NetTrade

• Choosing a Broker

  Starting your investment portfolio requires rendering the service of a broker. However, not all brokers are the same.

  There are two kinds of brokers: the full-service broker and a discount broker. Getting a “full-service” may sound like something you should have, but what does he do to your finances? Does it cost you anything at all?

  Here are the responsibilities between these two types of brokers.

  FULL-SERVICE BROKERS

  PROS

  • They usually work for large brokerage houses such as Citigroup, Merrill Lynch, Morgan Stanley, etc. Aside from executing trades on behalf of their clients, as what all brokers do, a full-service broker would also research various investments and give related advice.
  • Keeps you up-to-date with market trends, stock performance, and tax laws, while providing you with investment ideas and recommendations.
  • Recommended for those with significant portfolios and those who wouldn’t have the time to manage his finances.

  CONS

  • Unless you have a slightest idea about the ins and outs of financial investing, you won’t know whether you are getting advice for your own benefit or for the broker to take your money to his pocket.
  • There is no guarantee a full-service broker is any better than you are at choosing investments.
  • You pay a hefty fee for these services, not advisable if you are starting to build up your portfolio.

  DISCOUNT BROKERS

  PROS

  • Discount brokers usually work in E-Trade, Sharebuilder, Fidelity, TD Ameritrade, etc. They often make more sense for the average investor because they are more affordable.
  • Recommended for investors who want to have a final say on every financial decisions.

  CONS

  • Discount brokers deal in a particular type of investment such as stocks, bonds, mutual funds.
  • You need to review the schedule of fees to find out whether you are paying for commissions, account maintenance, and other fees.
  • Not all discount brokers offer the same services.

  Once you have chosen your brokerage, download the application forms from its website and send in the completed forms with a check to fund your account. You can begin trading as soon as the account is open.

  Brokerages may require a minimum balance ranging between $500 to $2,000. If you are opening an IRA (Individual Retirement Account), they may waive the minimum requirement.

  Posted in Brokers

  July 27th, 2007 / No Comments

• The Low Down on Stock Indexes

  Watching the business news and you seeing how the Dow moves up or down, we tend to get the impression that the Dow Jones Industrial Average is the pulse of the market especially if we do not have a single idea about how corporate business works. We may think that when the Dow goes up, the economy’s okay. Well, not really.

  Having a high index number doesn’t mean that the market is doing good. We should instead look at the percentage of change over time, as this gives you the idea of how the index is performing. The index is hurriedly calculated during trading to give investors a sense of direction to the market it represents.

  With that in mind, the index reflects “the market it represents” and not “the market” itself. This is because it only reflects a portion of the actual market.

  In the United States, there are three different major indexes:

  The Dow – The Dow Jones Industrial Average is the oldest and most widely known index. It is also the most quoted index, and it is often mistakenly considered as the market barometer. It currently has only 30 stocks, each representing the most influential companies in the U.S., all having revenues of over $7 billion a year. Among the three major indexes, it is the only one that is price weighted. This means that if a stock’s price changes by a dollar, it has the same effect on the index regardless of the percent change for the stock. For instance, a $1-change for a stock worth $30 has the same effect as a $1-change for a $60-stock. The Dow stocks represent around a quarter of the value of the total market. However, this does not represent small or medium-sized companies at all.

  S&P 500 – Finance experts usually refers to S&P 500 as “the market.” This is because it includes 500 of the most widely-traded stocks and leans towards the larger companies. Also, it covers about 70% of the market’s total value, making it much closer to representing the true market compared to the Dow. The S&P 500 uses a market capitalization or market cap weighted index, just like in most major indexes in the world. This gives more importance to larger companies. For example, changes in Microsoft stock would have a greater impact than almost any other stock in the index.

  Nasdaq – The Nasdaq Stock Market Composite is composed of more than 5,000 stocks, most of which are for technology stocks as giant technology companies influence the index. Its population include small, speculative companies, making the index more volatile than both the Dow or S&P 500. Nasdaq is not designed to represent the market, but it gives you an idea where technology investors are going.

  There are also a number of other indexes that measure larger or smaller sections of the market. However, the major three indexes serve most investors well. Should you want to look at other indexes for comparison, make sure you have an idea how the index is weighted and how stocks are selected.

  Posted in Stocks

  July 20th, 2007 / No Comments

• The Basics of Investment

  Investing your money in the stock market or other forms of long-term investment is not an easy road. You are bound to commit mistakes, there will be risks, but you could also get the best profits. One problem in investing is that people have no idea where to start, hence not starting at all.

  Be financially sound in the first place – You need to realize that it is best to invest in stocks, bonds, or mutual funds if you do not have any standing credit, or even just up to a few hundred dollars.

  Start small – If you are starting up on your investments, you can start small with some stock mutual funds that allow you to invest with $500 or less. If you just can’t come up with $500 to start your portfolio, many funds would allow you to skip that hefty initial lump sum investment if you sign up for automatic monthly withdrawals ranging from $25 to $50 from your checking account. Experts also recommend starting on stock mutual funds instead of stocks in individual companies. A well-chose mutual fund is less risky because it invests in many companies, thus spreading out the risk. Unlike in stocks where when the company does poorly, so is your money.

  Know your priorities – Choosing which investments to commit should be according to what you want in the long-term. Do you plan on buying your own house? Pay college education? Save money on your retirement? Choosing an investment depends on the amount of time available before you need the money. For instance, stocks are considered long-term investments, and it is best to plan on holding stocks or stock mutual funds for at least five years to receive its optimal returns. If you need money sooner than this, you may want to sell your stocks when share prices are down.

  Determine your risk tolerance – Another factor you need to determine is how much uncertainty you can handle in regards to a negative change in the value of your portfolio, especially if the prices start falling down just as you begin your investment. If you hide your money under the pillow simply because you don’t trust the bank, then you are most likely feel uncomfortable investing in stocks in the first place.

  Spread your investments – Most experts recommend investing on several different types of investments to reduce risks. Buy stocks from different companies, for instance, then you can add some mutual bonds on your portfolio as well. Basically, not all investments would work well, as seen in how returns on stocks and mutual funds are high while returns on bonds are low, and vice versa. Tailor your portfolio according to your risk tolerance and the number of years before you need to withdraw the money from your investments.

  Posted in Investing

  July 20th, 2007 / No Comments

• Profile of a Stock Trader

  When you say stock traders, the image of a cluttered trading floor filled with people running around, shouting at each other, some talking in hurried voices, some looking nervously on their computer screen, while others chatted happily with probably one of their investors on their cell phones. My image of a stock trader has often been a man dressed in full business attire that has an aura of sophistication, aggressiveness, and competition.

  Technically defined, however, and we arrive at a description of a stock trader referring to either an individual, a group, a firm, or a company whose very nature involves buying and selling stocks or bonds in the financial markets.

  Make no mistake about it, stock traders are professionals. Their knowledge about the money market must be encompassing and up to date. They will need to know everything there is to know about investment funds, mutual funds, hedge funds, pension funds, or other equity investments, fund management, and wealth management.

  Stock traders have been trained to make quick decisions based on their own evaluation of risks and the present information available. Investors rely on their experience and knowledge to make sound decisions for them. And stock traders usually have huge financial incentives riding on each decision they make.

  Decisions need also to be consistent so as to reflect the abilities of a stock trader and gage his full potential as well . Having consistent and satisfactory results is good for the qualifications of a stock trader. It means that the combination of a trader’s gut feel, analytical skills, effort, logic, and ideas are quite good and works perfectly well.

  When stock traders fail, there’s no other person or thing to blame but the trader himself. You cannot blame the financial market, the competition, and the investors for the outcome. Stock traders should take responsibilities for their actions. The decisions they made and will make in the future are based on a planned programs or processes.

  However, with the growing popularity of online stock trading using the latest stock market software and real-time news services the image that I have of a traditional trader is no more. Today, a new breed of stock traders are slowly advancing at the forefront of the financial markets engaging in different kinds of stock tradings including but not limited to day trading, swing trading, market making, momentum trading, trading the news, and arbitrage.

  Not only are the new breeds of stock traders becoming stronger and taking jobs away from the traditional ones, the emergence of another factor in the financial market is beginning to make stock trading companies rethink their trading policies and techniques.

  Referring to a new, modern line of individual investors that chose not to take part in the world of staring-at-a-computer-screen day-long l trader’s way of life, the new breed of individual investors are as aggressive as the stock market itself. These investors explore an array of short-term investment strategies on their own and hope that their decisions will pay off in the long run.

  Posted in Stocks, Trading

  July 20th, 2007 / No Comments

• Initial Public Offering (IPO)

  The term initial public offering (IPO) was made popular during the boom in technology stock market in the late 1990s. During this time, there wasn’t a day when young dotcom entrepreneurs became millionaires with their website and they were living large with the proceeds from the IPOs of their internet companies. So how did they get rich so fast and what really is IPO?

  An IPO or initial public offering is the first sale of stock by the company to inventors on a public stock exchange. The main purpose of an IPO is the raise money money and capital for the corporation, by not issuing equity to the public. It would be the first public issuance of a said company’s shares.

  Majority of IPOs can be found at Nasdaq stock exchange, where computer and information technology-related companies are listed. These companies are also similarly listed at the Over The Counter Bulletin Board (OTCBB) exchange, namely those with much lower stock prices and more affordable than companies listed on a major stock exchange.

  As soon as a company lists its shares on a public exchange, it will immediately issue new, additional shares to raise the capital. The company earns directly from newly-issued shares. Therefore an IPO allows the company to tap a wider pool of stock market investors, providing it with a large amount of capital for its future growth. Also, when a company is listed, there is a right issue wherein it can also issue advance shares to provide capital for expansion, without being subjected to debt.

  So how can one get in on an IPO? To do this, one must understand how an IPO gets done through a process known as underwriting. When deciding to go public, the first thing a company does is to hire one or more investment banks that serve as “underwriters.” In some ways, underwriters function as the middlemen between the companies and the investing public. Underwriters approach investors with the right allocation and pricing offers to sell its shares to the public. Common methods include Dutch auction, firm commitment, best efforts, a bought deal, and self distribution of stock.

  The processing of an IPO mainly consists of putting together formal documents for the Securities and Exchange Commission and selling the issuances to clients belonging to institutions. To get shares in an IPO, one needs to have a frequently traded account with one of the investments banks as an underwriting syndicate. Underwriters keep a commission based on the percentage of the value of shares they have sold.

  Through the years, IPOs both in the US and worldwide are said to be underpriced. Underpricing an IPO generates additional interest in the stock, when it was first publicly traded. This leads to significant gains to investors who have been offered allocation prices. Nevertheless, IPO underpricing leaves lost capital that could have been used for raising the company, with offers at a higher price.

  Overpricing IPOs is also an important consideration. Stocks offered at a higher price than what the market could possibly pay may cause difficulty for underwriters in selling the shares. The stocks lose more of its value if it fails on the initial day of trading, therefore worsening its marketability.

  As such, many factors should be considered by investment banks when pricing IPOs. Stocks should be high enough to raise sufficient capital for the company, and also low enough to generate market interest.

  Posted in Stocks

  July 20th, 2007 / No Comments