All you want to know but never asked about the stocks and options markets.

jueves, 15 de octubre de 2015

What is an ADR: Trading in other markets

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Simply put, an ADR ("American Depositary Receipt") is a non-US stock which is traded in US markets.  To be more specific, it is a physical certificate representing deposited shares of a non-US company in an American bank. They have all rights and obligations, including dividend and voting rights, and may also be converted into the origin stock, which are known as ADS ("American Depositary Share") at any time at the request of the holder.

jueves, 8 de octubre de 2015

The scrip dividends

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The script dividends

The scrip dividends or stock dividends are the shares issued to reward shareholders instead of paying the traditional dividend. These shares are issued with preferential subscription rights on behalf of the shareholder.

In cases where the company remunerate the shareholders in this way, they can choose three options

  • Accept the subscription rights and add the new shares to their portfolio.
  • Sell the subscription rights to the company, at a price fixed in advance, being this option equivalent to a traditional dividend payment.
  • Sell the subscription rights on the market. As expected, in this case the price fluctuates, regardless of the nominal share value.

Why a company may prefer to pay scrip dividends?

The reason is simple. For the shareholder who accepts the new securities, it involves increasing the capital and not to touch the cash  flow.  In addition to avoiding the financial effort when paying  the cash, that liquidity can be used for other purposes. In the long term, it may be a strategy to recapitalize the company making use of the benefits, without the need for capital increases.

Moreover, we must not forget that the sale of rights have a dilutive effect for shareholders, since with the same value of the company there are more issued shares, thus, each worth less.

viernes, 2 de octubre de 2015

Why you should consider ETFs in your investment portfolio?

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exchange traded funds

The ETFs, short for Exchange Traded Funds, are the great discovery and solution in the world of asset management, investment, and especially of the particular investment. I invested in stocks, futures, CFDs, forex and bonds, but it was not until the ETFs when I discovered this great ally of the retail investor.

The ETFs began operating in 1993 in the US with the appearance of the SPY, the quintessential ETF of SP 500. The idea is simple: the investor get in a single asset a complete whole stock market, in this case, the S&P 500 index. The construction of the ETF is not so simple, but that does not concern us for now. The idea is that in a single asset, in this case the SPY, we have a basket of the 500 largest US companies. Today the minimum amount payable is $211 which is the cost of one unit.

jueves, 1 de octubre de 2015

The Nasdaq 100 Index

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the nasdaq  100 index

The Nasdaq 100 Index also known as simply Nasdaq 100 is a stock index of the United States that collects the stocks of the 100 most important companies in the industrial sector, including companies of hardware and software, telecommunications, retail sales, wholesales and biotechnology, which are enrolled in the New York Stock Exchange (NYSE) and listed on the Nasdaq Stock Market. In this index can be both American and international companies.

This index does not include financial stocks, including investment companies which differentiates the  Nasdaq 100 from other indices such as the S&P 500.

The Nasdaq 100 is abbreviated as NDX100. Its corresponding futures are traded on the Chicago Stock Exchange (Chicago Board of Trade). These contracts, abbreviated as ND, and its mini version, abbreviated as NQ, are one of the most traded futures in the Chicago Stock Exchange.

martes, 22 de septiembre de 2015

The herd effect in trading

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How many times have we seen a cafe crowded with people waiting to catch table when, next door, was another cafe virtually empty and obviously with free tables? It is possible that the service in the first place is better than the second, but it is also certain that a very basic factor is acting on the crowd: the herd effect.

We have a natural tendency to do what others do. By default, we tend to repeat behaviors of others. But, however ridiculous it may seem this behavior, this trend is an evolutionary residue, an advantage that we have developed over time and has a very clear purpose: survival of the group. If all members of a group act the same way, it becomes stronger and more efficient. The group thus provides protection to the individual, but at the same time strongly conditions their thinking, feeling and acting.

Let's see it clearly in the following real experiment: two strings of different lengths were laid on the ground. Different subjects were then asked to point out the longest string. Some of them were "control" subjects, ie, the scientists had previously agreed with them to point out as the longest string the one that actually was the shorter string. Others were "experimental" subjets, ie, they knew nothing about the test subjects. When all subjects were gathered, were asked to decide which string among all was the longest and the group of experimental subjects began to point out what was the actual longest string. At the insistence of the control subjects, they began to express doubts until finally denied the undeniable and ended up claiming that the longer string was actually the shorter string.

Such is the influence of the group over the individual, that can affect the sound judgment and perception. The herd effect is a tendency tightly etched in our genes, of which it is very difficult to escape.

Likewise the herd effect on the financial markets work: we tend to buy when everyone buys and sell when everyone sells, seeing in many cases tarnished our ability to perform a realistic analysis of the situation.

This is what causes that, in a particular news or data, markets sometimes react sharply and disproportionately, aimless fit the actual situation. This happens precisely because all the agents decide to buy or sell at a time. Flooded by panic or euphoria, the agents act in unison and in the same direction: the purchase or sale. It is very difficult not to enter the market when everything goes up or leave it when everything going down. It is very difficult, again, not to do what everyone else is doing.

Gain in the stock market, as in any other transaction, is in the end to buy low and sell high, and sometimes the herd effect is preventing us from carrying out this task, pushing precisely to the opposite: buy high and sell cheap, suffering innecesary losses in our trades.

Stay calm, avoiding decisions motivated by fear and euphoria (beware of the alarmism of some media) and an analysis as objective and realistic as possible of the data we have can help us to escape the herd effect and find real investment opportunities, or a comfortable cafeteria with care and quality menu. 

domingo, 20 de septiembre de 2015

Psicotrading: The attitude to the financial markets matter

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Many times people who are new to the world of trading, are surprised at the importance of psychology in the trading process. Benjamin Graham, Warren Buffett's teacher, taught us this in his brilliant book "The Intelligent Investor", explaining that the market is a manic depressive, which metaphorically called Mr. Market.

viernes, 18 de septiembre de 2015

The PER Ratio

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The PER ratio

It is one of the most commonly used ratios to analyze the stock market value of a company. It measures the number of times that the annual profit is contained in the share price.

This term comes from the price-earnings ratio, ie ratio of price on profit.

jueves, 17 de septiembre de 2015

The basic principles of Value Investing

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When we invest in the stock market there are lots of investment strategies and systems. However, among all of them there is one that has allowed investors to get great results: the value investing.

The S&P 500 Index

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Corporate profits vs S&P 500

The Standard & Poor's 500 index also known as S&P 500 is one of the major US stock indexes. The S&P 500 is considered the most representative index of the actual market situation.

¿Trading on shares or trading on indices?

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Many investors are openly wondering the benefits of investing in stocks versus futures on indices and vice versa. Like most of the answers to the questions generated by the market the correct answer is "it depends ...."

In favor of trading on stocks, we have the existence of a higher volatility in the oscillation of their prices compared to the movement that may experience an index, which in principle could help the trader. But from my point of view, that increased volatility is not worth the excess of risk for the traders that use stocks rather than indexes.

miércoles, 21 de enero de 2015

The Value Investing

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This investment system is widely used by large investors, such as venture capital funds. It is also used by investment banks to value companies in transactions such as mergers, IPO's, etc.

lunes, 19 de enero de 2015

Investment in companies undergoing restructuring

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This form of investment is to invest in companies that are going through bad times due to poor performance of the business, lawsuits, mismanagement, natural disasters, etc. In these situations the balance sheet and income statement present poor results, so the stock price reaches very low levels. On many occasions the company runs a high risk of disappearing.

sábado, 17 de enero de 2015

What are ECN Routes?

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Electronic Communication Network (ECN) - An electronic system for buying and selling of stocks and other exchange-traded products, which seeks to eliminate the role of intermediaries. ECN connects major brokers and individual traders together so they can trade directly, without mechanisms of intermediaries exchange.

Unlike dark pools, ECNs display order in the consolidated quote stream. ECNs are required to register with the SEC in United States as broker-dealers and are also members of FINRA. To place orders directly with an ECN, a trader must be an ECN subscriber. 

jueves, 15 de enero de 2015

Premiun parameters in Options

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The premium, which reflects the value of the option, is quoted in the market and its value depends on various factors enumerated below:

- Price of the underlying asset.

- Exercise price of the option.

- Volatility.

- Interest rate on money market.

- Time remaining until maturity.

- Dividends (only for stock options).

martes, 13 de enero de 2015

Investment in cyclical companies

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Cyclical stocks are not a good option for long-term investment (understood as "buy and hold") because their benefits history is full of great ups and downs. Is relatively normal that a cyclical company makes the same amount of money today than 10 or 20 years ago, as normal as that one year the firm multiply their profits by 4 to lose money two years later. Because of this their dividends generally suffer the same ups and downs than the benefits.

sábado, 10 de enero de 2015

Market sector investment

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In this case the investor invests in a sector as a whole, either through a mutual fund, an ETF or buying a portfolio of shares of all companies, or at least the most representative firms, as appropriate.

To this end, the investor must analyze the sector as a whole, considering the main variables that affect the behavior of this sector if the fundamental analysis is used or analyzing price charts (candlestick or bar charts) when technical analysis is usded. It is always possible and desirable to combine these tools.

viernes, 9 de enero de 2015

Questrade Broker

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Questrade is a regulated broker from Canada that specializes in transactions with shares of the major stock exchanges in the United States and Canada and options based on these stocks. Also, this ECN broker provides access to the Forex market through two platforms designed for this purpose. The investor also has access to actively managed investment portfolios. The following overview shows the main features of this broker.

jueves, 8 de enero de 2015

Investment Strategies

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There are many investment strategies, and I think none of them is ideal for everyone. Each has its advantages and disadvantages, risks and profitability targets. Each investor must choose the strategy or strategies that best suit their needs, desires and philosophy of life, depending on multiple factors. There is no need to choose a single strategy as  we can combine several strategies such as those presented here or elsewhere.

martes, 6 de enero de 2015

What are Blue Chips stocks?

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Blue chip stocks represent the shares of companies that are nationally and internationally recognized and have a strong and stable financial position.

Overall, these firms sell products or services of high quality and wide market acceptance.

The term blue chip, which is used in American casinos to identify the blue chips, which have the highest value, was added to the "market jargon"  by  Oliver Gingold an employee of the Dow Jones financial firm in the 20s.

Investments in shares of blue chips companies are considered less volatile, and often have a high value of market capitalization and high liquidity.

The "blue chips" stocks are an excellent choice for those who wish to diversify their portfolio without taking a high risk.

lunes, 5 de enero de 2015

Technical Analysis vs. Fundamental Analysis

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In financial markets, the key to success is knowing how to predict the future and act accordingly. This means stay long in a position (buy) if you think the market will go up, or close positions or short sell (open a short position) if you think the market will go down. When a trader gets to do this (it is much more difficult than it sounds) will win a lot of money.

To try to know what will be the value of a share or other financial instrument in the future, traders traditionally applied two distinct streams: those who follow technical analysis and those that follow fundamental analysis.

sábado, 3 de enero de 2015

The key to the three M to achieve success in trading

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A loser trader can get trapped in a downward spiral and play behaviors similar to those performed recursively by an active alcoholic.

Success in trading is based on the three MMind, Method, and MoneyThe method is the first thing in which all beginners focus, but the result of your career as a trader in the market depends on the mind and money. Intellectually, the game of trading is not picky; Many successful traders have little formal education. There are only five numbers to take into account - maximum and minimum, opening and closing, as well as volume. On the other hand, emotions that occur during trading make it the hardest game in the world. The main source of stress is the total freedom that involves trading. The trader must decide when to enter and when to exit, when to take profits and when to keep open a position to win more,  when it is appropriate to accept a loss and when to expect a market turn in our favor.

When Alexander Elder wrote Trading for a Living, included in the book an idea that his editor thought it was a scandal. Elder wrote that losses for traders were like drinking for alcoholics. The level of risk that is set before opening a trade is a normal part of the game, but anything above that number is a waste - it's like getting drunk. In the book Elder recommends using the approach of the 12 Steps of Alcoholics Anonymous (AA), which apparently did much good to many people. The editor at the time wanted to do away with this concept on the book, but changed his mind when Elder offered to return the advancement of the book and break the contract. Many readers have written to say that the concept helped a lot.

A loser trader caught in a downward spiral, repeat the same mistakes, skip important parts of the task, and use money management rules, continually trying to trade in any way to get out of the hole. The trader is acting in many ways as an active alcoholic who would like to become sober, but who can not get off the roller coaster.

Some traders flock to professional coaches, but the AA method is more effective than any "professional help". Personally I would recommend to a trader who has lost his way, talk to another trader on a regular basis. Put an external observer on the scene, which can help a stressed loser trader to establish a discipline and start connecting their blind spots. It's what I call a Listener.

A listener is not a coach. He is not there to teach how to trade. He is there to help the losing trader to avoid impulse trades and develop greater discipline and better capacity for planning. The loser trader will send the listener his trading plans, the diary with the trades, and copies of the account statements. The purpose of having a Listener is to make us aware of all the steps that we follow in the markets and stop trading nonsense as this is a sure way to gets us into trouble.

In their presentations Elder explained the steps to establish a relationship with a Listener. He considered that it has to be done for a limited period and include a number of parameters. The relationship has to be clear and transparent, without a hidden agenda.

The truth about "Penny Stocks. We explain OTCMarkets thoroughly.

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At the request of many of our readers, we will explain in depth what are the penny stocks, how to tell if one of these listed companies in the OTCMarkets is reliable or otherwise, is a company of dubious credibility. Also let's break some myths about these stocks and shed some light to this high risk investment.

It is true that every large company started as a small company. Even Google, before being one of the most valuable companies in the world, in their beginnings had a couple of workers.  Every investor dreams of finding a company that is starting, buy their shares at $0.10 and in 10 years to have hundreds or thousands of shares worth $600 per share.