How and where to invest wisely by Buying Bonds
If you've stuck with the lesson to this point, you are probably interested in knowing more about how to purchase bonds. Here are the main ways:
Directly from the Feds
U.S. Treasurys are sold by the federal government at regularly scheduled auctions. You can buy them through a bank or broker for a fee, but why pay for something you can get for nothing? The easiest and cheapest way to participate in this market is to buy them directly from the Treasury. You can check out the Treasury Direct program on the Web or by calling 202-874-4000. You also can sell bonds you already own before maturity through the Treasury's newer Sell Direct program.
Through a broker
With the exception of Treasurys, buying individual bonds isn't for the faint of heart. Most new bonds are issued through an investment bank, or "underwriter," rather than directly to the public. The issuer swallows the sales commission, so you get the same price big investors pay.
That's why, when buying individual bonds, you should buy new issues directly from the underwriter whenever possible - since you're getting them at wholesale.
Older bonds are another matter. They are traded through brokers on the "secondary market," usually over the counter rather than on an exchange, such as the New York Stock Exchange. Here, transaction costs can be much higher than with stocks because spreads - the difference between what a dealer paid for a bond and what he'll sell it for - tend to be wider.
You will seldom know what spread you paid, unfortunately, because the markup is set by the dealer and built into the price of the bond. There is no fixed commission schedule. One ray of sunshine: In early 2002 the Bond Market Association began posting some muni bond prices on its Web site. Alas, the prices include dealer markups because dealers protested listing commissions separately.
If you do plan to invest in individual bonds, you should probably have enough money to invest - say $25,000 to $50,000 at a minimum - to achieve some degree of diversification, as we'll explain below. (If you have less, consider bond funds, also described below.)
Exactly how you invest depends largely on your objective:
- If your objective is to achieve capital gains, concentrate on long-term issues. Reason: as noted in "Sizing up risks," the longer the term of a bond, the more pronounced are its price swings when interest rates move. That works to your advantage if interest rates fall. Your long-term bonds - especially zero-coupon bonds - will suddenly be worth a lot more. Of course, it works to your distinct disadvantage if interest rates rise; your portfolio drops in value. This kind of bond investing is essentially a bet that interest rates will fall, and its subject to all the same risks - including that of substantial losses - as any other market-timing strategy.
- If your objective is a steady, secure stream of income, adopt a more conservative approach. Specifically:
Stick to shorter terms. Bonds with maturities of one to 10 years are sufficient for most long-term investors. They yield more than shorter-term bonds, and are less volatile than longer-term issues.
Spread your money around. Invest in a variety of bonds with different maturities, either by buying a bond fund or buying a half-dozen or more individual bonds.
Build a laddered portfolio. Each rung of your ladder consists of a different maturity bond, from one year right on up to 10 years. When the one-year bond matures, you reinvest the money in a new, 10-year issue. In this way, you always have more money to reinvest every year, and you are somewhat protected from interest rate shifts because you have locked in a range of yields.
Through a mutual fund
It can make sense to buy individual bonds if you own a lot of them and hold them to maturity, but most people are better off buying bonds through mutual funds. The biggest reason is diversification. Because bonds are sold in large units, you might only be able to purchase one or a handful of bonds on your own, but as a bond fund holder you'll own stakes in dozens, perhaps hundreds, of bonds.
You will also get the benefit of professional research and money management. Another advantage: Dividends are paid monthly, versus only semiannually for individual bonds, and can be reinvested automatically. Lastly, bond funds are more liquid than individual bond issues.
The biggest drawback to bond funds - and it's a whopper - is that they don't have a fixed maturity, so that neither your principal nor your income is guaranteed. Fund managers are constantly buying and selling bonds in their portfolios to maximize their interest income and capital gains. That means your interest payments will vary, as will the fund's share price.
For this reason, don't choose a fund based only on its yield. Look at its total return, which combines the income the fund paid out with any change in the value of the fund's shares. Also, look for a fund with low expenses. (see also: "Different types of bond funds" and "Guidelines for choosing bond funds.")
Because bond funds with similar investment objectives tend to hold similar types of securities, which perform similarly, there are only two ways a fund manager can goose the yield: cut expenses or take on more risk. If a fund's yield is more than 1 percentage point higher than the average for its peers and the difference can't be explained by lower fees, the manager is probably dabbling in exotica.
Thursday, October 23, 2008
Bonds - Sizing Up Risk
Are bonds totally safe and predictable?
Many people believe they can't lose money in bonds. Wrong! Although the interest payments you'll get from owning a bond are "fixed," your return is anything but.
Here are the major risks that can affect your bond's return:
Inflation risk
Since bond interest payments are fixed, their value can be eroded by inflation. The longer the term of the bond, the higher the inflation risk. On the other hand, bonds are a classic deflation hedge; deflation increases the value of the dollars that bond investors get paid.
Interest rate risk
Bond prices move in the opposite direction of interest rates. When rates rise, bond prices fall because new bonds are issued that pay higher coupons, making the older, lower-yielding bonds less attractive. Conversely, bond prices rise when interest rates fall because the higher payouts on the old bonds look more attractive relative to the lower rates offered on newer ones.
The longer the term of the bond, the greater the price fluctuation - or volatility - that results from any change in interest rates.
There is a close connection between inflation risk and interest rate risk since interest rates tend to rise along with inflation. Interest rate shifts are also a concern for mortgage-backed bondholders, but for a different reason: If interest rates fall, home owners may decide to prepay their existing mortgages and take out new ones at the lower rates.
That doesn't mean you'll lose your principal if you hold such a bond. But it does mean you get your principal back much sooner than expected, forcing you to reinvest it at the newly lower rates. For that reason, the prices of mortgage-backed securities don't get as big a boost from falling rates as other kinds of bonds.
Note that price fluctuations only matter if you intend to sell a bond before maturity, or you invest in a bond fund whose manager trades regularly. If you hold a bond to its maturity, you will be repaid the bond's full face value.
But what if interest rates fall and the issuer of your bond wants to lower its interest costs? This brings us to the next type of risk . . .
Call risk
Many corporate and muni bond issuers reserve the right to redeem, or "call," their bonds before they mature, at which point the issuer is required to pay bondholders only par value. Typically, this happens if interest rates fall and the issuer sees it can lower its costs by selling new bonds with lower yields.
If you happen to own one of the called bonds, not only do you get less than the market price of the bond, but you also have to find a place to reinvest the money. Because of the risk that you won't get the income you expect, callable bonds usually pay a higher rate of interest than comparable, noncallable bonds. So, when you buy bonds, make sure to ask not only about the time to maturity, but also about the time to a likely call.
Credit risk
This is the risk that your bond issuer will be unable to make its payments on time - or at all - and it depends on the type of bond you own and the borrower's financial health. U.S. Treasurys are considered to have virtually no credit risk, junk bonds the highest.
Bond rating agencies such as Standard & Poor's and Moody's evaluate corporations and municipalities for their credit worthiness. Bonds from the strongest issuers are rated triple-A. Junk bonds are rated Ba and lower from Moody's, or BB and lower from S&P. (You can check out a bond's rating for free by calling S&P at 212-438-2400 or Moody's at 212-553-0377, or by checking some of the bond websites we identify in "Buying bonds.")
The highest-quality municipal bonds are backed by bond insurance companies, but there is a trade-off: Insured munis typically yield up to 0.3 percentage points less than comparable uninsured munis. Further, the insurance only guarantees your interest and principal; it won't shield you against interest rate or market risk.
Some higher-coupon munis are also "pre-refunded," meaning that, for esoteric reasons, they are effectively backed by U.S. Treasurys. When a muni is pre-refunded by an issuer, its credit quality and price rise.
Liquidity risk
In general, bonds aren't nearly as liquid as stocks because investors tend to buy and hold bonds rather than trade them. While there is always a ready market for super-safe Treasurys, the markets for other bonds, especially munis and junk bonds, can be highly illiquid. If you are forced to unload a thinly-traded bond, you will probably get a low price.
Market risk
As with most other investments, bonds follow the laws of supply and demand. The more popular or less plentiful a bond, the higher the price it commands in the market. During economic meltdowns in Asia and Russia, for example, the price of safe-haven U.S. Treasurys rose dramatically.
You can't eliminate these risks altogether. Now that you understand them, you may be able to reduce their impact by some of the methods described in the next section of this lesson.
Many people believe they can't lose money in bonds. Wrong! Although the interest payments you'll get from owning a bond are "fixed," your return is anything but.
Here are the major risks that can affect your bond's return:
Inflation risk
Since bond interest payments are fixed, their value can be eroded by inflation. The longer the term of the bond, the higher the inflation risk. On the other hand, bonds are a classic deflation hedge; deflation increases the value of the dollars that bond investors get paid.
Interest rate risk
Bond prices move in the opposite direction of interest rates. When rates rise, bond prices fall because new bonds are issued that pay higher coupons, making the older, lower-yielding bonds less attractive. Conversely, bond prices rise when interest rates fall because the higher payouts on the old bonds look more attractive relative to the lower rates offered on newer ones.
The longer the term of the bond, the greater the price fluctuation - or volatility - that results from any change in interest rates.
There is a close connection between inflation risk and interest rate risk since interest rates tend to rise along with inflation. Interest rate shifts are also a concern for mortgage-backed bondholders, but for a different reason: If interest rates fall, home owners may decide to prepay their existing mortgages and take out new ones at the lower rates.
That doesn't mean you'll lose your principal if you hold such a bond. But it does mean you get your principal back much sooner than expected, forcing you to reinvest it at the newly lower rates. For that reason, the prices of mortgage-backed securities don't get as big a boost from falling rates as other kinds of bonds.
Note that price fluctuations only matter if you intend to sell a bond before maturity, or you invest in a bond fund whose manager trades regularly. If you hold a bond to its maturity, you will be repaid the bond's full face value.
But what if interest rates fall and the issuer of your bond wants to lower its interest costs? This brings us to the next type of risk . . .
Call risk
Many corporate and muni bond issuers reserve the right to redeem, or "call," their bonds before they mature, at which point the issuer is required to pay bondholders only par value. Typically, this happens if interest rates fall and the issuer sees it can lower its costs by selling new bonds with lower yields.
If you happen to own one of the called bonds, not only do you get less than the market price of the bond, but you also have to find a place to reinvest the money. Because of the risk that you won't get the income you expect, callable bonds usually pay a higher rate of interest than comparable, noncallable bonds. So, when you buy bonds, make sure to ask not only about the time to maturity, but also about the time to a likely call.
Credit risk
This is the risk that your bond issuer will be unable to make its payments on time - or at all - and it depends on the type of bond you own and the borrower's financial health. U.S. Treasurys are considered to have virtually no credit risk, junk bonds the highest.
Bond rating agencies such as Standard & Poor's and Moody's evaluate corporations and municipalities for their credit worthiness. Bonds from the strongest issuers are rated triple-A. Junk bonds are rated Ba and lower from Moody's, or BB and lower from S&P. (You can check out a bond's rating for free by calling S&P at 212-438-2400 or Moody's at 212-553-0377, or by checking some of the bond websites we identify in "Buying bonds.")
The highest-quality municipal bonds are backed by bond insurance companies, but there is a trade-off: Insured munis typically yield up to 0.3 percentage points less than comparable uninsured munis. Further, the insurance only guarantees your interest and principal; it won't shield you against interest rate or market risk.
Some higher-coupon munis are also "pre-refunded," meaning that, for esoteric reasons, they are effectively backed by U.S. Treasurys. When a muni is pre-refunded by an issuer, its credit quality and price rise.
Liquidity risk
In general, bonds aren't nearly as liquid as stocks because investors tend to buy and hold bonds rather than trade them. While there is always a ready market for super-safe Treasurys, the markets for other bonds, especially munis and junk bonds, can be highly illiquid. If you are forced to unload a thinly-traded bond, you will probably get a low price.
Market risk
As with most other investments, bonds follow the laws of supply and demand. The more popular or less plentiful a bond, the higher the price it commands in the market. During economic meltdowns in Asia and Russia, for example, the price of safe-haven U.S. Treasurys rose dramatically.
You can't eliminate these risks altogether. Now that you understand them, you may be able to reduce their impact by some of the methods described in the next section of this lesson.
Bonds - Types of Bonds
U.S. Treasurys are the safest bonds of all because the interest and principal payments are guaranteed by the "full faith and credit" of the U.S. government. Interest is exempt from state and local taxes, but not from federal tax. Because of their almost total lack of default risk, Treasurys carry some of the lowest yields around.
Treasurys come in several flavors:
- Treasury bills, or "T-bills," have the shortest maturities - 13 weeks, 26 weeks, and one year. You buy them at a discount to their $10,000 face value and receive the full $10,000 at maturity. The difference reflects the interest you earn.
- Treasury notes mature in two to 10 years. Interest is paid semiannually at a fixed rate. Minimum investment: $1,000 or $5,000, depending on maturity.
- Treasury bonds have the longest maturities at 10 years. As with Treasury notes, they pay interest semiannually, and are sold in denominations of $1,000.
- Zero-coupon bonds, also known as "strips" or "zeros," are Treasury-based securities that are sold by brokers at a deep discount and redeemed at full face value when they mature in six months to 30 years. Although you don't actually receive your interest until the bond matures, you must pay taxes each year on the "phantom interest" that you earn (it's based on the bond's market value, which usually rises steadily during the time you hold it). For that reason, they are best held in tax-deferred accounts. Because they pay no coupon, zeros can be highly volatile in price.
- Inflation-indexed Treasurys. These pay a real rate of interest on a principal amount that rises or falls with the consumer price index. You don't collect the inflation adjustment to your principal until the bond matures or you sell it, but you owe federal income tax on that phantom amount each year - in addition to tax on the interest you receive currently. Like zeros, inflation bonds are best held in tax-deferred accounts.
Mortgage-backed bonds represent an ownership stake in a package of mortgage loans issued or guaranteed by government agencies such as the Government National Mortgage Association (Ginnie Mae), Federal Home Loan Mortgage Corp. (Freddie Mac), and Federal National Mortgage Association (Fannie Mae). Interest is taxable and is paid monthly, along with a partial repayment of principal. Except for Ginnie Maes, these bonds are not backed by the full faith and credit of the U.S. government. The volatile mortgage market in late 2007 taught investors that risks for these kinds of bonds are by no means negligible. Mortgage-backed bonds generally yield up to 1 percent more than Treasurys of comparable maturities. Minimum investment: typically $25,000.
Corporate bonds pay taxable interest. Most are issued in denominations of $1,000 and have terms of one to 20 years, though maturities can range from a few weeks to 100 years. Because their value depends on the creditworthiness of the company offering them, corporates carry higher risks and, therefore, higher yields than super-safe Treasurys. Top-quality corporates are known as "investment-grade" bonds. Corporates with lower credit quality are called "high-yield," or "junk," bonds. Junk bonds typically pay higher yields than other corporates.
Municipal bonds, or "munis," are one of America's favorite tax shelters. They are issued by state and local governments and agencies, usually in denominations of $5,000 and up, and mature in one to 30 or 40 years. Interest is exempt from federal taxes and, if you live in the state issuing the bond, state and possibly local taxes as well. (Note that there are exceptions). The capital gain you may make if you sell a bond for more than it cost you to buy it is just as taxable as any other gain; the tax-exemption applies only to your bond's interest.
Munis generally offer lower yields than taxable bonds of similar duration and quality. Because of their tax advantages, though, their after-tax returns are often higher than equivalent taxable bonds for people in the 28 percent federal tax bracket or above.
To compare taxable and tax-free yields, use our tax-equivalent yield converter - which is the next step in this lesson.
Treasurys come in several flavors:
- Treasury bills, or "T-bills," have the shortest maturities - 13 weeks, 26 weeks, and one year. You buy them at a discount to their $10,000 face value and receive the full $10,000 at maturity. The difference reflects the interest you earn.
- Treasury notes mature in two to 10 years. Interest is paid semiannually at a fixed rate. Minimum investment: $1,000 or $5,000, depending on maturity.
- Treasury bonds have the longest maturities at 10 years. As with Treasury notes, they pay interest semiannually, and are sold in denominations of $1,000.
- Zero-coupon bonds, also known as "strips" or "zeros," are Treasury-based securities that are sold by brokers at a deep discount and redeemed at full face value when they mature in six months to 30 years. Although you don't actually receive your interest until the bond matures, you must pay taxes each year on the "phantom interest" that you earn (it's based on the bond's market value, which usually rises steadily during the time you hold it). For that reason, they are best held in tax-deferred accounts. Because they pay no coupon, zeros can be highly volatile in price.
- Inflation-indexed Treasurys. These pay a real rate of interest on a principal amount that rises or falls with the consumer price index. You don't collect the inflation adjustment to your principal until the bond matures or you sell it, but you owe federal income tax on that phantom amount each year - in addition to tax on the interest you receive currently. Like zeros, inflation bonds are best held in tax-deferred accounts.
Mortgage-backed bonds represent an ownership stake in a package of mortgage loans issued or guaranteed by government agencies such as the Government National Mortgage Association (Ginnie Mae), Federal Home Loan Mortgage Corp. (Freddie Mac), and Federal National Mortgage Association (Fannie Mae). Interest is taxable and is paid monthly, along with a partial repayment of principal. Except for Ginnie Maes, these bonds are not backed by the full faith and credit of the U.S. government. The volatile mortgage market in late 2007 taught investors that risks for these kinds of bonds are by no means negligible. Mortgage-backed bonds generally yield up to 1 percent more than Treasurys of comparable maturities. Minimum investment: typically $25,000.
Corporate bonds pay taxable interest. Most are issued in denominations of $1,000 and have terms of one to 20 years, though maturities can range from a few weeks to 100 years. Because their value depends on the creditworthiness of the company offering them, corporates carry higher risks and, therefore, higher yields than super-safe Treasurys. Top-quality corporates are known as "investment-grade" bonds. Corporates with lower credit quality are called "high-yield," or "junk," bonds. Junk bonds typically pay higher yields than other corporates.
Municipal bonds, or "munis," are one of America's favorite tax shelters. They are issued by state and local governments and agencies, usually in denominations of $5,000 and up, and mature in one to 30 or 40 years. Interest is exempt from federal taxes and, if you live in the state issuing the bond, state and possibly local taxes as well. (Note that there are exceptions). The capital gain you may make if you sell a bond for more than it cost you to buy it is just as taxable as any other gain; the tax-exemption applies only to your bond's interest.
Munis generally offer lower yields than taxable bonds of similar duration and quality. Because of their tax advantages, though, their after-tax returns are often higher than equivalent taxable bonds for people in the 28 percent federal tax bracket or above.
To compare taxable and tax-free yields, use our tax-equivalent yield converter - which is the next step in this lesson.
Bonds - How Bonds Work
The ins and outs of taxable and tax-free debt while investing on Bonds.
Companies and governments issue bonds to fund their day-to-day operations or to finance specific projects. When you buy a bond, you are loaning your money for a certain period of time to the issuer, be it General Electric or Uncle Sam.
In exchange, the borrower promises to pay you interest every year and to return your principal at "maturity," when the loan comes due, or at "call" if the bond is of the type that can be called earlier than its maturity (more on this later). The length of time to maturity is called the "term."
A bond's face value, or price at issue, is known as its "par value." Its interest payment is known as its "coupon."
A $1,000 bond paying 7 percent a year has a $70 coupon (actually, the money would usually arrive in two $35 payments spaced six months apart). Expressed another way, its "coupon rate" is 7 percent. If you buy the bond for $1,000 and hold it to maturity, the "yield," or actual earnings on your investment, is also 7 percent (coupon rate divided by price = yield).
The prices of bonds fluctuate throughout the trading day as, of course, do their yields. But the coupon payments stay the same.
Say you don't buy the bond right at the offering, and instead buy from somebody else in the "secondary" market. If you buy the bond for $1,100 in the secondary market, though, the coupon will still be $70, but the yield is 6.4 percent because you paid a "premium" for the bond.
For a similar reason, if you buy it for $900, its yield will be 7.8 percent because you bought the bond at a "discount." If its current price equals its face value, the bond is said to be selling at "par."
The bottom line: There are many ways of expressing a bond's return, but "total return" is the only one that really matters. This includes all the money you earn off the bond: the annual interest and the gain or loss in market value, if any.
If you sell that $1,000 bond with the $70 coupon for $1,050 after one year, your total return is $120, or 12 percent -- $70 in interest and $50 in capital gains. (Prices are usually expressed based on a par value of 100, so when you sell that bond for $1,050 the price would be quoted as 105.)
Companies and governments issue bonds to fund their day-to-day operations or to finance specific projects. When you buy a bond, you are loaning your money for a certain period of time to the issuer, be it General Electric or Uncle Sam.
In exchange, the borrower promises to pay you interest every year and to return your principal at "maturity," when the loan comes due, or at "call" if the bond is of the type that can be called earlier than its maturity (more on this later). The length of time to maturity is called the "term."
A bond's face value, or price at issue, is known as its "par value." Its interest payment is known as its "coupon."
A $1,000 bond paying 7 percent a year has a $70 coupon (actually, the money would usually arrive in two $35 payments spaced six months apart). Expressed another way, its "coupon rate" is 7 percent. If you buy the bond for $1,000 and hold it to maturity, the "yield," or actual earnings on your investment, is also 7 percent (coupon rate divided by price = yield).
The prices of bonds fluctuate throughout the trading day as, of course, do their yields. But the coupon payments stay the same.
Say you don't buy the bond right at the offering, and instead buy from somebody else in the "secondary" market. If you buy the bond for $1,100 in the secondary market, though, the coupon will still be $70, but the yield is 6.4 percent because you paid a "premium" for the bond.
For a similar reason, if you buy it for $900, its yield will be 7.8 percent because you bought the bond at a "discount." If its current price equals its face value, the bond is said to be selling at "par."
The bottom line: There are many ways of expressing a bond's return, but "total return" is the only one that really matters. This includes all the money you earn off the bond: the annual interest and the gain or loss in market value, if any.
If you sell that $1,000 bond with the $70 coupon for $1,050 after one year, your total return is $120, or 12 percent -- $70 in interest and $50 in capital gains. (Prices are usually expressed based on a par value of 100, so when you sell that bond for $1,050 the price would be quoted as 105.)
Bonds - Why Bonds?
Think "bonds," and you probably think "safe," "reliable," and . . . "boring." But that is only half the story.
Bonds can provide a worry-free stream of income. But this class of securities, which crushed stocks during the three-year bear market of 2000 through 2002, also includes a wide array of instruments with varying degrees of risk and reward.
Used improperly, bonds can really mess up your financial life. Handled with care, however, bonds are among the most valuable tools in your investment kit. Here are some of the benefits they can provide:
- Diversification. Large company stocks have posted compound annual returns of around 10.4 percent since 1926, versus 5.9 percent for long-term U.S. government bonds, according to Ibbotson Associates. Yet while stocks have returned more than bonds, they are also more volatile. Combining stocks with bonds will net you a more stable portfolio. As seen during the bear market, bonds' positive returns offset the double-digit losses from stocks.
- Income. Because bonds pay interest regularly, they are a good choice for investors -- such as retirees -- who desire a steady stream of income.
- Security. Next to cash, U.S. Treasurys are the safest, most liquid investments on the planet. Short-term bonds are a good place to park an emergency fund or money you'll need relatively soon - say to buy a house or send a child to college.
- Tax savings. Certain bonds provide tax-free income. Although these bonds usually pay lower yields than comparable taxable bonds, investors in high tax brackets (generally, 28 percent and above) can often earn higher after-tax returns from tax-free bonds.
Bonds can provide a worry-free stream of income. But this class of securities, which crushed stocks during the three-year bear market of 2000 through 2002, also includes a wide array of instruments with varying degrees of risk and reward.
Used improperly, bonds can really mess up your financial life. Handled with care, however, bonds are among the most valuable tools in your investment kit. Here are some of the benefits they can provide:
- Diversification. Large company stocks have posted compound annual returns of around 10.4 percent since 1926, versus 5.9 percent for long-term U.S. government bonds, according to Ibbotson Associates. Yet while stocks have returned more than bonds, they are also more volatile. Combining stocks with bonds will net you a more stable portfolio. As seen during the bear market, bonds' positive returns offset the double-digit losses from stocks.
- Income. Because bonds pay interest regularly, they are a good choice for investors -- such as retirees -- who desire a steady stream of income.
- Security. Next to cash, U.S. Treasurys are the safest, most liquid investments on the planet. Short-term bonds are a good place to park an emergency fund or money you'll need relatively soon - say to buy a house or send a child to college.
- Tax savings. Certain bonds provide tax-free income. Although these bonds usually pay lower yields than comparable taxable bonds, investors in high tax brackets (generally, 28 percent and above) can often earn higher after-tax returns from tax-free bonds.
Bonds - Investing in Bonds 101
The Top Ten Most Important Facts About Bonds
For the wise investor arning on how to invest on Bonds.
1. Bonds are fancy IOUs
Companies and governments issue bonds to fund their day-to-day operations or to finance specific projects. When you buy a bond, you are loaning your money for a certain period of time to the issuer, be it General Electric or Uncle Sam. In return, bond holders get back the loan amount plus interest payments.
2. Stocks do not always outperform bonds.
It is only in the post-World War II era that stocks so widely outpaced bonds in the total-return derby. Stock and bond returns were about even from about 1870 to 1940. And, of course, bonds were well in front in 2000, 2001 and 2002 before stocks once again took charge in 2003 and 2004.
3. You can lose money in bonds.
Bonds are not turbo-charged CDs. Though their life span and interest payments are fixed -- thus the term "fixed-income" investments -- their returns are not.
4. Bond prices move in the opposite direction of interest rates.
When interest rates fall, bond prices rise, and vice versa. If you hold a bond to maturity, price fluctuations don't matter. You will get back the original face value of the bond, along with all the interest you expect.
5. A bond and a bond mutual fund are totally different animals.
With a bond, you always get your interest and principal at maturity, assuming the issuer doesn't go belly up. With a bond fund, your return is uncertain because the fund's value fluctuates.
6. Don't invest all your retirement money in bonds.
Inflation erodes the value of bonds' fixed interest payments. Stock returns, by contrast, stand a better chance of outpacing inflation. Despite the drubbing stocks sometimes take, young and middle-aged people should put a large chunk of their money in stocks. Even retirees should own some stocks, given that people are living longer than they used to.
7. Consider tax-free bonds.
Tax-exempt municipal bonds yield less than taxable bonds, but they can still be the better choice for taxable accounts. That's because tax-frees sometimes net you more income than you'd get from taxable bonds after taxes, provided you're in the 28 percent federal tax bracket or higher.
8. Pay attention to total return, not just yield.
Returns are a slippery matter in the bond world. A broker may sell you a bond that is paying a "coupon" - or interest rate - of 6 percent. If interest rates rise, however, and the price of the bond falls by, say, 2 percent, its total return for the first year - 6 percent in income less a 2 percent capital loss - would be only 4 percent.
9. If you want capital gains, go long.
When interest rates are high, gamblers who want to bet that they'll head lower should buy long-term bonds or bond funds, especially "zeros." Reason: when rates fall, longer-term bonds gain more in price than shorter-term bonds. So you win big - scoring a large potential capital gain in addition to whatever interest the bond may be paying. If rates rise, on the other hand, you lose big, too.
10. If you want steady income, stick with short to medium terms.
Investors looking for income should invest in a laddered portfolio of short- and intermediate-term bonds. For more on laddered portfolios, see our "Sizing up risks."
For the wise investor arning on how to invest on Bonds.
1. Bonds are fancy IOUs
Companies and governments issue bonds to fund their day-to-day operations or to finance specific projects. When you buy a bond, you are loaning your money for a certain period of time to the issuer, be it General Electric or Uncle Sam. In return, bond holders get back the loan amount plus interest payments.
2. Stocks do not always outperform bonds.
It is only in the post-World War II era that stocks so widely outpaced bonds in the total-return derby. Stock and bond returns were about even from about 1870 to 1940. And, of course, bonds were well in front in 2000, 2001 and 2002 before stocks once again took charge in 2003 and 2004.
3. You can lose money in bonds.
Bonds are not turbo-charged CDs. Though their life span and interest payments are fixed -- thus the term "fixed-income" investments -- their returns are not.
4. Bond prices move in the opposite direction of interest rates.
When interest rates fall, bond prices rise, and vice versa. If you hold a bond to maturity, price fluctuations don't matter. You will get back the original face value of the bond, along with all the interest you expect.
5. A bond and a bond mutual fund are totally different animals.
With a bond, you always get your interest and principal at maturity, assuming the issuer doesn't go belly up. With a bond fund, your return is uncertain because the fund's value fluctuates.
6. Don't invest all your retirement money in bonds.
Inflation erodes the value of bonds' fixed interest payments. Stock returns, by contrast, stand a better chance of outpacing inflation. Despite the drubbing stocks sometimes take, young and middle-aged people should put a large chunk of their money in stocks. Even retirees should own some stocks, given that people are living longer than they used to.
7. Consider tax-free bonds.
Tax-exempt municipal bonds yield less than taxable bonds, but they can still be the better choice for taxable accounts. That's because tax-frees sometimes net you more income than you'd get from taxable bonds after taxes, provided you're in the 28 percent federal tax bracket or higher.
8. Pay attention to total return, not just yield.
Returns are a slippery matter in the bond world. A broker may sell you a bond that is paying a "coupon" - or interest rate - of 6 percent. If interest rates rise, however, and the price of the bond falls by, say, 2 percent, its total return for the first year - 6 percent in income less a 2 percent capital loss - would be only 4 percent.
9. If you want capital gains, go long.
When interest rates are high, gamblers who want to bet that they'll head lower should buy long-term bonds or bond funds, especially "zeros." Reason: when rates fall, longer-term bonds gain more in price than shorter-term bonds. So you win big - scoring a large potential capital gain in addition to whatever interest the bond may be paying. If rates rise, on the other hand, you lose big, too.
10. If you want steady income, stick with short to medium terms.
Investors looking for income should invest in a laddered portfolio of short- and intermediate-term bonds. For more on laddered portfolios, see our "Sizing up risks."
US Dollar Rising - A Canadian Perspective
Why is the US Dollar Rising when it should be devaluing as they are printing money out of nothing?
The reason is - relativelly - simple.
The US needed $700 Billion. The world banks agreed to help them raise it, by increasing their respective holdings of US dollars.
For instance, the Bank of Canada announced they would TRIPLE Canada's holdings of available US dollars, from $30B to $90B.
All the other countries were doing (larger of course) the same thing. This was in a world effort to fight this unbeatable imploding world economy.
They can't all buy these large amounts of dollars over night. It takes weeks or even maybe months.
But sadly, when they all start unloading them, it could even take years; the effect will be horrible to the value of the US dollar. That won't be happening for maybe 5 or 10 years from now.
In the meantime, demand is very high (artificially) for the US dollar. Until all the banks have reached their targets, and then it will start to drop back. It has nothing at all to with how good Canada's economy is doing compared with the US economy.
The drop in the over night rate would have a negative effect on our dollar in any case. It's just another smaller component.
Additionally, it's interesting to note how this $700 Billion was timed just before the US election. Everyone knew it would artifically bring the US dollar higher for voters to see the US is not doing as bad as they all thought under the Republicans. (sarcasm) .
Interesting.
The reason is - relativelly - simple.
The US needed $700 Billion. The world banks agreed to help them raise it, by increasing their respective holdings of US dollars.
For instance, the Bank of Canada announced they would TRIPLE Canada's holdings of available US dollars, from $30B to $90B.
All the other countries were doing (larger of course) the same thing. This was in a world effort to fight this unbeatable imploding world economy.
They can't all buy these large amounts of dollars over night. It takes weeks or even maybe months.
But sadly, when they all start unloading them, it could even take years; the effect will be horrible to the value of the US dollar. That won't be happening for maybe 5 or 10 years from now.
In the meantime, demand is very high (artificially) for the US dollar. Until all the banks have reached their targets, and then it will start to drop back. It has nothing at all to with how good Canada's economy is doing compared with the US economy.
The drop in the over night rate would have a negative effect on our dollar in any case. It's just another smaller component.
Additionally, it's interesting to note how this $700 Billion was timed just before the US election. Everyone knew it would artifically bring the US dollar higher for voters to see the US is not doing as bad as they all thought under the Republicans. (sarcasm) .
Interesting.
Canada's Currency Devaluation Reasons
The Canadian Dollar is sinking, the US Dollar is rising, but this is not because Canada is a crappy market to invest in.
You have to ask: "Where all the investment dollars have come from in the past?"
Mostly the U.S. and Europe, with a healthy side from Asia/China.
The world wide stock markets have collapsed an average of over 50% now. Something like 37 Trillion dollars has vaporized from the world economies in just over 2 weeks.
Many larger investors use one of 2 practices that is extremely risky:
- Hedging - This is betting a stock or currency will go up or down। If they bet wrong, they have 2 choices. Lose the investment completely, or come up with the cash to buy it out completely.
- Leveraged Stock Buying - In the past many were buying as much as 100 stocks for the price of one. This was fine if they bet right, because they can sell for a profit. However if they go wrong, again they have 2 choices. lose the investment, or buy the other 99 shares and sit on them until the market turns around.
This way, with the market melt down, and banks not lending any more money than they have to, these investors need all the cash they can get. Fast. That is why you are seeing absolutely everything being sold. Most countries foreign currencies, Oil, Gas, Gold, Silver, everything worth any money is being sold to cover bad bets.
The impact is a worldwide meltdown we are seeing.
How much farther it goes? Who knows. Warren Buffet is buying stocks, and he didn't get to be the planet's richest man by being stupid... So hopefully this will normalize soon.
As to the lower dollar, most analysts had forecast a dollar leveling in the 85-88 cent range for a period before a slow increase because of Canada's strong fiscal practices. This lower spike is definitely oversold. It will come back, and I think sooner than later.
As to our Canadian lost "increased buying power" ...some things dropped well, like electronics But Cars were a joke. You could still save $8,000 on a $40,000 vehicle from the U.S. just a month ago. The Canadian car companies fed us nice ads and lip service, but dropped the overall price an average of around only 5% not anywhere near the 20% that they were overcharging us.
High end vehicles in the 80k range you could still buy in the US for nearly 30,000 cheaper. Books and magazines - they fixed their prices by taking off the U.S. price. They didn't reduce their prices, not even 10 cents! So I stopped buying them in Canada.
Tuesday, October 7, 2008
Forex Robots - Currency Trading Software
Automated Systems for Foreign Currency Trading
Forex robots or Forex autopilots are fully integrated and automated systems that work like an ideal forex trader who cannot commit any wrong. It achieves this almost utopian perfection by two ways. It does what is humanly impossible and does not what is possible for a human. For example, a Forex Robot can trade round the clock - 24/7 - which is not humanly possible.
A Forex Robot has a foolproof system that is backed by mathematical calculations and experience of top rated industry professionals. Running on smart, super fast computers, automated currency trading softwares can analyze trillions of data within seconds with complete precision which is beyond human capacity. As the whole systems are entirely automatic, it is not allowed to make a judgmental error like a human being.
Advantages and Characteristics of a FX Forex Robot:
- Constant Operation - Forex automated softwares trades and manage your account so you don't have to.
- Short-term Trading Program - Forex robots are designed to look for short-term opportunities across major currency pairs during each trading day.
- Advanced Trading Program - A currency exchange auto-pilot uses highly advanced trading algorithms.
- Short-term - A Trader can get fast results, instead of waiting long periods like with stocks.
- Low Minimum Investment - New investors can start with very low capital..
- Created by Professional Forex Money Managers - Forex Trading Robots must be designed by highly-experienced, alternative investment managers.
- Tool for Increased Diversification - A way for traders to diversify their trading capital and for investors to diversify away from economically sensitive investments like stocks, bonds, mutual funds, and real estate.*
- Constant Monitoring - Automated forex trading systems are constantly monitored and optimized by the professional team that designed it.
- Existing traders that want to diversify their capital - Experienced traders that want to diversify their trading capital can trade some of their funds and use the automated forex trading robot.
- Managed account investors - Investors that are considering managed accounts can also make use of a FX Forex Robot software.
- Ex-traders - Trading is not for everyone, and not everyone that trades will become a full-time Forex trader. If you have tried trading currencies in the past and have concluded that it is not for you, you might give a FX Forex Robot a chance. Significant improvements have been made in thlast couple of years and a current Forex Robot will trade and manage your account around the clock during open market hours with a high degree of effectiveness.
- Institutions that want alternative investments - Global stock markets turbulences for multiple years have resulted in an increase in institutional demand for managed alternative investments. Companies realizd that some of their money should be in investments that are not tied to economically sensitive asset classes like stocks, bonds, and real estate. A FX Forex Robot softwar provides an opportunity for corporations to participate in a different asset class (foreign exchange, currency trading, or forex) managed by professional money managers.
- Active or new Introducing Brokers (IB's) - Brokers can offer automated trading robots to their customers as a value-added service.
- Forex Brokerage Firms - Even though forex brokers might offer customers great customer service and an excellent trading platform, the fact remains that most independent traders lose money.
You as a Forex Trader need to initialize the system depending on the strategy you are comfortable with and let the autopilot software take the justified decisions. As the systems are tuned with your specified preferences, they cannot go wrong by taking wrong decision, which a human forex trader tend to make.
Forex robots are not based on simulated results, at least not always or not even for the most partt. Automated Currency Trading Softwares have numerous data based on actual performance. That is Forex Robots - Currency Trading Softwares can successfully work in a liquidated and volatile market like Forex.
Top Rated Forex Trading Software - FOREX Softwares
Allowing Currency Exchange Traders to Being Successful in the Forex Business With Effective Forex Trading Software
Online Forex Trading Software - Trade Smartly And Effectivelly For Maximum Profits With Top Tier Online Forex Trading Softwares.
For the novice trader in the forex trading business, there is one major point that one should understand right upfront: the forex trading software. It is simply imperative that a new forex trader choose the best forex software according to his investor's personality to be successful in the highly competitive world of forex currency exchange.
However, with the miryad of trading companies now coming up with their own forex software, choosing one could be not so easy. While most of the available forex software offers live trading platforms that you can access online, there are other important factors that you should consider in acquiring such platform.
Major Factors for an Effective Forex Trading Software
The major points that a novice forex trader should see to first before deciding on buying forex software are really items that are essential for their trading business. If you are planning on getting online forex trading software, then the most crucial point that you should look into is your security and that of your business. As such, new forex traders should get the kind of software that includes an encryption system that would keep hackers away from the personal information and other data contained in your software. These could include, for example, your transaction history and account balance among others.
So getting the ultimate security system for your forex trading business would mean that you need to get a provider that would include a 24-hour technical support for your software's server. They should also provide such other services like daily backups for all the stored data in your software as well as maintenance that also runs 24/7.
Another essential factor that should also be included in your software is the downtime of your provider. When trading forex, especially if it's online, there is a great need to make sure that the software purchased has high reliability and is available everyday for 24 hours. Technical support should also be available for those times when your trading session would experience being cut short. Certainly, a Forex Trading Software of this caliber are mostly more expensive, but must be considered as a great investment in a successful Forex Trading business.
Being Successful in Forex Trading
Once the new forex trader has the most reliable forex software in place, it is now time to learn forex trading to make it big in the business. First of all, you have to remember that even if your software to trade currencies include market indicators for forex trading, you should not rely on these all that much. Smart traders also have to look out for the changes that could occur in currency prices.
Remember that while getting forex software is quite essential, this trading software is just a tool that will help dealing with your foreign exchange business better. Traders must also still be aware of the price movements and the other complications in the forex system before you can achieve the success that you want for your forex trading business.
Do you want to make accurate buy or sell decisions when it comes to forex trading? See how you can potentially multiply your earnings with this powerful online forex trading software.
Best Forex Trading Software - Higher Profits
Learn about the two types of the Best Forex Trading Softwares to making more money, getting higher profits.
The search for the best Forex Trading Software can be very rewarding, but only if the aspiring Forex trader researches the right places.
The first question a novice currency trader might have about Forex Trading is whether a forex trading software can actually help or not achieve the goal of a successful Foreign Currency Trading transaction, meaning making more money, with higher profits.
Can such a sofware really help? Certainly, yes. However, very few forex softwares are reliable enough to be trusted with your investment.
So, which is the Best Forex Trading Software?
Forex softwares are included in two basic categories, and which one is the best will be determined firstly by its reliability and performance, and secondly by your personal situation.- Option I - Semi Automated Forex Trading Softwares
- Option II - Fully Automated Forex Trading Softwares
The fully automated option is the choice of most experienced forex brokers , because it delivers the same great performance as the best forex trading signal kind of sofware (over 90% winning trades on average), only it works completely on its own, an enormous time saver as well a great peace of mind, stress-free operation.
Certainly, if both softwares can deliver the goods, a wiser new trader shall chose the one that demands less work, less wasted time, in a way that the best forex software has to definitely be the fully automated one.
Therefore, if you, the novice forex trader, are thinking about starting a new forex trading operation, or simply want to enhance your current performance within the market by getting the help of the best forex trading software, a wise advice would be going for the Fully Automated Forex Trading Software option as this will save you costly mistakes and will increase your chances of catching the best entry points during the day or night, no matter how busy you are.
Forecasting FOREX - Foreign Currency Trading
Learn How To Forecast Forex Foreign Currency Trading - The Basics
Foreign exchange markets are always in a constant state of flux, thus for the novice trader it can be a rather daunting place to invest and trade your money. We bring you into the world of foreign exchange trading. As aspiring foreign currency traders look into the prospect of forex trading they will begin to understand the scope of the forex market.
Forex is a worldwide market, trading currencies 24 hours a day 7 days a week (more specifically, markets are open for about 5.5 days a week of active trading). As a consequence of this huge worldwide business, the market is highly liquid and high volume takes place daily. As the Foreign Currency market is in constant change, there are plenty of opportunities in forex trading for profit making to the avid trader.
Forex trading takes advantage of the constant movement of the currency market, buying and selling into and out of the ebbs and flows of the foreign exchange trading charts. Many profitable trades await the trader in these markets, as well as the risks so the need for wise learning and education.
As the new Forex trader examine their charts as a foreign exchange trader they will find that the market display’s repetitive behaviour as well as trends. Trends can go in three ways; an up trend, down trend and a sideways trend. As a forex trader, oe must take advantage of price differences so you ought to stay away from sideways trending forex markets while jumping at every chance at up trending (long) markets or down trending (short) markets.
The most important point in forex trading - or any other trading for that matter, be it stocks, bonds, commodities... - is that “the trend is your friend.” An uptrend is simply defined as a set of prices on a chart that display a pattern of higher highs and higher lows: or, in other words, a graph going up from left to right. A downtrend is the opposite to an uptrend with a pattern of lower lows and lower highs: or simply put a graph going down from left to right. Then Forex traders have their sideways charts which really doesn’t display any clear uptrend or downtrend and shows up as either an erratic pattern of highs and lows or a pattern where the price doesn’t really change much between the highs and lows of the current Forex trends.
Foreign Currency Trading takes advantage of those trends and the price differences at which the traders buy and sell the foreign currencies. It is a highly valuable skill to master the ability to read charts and to be able to see the uptrends and downtrends as well as the sideways trends in any chart or market examined.
As said above, the trend is your friend, ride the trend and you shall have your profits. As profits are the main objective of any forex trading venture.
Foreign exchange markets are always in a constant state of flux, thus for the novice trader it can be a rather daunting place to invest and trade your money. We bring you into the world of foreign exchange trading. As aspiring foreign currency traders look into the prospect of forex trading they will begin to understand the scope of the forex market.
Forex is a worldwide market, trading currencies 24 hours a day 7 days a week (more specifically, markets are open for about 5.5 days a week of active trading). As a consequence of this huge worldwide business, the market is highly liquid and high volume takes place daily. As the Foreign Currency market is in constant change, there are plenty of opportunities in forex trading for profit making to the avid trader.
Forex trading takes advantage of the constant movement of the currency market, buying and selling into and out of the ebbs and flows of the foreign exchange trading charts. Many profitable trades await the trader in these markets, as well as the risks so the need for wise learning and education.
As the new Forex trader examine their charts as a foreign exchange trader they will find that the market display’s repetitive behaviour as well as trends. Trends can go in three ways; an up trend, down trend and a sideways trend. As a forex trader, oe must take advantage of price differences so you ought to stay away from sideways trending forex markets while jumping at every chance at up trending (long) markets or down trending (short) markets.
The most important point in forex trading - or any other trading for that matter, be it stocks, bonds, commodities... - is that “the trend is your friend.” An uptrend is simply defined as a set of prices on a chart that display a pattern of higher highs and higher lows: or, in other words, a graph going up from left to right. A downtrend is the opposite to an uptrend with a pattern of lower lows and lower highs: or simply put a graph going down from left to right. Then Forex traders have their sideways charts which really doesn’t display any clear uptrend or downtrend and shows up as either an erratic pattern of highs and lows or a pattern where the price doesn’t really change much between the highs and lows of the current Forex trends.
Foreign Currency Trading takes advantage of those trends and the price differences at which the traders buy and sell the foreign currencies. It is a highly valuable skill to master the ability to read charts and to be able to see the uptrends and downtrends as well as the sideways trends in any chart or market examined.
As said above, the trend is your friend, ride the trend and you shall have your profits. As profits are the main objective of any forex trading venture.
Wednesday, September 10, 2008
FOREX - Is Forex Trading Right for You?
Is Forex Trading Right for You?
New Forex Currency Exchange Traders must have some traits so they can be successful in a quite volatile market, with possibilities of huge gains or losses, for both novice and experienced traders. Find out if Forex Trading is right for you.
New Forex Currency Exchange Traders must have some traits so they can be successful in a quite volatile market, with possibilities of huge gains or losses, for both novice and experienced traders. Find out if Forex Trading is right for you.
- New Traders must have the time and willingness to study the market.
- New Traders must be able to take risks and accept failure.
- New Traders must be willing to wait.
- New Traders must know when to stop.
Is Forex Trading Right for You?
FOREX - Dollar Rises Versus the Euro
FOREX - Dollar Rises Versus the Euro
The U.S. dollar rose versus the euro on Wednesday, scaling a 11-month peak, boosted by sinking crude oil prices.
The euro dropped as low as $1.4039, a level just lastly seen in October 2007. It was last at $1.4044, down 0.6 percent on the day. The dollar last traded up 0.7 percent at 107.60 yen and close to a session high of 107.75 yen.
It seems that Euro/dollar is heading downwards as oil returns to the lows. Experienced traders are expecting to see new lows in oil and a likely test of the $100 per barrel level and new lows for EUR/USD as well.
U.S. crude oil futures slipped 0.5 percent to $102.74 per barrel.
The U.S. dollar rose versus the euro on Wednesday, scaling a 11-month peak, boosted by sinking crude oil prices.
The euro dropped as low as $1.4039
It seems that Euro/dollar is heading downwards as oil returns to the lows. Experienced traders are expecting to see new lows in oil and a likely test of the $100 per barrel level and new lows for EUR/USD as well.
U.S. crude oil futures slipped 0.5 percent to $102.74 per barrel.
FOREX - Dollar Rises Versus the Euro
Forex Trading: Foreign Exchange Trading Introduction
Forex Trading: Introduction to Foreign Exchange Trading
Foreign exchange markets are always in constant fluctuation, and for wanna be traders it can be a scary place to invest and trade your hard earned money. Forexcy.blogspot.com brings you into the world of Forex - foreign exchange trading. Looking into the prospect of forex trading you will begin to understand the scope of the forex market as a worldwide market trading currencies 24 hours a day 7 days a week, almost 365 days a year (actually, currency markets are open for about 5.5days a week actively trading and do not open on Christmas and New Year's days). As a consequence of this huge money market, the capital market is highly liquid and high volume takes place daily. As the forex currency market is in non-stop flux there are plenty of opportunities for forex trading for all kinds of investors.
Foreign Exchange Trading Introduction
Forex trading takes advantage of the constant fluctuation of the market, buying and selling into and out of the ebbs and flows of the foreign exchange trading charts. Many profitable trades await the avid trader in these markets. So as you examine your charts as a forex trader you will find that the capitl market display’s repetitive behaviour as well as trends. So you can profit from them.
Forex Trends can go in three ways; an up trend, down trend and a sideways trend. As a Forex trader you take advantage of currency price differences so you ought to stay away from sideways trending forex markets while jumping at every chance at up trending (long) markets or down trending (short) markets.
The most important in forex trading or any other trading is that “the trend is your friend.” An uptrend is simply defined as a set of prices on a chart that display a pattern of higher highs and higher lows: or put simply a graph going up from left to right. A downtrend is the opposite to an uptrend with a pattern of lower lows and lower highs: or simply put a graph going down from left to right. Then you have your sideways charts which really doesn’t display any clear uptrend or downtrend and shows up as either an erratic pattern of highs and lows or a pattern where the price doesn’t really change much between the highs and lows.
Forex Trading
Foreign exchange trading takes advantage of trends and the price differences at which the traders buy and sell the foreign currencies. It is a highly valuable skill to master the ability to read charts and to be able to see the uptrends and downtrends as well as the sideways trends in any chart or market you examine.
Remember, the trend is your friend - ride the trend and you shall have your profits as profits are the main objective of any forex trading venture.
Learn more - Forex Trading: Foreign Exchange Trading Introduction
Foreign exchange markets are always in constant fluctuation, and for wanna be traders it can be a scary place to invest and trade your hard earned money. Forexcy.blogspot.com brings you into the world of Forex - foreign exchange trading. Looking into the prospect of forex trading you will begin to understand the scope of the forex market as a worldwide market trading currencies 24 hours a day 7 days a week, almost 365 days a year (actually, currency markets are open for about 5.5days a week actively trading and do not open on Christmas and New Year's days). As a consequence of this huge money market, the capital market is highly liquid and high volume takes place daily. As the forex currency market is in non-stop flux there are plenty of opportunities for forex trading for all kinds of investors.
Foreign Exchange Trading Introduction
Forex trading takes advantage of the constant fluctuation of the market, buying and selling into and out of the ebbs and flows of the foreign exchange trading charts. Many profitable trades await the avid trader in these markets. So as you examine your charts as a forex trader you will find that the capitl market display’s repetitive behaviour as well as trends. So you can profit from them.
Forex Trends can go in three ways; an up trend, down trend and a sideways trend. As a Forex trader you take advantage of currency price differences so you ought to stay away from sideways trending forex markets while jumping at every chance at up trending (long) markets or down trending (short) markets.
The most important in forex trading or any other trading is that “the trend is your friend.” An uptrend is simply defined as a set of prices on a chart that display a pattern of higher highs and higher lows: or put simply a graph going up from left to right. A downtrend is the opposite to an uptrend with a pattern of lower lows and lower highs: or simply put a graph going down from left to right. Then you have your sideways charts which really doesn’t display any clear uptrend or downtrend and shows up as either an erratic pattern of highs and lows or a pattern where the price doesn’t really change much between the highs and lows.
Forex Trading
Foreign exchange trading takes advantage of trends and the price differences at which the traders buy and sell the foreign currencies. It is a highly valuable skill to master the ability to read charts and to be able to see the uptrends and downtrends as well as the sideways trends in any chart or market you examine.
Remember, the trend is your friend - ride the trend and you shall have your profits as profits are the main objective of any forex trading venture.
Learn more - Forex Trading: Foreign Exchange Trading Introduction
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