Where is the US economy headed?
No doubt, recovery expectations have risen over the past few months, mostly on the back of stimulus packages and proactive stance of the government. But this doesn’t seem to be a long term fix to the situation as debt is rising and soon it will build up as a mountain of worries. Everyone is aware of the situation but all efforts are being made to keep the economy running in the shorter term.
Is the Debt Problem Really Intense in US?
It’s really hard to say if the economy will collapse in 2011, but it’s almost certain that if the government continues to spend on temporary relief packages to stimulate the economy, the mountain of increasing debt will lead to the biggest financial disaster ever witnessed by mankind. At present US government, businesses nationwide and American consumers are all sailing on the same boat, which is headed for an iceberg. If you do not agree to what is being said here, then read on to know hard facts.
Will the Housing Market Recover in 2011?
Mortgage defaults are still appearing fresh in the market, keeping the housing prices near record lows. Defaults have been record high and still increasing since mid 2007. What if housing prices fail to show considerable recovery going into 2011? Well, many economists are of the view that housing market may not show any sign of improvement till the end of next year. Now, this could result in a second wave of foreclosures, which will make the cracks much wider and hopes of recovery will be shattered for long. Is Consumer Spend and Employment Situation still a Threat? Ideally, a recession is a temporary blip in economic activity, but this time around it has stayed much longer. This is evident from the employment situation, as the unemployment data is not improving despite so much quantitative and qualitative easing by the monetary authorities. Latest stimulus package has provided a support to the financial markets as investors believe that this money will help in creating jobs in the system, and as an end result consumer spend will once again pick up. But, so far things have not worked as they were expected by the Fed, and same could be the case yet again.
Are the Americans Broke?
There is no hiding from the fact that more and more American citizens are filing for personal bankruptcy. In such scenarios, how can authorities expect the demand to surface again, when people are high on debt?
America simply needs jobs, and it needs them at a much higher pace than anticipated. The recent recession, which is now officially over, may have been an indicator of an upcoming depression in the system, as it was much more than what a recession is. Now, if we again slip back to negative growth, which cannot be ruled out so early, then the economic chaos will spread its wings globally, and the world will spend a decade with a flat growth.
Investors and traders should remain prepared such financial turmoil anytime soon. Even saving up on brokerage costs, by opting for cheap online discount brokers, can help in maximizing returns in such uncertain times.
15 AprWill the US Economy Face Recession in 2011 Again?
10 FebQuickly Implement Risk Management For Personal Investing
Risk Management is an objective and rational way to identify and assess risks before making a decision that carries with it potentially devastating results. It is a very useful, and very versatile strategy that can be used in many different situations from planning a complex, multi national business venture, to deciding whether or not to use your nine iron from 120 yards out.
The stock market, and other financial markets, are believed by some to be dangerous places where only the lucky or connected can consistently make money. But the truth is, that with simple risk management techniques, you can keep your losses small, while making huge gains. In this article you’ll learn how apply these techniques to unlock the wealth potential of the stock markets.
To begin with, you’ll need a stock or investment you’re thinking of making. This can be a tip from a friend, or something you’ve discovered yourself. The first thing to do is to determine all of the possible risks, and come up with the worse case scenario. In investing, the worst case scenario is that the value of your investment goes to zero, and you lose all your money.
The second thing to do is to determine the likelihood of the worst case actually happening. This can be done by taking a look at the stocks history. Has the price been relatively stable for at least three years? Does the company have consistent sales and earnings growth? Is the stock owned by a significant number of mutual funds? These are good indications of the likelihood that it will suddenly drop to zero.
Next, it’s time to minimize the possibility of the worst case actually happening. You can’t do much to prevent any stock from dropping to zero, but you can certainly protect your investment from dropping to zero along with it. Make a decision to get out, no questions asked, if the stock dips five or ten percent below your purchase price. Stop loss orders were created exactly for this purpose.
Another strategy to protect against risk is to prepare yourself for the worst possible scenario. In case of a stock tanking to zero, this would mean investing less money. For most speculative ventures, it’s common practice to invest only what you can afford to lose. However, with proper use of a stop loss, this isn’t necessary.
By keeping to this simple strategy, you’ll minimize your losses, and watch your money grow consistently over time.
24 NovAverage Directional Index (ADX) – Can it Be Used to Trade Forex Profitably?
As technical indicators go, the ADX often gets lost in the weeds compared to the more popular MACD, RSI and Stochastics. However, if used properly the ADX can be a big help in trading the Forex profitably. The Average Directional Index was developed by Welles Wilder, a prolific researcher and writer on the financial markets. Investopedia describes the ADX as an indicator that is “used to determine when price is trending strongly”. There are three components to the ADX: the DI+ line tells us when there is a positive, upward trend prevalent in a given market; conversely the DI- line tells us when there is a negative, downward trend. The last component is the ADX line itself which tells us the strength of the trend.
I like to make the DI+ green and the DI- red..since on my charts green bars show upward moves and red bars show downward moves. The ADX is used like this: when the green (DI+) line crosses above the red (DI-) line, then a positive, upward trend is gaining dominance in the market and you can expect prices to rise. When red crosses above green, just the opposite happens, a negative/downward trend is coming into play. Now, if the ADX line is rising as well, that tells you the strength of that move is increasing. If the ADX registers a reading of 20 or below, we say there is no trend in place. A reading between 20 and 25 suggests a weak trend. When the ADX is above 25 a strong trend -up or down- is present. Remember, the ADX line doesn’t tell which way the market is moving, only the strength of the trend. Look to see whether the green or red line is on top to get the direction. That’s it in a nutshell.
There are other considerations such as which time frame is best to use…which currency works best with this, what are the optimal settings, what are the best times to trade…and more. Do you need to keep your eye on the chart all day? There are good answers to all this which I will address in subsequent articles.
05 SepAn Introduction to CFDs
What Are CFDs?
CFD (Contracts for Difference) trading is a method of investing that allows you to trade on a range of financial markets, such as indices, including the FTSE 100, Dow Jones etc., shares, forex, commodities or bonds, without owning the actual financial instruments traded in these markets.
A CFD is a financial derivative product. In equities CFD trading, it is an agreement that allows you to exchange the value differential of a share between the opening and closing time of the contract.
Going Long or Short
CFDs allow you to go long or short. Going long is a way of saying ‘buying’, while going short refers to selling a market. For example, if you believe that the underlying price of a market will rise, you can buy; if you believe prices will fall, you can sell. Going short, therefore, allows you to potentially make profit (or loss) from falling market prices.
The ability to go long or short using CFDsmakes these derivatives a flexible financial product; profits/losses can be made whether the market rises or falls.
Leverage
CFDs are a leveraged product. When you buy company shares, for example, you are required to pay the total value of the shares, plus, depending on your share trading platform, stockbrokers’ fees, commissions and stamp duty. CFDs, on the other hand, allow you to place a deposit that commands a potentially larger financial position.
Depositing a fraction of your total trade value still gives you full exposure and can result in enhanced financial gains or losses. The typical profit (or loss), after all, of your CFD trade is the total value realised once you close your CFD trade minus any broker’s commissions.
Like spread betting there is no stamp duty* on CFD trades. However because Contracts for Difference and spread betting are both leveraged forms of investment, they carry high levels of risk and it is possible to incur losses that are in excess of your initial investment.
If you are investing with Contracts for Difference or financial spread betting, you should always speculate with funds you can afford to lose; always make sure that you understand the risks involved when trading with these investment products. Like the warnings tell you, it is important to be aware that these products may not be suitable for all kinds of investor and, where you think it is necessary, obtain impartial trading guidance.
Managing Risks
Leverage can lead to both enhanced profits and losses, depending on the movement of the market and your trading decisions. Leverage is one of the main attractions of CFDs for many traders. Note though that you can limit your potential losses, before you sustain them, by using a number of risk management tools.
A commonly used risk tool is a ‘guaranteed stop loss’ order. A guaranteed stop loss order will automatically close a CFD trade once it passes a level in the underlying market that you set. Therefore if a market moves against you your trade will be closed and your losses limited.
* According to present United Kingdom and Irish tax law. This might change or differ subject to your personal situation.
18 NovWho Should Invest In The Financial Markets?
The financial market is one of the most complex markets in the world. It is quite safe to say that this market moves the world’s economy, and all countries depend on the trading outcomes of one or more assets on a daily basis. Also, the financial markets of the world cater to all. People from all walks of life can trade in the financial markets in one form or the other. Some are not even aware of it.
This apparent unawareness lies in the fact that people associate the words financial markets only with stock market trading. The stock market is only one aspect, and it shares the same shelf space as the: bond market, commodity market, derivative market, FOREX or the foreign exchange market, money market, OTC or over-the-counter market, real estate market and the spot market.
So, if you are asking if you have what it takes to trade in the financial markets, the answer is very simple yes. When you use the services of a bank, you are already an active participant to the trade. When you buy and exchange foreign currencies for dollars, then this too constitutes to being an active player in the financial market. On a more passive note, you could inadvertently become a key player to the trade when you sell your house for profit while buying a new place at the same time.
However, if you are thinking of other markets to invest in, some of the most profitable ventures now for casual and novice traders are the bond market, commodity market, derivative market, and the FOREX. In fact, there are growing numbers of subscribers utilizing the power of the Internet to do their financial trading in the aforementioned markets for them. So if you are asking again if you, the man-on-the-street (or woman, for that matter) can trade in these particular markets, the answer is still yes, but only if you have:
One: the money to invest (the lowest possible amount is about $100.) Two: you have a computer and Internet access because these are literally your tools of the trade. Three: if you understand how the market moves and how you can earn profits off investing. If you don’t, you can always hire the services of a professional broker instead.
This apparent convenience brought by the World Wide Web is quite educational for people who may otherwise never really learn the workings of the trading market without the need to enroll under a formal degree. There are also software packages that allow the novice trader to practice first-hand how to practice their dealing skills in at least one of the trading markets before they actually engage in any transactions. At the same time, professional and long term investors are making the most of the e-technology to monitor and predict market movement.
Casual and speculative traders are more than welcome in the various schemes of the financial markets. And it is true that for an extremely persevering casual trader, the potential to earn a lot of money is almost limitless. However, it should be noted here that like many business ventures, luck can only play a very small role to earning money. There is a constant need to monitor movements, update information and always forever chasing small profits in order to earn bigger profits. Also, a talent (or shall we say, skill) in knowing when risky trading will pay off can be beneficial.
Justin DeMerchant is the founder of amicharts, stock trading, and stock talk where information on stocks and investing can be found.
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