Reducing Investment Loss Because of Hedging
By: Alan Haburchak
Stockbrokers have been reported to have misused hedging strategies over and over again. However, if a financial loss occurs because of an investor did not recommend an appropriate strategic hedge, that money may be able to be recovered.
In general, hedging strategies look for a "spread" between market value and theoretical or "true" value and attempt to extract profits when the values converge. As hedging is a strategy designed to minimize exposure to unwanted risks, while still allowing a portfolio to profit from investment activity, it is an important aspect to investing. It is highly recommended that investors discuss the use of hedging strategies with their stockbroker from the onset of any investment.
One common hedging strategy is the investment in a security a broker believes is under-priced relative to its "fair value". The short sale of similar securities or security is combined with the investment. By "playing both sides", it does not matter whether the market as a whole goes up or down in value, only whether the under-priced security appreciates relative to the market. This strategy is often referred to as a "speculation in the basis," where the basis is the difference between the security's theoretical value and its actual value.
Some stockbrokers fear that by suggesting a hedging strategy to a client the concept will tarnish their professional reputation. However, it has been proven over time that if the basic strategies are fully explained to a client that most clients want to minimize their risk, not add risk.
Given that appreciation rates for equities, the last twenty years have been well above long-term averages, most investors are open to the concept of transferring price decline risks to others, if the strategies, including costs and fees are appropriate.
Many brokers who have clients with taxable portfolios do not consider hedging strategies for several reasons. Concerns include the time commitment, the complexity of the issue, and the fear of what other people, including the client or other advisors, might think of a stockbroker who recommends hedging strategies.
Some brokers believe that many clients are not financially sophisticated enough to make informed decisions about hedging strategies and therefore claim those concerns are the reason they did not recommend a risk management approach.
Ignorance on the part of the broker and inaccurate perceptions by others are not valid reasons for stockbrokers to not recommend that their clients include these legitimate risk management tools as a part of their portfolio strategy. Losses that are incurred because a stockbroker did not offer the most suitable hedging strategy may be able to be recovered.
Brokers are required under regulations to suggest and offer suitable strategies to their clients. In addition, investment advisors, who have more stringent fiduciary duties and standards, are obligated to seek investments and strategies that are in the best interest of the client. Part of the strategies that go along with investment include risk management.
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Article Source: http://www.ArticleBiz.com
Read More......Cheapest Stock Trading
By Micheal James
Cheapest stock trading: For proficient gain in the stock market
Stock market has become one of the most significant places to invest. In the past few years, there has been a rapid advancement in the share market. Now online trading has become a buzzword. And, this has promoted many people to try their luck in online stock investing.
Everyone wants to invest money to get quick return without taking much risk. Therefore, it is necessary to keep you updated with the market trends and the different methods of cheapest stock trading. Of late, most traders prefer Internet for their investment plan to enjoy best deals and gain maximum profit. The biggest advantage of online trading is that you can do multiple jobs while sitting at home - from buying and selling of stocks to accessing latest market information is all at your fingertips.
Being volatile in nature, stock market is a place where intelligent investment is what you require. It means you should be aware of the common pitfalls and subtle risks that are involved in such investment options. To minimize or to get rid of any such risks, you should have a sound knowledge of the share market. So, before entering into this world, you need to gather information. Ask people who are already associated with online stock investing. Moreover, you can also consult with financial experts regarding your investment plan and cheapest stock trading options.
The scope of stock trading companies is very bright and with time things are becoming easier. If you compare the present stock trading system with the conventional system, almost everything has changed. Today's trading system has opened a new vista for every class of people. And anyone can start such trading anytime. The only word of caution is the knowledge.
In order to get maximum benefit from your investment plan, it is always advisable to study the market closely and gather as much market information as you can. However, stock trading companies play a crucial role in your investment and profits. As there are innumerable online firms available that are offering several services for the investor -- choosing the right industry is of utmost importance.
There are some important points that you need to keep in your mind before choosing the online firm such as the industry reputation, services offered by the company and the online broker commission. Once you visit the Website of a stockbroker company, you can analyze and gather information. If the broker associated with the company charges high commission rates and in return offers very limited services - you should avoid them and look for those who offer maximum services and charge a very minimal commission rate.
With cutthroat competition in the corporate world, there are companies who provide many lucrative services in order to attract investor's interest towards their companies. So, look for those companies and choose the one where you can avail impeccable services. Investing in stocks and getting constant profits out of it is an art. It's a continuous process and can be learnt with time. So, invest intelligently and gain maximum profit from your investment.
Pricing and Features for Sogoinvest Investment Packages:online investment
Sogoinvest Interest Rates and Fees: trading stock options
Article Source: http://EzineArticles.com/?expert=Micheal_James
4 Things Your Stock Broker Dosn't Want You to Know
By Donald Harder
1. Your stock broker has an inventory that his boss wants him to unload.
Stock broker firms often buy securities in bulk and then turn around and sell the stock out of their own inventory. However, unlike a retail store, your stock broker won’t have a sale to move the product off the shelf. Rather, the stock broker firm will turn up the pressure on its sales force to increase sales of that investment.
Don't be a bag holder: Stockbrokers may also trade securities out of their own accounts, so in addition to the commission incentive, there could be a profit incentive, as your stock broker sells you, taking profit on the stock his firm bought at much lower prices.
Hidden fees and commissions: For more complicated and longer-term investments, like limited partnerships, the stock broker firm may collect management fees. More commonly, bigger stock broker firms may pay stock brokers more for selling the firm's proprietary products. Also, for some investments the stock broker gets a residual payment in addition to the commission, which means he gets a percentage of the assets as long as you continue to own the investment. But you may never know these things.
Click here to see what is possible with just a little bit work and a simple game plan.
2. A stock broker's main qualification is that he can sell.
You may also be unaware of other incentives that increase conflicts. When a stock broker transfers to a new firm, he may be offered, in addition to a signing bonus, an accelerated payout—a higher commission for the first month or year.
You can imagine the incentive that stock broker has to "push product" before his commission drops to a lower percentage. Similarly, at the end of the year, many firms pay their stock brokers based upon the percentage of commissions they generated on a sliding scale.
The more commissions over a year the stockbroker generates, the higher his percentage goes and the more money he is paid at the end of the year. There’s a natural conflict to try to generate more commissions at the end of the year based on this higher payout.
One of the worst atrocities is the sales contest. Brokerage firms will load stock brokers with gifts, trips or just extra money for selling over a certain amount of a particular investment during a given time period. Rarely, if ever, are you the client made aware of this. Even the most naive investor would think twice about buying an investment if she was told that one of the reasons the investment is being suggested to her is because some stock broker can win a trip to Hawaii.
3. Your stock broker puts you at way too much risk.
Stock brokers are famous for telling you to buy and hold. But testing the record of this strategy is as easy as looking at a simple NASDAQ chart for the past 10 years. If you had bought in 1997 you would be sitting on a loss by 2002.
If you were unlucky enough to have bought in 2000, and many were because stock brokers had a big incentive then to unload their inventories, you would still be suffering a loss 7 long years later.
A simple CD would have outperformed this record and would have at least kept up with inflation
4. Anybody can be a stock broker.
Anyone can be a stock broker, including your next-door neighbor or your used car salesman. All it takes is licensing by the state and federal government; which isn’t quite as difficult as it sounds. Many stock brokers enter 5-day study courses, pay their fees, take the tests and it’s off to sales training.
Yes, that's right. Sales training. Stock brokers don't have time to really learn how the market works when sales quotas are their biggest pressures.
No other qualifications are necessary. A college degree is not needed. More often than not, stock brokers are not trained how to read market trends or other techniques and they have no idea where the best place to buy and the best place to sell is. What are important are sales quotas and commission rates.
The fact is, your next store neighbor can manage your money if he only decides to go out and take a couple of tests. But since your neighbor doesn’t care about your finances any more than you care about his, we have one simple question to ask.
Why not you?
No, we are not suggesting you go out and take the Series 7 and become a stockbroker. We are suggesting, however, that you take more of an initiative in managing your own future. You are the only one who cares, really cares how you do.
You are the only one who does not have a conflict of interest and will have only your own best interest at heart. And you can do it. It’s not as difficult as you may think. It is possible to earn tremendous returns on your money while managing risk much better than your stockbroker can or will.
Stop accepting meager returns that are eaten up by your broker's commission and conflicts of interest: Your broker tries to get you to accept returns of 7% - 12%, which is ok, but why should it take you a year to get there?
You work hard, but how much time do you spend managing your money? The simple truth is that you spend 40 hours a week or more going to work. You spend a couple hours a week mowing the lawn and taking care of the yard. You spend an hour or more a day preparing dinner. You spend 2-3 hours a day watching TV. How much time to you spend planning for your future?
Do you know that if you are willing to put aside just a few minutes a day that you can start earning returns on your money that dwarf anything your stockbroker promises you? Do you know that by spending just a few minutes each day that you can manage your risk much better than your stockbroker can? It is no secret. The strategy is simple and if you take the time to learn, it will make sense to you.
http://www.srsfinance.com/Stock_Brokers.html
Researchers at Securities Research Services are developers of the Smart Money Principle™ This ingenius money management strategy ensures that our subscribers investment accounts continually grow by quickly locking in gains and strictly limiting loss. The genius of the strategy is that it actually forces your account to always continue growing, never allowing it to slip backward.
Article Source: http://EzineArticles.com/?expert=Donald_Harder
Stockbroker Career
By Nick Hunter
So you think you might want to be a stockbroker?
Perhaps the most popular area of the investment industry is that of a stockbroker. Although some of you might think that breaking into the business is difficult, but it actually is pretty easy. That of course depends somewhat on where you would be willing to work and what you would be dealing in. If you are a young person out of high school or college and can accept less guaranteed money for the potential to make a lot, then the options are limitless. Unlimited income and freedom to control your destiny.
Sound to good to be true? Maybe, but the fact is many people have changed their lives by becoming a Stockbroker or any Investment Professional. Brokerage firms that pay their brokers mostly on commission are always hiring. The idea that an unlicensed or inexperienced person will not be able to find a lot of openings is false. The risk that a stock brokerage firm takes when hiring new brokers in minimal.
A stock firm does not pay much in salary. $250-$500 weekly during training is the average. So, if a firm hires someone at $350 a week, the upside to the firm is high. You have to consider the initial loss of income when entering this business. If you are 20 years old, you might not consider that pay in the beginning as that low. Older workers with more personal and financial responsibilities have to consider it a little more.
Finding a job with a firm in this industry is different from others. Your choices are broad and the way you go about it can enhance your chances. Don’t just look for job ads in the newspaper or the Internet. Call up the firms themselves and inquire about openings even if they are not advertising. Look in your local phone book and call them. You may have an office of a terrific firm in your town that might hire you. Do not ask the receptionist if they are hiring. Ask to speak to the Sales Manager in particular. The Sales Manager of a firm is paid largely on the production of the brokers he’s managing. So, if you sound eager enough and come across well on the phone, I guarantee he will at least take your name and give it consideration if not bring you in that same day!
The Series 7 and the Series 63 licenses will be required before you can begin working with customers. Your firm will sponsor you for those exams. Other licenses may be needed depending on the firm and the securities they deal in.
Not an easy job for sure. It will take long hours, the ability and willingness to cold call effectively, and the drive to be the best. Only then, will you earn your worth.
Good Luck!
Nick Hunter is the President of American Investment Training, Inc. (AIT) http://www.aitraining.com He has personally taught thousands of students in the securities industry for over 15 years. His company offers home study courses for people looking to get licensed in the investment field.
Article Source: http://EzineArticles.com/?expert=Nick_Hunter
The Modern Way to Trade the Stockmarket and the Differences Between CFD Trading and Spreadbetting
By: Mike Estrey
The rise of CFDs (contracts for difference) and spreadbetting over the last decade has naturally impacted on the amount of trading in physical shares using a traditional stockbroker. There is no doubt that the internet has altered the share trading process to the benefit of private clients in terms of cost and access to information and markets, and with broadband and efficient streaming this really is a boost for those looking to capture real time movements using online trading. The first part of this paper discusses why CFDs and spreadbets are now so popular, and then the subtle differences between the two will be explained.
CFDs and Spreadbetting - the best way to trade the stockmarket
In the old days, what now looks a very cumbersome system involved phone based dealing with the client having to wait for a dealing report from the broker, and this would be followed up with a paper based settlement and certification system. The introduction of nominee accounts and the crest settlement system was a great step forward, and in terms of deals carried out for investment, rather than trading, the system works well.
But for traders, this reduction in certification has gone hand in hand with the biggest change in the industry, the explosive growth of CFDs and spreadbetting, which have principally three main benefits over traditional share dealing:
First, there is no stamp duty to pay under current tax laws, so there is an immediate pick up of 0.5% on all UK based trades. The reason is simply that with a CFD, the client is contracting to pay the difference between the opening and closing prices of the position taken – essentially the profit or loss. Delivery never takes place and there is no time limit on the CFD, therefore there is no stamp duty. Spreadbets are treated as bets and are not currently subject to duty likewise.
Second, clients have the ability to take long or short positions on the underlying share, commodity or index. This is an option that many traditional stockbrokers still prohibit, and is useful both as a speculation and for hedging purposes. CFDs offer a simple and effective way to protect against a potential fall in the stockmarket or for that matter any instrument, without having to sell shares in a portfolio and then buy them back.
Third, traders can utilise generous margin rates, which by using leverage, enable large position sizes to be opened using a relatively small amount of deposit. It goes without saying that there is an associated risk which mirrors the amount of leverage, but for experienced traders this to some extent bears some similarity to traditional physical trading for extended settlement. For CFD traders, margin rates of as low as 1% are available, which again is very attractive for hedging purposes.
For share trading it is usual for clients to place funds on margin, but positions have to be closed within the trading settlement period, or the full cost of the purchase has to be made. The client usually pays a premium for not having to settle for up to 25 working days. Again this option is not allowed universally by brokers, and CFDs solve this problem, as they have no time limit, which makes them far more flexible. Spreadbets can be taken out with a wide range of expiry dates, so again it increases the choice for clients.
With these benefits, and the undoubted cost advantages, the natural question is why clients would wish to use a traditional stockbroker. The answer of course lies in the added value services offered by a broker, which include portfolio analysis and management, advice on collective investments, taxation and other financial products. For clients seeking perhaps a longer term perspective on investments, and for buying and selling shares on a longer term view, stockbrokers have an important role to play.
Buying shares outright also gives clients the benefit of shareholder voting rights, which is not the case for CFDs and spreadbet positions, although holders of long CFD positions do receive corporate dividends, and short CFD positions are debited with dividend payments on the ex-dividend date.
It is for shorter term trading and longer term hedging that CFDs and spreadbets have a clear edge, and they are both beneficial for those who wish to ‘go it alone’ in terms of costs. This benefit can be quantified in terms of the length of time each trade is open.
With CFDs, the additional cost of holding a long CFD position over a traditional purchase is only the interest cost. The interest charged on a long CFD is usually at a premium to LIBOR (London InterBank Offered Rate), typically LIBOR plus 2%, but it should be noted that if a client takes a short position, then interest is actually credited to the CFD position at a comparative discount to LIBOR. The amount the client lodges by way of margin is held to secure the performance of the contract and is not available to be set off against the Contract Value.
Conversely, a traditional share purchase incurs stamp duty at 0.5%. The crossover will occur at the time that the interest charged on the long CFD matches the saving made against stamp duty, and this point is usually reached on or around 28 days after the position is opened. Consequently, for trades outstanding for less than this period it is economically more viable to trade the CFD rather than the underlying stock, working on current interest rates. For those going short of a stock or index, there are clear benefits as interest is received each day while the position is open, so time is not a factor.
CFDs against spreadbetting
The terminology is slightly different for CFDs and spreadbets, but both offer the same degree of leverage and potential risk/reward for online trading. If a client wishes to open a CFD position, this is quoted in the same way as if a normal share purchase/sale was being made i.e. ‘buy 1000 Lloyds TSB CFDs’. With spreadbetting one is technically betting on the price movement of a share, index, commodity or whatever measured in pounds per point of movement. So the equivalent trade here would be ‘buy Lloyds TSB at £10 a point’, but the exposure is essentially the same. In both cases, you simply 'buy' if you think that the price is set to rise, or vice versa.
In spreadbets, all profits are free from UK capital gains and income tax, which is not currently the case for CFDs. (Tax law can change or may differ if you pay tax in a jurisdiction other than the UK). The other main difference is that for spreadbet long positions there is no daily funding but as each bet has a defined expiry date the interest cost to the broker is built into the spread in the same way as a futures price might be constructed.
In terms of use, CFDs have the edge for stockmarket trading, accounting for 40% of LSE volumes, and many investment banks tend to use CFDs simply because they tend to track the underlying price more than spreadbets.
There is no question that CFDs and spreadbets have revolutionised short term and online trading if one does not aim to hold any long position for more than a month, and they are valuable for longer term hedging.
The rise of CFDs (contracts for difference) and spreadbetting over the last decade has naturally impacted on the amount of trading in physical shares using a traditional stockbroker.
About the Author:
Mike Estrey is the Head of Research for Blue Index, specialists CFD Brokers, providing seminars on how to trade CFDs and offering a Live Trading Simulator.
Article Source: http://www.eArticlesOnline.com
