Posts Tagged ‘stocks’
Both financial spread betting and physical stock trading have to do with stocks, commodities, currency. However the similarity between the two is restricted to this and the differences surface as we study the pros and cons of one versus the other.
To start with, in margined trading, there is no physical delivery of stocks and there is just no exchange of any asset class between the buyer and the seller. Consequently, it is not subject to the taxes that are levied in the case of physical cash stock market trading. The activity of financial spread betting comes under the category of speculation and hence is not considered for taxation. That is one of the reasons why it is becoming popular as you can take your profits home without having to pay any tax.
Secondly, you only need to pay margin money for indulging in margined trading as opposed to making full payment for physical stock market trading. With that margin money, you also get the advantage of trading in a much higher quantity of indices or stocks. This is the concept of leverage and it is this attraction that draws many speculators to take part in financial spread betting. If your call on a particular stock is right, you can make quick gains by just paying some margin money. On the other hand, you can also lose money quickly if the market movement is against your bet and you are not able to hold your position and in that case, you will have to close your position or provide the additional funds required to make up the shortfall. There is no such danger in physical stock market trading as should stock prices crash, you can always wait till they rise again. You are holding the stock of the company and as a shareholder; you will also qualify for dividends and other advantages like stock splits, bonuses and so on.
Thirdly, when you are financial spread betting, you are making a contract with the market maker and you are susceptible to the dangers of trading where the playing field is not a level one. You would be typically trading at a lag to the real market and this can prove to be a problem when the market suddenly turns volatile and the market maker would be in a position to quote a price that is favorable to him. No such exposures exist in the physical stock market trading environment where you are trading in the real market.
While taking a life insurance plan to cover your death benefits, you will certainly get a number of options from your insurance agent. But how do you select the optimum one? What are the feasible options as your budget and future planning is concerned?
Know your insurance options:
Let me tell you, it is never an easy task to deal with such risk-return trade off. First, you need to decide your financial goal. The death benefit plan can have two options for you to select. Either, you expect good return on your investments (the annual premiums) or just accept it as financial protection tool. For the first one, premium amount would be higher than the second one.
Simply put, the first insurance plan has dual benefit i.e. Return on Investment plus death benefit, which is called as Whole life insurance. Here a part of your premium goes to the investment fund like shares, mutual fund, stocks etc for funding.
In the second plan, the policy pays the monetary benefits to your beneficiaries upon your death which is named as Term life insurance. This is the most inexpensive insurance scheme as far as premium amount is concerned. You can get a number of insurance advisors to avail cheap term life insurance.
Now both the options may look lucrative if you know which one to use, when and how. It all depends on your income stability, saving pattern, insurance need and risk tolerance ability.
For example, if a 30 year old healthy man registers a policy with a death benefit of $30, 0000 he can apply for both the options: Whole life and Term life. In case of Whole life insurance policy the annual premium would be $3000, whereas to gain the same death benefit, Term life insurance would cost him only $300 per year.
Here is a point to be noted that in case of Whole life policy, the premium would remain same through out the life, whereas it will increase in Term life as you grow older. So, at the age of 70 years you may end up paying $ 12,000 per year as opposed to $ 300 which you started with.
Another advantage of the Whole life policy is that you can utilize the accrued money on demand. You can also borrow it from your investment funds anytime you wish.
Since both the options are viable, you have to judicially choose the apt one for your family. Initially you may start with term insurance for the basic securities, then think of pouring additional funds to get a whole life policy, where you can choose your investment option. For term life, you will have different options like annual, 7-year and 10-year policies. In annual term policies, premium would be higher. So it is advisable to ask Term life insurance quotes for at least 7 or 10 years.
Every trader should know that are only two types of options: calls and puts. That’s it, simple and plain as that. It really is that simple and anyone that cares to make it more complicated is just fooling around. Put and call options behave pretty much the same as stocks, bonds, or mutual funds: you can earn everything you would with those other investments. Therefore, options should be treated as a direct investment and that is a very important fact to remember.
When you start a trade with options it is usually composed of all call or all puts, but sometimes you can get a combination of the two. Astute traders know that you can initiate a selling trade as easy as a buying trade, and that makes a world of difference when it comes down to earn money in the markets. You can find different strategies that include both selling and buying, but the majority involves selling strategies. A lot of people frown upon that because they have once heard that “selling options is risky”. That is not true, you just have to know what you are doing. A great aspect of the markets is that you can reverse the order and “sell high, buy low” instead of the classic and common known “buy low, sell high”. Many times, the sale transaction can and will come first.
Call and put options are “derivative” investments since they derive from other sources that can range from stocks, bond, etc. Like pointed before, you can pretty much buy and sell stock options pretty much like any other stocks, bonds, etc.; the only difference is that you should research more about what exactly you are buying since that options have some unique characteristics that you should pay attention – one is that options, unlike stocks, expires, and that make a big difference in your strategy. Options expirations can play in or against you, it really depends on which side you are when you started the trade. But make no mistake, you can make money both ways.
Leverage is a (in)famous word nowadays since the crisis that started with the Lehman Brothers. Options involve a lot of leverage and that you should be aware of. BUT, leverage doesn’t necessarily mean a bad thing. When improperly used, yes, it is a bad thing; but use it properly, and you could discover a whole new world inside the financial markets. Leverage pretty much means that you are obtaining more money with less money of your own. That means that it is like buying a house with only your 10% down payment instead of committing all your money in your endeavors. Just do your due diligence beforehand and then, you will be able to use leverage in your favor, not the opposite.
There are numerous ways to determine the value of a company. When you can determine it’s value, you can then determine the value of its traded shares. The most basic way to do it is to look at the company’s market value, which is also referred to as its market capitalization, or market cap.
So how do you calculate a company’s market capitalization? It’s not as diffuclut as you might think. It’s simply the number of shares a company has outstanding multiplied by the current share price. So as an example, if a company has a million shares outstanding and its current share price is $15, the company’s market cap is $15 million…Simple eh?
How large a company is can be measured by its market cap. Here’s a list of the the five basic stock categories of market capitalization:
1) Micro cap – These are companies that are under $250 million. These stocks are the smallest available and tend to be the most risky.
2) Small cap – These companies are worth $250 million to $1 billion dollars. The stocks of these companies are less risky than micro caps, but still have a lot of growth potential. However, the key word in this description is “potential”, so still make sure you do your homework!
3) Mid cap – Mid cap companies have a value of $1 billion to $5 billion. This kind of company gives investors a good compromise between the small and large cap companies. This gives the investor the chance to invest in a company that have have a degree of safetly found in large cap companies while still having some of the growth potential of a small cap company
4) Large cap – these companies are referred to as “blue chips” and have a worth of $5 billion to $25 billion. These companies are more for conservative investors as they appreciate on a steady rate and are relatively safe.
5) Ultra cap – These caps can also be referred to as “mega caps” and are the real “big boys” of the share market. Companies such as General Electric and Microsoft are good examples. Investing in these companies can be very expensive, but you can be assured the company won’t go bankrupt (and have ther share values drop to zero) over night.
So which ones should you go for? It all depends on what your goals are. Large caps tend to do better than small caps, but remember that even a company like Microsoft was once a small cap and therefore small caps have a lot greater growth potential.
An easy way to think of this is to compare stocks with trees. Think of a small cap stock as an oak tree that is a year old, and think of a large cap stock as a giant redwood that is over 200 years old. In a storm (ie turmoil in the stock market as we tend to see every few years), the oak tree is going to have rough time and may even die, while the redwood will be very sturdy and highly unlikely to suffer much damage after the storm is over. However, the oak tree still has a lot of potential for future growth whereas the giant redwood may not grow very much more over its lifetime.
Even though market capitalization is an important consideration, it shouldn’t be the only way to decide. It’s just one measure of value. If you are going to become a serious investor, you will need to look at numerous other factors to determine if a company’s shares are worth investing in.
Futures – In finance, a futures contract is a standardized contract between two parties to buy or sell a specified asset of standardized quantity and quality at a specified date at a price agreed today (the speculated price). The contracts are traded on a speculated exchange. These contracts are not “direct” securities like stocks, bonds, rights or warrants. They are still securities, however, though they are a type of derivative contract. The party agreeing to buy the underlying asset in the coming time assumes a long position, and the party agreeing to sell the asset in the coming time assumes a short position.
One advantage of trading in futures is that investor trade on “margins”. To purchase a contract (an agreement to buy or sell a commodity on or before a specified date) an investor need only risk a fraction of the contract value as his investment covers the “margin”. If the margin is set at 10%, a $2000 deposit will allow the trader to acquire a $20,000 contract which will give a far greater profit if the investor predicted the commodity movement correctly. Potential losses are typically protected by a “stop-loss order” which will limit the deficit to the original deposit amount. If an investor thinks the value of a commodity will rise he will “go long” and raise a futures contract to purchase a quantity of the commodity, in order to re-sell it once the price rise has taken place. If an investor thinks a commodity will fall, the will raise a contract to sell a quantity of the commodity, wait for the market to drop then “buy back” the commodity to settle the contract & release the profit.
Spread betting – is any of various types of wagering on the outcome of an event, where the pay-off is based on the accuracy of the wager, rather than a simple “win or lose” outcome, such as fixed-odds (or money-line) betting or pari-mutuel betting. A spread is a range of outcomes, and the bet is whether the outcome will be above or below the spread. Spread betting has been a major growth market in the UK in recent years, with the number of gamblers heading towards one million. This carries a high level of risk, with potential losses or gains far in excess of the original money wagered. In the UK, these bets are regulated by the Financial Services Authority rather than the Gambling Commission.
The general purpose of spread betting is to create an active market for both sides of a binary wager, even if the outcome of an event may appear a priori to be biased towards one side or the other. In a sporting event (e.g. a basketball game) a strong team may be matched up against a historically weaker team; almost every game will have a favorite and an underdog. If the wager is simply “Will the favorite win?” more bets are likely to be made for the favorite, possibly to such an extent that there would be very few bettors willing to take the underdog.