Post from: Finance Market Investment

House Auctions Today

Any individual, sole trader or partnership can apply for an IVA should their levels of debt be overwhelming and difficult to manage. Below we take a look at the main advantages of applying for an IVA to help you decide whether it is the right solution for you.

- A sole trader or partnership is able to continue trading after entering an IVA. This is done so that repayments are more likely to be met and the terms of the IVA fulfilled;

- Repayments to creditors will be in the form of one affordable monthly payment which has been pre-agreed by them through a vote. This amount is reviewed by a finance professional and adjusted accordingly to suit the debtor. After a period of five years, the debt is written off whether or no the full repayment of the debt has been made;

- There are no restrictions from an IVA as there are associated with bankruptcy;

- An IVA is not made public like bankruptcy charges are. Therefore your financial position can remain anonymous should you desire;

- With an IVA the debtors assets can be maintained such as the mortgage on a property enabling a more normal way of living through debt management;

- Creditors are usually happy to meet an IVA agreement rather than bankruptcy as the costs related to an IVA are lower and they can claim VAT and tax relief from it.

There are many solutions if you are facing financial difficulties and an IVA could be one option that is suitable for you. The best advice is to first talk to a financial expert about your particular circumstances as every case is different. There could be other alternative and more relevant solutions available.

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What are the Advantages of an IVA?

The most basic are the call and the put. Buying a call confers the right, but not the obligation, to buy at a pre-set price. Puts grant the buyer the right to sell at a pre-set price. But options are sold as well as bought. That seller grants the buyer the right, and takes on an obligation to fulfill the other side of the trade.

There are several basic variations.

Long Calls

The most basic, and easiest to understand, is the (long) call. MSFT (Microsoft), currently trading at $28, have June 31 options that expire on the third Friday of June, with a strike price (pre-set, ‘if exercised, must-be-bought-at-price’) of $31.

Short (’Naked’) Calls

When the option seller (the ‘writer’) doesn’t own the underlying stock he’s obligated to sell (if the option is exercised), he is said to be selling a ‘naked’ call. Since he’s on the selling side of the contract, his position is said to be ’short’.

If the market price of the underlying asset decreases, the short call position will profit by the amount of the premium. The price rises above the strike price by more than the premium, the short position incurs a loss.

Long Put

Traders who anticipate that the future market price of an asset, say a stock, will fall prior to expiration can buy the right to sell the stock at a fixed price. The put buyer has no obligation to sell the stock, but simply the right.

If, in fact, the market price does fall below the strike price (prior to expiration of the option) by more than the premium paid, he profits. If the price increases, or doesn’t fall enough to cover the premium, the trader lets the contract ‘expire worthless’.

Short Put

Traders who speculate that the future market price will increase, can sell the right to sell an asset at a pre-determined price.

If the asset’s market price rises, the short put position makes a profit equal to the amount of the premium. (Excluding any transaction costs, such as commissions.) If the price falls below the strike price by more than the premium, the ‘writer’ loses money.

Several basic trading strategies utilize the characteristics of these four basic positions. These strategies are either pure profit plays – speculating on coming out on the plus side of the equation – or combinations of speculation and hedging.

Hedging involves taking positions that tend to move in opposite directions. They profit less than pure speculation, but make up for it by offloading some risk.

‘Bull spreads’, for example, use a long call with a low strike price in combination with a short call at a higher strike price and a short put with a higher strike price.

‘Bear spreads’, by contrast, involve a short call with a low strike price and a long call with a higher strike price. An alternative method uses a short put with low strike price and a long put with a higher strike price.

Options trading software can demonstrate several concrete examples of how any of these – under different assumptions about future prices, volume, etc in combination with different expiration dates and strike prices – can result in profit (or loss).

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Trading Strategies, Basic Concepts

Fortunately, it isn’t necessary to know exactly how to calculate them in order to use them. Software will do that for you. But, it’s helpful to have some idea of how they are arrived at, and what they mean, in order to evaluate their worth as trading tools.

Keep in mind, however, that none of the indicators – taken alone – tell the whole story. Nor do all of them together make one certain. Indicators are just that, they indicate. They do not predict with certainty. No mathematical tool used in Forex trading will do that. Beware of hyped promises.

Following are some of the more commonly used.

-  Moving Average

Just as prices can be charted so can average prices. And, like the prices themselves, the averages change over time. The two most commonly calculated are the SMA (Simple Moving Average) and EMA (Exponential Moving Average).

The SMA is the average of prices taken at specified intervals, say an hour or a day. Each price is weighted equally in calculating the average. The more complicated EMA weights some prices more than others, on the premise that some are more relevant. Recent prices are considered more telling than those further back, hence these are weighted more in the calculation. For example, a 10-day EMA calculation will weight the last days more heavily than the first days.

Many software tools will indicate a buy signal when the current price rises above its moving average, since this suggests a rising market. A sell signal may be triggered when the price falls below the moving average.

- Bollinger Bands

Just as in futures and options trading, Bollinger Bands are a commonly used indicator. While their calculation involves some heavy-duty mathematics, their interpretation is considerably easier.

The bands are calculated as standard deviations above and below a simple moving average. The width of the bands will vary depending on volatility. As volatility rises, they become wider. As volatility decreases they narrow. Prices tend to stay within the upper and lower bands, with sharp price changes tending to occur after the bands tighten. If prices move outside the bands, the current trend will tend to continue.

A sell signal is suggested when the current price is above the moving average, close to the upper band. A buy signal is indicated when it moves to the lower band.

- RSI

The RSI, or Relative Strength Index, is a value between 0 and 100. A number above 70 usually suggests that a currency is overbought and therefore due for a price reversal. A value below 30 indicates a currency is oversold.

As a price is making a new high, but the RSI fails to surpass its previous high, the trend is said to ‘diverge’. This often indicates an impending reversal of the trend. When the RSI dips below a recent bottom, it is said to have executed a ‘failure swing’. That move is seen as tending to confirm the impending price reversal.
There are several other common indicators, including MACD (Moving Average Convergence/Divergence), Momentum, OBV (On Balance Volume), Money Flow Index, Parabolic SAR, Stochastic Oscillators and dozens even more esoteric.

All these were developed as statistical tools to help predict prices and trends. But keep in mind that, though some technical analysts claim to eschew looking for causes, all of them are based on assumptions when used as technical indicators.

As with any tool, they should form part of a strategy for trading. They should not be used as a substitute for studying the market and using proper risk management.

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Technical Indicators in Forex Trading

The fundamental risk, of course, is price uncertainty. No one knows for sure whether GOOG (the symbol for Google stock) will be higher tomorrow or lower.

Options, like futures or bonds, carry an additional risk – at some point, from a day to several months or years, they expire. On or before that date, the holder has to decide whether to sell the contract, exercise the option to buy or sell the underlying asset, or simply let the option expire.

Each of these choices carries implications for gain or loss and all are uncertain (to some degree) with respect to the size of that outcome.

Complicating the price and timing risks of options is their volatility risk. It’s uncertain, on any given day, how much the price will vary and how rapidly.

Ironically, options themselves are forms of risk management. Since the underlying asset, say a stock or bond, has risks as an investment buying options allows holders to compensate for them.

Leverage is one form in which options help to manage risk. Leverage is the ability to control more than you own. Suppose you want to purchase a 100 shares of Google. At the current market price that’s an outlay of around $40,000 (excluding commission). That’s a hefty sum for the average investor.

But you can control 100 shares of GOOG without owning them for less than 1/10th the cost – currently around $2800 – the price of one option. (One options contract typically is written on 100 shares.)

How is that a form of risk management? The reason is there’s another kind of risk: principal risk. I.e the risk of losing (all or part of) your investment. (Actually this is a form of price risk.)

Purchase a 100 shares of GOOG and you stand to lose $40,000 in the (very unlikely) case that Google goes bust. (Unlikely, but not impossible. Rapid shifts in technology or other factors have tanked more than one high-tech stock. 3Com and Cisco are two good examples. Though not zero, their shares experienced considerable declines in the past few years.)

Purchase one option instead and your principal risk is limited to the – painful if lost, but much smaller – amount of the premium: $2800, the cost of the options. (Excluding commissions.)

Of course, the example is a little unfair since the odds of Google stock going to zero is itself close to zero. But there are companies for whom the odds are not so favorable and the principle (pun intended) is the same.

So, how do you manage these risks? Simple. Simple, but not easy.

Start by identifying all the known risk factors and quantifying them. (Simple in that identifying and measuring them is straightforward, but minimizing them is anything but easy.)

Fortunately, there are several different software product offerings that will help you do that. It’s no longer necessary to be a finance and mathematics wizard. The software incorporates the algorithms used by experts to measure various factors – such as delta, theta, vega, volatility and others – that can affect your potential profit or loss.

Post from: Finance Market Investment

Risk Management

An option is a contract conferring the right to its buyer to purchase an underlying asset at a fixed price (the ’strike price’). The right – not the obligation. A futures contract, by contrast, obligates the buyer (the ‘long position’) to purchase and the seller (the ’short position’) to deliver some asset by a set date.

That underlying asset, in either case, can be a commodity (such as wheat, oil, gold), shares of stock, or some more nebulous instrument such as an index. Since an index is just a number no physical delivery is possible, such trades are settled in cash.

Futures have value as a mechanism for trading risk, publishing prices, and (like options) taking speculative advantage of leverage.

A farmer may not know in April precisely how much wheat he can deliver. Insect damage, droughts and other kinds of crop failure are even today very much real supply problems. Similarly, he can’t predict in April exactly how much demand will exist in October. (In part, that depends on the supply.)

Selling a futures contract allows him to offload that risk to someone willing to bear it. He obtains a set price commitment today in exchange for a promise to deliver a good by a certain date in the future. On the other side of the contract, the buyer offers a promise today to accept delivery of the good in the future.

Neither knows with certainty what the market price will be on the expiration date of the contract, only what the market price is on the day it’s entered.

For the contract buyer, a future offers several values in exchange for accepting the obligation to take delivery of (and pay for) a set amount of goods at a pre-set price.

One major value is, as in the case of options, the use of leverage. While options require paying of a premium (usually around 5%-10% of the current market price), futures have no in-built cost (apart from a small commission).

The buyer is required, though, to put up a ‘good-faith’ deposit, also in the neighborhood of 5% of the total. But that margin deposit allows the trader to control 10-20 times the amount of good he would otherwise have to pay for. That ‘multiplied control’ is leverage.

[Note: Though it's called a 'margin', it's NOT the same as buying stocks 'on margin'. In the latter case, that is a form of borrowing - with the broker lending the trader the amount needed to purchase all the shares the trader then owns.]

As a practical matter, a very small percentage of futures contracts actually result in the buyer accepting delivery of, say, 1000 barrels of oil. While the behind-the-scenes mechanics are somewhat complicated, at expiration the goods are ultimately transferred to brokers who sell them to those who actually make use of them.

To the traders the exchange is simple, though. Any change in prices is reflected in the accounts of the trading partners at the end of each day’s trade. At some point the contract is either sold (the most frequent result) or expires.

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Risks and Advantages of Futures

Fortunately, many of the more or less standard indicators and charts used in stock, mutual fund or bond trading are used in Forex with minor adaptations. Buying and selling still involves monitoring prices and observing trends. That means that many of the statistical analyses used to do that are the same, regardless of the trading instrument being measured.

As with stock or bond trading, the simple line graph is still an enormously popular tool – popular because it is so helpful. In a simple form, current prices and the historical trend can be seen at a glance. The wrinkle in Forex trading is this: what do you mean by ‘the’ price?

Forex prices are always quoted for a pair of currencies. EUR/USD quoted at 1.2537/40 means that for $1.2540 you can buy one euro. To sell euros you own in exchange for dollars, you would receive 1.2537 dollars per euro.

Charts of these prices as they change over time are generated by calculations based on tools from technical analysis. Technical analysis involves the use of highly sophisticated statistical techniques to measure, calculate and predict likely price movements and directions.

A simple technical tool might be an average calculated over time. Note the price right now. Note it again an hour later. Repeat for 24 hours and average those numbers. All this, and much more, is typically done by software available from a wide variety of Forex brokers and online sites. That average represents ‘the price’ over an average trading day.

That one day average could be used as a single point on a line graph. Repeat the process at the same times for 30 days, plotting each point, and eventually you’ll build up a line graph of a 30-day moving average. The average itself will change over time, just as the price does. The change in that average over a 30-day period (or any other interval) gives an investor one insight into price changes.

In Forex trading, there are a dozen common calculations and charts. Some take two moving averages for different intervals – say, minute-by-minute measurements averaged over one hour compared to hour-by-hour averaged over 24 hours – and plots both on one graph. A number called the Moving Average Convergence/Divergence can then be used to compare those moving averages.

Fortunately, the average trader doesn’t have to understand the underlying mathematics in order to take advantage of these tools. Software, some downloadable to your desktop, others that operate directly within your browser, can be used to generate the charts. Some provide technical indicators, buy/sell signals and other useful information.

Still, understanding how to interpret these charts requires time and practice.

Beyond the simple line graph there are a few common charts that every Forex trader will want to learn how to use. Among these are the Bar Chart and the Candlestick Chart.

A bar chart displays prices in the form of a vertical ‘tick’ or bar, with small horizontal lines to the right and left. The ends of the bar indicate the high and low for some period, often the prior 24 hours. The left-facing tick is the opening price for that period, while the closing price is indicated by the right-facing tick.

A series of these bars can be graphed to form a bar chart for any time interval desired – daily, weekly, monthly, yearly and so on. Nor does the time period have to be opening and closing prices over a 24 hour period. They could just as easily be prices every hour, graphed over a day, a week and so on.

Candlestick charts are similar to bar charts, but contain additional useful information in graphic form. Originating in Japan, where they were used to track changes in agricultural futures contract prices, they have become part of the trading toolkit everywhere.

In addition to containing the information of a bar chart, they add color coding, by making the bar have a small width, hence its similarity in appearance to a candlestick.

The rectangle making up the ‘candlestick’ is called the body. A white (or, just as often, green) body indicates a closing price higher than the opening price. A black (or red) price indicates a closing price lower than the opening price. The lines protruding top and bottom from the body indicate the high and low prices at the tips.

Some candlesticks will have no line (or shadow as it is sometimes called) protruding from the top of body. That indicates that the currency closed at its high. Similarly, there may be no line protruding from the bottom. Such information is helpful in judging trends.

The length of the body, just as does the length of the bar in a bar chart, give a visual indication of the range of prices for that period. That is a visual measure of the volatility of prices, a very important factor in trading.

Candlesticks will form patterns as they are charted over time. Those patterns aid investors in making trading decisions. Those patterns have colorful names, such as the Hammer, the Hanging Man, the Morning Star and others. But though the names are fanciful, the purpose is serious: to help detect and predict trends.

Various patterns suggest trends that can be used as part of a trading strategy. Interpreting them, however, is part science, part art. The broker and software you select can help you understand them, provided you are willing to make the effort to study them over time.

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Line Graphs, Bar and Candlestick Charts

Forex signals are buy and sell indicators based on technical analysis. Technical analysis uses historical price and volume data to statistically analyze trends. The goal is to establish, with a stated probability, the likelihood of future price movements.

A signal could be as simple as ‘Buy euros now at 1.1901′. Those signals are delivered in any number of ways, by email, SMS text message to a cell phone, IM message and so on. Some are no more than flashing text and/or icons on trading software. The software contains in-built algorithms that use the methods of technical analysis, combines it with current market data and generates a signal.

For example, one commonly used technical indicator is something called MACD (Moving Average Convergence/Divergence). Without going into details here, it uses the moving average – the change in an average price over time. A signal can be generated when the value of MACD crosses above (or below) a certain threshold. Buy when it moves above the line, sell when it falls below.

Some signal services allow clients to automate the process of Forex trading even further. You can leave standing orders that when a certain signal is generated, carry out the recommendation. You get an email recommending ‘Buy euros now at 1.1901′ and the broker automatically enters an order to do just that.

As with any trading tool, it has to be used intelligently in order to avoid disasters. Entirely automating your buys and sells can amount to automatically losing money. Using a signal service can make your life easier, but never abandon your investments entirely to an automated service.

If you plan to do that, you may as well simply turn your investments over to a broker with the instruction: ‘Maximize my returns, but keep the risk down to a reasonable level’. Sensible, but not helpful if you want to control your destiny.

Signal services are definitely useful, however. They can relieve investors of the need to continually monitor prices. They can simplify the sometimes bewildering complexity of charts. They can help the investor make better decisions about when to buy or sell and at what price.

All that comes at a price, of course. Signal services range from $50-$250 per month, though some are cheaper and a few are more. Only the individual investor can decide whether the cost is justified. As with any trading service, if you make more than it costs than you would without it, that’s profitable.

But, buyer beware. There are dozens of firms that will be happy to take your money. Whether their analysis, and therefore, their signals, are worth anything is a learning experience all its own.

At minimum, investors should use order types that help control risk. Stop-loss orders, limit orders and other common types are an essential means of limiting losses and timing buy and sell orders. That technique, commonly employed in stock trading, is even more critical in the volatile world of Forex.

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Using Forex Signals as a Trading Tool