NetTrade

• Understanding Exchange Traded Funds

  An Exchange Traded Fund, or ETF, is a type of investment fund that is being traded like a stock in a stock exchange. It functions like an index fund in that it tracks a certain index, a type of commodity or a selection of different assets. But ETF’s differ in that they are being traded like stocks that also go through several price changes during the course of the day as they are being bought and sold.

  Basics
  An exchange traded fund allows investors an opportunity to invest in a wide range of securities much like a traditional mutual fund. An exchange traded fund can be comprised of different types of securities pooled together as a single unit and offered to investors similar to shares of stocks. But unlike a traditional mutual fund, ETF’s can be bought or sold on a daily basis through a securities exchange just like stocks.

  ETF’s are not sold or redeemed as individual shares at their net asset value. Instead, ETF shares are bought and redeemed in large blocks called creation units. Creation units purchased or redeemed are usually in kind. It can either be a collection of securities that may be of the same type and proportion as that held by the ETF. There are also such funds that may permit or allow a buying or redeeming shareholder to substitute cash for some or all of the basket of assets included in the ETF.

  Benefits
  ETF’s are investments that offer lower expenses in terms of costs spent in trying to own one. The expense ratio for traditional mutual funds usually average about 1.5 percent while ETF’s range about 0.13 percent. This can save the investor a substantial amount that can be added into the investment portfolio rather than being included in the expense column.

  ETF’s also offer the advantage of diversification that mutual funds offer and the flexibility of a stock share. ETF’s are available for investors who wish to create a more diversified portfolio to take advantage of growth in a variety of markets. And with ETF’s being traded like stock shares, investors can take advantage of short term price changes enjoyed by a certain index during the day.

  ETF’s also attractive in that they offer a more efficient tax structure. Between mutual funds and ETF’s belonging to the same asset classes, ETF’s are seen to be more tax efficient. There are many instances that taxes on ETF’s can be deferred until the shares have been sold or redeemed. A simple instance would be when certain ETF shares are being redeemed “in kind”. This way ETF’s traded in large volumes can be redeemed for shares of other stocks that belong to the index that ETF’s track. This way, tax implications of such trades are minimized.

  Posted in Investing

  September 30th, 2008 / No Comments

• Understanding Insider Trading

  Insider trading has been cast in a negative light to the public. But in all actuality, insider trading is not always illegal. There are actually two types of insider trading- the legal and the illegal one.

  Defining Illegal Insider Trading
  By definition, insider trading is generally the practice of trading a corporation’s stock or other securities usually done by individuals that has potential access to non-public information about the company in question. The illegal type of insider trading is one that is done by trading stocks and other securities by insiders such as corporate managers and employees who might possess valuable internal information not yet known to the public. Such information gives the insiders in the company quite a considerable advantage over the public who owns the same stocks and securities but do not have the same access to such information.

  An example of an illegal insider trading is if a CEO of a certain company sells some of his stocks after discovering that the company may be losing a big contract in the following month that might have a great effect on the stock price. Another example is that if a son of a CEO hears about the loss of the big contract and decides to sell his own stock shares in the company to avoid the fall in stock price. People think that only those who belong on the upper management or work for the company who can be guilty of illegal insider trading. In fact, even friends, family members of people with access to insider information in a company can also be considered as insiders if they take part in transactions that constitute insider trading.

  Defining Legal Insider Trading
  But there is also a legal type of insider trading. These can be stock trades that go in company in between employees of a company or publicly traded corporations, provided that such trades are made after inside information has been made public. This trade window or period is usually after financial statements and earnings reports of the company or corporation.

  An inside trade may also be considered legal if an employee of the said company has previously created a written contract stating that he or she has planned such trade in the future. The pre-existing contract should state the future transactions and trades and on what periods in order to be binding enough as a legal insider trade. Examples of such contracts include those where an employee agrees to sell a certain part of stocks every month for a period of two years as part of his retirement plan. And so when an employee trades his or her stocks and comes into possession of some important non-public information concerning the company, the trades that are based on the original agreement made does not constitute as illegal insider trading.

  Posted in Advanced Trading

  September 23rd, 2008 / No Comments

• Rules to Follow in Trading

  When involved in the art of trading, traders should have rules that should help govern every trading decision. Traders should have certain rules in store that would help them make better decisions than just relying on their gut feeling. Although at most times, trading also involves instinctive input, nothing beat having some rules of trading to follow by.

  Invest in the Direction of the Trend
  The only way to make money from trading is by trying to foresee a future up trend on a certain stock and then investing in them in order to ride along from its gains. The ability to identify a change in trends in the market. Just when a certain stock is about go up, try to invest in them in order to ride the trend and then enjoy the gains that come with it. Try to ride the trend by holding the position up until the stocks reach their plateau and about to dip, signaling the reversal of the trend. This would be the time to close the position by selling off on a high.

  Cut Losses Fast
  Another good rule to follow in trading is to let the profits alone when the stocks are still seen on an up trend. But when the stock is already about to suffer a loss, it would be better to cut the losses up to that point before it gets any worse. It would be good to ride on to a trend and holding position while the direction is still on the way up. This means that the position should not be changed while the stock is still doing better.

  But it is also wise to plan a certain point where you might need to sell off your position just as the trend begins its reversal journey. One way to do this is by formulating a certain stock price dip relative to your high stock position. It might be a bit below your high stock position but not below the starting stock price from which you obtained them. This would be called the stop loss level that will provide you with the sign to close your position once it is reached. This will help prevent you from a considerable loss in profits once a reversal in a trend is seen.

  Diversification is Key
  Wise investing and trading also involves trying to minimize risk. Being able to do so would help prevent suffering extensive losses. One way of minimizing considerable losses in a volatile market is by putting different investments on different areas of the market. In trading the adage, “Do Not Put All Your Eggs In One Basket”, is one of the wisest advice you can ever get. Diversification of investments allows your money to gain substantially from the various areas of the market. Yes, you might miss out on getting the biggest profits by investing on a winning stock. But on the other hand, you are also avoiding quite damaging losses in terms of investment money by not putting all of it on a losing stock.

  Posted in Investing

  September 16th, 2008 / No Comments

• Momentum Stock Trading

  There are different approaches that stock traders employ in analyzing and deciding which stocks to buy or sell. One approach is that of using a momentum stock trading system. This method of investing focuses on looking for stocks that are moving in one direction on a high volume. Momentum traders usually try to hold onto stock positions for a few minutes, a few hours or even a whole trading day. This will usually depend upon the rate of stock movements or when it changes its direction.

  This method of trading may seem risky for most traders- trying to ride on the momentum of a rising stock and then trying to sell it in time when it begins its descent. Most traders would prefer holding on to a stock that is showing promise but has not yet begun its rise as the most attractive option. But momentum stock trading can be used in order to gain certain advantages in a volatile market and may help provide traders with considerable gains on their deals.

  Typical Momentum Trader Tactic
  One of the important factors that momentum trading depends on is a stock’s price action. Looking upon a stock that is going on a rise is something that momentum traders are attracted to. Momentum traders look for stocks that has generated quite a buzz or that which experts say will provide possible rise in prices as well as volume during the length of the trading day. He gets all these stocks in mind and then looks out for them on the next trading day.

  On the next day continues to check up on them and then choose the strongest stocks in terms of price movement as well as volume. The trader then tries to look up the charts of these stocks and look for sustained downward or upward momentum. Once this is determined, the momentum trader then tries to get hold of a particular stock on an upward momentum. Once the stock is bought, the excitement for the momentum trader begins.

  Timing
  Once in the position, the momentum stock trader then keeps his eyes glued on the the stock indicators to monitor the movement of the stock. And since the stock is on an upward momentum, the stock trader is trying to look for the saturation point, that period where the upward swing may seem to be reaching its topmost level. The saturation point may not necessarily be the top of the upward momentum, it can merely be a sign that the stock is nearly reaching the top. This can be indicated by thinning or slowing bids at a certain market price. Once the saturation point is determined, the momentum trader then sells his position in a short stock sale and takes in his profits.

  It may seem easy, but breakouts and the sustained upward momentum of a stock is actually hard to predict. Therein lies the risk in momentum trading. Sometimes a momentum trader finds himself in a position where the stock is on a downward momentum despite positive predictions. In this case, the wise momentum trader usually sells immediately. The momentum trader would rather take a small loss early than hoping for a reversal sometime later. The momentum trader then tries to look for other stocks out there on the upward trend. Such is the tactic that momentum trader makes use. It might be a risky proposition, but careful investing using such a method can bring attractive gains for the trader, mostly on the short term.

  Posted in Investing

  September 9th, 2008 / No Comments

• Cleaning Up Your Portfolio

  One of the important factors of enjoying success in stock trading is by having a well-managed portfolio. Such a portfolio contains that provide a stock trader with various opportunities to profit from, both in the short and long term. A well-managed portfolio also requires that it has to be cleaned up now and then.

  One’s stock portfolio can get considerably large over time. It can consist of a mix of stocks that may or may not offer promising returns for its owner. Some stocks can even be considered as dead weight and bring down the portfolio’s overall performance. Stock traders can better manage their stock portfolios by learning how to clear out those stocks with dismal showings in the market to allow better returns.

  Having A Profit Mindset
  Some traders try to hold on to stocks in their portfolios for as long as possible with the hopes of bigger profit in the future. With their patience, it might just happen. But it also may not. There are some stocks that just don’t offer that attractive deal no matter how long you try to hold on to them. Having a profit mindset will enable you to look into the stock investments in your portfolio and gauge the profitability of each one.

  Traders should know how to look into their stock investment portfolio and check out which stocks are gathering dust by the corner. Bear in mind that the longer such stocks remain in your portfolio, the more money that you lose in terms of potential profits investing in other stocks. Try to get rid of stocks on dormant status and invest on something else.

  Review Your Portfolio
  In order to ensure that your stock portfolio performs well in the market, you may need to review it regularly. Getting the most attractive current stocks for your portfolio and holding on to them, may not necessarily give you the most profit. Remember that stocks are considered as volatile investments. The potential profit that you earn today may be lost tomorrow. That is why checking and reviewing your portfolio on a regular basis is important to ensure a good and profitable track record.

  Organize
  A good way to check up on your portfolio more efficiently is through effective organization. Organizing your portfolio does not just mean your stocks, it also includes your files, records and data that you use to base your trading decisions. After doing a lot of stock trading through the years, you may have noticed that clutter has begun to accumulate in your office. You may have so much unwanted files and records that you may need to get rid of. It becomes more difficult for you to look for the information that you need because of a cluttered office or PC. To work more effectively, you might need to clear out the clutter and organize your office in order to organize your thoughts and business decisions.

  Posted in Advanced Trading

  September 2nd, 2008 / No Comments