Day Trading 101: Options vs. Futures

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Some novice investors toss around the terms options and futures like they are interchangeable, when in fact, they are actually two very different things. Both involve the purchase or sale of a future commodity such as stocks or bonds, but the conditions of the sale are what set them apart. Options and futures are also both ways to hedge your investments, which means they reduce your financial risk if the market goes sour.

Futures

In the stock market, a futures contract is an agreement between two parties to buy or sell a set amount of stocks by a predetermined date. However, where this gets tricky, is that investors can also sell their futures contract. Investors are typically in the long position because they agree to buy the stocks. Businesses are in the short position because they agree to sell the stock according to the terms of the contract. However, investors can go short if they sell the futures contract. Typically investors pay an upfront 20% investment called a margin. During the term of the contract though, they never actually own the stocks; they just have the rights to purchase the stocks at a later date. For example, say you agree to buy 200 shares of Apple stock at $100 per share by June 1st. Your futures contract is worth $20,000 at the time you enter the agreement. If the stock goes up to $125, you can sell the contract early and make a considerable profit. If the value of the stock goes down, you will lose more than your initial investment. Futures are considered a high-risk investment. Once you enter into a futures contract you are obligated to buy or sell that stock upon expiration unless you sell the futures contract to someone else first.

Options

The biggest difference between futures and options is that with an option contract you are not obligated to purchase the commodity when the contract comes to term. However, you do have to pay an upfront premium fee. If you choose not to purchase the stocks then you forfeit the premium fee. Returning to the Apple example, you can purchase an options contract to buy 200 shares of stock at $100 each for $2,000. If for some reason the stock plummets to $100 per share, you can forfeit your option and you only lose the premium fee of $2,000 instead paying $20,000 for stock that is only worth $10,000. Because investors are not obligated to fulfill options contracts as they were with futures contracts, options are considered a much lower-risk form of investment.

Any type of speculative investment comes with risk. Although options are safer than futures, both should be approached conservatively if you are a novice investor. Most investors that buy futures and options have years of experience with the stock market and top-notch financial advisors. However, if you are interested in trading stocks and futures than it is a good idea to speaking with a reputable financial advisor before making any investments.

About the Author: Natisha Antill is a finance student who is seriously considering entering the world of day trading when she has more time to focus on a plan. She enjoys reading Timothy Sykes reviews and studying the procedures used by today’s most successful traders.

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Barron’s Magazine Review – Helping You with Investments

If you work in the financial or investment sectors then you are probably already aware of the Barron’s magazine.  It is a weekly journal that includes two sections which I will go on to describe below.  This Barron’s Magazine Review is intended to be completely independent – I have been subscribed to this magazine for six months now so think I am in a good position to give an un-biased overview of what you can expect should you decide to subscribe to Barron’s Magazine.

Barron’s Magazine Review – What’s Included?

The first section of Barron’s includes useful editorial and content such as the latest news, financial stories, guest interviews, and business of trading analysis.  There are articles included from a very wide selection of subject matter.  For example, want to know about stocks, bonds, and the global economy?  Then section one will definitely interest you.  There is also content related to all the global markets, commodities, and share options.

What I have found most useful though in the first section is the columns related to stocks. These are accompanied by fund manager interviews with special detailed analysis and articles relating to specific featured industries and companies.

Moving on to section two (which is a pull-out insert inside the middle of the magazine) which is more focused on niche areas – for example commodities and stock options.  Personally I do not think that these are covered as comprehensively as they could be as the stock tables that are listed can be seen listed in real-time on the web (or even on Barrons.com).  However, I do like the fact that some of the less popular economic indicators are listed, which is sometimes hard to find online.

The Benefits to a Barron’s Magazine Subscription

Barron’s Magazine lists stock that could work for you – but as with any stock advice it makes no sense for you to simply rush out and buy it just because you have seen it recommended in Barron’s.  This is an investment publication that is intended to offer you insight on research and you should consider it simply as a guide for inspiration.

A Barron’s Magazine subscription should be your help in educating you on the issues that related to the different companies and industries that you are thinking about investing in rather than be viewed as the be all and end all of financial stock trading advice.  That’s how I use Barron’s… if I see something in there that looks promising then I will get online and start doing my own additional research so that any decisions I make are fully investigated, ratified, and I understand the inherent purchase risks.

Your job as a financial investor is to take the information that you see in the Barron’s Magazine and then take their analysis and combine it with all the other detail and information that you can find in order to make the best decisions for you and your portfolio.

Barron’s Magazine Review – Conclusion

So to conclude, I would recommend Barron’s Magazine to any person, whether professional or a bedroom trader to subscribe to the magazine.  There is plenty of information inside to help inform and keep you abreast on current developments.  You should view it as another weapon in your financial analysis arsenal – as the picks and stock recommendations in there are typically very good.  However, it’s your money that you are playing with so don’t just take the advice for granted… act with your own set of due diligence methods.  If you do this then you should find that the Barron’s Magazine is a very useful asset for years to come when it comes to trading in stocks and shares.

Author Credit:

James Ashby regular writes guest columns for some of the leading financial websites plus some of the many different Wall Street print-based publications.  If you want to know more about the Barron’s offering then please read James’ full post on this subject on the Wall Street Subscriptions’ website.  You can read the full review on this Barron’s Magazine Review page.

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Investing in Real Estate or Commodities?

Play The Field

The world economy has continued in recent months to be massively unpredictable, from sure signs of recovery to those also indicating impending financial doom, global markets continue to be inconsistent and as such can be a dangerous place for experienced investors, let alone those new to the game.

By placing a large amount of your capital into the private equity marketplace, you can take advantage of a wealth of experience which means you will stand a far greater chance of achieving a healthy, equitable return following the conclusion of any investment period.

Two of the most popular areas which are invested in through the private equity marketplace are real estate and commodities.

Real Estate Investment

It is common knowledge that the best time to invest is when the market is at its lowest, as this is the time when huge returns are more likely as the market begins to grow. Real estate can however be a volatile animal due to fluctuations in the market as well as the lengthy investment periods involved. This is offset however by the possible rewards on offer for those who play the “long game” in terms of real estate investment, as well as the wide range of possibilities which are on offer to those involved with real estate investing.

Capital through the private equity marketplace is placed into a range of businesses who will look to take advantage of significant markets, be that renting, sales or other commercial opportunities. Each area has its pros and cons, be sure to explore these and be satisfied that your needs as an investor will be met, as well as understanding the short and long term potential of such investments.

The Commodities Markets

Even more unpredictable are the prospects when you invest in commodities. Such activity has led to the huge increase in popularity of platforms such as spread betting as an alternative to the traditional stocks and shares trading market. Investing in commodities is worthwhile if you are aware that there is likely to be a growing trend towards a certain commodity, ideally where demand will be far higher than supply to enable you to make the most of any investment.

One key consideration with commodities investment is natural occurrences, such as the weather. For example, a flood in a prolific diamond mine may considerably diminish the ability of distributors to get products to the market. While this could work in favour in terms of the supply and demand balance, it is more likely to lead to massively reduced confidence in the product and a substantial loss.

Commodities are a huge investment opportunity, yielding high returns and a significant part of the private equity marketplace.

Dealmarket is an online private equity marketplace specialising in managing and finding investors for a number of companies.

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Finding Out More Info About The Forex System And Its Benefits

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Nowadays, a lot of people want to learn about the Forex system because they heard that trading Forex is more profitable than trading stock. Yes, indeed, the forex system is ideal for those who have free time and want to earn money from trading like stock but the risk is less and the profit is more.

At this point, if you have not learned Forex trading, you will say that how can it be profitable since for every trade, you only gain about 0.1 percent of the currency you are trading? It is state-of-art that the Forex trading is not about one trade day but about zillion of trades every hour. As the currency keeps changing overtime, trading Forex if more difficult than trading normal stock.

If you are going to trade, you should learn Forex trading first to know the basic idea of trading and how to trade profitably. After taking a course in learning how to trade, you should spend some months practicing trading Forex with virtual market first to get the idea as well as information and some experience about Forex trading. However, beside learn Forex trading, you have to pay some attention to the changes of the market, too. As the currency keeps changing, it is critical that you have the latest information on the currency rate so that you can have the best trade which brings the best profit. If you trade without reading the news, you are gambling.

Another tip for those who are going to trade Forex is that you should spread out your investment into many smaller pieces which you put on varies of currencies, not on only one currency. You also need to look at the board all the time to see if there is any change on the market as well as any critical change which affects the currency rate.

Another thing you need to learn before trading Forex is that you have to know how to remain calm as well as being patient every time you lost a trade. No one likes losing money, but for both trading stock and trading Forex, you have to know a very important thing “losing and gaining with Stock or Forex system is daily story, no big deal if you can gain a grand in one day and lose another grand in just an hour”.

Finally, trading Forex is far better than trading stock, but you have to analyze the market carefully to trade with less risk.

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Buying on Fundamentals

SetForget Pattern Profit

A very successful investor was once asked “how do you make money in the stock market?” Buying on fundamentals. “Simple”, he said. “Buy low and sell high”.

1903 stock certificate of the Baltimore and Oh...
1903 stock certificate of the Baltimore and Ohio Railroad (Photo credit: Wikipedia)

Great advice, if only it were that simple. We all know that in order to make a profit you need to sell your stock at a higher price than you paid for it. But to do that, you have to pick the right stock and get the timing right.

This is where things get a little more difficult. How do you go about picking the right stock? And how do you know when is the right time to buy and when you should sell and close out your position?

One strategy that many successful investors follow is looking for stocks that are particularly undervalued or cheap, relative to the rest of the market. There could be a number of reasons why a company’s shares are cheap. The key thing is to find cheap stocks that are undervalued relative to what they should be be priced at.

If you can find a company with a strong balance sheet, with a good cash position, healthy revenues and decent profits, but with a share price that seems low, then you’ve probably found just such an undervalued stock, in which case it is probably worth investing in.

Ask yourself the question why is the stock priced low. If it’s for some inconsequential reason like a recent management change, a particularly strong competitor, the company not having the latest “hot product” or the sector itself being unfashionable for example, then you could be on to a winner. Whereas if the problems go deeper, such as heavy falls in revenues, profits turning to losses, significant debts, etc, then you are best to steer clear.

If you stick with the fundamentals and buy shares in healthy companies that just happen to be a little under priced right now, you will find that over time things will balance themselves out, the company’s price will get back in line with the market and your portfolio will benefit as a result.

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