><b><u><span style="font-size:14.0pt; font-family:"Arial","sans-serif";mso-fareast-font-family:"Times New Roman"">Benefits of Trading Nasdaq Futures<o:p></o:p></span></u></b></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal;mso-list:l0 level1 lfo1; tab-stops:list .5in"><span style="font-size:10.0pt; mso-bidi-font-size:14.0pt;font-family:Symbol;mso-fareast-font-family:Symbol; mso-bidi-font-family:Symbol"><span style="mso-list:Ignore">·<span style="font:7.0pt "Times New Roman""> </span></span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Nasdaq futures are used for hedging, speculation and as a substitute for individual stocks.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal;mso-list:l0 level1 lfo1; tab-stops:list .5in"><span style="font-size:10.0pt; mso-bidi-font-size:14.0pt;font-family:Symbol;mso-fareast-font-family:Symbol; mso-bidi-font-family:Symbol"><span style="mso-list:Ignore">·<span style="font:7.0pt "Times New Roman""> </span></span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">It helps investors to simplify their exposure to stocks.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal;mso-list:l0 level1 lfo1; tab-stops:list .5in"><span style="font-size:10.0pt; mso-bidi-font-size:14.0pt;font-family:Symbol;mso-fareast-font-family:Symbol; mso-bidi-font-family:Symbol"><span style="mso-list:Ignore">·<span style="font:7.0pt "Times New Roman""> </span></span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">It is possible to make a large sum of <a href="http://www.economywatch.com/options-and-futures/nasdaq-futures.html" target="undefined"><span style="color:windowtext;text-decoration:none;text-underline: none">money</span></a> within a short period of time.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal;mso-outline-level:2"><b><u><span style="font-size:14.0pt; font-family:"Arial","sans-serif";mso-fareast-font-family:"Times New Roman"">Risks of Nasdaq Futures<o:p></o:p></span></u></b></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal;mso-list:l1 level1 lfo2; tab-stops:list .5in"><span style="font-size:10.0pt; mso-bidi-font-size:14.0pt;font-family:Symbol;mso-fareast-font-family:Symbol; mso-bidi-font-family:Symbol"><span style="mso-list:Ignore">·<span style="font:7.0pt "Times New Roman""> </span></span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">The initial margin is very small and relative to the value of the futures contract, which makes transactions leveraged or geared. This means that a relatively small movement in the market can have a larger, adverse impact on an investor’s fund deposits.<o:p></o:p></span></p> <p class="MsoNormal" style="margin-top:0in;margin-right:0in;margin-bottom:0in; margin-left:12.0pt;margin-bottom:.0001pt;line-height:normal"><span style="font-size:14.0pt;font-family:"Arial","sans-serif";mso-fareast-font-family: "Times New Roman""><br /> <br /> <o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal;mso-list:l1 level1 lfo2; tab-stops:list .5in"><span style="font-size:10.0pt; mso-bidi-font-size:14.0pt;font-family:Symbol;mso-fareast-font-family:Symbol; mso-bidi-font-family:Symbol"><span style="mso-list:Ignore">·<span style="font:7.0pt "Times New Roman""> </span></span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Some orders of the futures transactions may not be effective due to prevailing <a href="http://www.economywatch.com/options-and-futures/nasdaq-futures.html" target="undefined"><span style="color:windowtext;text-decoration:none;text-underline: none">market conditions</span></a>. Examples include stop-loss orders or stop-limit orders that are meant to limit your losses but may not do so due to market conditions.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">However, the benefits like hedging and exposure to stocks make it possible for investors to make large sums of money through trading in<a href="http://www.economywatch.com/options-and-futures/nasdaq-futures.html" target="undefined"><span style="color:windowtext">Nasdaq</span></a> futures within a short period of time.<o:p></o:p></span></p> <p class="MsoNormal"><span style="font-size:14.0pt;line-height:115%;font-family: "Arial","sans-serif""><o:p> </o:p></span></p>foramshttp://www.blogger.com/profile/06266713990913900832noreply@blogger.com0tag:blogger.com,1999:blog-6878738958384573164.post-77908633265305978572010-06-08T23:26:00.001-07:002010-06-08T23:26:55.652-07:00Mini Futures<p><strong><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Mini futures</span></strong><span class="apple-converted-space"><span style="font-size:14.0pt;font-family:"Arial","sans-serif""> </span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">are the truncated versions of large-sized stock index futures contracts that are traded on the Chicago Mercantile Exchange (CME). They are available for a broad range of indices, such as the S&P 500, Russell 2000 and NASDAQ-100.<o:p></o:p></span></p> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Electronically traded mini futures are called E-mini and were first introduced on the CME in September 1997.<o:p></o:p></span></p> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Mini futures are used by individual investors for participating and profiting from the benchmark index. The margins required by these mini futures contracts are significantly lower than that for normal stock index futures contracts. For example, the margins required by a mini S&P 500 futures contract is about 20% of that of the S&P 500<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/mini-futures.html" target="undefined" id="KonaLink1" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext;text-decoration: none;text-underline:none"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; border-bottom-color:initial;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">futures</span></span><span class="apple-converted-space"><span style="color:windowtext;text-decoration:none; text-underline:none"> </span></span></span><span class="klink"><span style="color:windowtext;text-decoration:none;text-underline:none"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">contracts</span></span></span></a>.<o:p></o:p></span></p> <h2><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">How are Mini Futures Traded?<o:p></o:p></span></h2> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Mini futures contracts are agreements to buy or sell the cash value of the specified index at a specified future date. These contracts are valued at 50 times the futures price. For example, if the mini futures price is at $100, the value of the contract would be $5,000 (50 * 100).<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman""></span>The tick (also known as the minimum price movement) of the contract is 0.25 of the index points. Like their larger counterpart, mini futures are settled in <a href="http://www.economywatch.com/options-and-futures/mini-futures.html" target="undefined"><span style="color:windowtext;text-decoration:none;text-underline: none">cash</span></a> and there is no delivery of the individual stocks.<o:p></o:p></p> <p class="MsoNormal" style="margin-bottom:0in;margin-bottom:.0001pt;line-height: normal"><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman""><o:p> </o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal;mso-outline-level:2"><b><span style="font-size:14.0pt; font-family:"Arial","sans-serif";mso-fareast-font-family:"Times New Roman"">Benefits of Mini Futures<o:p></o:p></span></b></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">The benefits of using mini futures are:<o:p></o:p></span></p> <p class="MsoListParagraphCxSpFirst" style="margin-bottom:0in;margin-bottom:.0001pt; mso-add-space:auto;text-indent:-.25in;line-height:normal;mso-list:l0 level1 lfo1"><span style="font-size:14.0pt;font-family:Symbol;mso-fareast-font-family:Symbol; mso-bidi-font-family:Symbol"><span style="mso-list:Ignore">·<span style="font:7.0pt "Times New Roman""> </span></span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">They can be used for hedging against unexpected market fluctuations.<br /> <br /> <o:p></o:p></span></p> <p class="MsoListParagraphCxSpMiddle" style="margin-bottom:0in;margin-bottom: .0001pt;mso-add-space:auto;text-indent:-.25in;line-height:normal;mso-list:l0 level1 lfo1"><span style="font-size:14.0pt;font-family:Symbol;mso-fareast-font-family:Symbol; mso-bidi-font-family:Symbol"><span style="mso-list:Ignore">·<span style="font:7.0pt "Times New Roman""> </span></span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Since electronic <a href="http://www.economywatch.com/options-and-futures/mini-futures.html" target="undefined"><span style="color:windowtext;text-decoration:none;text-underline: none">trading</span></a> is followed for these mini futures, they can be traded easily from any remote location at any time.<br /> <br /> <o:p></o:p></span></p> <p class="MsoListParagraphCxSpMiddle" style="margin-bottom:0in;margin-bottom: .0001pt;mso-add-space:auto;text-indent:-.25in;line-height:normal;mso-list:l0 level1 lfo1"><span style="font-size:14.0pt;font-family:Symbol;mso-fareast-font-family:Symbol; mso-bidi-font-family:Symbol"><span style="mso-list:Ignore">·<span style="font:7.0pt "Times New Roman""> </span></span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">They are affordable, since an investor does not have to purchase an entire stock index futures contract.<br /> <br /> <o:p></o:p></span></p> <p class="MsoListParagraphCxSpLast" style="margin-bottom:0in;margin-bottom:.0001pt; mso-add-space:auto;text-indent:-.25in;line-height:normal;mso-list:l0 level1 lfo1"><span style="font-size:14.0pt;font-family:Symbol;mso-fareast-font-family:Symbol; mso-bidi-font-family:Symbol"><span style="mso-list:Ignore">·<span style="font:7.0pt "Times New Roman""> </span></span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Investors do not need to maintain a high cash balance in their day trade account to conduct day trading in an index.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal;mso-outline-level:2"><b><span style="font-size:14.0pt; font-family:"Arial","sans-serif";mso-fareast-font-family:"Times New Roman"">Drawbacks of Mini Futures<o:p></o:p></span></b></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Mini futures are dependent on fluctuations in the price of the shares indexed in the related stock index. Therefore, these are prone to market volatility and involve a high level of risk.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Moreover, an <a href="http://www.economywatch.com/options-and-futures/mini-futures.html" target="undefined"><span style="color:windowtext;text-decoration:none;text-underline: none">investor</span></a> has access to 15 to 20 times the amount of cash they have on hand. Thus, a trader can lose all the funds available to him/her quickly in the absence of successful stop strategies.<o:p></o:p></span></p> <p class="MsoNormal"><span style="font-size:14.0pt;line-height:115%;font-family: "Arial","sans-serif""><o:p> </o:p></span></p>foramshttp://www.blogger.com/profile/06266713990913900832noreply@blogger.com0tag:blogger.com,1999:blog-6878738958384573164.post-31554868659594668792010-06-08T23:24:00.000-07:002010-06-08T23:25:49.821-07:00Options Strategies<p><strong><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Options strategies</span></strong><span class="apple-converted-space"><span style="font-size:14.0pt;font-family:"Arial","sans-serif""> </span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">are plans implemented by an options trader to maximize profits and minimize risks. An option strategy involves combining options positions on an underlying asset, typically a stock.<o:p></o:p></span></p> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">While trading in options, an investor can either acquire the right to buy the underlying asset (<a href="http://www.economywatch.com/options-and-futures/options-strategies.html" target="undefined" id="KonaLink1" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext;text-decoration: none;text-underline:none"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; border-bottom-color:initial;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">call</span></span><span class="apple-converted-space"><span style="color:windowtext;text-decoration:none; text-underline:none"> </span></span></span><span class="klink"><span style="color:windowtext;text-decoration:none;text-underline:none"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">option</span></span></span></a>) or sell it (put option) on or before a specific date at a predetermined price (strike price). The value of a call option varies in accordance with the value of the underlying stock, while that of the put option is inversely proportional to the value of the underlying stock.<o:p></o:p></span></p> <h2><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Types of Options Strategies<o:p></o:p></span></h2> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">An<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/options-strategies.html" target="undefined" id="KonaLink2" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext;text-decoration: none;text-underline:none"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; border-bottom-color:initial;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">investor</span></span></span></a><span class="apple-converted-space"> </span>can employ several options strategies based on the expected price movement in the underlying stock, market sentiment and his/her risk appetite. One of the most common strategies, called straddle, is to acquire both<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/options-strategies.html" target="undefined" id="KonaLink3" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext;text-decoration: none;text-underline:none"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; border-bottom-color:initial;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">call</span></span><span class="apple-converted-space"><span style="color:windowtext;text-decoration:none; text-underline:none"> </span></span></span><span class="klink"><span style="color:windowtext;text-decoration:none;text-underline:none"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">and</span></span><span class="apple-converted-space"><span style="color:windowtext;text-decoration:none; text-underline:none"> </span></span></span><span class="klink"><span style="color:windowtext;text-decoration:none;text-underline:none"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">put</span></span></span></a><span class="apple-converted-space"> </span>options. Through this options strategy, a trader can increase the value of his/her holdings significantly irrespective of the direction of the stock price movement. With this options strategy, an investor can lose money only if the underlying stock retains its value over a period of time or its price deviates only marginally.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman""></span>Some of the other <a href="http://www.economywatch.com/options-and-futures/options-strategies.html" target="undefined"><span style="color:windowtext;text-decoration:none;text-underline: none">options strategies</span></a> are:<o:p></o:p></p> <p class="MsoListParagraphCxSpFirst" style="margin-bottom:0in;margin-bottom:.0001pt; mso-add-space:auto;text-indent:-.25in;line-height:normal;mso-list:l0 level1 lfo1"><span style="font-size:14.0pt;font-family:Symbol;mso-fareast-font-family:Symbol; mso-bidi-font-family:Symbol"><span style="mso-list:Ignore">·<span style="font:7.0pt "Times New Roman""> </span></span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Bullish Strategies: These strategies are employed when a trader expects the price of the underlying stock to move up. The extent of the price increase and the timeframe in which this might occur are assessed to optimize the trading strategy. A simple call buying strategy can be used in such cases.<br /> <br /> <o:p></o:p></span></p> <p class="MsoListParagraphCxSpMiddle" style="margin-bottom:0in;margin-bottom: .0001pt;mso-add-space:auto;text-indent:-.25in;line-height:normal;mso-list:l0 level1 lfo1"><span style="font-size:14.0pt;font-family:Symbol;mso-fareast-font-family:Symbol; mso-bidi-font-family:Symbol"><span style="mso-list:Ignore">·<span style="font:7.0pt "Times New Roman""> </span></span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Bearish Strategies: These are mirror images of bullish strategies. They are employed when the trader anticipates a downward movement in the underlying <a href="http://www.economywatch.com/options-and-futures/options-strategies.html" target="undefined"><span style="color:windowtext;text-decoration:none;text-underline: none">stock price</span></a>. An investor can opt to acquire a simple put option to capitalize on the price trends in such cases.<br /> <br /> <o:p></o:p></span></p> <p class="MsoListParagraphCxSpLast" style="margin-bottom:0in;margin-bottom:.0001pt; mso-add-space:auto;text-indent:-.25in;line-height:normal;mso-list:l0 level1 lfo1"><span style="font-size:14.0pt;font-family:Symbol;mso-fareast-font-family:Symbol; mso-bidi-font-family:Symbol"><span style="mso-list:Ignore">·<span style="font:7.0pt "Times New Roman""> </span></span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Neutral Strategies: They are adopted when traders are unsure of the direction of the price movement of the underlying stock. These are also known as non-directional strategies, since profits are not dependent on the direction of the price of the underlying stock. Thus, a neutral strategy depends on the expected volatility of the stock price. Some examples of neutral strategies are guts, butterfly, strangle and risk reversal. Options, in these cases, could be either long or short, but tend to differ with varying strike prices.<o:p></o:p></span></p> <p class="MsoNormal"><span style="font-size:14.0pt;line-height:115%;font-family: "Arial","sans-serif""><o:p> </o:p></span></p>foramshttp://www.blogger.com/profile/06266713990913900832noreply@blogger.com1tag:blogger.com,1999:blog-6878738958384573164.post-5370931036289517412010-06-08T23:21:00.000-07:002010-06-08T23:24:43.685-07:00Investment Option<p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">An<span class="apple-converted-space"> </span><strong><span style="font-family:"Arial","sans-serif"; font-weight:normal;mso-bidi-font-weight:bold"><a href="http://www.economywatch.com/options-and-futures/investment-options.html" target="undefined" id="KonaLink0" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><b><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">investment</span></span></b></span><span class="apple-converted-space"><b><span style="color:windowtext"> </span></b></span><b></b></a></span><a href="http://www.economywatch.com/options-and-futures/investment-options.html" target="undefined" id="KonaLink0" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><b><span style="color:windowtext"><span style="border-top-color: initial !important;border-left-color:initial !important;border-right-color: initial !important;border-bottom-color:initial;background-attachment:initial; background-origin: initial;background-clip: initial;background-position:initial initial; background-repeat:initial initial;float:none">option</span></span></b></span></a></strong></span><strong></strong><span class="apple-converted-space"> </span>involves various financial instruments which an individual may plan to invest in so as to enjoy high returns and financial stability in the future within a specific time plan.<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/investment-options.html" target="undefined" id="KonaLink1" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">Stocks</span></span></span></a>, bonds, futures, options and mutual funds are some examples of investment options that are available in the market for those who are keen to invest.<o:p></o:p></p> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">By options investing, the<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/investment-options.html" target="undefined" id="KonaLink2" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">investment</span></span></span></a><span class="apple-converted-space"> </span>in the derivatives contracts requires a buyer of the contract to pay a premium for exercising the right of either buying or selling the underlying asset at a prescribed price on a specific date set in the future.<o:p></o:p></span></p> <h2><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">How does the Investing Option Work?<o:p></o:p></span></h2> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">There are several investing options available to the investors but in each case, the nature of the trade and the terms of the contract are differently associated. Suppose you invest in stocks or<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/investment-options.html" target="undefined" id="KonaLink3" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">shares</span></span></span></a>, you would have to buy a certain number of shares belonging to a company. This further means that you will have a share of ownership in the company that is equivalent to the value of your shares.<o:p></o:p></span></p> <p><b style="mso-bidi-font-weight:normal"><span style="font-size:14.0pt; font-family:"Arial","sans-serif"">Bonds</span></b><span style="font-size:14.0pt; font-family:"Arial","sans-serif""> are another form of securities that work on the same principles. However, in a bond agreement, the buyer of a bond is considered as the lender. The seller is considered as the<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/investment-options.html" target="undefined" id="KonaLink4" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">borrower</span></span></span><span id="preLoadWrap4"></span></a><span class="apple-converted-space"> </span>of the sum of money which is represented by the value of the bond contract.<o:p></o:p></span></p> <p><b style="mso-bidi-font-weight:normal"><span style="font-size:14.0pt; font-family:"Arial","sans-serif""></span>Options and futures</b><span style="font-size:14.0pt;font-family:"Arial","sans-serif""> are other investing options available to investors. However, these forms of investment are generally exercised by aggressive investors. This is because they promise high returns within a short term but they are inherently risky. These are basically derivatives and are traded over certain underlying assets such as stocks and bonds.<o:p></o:p></span></p> <h2><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Benefits of Investing Options<o:p></o:p></span></h2> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">The main benefit of investing options is that they offer high returns without actual possession of the physical property. This minimizes considerable costs and hassles related to physical holding of these properties.<o:p></o:p></span></p> <h2><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Risks of Investing Options<o:p></o:p></span></h2> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Investing options are inherently risky as the market is constantly volatile and unpredictable.<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/investment-options.html" target="undefined" id="KonaLink5" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">Investors</span></span></span></a><span class="apple-converted-space"> </span>who are not aware of volatile market trends require honing their investing skills so that their investments do not suffer.<o:p></o:p></span></p> <p class="MsoNormal"><span style="font-size:14.0pt;line-height:115%;font-family: "Arial","sans-serif""><o:p> </o:p></span></p>foramshttp://www.blogger.com/profile/06266713990913900832noreply@blogger.com0tag:blogger.com,1999:blog-6878738958384573164.post-7770323757041402352010-06-08T23:18:00.001-07:002010-06-08T23:18:49.709-07:00Put Options<p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">A<span class="apple-converted-space"> </span><strong><span style="font-family:"Arial","sans-serif"">put option</span></strong><span class="apple-converted-space"> </span>is a financial contract between a buyer and a seller (also called a writer) through which the buyer receives the right to sell the underlying asset at a specified price before the expiry of a contract. This pre-specified selling price of an option is termed as the ‘strike price.’ For exercising the put option, the buyer needs to pays a premium to the writer.<o:p></o:p></span></p> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Although the buyer of the put option has the right to sell the underlying, he is under no obligation to do so. However, the writer of the put option is under an obligation to agree to the transaction.<o:p></o:p></span></p> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">The underlying asset for a put option could be anything ranging from a bond to a<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/put-option.html" target="undefined" id="KonaLink1" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">commodity</span></span></span></a><span class="apple-converted-space"> </span>like crude oil. However, the most widely traded put options have equities as the underlying assets<o:p></o:p></span></p> <h2><u><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Trading a Put Option<o:p></o:p></span></u></h2> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">The put option, also called a “put,” is sold in lots. For example, a put option based on stock will be sold in lots of 100<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/put-option.html" target="undefined" id="KonaLink2" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">shares</span></span></span></a>. However, the premium of a put is quoted on a per share basis. A put can be exercised in either the American or the European way. The American way lets a put option to be exercised any time before the expiry date. The European way is that a put option can be exercised only on the day of expiry of the option.<o:p></o:p></span></p> <h2><u><span style="font-size:14.0pt;font-family:"Arial","sans-serif""></span>Value of a Put Option<o:p></o:p></u></h2> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">The buyer of the put option believes that an underlying asset’s price would fall before the date of the expiry of the option. On the contrary, the seller of the put option believes that such likelihood is extremely low. The main advantage of buying a put option is that the buyer’s risk in the underlying asset is limited to the premium. A put option also helps to limit the portfolio risk.<o:p></o:p></span></p> <h2><u><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Put Option Strategies<o:p></o:p></span></u></h2> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">In order to find the proper put option for purchase, decide your objectives and the time for which you want to remain in the market. Finalize the amount you want to spare for the put option. A last factor to consider is the kind of approach (conservative or aggressive) that you will follow in the market.<o:p></o:p></span></p> <p class="MsoNormal"><span style="font-size:14.0pt;line-height:115%;font-family: "Arial","sans-serif""><o:p> </o:p></span></p>foramshttp://www.blogger.com/profile/06266713990913900832noreply@blogger.com0tag:blogger.com,1999:blog-6878738958384573164.post-83704607730963060542010-06-08T23:17:00.001-07:002010-06-08T23:17:51.630-07:00Call Option<p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">A<span class="apple-converted-space"> </span><strong><span style="font-family:"Arial","sans-serif"">call option</span></strong><span class="apple-converted-space"> </span>is a contract between two parties to transfer ownership of a stock at a specified price within a specified time period. A call option is also known simply as a ‘call.’ The price that the parties agree on is termed as the strike price. The date on which the agreement expires is called the expiration date of the call option. Though call options enable a buyer with the right to buy the underlying share, there is no obligation to buy it.<o:p></o:p></span></p> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">The seller of the contract is also known as the writer. The payment that is paid to the writer by the buyer of the call option is known as the premium.<o:p></o:p></span></p> <h2><u><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Trading a Call Option<o:p></o:p></span></u></h2> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">The specification of the trade may differ from exchange to exchange. They may also depend upon the option style. For instance, a US call option can be exercised at any point of time during life of a call option while a European call option can be exercised only on the expiration date.<o:p></o:p></span></p> <h2><u><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Value of a Call Option<o:p></o:p></span></u></h2> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif""></span>When the price of the underlying instrument goes up and gets closer to the strike price, that situation is most profitable for the buyer of the call options. When this price exceeds the strike price, the option is said to be ‘in the money.’<o:p></o:p></p> <h2><u><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Strategies of Call Options<o:p></o:p></span></u></h2> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">A covered call option refers to a strategy in which the seller of the<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/call-option.html" target="undefined" id="KonaLink1" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">call</span><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">option</span></span></span></a><span class="apple-converted-space"> </span>is the owner of that underlying stock. So, the seller is provided a ‘cover’ by these shares in case the buyer of the option decides to buy the underlying instrument.<o:p></o:p></span></p> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">A naked call option is a highly risky and speculative strategy in which a speculator sells a call option on a stock without the actual ownership of that stock. The expectation of the speculator is that the price of the call option will increase. If it increases even by a<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/call-option.html" target="undefined" id="KonaLink2" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">dollar</span></span></span></a>, the rate of return on the investment is very high. So, a naked call option is ranked among the riskiest strategies because the seller does not own the stock and is exposed to unlimited risk.<o:p></o:p></span></p> <p class="MsoNormal"><span style="font-size:14.0pt;line-height:115%;font-family: "Arial","sans-serif""><o:p> </o:p></span></p>foramshttp://www.blogger.com/profile/06266713990913900832noreply@blogger.com0tag:blogger.com,1999:blog-6878738958384573164.post-17054270765511199752010-06-08T23:13:00.000-07:002010-06-08T23:17:22.152-07:00Currency Options Trading / Forex Options Trading<p><strong><span style="font-size:14.0pt;font-family:"Arial","sans-serif""><a href="http://www.economywatch.com/options-and-futures/currency-options-trading.html" target="undefined"><span class="klink"><span style="color:windowtext;text-decoration: none;text-underline:none"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; background-attachment:initial;background-origin: initial;background-clip: initial; background-position:initial initial;background-repeat:initial initial; float:none">Currency</span></span><span class="apple-converted-space"><span style="color:windowtext"> </span></span></span><span class="klink"><span style="color:windowtext;text-decoration:none;text-underline:none"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">options</span></span></span><span id="preLoadWrap0"></span></a></span></strong><span class="apple-converted-space"><span style="font-size:14.0pt;font-family:"Arial","sans-serif""> </span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">are derivatives contracts in which foreign currency is the underlying asset. Currency options are also known as forex options or Fx options. The contract is between a buyer and a seller and gives the buyer the right (but not the obligation) to buy or sell the underlying<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/currency-options-trading.html" target="undefined" id="KonaLink1" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext;text-decoration: none;text-underline:none"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; border-bottom-color:initial;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">foreign</span></span><span class="apple-converted-space"><span style="color:windowtext"> </span></span></span><span class="klink"><span style="color:windowtext;text-decoration:none;text-underline: none"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">currency</span></span></span></a><span class="apple-converted-space"> </span>at a specified price on an agreed upon date in the future.<o:p></o:p></span></p> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Currency options are of two types: call options and put options. The buyer of a call option has the right to buy the underlying currency at an agreed upon price at a future date. A put option provides the buyer the right to sell the underlying currency.<o:p></o:p></span></p> <h2><u><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">How are Currency Options Traded?<o:p></o:p></span></u></h2> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">While<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/currency-options-trading.html" target="undefined" id="KonaLink2" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext;text-decoration: none;text-underline:none"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; background-attachment:initial;background-origin: initial;background-clip: initial; background-position:initial initial;background-repeat:initial initial; float:none">currency</span></span><span class="apple-converted-space"><span style="color:windowtext"> </span></span></span><span class="klink"><span style="color:windowtext;text-decoration:none;text-underline:none"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">options</span></span></span><span id="preLoadWrap2"></span></a><span class="apple-converted-space"> </span>give the buyer the right to buy or sell the underlying currency, there is no obligation to do so. However, the seller of the currency options is obligated to buy or sell the underlying currency in case the buyer decides to exercise the option.<o:p></o:p></span></p> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">For exercising the right to trade the underlying asset, the seller of the option is paid a price, known as premium. The price that is specified for either buying or selling at the future date is known as the strike price.<o:p></o:p></span></p> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">When an investor believes that the US dollar will appreciate against the Euro, he purchases a currency<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/currency-options-trading.html" target="undefined" id="KonaLink3" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext;text-decoration: none;text-underline:none"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; border-bottom-color:initial;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">call</span></span><span class="apple-converted-space"><span style="color:windowtext"> </span></span></span><span class="klink"><span style="color:windowtext;text-decoration:none;text-underline: none"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">option</span></span></span></a><span class="apple-converted-space"> </span>on USD/EUR. If the value of the US dollar actually increases against the Euro, the buyer can exercise his right to earn a profit.<o:p></o:p></span></p> <h2><u><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Benefits of Currency Options<o:p></o:p></span></u></h2> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman""></span>The benefits of currency options are:<o:p></o:p></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal;mso-list:l0 level1 lfo1; tab-stops:list .5in"><span style="font-size:10.0pt; mso-bidi-font-size:14.0pt;font-family:Symbol;mso-fareast-font-family:Symbol; mso-bidi-font-family:Symbol"><span style="mso-list:Ignore">·<span style="font:7.0pt "Times New Roman""> </span></span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Currency options are extremely useful for hedging against the adverse movements of <a href="http://www.economywatch.com/options-and-futures/currency-options-trading.html" target="undefined"><span style="color:windowtext">exchange rates</span></a>.<br /> <br /> <o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal;mso-list:l0 level1 lfo1; tab-stops:list .5in"><span style="font-size:10.0pt; mso-bidi-font-size:14.0pt;font-family:Symbol;mso-fareast-font-family:Symbol; mso-bidi-font-family:Symbol"><span style="mso-list:Ignore">·<span style="font:7.0pt "Times New Roman""> </span></span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Currency options are the only option contracts that are traded 24 hours a day.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman""><o:p> </o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal;mso-outline-level:2"><b><u><span style="font-size:14.0pt; font-family:"Arial","sans-serif";mso-fareast-font-family:"Times New Roman"">Risks of Currency Options<o:p></o:p></span></u></b></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">The risks associated with currency options are:<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal;mso-list:l1 level1 lfo2; tab-stops:list .5in"><span style="font-size:10.0pt; mso-bidi-font-size:14.0pt;font-family:Symbol;mso-fareast-font-family:Symbol; mso-bidi-font-family:Symbol"><span style="mso-list:Ignore">·<span style="font:7.0pt "Times New Roman""> </span></span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Currency options change in value very frequently, since they are tied to the volatile <a href="http://www.economywatch.com/options-and-futures/currency-options-trading.html" target="undefined"><span style="color:windowtext">forex market</span></a>.<br /> <br /> <o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal;mso-list:l1 level1 lfo2; tab-stops:list .5in"><span style="font-size:10.0pt; mso-bidi-font-size:14.0pt;font-family:Symbol;mso-fareast-font-family:Symbol; mso-bidi-font-family:Symbol"><span style="mso-list:Ignore">·<span style="font:7.0pt "Times New Roman""> </span></span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">The small outlay that is paid as the initial margin may prevent an investor from estimating the actual losses that he may suffer due to adverse market conditions<o:p></o:p></span></p> <p class="MsoNormal"><span style="font-size:14.0pt;line-height:115%;font-family: "Arial","sans-serif""><o:p> </o:p></span></p>foramshttp://www.blogger.com/profile/06266713990913900832noreply@blogger.com0tag:blogger.com,1999:blog-6878738958384573164.post-83402359938847495292010-06-08T23:12:00.000-07:002010-06-08T23:13:20.050-07:00Bond Futures<p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><b><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Bond futures</span></b><span style="font-size:14.0pt;font-family:"Arial","sans-serif";mso-fareast-font-family: "Times New Roman""> are contracts that place a contract holder under an obligation to buy or sell a bond on a specified date and price which is determined at the time of the purchase. Bond futures have bonds as underlying assets, which are debts that are repayable on the date of maturity date in compliance with the contracts. Bond futures are traded on a futures exchange.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal;mso-outline-level:2"><b><u><span style="font-size:14.0pt; font-family:"Arial","sans-serif";mso-fareast-font-family:"Times New Roman"">How are Bond Futures Traded?<o:p></o:p></span></u></b></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Bond futures are highly standardized to ensure a certain level of consistency and equality. This standardization is done by a regulating agency. Bond futures are traded in the same way as other futures contracts. They are purchased in lots against the payment of marginal amount value. Generally, the marginal amount value is 10% to 15% of the actual price of the traded bonds. The size of the lot and the marginal value is specific to each type of bond. They are set by the relevant <a href="http://www.economywatch.com/options-and-futures/bond-futures.html" target="undefined"><span style="color:windowtext">futuresexchange</span></a>.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Investors can realize profits or suffer losses based on fluctuations in the price of the bond. Profits are calculated on a daily basis until the bond is sold or the contract expires.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal;mso-outline-level:2"><b><u><span style="font-size:14.0pt; font-family:"Arial","sans-serif";mso-fareast-font-family:"Times New Roman"">What are Government Bond Futures?<o:p></o:p></span></u></b></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">A government bond futures contract allows an investor to purchase a theoretical <a href="http://www.economywatch.com/options-and-futures/bond-futures.html" target="undefined"><span style="color:windowtext">government bond</span></a> at a specific price at a pre-determined date. At the time, the underlying bond is not physically available for purchase. It is a notional bond but its value is dependent on the total number of government bonds that are available in the market. Although government bond futures are highly complex, they are amongst the most traded <a href="http://www.economywatch.com/options-and-futures/bond-futures.html" target="undefined"><span style="color:windowtext">futures contracts</span></a>.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Some of the most popular government bond futures are:<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal;mso-list:l0 level1 lfo1; tab-stops:list .5in"><span style="font-size:10.0pt; mso-bidi-font-size:14.0pt;font-family:Symbol;mso-fareast-font-family:Symbol; mso-bidi-font-family:Symbol"><span style="mso-list:Ignore">·<span style="font:7.0pt "Times New Roman""> </span></span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">US Treasury bond Futures (also called T Bond Futures).<br /> <br /> <o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal;mso-list:l0 level1 lfo1; tab-stops:list .5in"><span style="font-size:10.0pt; mso-bidi-font-size:14.0pt;font-family:Symbol;mso-fareast-font-family:Symbol; mso-bidi-font-family:Symbol"><span style="mso-list:Ignore">·<span style="font:7.0pt "Times New Roman""> </span></span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Germany Bund Futures (Euro denominated).<br /> <br /> <o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal;mso-list:l0 level1 lfo1; tab-stops:list .5in"><span style="font-size:10.0pt; mso-bidi-font-size:14.0pt;font-family:Symbol;mso-fareast-font-family:Symbol; mso-bidi-font-family:Symbol"><span style="mso-list:Ignore">·<span style="font:7.0pt "Times New Roman""> </span></span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Gilt Futures UK (British Pound denominated).<br /> <br /> <o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal;mso-list:l0 level1 lfo1; tab-stops:list .5in"><span style="font-size:10.0pt; mso-bidi-font-size:14.0pt;font-family:Symbol;mso-fareast-font-family:Symbol; mso-bidi-font-family:Symbol"><span style="mso-list:Ignore">·<span style="font:7.0pt "Times New Roman""> </span></span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Notional contracts, France (<a href="http://www.economywatch.com/options-and-futures/bond-futures.html" target="undefined"><span style="color:windowtext;text-decoration:none;text-underline: none">Euro</span></a> denominated).<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal;mso-outline-level:2"><b><u><span style="font-size:14.0pt; font-family:"Arial","sans-serif";mso-fareast-font-family:"Times New Roman"">Benefits of Bond Futures<o:p></o:p></span></u></b></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal;mso-list:l1 level1 lfo2; tab-stops:list .5in"><span style="font-size:10.0pt; mso-bidi-font-size:14.0pt;font-family:Symbol;mso-fareast-font-family:Symbol; mso-bidi-font-family:Symbol"><span style="mso-list:Ignore">·<span style="font:7.0pt "Times New Roman""> </span></span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Involve lower brokerage as compared to bond trading.<br /> <br /> <o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal;mso-list:l1 level1 lfo2; tab-stops:list .5in"><span style="font-size:10.0pt; mso-bidi-font-size:14.0pt;font-family:Symbol;mso-fareast-font-family:Symbol; mso-bidi-font-family:Symbol"><span style="mso-list:Ignore">·<span style="font:7.0pt "Times New Roman""> </span></span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">While trading in bond futures, you only need to pay the margin amount as compared to the entire market bond price when <a href="http://www.economywatch.com/options-and-futures/bond-futures.html" target="undefined"><span style="color:windowtext;text-decoration:none;text-underline: none">trading</span></a>in bonds..<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal;mso-outline-level:2"><b><u><span style="font-size:14.0pt; font-family:"Arial","sans-serif";mso-fareast-font-family:"Times New Roman"">Risks of Bond Futures<o:p></o:p></span></u></b></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Bond futures are inherently risky. Their prices may change drastically between the date of the agreement and the date on which the contract is exercised.<o:p></o:p></span></p> <p class="MsoNormal"><span style="font-size:14.0pt;line-height:115%;font-family: "Arial","sans-serif""><o:p> </o:p></span></p>foramshttp://www.blogger.com/profile/06266713990913900832noreply@blogger.com0tag:blogger.com,1999:blog-6878738958384573164.post-75600619843188730212010-06-08T23:11:00.000-07:002010-06-08T23:12:26.031-07:00Global Futures<p><strong><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Global futures</span></strong><span class="apple-converted-space"><span style="font-size:14.0pt;font-family:"Arial","sans-serif""> </span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">are<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/global-futures.html" target="undefined" id="KonaLink0" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">commodity</span></span><span class="apple-converted-space"><span style="color:windowtext"> </span></span></span><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; border-bottom-color:initial;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">futures</span></span></span></a><span class="apple-converted-space"> </span>contracts that are tradable in the international marketplace. These financial contracts obligate a buyer to buy or sell the underlying asset, such as commodities, precious metals and currencies, on a predetermined date and at a price agreed upon at the time of purchase. These futures contracts are traded globally in organized futures exchanges, such as London International<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/global-futures.html" target="undefined" id="KonaLink1" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">Financial</span><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; background-attachment:initial;background-origin: initial;background-clip: initial; background-position:initial initial;background-repeat:initial initial; float:none">Futures</span></span></span><span id="preLoadWrap1"></span></a><span class="apple-converted-space"> </span>Exchange (LIFFE) and International Money Market in Chicago, via an open outcry method. An investor in these futures contracts realizes profits if the market price of the underlying instrument is higher than the settlement price.<o:p></o:p></span></p> <h2><u><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Global Futures Trading<o:p></o:p></span></u></h2> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Global futures trading occurs against the backdrop of stringent laws and strict surveillance. In the US, the National Futures Association (NFA) and the<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/global-futures.html" target="undefined" id="KonaLink2" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">Commodity</span></span><span class="apple-converted-space"><span style="color:windowtext"> </span></span></span><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; border-bottom-color:initial;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">Futures</span></span><span class="apple-converted-space"><span style="color:windowtext"> </span></span></span><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; border-bottom-color:initial;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">Trading</span></span></span></a><span class="apple-converted-space"> </span>Commission (CFTC) regulate the operations of the futures market.<o:p></o:p></span></p> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Global futures allow trading in commodities such as oil, gold and forex. Futures contracts in these underlying assets can be traded in the domestic and international markets.<o:p></o:p></span></p> <p><b style="mso-bidi-font-weight:normal"><span style="font-size:14.0pt; font-family:"Arial","sans-serif""></span>Oil futures</b><u><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">:</span></u><span class="apple-converted-space"><span style="font-size:14.0pt;font-family:"Arial","sans-serif""> </span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Through this instrument, an investor agrees to buy specific units of oil at a specific price on a specified day. While purchasing the futures contract, the buyer needs to<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/global-futures.html" target="undefined" id="KonaLink3" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext;text-decoration: none;text-underline:none"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; border-bottom-color:initial;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">deposit</span></span></span></a><span class="apple-converted-space"> </span>only the margin amount, which ranges between 2% and 10% of the actual purchase price, with the clearing house of the futures exchange. Oil futures are typically traded based on the expectation that oil prices will rise over the coming months. US investors can indulge in oil futures via open outcry<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/global-futures.html" target="undefined" id="KonaLink4" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext;text-decoration: none;text-underline:none"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; border-bottom-color:initial;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">trading</span></span></span></a><span class="apple-converted-space"> </span>or electronic trading on the CME Globex trading platform.<o:p></o:p></span></p> <p><b style="mso-bidi-font-weight:normal"><span style="font-size:14.0pt; font-family:"Arial","sans-serif"">Gold futures</span></b><u><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">:</span></u><span class="apple-converted-space"><span style="font-size:14.0pt;font-family:"Arial","sans-serif""> </span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">These futures contracts offer an alternative means to invest in gold. The pricing of gold futures vary with the global economic and political situation. Gold is a defensive investment and its demand rises during periods of economic and political upheavals. US investors can trade in gold futures through the Chicago Board of Trade (CBT).<o:p></o:p></span></p> <p><b style="mso-bidi-font-weight:normal"><span style="font-size:14.0pt; font-family:"Arial","sans-serif"">Forex futures</span></b><u><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">:</span></u><span class="apple-converted-space"><span style="font-size:14.0pt;font-family:"Arial","sans-serif""> </span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">These contracts involve foreign currency as the underlying instrument. These futures are used either by firms to offset exchange-rate risk or by speculators aiming at benefiting from<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/global-futures.html" target="undefined" id="KonaLink5" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext;text-decoration: none;text-underline:none"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; border-bottom-color:initial;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">exchange</span></span><span class="apple-converted-space"><span style="color:windowtext"> </span></span></span><span class="klink"><span style="color:windowtext;text-decoration:none;text-underline: none"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">rate</span></span></span></a>fluctuations.<o:p></o:p></span></p> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Investors enjoy high leverage while trading in futures, but can also suffer huge losses with unfavorable outcomes.<o:p></o:p></span></p> <p class="MsoNormal"><span style="font-size:14.0pt;line-height:115%;font-family: "Arial","sans-serif""><o:p> </o:p></span></p>foramshttp://www.blogger.com/profile/06266713990913900832noreply@blogger.com0tag:blogger.com,1999:blog-6878738958384573164.post-28969863430673415172010-06-08T23:10:00.002-07:002010-06-08T23:11:38.340-07:00S&P Futures<p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">The index<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/s&p-futures.html" target="undefined" id="KonaLink0" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext;text-decoration: none;text-underline:none"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; border-bottom-color:initial;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">futures</span></span><span class="apple-converted-space"><span style="color:windowtext"> </span></span></span><span class="klink"><span style="color:windowtext;text-decoration:none;text-underline: none"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">contracts</span></span></span></a><span class="apple-converted-space"> </span>which feature S&P 500 as the underlying index are known as<span class="apple-converted-space"> </span><strong><span style="font-family:"Arial","sans-serif"">S&P futures</span></strong><span class="apple-converted-space"> </span>contracts. The S&P 500 is considered as a leading indicator on U.S. equities. The S&P 500 has been published since 1957, which is the most widely followed index after the Dow Jones Industrial Average. The S&P works as a key barometer of the overall market.<o:p></o:p></span></p> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">The Standard and Poor’s 500 stock index is traded in the Chicago Mercantile Exchange. The S&P 500 is a value weighted index, in which each stock's weight is directly proportionate to market value. The S&P 500 index is the cash equivalent of the S&P 500 futures. However, there are considerable differences in several aspects.<o:p></o:p></span></p> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Basically, the S&P 500 comprises an index of the prices of 500 large cap<a href="http://www.economywatch.com/options-and-futures/s&p-futures.html" target="undefined" id="KonaLink1" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext;text-decoration: none;text-underline:none"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; border-bottom-color:initial;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">common</span></span><span class="apple-converted-space"><span style="color:windowtext"> </span></span></span><span class="klink"><span style="color:windowtext;text-decoration:none;text-underline: none"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">stocks</span></span></span></a><span class="apple-converted-space"> </span>that are actively traded in the US. The stocks that are included in the S&P 500 belong to large publicly held companies. It is also a leading indicator for many individual stocks such as America Online, Cisco Systems, Dell Computer and Microsoft Corporation. Intraday movements in the S&P Futures contract often precede similar moves in the preceding stocks. This provides a trader with some scalping opportunities.<o:p></o:p></span></p> <h2><u><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">How do S&P Futures Work?<o:p></o:p></span></u></h2> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">The futures contract on the S&P 500<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/s&p-futures.html" target="undefined" id="KonaLink2" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext;text-decoration: none;text-underline:none"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; border-bottom-color:initial;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">stock</span></span><span class="apple-converted-space"><span style="color:windowtext"> </span></span></span><span class="klink"><span style="color:windowtext;text-decoration:none;text-underline: none"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">price</span></span></span></a><span class="apple-converted-space"> </span>index is the most used equity futures contract. To benefit from the S&P Futures, traders normally take intraday long positions when the S&P is above its opening price and rising. They opt for short position when it is below its opening price and dropping further. It is recommended to use the<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/s&p-futures.html" target="undefined" id="KonaLink3" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext;text-decoration: none;text-underline:none"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; background-attachment:initial;background-origin: initial;background-clip: initial; background-position:initial initial;background-repeat:initial initial; float:none">support</span></span><span class="apple-converted-space"><span style="color:windowtext"> </span></span></span><span class="klink"><span style="color:windowtext;text-decoration:none;text-underline:none"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">and</span></span><span class="apple-converted-space"><span style="color:windowtext"> </span></span></span><span class="klink"><span style="color:windowtext;text-decoration:none;text-underline:none"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">resistance</span></span></span><span id="preLoadWrap3"></span></a><span class="apple-converted-space"> </span>analysis of the S&P. This helps to time intraday buys and sells and combine reversal periods with the S&P so as to anticipate potential market turns.<o:p></o:p></span></p> <h2><u><span style="font-size:14.0pt;font-family:"Arial","sans-serif""></span>Benefits of S&P Futures<o:p></o:p></u></h2> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">S&P futures contracts are useful for hedging a<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/s&p-futures.html" target="undefined" id="KonaLink4" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">stock</span></span><span class="apple-converted-space"><span style="color:windowtext"> </span></span></span><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; border-bottom-color:initial;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">portfolio</span></span></span></a><span class="apple-converted-space"> </span>against unexpected market fluctuations. The S&P futures contract allows large traders and investors to bet on the market’s future direction. This is typically traded by institutional investors. It is also closely scrutinized by industry experts and market professionals.<o:p></o:p></span></p> <h2><u><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Risks of S&P Futures<o:p></o:p></span></u></h2> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Since index futures<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/s&p-futures.html" target="undefined" id="KonaLink5" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">trading</span></span></span></a><span class="apple-converted-space"> </span>are very close to betting, it features a highly unpredictable character and runs a high risk of losing money.<o:p></o:p></span></p> <p class="MsoNormal"><span style="font-size:14.0pt;line-height:115%;font-family: "Arial","sans-serif""><o:p> </o:p></span></p>foramshttp://www.blogger.com/profile/06266713990913900832noreply@blogger.com0tag:blogger.com,1999:blog-6878738958384573164.post-32789422277422300542010-06-08T23:10:00.001-07:002010-06-08T23:10:44.223-07:00Gold Futures<p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><b><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Gold futures</span></b><span style="font-size:14.0pt;font-family:"Arial","sans-serif";mso-fareast-font-family: "Times New Roman""> are a form of derivatives futures trading with gold as its underlying asset. Futures trading on gold involve an agreement between a buyer and seller to trade a fixed amount of gold, with the help of a dealer who is accredited to a <a href="http://www.economywatch.com/options-and-futures/gold-futures.html" target="undefined"><span style="color:windowtext">futures exchange</span></a>. This trade is contracted to take place on a specified date in the future for a specified price.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Trade in Gold futures has continued during the past two decades on most of the futures exchanges around the world. The contractual requirements of these respective exchanges may vary in details but the broad outlines remain the same.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Though gold futures are traded on various exchanges around the world, it has been traditionally considered as a North American activity. Gold futures are traded on the New York Commodities Exchange (COMEX) which is a division of the New York Mercantile Exchange (NYMEX). In India, gold futures are traded in the National Commodity and Derivatives Exchange (NCDEX).<o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom:12.0pt;line-height:normal"><u><span style="font-size:14.0pt;font-family:"Arial","sans-serif";mso-fareast-font-family: "Times New Roman""><o:p><span style="text-decoration:none"> </span></o:p></span></u></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal;mso-outline-level:2"><b><u><span style="font-size:14.0pt; font-family:"Arial","sans-serif";mso-fareast-font-family:"Times New Roman"">How are Gold Futures Traded?<o:p></o:p></span></u></b></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">The futures exchange treats the gold futures trade as a highly standardized contract. It provides a framework through which a high degree of security, transparency and probity is ensured to the <a href="http://www.economywatch.com/options-and-futures/gold-futures.html" target="undefined"><span style="color:windowtext">investors</span></a> of gold futures.<o:p></o:p></span></p> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Only those who are listed members of a futures exchange have access to the trading floor. This membership can be purchased by a financial firm as well as an individual who is able to satisfy certain criteria fixed by the exchange. The criteria include sound financial standing and other facets in the investing business. Like trading in other commodities, there is ‘pits’<a href="http://www.economywatch.com/options-and-futures/gold-futures.html" target="undefined" id="KonaLink3" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext;text-decoration: none;text-underline:none"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; background-attachment:initial;background-origin: initial;background-clip: initial; background-position:initial initial;background-repeat:initial initial; float:none">trading</span></span></span><span id="preLoadWrap3"></span></a><span class="apple-converted-space"> </span>in gold futures, which involves open outcry by licensed brokers. The clients are expected to put up just a small proportion of the potential value of the entire contract. This margin is fixed by a division of the futures exchange.<o:p></o:p></span></p> <h2><u><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Benefits of Gold<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/gold-futures.html" target="undefined" id="KonaLink4" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext;text-decoration: none;text-underline:none"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; background-attachment:initial;background-origin: initial;background-clip: initial; background-position:initial initial;background-repeat:initial initial; float:none">Futures</span></span><span class="apple-converted-space"><span style="color:windowtext"> </span></span></span><span class="klink"><span style="color:windowtext;text-decoration:none;text-underline:none"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">Trading</span></span></span><span id="preLoadWrap4"></span></a><o:p></o:p></span></u></h2> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Futures trading enables the speculators and other participants an opportunity to participate in the market on a highly leveraged basis. The process also adds liquidity into the market.<o:p></o:p></span></p> <h2><u><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Risks of Gold Futures Trading<o:p></o:p></span></u></h2> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Since the outlay posted for each futures contract is relatively modest, a small adverse effect in the movement of gold prices can result in the loss of entire initial margin<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/gold-futures.html" target="undefined" id="KonaLink5" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext;text-decoration: none;text-underline:none"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; background-attachment:initial;background-origin: initial;background-clip: initial; background-position:initial initial;background-repeat:initial initial; float:none">deposit</span></span></span><span id="preLoadWrap5"></span></a>.<o:p></o:p></span></p> <p class="MsoNormal"><span style="font-size:14.0pt;line-height:115%;font-family: "Arial","sans-serif""><o:p> </o:p></span></p>foramshttp://www.blogger.com/profile/06266713990913900832noreply@blogger.com0tag:blogger.com,1999:blog-6878738958384573164.post-29316675718187402542010-06-08T23:09:00.000-07:002010-06-08T23:10:02.652-07:00Futures Markets<p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">A<span class="apple-converted-space"> </span><strong><span style="font-family:"Arial","sans-serif""><a href="http://www.economywatch.com/options-and-futures/futures-market.html" target="undefined" id="KonaLink0" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">futures</span></span><span class="apple-converted-space"><span style="color:windowtext"> </span></span></span><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; border-bottom-color:initial;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">market</span></span></span></a></span></strong><span class="apple-converted-space"> </span>is an auction market where traders buy and sell futures contracts for delivery on a specific future date according to the terms of the contract. Futures markets are also called futures exchanges.<o:p></o:p></span></p> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Well developed and effective<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/futures-market.html" target="undefined" id="KonaLink1" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">futures</span></span><span class="apple-converted-space"><span style="color:windowtext"> </span></span></span><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; border-bottom-color:initial;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">markets</span></span></span></a><span class="apple-converted-space"> </span>facilitate transactions without impacting the underlying assets. These markets attract hedgers who are inclined to minimize the risk. They also encourage competition among the traders who come with varied market information and price judgment. A large number of<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/futures-market.html" target="undefined" id="KonaLink2" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">traders</span></span></span></a><span class="apple-converted-space"> </span>participate in the buying and selling activities. These activities are based upon the global information pertaining to trends in demand and supply.<o:p></o:p></span></p> <h2><u><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Futures Market and the Nature of Contracts<o:p></o:p></span></u></h2> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">The<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/futures-market.html" target="undefined" id="KonaLink3" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">futures</span></span><span class="apple-converted-space"><span style="color:windowtext"> </span></span></span><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; background-attachment:initial;background-origin: initial;background-clip: initial; background-position:initial initial;background-repeat:initial initial; float:none">contracts</span></span></span><span id="preLoadWrap3"></span></a><span class="apple-converted-space"> </span>that are traded in the futures markets are standardized by these exchanges. Specific features of the contracts such as the nature of the underlying assets, their quantity, the pricing and the delivery date are delimited by the futures exchanges. The exchanges also specify the currency in which the transaction is to be made.<o:p></o:p></span></p> <h2><u><span style="font-size:14.0pt;font-family:"Arial","sans-serif""></span>Working of the Futures Market<o:p></o:p></u></h2> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">On the first day of<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/futures-market.html" target="undefined" id="KonaLink4" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">trading</span></span></span><span id="preLoadWrap4"></span></a><span class="apple-converted-space"> </span>of opening of the market, there are no actual contracts that exist but there are only specifications. These futures contracts are different from other stocks in as much as they are created when a buyer first buys the contract. The action of buying a contract is also known as ‘go long.’ The other party who sells such contract is known to ‘go short.’ Traders may resell their contracts for reducing their long positions or re-buy in order to reduce their short positions.<o:p></o:p></span></p> <h2><u><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Futures Markets and Clearing Houses<o:p></o:p></span></u></h2> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">While the trading facilities are provided by the futures markets, the<a href="http://www.economywatch.com/options-and-futures/futures-market.html" target="undefined" id="KonaLink5" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">settlement</span></span></span></a><span class="apple-converted-space"> </span>of these trades is provided by the respective clearing houses. The clearing houses, also known as the clearing corporations, work as the central counterparties to their respective exchanges. For example, the Options Clearing Corporation is the clearing corporation for CBOE. Similarly, the London Clearing House works as the clearing corporation for LIFE. However, an exception to this rule is the Chicago Mercantile Exchange, which serves as the trade facilitator as well as the clearing corporation.<o:p></o:p></span></p> <p class="MsoNormal"><span style="font-size:14.0pt;line-height:115%;font-family: "Arial","sans-serif""><o:p> </o:p></span></p>foramshttp://www.blogger.com/profile/06266713990913900832noreply@blogger.com0tag:blogger.com,1999:blog-6878738958384573164.post-56566182937701507062010-06-08T23:08:00.000-07:002010-06-08T23:09:18.657-07:00Commodities Futures<p><strong><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">Commodity futures</span></strong><span class="apple-converted-space"><span style="font-size:14.0pt;font-family:"Arial","sans-serif""> </span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">aim to transfer risks associated with the ownership of a commodity. The commodity may be anything, from wheat to a<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/commodity-futures.html" target="undefined" id="KonaLink0" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">foreign</span><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; background-attachment:initial;background-origin: initial;background-clip: initial; background-position:initial initial;background-repeat:initial initial; float:none">currency</span></span></span><span id="preLoadWrap0"></span></a>. At the time of the futures contract, the actual commodities do not physically change hands. The contract is legally binding for the transfer of commodities at a future date, which is specified at the time of entering into the contract. Also, at that moment itself, the price at which the delivery would take place in the future, is decided.<o:p></o:p></span></p> <h2><u><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">How are Commodity Futures Traded?<o:p></o:p></span></u></h2> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif""><a href="http://www.economywatch.com/options-and-futures/commodity-futures.html" target="undefined" id="KonaLink1" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">Commodity</span></span><span class="apple-converted-space"><span style="color:windowtext"> </span></span></span><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; border-bottom-color:initial;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">futures</span></span><span class="apple-converted-space"><span style="color:windowtext"> </span></span></span><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; border-bottom-color:initial;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">trading</span></span></span></a><span class="apple-converted-space"> </span>are done in an organized futures market. Unlike other investments such as stocks and bonds, trading in futures does not involve the actual possession of the commodity. All an investor does is to speculate on the future direction of the price of that commodity.<o:p></o:p></span></p> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">A well organized and efficient<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/commodity-futures.html" target="undefined" id="KonaLink2" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">commodities</span></span><span class="apple-converted-space"><span style="color:windowtext"> </span></span></span><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; border-bottom-color:initial;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">futures</span></span></span></a><span class="apple-converted-space"> </span>market is acknowledged as helpful for the price discovery of commodities that are traded in it. Such a market facilitates the offsetting of transactions without actually impacting the physical goods.<o:p></o:p></span></p> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">When<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/commodity-futures.html" target="undefined" id="KonaLink3" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">commodity</span></span><span class="apple-converted-space"><span style="color:windowtext"> </span></span></span><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; border-bottom-color:initial;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">futures</span></span></span></a><span class="apple-converted-space"> </span>contracts are traded with high leverage, they fall in the high risk area and get close to speculation. However, such kind of trading can also be done using low leverage to provide favorable payoffs. This technique would place futures trading in the low risk spectrum.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal;mso-outline-level:2"><b><u><span style="font-size:14.0pt; font-family:"Arial","sans-serif";mso-fareast-font-family:"Times New Roman""></span>Benefits of Commodity Futures<o:p></o:p></u></b></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal;mso-list:l0 level1 lfo1; tab-stops:list .5in"><span style="font-size:10.0pt; mso-bidi-font-size:14.0pt;font-family:Symbol;mso-fareast-font-family:Symbol; mso-bidi-font-family:Symbol"><span style="mso-list:Ignore">·<span style="font:7.0pt "Times New Roman""> </span></span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Through commodity futures trading, it is possible for investors to make huge profits with limited capital. Sometimes it happens even in a short period of time.<br /> <br /> <o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal;mso-list:l0 level1 lfo1; tab-stops:list .5in"><span style="font-size:10.0pt; mso-bidi-font-size:14.0pt;font-family:Symbol;mso-fareast-font-family:Symbol; mso-bidi-font-family:Symbol"><span style="mso-list:Ignore">·<span style="font:7.0pt "Times New Roman""> </span></span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Due to its features, the <a href="http://www.economywatch.com/options-and-futures/commodity-futures.html" target="undefined"><span style="color:windowtext;text-decoration:none;text-underline: none">commodity futures</span></a> market attracts hedgers since they can minimize their risks. The market also encourages competition among the traders who have the market information and price judgment.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal;mso-outline-level:2"><b><u><span style="font-size:14.0pt; font-family:"Arial","sans-serif";mso-fareast-font-family:"Times New Roman"">Commodity Futures: Risks Involved<o:p></o:p></span></u></b></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Often, some investors trade in commodity futures to get rich quickly. Such investors are prone to losing money as they take big risks which might go against them. <a href="http://www.economywatch.com/options-and-futures/commodity-futures.html" target="undefined"><span style="color:windowtext">Trading</span></a> in commodity futures is risky if it is treated as merely a speculative market. It is advisable for investors to exercise patience while making investing decisions.<o:p></o:p></span></p> <p class="MsoNormal"><span style="font-size:14.0pt;line-height:115%;font-family: "Arial","sans-serif""><o:p> </o:p></span></p>foramshttp://www.blogger.com/profile/06266713990913900832noreply@blogger.com0tag:blogger.com,1999:blog-6878738958384573164.post-20637257377065862202010-06-08T23:07:00.000-07:002010-06-08T23:08:34.061-07:00Stock Option Trading<p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">A<span class="apple-converted-space"> </span><strong><span style="font-family:"Arial","sans-serif"">stock option</span></strong><span class="apple-converted-space"> </span>is a form of<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/stock-options-trading.html" target="undefined" id="KonaLink0" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">derivatives</span></span></span></a><span class="apple-converted-space"> </span>contract in which the buyer of an option pays a premium for exercising the right to buy or sell the underlying stock. The holder of the stock options has the right to buy or sell but is not obliged to do so. This level of flexibility is a distinct advantage that comes with a price, namely a premium. It is up to the buyer to exercise his/her option. In case the buyer chooses to exercise an option, the seller is obliged to buy or sell the underlying stock.<o:p></o:p></span></p> <h2><u><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">How does Stock Option Trading Work?<o:p></o:p></span></u></h2> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif""><a href="http://www.economywatch.com/options-and-futures/stock-options-trading.html" target="undefined" id="KonaLink1" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">Stock</span></span><span class="apple-converted-space"><span style="color:windowtext"> </span></span></span><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; background-attachment:initial;background-origin: initial;background-clip: initial; background-position:initial initial;background-repeat:initial initial; float:none">option</span></span><span class="apple-converted-space"><span style="color:windowtext"> </span></span></span><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; background-attachment:initial;background-origin: initial;background-clip: initial; background-position:initial initial;background-repeat:initial initial; float:none">trading</span></span></span><span id="preLoadWrap1"></span></a><span class="apple-converted-space"> </span>is carried out in a stock exchange. The exchange is responsible for laying out specifications of the trade. Specifications include number of shares to be bought or sold, the amount at which to buy or sell and the future date before which the option is to be exercised. The seller of the option is obliged to buy or sell when the buyer of the contract wishes to exercise the option, regardless of the market price of the stock fluctuations.<o:p></o:p></span></p> <p><span style="font-size:14.0pt;font-family:"Arial","sans-serif"">A<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/stock-options-trading.html" target="undefined" id="KonaLink2" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">call</span></span><span class="apple-converted-space"><span style="color:windowtext"> </span></span></span><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important; border-left-color:initial !important;border-right-color:initial !important; border-bottom-color:initial;background-attachment:initial;background-origin: initial; background-clip: initial;background-position:initial initial;background-repeat: initial initial;float:none">option</span></span></span></a><span class="apple-converted-space"> </span>gives the buyer a right to buy the<span class="apple-converted-space"> </span><a href="http://www.economywatch.com/options-and-futures/stock-options-trading.html" target="undefined" id="KonaLink4" style="cursor:pointer;border-top-color:transparent !important; border-right-color:transparent !important;border-bottom-color:transparent !important; border-left-color:transparent !important;background-attachment:initial !important; background-origin: initial !important;background-clip: initial !important; bottom: 0px;outline-style: none;outline-width: initial;outline-color: initial; background-position:initial initial !important;background-repeat:initial initial !important; right:0px"><span class="klink"><span style="color:windowtext"><span style="border-top-color:initial !important;border-left-color:initial !important; border-right-color:initial !important;border-bottom-color:initial;background-attachment: initial;background-origin: initial;background-clip: initial;background-position: initial initial;background-repeat:initial initial;float:none">stocks</span></span></span></a><span class="apple-converted-space"> </span>whereas a put option offers the right to sell. The price of buying or selling is typically termed as the exercise price or the strike price. A company’s stock tends to trade at a given exchange based on this strike price.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal;mso-outline-level:2"><b><u><span style="font-size:14.0pt; font-family:"Arial","sans-serif";mso-fareast-font-family:"Times New Roman""></span>Benefits of Stock Option<o:p></o:p></u></b></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal;mso-list:l0 level1 lfo1; tab-stops:list .5in"><span style="font-size:10.0pt; mso-bidi-font-size:14.0pt;font-family:Symbol;mso-fareast-font-family:Symbol; mso-bidi-font-family:Symbol"><span style="mso-list:Ignore">·<span style="font:7.0pt "Times New Roman""> </span></span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Stock options provide an <a href="http://www.economywatch.com/options-and-futures/stock-options-trading.html" target="undefined"><span style="color:windowtext;text-decoration:none;text-underline: none">investor</span></a> with a higher leverage to control more assets with less money. For instance, one option can control 100 shares if it is traded in the US.<br /> <br /> <o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal;mso-list:l0 level1 lfo1; tab-stops:list .5in"><span style="font-size:10.0pt; mso-bidi-font-size:14.0pt;font-family:Symbol;mso-fareast-font-family:Symbol; mso-bidi-font-family:Symbol"><span style="mso-list:Ignore">·<span style="font:7.0pt "Times New Roman""> </span></span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Since options are vulnerable to movements in stocks and the costs of buying an option is low, it offers a high percentage of returns.<br /> <br /> <o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; margin-left:12.0pt;text-indent:-.25in;line-height:normal;mso-list:l0 level1 lfo1; tab-stops:list .5in"><span style="font-size:10.0pt; mso-bidi-font-size:14.0pt;font-family:Symbol;mso-fareast-font-family:Symbol; mso-bidi-font-family:Symbol"><span style="mso-list:Ignore">·<span style="font:7.0pt "Times New Roman""> </span></span></span><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">It cushions the holder from unfavorable price movements and allows the holder to take advantage when price movements become favorable.<o:p></o:p></span></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal;mso-outline-level:2"><b><u><span style="font-size:14.0pt; font-family:"Arial","sans-serif";mso-fareast-font-family:"Times New Roman"">Risks of Stock Option<o:p></o:p></span></u></b></p> <p class="MsoNormal" style="mso-margin-top-alt:auto;mso-margin-bottom-alt:auto; line-height:normal"><span style="font-size:14.0pt;font-family:"Arial","sans-serif"; mso-fareast-font-family:"Times New Roman"">Risks include any changes that occur in the highly volatile climate may affect the options market in an adverse way. Another risk pertains to insolvency of the <a href="http://www.economywatch.com/options-and-futures/stock-options-trading.html" target="undefined"><span style="color:windowtext">brokerage firms</span></a><o:p></o:p></span></p> <p class="MsoNormal"><span style="font-size:14.0pt;line-height:115%;font-family: "Arial","sans-serif""><o:p> </o:p></span></p>foramshttp://www.blogger.com/profile/06266713990913900832noreply@blogger.com0