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General Investing

Position Sizing

When building a futures trading system one of the most crucial aspects is how it will determine its position sizing. Specifically, how it will determine how many contracts to trade once it gets a buy or sell signal.

One of the best ways to do position sizing is through a formula designed to “normalize” the markets for volatility. This way, a market with high volatility trades much more cautiously than a market with low volatility. In other words, the high-volatility market trades with fewer contracts than a low-volatility market.

The next consideration is how much of the account to risk for each trade. As a rule of thumb, it is best to risk no more than about 1% to 3% of the account size for each trade. So, a $100,000 account should never risk more than about $1,000 to $3,000 for each trade.

Once a trader has determined the risk for each trade and the market’s volatility they can then calculate the contracts to trade with this formula: (account size * risk a trade / market volatility).

Another consideration is the risk for each sector. Traders should never risk more than about 5% of the account at one time in a given sector. So, the risk in highly correlated positions like crude oil, heating oil and gasoline should be summed together. It is this combined risk in a correlated sector that should not exceed about 5% of the account size. Violating this rule can cause traders to be too dependent on one sector and voids the benefits of diversification.

Besides risk for each trade and risk for each sector one should consider the total risk at any given time. This is the amount one would lose if every single trade they were in exited simultaneously at a loss. This amount should not exceed about 10%.

By managing risk, and carrying out position sizing this way, one can substantially cut the risk in trading. Finding trading software that can compute all these position sizing rules is extremely difficult. As far as we know there are only two software packages that can do this correctly. One is Mechanica and the other is Trading Blox.

This article directory limits us on the size of the article we can publish. So, traders wanting to learn more should visit DH Trading Systems website.Commodity trading carries risks and is not suitable for all investors. Past performance is not indicative of future performance.Traders wanting to learn more about position sizing from award winning futures trading system developer Dean Hoffman should click on the links above.

Market Analysis

Role of Federal Open Market Committee in Monetary Policy of United States

Federal Open Market Committee (FOMC) is the group which makes the monetary policy for Federal Reserve System. FOMC makes significant decisions about the interest rates and growth of money supply of the United States.

The Federal Open Market Committee supervises the open market operations of the country. The open market operations are selling and buying of United States Treasury securities. It is basically the Federal Reserve committee which makes the key decisions about the growth and the interest rates of the money supply of United States.

The Federal Open Market Committee makes the principal component of national monetary policy of United States. The committee establishes the monetary policy by specifying short term objectives for all those operations that is presently a target level for federal funds rate. This is the rate which the commercial banks charge between themselves for the overnight loans.

The FOMC directs processes undertaken by Federal Reserve System in the foreign exchange markets, although the intervention in the foreign exchange markets is coordinated with US Treasury that has the responsibility for devising the US policies regarding exchange value of dollar.

There are a total of twelve voting members of FOMC, consisting of 7 members of the Board of Governors and 5 presidents of 12 Federal Reserve Banks. The President of Federal Reserve Bank of the New York is considered the permanent voting member of this Committee and presidents of other Reserve Banks serves the one year term as the voting members in rotation which is established by law.

9 of Reserve Bank Presidents have the right to vote one year out of each three, while Presidents of Federal Reserve Banks of Chicago and Cleveland vote in the alternate years. The President of the Federal Reserve Bank is the stable voting member of Committee and the president of other Reserve Banks serve the one year term as the voting members in rotation which is directed by law.

Going by law, the FOMC should meet at least 4 times a year, in the recent years; it needs to meet 8 times in a year. All meetings are attended by members of Board of Governors, the Presidents of 12 Federal Reserve Banks, and also by some of the senior Federal Reserve staff members.

The Federal Open Market Committee was developed by Banking Act 1933. At that time, the committee did not include the voting rights for Board of Governors. The Banking Act of the year 1935 revised all these protocols to include Board of Governors and to resemble the current day FOMC. It was amended in the year 1942 to offer us the present structure of 12 voting members, 7 members of Federal Reserve Board and 12 Federal Reserve Bank presidents.

All of Reserve Bank Presidents, and even those who’re currently voting as FOMC members, must attend the committee meetings. He should participate in the discussions and contribute to the assessment committee of the policy and economy options. The committee meets 8 times in a year, approximately once each 6 weeks.

Forex Trading Articles

Forex Trading – Make Money In The World’s Markets!

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Foreign exchange trading or forex trading involves speculations regarding betting on one currency over another. There are a number of factors that affect the foreign exchange market from a country’s sovereign status to inflation figures and unemployment conditions in a nation. The multitude of dynamics operating in the market makes it both exciting and risky as a trading option.

Attractions of the Forex Trading Markets:

* You can trade in the forex markets 24 hours a day over the phone or online.
* It is an Over-the-Counter exchange; there is no exchange acting as counterparty for each trader. So, you have direct trades between two parties.
* Forex markets have very high liquidity, as trading volumes are tremendous.
* You are presented with the chance to diversify your investment in many countries, as several of them participate in these markets. So, you get to dip your fingers in the world’s pie.
* It is always the time to invest, as you can put your faith in different currencies. If you think the dollar will perform better than the euro, you buy dollars and vice versa. So, you can always participate actively in the markets.
* One of the most interesting aspects of forex trading is that you benefit from leverage. With a small investment, you can speculate with large sums; you only have to pay or receive the margin amounts.

Major Currency Pairs Traded In the Forex Markets

The currency pairs that are actively traded include US Dollar and Euro, Australian Dollar and US Dollar, British Pound and US Dollar, and so on. Liquidity is high in these trades.

Forex Trading Strategies

Strategies vary vastly, as people take opposing sides of the trading platform. This is due to differing perspectives and various market inefficiencies. Financial analysts follow two methods of reading the markets – the fundamental and the technical analysis.

* The fundamental analysis reads the bottom and top lines – the country’s exports and imports, Balance of Payments, and Current Account Deficits. Based on the Budgets and other reports, analysts makes predictions regarding market movements.

* The technical analysis uses charts to predict which way the markets are likely to swing. By following various graphs and learning about supports and resistances, breakouts and price charts, you will learn to read which way the markets are headed.

Tips Regarding Strategies:

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* When the FX markets break through resistance levels, it is a sign that they will go up further with the momentum. That is the time to buy. While you can’t time the markets by waiting for them to bottom out, it is possible to follow certain trends.

* Your trading strategy should take into consideration different market nuances and major traders’ idiosyncrasies. Any rigid system is bound to fail. Robotic trading methods are filled with such loopholes.

* Traders also read the leading and lagging economic indicators to formulate their forex trading strategies. Reading price charts sans these indicators can also help in trading.

There are many financial companies that are members of stock exchanges. They present forex trading with strategies, advices, and market commentary. They also offer commodities, derivatives, and currency trading opportunities enabling people to profit from spreads.

Market Analysis

Day Trading Strategies

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Day trading limits trading to the time period of a single day, 24 hours. A trading day can run at different times, depending on the market. Day traders can potentially engage in international markets based in different time zones, or in the foreign exchange market (forex), which is global and normally open 24 hours a day, 5 days a week.

Day trading means that all positions are closed by the end of the trading day. Potential profits and losses are thus tallied up by the day’s end, giving clarity to your financial position. As traders aim to exit the day on a profit, some positions may be closed before the day has ended.

Potential profits and losses from day trading depend on the financial value of your market position. These positions may be leveraged, which will magnify the volatility of the financial market in question. Although the time period is relatively limited, market movements can be sudden and unexpected, and often occur over a very short time period.

You can use spread betting and CFD trading in order to quickly access the markets. Financial spread betting and CFD accounts are subject to status but they available from a range of providers such as FinancialSpreads.com and IG Index . A common feature of a trading account is a desktop trading platform, although the web based platform is more popular.

As mentioned above, day trading limits your trading executions to a single day. This does not mean, however, that it is easier or more likely to result in profits. Achieving profits and sustaining them over a series of trading sessions is far from easy.

You can test your speculative skills by opening a demo trading account that lets you trade without risking any of your capital. You can refine a strategy through practice and by learning from both your profitable and loss making trades.

Technical Analysis and Fundamental Analysis

Analysis of the underlying financial market can help you refine your trading strategy. Day trading strategies can be developed according to fundamental or technical analysis, the two key types of market analysis.

Fundamental analysis depends on the belief that external events and factors can determine a market’s movement. Political events, for example, may boost or depress a financial market as traders gain or lose confidence.

In terms of day trading, a fundamental analysis strategy can be aided by regular access to news sources, such as news wires, online newspapers and other news or financial media.

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Technical analysis uses charts and is focussed upon the interpretation of historical price movements. Thus, if a financial instrument, such as a currency pair, has risen or fallen in the past, you may decide it will do so again in the future.

However this is also the key flaw in technical analysis, just because a market has moved in a certain direction in the past that does not mean it will continue to move in that direction.

Spread Betting and CFD trading are financially geared types of trading they carry high levels of risk to your capital and you can lose more than your initial stake. Always trade with capital that you can afford to lose. Before making any trades make sure that you fully recognise the risk when investing with these investment formats. It is important to note that Spread Betting and CFD trading may not be suitable for all investors. Where appropriate, seek independent advice.

General Investing

Types Of Investment Bonds

There are many types of investment bonds in the market. Each type of investment bond has its own feature, which make them unique. It is very important to know the type of investment bond featured benefits. If an investment bond feature benefits the investor, then the investment has lower risk, so as the yield, and its price should be higher.

In the other way round, If an investment bond feature benefits the issuer, then the investment has higher risk and yield, and its price should be lower. Therefore, as an investor, once we know who benefits from the feature, then we stand a better investment position whether to pay more or less for the type of investment bond before investing. Below are some of the most common bonds in the market.

Government bonds – are issued by the monetary authority of a country. At the time of issue, government bonds have maturity period from as short as one year to as long as 20 years.

Corporate bonds – are issued by corporations, mainly bought and sold by private and public institutions. They offer limited interest from retail investors.

Secured bonds – are backed by some specified assets such as mortgages or account receivables for investors to be convinced to park with their money. For example, a mortgage backed secured bond bundles mortgage, and then sells investors the right to receive the payments that consumers make on those mortgage loans.

Unsecured bonds – or sometimes called debentures are the most commonly issued type of investment bond. Although it may sound risky, they are generally not. They are backed by the issuer’s credit quality. In general, the higher the issuer’s credit quality, the higher the chance the borrower will make the payment to investors as promised. Therefore, the investor’s risk is reduced. Debentures are issued by high credit quality corporations and institutions, and they are often more highly rated than secured, asset backed investment bonds.

Convertible bonds – are hybrid investment which contains a bond and a stock. If an interest rate risen, the bond will fall in value. However, investor can still benefit from the risen stock price by converting it to common stock. If an investor choose not to exercise the convertible, the investor can benefit from the bond’s interest income until the its maturity. These types of investment bond is suitable for investors with low risk profile, and seek for regular income with downside protection against falling share prices. Convertible bonds rate of return is lower than non-convertible bonds.

High yield bonds – as the name suggested, pay higher interest rates to investors. This types of investment bonds’ grade is lower, and are issued by emerging market economies such as those good companies which fallen on bad economy times. Therefore, they are riskier than investment graded bonds.

Zero-coupon bonds – pay no coupon interest during the tenure of the bond. But, the coupon interest is accumulated and paid in one lump sum at the time of maturity. This types of investment bonds are normally sold at a discount.

Floating-rate bonds – or name floaters, is a type of investment bond which periodically adjust the coupon interest rates base on the current market interest rates. If the market interest rates risen, the coupon interest rate will be adjusted to higher. If the market interest rates fallen, the coupon interest rate will be adjusted to lower.

Callable bonds – is riskier and offer a higher rate of return. The issuers have the right to call back the bond anytime and repay its debt before maturity. This occasion normally happens when interest rates fall, the issuers will call back the bond and reissue another bond at a lower rate of interest.