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Futures Trading Exchanges
Posted by: | CommentsFutures trading is one of the ways to make money and grow your wealth overtime. Many people only invest in stocks. However, trading futures contracts like copper, wheat, corn, coffee, soybeans, pork bellies, cattle, crude oil, gold, ethanol, heating, gasoline, silver, interest rates, currencies and others can be highly lucrative.
If you want to profit from commodities than futures trading is the best and direct method of getting access to the commodity market. There are several active futures trading exchanges in the US. Three of the world’s largest futures exchanges are located in Chicago.
The number one is the CME ( Chicago Mercantile Exchange). The futures contracts that get traded on CME include among others stock index futures, foreign currencies, interest rates, commodities, environmental futures and others. Futures trading is no doubt risky but if you learn it, it can be highly profitable. As said before, Ricard Dennis and his turtles used to trade the most liquid contracts in the market.
The commodities futures that get traded on CME include live cattle, milk, lean hogs, feeder cattle, butter, limber, pork bellies, Goldman Sachs Commodities Index and fertilizer.
Now, one of the ways to trade stock market is to trade stock indexes like the various S&P 500 like the S&P 500 Midcap, Small Cap as well as the Russell 2000 and the NASDAQ 100. CME provides you with the opportunity to trade futures contracts on these stock indexes as well as their mini versions the E-Minis.
GLOBEX is the Electronic Trading Platform owned by the CME Group that allows the electronic trading of these contracts almost 24 hours a day. So you can easily trade almost all these contracts from the comfort of your home electronically using your computer.
The second most important futures exchange is the CBOT ( Chicago Board of Trade). Mini contracts on corn, soybeans and wheat are also available for trading on CBOT. The futures contracts that are available on CBOT include agricultural futures like the soybeans, ethanol, rice, corn, wheat and others.
A mini version of Dow Futures called the E-Mini Dow is also available. You can also trade mini versions of gold and silver futures contract on CBOT. CBOT gives you the opportunity to trade one of the most popular stock indexex the DJIA Dow Jones Industrial Average) in the form of Dow Futures.
The next major futures trading exchange is the New York Mercantile Exchange (NYMEX). This is infact the global hub for energy trading and offers futures contracts on light sweet crude, natural gas, unleaded gasoline, heating oil, electricity, propane and coal.
Futures contract on precious metals like gold, silver, platinum and palladium also get traded on NYMEX. Futures contracts on metals like copper and aluminum also are available on NYMEX.
Mr. Ahmad Hassam has done Masters from Harvard University. Know this shocking Dow Futures secret that can make you rich. Download this very simple 1 Minute Forex Trading System FREE that makes money instantly.
Growth Stocks Investing
Posted by: | CommentsWhen you start looking for good stocks, you often come across these terms like large cap, mid cap, small cap, growth and value. Let’s discuss these terms for a moment. Capitalization or cap refers to the combined value of all the share of a company’s stocks. The division between large cap, mid cap and small cap are often blurry and not sharp.
Statistical studies of large cap, mid cap and the small cap stocks has shown that over the years small cap stocks have outperformed. Mid caps are companies with $1 to $5 Billion in capitalization and small caps are companies with $250 million to $1 Billion in capitalization. Anything below $250 million can be considered as micro cap. However the following divisions are generally accepted: Large caps are companies with over $5 Billion in capitalization.
What is the P/E ratio? The P/E ratio divides the price of the stock by the earnings per share. Suppose, company ABC stock is presently selling for $50. Now suppose that last year company ABC earned $5 for every share of the stock outstanding. This means stock ABC P/E ratio is 50/5=10. So the higher the P/E ratio, the more investors are willing to pay for the stock.
Let’s make this clear with an example. Do you know how to read the balance sheet of a company? One of the most important things in doing research on a stock is the balance sheet of the company. Suppose, company ABC stock is presently selling for $50. Now suppose that last year company ABC earned $5 for every share of the stock outstanding. This means stock ABC P/E ratio is 50/5=10. So the higher the P/E ratio, the more investors are willing to pay for the stock. So what is the P/E ratio? The P/E ratio divides the price of the stock by the earnings per share. Over the years, studies have shown that the P/E ratio is somehow related with the growth of a company. Now the higher the P/E ratio, the more growth the company is supposed to have. So it can be either the company is growing real fast of the investor have high hopes of its growth. Now these hopes can be realistic or foolish, you never know!
The lower the P/E ratio, the more value the company has. Low P/E ratio companies are not considered to be the movers and shakers in the market. Now, if you follow financial news than you must know that the large growth companies always grab the headlines. But do the growth stocks really make best investment? According to Fama and French, two famous researchers who did ground breaking research on stocks, over the last 77 years, large growth stocks have only seen 9.9% annualized rate of return as compared to 11.5% for the large value stocks.
So most of these growth stocks become highly popular in a small period of time! Everyone rushes to buy these growth stocks thinking that they are great investments. The most probable cause seems to be their immense popularity. Since most of the headlines are captures by high growth companies, investors seem to think that they are the best investments. Now intuitively you might have thought that growth stocks are better. What can be the reason for their lower performance over the years?
Think about Google, how its stock price shot up within a matter of weeks after it hit the market. Weeks after that it began to cool off. So large growth stocks tend to get overpriced before you are able to buy them!
Mr. Ahmad Hassam is a Harvard University Graduate. Try these cash printing Forex Signals from heaven. Discover a revolutionary Forex Robot System! Click here to get your own unique version of this article with free reprint rights.
Master Limited Partnership (Part I)
Posted by: | CommentsMany analysts are of the opinion that commodity investing maybe the best investments in the early part of the 21st century. Take the name of oil, oil is the most heavily traded commodity in the world right now. Gold is another commodity that is reaching record price levels. Gold prices for the first time have breached the unheard of $1000 per ounce barrier. Investing in commodities may be the something that investors thought of boring and dull only a few decades back but not anymore now. If you are interested in investing in companies that are involved in the production, transformation and distribution of commodities, than one of the best ways to do so is through investing in the Master Limited Partnership (MLP).
MLPs are public entities that trade on public exchanges. An MLP issues shares that trade on an exchange just like a company stocks that trades on an exchange. You can invest in an MLP by buying its shares on an exchange. The shares that an MLP issues are called Units and the investors who own them are known as Unit Holders.
When you invest in an MLP, you are essentially investing in public partnership. There are tax advantages to investing in MLP. Unlike regular corporations, an MLP is only taxed once. Now most of the MLPs trade on the New York Stock Exchange. A few MLPs also trade on the NASDAQ and the AMEX.
Congressional Legislation, any MLP that derives 90% or more of its income from the production, distribution and transformation of commodities qualifies for this tax exempt scheme.
This tax advantage gives an MLP competitive advantage as compared to other corporations when competing for assets. This means a huge advantage for an MLP. Now an MLP is run by a General Partner (GP). In most cases, the majority of these GPs in MLPs are other corporate entities setup with the specific purpose of running an MLP.
The role of a GP is very important in an MLP. You as an investor in the assets of MLP might have a very limited role or say in its running. You can think of yourself as a sleeping partner in the MLP. In most cases, the majority of these GPs in MLPs are other corporate entities setup with the specific purpose of running an MLP. This tax advantage gives an MLP competitive advantage as compared to other corporations when competing for assets. This means a huge advantage for an MLP. Now an MLP is run by a General Partner (GP). But you don’t have to worry much about the GP. Most GPs do a good job of running the MLP as it is in their financial interests. GPs know that if they don’t make sound management and investment decisions, most of the investors my eventually deicide to divest themselves from the units of the MLP. Now you must know as a limited partner in an MLP, you have limited voting rights. This means when you invest in an MLP, you are giving away the keys of ownership to the GP. This means you are out of the decision making in an MLP.
An MLP is obligated to distribute all available cash back to its unit holders on a quarterly basis, so you will be getting a quarterly income from your units. Secondly as the MLP expands and grows overtime, its units may give you capital gain as well. Investing in MLP units can give you quarterly cash flows as well as appreciation of the unit price. However, always do your due diligence when you want to invest in an MLP.
Mr. Ahmad Hassam is a Harvard University Graduate. Trade Dow Futures . Learn Commodity Trading ! This and other unique content ” articles are available with free reprint rights.
Inverse ETFs
Posted by: | CommentsThe ProShares Short Dow 30 ETF (DOG) will return the inverse of the Dow Jones Industrial Average (DJIA) on daily basis. If the DJIA falls by 2%, DOG rises by 2% and if the DJIA rises by 2%, DOG will fall by 2%. Short ETF returns the inverse of the index it is linked to.
During the past few years, the number of Short ETFs has risen dramatically. Short ETFs not only cover the major stock indices like the S&P 500 or the DJIA but also different sectors like the energy, utilities or technology. You will even find Inverse ETFs on currencies now. Short ETFs are also known as Inverse ETFs or Bear ETFs.
You will even find leverage short ETFs. A leveraged short ETF gives the trader leverage without the use of margins. The ProShares UltraShort Dow 30 ETF (DXD) rises 2% when the DJIA falls by 1%.
Over the years, short ETFs have risen in popularity with the investors and hedge funds. Short ETFs give you an excellent opportunity to profit from the volatility in the market and the major indices.
Before the introduction of short ETFs, a trader had to actually short sell stocks to take advantage of a market drop. Short ETFs are a great product as they have created new opportunities for traders.
ETFs have opened up a whole new way of profiting from the markets. The trader had to go against the trend and buy or else move into cash or fixed income in the past if the market was dropping. Traders are not allowed to sell short stocks or ETFs in their retirement accounts. Short and leveraged ETFs provide traders with new opportunities.
ETFs also provide you with the opportunity to take advantage of the global market swings. China is one example that garners a lot of attention. The Shanghai Index in China rose 100% in 2007. In the first quarter of 2008, the Shanghai Index was down 35%.
The ProShares family of ETFs introduced the Ultrashort FTSE/Xinhua China 25 ETF (FXP). Now if you want to trade the fall of Chinese stocks, you can trade FXP ETF. In the past, traders who wanted to benefit from the fall of Chinese stocks could only short Chinese stocks that were traded in US Stock Exchanges.
Short ETFs can be used for other purposes as well. Assume you have a portfolio of $100,000 composed of 75% stocks and 25% money market fixed income. As a long term investor you can take advantage of short ETFs to hedge your portfolio position.
Suppose the market falls by 10%. Your stock portfolio falls by 7.5% assuming the same ratio between the market and your portfolio. The forecast of the market for the next six months is not good. But you are reluctant to sell your stocks due to tax reasons.
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Know What Is Backtesting (Part II)
Posted by: | CommentsAutomated Backtesting is easy. The second method of Backtesting is performed manually and visually by the trader. Why would someone do a manual backtest? There are difficulties in doing Backtesting manually but at the same time there are a few advantages of Backtesting. The trader would take the historical data and scroll back in time on a chart and manually apply the trading strategy as if it was in a real time environment.
How to eliminate the hindsight factor while doing manual Backtesting? The trader would advance the chart bar by bar in order to refrain from seeing price action subsequent to the trade at hand. This eliminates trading in hindsight that is detrimental to an objective backtest.
Manual Backtesting is complicated and difficult. It requires a lot of patience on part of the trader. The major disadvantage of Backtesting as compared to automated testing is the significant potential for human error in executing simulated trades and recording performance results.
Emotions are your enemy in trading. When you do manual Backtesting, these emotions can cause problems for your Backtesting results. The normal range of human emotions and biases that often interfere with actual trading can be a detrimental factor in achieving objective backtest results. Furthermore, it takes a great deal of work and discipline to simulate trades manually over a large data set without straying from the strict rules of the trading strategy.
However, Backtesting manually can provide the trader with the real feel for actually trading the strategy. This provides valuable trading experience although simulated but still a valuable trading experience that no automated backtest could possibly provide.
No matter whether you do Backtesting manually or automatically, Backtesting can save traders a great deal of time and money that might otherwise had been wasted on trading unprofitable strategies. Backtesting whether done manually or automatically can be one of the most important elements of building a solid trading strategy. Backtesting is now an important element of testing a trading system performance.
Any mechanical trading system can be backtested. This leads us to the important question of autotrading. Autotrading is the latest fad especially in forex where the number of major currency pairs is only six and this makes programming autotrading easy. These autotrading systems are popularly known as Expert Advisors or Forex Robots.
In contrast, stock autotrading systems can be big more complicated. The US Stock Market has got more than 50,000 stocks listed with them as compared to the forex market where there are not more than six major currency pairs. This makes programming a stock trading robot a bit complicated. However, during the past decade major breakthrough in computer programming has been made.
Backtesting is one of the most important components of testing an autotrading system. Big institutions like banks, corporations and hedge funds have always been taking benefit of these autotrading systems.
Backtesting and autotrading are two important components of implementing trading strategies that generally do not rely upon the trader’s judgments or discretion. These types of strategies are primarily technical in nature, and they must necessarily have rules and criteria that are unambiguous.
In contrast, autotrading actually executes real trades automatically according to a pre – programmed set of instructions that sets trade entries, stop losses, and profit limits. Backtesting allows the trader to determine if a given strategy would have been profitable using past price data, which is an indication of how it might potentially perform in the future.
Mr. Ahmad Hassam has done Masters from Harvard University. Try This Cash Printing Forex Signal Service From Heaven! First practice on your Forex Demo Account! You are welcome to reprint this article – but get your own unique content version here.