CFD Trading Explained, Simply

A CFD (Contract for Difference) is an over the counter agreement between two parties to exchange the difference between the opening and the closing price of that contract at the close of the contract based on the underlying share multiplied by the number of shares specified in the contract. Despite sounding like it is going to be very complicated it is in fact easy to come to terms with. Institutions and hedge funds have utilised Contracts for Difference in the UK stock market for just over ten years instead of regular share dealing. There are many points of similarity between CFDs and spread trading in that the both of them are margined products so you can gear yourself up or actually take a decision that is a multiple of your available funds.

 

So for example the margin on a firm youre interested in was 10%, establishing a position of £100,000 would really only require a deposit of £10,000. Any running profits that you make can actually be used as margin to esablish new positions but any losses would have to be made good by reducing your position or by providing extra funds.

While stamp duty of 0.5% on all UK share purchases has in the opinion of some traders reduced the cost effectiveness of ‘day-trading’ traditional stocks and shares, both CFDs and spread betting are exempt and this has added to their appeal. CFDs are liable to capital gains tax whereas spread bets are tax free, but losses incurred from spread bets are gone for good while CFD losses can be offset against future profits for the purposes of tax. When you trade in CFDs, you purchase those contracts in almost the same way that youd buy shares. So if you wanted exposure to 1,000 shares in a company, youd have to sell 1,000 contracts at, say, 494p per contract rather than simply placing a £10 per point bet with spread betting to get a similar return.

Most CFD providers admit you to post orders anywhere within the bid-offer spread whereas spread betting firms post their own two-way take it or leave it price exactly as a bookie would. Most CFD providers allow you to post orders anywhere within the bid-offer spread whereas spread betting firms post their own two-way take it or leave it price exactly as a bookie would. CFDs do not enfold the costs of financing a position within the spread (as does spread betting) but charge those costs and commissions separately. CFDs do not wrap the costs of financing a position within the spread (as does spread betting) but charge those costs and commissions separately. Because of this, the CFD spread quote will constantly be very close to the underlying price of the share or commodity that you are following. CFDs also mimic nearly every aspect of owning the underlying share or market, so if you hold a position for a long enough time period you will recieve the benefit from any dividends being paid on the shares.

CFDs and spread betting have particular features that will appeal to different trading styles and there is no one best instrument to use. However they should not be regarded as substitutes for long term investment or saving, as more people seek to take control of their financial destiny, theres been a growing realisation that going short is a legitimate means of trading in market thats become progressively difficult to profit from in a traditional sense.

Where To Invest In 2010

It may be still be a few months away however the professional investors will already be preparing their stock portfolios for 2010. Research into various companies, sectors and countries are all a part of this research. So where will be the places to invest for profit in 2010?

Before I continue I would like to make one thing quite clear; I am not a financial adviser therefore you should not see what I write as financial advice. I am just another run of the mill guy who likes to play the stock markets. For me it is a bit of a gamble and a bit of fun. By trade I offer a business cost reduction service, a stuttering therapy service (I used to have a stutter myself) and I am also involved in company that offers a professional DVD duplication service.

I am personally attracted to companies that are investing their way through this recession and the ones that are making acquisitions. It has to be said that there has possibly never been a better time to buy a business. There are many small business owners seeking to sell up and this is where a bargain could be had.

The companies who do invest are the ones that are likely to make the most profits when the gloom and doom of this credit crisis lifts. It is all about ensuring that you are best placed out of all of your competitors when business starts to boom again.

As for the regions I am looking to invest in; I am liking the look of China, India and Russia at the present time. A slightly riskier proposition is the Japanese stock market but is one that could easily shine next year.

I wish all of the readers a prosperous 2010! Steve Hill from the UK, invester of the year 2094! OK maybe not invester of the year; how about investor of the century lol.

Put Options Used In The Collar Strategy Can Protect Your Stocks

Hoping and praying that the stocks that you just bought will go up is not the best strategy to use, however it is the one very often used by the average Joe stock trader who is stock trading internet. The only salvation they have is that in bull markets most stocks will go up.

Statistics show that in a bull market about 75% of the stocks will follow the general trend and go up, and in a bear market 75% will also go down. Trading with the trend is the best way to trade as 9 out of 12 stocks will follow the trend and give you the best chance of making gains on your stock purchases.

But what if you own some good stocks and don’t want to sell when the market is clearly going down, or about to go down?. There are a couple of tactics that you can consider, both of which involve the use of options, CALL options and PUT options. There is the widely known strategy called Covered Calls, and the much lesser known one called the Married Put.

If you are going to trade options it is essential that before you start trading you get the best option trading education that you can. You should also practice stock trading until you are comfortable with the process. This is a very important point that must be taken seriously, if you don’t understand the terminology and the theory then you should not be trading options. If the terms Put option, Call option, Married Put and Covered Call are new to you then don’t trade until you have studied sufficiently.

Selling calls against your stock in 100 share increments is the basis of the covered call strategy and it can provide about a 2-7% buffer against the loss in stock price. However a bigger drop in stock price will not be compensated for using the covered call strategy, in general.

Stocks in a bear market, and even in a bull market, can drop quickly on news or earnings releases, as much as 15 to 40% within a month. Using covered calls to protect your stocks will only provide limited protection of less than 7% at best and so will not save you if the stock takes a 40% tumble.

The better solution to providing downside stock protection is the option strategy called the Married Put. As the name suggests the PUT that you buy is used to provide protection when the stock goes down because Put options increase in value when the stock decreases in value. The term married is used because the option that is selected has to be a good fit with the stock, in other words a good match, if the strategy is to work.

The selection of the best Put option is not straight forward and involves several criteria which are listed below:

1. The strike price of the option

2. The current stock price

3. Choice of options, in/out of the money

4. Put expiration time

Even though the married Put protection only has a limited life span if offers much more protection than the covered call. It can provide as much as 90-95% loss recovery in the event of a significant drop in the stock price.

The downside of the good protection is that you have buy the Put which is a debit whereas the covered call is a credit. But there are ways of off-setting this expense and there is much more to this strategy when executed correctly. The Married Put can be made to pay for itself and used to generate very good gains if the market, or stock to be specific, moves a lot.

The general idea of the Collar Trade is to combine the covered call and married Put strategy into one, this is what is called the Collar Trade. In effect you put a collar around the stock, sell a call and buy a PUT. If you do this correctly most of the cost of the Put can be offset by the credit from the covered call so you can protect your valuable stock at almost no cost. Yes this is a great strategy which the general public is unfortunately ignorant of, and most brokers don’t understand.

The strategy that I have outlined above is unknown to the average stock market trader but is one of the best trading systems you could have.

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How To Buy A Trading Course

If you are about to start, or are already in the process of learning how to trade, or day trade, you may have already been searching the internet using Google or Yahoo for day trading training education, tools, software or seminars, and have found that there is a lot on offer.

For example “trading course” brings up 758,000 pages in Google and “trading seminar” another 109,000 pages, the question is what should you be looking for when selecting a trading course or seminar. In this article I’ll point out some of the things to check before spending your hard earned cash on your trading education.

1. If buying a live trading seminar check carefully where the location will be, have you fully priced the expensive of travel, hotels, meals and car rental?, it may be much more than you expect.

2. What is the return policy, this can vary widely between trading education companies, for some you only have a 3 day cooling off period while for others you may have up to 12 noon or the end of the 1st day to ask for refund if you decide this was not right for you.

3. For a live seminar are you also given DVD’s of the same or similar content?, so often live seminars fail to cover all the very important details involved in day trading. Having a set of DVD’s enables you to watch the content over and over again at home until you get it. Beware that some companies will charge you extra for the DVD’s even though you have already paid for a live trading seminar.

4. Check the internet for positive and negative feedback on the company and trading seminar. Use search terms like “company name review or “company name scam”. Often reviews are posted in trading forums, these can be found by searching for terms like “trading forum”.

5. In advance try and find out exactly who will be presenting the seminar. The last thing that you want is a professional “teacher” giving a seminar on trading, what you want is a “trader” who makes his living by trading and only does a few seminars a month out of interest and for personal reasons, not because they need the money.

6. If you are buying an online day trading or investing course where the content is 100% viewed online you should get at least a 30 day 100% money back guarantee, if not stay away.

7. If you are buying a course or trading seminar in which DVD’s and manuals are being shipped to your house, again you should expect a 30 day 100% money back return policy, less shipping and handling, again if not stay away.

8. It’s very likely that you will have questions after taking either the live or online course or watching the DVD’s, make sure that you will be able to ask questions and have them answered, either one on one or in a forum setting.

9. Last, but certainly not least, before buying do a lot of window shopping. The price for trading seminars, either stocks, options, Forex or futures varies widely from $50 for an ebook to over $25K for a comprehensive set of training. You may be able to find the same material much cheaper at a different company.

Also be aware that day trading education and seminar companies are always running specials and offering discounts, before you buy search the internet carefully for any deals and also call the company directly and ask for a low price guarantee. Make sure you are paying the lowest price possible for the course or seminar before you commit to it.

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Futures Market Contracts And Exchanges

Contracts in the futures market are between a buyer and seller. The contract states that the seller must provide the buyer a very specific quantity of a certain item, such as cotton, oil etc, for a price agreed today, but at a date in the future.

It is important not to get confused about what the word future refers to. Futures traders are not day trading futures prices, we are trading today’s prices, but the settlement is taking place in the future. So we buy if we think prices will increase and we sell if we think prices will drop.

If I buy (or sell) a futures contract today, I don’t have to hold it until the contract expires, I can simply decide to sell it (or buy it) in the market at the prevailing price. Futures contracts are bought and sold in the controlled environment of a futures exchange, such as the Chicago Board of Trade (CBOT) in the U.S. and the London International Futures and Options Exchange (LIFFE) in the U.K.

Futures were originally developed to help offset the risks and uncertainties experienced by farmers and merchants due to the fluctuating supply and demand for produce. Take for example a coffee plantation farmer. The price that he will receive for his bean crop will vary according to the vagaries of supply and demand. In a season when supplies are limited and demand is high, prices will be high. In a year when demand falls and the supply is plentiful, the price will fall.

The use of futures trading in the farming industry has many benefits such as allowing the farmer to be able to plan ahead as he already knows what kind of profit he can expect from his crop of say coffee beans. The price may not be the best and the merchant may make a killing but the risk is reduced.

By using a type of futures contract long before harvest time both the farmer and the merchant can reduce their risks by setting the price.

Today the futures market has changed a lot from the historical origins. There are now futures contracts on financial instruments such as stocks and bonds. broadly speaking futures contracts are either commodity type products or financial type products. It is usually not that important because they are rarely held until expiration.

The CBOT was started about 1848 for the benefit of the farmers and merchants. The exchange was to regulate the quality and quantity of the actual crop that was being traded. Today the CBOT offers many contracts on items like wheat, oil, silver, corn, bonds and soybeans.

The Chicago Mercantile Exchange (CME) was created in 1919 and has managed a futures market in such things as pork bellies, live cattle and the SP500 index.

In London the big financial futures exchange is the London International Futures and Options Exchange (LIFFE). Here financial instruments such as the FTSE100, the GILT and Short Sterling are traded, the exchange is relativily new and opened in 1982.

EUREX started life as the DTB, the German futures exchange. The DTB has always been an electronic exchange and started back in 1990, when electronic exchanges were still considered to be inferior to the open outcry system.

The German Bund was a heavily traded financial contract and one of the biggest markets on the LIFFE.

Many futures markets have very high volumes and hence very good liquidity, these are attractive markets for traders. The high leverage means that profits can be made very fast when the market moves, however money can also be lost very fast. If you want to learn to trade futures, or are even thinking of trading futures make sure that you learn as much as you can before using real money.

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Learn About The Stock Market

Have you ever watched a newscast or financial channel such as CNBC? In know that's a silly question. Of course you have, right? And you've noticed that line of numbers running along the bottom of your screen. You probably told yourself that's just stock market stuff, and ignored it. Some where out there, someone else is glued to that 'stock market stuff' because it can make them a bundle. Yes, fortunes can be made day trading the stock market, but they can also be lost of you don’t understand some basic concepts.

First of all, the stock market deals in the trading of shares. Shares are the units actually offered by companies on the stock market, and the money that the company makes from these sales are called stocks. So you are not actually purchasing a companies stocks. What you actually purchase is shares in a corporation that is traded on the stock market, and that makes you a shareholder.

There are stock markets in countries all over the world, but one of the most well known is the NASDAQ market in the United States because it was the first all electronic market. The stock markets in the United States have the worldwide distinction of being the most active of all world markets. Because of the volume and reputation, the NASDAQ can exert quite an influence on other stocks. The Dow Jones Industrial Average, commonly referred to as just Dow Jones, is another key US based stock market.  Both are used extensively by day trading robots and other traders to make a living.

If you do not know what you are doing, its not expected that you try to trade or invest int he stock market on your own. There are professionals who can do it for you. They are called stock brokers and they typically have a lot of experience dealing with the stock market. Becoming a stock broker can be a very lucrative career move, but you must understand all the ins and outs of the stock market. This is because every transaction in the stock market carries a commission, so every trade done by a client pays you a fee.

While it is nice to have some help, everyone should learn to invest on their own as well. If you’re serious about investing or day trading, you’ll want to learn to trade and invest on your own. That way, you'll at least have an idea of what's going on. A great way to get started in the stock market is to find a reputable broker and some good research to start learning. There are many good stock research providers online who offer their services for free, and can give you advice on the stock market.

Non directional Investing Recommendations and Habits

The business of non directional trading has provided businessmen and investors around the world with the option to have a stable form of investing due to its virtually risk free methods. The main reason behind the success of non directional trading is its process of using the markets deficiencies and inconsistencies into its advantage in earning through interest. This is possible since currencies are a liquefied form of commodity meaning its values change depending on the economic situation. Trading and earning in a non directional way would require a trader to switch sides based on which would give him the advantage. The only essential and critical part of non directional trading which demands great evaluation and examination when executing is knowing which direction to place one’s investment and resources. Some tools you can use to help you know what side to be on are a investing software, a trading program, or a investing platform.

The use of non directional tips and guides is the best way for traders and businessmen to reaffirm the essential points of their business strategy.The downfall of many traders can be attributed to their wrong perception when assessing the factors involved in trading. This is because they lack the initiative to do research and data collection which is an essential part in the initial step to establish a reliable strategy. Luckily investors, traders and marketers can rely on the information database in the internet coming from different reputable websites which provides an up to date information on the different economic conditions that is essential in the planning process. But in order to become successful in the field of non directional business, people should use the important data they have gathered and apply it at the correct time it is required to maximize its value.The currency market changes on a regular basis whenever there are economic discrepancies and disruptions. This would render the information collected prior to the occurrence of the changes invalid and irrelevant. That is why the information should be used rapidly at the time it was collected to produce desirable results. In fact, it can be used as a means to trade the currency in the possession of the trader for another currency which would later increase and value.

People should know that the best place to practice the non directional form of business is through the currency market. By using the disadvantage of the currency to your advantage, you could earn through interest. For example, one trader would predict the direction of the currency in which he would invest in the positive direction and sell the currency in his possession that would depreciate. This could be a means for people to earn hundreds of dollars on a daily basis without doing real physical work.

Non directional form of trading is a very safe way to earn money without putting your money at risk. This is because the trader would use the necessary knowledge that would guide him to establish a stable form of transaction.

Advice for Investing In Stocks During the Financial Crisis

Just because the world is in an economic slowdown, that does not mean it is already the end of the world for people who want to invest in stocks. Investing in the stock market when the economy is not doing well is no different from investing during good economic times. Despite the bleak economic picture, the stock market will surely recover and go back to normal in due time. In fact, stock investments can offer more opportunities during financial crisis—and investors can take advantage of it if they have the right attitude toward investing and if they know the strategies to rake in the highest profits.

So how do you invest during hard times? The following are several guidelines to give you an idea on how to survive the stock market despite the trying times.

Purchase the right stock

Deciding the right stock to purchase is the most important thing you have to do when investing in the stock market during financial crisis. The stock you are going to buy must earn you profits many years from now. To know which stock to purchase, you need to do your own research. Choose stocks from leading companies since they will surely perform well in the future. One way to help you choose those stocks is to use software like a stock trading platform. Earning money can be very easy. You just need to make sure you choose the right financial program for your needs.

Also, be sure that you buy a stock from a company that effectively uses its invested money to make more profits. A company that effectively handles its finances can help you get big profits from its stocks.

Be careful when making investment decisions

Rushing your decisions when it comes to stock investing has more drawbacks than benefits. Many investors tend to panic during rough times, pulling out their investments right away when it is not really necessary. The stock market normally goes through cycles: sometimes it is up, and sometimes it is down. The right attitude toward investing is holding your stocks in the long term so that you get to earn more.

But isn’t it right to sell all my stocks when everybody else is doing it, you ask. It is definitely wrong! While most investors would sell their stocks during financial crisis, you can use this as an opportunity to buy stocks at very low prices from companies with outstanding track records.

Try penny stocks

Majority of investors move their investments to small penny stocks whenever the financial crisis sets in. Unlike other types of stocks, the financial crisis has less impact on penny stocks. Because there is a huge demand for penny stocks, their value increases.

Think long term

Think of your investment as a long-term venture. It is not a good idea to expect the best outcome right after you have purchased your stocks. Money needs time to grow—and it would be unwise to delay your stock investing just because the times are tough. Start investing in stocks now so that you can reap more financial benefits in the future.

Make Your Extra Cash Multiply by Investing in Stocks

If you had received a huge sum of money, what would be the best way to use it? Spending it down to the last cent can be tempting and fun, but you will definitely end up penniless again after some time. You may opt to save the money, but there is a more profitable way to use your hard-earned money. So how do you make your money grow? Invest it in the stock market. In doing so, you can earn more profits out of your money in the long run.

Stocks—what are they?

For stock investing beginners, stocks or shares are a portion of a company that can be purchased by the public. People who buy the stocks of an issuing company own a portion of that company. Simply put, you become an owner of a company when you buy its stocks or shares. However, only those stockholders who have purchased a huge chunk of the shares of a firm can have a say on how the company should be run.

While you hold a stock, its price or value may drop in the short term but will grow with increased profits over time. If you hold your stock longer, you get better chances of earning more profits. The value of your stock increases if the issuing company is doing well. On the other hand, your stock drops in value if the company is performing poorly in terms of profits and revenues. In some cases, stockholders receive dividends or cash payments from issuing companies.

Two types of stocks are offered by companies: common and preferred. As a basic form of company ownership, the common stock allows its investors to claim the revenues and assets of a company after the preferred stockholders have gotten theirs. Preferred stocks, on the other hand, offer higher profits and security for its investors compared to common stocks. If a company goes out of business, preferred stockholders have greater chances of getting a portion of money they have invested than common stockholders.

Why invest in the stock market?

Compared to other investment options such as bonds and rare coins, stocks yield the highest long-term possible returns. So when you invest in the stock market, you are likely to make your money grow after a few years.

Investments in the stock market also tend to do better compared to other investment options. In the past three decades, the usual return on stocks (the amount stockholders get from investing stocks) has been roughly 8 percent. In contrast, a passbook account has been producing just 3 percent return on investments—and this figure does not factor in yet the taxes that will be deducted.

How to start investing in stocks

Stock investing is an ideal way to earn profits out of your hard-earned cash, but it is not free from risks, just like other investment choices. If you want to try stock investing, it is recommended that you do an extensive research and seek advice from experts or experienced traders in the stock market. One way to help you invest in stocks is to use a investment program, financial software, or stock trading program.

Choosing Share Builder

You better check out share builder for yourself if you are currently interesting in starting selling and buying online stocks.

This website offers a different way to buy stocks that will appeal to a lot of investors because it is simple and it makes sense.

It is easy to use and much cheaper than using a traditional broker. While these things are true of most online stock brokers, share builder is a bit different. It is actually much the same as an online option trading.

Share builder offers stock trade for only $4 for any publicly traded company and for any dollar amount you want to purchase. That means you don’t have a to buy a minimum number of shares at share builder.

Another great thing with this shar builder, you can start off at any level you feel good with as they don’t require you a minimum investment to start.

Many stock brokers sites will require you to invest a minimum amount of money when you establish an account. That means you have to spend more before you put your money into stock, while with share builder, you can start investing right away. That is a good thing if you want to buy stock online with share builder.

Since the $4 fee is the same no matter how much you buy, however, it is worth buying larger amounts at one time if you can because then the fee is a lower percentage of the overall cost.

It really make sense to consolidate your purchases of the same stocks all together since the $4 fee applies to each different stock, not to the total purchase.

Instead of buying $25 each of 4 different stocks each week for a month, it would be much cheaper if you bought $100 worth of one stock each week.

That way you will only pay $4 in a week fees instead of $16, which means you would’ve spent $48 more money by the end of the month. So, you’re interested in stock market, give share builder a try!