Browsing articles from "January, 2014"

Friday Links for your Lunchtime Reading

Jan 31, 2014   //   by Profitly   //   Profitly  //  Comments Off on Friday Links for your Lunchtime Reading

globe

Emerging markets pointing to another bleak day for stocks (WSJ)

Amazon didn’t have as happy of a holiday season as analysts expected (WSJ)

Preview of this year’s super bowl ads (MarketWatch)

You probably saw a raise if you were the CEO of a large bank last year (Bloomberg)

The SEC is now fining people over what they’re tweeting (WSJ)

A shift to mobile doesn’t seem to be hurting Google (WSJ)

House of Cards coming back in just a couple of weeks, see what the star has to say (WSJ)

Stocks or Commodities in 2014

Jan 29, 2014   //   by Profitly   //   Market, News, Profitly  //  Comments Off on Stocks or Commodities in 2014

ticks

There are several ways for you to invest your money. There’s stocks, bonds, commodities, forex, cash, land, etc. Focusing on two of the most commonly traded choices, commodities and stocks, which one should you invest in in 2014?

Let’s get some definitions out of the way first (both from Investopedia).

Commodity: A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often used as inputs in the production of other goods or services. The quality of a given commodity may differ slightly, but it is essentially uniform across producers. When they are traded on an exchange, commodities must also meet specified minimum standards, also known as a basis grade. The basic idea is that there is little differentiation between a commodity coming from one producer and the same commodity from another producer – a barrel of oil is basically the same product, regardless of the producer. Compare this to, say, electronics, where the quality and features of a given product will be completely different depending on the producer. Some traditional examples of commodities include grains, gold, beef, oil and natural gas. The sale and purchase of commodities is usually carried out through futures contracts on exchanges that standardize the quantity and minimum quality of the commodity being traded. For example, the Chicago Board of Trade stipulates that one wheat contract is for 5,000 bushels and also states what grades of wheat can be used to satisfy the contract.

Stocks: A type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings. There are two main types of stock: common and preferred. Common stock usually entitles the owner to vote at shareholders’ meetings and to receive dividends. Preferred stock generally does not have voting rights, but has a higher claim on assets and earnings than the common shares. A holder of stock has a claim to a part of the corporation’s assets and earnings. In other words, a shareholder is an owner of a company. Ownership is determined by the number of shares a person owns relative to the number of outstanding shares. For example, if a company has 1,000 shares of stock outstanding and one person owns 100 shares, that person would own and have claim to 10% of the company’s assets.

So now that we’re starting a new year, many are asking themselves what asset classes are going to be the best performers and the places that you want to put your money.

Stocks absolutely killed it in 2013, up around 30%. So is 2014 going to enjoy a similar run? Or will we see smaller returns or even a pullback? This is making people look at commodities, as they didn’t have great returns in 2013.

The Dow Jones UBS Commodity Index fell about 9% in 2013. Some believe this is more reason to believe that commodities will be the better choice this year, as they rarely have several years of losses in a row.

One of the big things to consider, however, is how familiar you are with commodities. You’ll want to learn to trade professionally if you are going to be successful trading any sort of security. Many people try to trade them, or companies that focus on them, without knowing much about the sector. If you do want to invest in commodities, though, just make sure you take time to learn about them just as you would want to learn about companies you were investing in. For commodities, you want to follow factors such as supply, demand and currency exchanges, and central bank monetary policy. If you’re trading corn, for example, you’ll want to watch crop reports out of the USDA (United States Department of Agriculture). If they say we have a stronger crop with more yield than expected, and demand is held equal, then the price will fall. If they say that a drought has caused a smaller crop and we have stronger demand out of China as well, then the price will rise. (Supply and Demand 101).

Forget about corn and other commodities though, gold has been one of the most talked about commodities since the financial crisis. Gold gets the most general discussion and it is widely regarded as a hedge against stocks, aka the reason it has been talked about so much since stocks crashed during the financial crisis. But it’s no secret that the precious metal took a beating in 2013, losing around 30%, the largest annual loss in roughly 30 years.

But just because you flipped a coin and it landed on heads, doesn’t mean it’s bound to land on tails the next time. So, if stocks are your cup of tea, which sector would be your best bet this year? Well, small-cap stocks, defined as stocks of companies with between $1 billion and $2 billion in market capitalization, outperformed large-cap stocks last year. Many professionals are also arguing that international stocks are starting to pick up as well.

So, as no one can say for sure where the financial markets are going in 2014, the most crucial factor is arguably your comfort level when it comes to risk and knowledge of types of investments. Many investment experts suggest that commodities represent a bigger inherent risk than the equity markets by the very nature of the volatility of these vehicles. But if you’re comfortable rolling the dice somewhat, and you have time to learn more about trading them, then you might want to take a closer look at commodities for your portfolio.

Monday Morning Links – Bank of America non-shocking self-serving

Jan 27, 2014   //   by Profitly   //   Market, News  //  Comments Off on Monday Morning Links – Bank of America non-shocking self-serving

please one person

Putting ourselves before our clients; how Bank of America does business. (CNBC; Reuters) Shocker…

An ad for an ad for an ad for…How companies are promoting their Super Bowl ads (WSJ)

Tumult in emerging markets has yet to send money into the ‘safety’ of U.S. stocks (WSJ)

P&G blames earnings slump on “No shave November” (Yahoo)

Hyperinflation? Try worrying about too-low of inflation. Yellen’s first big challenge. (Bloomberg)

The nice guy always finishes last. Pope releases peace doves, which are immediately attacked by meaner birds. (Mediaite)

 

Friday Morning Links – Icahn vs eBay

Jan 24, 2014   //   by Profitly   //   Profitly  //  Comments Off on Friday Morning Links – Icahn vs eBay

icahn

Carl Icahn takes on another tech giant: eBay (WSJ)

The run in small caps, gold and Starbucks may be coming to an end (MarketWatch)

This guy says we could have a 50% crash in the market. His reasons here: (MarketWatch)

Things are looking pretty bleak for developing countries as investors flee (WSJ)

Apple taking a play from Samsung and developing two new phones with larger screens (WSJ)

A $13 billion dollar settlement isn’t phasing Jamie Dimon as he sees a pay hike this year (Reuters)

A comeback in mergers and acquisitions could jam the flow of junk bonds (WSJ)

 

How to choose a Forex broker

Jan 22, 2014   //   by Profitly   //   Profitly  //  Comments Off on How to choose a Forex broker

forexbroker

 

 

Tim has a great page with information on how to choose which stock broker is right for you. But how do you go about choosing a Forex broker?

Well, I found a fantastic post on fxstreet.com that will give you a lot of helpful advice, so I figured I’d start with that and go from there. Just like learning how to trade is important if you want to become profitable, having the right broker can make a huge difference as well.

Before you start looking for a broker, make a list of the things that are important to you, in order of their importance. The fxstreet post gives these attributes:

  • Is the broker or dealer regulated? If so, in which country is it regulated?
  • How reliable is the broker’s trading platform?
  • Is the company a broker or a dealer?
  • Customer support
  • Costs: Fee And Commission Structures
  • Account Types
  • Is the broker offering any added-value services?
  • Leverage and margin call policies

So let’s start from the top and work our way through that list.

1. Is the broker or dealer regulated? If so, in which country is it regulated?

Not all countries regulate the same way, nor do they have the same regulatory environment and requirements when it comes to financial registration. Therefore, it is important for any investor/trader to choose a foreign exchange broker that is based in a country where their activities are monitored by a regulatory agency. It is also important to know if the broker or dealer is regulated in an on- or off-shore country, as the latter can be more liberal with registration requirements.

Countries with dedicated regulatory agencies include:

  • USA
  • UK
  • Eurozone
  • Japan
  • Australia
  • Switzerland

2. How reliable is the broker’s trading platform?

This is huge for people like Tim that trade a lot. It is important to make sure that the trading platform does not crash or freeze often, especially during times of global economic news or events, when traders needs stability. The reliability of a platform should be more of a concern than its look and feel.

An aggressive trader, or one who likes to make large, frequent trades, will always have to look for a stable platform that never or very rarely crashes (aka Tim). On the other hand, a passive and conservative trader who does not watch the market round-the-clock could be more flexible.

3. Is the company a broker or a dealer?

Understanding the nature of a broker versus a dealer is important since there are currently a few different types of companies to work with for over-the-counter forex trading.

Dealing with a broker.

A broker acts as a conduit between a customer and a market maker/dealer. This is performed by allowing customer’s orders to be processed by computer systems without manual intervention by a dealing desk (hence the label “Non Dealing Desk”). The technology by which the broker sends the orders to another party to be executed by the dealing desk of a market maker, is called Straight Through Processing (STP). The spreads that the customer receives are dependent on the market maker or dealer that the broker routes the customer’s transactions through, and either a fixed or dynamic system can be used. Brokers generally charge fees for this service and/or are compensated by the market maker for the transactions that they route to the market maker’s dealing desk.

Dealing with a market maker AKA “Dealer”

Each market maker has a “dealing desk,” which is the traditional method that most banks and financial institutions use. Market makers provide two-way pricing to customers throughout the day. These prices sometimes are quoted on a “fixed” basis, meaning that they do not move throughout the day, while other firms use a dynamic spread system, which means the prices change as the liquidity in certain pairs change. The market maker interacts with other market makers banks to manage their global FX positions/risk. Each market maker offers a slightly different price in a particular currency pair based on their global FX book. Banks, investments banks, broker/dealers, and FCMs make up the majority of this category. Market makers are compensated by their ability to manage their global FX risk. This may include spread revenue, netting revenue, and revenue on swaps and conversions of residual profits or losses.

ECN brokerage model.

In OTC forex, there is currently a modified broker method labeled “ECN.” This is not to be confused with the ECN term used in equities; they are different models altogether. The concept in OTC FX is very similar to point b above, except for the fact that the ECN acts as a broker to a variety of market makers or dealing desks. Each dealer sends a price to the ECN as well as a particular amount of volume that a quote is “good” for, and then the ECN distributes that price to the customer. The ECN is not responsible for execution, only the transmission of the order to the dealing desk from which the price was taken. In this system, spreads are determined by the difference between the best bid and the best offer at a particular point in time on the ECN. In this model, the ECN is compensated by fees charged to the customer plus a “kick-back” or “rebate” from the dealing desk based on the amount of volume or order flow that it is given from the ECN.

It is important to point out that an ECN usually shows the volume available for trading each bid and offer, so the trader knows what maximum trade can be placed. ECN volume is only a reflection of what is available on any one ECN, not in the overall market. The market maker still sets its volume based on its comfort with its liquidity at any one point in time. The market maker’s responsibility is to provide liquidity under all conditions to its customers.

4. Customer support

This is one of Tim’s biggest complaints with Interactive Brokers. One of the most important thing you should check in a broker is the support service. Forex is a 24-hour market, so ideally, the broker you choose should offer support at any time.

While trading you can run into technical problems. Therefore try to anticipate those critical situations and simulate those questions and requests to your broker. You can do this while experimenting on a demo account.

5. Costs: Fee And Commission Structures

The Forex market, unlike other exchange driven markets, has a unique feature that many market makers use to entice traders to trade: they promise no exchange fees or regulatory fees, no data fees. Basically, there are three commission structures used by Forex brokers:

  • fixed spread
  • variable spread
  • commission charge based on a percentage of the spread

You may think that the fixed spread is the right choice, because then you know exactly what to expect. On the other hand, you might think you are getting a good deal paying a variable but smaller spread. You need to calculate the impact of all possible fee structures on your trading model to know which one is more favorable to you.

Some Forex brokers don’t charge a commission, so the spread is how they make money. The lower the number of pips required per trade by the broker is, the greater the hypothetical profit that the trader makes is. Comparing pip spreads of half dozen brokers will reveal different transaction costs.

In the case of a broker who offers a variable spread, you can expect a spread that will, at times, be as low as 1 pip or as high as 7 pips on the most major pairs, depending on the level of market volatility. While market makers provide two-way pricing to customers throughout the day, these prices can be quoted on a fixed basis, meaning that they do not move throughout the day. But they can also use a dynamic spread system, which means the prices change as the liquidity in certain pairs change.

While market makers provide two-way pricing to customers throughout the day, these prices can be quoted on a fixed basis, meaning that they do not move throughout the day. But they can also use a dynamic spread system, which means the prices change as the liquidity in certain pairs change.

A lack of liquidity in the markets or very volatile market conditions can force the broker to apply a slippage on the pricing. Slippage occurs when your trade is executed away from the price you were offered, or when you end up paying more pips than the average spread. This is perhaps a cost that you don’t want to bear if you are trading very short term or if you trade the news.

Other brokers, like ECN brokers, may also charge a small commission, usually in the order of two-tenths of one pip. Whether you should pay a small commission depends on what else the broker is offering. For example, the broker may pass your orders on to a large market makers conglomerate. You might choose a broker with such an arrangement, if you look for very tight spreads only larger investors can otherwise get.

6. Account Types

Many brokers offer two or more types of accounts. These can be very small mini-accounts and even smaller micro-accounts, or standard accounts, depending on the lots traded. A lot consisting of 100,000 units is called a standard lot; a lot consisting of 10,000 units is called a mini lot; and a lot consisting of 1,000 units is called a micro lot.

The micro and mini-accounts allow you to trade with a very low minimum of capital, while the standard accounts often require a higher minimum initial capital, varying from broker to broker.

7. Is the broker offering any added-value services?

Easy access to real-time charts, news and economic data is a must for any trader. However, a trader must think of these and any other added-value service as part of the broker’s package rather than as the most important feature on which to base a decision.

This is a point a trader of any nature should address correctly to make sure the firm complies with the basic standards of providing real-time charts, news and economic events.

8. Leverage and margin call policies

Foreign exchange traders tend to like higher leverages and sometimes choose a broker based only on this feature. But traders should remember that although higher leverage can lead to higher profits, it also increases the level of risk. Also, take into account that there are brokers that offer fixed leverage levels, but some others adjust their leverage based on the currency that is being traded and may also have special policies for carrying a trade over the weekend.

Traders should also take into account their broker’s margin call policy. Some companies follow the FIFO (first in first out) method to close trades when margin requirements are not met by current equity, others follow the LIFO (last in first out) procedure, and some simply close all the trades. Depending on one’s preferences, this is an issue that should be clearly identified before opening an account.

Leverage levels are more of a concern for aggressive traders who like to use the highest possible leverage, whereas a moderate or conservative trader would be happy with the average leverage levels.

Hope this helps!

MLK Morning Links with Fox and Friends debut!

Jan 20, 2014   //   by Profitly   //   Profitly  //  Comments Off on MLK Morning Links with Fox and Friends debut!

Fox and Friends

Our very own Tim Sykes made his Fox and Friends debut! (Fox News)

2014 the year to bet on Gold? Hedge funds seem to think so. (Bloomberg)

Plenty of bad news for Deutsche bank over the weekend. (WSJ)

2014 poised to be a year of accelerated growth? Or will we muddle along again? (MarketWatch)

Is Obamacare helping out people that are uninsured? New stats show that it might not be. (WSJ)

You’ll never guess who may have been behind the Target data breach. (MarketWatch)

Being a movie producer ain’t what it used to be. (WSJ)

 

Friday Afternoon Links – The NSA Isn’t Listening Anymore

Jan 17, 2014   //   by Profitly   //   Market, News  //  Comments Off on Friday Afternoon Links – The NSA Isn’t Listening Anymore

Wealth management business helps boost Morgan Stanley’s earnings (Bloomberg)

Citi’s new CEO feels the heat after earnings disappoint (WSJ)

President says that the mass collection of phone data in the U.S. will come to a halt. (WSJ)

Live in one of these states, and you’re more likely to be a millionaire (WSJ)

T-Mobile in play as Sprint secures financing proposals from several banks (WSJ)

 

Market Anomalies

Jan 15, 2014   //   by Profitly   //   Market  //  Comments Off on Market Anomalies

I’ve said this before and I’ll say it again, Investopedia is a fantastic website for financial information. If there is ever a term or topic that you don’t understand and it relates to finance, chances are there will be a great definition on this site. Here is a recent post that they did on six market anomalies that investors should know about, especially if they are just starting out and want to learn how to trade stocks.

Certain tradable anomalies seem to persist in the stock market, and those understandably fascinate many investors. While these anomalies are worth exploring, investors should keep this warning in mind – anomalies can appear, disappear and re-appear with almost no warning.

1. Small Firms Outperform

The first stock market anomaly is that smaller firms (small cap stocks) tend to outperform large caps. As anomalies go, the small-firm effect makes sense. A company’s economic growth is ultimately the driving force behind its stock’s performance, and smaller companies have much longer runways for growth than larger companies. Think of it like this, a company like Microsoft (MSFT) might need to find an extra $6 billion in sales to grow 10%, while a smaller company might only need an extra $70 million in sales for the same growth rate. Therefore, smaller firms typically are able to grow much faster than larger companies, and the stocks reflect this.

2. January Effect

This is a pretty well-known anomaly. It’s also the most important right now since, guess what, it’s January! The idea here is that stocks that underperformed in the fourth quarter of the prior year tend to outperform the markets in January. Investors will often look to abandon underperforming stocks late in the year so that they can use their losses to offset capital gains taxes.

As this selling pressure is sometimes independent of the company’s actual fundamentals or valuation, this selling can push these stocks to levels where they become attractive to buyers in January. Likewise, investors will often avoid buying underperforming stocks in the fourth quarter and wait until January to avoid getting caught up in this tax-loss selling.

3. Low Book Value

First note, the Price to Book (P/B) Value is equal to the stock price divided by the total assets of the companies less their intangible assets and liabilities (book value). Broad academic research has shown that stocks with below-average price-to-book ratios tend to outperform the market. Numerous test portfolios have shown that buying a collection of stocks with low price/book ratios will deliver market-beating performance. However, even though it is true that low price-to-book stocks outperform as a group, individual performance is idiosyncratic, and it takes very large portfolios of low price-to-book stocks to see the benefits.

4. Neglected Stocks

So-called neglected stocks are also thought to outperform the broad market averages. The neglected-firm effect occurs on stocks that are less liquid, meaning they have a lower trading volume, and tend to have minimal analyst support, meaning there aren’t many analysts covering the stock. The idea here is that as these companies are “discovered” by investors, the stocks will outperform.

Research suggests that this anomaly actually is not true – once the effects of the difference in market capitalization are removed, there is no real outperformance. Consequently, companies that are neglected and small tend to outperform (because they are small), but larger neglected stocks do not appear to perform any better than would otherwise be expected.

5. Reversals

Some evidence suggests that stocks at either end of the performance spectrum, over periods of time, do tend to reverse course in the following period – yesterday’s top performers become tomorrow’s underperformers, and vice versa. Essentially, just because a company outperformed in the prior year, doesn’t mean that it will outperform in the coming year. You should probably steer clear of stocks like TSLA (up nearly 350% in 2013), NFLX (up nearly 300%), BBY (up nearly 240%), TWTR (up nearly 150%) and HLF (up nearly 140%). Not to say that they won’t do well, but outperforming two years in a row? That’s wishful thinking.

Not only does statistical evidence back this up, the anomaly makes sense according to investment fundamentals. If a stock is a top performer in the market, odds are that its performance has made it expensive; likewise, the reverse is true for underperformers. It would seem like common sense, then, to expect that the over-priced stocks then underperform while the under-priced stocks outperform.

6. Days of the Week

Efficient market supporters hate the Days of the Week anomaly because it not only appears to be true; it makes no sense. Research has shown that stocks tend to move more on Fridays than Mondays, and that there is a bias toward positive market performance on Fridays. This is something that Tim makes note of in his teaching. One big rule is to be careful about shorting a company going into the weekend, since many people do not want to be short over that time. This can lead to a Friday afternoon short squeeze. This doesn’t always happen, but Tim tells you to keep it in mind when taking positions on a Friday afternoon.

Attempting to trade anomalies is a risky way to invest since they are unpredictable. However, with that said, anomalies can still be useful to an extent, especially since many of them lead back to the basic principles of investing. Example 1: it would seem to make sense to try to sell losing investments before tax-loss selling really picks up and to hold off buying underperformers until at least well into December. Example 2: small companies do better because they grow faster, and undervalued companies tend to outperform because investors scour the markets for them and drive the stocks back up to more equitable levels.

Ultimately, there is nothing really strange about that at all – the notion of buying good companies at below-market valuations is a tried-and-true investment philosophy that has held up for generations.

Monday Morning Reading – Good Day for the King

Jan 13, 2014   //   by Profitly   //   News  //  Comments Off on Monday Morning Reading – Good Day for the King

king

 

Martoma proves to be a notorious liar. (Dealbreaker)

SAC Capital has a 5% stake in a stock that is up more than 500% after drug news… (Dealbreaker)

What strategies worked well for hedge funds this year? (WSJ)

O, Canada. Apparently campaigning at nightclubs is “a thing” now? (Toronto Sun)

Say hello to the first Bitcoin ATM (NYP)

Twitter’s lead underwriter raises their 12-month price target on the micro blogging site (MarketWatch)

Stocks leave investors without direction in first trading days of 2014 (WSJ)

Friday Morning Reading – Big Day for Transparency and Teaching

Jan 10, 2014   //   by Profitly   //   Market, News, Press, Profitly  //  Comments Off on Friday Morning Reading – Big Day for Transparency and Teaching

Tim on Fox

Strategies for investing in Penny Stocks (by your very own Tim Sykes!) (Fox Business Network)

The U.S. posted the smallest job gains in 3 years and the participation rate dropped to a 35-year low (MarketWatch)

Fed’s taper plans are in question after dismal jobs numbers (MarketWatch)

Congress may have a low approval rate amongst American’s, but that doesn’t seem to be hurting their pocket books. (CNBC)

After a rough year, Bill Gross still has faith in bonds (WSJ)

Target’s troubles continue, as the retailer reveals new information from ongoing investigation of the massive security breach. (Fox Business Network)

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