Myths In Trading World

Myth #1 – Trading System is mechanical and thus takes away your emotions and judgement

Trading System itself takes up only a percentage of trading. Joe started his trading career by attending a power trading system course and realized soon that no matter how good the system is, more than 90% of his course mates including himself cannot follow the system due to trading psychology. Those who succeeded immediately after the course are found out to be experienced and professional traders who already mastered trading psychology.
Besides trading system, the other 2 important components in trading are money management and trading psychology. Due to the fact that no trading system is perfect, the need for money management and trading psychology will never turn obsolete.

Myth #2 – Trading Psychology can only be acquired though actual trading

This myth used to be true until Joe made a break through and realised that trading psychology can be trained and conditioned using Neuro Linguistic Programming (NLP). However, it must be taken noted that NLP by itself will not turn a novice into an expert because the trading battlefield can never ever be simulated fully. What NLP can do is to bring a novice trader to a higher stage prior to entering the trading battlefield and drill the trader so well that regardless of fear, greed or impatience, the trader will relentlessly follow the planned strategy. Such drilling is similar to that of military drilling of soldiers so that they will attain braveness and courage and continue to act upon the command of the commander even in the bloody and merciless battlefield. NLP can also help experienced trader improve on his performance by deleting undesired traits and patterns in his trading and imprint desired patterns. As such, a main bulk of trading psychology can be acquired and trained with new science and training methodology such as NLP.

Myth #3 - Great Traders Can Predict the Market Direction

All traders can predict the market, but some will be correct half the time. In fact, traders who try and predict market direction are not termed as traders, but speculators or worse gamblers. All great traders understand that it is impossible to predict the market, so they do what is next best, prepare. Great traders are fully prepared for whichever condition the market goes and win trading in any circumstance. Do note that I am not speaking about analyst and have nothing against them. In fact most excellent analyst never predicts the market but speak of trends and probabilities which are different from prediction. Probably the best people to predict the market are people who can move the markets like terrorists or Guru Joe who holds the crystal ball.

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Safe Investment Practices

What are you exactly looking for: Huge profits or marginal profits? You have money to invest ; Investing wisely can make you rich.

The important things any investor needs to know are Risk, Duration, Returns and Liquidity. Risk Most people would like to get the best out of an investment. With every kind of investment there is some risk involved and knowing a few risks would help you manage the risks better.

• Inflation risk is your deposit keeping up with inflation. You may invest in a savings account, or certificate of deposit or bonds. When there is inflation in the economy your deposit is worth less than what you imagined it would be.
• Principal risk is a loss in the initial amount you invested. For example you buy stocks worth $5000 and the stock value has fallen and you find no other option but to sell rather than lose further. You sell all the stock at $2500. The principal you lost is $2500. If you retain the stock you may still lose if the stock value falls further.
• Interest Rate risk is the fluctuation of the price of stocks or bonds due to a fluctuation in the rates of interest.
• Market risk is the factors outside the control of companies like changes in the economy, government policy or market trade.
• Credit risk is when you invest in bonds and the company is unable to make interest. They return your entire principal. Then your investment has not yielded returns.
• Duration is as important a factor as risk in evaluating your investment. Duration is the time within which investors can get back their investments. Duration and risk determine the investment returns. Duration can be short term or long term and fixed or managed (by investor). Returns The Rate of Return (ROR), Return on investment (ROI) or simple return is the money earned or lost to the amount invested.

This is a very popular metric used in financial analysis. It is simple and versatile. If an investment does not have a positive ROI then it is not worth investing in it. If the investment has greater ROI then those investments are a better option. Generally investments that involve greater risks are those which promise a greater ROI. Liquidity Any asset that you own, be it property, stock, bonds etc… can be converted into cash. Money in the form of cash is the most liquid asset. In case you cannot convert your bond to cash within the term then your asset is illiquid.

• Tussle for returns: Over the long term property and stocks have out performed all the other assets. Real estate grants and real estate software could help you in real estate investments.
• Treasury bonds and other government related bonds are the safest investment for long term benefits.
• A diversified portfolio is a less risky than a concentrated portfolio in one or a few investments. The margin of profits you make will also be counter balanced.
• If you are not sure opt for managed investments instead of direct investments. You would have to pay costs for the management of your investments.
• A bank account is a safe place for cash in case you do not want to choose a high risk investment. Banking services could cost you and so the choice of services could be the best deal you make.
• Credit unions, mutual funds, money market funds, brokerage cash-management account and other options are also available.
• Invest in the energy sector stocks. Oil, natural gas and related stock have risen enormously over the past few years.
• Hotel and travel is another popular target for investment options.
• Mortgage companies are also in the fray for investing your cash. But make a wise choice as many have acquired a dubious distinction of cheating customers.
• Computer related stocks like software, hardware and internet have seen gainers and losers. Big cap stocks like eBay and Google are the best bet.
• Investing in gold, platinum or precious stones are also beneficial as these show signs of increase when the currency falls. Prudence in some investments is always advisable. Learn how the investment market works and then invest.

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Tips on How to pick the winning stocks

Investment can be one of the ways to be rich... Here investment mean picking the right stock.

Given below are some tips to help one pick the winning stocks:

Stock Research Report or Company Report Get the Revenue figure. What you want to know, is whether it has steady growth evidenced by sales figure on an upward climb. Understanding more about the Cost of Goods Sold figure. This tells you more about the costs of all materials and expenses incurred in making the product. Rental in keeping stocks is not accounted.

Financial Ratios' The few favourite ratios :

• P/E (Price to Earnings Ratio) , EPS (Earnings Per Share) and ROE (Return on Equity) This ratio reveals about the value of a stock. The price of a stock divided by the earning per share is called the p/e ratio. Every stock has a trailing p/e and a forward p/e. The trailing p/e uses earnings from the past 1 year while the forward p/e uses next year's projected earnings. Compare the current p/e with its historic p/e during its last 3 years. Try to "aim" for a stock with low p/e. If the p/e is high, its risky as it is more difficult to meet the high earning expectations of its shareholders. Companies with low p/e ratios usually operate in slow growth industries. Also mature companies with low p/e often pay dividends while high p/e ratios usually does not.
• EPS : This ratio reveals the growth of the stock. It takes what the company earned and divides it by the number of outstanding stock shares. This ratio is usually reported at the end of the year. But realise that this figure can be manipulated due to market pressure. Of course, the bigger this ratio is, the better.
• ROE: Some people consider this to be the "it" to measure the stock's success. This ratio shows you the rate of return to shareholders by dividing the net income by the total shareholders' equity. Big is good. Anything above 20 percent is good for me... 3. Sector Outlook A few things must be enquired before compiling a list of stock possiblities a) Does the company produce high end services/ products? b) Does the company management have experienced/ qualified personnels in the industry they are in? (For me personally, I believe that in highly specialised fields, higher value added performance is obtained from people who are "skilled specialist" : That explains why Google is superb in the things they do ) c) Is the stock reasonably priced? d) What about comparisons with the other stocks? e) Does a company have patents to keep potential rivals at bay? There you are.. good luck!

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Tips For Hitting it Big in Stock Market

Everyone wants the chance to strike it big in stock trading, but few actually know how. The stock market has always been where many hopefuls go to try to bring their dreams to reality. This is not always easy but with some tips it can make starting your journey into the stock market a lot easier.

• Check with your company and see if you are part of a stock option - Many people may be involved in this and not even know it. This is when employees are rewarded for helping the business grow with complementary company stocks. This is a great way for many people to start off. With stock options you can either invest in the company, hoping that it will grow, or you can bet that the company is going to lose money and do poorly. Either way their is risk but if you pick right there may be great reward.
• Try investing in penny stocks - Penny stocks are companies that have either just started out, or they have fallen from a much higher price. The risk may be high if you put a lot of money into the stock, but the reward will be enormous if the price goes up, even a couple cents. Don't believe the people that claim a certain penny stock is going to increase by thousands of percent and you should buy now. Most of those are lies, you should do your own research, and buy stocks that you are comfortable with.
• Get a bonds guide - Bonds guides give you a look inside the world of bonds and tell you when you should get involved. Bonds are more of a long term investment for people looking for future financial stability. These bonds can pay off really well for you. Now there are three easy tips for anyone hoping to get into the stock market.

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Online Currency Trading requires Patience

When the going gets tough, the tough get going. This adage often brings back the memories of my past days when I was trading initially in the currency exchange market. Indeed, there’s nothing more hurtful than losing your invested money in the FX market. But, online currency trading is like life where you’ve got to learn from your wrong moves and keep moving on. Learning the basic skills of online forex trading could be easy but, practically, one needs to acquire the advanced skills to play safe through thick and thin of FX trading.

I have traded in forex for many years and, if you count on me, I must tell you that the secret of successful trading lies largely on the hunch and in tuition of a trader. Technically expressed, you should have the accurate forex alerts signals to be able to make the right moves in the currency market. However, this is easier said than done as the skills of the online currency trading takes a long time to master. This is why while a few people are able to boost their forex pips in a short span of time, the others take a long time to achieve the same or maybe, some of them get frustrated and just give it up! The reality is that not many people are ready to be entirely devoted to the perilous process of online forex trading.

Having said this, I still wonder why some people choose to be a dare-devil and risk their money instead of simply following an established and renowned online forex trading broker system. I began trading in 1997 and there is one important thing I have learnt in my trading career so far, i.e., you have to got to be patient to learn the tricks of making right moves at the right times and profit from your trading.

Since I have led quite a successful career in forex trading, I have been sharing the tips and tricks of online currency trading with many traders around the worldt hrough G7 Forex Trading System which as you know has remained pretty successful for many traders so far. My G7 Forex Trading System is an easy-to-follow, step-by-step trading manual offering in-depth online forex trading review.

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Cash Deal for your Non-Investment Expenditures

Most personal finance gurus continually stress the importance of budgeting for monitoring and modifying poor spending habits. However, for most people who attempt to implement a family budget eventually give up on the activity, mainly because it takes the fun out of spending money. You know what, I agree! An impulse purchase here and there feels good! And as it turns out, an impulse purchase made on occasion won’t necessarily create a big problem for most us. The problems arise when we decide to make them on credit. Here’s an excellent personal finance tip for all you budget-haters out there – pay cash for all non-investment expenditures and eliminate your need to budget.

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What is a Non-Investment Expenditure Anyway?
First off, let’s define investment expenditure. By my own definition, an investment expenditure is a transaction that involves the purchase of an asset that appreciates in value. On the flip side, a non-investment expenditure represents all other transactions. One quick check you can make before whipping out your credit card to buy something is to ask yourself, “Is there a high likelihood that I will be able to sell this item in the future for more than I am paying now?” If the answer is “no,” pay cash. If you don’t have the money, you can’t make the purchase. It’s that simple.

Examples of Non-Investment Expenditures
Unfortunately, the vast majority of our everyday spending is classified as non-investment expenditures. Groceries, fuel for the vehicles, dining out, your cell phone bill, a new pair of designer jeans – these are all non-investment expenditures. Some of these items may be extremely important, even life sustaining. But purchasing on credit, even for life sustaining expenditures, encourages excess. Let’s take food, for instance. To purchase enough food for the family to survive really does not cost much money. What costs us a pile of money are the rib-eye steaks, junk food, alcoholic beverages, and sodas we routinely buy. Moreover, these foods are bad for our health! Grocery shopping with cash forces us to reconsider the food choices we make, in terms of both health and money. And that’s a good thing.

What Else is There?
You may be asking yourself, “Would any of my spending be classified as investment expenditures?” For me, two things come to mind – your home and your education. A home is rather obvious because, over time, houses have always increased in value. A college education would also be considered an investment because it provides one the opportunity to earn more money than he would otherwise make. Because these two items are considered investments, taking out a loan to pay for them can be justified. In addition, home mortgages and college loans offer some of the lowest interest rates of any form of credit, making them even more attractive expenditures.

One Caveat to Consider
Although following the above advice can eliminate the need for a budget, one other choice must be made to assure financial success in the future. An automatic investment plan must be initiated to make certain your investment accounts are funded before all the money is spent. If you work for a company that offers a 401k plan, this is done automatically. If you have outside accounts, you will have to notify the firm to initiate automatic transfers from your checking account. With most firms, you can set up the automatic transfers yourself from your online account interface.

Summary
Although a budget is a fantastic tool for monitoring and modifying our spending habits, the cold hard truth is that many of us will never stick to one. Should these folks be doomed to financial hell for the rest of their lives for this so-called lack of discipline? Of course, not! Just follow a simple personal finance tip to pay cash for all non-investment expenditures and you, too, will reach financial success in the future.

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About Hedge Funds (Part 2)

Hedging Strategies
A wide range of hedging strategies are available to hedge funds. For example:

• Selling Short - selling shares without owning them, hoping to buy them back at a future date at a lower price in the expectation that their price will drop.
• Using Arbitrage - seeking to exploit pricing inefficiencies between related securities - for example, can be long convertible bonds and short the underlying issuers equity.
• Trading Options or Derivatives - contracts whose values are based on the performance of any underlying financial asset, index or other investment.
• Investing in Anticipation of a Specific Event - merger transaction, hostile takeover, spin-off, exiting of bankruptcy proceedings, etc.
• Investing in Deeply Discounted Securities - of companies about to enter or exit financial distress or bankruptcy, often below liquidation value. Many of the strategies used by hedge funds benefit from being non-correlated to the direction of equity markets

Popular Misconception
The popular misconception is that all hedge funds are volatile, that they all use global macro strategies and place large directional bets on stocks, currencies, bonds, commodities, and gold, while using lots of leverage. In reality, less than 5% of hedge funds are global macro funds. Most hedge funds use derivatives only for hedging or don't use derivatives at all, and many use no leverage.

Benefits of Hedge Funds

• Many hedge fund strategies have the ability to generate positive returns in both rising and falling equity and bond markets.
• Inclusion of hedge funds in a balanced portfolio reduces overall portfolio risk and volatility and increases returns.
• Huge variety of hedge fund investment styles – many uncorrelated with each other – provides investors with a wide choice of hedge fund strategies to meet their investment objectives.
• Academic research proves hedge funds have higher returns and lower overall risk than traditional investment funds.
• Hedge funds provide an ideal long-term investment solution, eliminating the need to correctly time entry and exit from markets.
• Adding hedge funds to an investment portfolio provides diversification not otherwise available in traditional investing.

  Hedge Fund Styles: The predictability of future results shows a strong correlation with the volatility of each strategy. Future performance of strategies with high volatility is far less predictable than future performance from strategies experiencing low or moderate volatility.

  Aggressive Growth: Invests in equities expected to experience acceleration in growth of earnings per share. Generally high P/E ratios, low or no dividends; often smaller and micro cap stocks which are expected to experience rapid growth. Includes sector specialist funds such as technology, banking, or biotechnology. Hedges by shorting equities where earnings disappointment is expected or by shorting stock indexes. Tends to be "long-biased." Expected Volatility: High

  Distressed Securities: Buys equity, debt, or trade claims at deep discounts of companies in or facing bankruptcy or reorganization. Profits from the market's lack of understanding of the true value of the deeply discounted securities and because the majority of institutional investors cannot own below investment grade securities. (This selling pressure creates the deep discount.) Results generally not dependent on the direction of the markets. Expected Volatility: Low - Moderate

  Emerging Markets: Invests in equity or debt of emerging (less mature) markets that tend to have higher inflation and volatile growth. Short selling is not permitted in many emerging markets, and, therefore, effective hedging is often not available, although Brady debt can be partially hedged via U.S. Treasury futures and currency markets. Expected Volatility: Very High

  Funds of Hedge Funds: Mix and match hedge funds and other pooled investment vehicles. This blending of different strategies and asset classes aims to provide a more stable long-term investment return than any of the individual funds. Returns, risk, and volatility can be controlled by the mix of underlying strategies and funds. Capital preservation is generally an important consideration. Volatility depends on the mix and ratio of strategies employed. Expected Volatility: Low - Moderate - High

  Income: Invests with primary focus on yield or current income rather than solely on capital gains. May utilize leverage to buy bonds and sometimes fixed income derivatives in order to profit from principal appreciation and interest income. Expected Volatility: Low

  Macro: Aims to profit from changes in global economies, typically brought about by shifts in government policy that impact interest rates, in turn affecting currency, stock, and bond markets. Participates in all major markets -- equities, bonds, currencies and commodities -- though not always at the same time. Uses leverage and derivatives to accentuate the impact of market moves. Utilizes hedging, but the leveraged directional investments tend to make the largest impact on performance. Expected Volatility: Very High

  Market Neutral - Arbitrage: Attempts to hedge out most market risk by taking offsetting positions, often in different securities of the same issuer. For example, can be long convertible bonds and short the underlying issuers equity. May also use futures to hedge out interest rate risk. Focuses on obtaining returns with low or no correlation to both the equity and bond markets. These relative value strategies include fixed income arbitrage, mortgage backed securities, capital structure arbitrage, and closed-end fund arbitrage. Expected Volatility: Low

  Market Neutral - Securities Hedging: Invests equally in long and short equity portfolios generally in the same sectors of the market. Market risk is greatly reduced, but effective stock analysis and stock picking is essential to obtaining meaningful results. Leverage may be used to enhance returns. Usually low or no correlation to the market. Sometimes uses market index futures to hedge out systematic (market) risk. Relative benchmark index usually T-bills. Expected Volatility: Low

  Market Timing: Allocates assets among different asset classes depending on the manager's view of the economic or market outlook. Portfolio emphasis may swing widely between asset classes. Unpredictability of market movements and the difficulty of timing entry and exit from markets add to the volatility of this strategy. Expected Volatility: High

  Opportunistic: Investment theme changes from strategy to strategy as opportunities arise to profit from events such as IPOs, sudden price changes often caused by an interim earnings disappointment, hostile bids, and other event-driven opportunities. May utilize several of these investing styles at a given time and is not restricted to any particular investment approach or asset class. Expected Volatility: Variable

  Multi Strategy: Investment approach is diversified by employing various strategies simultaneously to realize short- and long-term gains. Other strategies may include systems trading such as trend following and various diversified technical strategies. This style of investing allows the manager to overweight or underweight different strategies to best capitalize on current investment opportunities. Expected Volatility: Variable

  Short Selling: Sells securities short in anticipation of being able to rebuy them at a future date at a lower price due to the manager's assessment of the overvaluation of the securities, or the market, or in anticipation of earnings disappointments often due to accounting irregularities, new competition, change of management, etc. Often used as a hedge to offset long-only portfolios and by those who feel the market is approaching a bearish cycle. High risk. Expected Volatility: Very High

  Special Situations: Invests in event-driven situations such as mergers, hostile takeovers, reorganizations, or leveraged buyouts. May involve simultaneous purchase of stock in companies being acquired, and the sale of stock in its acquirer, hoping to profit from the spread between the current market price and the ultimate purchase price of the company. May also utilize derivatives to leverage returns and to hedge out interest rate and/or market risk. Results generally not dependent on direction of market. Expected Volatility: Moderate

  Value: Invests in securities perceived to be selling at deep discounts to their intrinsic or potential worth. Such securities may be out of favor or under followed by analysts. Long-term holding, patience, and strong discipline are often required until the ultimate value is recognized by the market. Expected Volatility: Low - Moderate

  What is a Fund of Hedge Funds?

  • A diversified portfolio of generally uncorrelated hedge funds.
  • May be widely diversified, or sector or geographically focused.
  • Seeks to deliver more consistent returns than stock portfolios, mutual funds, unit trusts or individual hedge funds.
  • Preferred investment of choice for many pension funds, endowments, insurance companies, private banks and high-net-worth families and individuals.
  • Provides access to a broad range of investment styles, strategies and hedge fund managers for one easy-to-administer investment.
  • Provides more predictable returns than traditional investment funds.
  • Provides effective diversification for investment portfolios.

  Benefits of a Hedge Fund of Funds

  • Provides an investment portfolio with lower levels of risk and can deliver returns uncorrelated with the performance of the stock market.
  • Delivers more stable returns under most market conditions due to the fund-of-fund manager’s ability and understanding of the various hedge strategies.
  • Significantly reduces individual fund and manager risk.
  • Eliminates the need for time-consuming due diligence otherwise required for making hedge fund investment decisions.
  • Allows for easier administration of widely diversified investments across a large variety of hedge funds.
  • Allows access to a broader spectrum of leading hedge funds that may otherwise be unavailable due to high minimum investment requirements.
  • Is an ideal way to gain access to a wide variety of hedge fund strategies, managed by many of the world’s premier investment professionals, for a relatively modest investment.

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Mobilizing Savings for Investment

Stock exchange or bourse is a mutual organization which provides facilities for stock brokers and traders, in trading company stocks and other securities, and for the issue of redemption of securities and other financial tools and capital events like the payment of income and dividends.

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The securities traded on a stock exchange include shares issued by companies, unit trusts and other pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there.

Usually there is a central location at least for record keeping, but trade is less linked to such a physical place. Electronic networks run modern markets are, providing them great speed and cost of transactions.

Stock exchange is often called the most important element of a stock market. The Demand and Supply in the stock markets is attracted by number of factors that affect the price of stocks.

Mobilizing savings for investment:
When people draw their savings and invest in shares, it leads to a more balanced allotment of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized to promote business activity that benefits several economic sectors like agriculture, commerce and industry, resulting in a stronger economic growth.

History of stock exchanges:
In 12th century France, the courratiers de change were concerned with managing the debts of agricultural communities on behalf of the banks and these men also traded in debts. These men were the first brokers. In the middle of the 13th century, Venetian bankers traded in government securities. In 1351, the Venetian Government outlawed spreading rumors about lowering the price of government funds. Because of this rumor people in Pisa, Verona, Genoa and Florence also started trading in government securities which was possible because there were independent city states ruled by a council of powerful citizens during the 14th century.

Raising capital for businesses:
The Stock Exchange helps current and newly-formed companies raise capital for building and expanding their business through selling shares to the investing public.

Creating investment opportunities for small investors:
The Stock Exchange provides opportunity for small investors like the big investors to own shares of the same or different companies.

Government capital-raising for development projects:
Governments at various levels may decide to borrow money for financing infrastructure projects like sewage and water treatment works or housing estates by selling another category of securities known as bonds. These bonds are raised through the Stock Exchange where public buy them, thus loaning money to the government. The issuance of such municipal bonds can prevent the need to directly tax the citizens in order to finance development, although by securing such bonds with the full faith and credit of the government instead of with collateral, the result is that the government must tax the citizens or otherwise raise additional funds to make any regular coupon payments and refund the principal when the bonds mature.

Listing requirements:
Listing requirements are the set of conditions forced by any given stock exchange upon companies that want to be listed on that exchange.

Requirements by stock exchange:
For companies to have their stock and shares listed at the stock exchange have to meet certain requirements of the exchange. But requirements vary in different exchanges.

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About Hedge Funds (Part 1)

What is a Hedge Fund?
A hedge fund is a fund that can take both long and short positions, use arbitrage, buy and sell undervalued securities, trade options or bonds, and invest in almost any opportunity in any market where it foresees impressive gains at reduced risk. Hedge fund strategies vary enormously, many hedge against downturns in the markets especially important today with volatility and anticipation of corrections in overheated stock markets. The primary aim of most hedge funds is to reduce volatility and risk while attempting to preserve capital and deliver positive returns under all market conditions.

There are approximately 14 distinct investment strategies used by hedge funds, each offering different degrees of risk and return. A macro hedge fund, for example, invests in stock and bond markets and other investment opportunities, such as currencies trading, in hopes of profiting on significant shifts in such things as global interest rates and countries’ economic policies. A macro hedge fund is more volatile but potentially faster growing than a distressed-securities hedge fund that buys the equity or debt of companies about to enter or exit financial distress. An equity hedge fund may be global or country specific, hedging against downturns in equity markets by shorting overvalued stocks or stock indexes. A relative value hedge fund takes advantage of price or spread inefficiencies.

Knowing and understanding the characteristics of the many different hedge fund strategies is essential to capitalizing on their variety of investment opportunities.

It is important to understand the differences between the various hedge fund strategies because all hedge funds are not the same -- investment returns, volatility, and risk vary enormously among the different hedge fund strategies. Some strategies which are not correlated to equity markets are able to deliver consistent returns with extremely low risk of loss, while others may be as or more volatile than mutual funds. A successful fund of funds recognizes these differences and blends various strategies and asset classes together to create more stable long-term investment returns than any of the individual funds.

• Hedge fund strategies vary enormously – many, but not all, hedge against market downturns – especially important today with volatility and anticipation of corrections in overheated stock markets.
• The primary aim of most hedge funds is to reduce volatility and risk while attempting to preserve capital and deliver positive (absolute) returns under all market conditions.
• The popular misconception is that all hedge funds are volatile -- that they all use global macro strategies and place large directional bets on stocks, currencies, bonds, commodities or gold, while using lots of leverage. In reality, less than 5% of hedge funds are global macro funds. Most hedge funds use derivatives only for hedging or don’t use derivatives at all, and many use no leverage.

Key Characteristics of Hedge Funds

• Hedge funds utilize a variety of financial instruments to reduce risk, enhance returns and minimize the correlation with equity and bond markets. Many hedge funds are flexible in their investment options (can use short selling, leverage, derivatives such as puts, calls, options, futures, etc.).
• Hedge funds vary enormously in terms of investment returns, volatility and risk. Many, but not all, hedge fund strategies tend to hedge against downturns in the markets being traded.
• Many hedge funds have the ability to deliver non-market correlated returns.
• Many hedge funds have as an objective consistency of returns and capital preservation rather than magnitude of returns.
• Most hedge funds are managed by experienced investment professionals who are generally disciplined and diligent.
• Pension funds, endowments, insurance companies, private banks and high net worth individuals and families invest in hedge funds to minimize overall portfolio volatility and enhance returns.
• Most hedge fund managers are highly specialized and trade only within their area of expertise and competitive advantage.
• Hedge funds benefit by heavily weighting hedge fund managers’ remuneration towards performance incentives, thus attracting the best brains in the investment business. In addition, hedge fund managers usually have their own money invested in their fund.

Facts About the Hedge Fund Industry

• Estimated to be a $1 trillion industry and growing at about 20% per year with approximately 8350 active hedge funds.
• Includes a variety of investment strategies, some of which use leverage and derivatives while others are more conservative and employ little or no leverage. Many hedge fund strategies seek to reduce market risk specifically by shorting equities or through the use of derivatives.
• Most hedge funds are highly specialized, relying on the specific expertise of the manager or management team.
• Performance of many hedge fund strategies, particularly relative value strategies, is not dependent on the direction of the bond or equity markets -- unlike conventional equity or mutual funds (unit trusts), which are generally 100% exposed to market risk.
• Many hedge fund strategies, particularly arbitrage strategies, are limited as to how much capital they can successfully employ before returns diminish. As a result, many successful hedge fund managers limit the amount of capital they will accept.
• Hedge fund managers are generally highly professional, disciplined and diligent.
• Their returns over a sustained period of time have outperformed standard equity and bond indexes with less volatility and less risk of loss than equities.
• Beyond the averages, there are some truly outstanding performers.
• Investing in hedge funds tends to be favored by more sophisticated investors, including many Swiss and other private banks, that have lived through, and understand the consequences of, major stock market corrections.
• An increasing number of endowments and pension funds allocate assets to hedge funds.

Go to Part 2

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Children Savings Accounts - Making the Best Decisions Now for Your Child's Future

From the first flutter we feel inside to the first time we hold our children in our arms, we realize that we are responsible for a life other than our own. We want to make the best decisions we can and ensure that our child’s needs are provided for. But what if something happens to us? What would happen to them?

529 & Other College Savings Plans for Dummies by Margaret A. Munro A simply way to find a reasonable solution to a seemingly unreasonable problem: saving for future college costs in the sanest, least stressful way possible for you. In keeping with the theme of stress reduction, you can use this book in a variety of ways: As a reference: It’s all here: the ins, the outs, the do’s, and the don’ts. The world of college savings is one of very specific rules, and they’re here, in all their glory, and they’re all explained. As an advisor: It’s a case of the very good savings techniques, the merely okay savings techniques, and the truly ugly techniques (which you really want to avoid), and this book highlights them all. As a little light reading: Amazingly enough, the topic of money can be mildly amusing, and college savings is no exception. Read this with an eye towards the absurd, and you won’t go far wrong.

While life insurance can provide some security that our children will be provided for, by starting a child’s savings account or purchase bonds in their name we can secure their financial future. In the beginning, we will be the ones who will add money to our children’s accounts for the purpose of offsetting the increasing costs of college tuition or private education. Unlike college savings plans, a children savings account offer the flexibility of accessing money when your child needs it most; whether that is before they are of college-age or after.

The money that has been invested in a children savings account will be available to the child immediately without penalty. A number of financial institutions offer a children savings account, so search for the best rates possible with the fewest restrictions. Many banks have a children savings account that offers no minimum age, but require that an adult take trust of the money until the child reaches a certain age, usually 18 years of age.

Bonds are another option for brightening your child’s financial future. Because bonds hold the initial monetary investment for a set amount of time before they mature, they may have a higher interest rate than the more flexible children savings account.

However, in order for bond purchasing to be beneficial you have to be prepared to wait for the bonds to mature over a period of time, usually a minimum of three years and in most cases, much longer. By opening a children savings account or purchasing bonds, we create a cash flow cushion available when our children may need it as well as the peace of mind of knowing that the small investments we make over time will give to our children in more ways than we imagined. Whenever you are doing a research on one subject, try to get to the essence of what you are studying. It is true of mundane areas as well.

As you search for information about savings accounts try and reach the best value, definitions and clarity. Read what we have on our site on savings accounts and if you need more material on this you can always go to the world wide web again to finish up on your studies. In this information age, there is a lot of options for increasing your knowledge base.

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Understanding the Difference Between Investment Advisors & Investment Managers

People are often confused by the number of different professionals who provide investment advice. There are financial advisors, brokers, investment consultants, wealth managers, financial consultants and financial planners. Given the fact that there is an ever-increasing amount of the nations liquid investable wealth in the hands of these investment professionals, it is important for investors to be knowledgeable about the role of the different persons involved in the investment process. If you add in the fact that people are becoming increasingly concerned about their retirement security, it is entirely possible that investors are going to have much higher expectations of their financial professionals as time goes by.

The Big Investment Lie: What Your Financial Advisor Doesn't Want You to Know by Michael Edesess Reveals the unfortunate truth behind the financial advisory industry that professional investors cannot, and never have been able to, beat market averages.

In order for investors to make an informed choice among the various financial service providers, they should first understand that any firm or individual who receives compensation for providing advice about securities (“investment advice”) is required to register with the SEC (or at the state level) and is regulated under the Investment Advisers Act of 1940. This applies to any firm or individual, such as financial advisors, brokers, investment consultants, wealth managers, financial consultants and financial planners. With that said, here are the main differences between Investment Advisors and Investment Managers.

The Investment Advisor is best defined as a professional who makes decisions about asset allocation, developing the investment strategy, implementing the strategy with appropriate Investment Managers and monitoring the strategy on an ongoing basis.

The role of the Investment Advisor is considered the most important, yet most misunderstood, role in the investment process. The Investment Advisor is a professional who provides comprehensive and continuous investment advice; the operative words being “comprehensive” and “continuous.” Because of the trust and confidence clients put in them, an Investment Advisor is considered a fiduciary.

A fiduciary is a person responsible for managing the assets of another person and stands in a special relationship of trust, confidence, and/or legal responsibility. Investment Advisors have a fiduciary duty to clients, which means they must put their clients interests ahead of their own. He or she must recommend the best investment for the client. The compensation of an advisor cannot be dependent upon which products or assets a client ends up investing in. This distinguishes Investment Advisors from those who are product driven, with more of an interest in selling financial products, rather than providing reliable investment advice.

• Types of Investing Risks
  Investing in stocks is a risky business. There are some risks you have some control over and others that you can only guard against. Thoughtful investment selections that meet your goals and risk profile keep individual stock and bond risks at an acceptable level.

The Investment Manager, on the other hand, is responsible for making investment decisions, including buying and selling individual securities (such as individual stocks) for an investment portfolio. Examples include money managers who are responsible for separate accounts and mutual funds.

Although it is possible to serve in both capacities, as an Investment Advisor and as an Investment Manager, it is very difficult to be an expert in both. You should keep this in mind when choosing a financial advisor. In other words, if you follow the time proven maxim of doing what you do best, you could choose an Investment Advisor whose role is to manage the investment process and to delegate the investment decisions about individual stock and bond picks to the Investment Managers.

In summary, the Investment Managers make the decisions about which stocks or bonds to buy and sell. Investment Advisors manage the Investment Managers.

• Creating Cash Flow Formula for Your Investment
  there may be times when you need to generate some cash flow and there are some relatively safe strategies you can use to produce income...

Do you understand the importance of the role of Investment Advisors in helping people manage their wealth? Do you have any questions about the difference between Investment Advisors and Investment Managers?
What is your opinion? Do you believe investors are going to have increasingly higher expectations of their Investment Advisor as a result of their concern about retirement security?

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401k Options When Changing Jobs

What should you do with your old 401k plan if you change jobs? As you know, a 401k or other defined contribution plan is an excellent retirement savings vehicle. You can accumulate a substantial amount of money over many decades providing you let the money grow. With a traditional 401k, you also get the additional benefit of tax-deferred growth. With a Roth 401k, you forego the pre-tax advantage for tax-free withdrawals later in life when you take your money out.

IRAs, 401(k)s & Other Retirement Plans: Taking Your Money Out by Twila Slesnick, John C. Suttle Discusses all common types of retirement plans, including 401(k)s and other profit-sharing plans, Keoghs, IRAs and tax-deferred annuities. It covers: tax strategies before and at retirement penalties for taking money out early minimizing taxes distributions you must take distributions to your heirs

Now suppose you have built up an impressive account balance over the years when suddenly you are faced with having to make a difficult decision. Every year, many people obtain new jobs or careers. Along with the excitement of a new transition comes apprehension and uncertainty over what to do with the old retirement plan. Discrepancies and inaccurate advice can cause anxiety for some and catastrophic financial consequences for others.

What you do can have a significant effect on your financial future. One mistake can cost thousands if not hundreds of thousands of dollars or more. The choice you make depends on your personal situation and whether your new employer offers a similar defined contribution plan.

If you have been investing money in your 401k plan for any length of time, you most definitely know about the benefits of tax-deferred growth. You may also be aware of the tax consequences and potential penalties on premature withdrawals if you take your money out early. That said, taking your money out of your old retirement plan is the least favorable option. Here’s why. Say you have an old account balance worth $200,000. If you take it all out in one lump sum to buy a house or whatever, you will owe taxes of approximately $70,000 in addition to a potential penalty of $20,000 leaving you with only $110,000 out of $200,000. If you leave your current job prior to age 55, withdrawals from your 401k are subject to a ten-percent early withdrawal penalty. You should never use the money in your 401k for any reason other than for providing an income during retirement.

If you do not cash it in, what else could you do with it? Maybe you have heard about the possibility of rolling your old 401k account over into your new employer’s plan. Rolling over to a new employer’s plan will preserve your account for retirement with the added benefit of continued tax-deferral. You should consider this option after careful consideration of other factors, such as the investments held outside of your retirement plan and the investment choices available with the new plan as well as your personal situation. One disadvantage with many 401k plans is the lack of quality investment choices within all asset classes. This makes it difficult to construct a well diversified portfolio consistent with every investors risk profile.

Depending on the options available in the new employer’s plan, you may be inclined to leave your money in your old employer’s plan. Letting it remain in the old plan is easy and certainly better than cashing out as described above. Maybe there are better investment options in the old plan than in the new one. The option to leave your money in your old plan or roll it into a new plan depends largely on the quality and quantity of options available in either 401k as compared to an IRA.

The advantages of rolling your old plan into an IRA are continued tax-deferral and a wider range of investment options. Having the entire universe of investment choices makes constructing diversified portfolios a much easier task. There are virtually no limitations. In addition to the advantage of more and frequently better investment options, an IRA offers the potential for significant tax savings for non-spousal beneficiaries. However, those who change jobs frequently may find themselves with several old employer accounts and/or IRAs. It can certainly become more difficult to manage many different retirement accounts making it easier to ruin a well diversified retirement plan.

Each option, leaving the money in the old plan, rolling over to the new plan or rolling into an IRA, has advantages and disadvantages. The right choice depends on each person’s specific financial situation. A thorough review and understanding of plan documentation and assistance from a qualified professional can help to make the decision easier.

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The Hedge Fund Manager Evaluation And Transparency

According to Lionel Barber, editor of the Financial Times, "Hedge funds are the vanguard of a financial revolution. Once little known and secretive fringe forces, they have become leading actors in reshaping the corporate world. As active investors capable of mobilizing billions of dollars of capital, these new institutions have become enormously powerful as well as impressively innovative."

Inside the House of Money: Top Hedge Fund Traders on Profiting in the Global Markets by Steven Drobny Lifts the veil on the typically opaque world of hedge funds, offering a rare glimpse at how today's highest paid money managers approach their craft. Author Steven Drobny demystifies how these star traders make billions for well-heeled investors, revealing their theories, strategies and approaches to markets.

Here are some pointers from the 2007 State Street Hedge Fund Research Study. I can't supply the report because it had to be requested and is not available online yet. There is a story here; "State Street Study Shows Institutional Investment - In Hedge Funds Is on the Rise" which is also included in the report.

Among the greatest perceived risks to hedge funds cited by institutions in the study are headline risk (20%) and investment loss (20%). Here are some things to look for before investing in a hedge fund;

• Ownership structure - Review the ownership structure to ensure that the terms, including redemption policies and lockups abide by expectations and that compensation of employees motivates performance.
• Background check - Conduct a complete background check on the hedge fund and its principals, including their history, NASD and NFA filings, both civil and criminal records. Complete confidence in your manager is essential to a successful strategy.
• Adherence to strategy - Analyze current and historical statement to confirm that they adhere to the specific hedge fund strategy for which the manager is being hired. Doing so could reveal managers who have become opportunistic investors once there style comes under performance pressure.
• Trading - Thoroughly analyze the hedge fund's securities dealing and clearing procedures. Whether these procedures are conducted internally or via the service of a third party provider, details can provide insight into a funds risk management philosophy and fee structure.
• Documentation - Review the hedge fund or separate account documentation, including ADV, offering memorandum and disclosure documents. For US plan sponsors, Employee retirement income Security Act qualifications, SEC and CFTC registrations and filings, and SAS 99 fraud checks also if necessary.
• Internal procedure - Review the hedge fund manager's internal procedures. It is important to know what tasks the manager performs itself and what duties are undertaken by third party service providers. It is important to ensure the proper risk controls and that procedures are in place.

Hedge funds are not equal in the level of information they provide to investors, yet it is important to find out all you can.

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Win / Loss Ratio in CFD Trading

Among the questions often asked by clients when selecting an adviser or a system for CFD trading is what percentage of recommendations they can expect to be winners, and how much should they expect to make each month, year or whatever. These form part of a natural psychological comfort zone, but may be part of the reason why so many people fail as traders.

The Complete Guide to Online Stock Market Investing by Alexander Davidson Provides all the information and techniques needed to make money as an online stock market investor. The strategies revealed are tried and tested. In 20 easy modules, readers will discover the secrets of buying bargain stocks and trading. Drawing on the author's most recent experience in the City (London's financial district), this latest edition of the classic guide shows how to: get the most from the broker, select value and growth stocks, read the charts, choose promising investment funds, trade derivatives for fast profit, deal foreign exchange, and manage your money and win.

In any area of speculation, whether it is stockmarket investment, spreadbetting, forex trading or CFDs, if the underlying system has a small edge, it is only the first part of potential success. The key to achieving constant returns lies with a correct approach to the win/loss ratio and not in expecting any particular level of gains, which can distort the underlying methodology. CFD traders have the ability to go long and short at will, and online trading makes it easy to adjust stops and targets at any time.

An example of a good win/loss ratio that fails
Consider this example: a CFD trader selects a system where there is a supposedly proven record of seven out of each ten trades proving to be winners. The idea might be that each trade has a target return of 3%, and if it is achieved the position is closed. If the trade however shows a loss of 3%, the expectation is that it should recover and the position is doubled up, with the hope of returning to parity or even making a 6% gain. Now if market or share movements were a random sequence, it would not make any difference where one entered or exited. The overall returns would over time be neither a gain nor a loss, but costs and the spread on trading would result in a virtual guaranteed loss in due course (the casino approach).

Having a slight edge is not enough
If this system had an edge though, the expectation might be that the 3% target would possibly be hit six out of ten times, thus making it a virtual winning approach. But the problem lies in the fact that although markets and shares do have short term periods when there appears to be random action, they can both trade a range and trend strongly at other times – this is what is known as regular irregularity, which might seem a paradox, but happens all the time in financial markets.  Shares often move very quickly in one direction, and this trend can continue for far longer than expected, which creates two problems.

First, taking a 3% profit on a trade may appear to be very satisfactory, but it can often be seen in hindsight that the profit was taken too early, so despite achieving a winning trade there is an element of regret that more was not taken. Second, if the position is showing a loss, then the trade should in the real world be deemed to be incorrect and closed out. But in using such a system as this, by doubling up or averaging the position on losses, all that is achieved is an increase in risk – the trader might be lucky in some situations, but one or two trades out of the ten may cause severe problems. There is also the emotional capital that is tied up in losing trades.

This type of system typically might produce say six 3% winners, two evens (where one position was doubled up and returned to parity) and two 10% losers. Here the overall loss would be 2%, despite the good win/loss ratio, and this is clearly a dangerous way to play the markets, but many traders operate exactly in that way.

Improving the risk/reward
The first point is to set a stop loss on each trade and stick to it. Doubling up simply doubles the risk – that is fine if there is another system signal that reinforces the first trade, but generally that is not the case. The problem that then occurs is that if the stop and targets are quite close in percentage terms, the bouts of short term randomness mean that it can almost be like coin tossing, which with costs is a futile approach.

The key is therefore to ensure the gains are much greater than the losses, so that even if one only achieves four wins out of ten, there may be two big winners in there. If a trader decides that a 3% average loss is acceptable, then what average gain should be sought? This is the $64 question, and the key is to let profits runs as much as possible within a clearly defined trend. The following rules are part of the methodology used at Blue Index for the longs and shorts CFD portfolio, and the long term results have so far proved more than satisfactory.

Some simple rules for a consistent winning approach

• If searching for stock trades, try to choose high volatility or beta shares – these have a higher chance of being in a trend rather than trading a range or exhibiting random action.
• The expected initial target should always be at least twice the stop loss. If the average stop loss set is 3%, the CFD trader should look for 6%-plus gains on each trade as a starting point.
• Try to set individual stops and limits with reference to the underlying action. If a share has moved 10% one day, it is likely to exhibit an intra-day range of much more than 3%, so the stop and target should be widened accordingly. Also support and resistance levels are very useful reference points for setting price targets.
• If the trade hits the initial target, either close the position if support or resistance around that area is seen to be valid, or move the stop up to protect profits and let the position run.
  5. If there is a sudden reversal in share price trend, close the position, whether it is winning or losing.  The swings and roundabouts of trading usually mean that these unexpected trend changes even themselves out.
• Make sure you are never exposed too much in one direction. If for instance the market falls heavily from the open, then it doesn’t matter, as even if there are more longs and shorts in your list of open positions, the huge gains on the shorts should outweigh the stops hit on the longs.

Target returns
As for target returns, many traders have unrealistic expectations. A system that can offer huge returns inherently has to have a higher risk, but bear in mind this simple fact. Warren Buffett has achieved just over 20% per annum returns on his investment fund, and he did not need to use leverage to become the world’s second wealthiest man.

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Types of Investing Risks

Investing in stocks is a risky business. There are some risks you have some control over and others that you can only guard against. Thoughtful investment selections that meet your goals and risk profile keep individual stock and bond risks at an acceptable level.

However, other risks are inherent to investing you have no control over. Most of these risks affect the market or the economy and require investors to adjust portfolios or ride out the storm.

Here are four major types of risks that investors face and some strategies, where appropriate for dealing with the problems caused by these market and economic shifts.

High-Risk, High-Return Investing by Lawrence W. Tuller Shows how to make unconventional, offbeat but always calculated speculative investments. Contains sound financial planning and prudent investment management guidance. Explores emerging, undervalued, third-world stock markets, debt/equity swaps and reverse LBOs. Securitized assets, troubled and start-up companies, foreclosed properties and junk bonds are also included.

Economic Risks: One of the most obvious risks of investing is that the economy can go bad. Following the market bust in 2000 and the terrorists' attacks in 2001, the economy settled into a sour spell. A combination of factors saw the market indexes lose significant percentages.

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Top 11 Stocks for 2006 America's 11 Leading Experts Share Stock Investing Picks.

Winning Stock Pick: Remember CKXE .10 to $30.00 30,000% Gain RRGI next? It has taken years to return to levels close to pre-9/11 marks. For young investors, the best strategy is often to just hunker down and ride out these downturns. If you can increase your position in good solid companies, these troughs are often good times to do so. Foreign stocks can be a bright spot when the domestic market is in the dumps if you do your homework. Thanks to globalization, some U.S. companies earn a majority of their profits overseas.

Least Risk Investing by Michael L. Gay; MBA; CFP (R) Investing is about probabilities and statistics and meeting your financial goals for the one life you have to live! Least Risk Investing will show you how to avoid the many investment risks that have negative expected payoffs and how to expose yourself to only those risks that have positive expected payoffs, and then, only to the extent that taking those risks buys you something of value, like achieving your most important lifestyle goals. In investment management there IS a right answer. There IS a right way to invest. Most people who will take the time to learn will significantly increase the probability of achieving their financial and lifestyle goals while decreasing the level of risk in their portfolio.

Older investors are in a tighter bind. If you are in or near retirement, a major downturn in stocks can be devastating if you haven't shifted significant assets to bonds or fixed income securities.

Inflation Inflation is the tax on everyone. It destroys value and creates recessions. Although we believe inflation is under our control, the cure of higher interest rates may at some point be as bad as the problem. Investors historically have retreated to "hard assets" such as real estate and precious metals, especially gold, in times of inflation.
Inflation hurts investors on fixed incomes the most, since it erodes the value of their income stream.

Stocks are the best protection against inflation since companies have the ability to adjust prices to the rate of inflation. It is not a perfect solution, but that is why even retired investors should maintain some of their assets in stocks.

Market Value Risk: Market value risk refers to what happens when the market turns against or ignores your investment. This happens when the market goes off chasing the "next hot thing" and leaves many good, but unexciting companies behind.

Some investors find this a good thing and view it as an opportunity to load up on great stocks at a time when the market isn't bidding up the price.

On the other hand, it doesn't advance your cause to watch your investment flat-line month after month while other parts of the market are going up.

The lesson is don't get caught with all you investments in one sector of the economy. By spreading your investments across several sectors, you have a better chance of participating in growth of some of your stocks at any one time.
Too Conservative There is nothing wrong with being a conservative or careful investor. However, if you never take any risk it may be difficult to reach your financial goals. You may have to finance 15 to 20 years of retirement with your nest egg. Keeping it all in savings instruments may not get the job done.

Conclusion I believe if you learn about the risks of investing and do your homework on individual investments, you can make decisions that will help you meet your financial goals and still let you sleep at night.

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