Month: November 2010

By Thomas Bainbridge

A resurgence of sovereign debt problems suddenly appears to be worrying the financial markets. Looking at the stock markets, the FTSE 100 is looking rather tired up in the 5700-5800 region.

So far, the high for 2010 occurred in April when the market hit 5840 before a concerted slump. It will have weighed on investors’ minds that the same conflux of events occurred back then to take us lower. This came in the form of sovereign debt worries, weakness in the western currencies, a surge in oil up to high $80s and so on.

We obviously aren’t expecting a repeat performance, but bulls should be reminded that the equity markets slumped 15% back then. Caution and stop losses remain worthwhile weapons in your trading armoury.

The extra caution looks valid according to a recent Tradefair report. “The diversity of results [in the FTSE] out of corporate UK continues to bemuse with Trinity Mirror showing poor advertising numbers whilst News International and DMGT surge and JJB reporting a profit warning while other retailers continue to shine” it read.

“In other sectors, Land Securities announces buoyant demand while builders and servicing companies seem to be calling in the administrators on a weekly basis.

“When the UK economy was pulling out of its nose dive, we should have expected this type of dual result but with the economic turnaround apparently well under way it is surprising, and worrying, to see such a resurgence of bad results.”

Whatever your theory on which way the markets will turn next, you should always remember that if you trade the financial markets you are likely to lose some trades. Irrespective of whether you trade through spread bets, CFDs, ETFs, or by buying traditional stocks and shares, the markets may move against you.

But where should you look if you want to trade the stock markets? What if you are only thinking about risking a few hundred Pounds, Dollars or Euros? What if you only want a small amount of exposure to the markets but that’s all? In the UK, and increasingly the international community, investors are using spread betting as one of their primary investment formats.

The one thing I always try to stress to anyone thinking about trading the markets is that nothing is certain, you are likely to lose some trades. Naturally, as with all investing, be it on stocks and shares, exchange traded funds, pensions or any other form of financial investment, there is a downside, and with spread bets you need to be careful because you can lose more than you initially invested.

However it is extremely important that, if you are considering this type of investment, you are aware that spread bets do carry a high level of risk. Before trading, please check that spread betting matches your investment objectives. Ensure you familiarise yourself with the risks. Seek independent advice where necessary.

At the same time though, you can put limits on your bets to help reduce your potential losses without impacting your upside. You can also trade with smaller stakes such as £1 per point or $1 per point.

To gain a small amount of exposure you could just trade American, German or UK stock market indices. You could, for example, speculate on whether the S&P 500, DAX 30 or FTSE 100 will go up or down.

With any of these, as we have said, you can trade £1 per point or $1 per point etc. If you speculate on the FTSE 100 to go up, with a £2 per point stake, and it goes up by 60 points then you would make 60 points x £2 per point = £120.

You are also able to trade the markets in Euros and Dollars. If you want to trade in Dollars then 60 points x $2 per point = $120.

Of course, should the market move against you, dropping by say 50 points, then with a £2 stake you would lose 50 points x £2 per point = £100.

Obviously this would not be a great start. However, with several companies like Financial Spreads you can add a Stop Loss at, let’s say, 20 points.

If you were betting on the FTSE 100 this would mean that your bet would be closed if the FTSE 100 moved against you by 20 points. Therefore, instead of losing £100, you’d only lose 20 points x £2 per point = £40. (Not all Stop Losses are guaranteed).

Of course, if you correctly forecast the direction of the market then you would still make a profit of £120 if it moved 60 points or £60 if the FTSE 100 moved 30 points.

Financial spread betting comes with a wide variety of advantages, not simply this risk management aspect.

Many wide ranging financial markets are accessible. You can speculate on thousands of markets from the very popular FTSE 100 and Dollar/Pound exchange rate, to global bonds and interest rate markets.

Also, you are not buying or selling any assets or rights; instead you simply speculate on the future value of a given market. As a result, under current UK and Irish tax law spread bets are not subject to capital gains, stamp duty or income tax (note that tax law can changes and other jurisdictions may vary).

Finally, you are able to buy or sell markets. Therefore, you can spread bet on a market to move in the direction that you think it is going to move. Spread betting does not force you to bet on a market to increase, if you think the FTSE 100 will fall you can also spread bet on it to do just that.

About the Author

A leading financial author writing from the heart of London’s Canary Wharf. Thomas Bainbridge is a respected commentator on the spread bet and CFD markets.

USD/CAD

Daily graph: http://www.real-forex.com/charts-daily/November2010/CAD_DAILY_291110.JPG

For the last three weeks, the pair is moving sideways between the resistance 1.0246 and the support 1.0075. The sideways movement is the principal trend for all the pairs in general for the last several months.

Please notice the fact that during the last session, the pair hit exactly the resistance point, and started to decrease a little after that, and finally closed below that level. It is possible that the pair would keep decreasing until it reaches the lower trend line (the support at 1.0075) as well as it could stop before.

Please pay attention to the fact that the first level for a “Take profit” order on the suggested trade is quite high. Those level are the one which may increase the value of your portfolio accordingly.

In order to catch the created opportunity to go “Short”, the identification of a decreasing configuration on 1H is required.

Potential Trade

1H scaled graph:  http://www.real-forex.com/charts-daily/November2010/CAD_1H_291110.JPG

The required configuration should appear once the 1H support at 1.0179 will be broken down by the pair. Once it will be confirmed, this is the time to enter a trade.

–        “Limit” order on “Short” position 10 pips below the mentioned support (1H), meaning: 1.0169

–        “Stop Loss” order on the last peak appeared: 1.0246

–        1^st level for a “Take Profit” order on the following support: 1.0145

NZD/USD

Daily graph: http://www.real-forex.com/charts-daily/November2010/NZD_DAILY_291110.JPG

Following the breakdown of the support on 0.7975, the pair began to decrease, several weeks ago. Actually, the pair is making its way to the support around 0.7425 after the previous breakdown of the support placed at 0.7650 USD. It seems that there is nothing on its way that can stop it.

Once the support will be reached, there are 2 possible outcomes:

1. The collapse of the support followed by a closing below that level. In this case, it would be safer waiting for a small technical correction to occur and after the previous trend will be restored, going “Short” with the trend.
2. Stop on the support, with test or without. In this case, waiting for the end of a “resting period” of at least a session and a half, to confirm the implementation of the support would minimize the risk. Then, waiting for the rebound to occur and going “Long” along with the new trend, until the closest resistance, which may be the upper level of the neutral trend.

Have a profitable week

Real-Forex staff

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About the Author

Mark Baker as one of the most dedicated and hard working independent providers of forex managed funds to individuals from low to high wealth portfolios. We offer transparent real time platforms for peace of mind. EMCFX can be your alternative source for forex managed funds. Find out more about how to minimize your losses in your portfolio and regain your wealth at http://www.emcfx.com

Waterbury Financial Strategies Inc CEO / Founder Rahim Thawer post this week “American Corporations: Are they incoherent of the Foreign Exchange Rate, Rupee Verses Dollar? ”

Recently Waterbury Financial Strategies Inc established an office in India primarily for Venture Capital & Private Equity including Advisory Services. We encountered that there is a great deal of Mergers & Acquisition activities that is taking place as well. Investment is made by foreign entities and corporations in various sectors in India from purchasing multi-billion dollar companies to simple ideas written on a plain sheet of paper.

A prevailing factor that stands out in most of these deals is simply the lack of placing a proper valuation on these ventures and failing to understand the culture! In simple terms, the foreigners, especially the American Corporations are Overpaying for these Companies and Ideas! Let’s not forget that the nation that is leading the innovation is no other then America! There is no doubt that India’s Economy is growing rapidly in certain sectors and Bangalore and Hyderabad are considered to be the center of software development. However, did we ever ask the question, who is funding these operations and at what cost?

The American Corporations have practically written a blank check to the Indians and now India’s Economy is more lucrative than ever before. If you ever happen to visit Silicon Valley you will encounter that most of the businesses are ran by no other than Indians and Asians. Not only are they dominating the Indian market but also the America as well. I am all for Globalization, however there has to be a mutual benefit for both the parties involved. Americans have failed to learn the power of negotiating; perhaps this is the very reason why we hate car salesmen so much. If a 10 year old kid in India can negotiate his way through a market buying fruits or running a small enterprises, running a tea shop why are we failing at it? Have we outsourced negotiating tools? Perhaps we should hire an Indian to come to America and help us deal with the car salesman?

My Fellow Americans, it is time we wake up and re-educated ourselves and learn other cultures and languages. If I can buy an Indian company for $50M why would I want to pay them $75M or $100M? This is the cultural difference we need to study, so stop reading about different kinds of spices used in saags and chapati. Constrain them in a position they cannot refuse your proposal. After all, $50M in many of these developing countries is a lot of money.

My Thoughts: Next time when you go to a grocery store, pay very close attention to any foreign nationals, whether they are from India or Korea and learn a thing or two how to get what you want at the price you set and not at the price that is set by the stores. One more thing, value of a purchase is perceived in dollars and cents and not percentage!

Happy Negotiating!

Rahim Thawer / CEO of Waterbury Financial Strategies Inc http://www.waterburyfs.com

About the Author

CEO / Founder of Waterbury Financial Strategies Inc.

Waterbury Financial Strategies Inc CEO / Founder Rahim Thawer post this week: The US Banks: Carry Trade?

A comparison of the investment strategies amongst the major banks versus smaller clearly indicates a dichotomy in various lending models. The US Economy is still in a financial turbulence and it may take a number of years for certain sectors to recover as the banks are not lending due to various internal factors. Lack of liquidity in the marketplace has simply incapacitated the national economy and the tremors are felt throughout various different industries and sectors. The question most entrepreneurs are asking, can our savings and cash flow sustain our current operations and how long will uncertainty last?

The major US Banks are taking advantage of the very low interest rates, near zero and using to capitalize their investment and portfolios by purchase of stocks, bonds, other securities rather than lending those funds to the smaller banks. The marketplace is very sensitive to the data and press releases and can elicit in adjustments in the lending arena. The rules of lending have clearly changed and free market maybe a term that barely exists anymore. A number of smaller banks are tied up and restricted to so much that they can do as the new underwriting guidelines are more regulated.

Lack of lending into smaller communities will eventually lead to closing of number of businesses and add burden to the tax payers and create a domino effect resulting into closing of other businesses as well. Looking at the fundamental swell of the lending arena; there was relative little the banks can do which results into closing of many financial institutions and this may very well be a start. We have already seen a wave of residential default and just starting to see the commercial side.

My Thoughts: cut all your expenses and renegotiate with all the vendors and lenders. It is critical that the small businesses survive as they employ most of the citizens of this country. Diversify your risk by making sounds investments for the future, look far on a global scale. Think of new concepts and get creative to build your business.

Rahim Thawer / CEO of Waterbury Financial Strategies Inc http://www.waterburyfs.com

About the Author

CEO & Founder of Waterbury Financial Strategies Inc

By James McKee

The best Forex currency exchange traders have a lot in common with the best poker players, they set things such as fear and un-certainty aside in order to achieve more wins than losses. Losing is just as much a part of being a Forex trader as it is being a poker player and while winning more than losing is the key to success it is not always possible. Forex trading like professional poker is a lifetime commitment and each will have its up and downs over a lifetime, not just in the short term. Having the proper mindset however will enable you to maintain a winning strategy and achieve success.

Patience, this is a HUGE part of both poker and Forex, without patience you could either go all in on a busted hand or hop onto a trade too late or too early. Patience and careful analysis of the market will be invaluable to overall success, do not second guess yourself even when a trade you decided not to go would have made you money. Sometimes the best strategy is the one that keeps you out of “iffy” situations, even if they turn out to be successful.

Playing in free tournaments in poker rooms online is a lot like using a demo account for Forex (except that you can possibly make money in a freeroll). Your reward with regard to a demo account is infinitely more valuable than money though, your reward is the ability to safely test trading systems to see whether or not they are profitable. Such knowledge can earn you a living for the rest of your life so long as you apply due diligence in developing your system and making it work for you. Reading books and the advice of others can be valuable in some situations however everyone is different and so you should combine elements of other strategies to make your own.

About the Author

Author is a Forex trader and financial analyst residing in Denver, Colorado. To stay up to date on all the latest developments in the financial world and beyond be sure to check out the forex exchange rates regularly.

By Owen Trimball

This option trading strategy is pretty much the exact reverse of the Long Iron Butterfly. In contrast to the latter, where you are anticipating the underlying stock to remain within a trading range as a prerequisite to implementing the strategy, a Short Iron Butterfly can be considered when you believe a price breakout is imminent.

Do NOT use Short Iron Butterflies for range-trading stocks!

Another important consideration is, that this approach is an alternative to a Straddle trade – the only difference being that theoretically a Straddle has unlimited profit potential whereas the Short Iron Butterfly’s profit is limited. However, the Short Iron Butterfly is usually cheaper to purchase, due to the ‘sold’ out-of-the-money positions offsetting the cost.

How to Set Up the Position

The basic idea is that you are combining two debit spreads – one with an upward aspect and comprising call options, the other facing downwards and using put options.

You BUY the same number of ‘at the money’ (ATM) call and put options – in the same way you would for a Straddle.

You also SELL the same amount of call and put options, only further ‘out of the money’ (OTM) on either side of the current market price of the underlying stock – calls above, puts below.

As a result of the above, you will incur a net debit to your account, since ATM options are more expensive than OTM options.

Risk and Reward Profile

As with most options positions, the Short Iron Butterfly has limited risk. In this case, your maximum risk is limited to the net debit, ie. the cost of the position.

The potential profit is also limited to the difference between the strike prices on one side of the trade at expiry date, less the net debit incurred on entering the position.

You should always construct a risk-to-reward table before entering the trade. If the potential maximum profit at expiry date is at least 200 percent and you feel confident the stock is about to make a sharp move in either direction sometime soon, then the Short Iron Butterfly may be an attractive alternative to the Straddle.

Exit Strategies

If the underlying stock falls below the lowest strike price (puts) or rises above the highest strike price (calls) you will be in the profit zone. If you are confident the stock will not rebound before expiry date, you can consider closing out one side of the trade and letting the other side expire worthless. This will minimize your brokerage costs on exit.

If the stock remains within the upper and lower breakeven points, you are facing a potential loss. The breakeven points at expiry will be the highest strike price minus the net debit or lowest strike price plus the net debit on entry. Because this is a strategy where you are relying on one of the ATM options to make sufficient profit to cover your net initial debit, plus some – and this looks unlikely – you should close out your positions and realize the maximum loss previously mentioned.

Conclusion

In order to make a profit from this strategy, the underlying stock needs to make a significant move, preferably earlier than later. The upside of the deal is that will be cheaper to enter than the straddle, but you need to take extra brokerage costs into account and decide whether there is an economy of scale here. The further away you set your outer strike prices, the more likely you are to realize a profit in the event of an early move. But if the premium you receive from your OTM sold options hardly covers the extra brokerage fees, you’re better off sticking with a Straddle or Strangle.

About the Author

Owen has traded options for many years and writes for “Options Trading Mastery” – a site about powerful Option Trading Strategies including the Short Iron Butterfly.

Today the Renminbi broke the 7.5 barrier against the dollar. Given that the Canadian dollar recently reached parity with its southern counterpart, I started to wonder what a one-to-one dollar-Yuan ratio would mean for prices here. The more that I thought about it, the more it because clear that there are a lot of things that would still be reasonably priced.

The obvious one, of course, is beer from the corner store. I pay 2 kuai, and 2 dollars for a big boy isn’t that unreasonable. Buses are typically 1 yuan, and that would be fair in almost any currency. Other things that would be reasonably priced, were they priced in dollars include bicycles (200), fried noodles (5), a very modest 2-bedroom Beijing apartment (2000), and knockoff DVDs (7).

Think about that for a minute: if you increased some prices by 750%, they still wouldn’t be outrageous. However, this argument hides the obvious fact that most things foreigners and rich Chinese buy are actually priced similarly to products abroad in real terms.Cocktails in a bar can easily run 60 RMB. Brunch would be about 100, and even a moderately upscale restaurant in Shanghai will cost you about 150. Unbelievably, movie tickets in China are often about 10 dollars US, an outrageous sum.

What does all this mean? The clear answer seems to be that Chinese live in a two completely separate worlds. It is like the John Edwards’ two John Edwards’ campaign themes have merged (‘China is evil’ and ‘there are two Americas’). Prices vary so widely that it is almost impossible to imagine that they could coexist. And it is not even by geographic location. Looking west from my apartment are 2-bedrooms going for the rock-bottom price of 1,500 RMB a month. To the north there is a complex that charges only slightly less than what you might pay in Brooklyn.

Incomes and lifestyles are so differentiated that people self-sort themselves. The reason that apartments next to one another can charge such different rates is that people living in the expensive ones would never be willing to drop their living standards far enough to save the money . The same is true for restaurants, where the cheapest are also often the shadiest.

Beyond the income disparity is the idea among Chinese that if you have money, everyone should know. Why would you live in a shabby building for a few years if you are making good money? People might think that you are unsuccessful. It is not enough to have the money, it is important to flash it as well. So, were parity to hit, only the richest foreigners would be able to keep up their lifestyles.

Of course, as the Renminbi appreciates, for most Chinese the impact is more subtle than it is for foreigners. Most Chinese do not earn their money in dollars, or Euros, and few go abroad even today (although many more than in the past). Clearly for exporters a rising Yuan is not a good thing, but for most of the population it does mean that foreign goods are cheaper.As for Chinese goods, as long as inflation remains in check, consumers could care less what the dollar equivalent is.

For the foreigners, however, a one-to-one ratio would be a burden indeed. After all, who would want to spend 60 dollars on a cocktail? It would be a brilliant way to reduce the value of the American debt the Chinese government holds, however.

About the Author

This article was written for expats living in China at Chinaexpat.com. China Expat was founded by Chris Devonshire-Ellis.

Chris Devonshire-Ellis also founded 2point6billion.com.

Waterbury Financial Strategies Inc CEO / Founder Rahim Thawer post this week “US Recession: Do we have a Lifeline?”

Americans have always been in the front lines battling and fighting other economies’ challenges by providing loan assistant programs to foreign aid to even outsourcing of American jobs. Well, outsourcing jobs can be also looked at as adding to the American corporation bottom line, but at the end of the day, we contributed heavily in providing assistance in times of need. Are we going to see that gesture reciprocated from these countries? Obviously, I am not asking for them to contribute on the monetary aspect but rather on the trade side.

I don’t expect the developing countries with limited resources to play a role in this arena but countries like China and India where the economies are not necessarily parallel with the US Economy but rather diverse in some aspects. I remember when India had so many graduates like doctors and engineers on the streets polishing shoes and running some business to barely put food on the table. Today, a number of American jobs have been outsourced to Indians from IT, Engineering to even medical field. These countries are not only taking over US jobs but also sending their professionals over to the US to create their presence here as well.

It is time we re-think all the foreign trade agreements before one of these countries surpasses our economy and puts us in the backseat. This battle can very well be a one man battle but collectively we form parallel agreement and have similar mindset to tackle this issue. If we continue on the current path, I am sorry to say but it is a path to devastation. We are already seeing failures at all levels of organizations including the government. We need to adapt to new ways of thinking and also revisit our old traditions and heritage.

The US Government is running out of money and if they are not careful we will be headed to another recession even before we come out of this one. There is no country out there that is going to keep lending us money at such a low rate whereas they can invest the same money in other countries and get a return of 500%, granted it is a risky investment but the returns are stunning. As citizens of this amazing nation, we need to take it upon ourselves to create lifelines in our everyday dealings and find creative ways to generate growth. If you are a small company operating from a remote location, go online and explore options to export your merchandise on the global market. If you are a consultant seeking a job in the US, think again and look for opportunities abroad. If you are an intern seeking a job, go work at a firm for free even if you have to go fetch coffee all day. Be productive, think outside of the box!

My Thoughts: The only Lifeline America has is its people and freedom to practice Capitalism. If you have fear of failing then you have already failed. Do not fear and go for it. Even if you fail, so what get up and try again and again till you reach your goals. I will not wish you luck, because you don’t need it, you have the spirit of capitalism and entrepreneurship in you, so go out there and “Make it Happen.”

Rahim Thawer / CEO of Waterbury Financial Strategies Inc http://www.waterburyfs.com

About the Author

CEo & Founder of Waterbury Financial Strategies Inc.

By James McKee

Many who fear the collapse of their currency have begun to buy gold since it is not vulnerable to inflation. The increased purchase of gold has caused a slight scarcity in the supply that has caused a rise in the price. The price of gold also rises in correlation with the devaluation of currency and so we have noticed a surge in the price of gold due to a drop in the value of currency. This type of increase in value makes gold very appealing to many people since it is “inflation proof” and rises and falls with the value of the dollar.

Watching the value of gold against the value of a given currency will give you insight with regard to the direction it will take on the forex currency exchange. The fact that gold has risen so sharply against the US dollar is a signal that it is losing significant value due to recent quantitative easings by the Federal Reserve Bank. Since the US dollar and the value of gold are both rising in unison there is a good chance that the US dollar will fall and the value of gold will continue to rise.

Betting against the dollar with the AUD for instance would be a great idea since Australian currency is directly linked to the value of gold since it is third largest producer of gold in the world. The Bank of Japan’s measures have been quite ineffective lately in devaluing the Japanese Yen and a correction is in the works. The JPY|USD is a great pair to watch for the near future since it will be a highly profitable differential in the near future. You should of course continue to watch it closely and use an investment of no longer than a couple hours, this is not an intraday trade.

About the Author

Author is a Forex trader and financial analyst residing in Denver, Colorado. To stay up to date on all the latest developments in the financial world and beyond be sure to check out the forex exchange rates regularly.