How to Recognizing and Managing Investment Risks

By Sara Ferguson

As an investor you face many risks, the most obvious is financial risk. Companies go bankrupt, trading decisions go bad, the best laid plans go awry, and you can end up losing your money " all or some of it, whether the economy is strong or weak. What puts your finances at risk? Here are some types of risks below.

Interest rate risk: Interest rates, set by banks and influenced by the Federal Reserve, change on a regular basis. When the Fed raises or lowers interest rates, banks raise or lower interest rates accordingly. Interest rate changes affect consumers, businesses, and, of course, investors. Whether rising or falling interest rates are good or bad depends on the type of investment.

Market risk: No matter how modern our society and economic system, you cant escape the laws of supply and demand. When masses of people want to buy a particular stock, it becomes in demand, and its value rises. That value rises higher if the supply is limited. Conversely, if no ones interested in buying a stock, its value falls. This is the nature of market risk. The value of your stock can rise and fall on a whim of market demand. Your investments are impacted on that demand or mood of the market.

Inflation risk: Inflation is the growth of the money supply without a commensurate increase in the supply of goods and services. For consumers, inflation shows up in the form of higher prices for goods and services. Inflation risk frequently is also referred to as purchasing power risk because your money doesnt buy as much as it used to.

Tax risk: Taxes dont affect your investments directly, but they do affect how much of your money you get to keep. To help minimize tax risk, be aware of the tax implications and obligations associated with the different types of investments. Because the tax rules are often very complex, differ for different investment vehicles and scenarios, and change regularly, talk to your accountant, tax advisor, or tax attorney for guidance.

Political and governmental risks: If investment vehicles were fish, politics and government policies (such as taxes, laws, and regulations) would be the pond. In the same way that fish die in a toxic or polluted pond, politics and government policies greatly influence the financial stability of companies and commodities, the value of currencies and so forth.

Emotional risk: Emotions are important risk considerations because the main decision-makers are human beings. Logic and discipline are critical factors in investment success, but even the best investor can let emotions take over the reins of money management and create loss. For any kind of investing, the main emotions that can sidetrack you are fear and greed. - 23162

About the Author:

How to Invest Today is dedicated in teaching and keeping you up to date on the information you need to invest. Investing is a always changing world with constant pitfalls. How to Invest Today trys to help you around them to avoid getting stuck and keep you informed of the latest information.

Ordinary People Who Made Millions Trading Forex

By Hass67

You must have heard this fact many times that more than 90% of new traders fail and give up in a few months. Only a few survive in the long run.

Yet, still daily millions of ordinary people around the globe wake up, turn on their computers and try to make a living trading the financial markets online. Do you want to join them?

The interesting thing is this that almost the same statistic of failure exists in other businesses. Take the example of restaurant business. New restaurants open everyday; most of them fail. Only a few are able to succeed.

But despite the high probability of failure, still the possibility of making it big never stops people from starting new business ventures. The same thing also applies to forex trading.

Kathy Lien is a professional forex trader who has written many books on forex trading. In her book, Millionaire Traders, she tells the story of 12 ordinary people who made it big.

All these 12 stories are remarkable. The rag to riches story of Hoosain Harneker is especially worth mentioning. He lost almost all his saving in a failed business partnership.

One of his friends advised him to trade forex. He emailed him the forex system that he used to trade. It was based on simple moving averages. But he did not have even a few hundred dollars to open an account with a forex broker.

Hoosain took almost six months to save $1000 to open an account with a forex broker so that he could trade forex live. However, during those six months, he practiced and practiced the forex trading system his friend had emailed him on the demo account. If he had any query he would email his friend for clarification.

He promised his wife that he would never trade forex again if he blew up that $1000. All the 12 people in the Millionaire Traders blew up their accounts in the beginning except Hoosain.

His advice to new forex traders: Start by practicing on your demo accounts and double your amount three times in a row. Only then think of trading with your real money. Paper trading will give you the confidence to start trading live.

Many new traders jump straight into live forex trading without practicing much on their demo accounts. After a few losses, they give up thinking that forex trading is difficult.

Forex trading needs a lot of discipline. You can learn from the success stories of these 12 ordinary but remarkable people who had the discipline and determination to make it big. - 23162

About the Author:

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading and swing trading stocks and currencies. Learn Forex Nitty Gritty. Read about Trend Forex System. Try Netpicks Forex Signal Service.

Is Your Investment Backed By The Right Strategy?

By Suzanne

For a trader it is important that they are aware of the right business strategies. Otherwise it is going to be extremely difficult for them to survive in the trading business. A well-defined strategy is very essential for day and online trading. It is important to be aware of every intricacy of day and online trading. This will help us in making the right decisions and gaining plum returns on your investments.

Day trading means the act of buying and selling stock within the same day. Day traders seek to make profits by leveraging large amounts of capital to take advantage of small price movements in highly liquid stocks or indexes. Certain stocks are considered ideal for day trading. A typical day trader looks for two things in a stock. That is liquidity and volatility.

Liquidity allows a person to enter and exit from stock at a good price whereas Volatility is a measure of the expected daily price range - the range in which a day trader operates. What encourages most people to get trading experience is the ability to make triple digit benefits each year with little effort. But day trading is not as easy as it seems. Over 50% fail in their attempt of dealing with stock successfully.

That is because most traders assume that they know everything about trades, stocks and so on. But in reality most new entrepreneurs are not fully equipped to even start the operations that they have begun. In fact many are not even prepared to operate the business. Blame it on lack of enough practical experience or lack of understanding of the risks and inner workings of the business many new entrepreneurs fail in their first attempt.

And it comes as no surprise to learn that they take a very long time to recoup from this failure. Most of them start a business completely out of impulse and face hiccups during their business. One company that is setting a benchmark in online trading is NetPicks. Established in the year 1966, NetPicks has been considered the gold standard while dealing with forex, futures, stock trading systems and live signal services. In fact it would be right to say that since the time online trading and day trading emerged NetPicks has been there to help people with their money.

The professionals of NetPicks bring a wealth of trading experience. Because everyone at NetPicks firmly believes that there are limitless opportunities to be exploited with forex, futures and stock trading if people are intelligent enough to sort through the data.

The first priority of professionals at NetPicks is to do a meaningful analysis to subscribers. Meaning to deliver fast, accurate and dynamic information that can be transformed into short term successes and long term wealth management. Therefore this article reinforces that a right strategy is most vital when dealing with stocks and when no professional help is taken. Therefore it's important to ensure that the strategy should be as objective as possible. - 23162

About the Author:

If you wish to know more about day trading stock tips and free day trading resources then you are invited to visit http://www.UMTTrading.com. UMTTrading.com is a universal place to get information on different kinds of trading strategies. This site provides detailed information on swing trading, day trading systems, forex systems and much more. . .

Stock Trading Strategy: The Vertical Leap

By Jordan Weir

Many investors view options as only a short term tool. The idea of a highly leveraged instrument with the potential to make big bucks quickly appeals to the risk taker inside all of us. Just like a card counting black-jack player, options strategies can be used to make significant short term profits, provided the user is careful, and knows what they're doing. But while stock options are usually employed solely by that clique of high-risk, high-reward traders, they actually have enormous benefits that tend to go unnoticed by many a long term investor.

The strategy I'm about to reveal is rarely used. In fact, I've only briefly heard mention of them on little known websites, and even then, not in enough detail to give an example. So here it is, what I believe may be the biggest secret kept from long term investors on main street. The stock option strategy for the long term investor.

The strategy is a vertical option spread, using leap options. How this investment works is you buy one option, while simultaneously selling another option for the same month, but at a different strike price. While XYZ is typically my generic ticker, I will use a real company in this case. Keep in mind, this is NOT a recommendation. In actuality, it would probably be a bad idea to invest in the example I'm about to give. Its just an example. Yet to get realistic prices for this strategy, it may be helpful to use a actual stock.

note:I wrote this part of the article about a short time ago, prices may not be 100% current. at the moment GE is currently at 10.41 per share. In this example, let us talk the January 2011 options, giving GE a large amount of time to go the way we believe it will. So if you thought GE was an excellent long term buy, it would be within reason to believe it is going to at least $20 per share by that point. By January 2011, most people expect the recession to be over, and that single development alone should lead to a substantially higher stock price.

To do a vertical spread, you have to buy one option, and sell another one. With our price target of at least $20, and given the current price, 10.41, I would buy the 12.50 strike call option, and sell the 17.50 strike call option. The 12.50 option can be bought for 2.71 at the moment, while the 17.50 can be sold for 1.40, giving us an overall cost of 1.31 per share for the option spread.

Now lets look at this trade for a second. If GE is trading below 12.50 on the January 2011 expiration, both options expire worthless, and the 1.31 per option spread invested is gone. On the other hand, if GE is trading above 17.50, then the 12.50 option will be worth exactly $5.00 more then the 17.50 option, and so the position is worth $5.00 per share. If its between 12.50 and 17.50, the call we sold expires worthless, while the call we bought will have value equal to the difference between the stock price and the strike price; 12.50 in this case. How do you calculate the break even? Well we paid 1.31 for the option spread, so if its exactly 1.31 higher then 12.50 (13.81), then well be at break even if the stock is at that point.

That gives us an amazing return of 281% if GE is above 17.50, for an annualized return of 107% (holding period is 22 months). Due to the high potential for risk - a complete loss of investment if GE is below 12.50 in Jan 2011, you shouldn't put more then you're willing to risk in the trade. Definitely a speculative play. Yet given how much time there is, it's a much safer bet then short term options, and much more profitable then just buying the shares.

So now that the basic idea is out of the way, what are some examples of vertical spreads I would consider? I am a big believer in investing in emerging markets, so I am long term bullish on EEM (IShares MSCI Emerging Markets Investment Index). The January 2011 25-30 vertical on EEM is only going for about $1.88 at the moment, with EEM trading at 25.30 so I think that would be a superb investment. Above 30 it would be worth $5 at expiration, while below 25 it would be worthless. Unless the economy stays bad until then, I can not imagine that occurring.

Similarly, I expect FXI (iShares FTSE/Xinhua China 25 Index) to go up. The "China miracle" isn't over, merely in a subdued state due to temporarily reduced demand. The 30-35 vertical Jan 11 vertical would be worth $5 at expiration if FXI is above 35, which from its current price of 28.51, is perfectly within reason. That vertical spread currently has a $2 price, so that would be an even 150% return from now until January 2011.

A much more controversial play would be Bank of America. While the trader in me screams to short the stock, I foresee it being far more valuable then it currently is a couple years from now. The simple reason is that yes; financials have been hammered by the current collapse. Yes, some banking companies have gone bankrupt, or have been on the verge of bankruptcy. Is the financial system going to completely fail? No. Are rampant bank runs going to drive them out of business? No. Are banks going to be lending and making money again after this recession ends? YES! Is pent up demand in housing going to cause a rush to buy houses at prices not seen in a decade? YES! Are banks going to profit from this? Most DEFINITELY. If BAC is at or above $10 at the January 2011 expiration, the 7.50-10 vertical for Jan 2011 would be worth 2.50, while only costing about $0.65. That would give a 286% return, or 108% annualized. The risk of course, is that BAC goes bankrupt, or BAC flounders under the $7.50 per share mark past January 2011. In either case, you would lose your investment. Yet with prices as low as they are now, that isn't very likely.

For many people, the financial markets are not the place to make a quick buck. While some short term traders will have great success with these option strategies, long term investors should use these same strategies while remaining focused on the longer term, to achieve gains vastly exceeding those of the regular stock market, while limiting risk. - 23162

About the Author:

Want to hear more about this amazing Stock Trading Strategy? Visit my website and find out all you need to know to become a market master. Find out what industries to invest in and when, and learn the Stock options strategys the big players use to make money in the markets.

What You Should Know About Being a Personal Real Estate Investor

By Gary Z. Bryant

You've made up your mind you're going to make some income with that cash pool you have. If this is the case, you may want to consider investing in real estate. One thing you need to know is that making money in real estate may not be the passive income generator that you think though. If you do have good skills and quality information, there are ways to passively make some nice profits.

The first step as a personal real estate investor (aside from assembling the funds) is to find the right people to deal with. Real estate is a perilous industry fraught with people who aim to maximize their own profit from any deal. And they will do this even if it means ripping you off.

To estimate the fairness of any potential transaction, have a property inspector assess the property you are planning to buy. It helps if you are already knowledgeable about the real estate market including the neighborhood where the potential property you are eyeing is at.

Once you purchase the real estate, then what do you do? Well, if you want to go the passive route, you can improve the property and then sell it for more money than you paid for it. You will need to do the improvements on your own or have someone do them for you. However, if you don't want to let go of the property, a more active option is to lease the property. Of course when you lease you'll need to improve the property too.

This is important if you want to attract tenants. The other difference with leasing is that you have to constantly maintain your property to an acceptable level. And how acceptable depends on how much rent you plan to charge. There is also the issue of tenant relations. Your tenants should sign a contract that legally protects your property from damage that may be too costly to be considered part of maintenance.

Being a personal real estate investor requires skills, patience, and time that would not otherwise be required in institutional real estate investment. With the advent of real estate investment trusts or REITs, the gap between institutional and personal real estate investment in terms of profit is closing fast. But there are still quite a number of tricks that only a personal real estate investor is capable of doing. One of them is full control over property acquisition.

With full control, the ways to acquire property are plentiful. Acquisition can come from direct buying, buying foreclosed property from the bank, or taking ownership of property used as collateral for a loan. Another is the ability to use the property for ventures outside the scope of real estate.

Real estate has been one of the most popular ways to invest for the last century. And with the current economy causing property prices to go dirt cheap, it is no wonder that investors are scrambling to acquire their share. With good people skills, some management tact, and a dash of business instinct, personal real estate investment can prove to be one lucrative venture indeed. - 23162

About the Author:

Scared to start with wholesale real estate investing? Gary Z. Bryant says your wrong. Find more about Real Estate Investing and Real Estate Foreclosure Investing In Las Vegas