Sunday, November 19, 2006
Selling short is a way to make money when a stock goes down. It reverses the order of buying and selling. Normally you buy a stock and later sell it for more. On a short sell you actually sell a stock you don't own with the idea that you'll buy it later at a lower price to pay it back. To give you an example of how this works, suppose I'm a car dealer and you want to buy a car from me and I'm out. However, a friend of mine has a brand new car in my shop so I borrow his car and sell it to you. Then before he gets back my new shipment comes in and I give Bob a new car. Because I borrowed Bob's car, I sold a car I didn't own and bought a replacement later for less.
Selling short is selling now by borrowing stock and selling later. When you sell stock you don't own it ties up money until you buy it back. The amount it ties up depends on the stock price. If you're on margins you can sell short twice as much as your cash reserves. Again keep in mind there are interest costs. You're betting the stock will go down. If you're gambling on the wiggles, you can make money on both sides of the wave.
Selling Short is a lot more dangerous than buying stock. When you buy stock if it goes to 0 you lose it all, but no more than all. And you can make an unlimited amount if it goes up. On a short sell if it goes to zero you double your money. But if it goes up you lose money and you can lose an unlimited amount of money. You can lose more than 100% by selling short. On a market that tends to rise overall selling short is swimming against the current. And even if you win 50 times in a row selling short, the one loss could easilly wipe out more than 100% of your money. You may be trading a real dog of a company and all of a sudden some big company buys them out and they tripple overnight. Not only does this wipe you out but you are in debt and all your previous winnings count against you because you used these winnings to sell more shares short.
Unless you're a lot smarter than I am, don't sell short. It's just too dangerous. There are safer ways to make money on stocks going down. You can buy PUTS which limits your losses to what you invest and has the ability to return more than double you money.
Tech stocks and the internet are the future. Most all the Fortune 500 are nerds. Computers, networking, and communications are the fastest growing stocks out there. not all are winners, but most are. You can invest in big solid companies like IBM, Cisco, Microsoft, Dell, Compaq, WorldCom and do well. I like to try to find some good startups that are well positioned because you often get more growth buying a calf than a cow. Several friends got in early with Qwest. Qwest was a company laying high speed fiber optic cable all over the country putting in the latest in high bandwith fiber and routers. How can you not make money doing that?
Thursday, November 09, 2006
The foreign exchange market (FOREX) offers many advantages to investors. But you need to know where to begin.
This short guide will give you the FOREX basics, so you can quickly start participating in this fast growing market.
In the past, foreign exchange trading was limited to large players such as national banks and multi-national corporations. In the 1980's the rules were changed to allow smaller investors to participate using margin accounts. Margin accounts are the reason why FOREX trading has become so popular. With a 100:1 margin account, you can control $100,000 with a $1,000 investment.
A Learning Curve
FOREX is not simple, though, so you ll need some knowledge to make wise investment decisions. Although it is relatively easy to start trading on the FOREX, there are risks involved. Your first move as a beginner should be to find out as much as possible about the market before risking a dime.
Find A Broker
FOREX traders usually require a broker to handle transactions. Most brokers are reputable and are associated with large financial institutions such as banks. A reputable broker will be registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC) as protection against fraud and abusive trade practices.
Open an Account
Opening a FOREX account is as simple as filling out a form and providing the necessary identification. The form includes a margin agreement which states that the broker may interfere with any trade deemed to be too risky. This is to protect the interests of the broker, since most trades are done using the broker's money.
Once your account has been established, you can fund it and begin trading.
Many brokers offer a variety of accounts to suit the needs of individual investors. Mini accounts allow you to get involved in FOREX trading for as little as $250. Standard accounts may have a minimum deposit of $1000 to $2500, depending on the broker. The amount of leverage (how much borrowed money you can use) varies with account type. High leverage accounts give you more money to trade for a given investment.
Trades are commission-free, meaning that you can make many trades in one day without worrying about incurring high brokerage fees. Brokers make their money on the 'spread': the difference between bid and ask prices.
Paper Trading
Beginning traders are strongly advised get accustomed to FOREX by doing "paper trades" for a period of time. Paper trades are practice transactions that don't involve real capital. They allow you to see how the system works while learning how to use the various software tools provided by most FOREX brokers.
Most online brokers have demo accounts that allow you to make free paper trades for up to 30 days. Every new FOREX investor should use these demo accounts at least until they are consistently showing profits.
FOREX Software
Each broker has its own set of software tools for making transactions, but there are a few tools that are common to all FOREX brokers. Real-time quotes, news feeds, technical analyses and charts, and profit-and-loss analyses are some of the features you can expect to see on most online brokers' web sites.
Almost every broker operates on the Internet. To access a broker's online services you'll need a reasonably modern computer, a fast Internet connection, and an up-to-date operating system. Once your account is set up, you can access it from any computer just by entering your account name and password. If for some reason you are unable get to a computer, most brokers will allow you to make trades over the phone.
There are lots of ways to make money. FOREX trading is just one more potential stream of income -- if you are prepared to learn and practice.
This short guide will give you the FOREX basics, so you can quickly start participating in this fast growing market.
In the past, foreign exchange trading was limited to large players such as national banks and multi-national corporations. In the 1980's the rules were changed to allow smaller investors to participate using margin accounts. Margin accounts are the reason why FOREX trading has become so popular. With a 100:1 margin account, you can control $100,000 with a $1,000 investment.
A Learning Curve
FOREX is not simple, though, so you ll need some knowledge to make wise investment decisions. Although it is relatively easy to start trading on the FOREX, there are risks involved. Your first move as a beginner should be to find out as much as possible about the market before risking a dime.
Find A Broker
FOREX traders usually require a broker to handle transactions. Most brokers are reputable and are associated with large financial institutions such as banks. A reputable broker will be registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC) as protection against fraud and abusive trade practices.
Open an Account
Opening a FOREX account is as simple as filling out a form and providing the necessary identification. The form includes a margin agreement which states that the broker may interfere with any trade deemed to be too risky. This is to protect the interests of the broker, since most trades are done using the broker's money.
Once your account has been established, you can fund it and begin trading.
Many brokers offer a variety of accounts to suit the needs of individual investors. Mini accounts allow you to get involved in FOREX trading for as little as $250. Standard accounts may have a minimum deposit of $1000 to $2500, depending on the broker. The amount of leverage (how much borrowed money you can use) varies with account type. High leverage accounts give you more money to trade for a given investment.
Trades are commission-free, meaning that you can make many trades in one day without worrying about incurring high brokerage fees. Brokers make their money on the 'spread': the difference between bid and ask prices.
Paper Trading
Beginning traders are strongly advised get accustomed to FOREX by doing "paper trades" for a period of time. Paper trades are practice transactions that don't involve real capital. They allow you to see how the system works while learning how to use the various software tools provided by most FOREX brokers.
Most online brokers have demo accounts that allow you to make free paper trades for up to 30 days. Every new FOREX investor should use these demo accounts at least until they are consistently showing profits.
FOREX Software
Each broker has its own set of software tools for making transactions, but there are a few tools that are common to all FOREX brokers. Real-time quotes, news feeds, technical analyses and charts, and profit-and-loss analyses are some of the features you can expect to see on most online brokers' web sites.
Almost every broker operates on the Internet. To access a broker's online services you'll need a reasonably modern computer, a fast Internet connection, and an up-to-date operating system. Once your account is set up, you can access it from any computer just by entering your account name and password. If for some reason you are unable get to a computer, most brokers will allow you to make trades over the phone.
There are lots of ways to make money. FOREX trading is just one more potential stream of income -- if you are prepared to learn and practice.
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