Day Trading World: Tips About Online Trading & Day

Crude Fundamentals Failing

2008-09-26T06:53:00.004-07:00

The fundamentals in crude oil have continued to erode since February of this year. The highs, over the last $40, can be viewed as a "bubble." This bubble has been fueled neither by Commodity Index Traders and large speculators, nor Hedge funds and carry trades. I think a strong case can be made that the last leg of this rally should be attributed to large producers unwinding their forward hedges. Producers and forward short hedgers are subject to human error just as individual traders are.

Hedge transactions manifest themselves in the Commitment of Traders data as commercial purchases when the market makes new lows and as commercial sales when the market rallies. Just as most economic decisions are made, "at the margin," so too are the hedger's trading decisions. Their traders use their understanding of the fundamentals in their market to create oversold and overbought zones within the market's natural movement and attempt to trade accordingly. This strategy works for them the vast majority of the time.

However, when a market unhinges from fundamental factors and begins trading on sentiment, the commercials find themselves at the mercy of the public at large. Using the chart below, the white line represents the commercial index of positions on a scale of 0 to 100. Zero equals totally short and can be seen at the following points, (5/06, 7/07, 8/07). One hundred equals totally long and can be seen at, 6/05 and 10/05. Currently, the index is at 78, the highest since a 79 reading in February of '07. The yellow line represents total open interest. Technically, speaking, in a healthy trend, open interest should increase as the market moves out to new territory, either higher or, lower.

This has not been the case with crude oil. Open interest peaked in July of '07 and has continued to decline ever since. Open interest now stands at 1.3 million contracts, the lowest since March of '07. Furthermore, I have discussed, at length, the negative spread we've seen between the front month prices and the later expirations. In real terms, this backwardation in prices is evidence that producers don't believe that we will be near these prices as the deferred contracts come due for delivery. Producers continued to sell the deferred contracts in order to lock in profits at levels they don't believe will hold into the future. Lastly, over the last previous weeks, we have seen the total commercial position shift from net short, to net long, with the market at all time highs. Therefore, I would suggest that the rally from the January highs, under $100 per barrel through the current highs, over $145 has been driven by commercial capitulation and a speculative blow off, rather than fundamental supply and demand issues.

Ultimately, it proves the old adage true for everyone, even the big guys, "The market can remain irrational longer than one can remain solvent." Historically, there have only been three times when commercial positions have shifted from net short, to net long while the market was at all time highs. The market declined, twice, by an average of 22.5% and once, the market rallied by 5.8%. Clearly, we are on the cusp of a top. Given the magnitude of a possible decline, one may be advised to purchase put options. Those wishing to sell futures may wish to wait for a close under $140 to initiate a short position.

Australian Dollar's Plunge

2008-09-26T06:53:00.003-07:00

As we have seen the commodity markets fall, we have been forced to ask the question, "Is this the end of the commodity bull market or, one more decline in a multi-year trend?" The opposing forces of global inflation and waning demand have led to a considerable state of flux. Over the last couple of weeks, we have seen very wide ranges and declining open interest in several commodity sectors. We believe that it would be too easy for this run to come to an end in such an orderly fashion. Adding to the confusion, many of the markets continue to hold their weekly trend lines while others have penetrated their trends even within the same sectors.

Given the mass confusion, it may be easier to create a long position in a commodity based currency, rather than looking at each market individually. The Australian Dollar is our favorite of the commodity based currencies due to the broad base of commodities they provide to the world's markets. Going back to last week's idea, we have seen the Australian Dollar penetrate its weekly trend on declining open interest.

Over the last three weeks we have seen open interest decline by almost 25%. This indicates a market that is unsure of its future direction. If this were the initiation of a new downward trend, we would expect open interest to remain steady to higher, as each washed out long position would be replaced with new short position of equal or greater size.

Therefore, it may be time to act on last week's idea. Place an order to buy the Australian Dollar at .9110 on a stop. This will force the market to begin to turn around and show some upward momentum before we get in. If the buy stop is filled, place a protective stop around .9048. Using the statistical analysis generated, we can expect the market to trade within boundary of .8929 and .9267 with a high probability over the coming two to three weeks.

The Epitome of Fair Trade

2008-09-26T06:53:00.002-07:00

The CME Group has modified their allocation method for distributing electronic order executions. This is simply the most fair and equitable marketplace in the world.

How many times have you bought the high or, sold the low on a stop or market order? My guess is that it's happened to you far more often than you've been able to buy the low or, sell the high. In the past, the reason for this has been the manual execution of orders in the open outcry markets on the trading floors of the various exchanges.

Here's the way this process used to work:

1) Your order is placed with your broker on the phone.

2) Your broker places the order with a phone clerk on the floor of the appropriate exchange.

3) The phone clerk sends the order to the pit broker's clerk.

4) The pit broker's clerk gives the order to the broker.

That's the order placement part of the process

1) The broker determines how many contracts he needs to buy or sell.

2) The broker looks into the pit of 400+ traders to see where the market is trading.

3) He rapidly deciphers the hand signals and noises to ascertain the best bids and offers at the prevailing moment.

4) The broker decides that the best offer is coming from one guy---across the pit and looking the other way.

5) Deciding that he is unable to get the opposite trader's attention, the broker sees a small trader near him willing to make the same offer.

6) The broker makes the trade with the guy in front of him. The small trader waits for the guy across the pit to make his offer one tick better then buys the offer of the guy across the pit and pockets the profit of one tick X the number of contracts traded.

That's the execution process

The broker tells his clerk who tells your broker's clerk so, your broker can then report the fill back to you.

Now, I ask the following questions:

1) Is it fair that the small trader got to pocket the free money without taking the risk of actually "making a market?"

2) Is it fair that the large trader got his trade done at a worse price while taking the risk of making the market?

3) Is it fair that the customer got a worse fill because his clearing firm's broker couldn't get the attention of the large trader?

4) Is it fair that the customer got a worse price and a delayed notification because the many links in the execution process?

Welcome to the Era of FREE TRADE!!!

The single greatest benefit of the electronic markets has been the equalization of customers, traders and brokers. The second greatest benefit of electronic markets has been the ELIMINATION of floor traders unwilling to make a market or forecast market direction or, in any other way earn a living through their intellectual abilities.

The electronic process

1) Anyone places a bid or offer at a specified price and number of contracts.

2) The first bids and offers at a given price are the first ones executed. FIFO.

3) Your computer tells you instantly that you have an execution.

If you would like to know the details of how the CME Group makes allowances for partial fills at a given price or, how it justifies a single contract's importance over a thousand lot, please read their announcement. Otherwise, take my word for it. We have the best system ever devised for true price discovery. This is the epitome of fair trade!

Day Trading Advice For Newbies

2008-09-26T06:53:00.001-07:00

If you are a newbie day trader then you are probably eager to receive some day trading advice. Well, one important thing that you should know is that it is a fact that not every one who will be involved in day trading will become successful. As in any form of business, there are winners and losers in day trading. You will probably be interested to know what is the difference between a winning day trader and a losing day trader. The answer is simple. It is their attitude. So one very sound day trading advice is to check your attitude.

Attitude or how one perceives and responds to situations and circumstances is indeed an important determining factor in success both in business and in life. A losing attitude in day trading can be likened to that of a bad gambler. Simply put, a bad gambler is someone who does not know when to quit and cut his loss short. He is someone who will risk it all and probably lose it all. A bad gambler on a losing streak believes he is just under the spell of bad luck. For him, to get out of bad luck means to gamble some more. Of course, we all know what usually happens next.

On the other hand, a successful day trader can be likened to a seasoned player. Like a bad gambler, a player also gambles. But the difference between a player and a bad gambler is that a player knows that winning the game is not just a matter of luck. A player knows when to ride a streak and continue playing and when to quit. He knows that it is not worth risking it all and that the most important thing is to be able to stay in the game and continue playing.

The stock market, like any game, is governed by simple laws that once understood and mastered can bring great success. A successful day trader therefore is someone who knows how to strategize and not just act on whims and gut feel. A good day trader is methodical. He knows that the market, though largely unpredictable, can be tamed as long as the right skills and the right frame of mind are employed. A good trader is daring but he will not stupidly put unnecessary put his portfolio in unnecessary risk.

Day Trading For a Living - Is it For You?

2008-09-26T06:53:00.000-07:00

If you are looking for an interesting and relatively easy way of earning lots of money for a short period of time, then you should consider day trading for a living. All you need to become a successful day trader is a working knowledge of the stock market, a bit of strategy and lots of common sense. Of course, a winning attitude will also help a lot. Many have already earned millions day trading for a living and have turned a high quality investment into tons of cash. The one thing that will help you succeed in day trading is the ability to choose stocks intelligently. This you can do through a simple understanding of the law of supply and demand. Know what stocks are hot and what are not and you are on your way to becoming a day trading star.

If you want to do day trading for a living, you must understand some very basic information about day traders. The goal of any day trader is to be able to increase the value of his or her stocks. A trader must understand that to succeed in the stock market, there are only two things that you should remember, buy low and sell high. Master this basic notion and you will definitely be successful in day trading It is also advisable for a day trader to change and buy stocks frequently because of the limit of gains that a particular stock share has.

If you want to become a stock trader then you must know that the stock market can be fickle and unpredictable. It can be up one moment and down the next and it is affected by a thousand different factors. There are many tools available for a day trader that can help him at least predict the trends of the market. You should learn basic methods of choosing stocks such as trend analysis, relative strength training, technical analysis, fractals and volumes, algorithms and chart formations. A day trader can subscribe to a newsletter or seek advice from a day trading website. Traders can also use automated systems available online. With a bit of training, anyone can master and use these tools effectively and do day trading for a living.

Day Trading Using a Desktop Stock Ticker

2008-09-07T08:44:00.004-07:00

Day trading refers to the technique of buying and selling stocks (and currencies) throughout the trading day. When doing day trading you usually do not keep the stock for very long, but instead you buy and sell the stock throughout the day whenever development in stock prices gives you a profit. Needles to say, trading often takes place in a rapid pace and timing in day trading is everything. To become a successful day trader you need updated and reliable stock quotes and for that the Desktop Stock Ticker is an valuable tool.

The basic idea in day trading is that the same stock is bought and sold within the same day, thereby reducing the risk of changes to the closing price. Changes in closing prices will then happen overnight, and the stock may be traded again the following day.

Day trading may seem like very easy money, but this in much harder that it may sound. Only about 10% of the day traders actually make money, so if you want to be a successful day trader you need to know what you are doing and learn all the tricks in the trade.

Here are some advice on day trading:

Keep calm. When prices fluctuate and profits drops or rise it is easy to become excited and irrational. Always analyze the stock before you decide to buy, skipping this will be your biggest mistake. Do not act on impulse, but instead analyze every stock and trade before acting. Do not get caught up in emotions.
Follow the pulse of the stock market and the stock price. Do not try to outsmart the market unless you have information that the other traders do not. Going against the odds in the hope of a big profit will most certainly cost you money. Go with the stocks with a high trading volume.
Use a desktop stock ticker. Follow the stock prices closely and do not rely on old outdated information.
Do not take it personally when you lose money. Losing money is inevitable and the best you can do is evaluate the trade, find out what went wrong and learn from it. By analyzing and learning from your mistakes you will eventually make fewer errors and more profit.

Remember that day trading is not a business for everyone. Do not start day trading if you think that you will make millions in a couple of months - this might happen in the movies but very seldom in real life. Day trading can be very profitable if you know what you are doing and are using a desktop stock ticker. Learn as much as you can about stocks, the stock market, stock quotes and stock trading.

Understanding The Day Trading Community

2008-09-07T08:44:00.003-07:00

The concept of trading has taken a diversified meaning, especially in the present world in which trading is the basic work culture. Traditional trading is no more in the market. The world wide web has taken over everything that matters a lot, and we are completely in the hands of potential websites. The most effective consequence made by the internet invasion is the prevailing online trading community. If you become a member of a trade related website then you can be known as a community member of trading website. In the present times, we can find many traders getting engage in a Day Trading Community.

Nowadays, we have traders who do buying and selling of stocks or any monetary products within the same day. Here, bartering starts in the morning and ends completely in the evening. There is nothing left over consequence for the next day. Such kind of trading which happens within the same day through the internet services are generally termed as a Day Trading Community or simply known as an Online Community. There is huge traffic in such communities as more and more people are joining them.

If your personal computer is connected to world wide web service then you can also become a day trader. For this, you will have to become a member of day trading community. When you have become a member of it then start reading so as to gain sufficient knowledge on day trading. In such communities you can solve all your various trade related queries with the help of some blog and chatting tools. There are many financial experts and people who are already doing businesses successfully. Some of the instances of such day trading communities are stock, forex, mutual funds day trading etc.

Hence, we have come to know how day trading community is making progress day by day.

Discover a Winning Forex Trading System Course

2008-09-07T08:44:00.002-07:00

Forex? It isn't as easy as the advert said, that was my first thought. I now know that everyone who's anyone needs a method in place and the easiest way to do so is through a reliable forex trading system course. If you're anything like me, you've started trading forex to make extra money, not lose it and with a small investment (be it time or money) you can join the high rollers and give up the day job.

During this article we'll look at the key factors that will deter your trading success and help you find the right forex trading system course for you!

Before even putting a system in place you have to first decide what type of forex trader you are? Are you after a forex trading system course that is based on fundamental or technical analysis?

Fundamental analysis revolves around economic, social and political factors that impact the market. It is not unheard of for traders to profit off the back of a simple speech by the likes of a politician or well respected economist. Trading speculatively on how those few important words and how they will affect market sentiment. If they say the US economy is great, you take a punt on what that means for the dollar, how it will move and which currency pair will give you the best return (although many people choose to restrict themselves to a specific pair or perhaps the majors).

You only have to look at the current credit crunch and how a short speech or soundbite can be interpreted as "we're going into recession" or "growth is slowing" and how the forex markets respond. It's down to you to keep your finger on the pulse and pick the right trade! When you see how the markets work you'll start to appreciate the importance of psychology in trading (and not just your own).

Technical analysis on the other hand has been stereotyped as kicking back, sipping coffee and pressing a button when a graph moves. It's a little more involved than that and if you're a forex scalper (opening and closing in minutes) you'll be glued to that screen all day. Not my idea of fun.

Setting up parameters, monitoring moving averages, pivots points, support and resistance to name a few of the more popular is the key to technical analysis and it takes some time to learn the jargon, yet alone the interpretation and for that reason a good forex trading system course from a forex guru is often well worth it. It helps to get an eye in, watch some live trades, have someone talk you through the ifs, buts and the maybes. A great forex trading system course will take you by the hand and won't fool you into learning someone else's strategy but learning form their strategy to create your own.

Day Trading Tips to Turn Amateurs Into Pros

2008-09-07T08:44:00.001-07:00

Day trading can be a thrilling way to make money. But it's more challenging than most beginners think. Here are some day trading tips that can help the new trader as well as the more advanced trader to achieve your goals faster.

First: Be careful not to over trade. The majority of the time the market is a random walk - meaning that it's moving without any rhyme or reason. Amateur traders taking small positions in the market are behind these unpredictable movements.

These amateurs do not affect the long-term movement of the market. The professionals, with their large volume and their willingness to hold positions longer, are the ones who create sustainable moves in the market that can provide meaningful profits.

Many people are drawn to day trading because of the excitement of the business and the potential for big, fast profits. This attitude sets up the trader for failure. Day trading does not have the frantic energy of a video game. Most successful day traders sit by the sidelines for long periods of time simply waiting for a high-probability setup to occur. The pros trade much less frequently than the amateurs think.

Second: The trend is your friend ... sometimes.

The truth is that the trend is a fair weather friend!

It is your friend early on. But trends get run out of steam.

Therefore there are 2 times to trade when you can put statistics on your side:

When a new trend is just starting.

When a trend has run its course.

Trading only at these 2 times allows you to put the statistics of the "edge" of the bell curve on your side. Trading in the middle of a trend, puts you solidly in the middle of the bell curve where anything can happen.

Third: Join free trading rooms for day trading tips but do exactly the opposite of what you hear!

I've participated in many chat rooms over the years, and have received a tremendous benefit from them. But the benefit did not come from listening to the teacher. It came from watching the comments of the participants as they shared what they were doing at any given time in the market.

The vast majority of the time they were dead wrong in their approach.

They reveal the mind of the unprofitable retail traders. It's almost eerie how the amateurs think alike when it comes to trading the markets. If you listen to them long enough in the trading rooms you'll start to notice the patterns of the things they do consistently. Do the opposite and win.

As an example, one of the most common problems amateur traders have, is resisting the urge to fight the trend. You'll often hear comments such as: "The market can't go any higher than this." "This market just has to turn around at this point." "The market is definitely way over-extended now."

It is absolutely amazing to see how amateurs habitually trade against the trend in an effort to find tops and bottoms. They are constantly looking for the market to turn around. As is always the case, you can profit tremendously by taking the other side of their trades.

Day trading can be extremely rewarding, but to be successful you must stand aside from the masses and avoid the herd instinct that drives so many. These 3 day trading tips can help you be among the minority who succeeds.

Day Trading - 5 Reasons You Should Avoid Day Trading Like a Snake Bite

2008-08-25T09:17:00.002-07:00

Day trading is not for everyone. Along with the many advantages of it, you should be wary of the pitfalls; the things you would have to give up.

Here are 5 things for you to consider:

1. If you really enjoy working long full time hours then you need to carefully consider whether you want to day trade. When you get more experienced with trading, you will find you can probably sit at home on your computer for an couple of hours a week instead of earning the same income from home - or on vacation.

2. Maybe you have an affable boss you'd miss. He or she watches your every move; you can do nothing to please him or her. Your problems are not their priority. You just love doing all you can for no thanks whatsoever.

3. You just love working to the clock. Oh, it's only there as a health and safety issue, to ensure you don't get missed out in case of the emergency procedure count. Nothing at all to do with keeping a hawk's eye on your time keeping, oh no.

4. And not to forget all the delights of travelling. Don't you just adore the fuel prices sky rocketing and sitting in endless traffic queues, in blistering hot sun, or freezing cold winter? Not to mention the other service costs of you own vehicle. Soon you'll not even be able to take a refreshing of water from your bottle for fear of being fined and getting a criminal record for it. Or maybe you love comfort of the packed public transport sardine tins, and that's assuming they run on time - or if they even run at all, that is.

5. What about booking that holiday you so need? Maybe you like trying to juggle with your colleague, whose turn it is this time to book the dates you so desperately require. No problem at all, family won't mind a bit.

Of course you wouldn't get any of these issues with day trading, because you'd be able to run your own life. Feed yourself with the proper knowledge and in return it offers the potential for freedom so many crave. Gone are the days when it was confined to the trading floor.

Research Is The Name Of The Game

2008-08-25T09:17:00.001-07:00

I do most of my research after the day's trading has finished. Firstly I look for stocks that have performed well today and add them to my prospect list. This number varies from time to time but the average number can be as high as 50 or so.

The reason for so many prospects is because only a small percentage will eventually match my entry criteria. So because of this I am entering new names continually on a daily basis. There is no restriction to which sector they belong to either. They could be the banking or the mining sector, I try not to have favourites, but I must admit I find this hard to do at times.

I also keep an eye out for positive company announcements and also watch to see who is buying who in the substantial stock movements. Sometimes you can pick up on a takeover about to happen before the general market latches on to what is happening.

I have quite often just jumped on this stock for the ride, made my preset profit percentage and jumped off again. Not forgetting to put a stop loss in place in case the stock retreats as they quite often prone to do.

Another area that I like to keep an eye open for is when Directors are buying their own stock. This is a good indicator that they feel that the stock will be going upwards. I have never heard of a director buying their own stock to make a loss.

Like us they are out there to make a profit. They are a lot closer to the action than we are, sometimes they have knowledge that is weeks ahead of any news or company announcements that are likely to be made. Who else knows better how a company is performing?

I then check out my list of future prospects against my entry criteria. This is a step by step plan that I have devised over time. It works for me, but it is best that you have one that you are comfortable with. Another reason is that my criteria are quite strict and would possibly not suit the average trader.

Basically if any stock does not match up to this criteria then it is put onto the back burner for review later on. (In other words I am keeping a second list of potential stocks for later on. So you always have a list of prospects handy.)

With practice it is surprisingly how quickly you can look at a chart and see if the stock is a candidate or not. This way you can whittle the list down to 2 or 3stocks.How many stocks you invest in course depends on the amount of capital you have currently available for trading. So sometimes you may be restricted to just the one stock.

Quite often my funds are tied up and are not readily available; this is the case at the moment as I have been buying quality stocks at bargain basement prices. Even with these blue chip stocks, once my profit percentage is reached I sell them.

I do have a portfolio of select stocks that are paying healthy dividends. These are for the long term and I do not get concerned over the price fluctuations that are happening lately in the stock market.

When you do your research will ultimately depend on your work commitments or your other time constraints. It is really up to you as there are no hard and fast rules as to when you do your research.

The trick is to do it regularly until it becomes a habit, like riding a bicycle, the more practice you get the more proficient you become.

Day Trading - And How Not to Make the Big Scary Mistake I Made

2008-08-25T09:16:00.000-07:00

When I became aware of the increasing use of the stock market, or in other words, when a colleague suggested I look at trading instead of saving bonds, I started to buy a well know stocks and shares magazine, from the local newsagent.

I remember getting really interested in some of the advertisements for trading tuition, one company stood off the page to me at the time. Anyway, I invested in a day course and took up their subscription offer for daily bulletins, which basically gave me one or two trading position to open up, based on their analysis - which they kept secret behind locked doors.

I wish I had been wiser. They really did want to give a trader fish to eat, rather than teach them to fish! Under no circumstances were they about to divulge their system. Anyway, I was receiving those bulletins and trying to make head and tail of them along the way. There's only so much you can remember from a day seminar, in spite of load of scribbled notes, you know what I mean, even writing notes around the punched holes in the paper.

So there were a few emails going back and forth and I was opening a trade or two. Unfortunately, my account at the time had just tipped over the minimum starter allowance of a penny a point and now I had a minimum of 50 pence a point; I was spread betting and still use that same vehicle.

Anyway, based on the figures I received, I opened a position. I think I bought Gold. However, I made a grave error. I failed to use a stop loss management order! The first five minutes were not too bad as I watched the price moving about within a reasonable margin, but then it started to drop. And I started to panic.

I watched with utter horror as my little account fell about $1200 Dollars in about twenty seconds. It had all but wiped me out by the time my frantic key tapping had found the BUY facility in my online platform. No choice.

Needless to say, that taught me a valuable lesson. If you day trade or swing trade, never ignore that stop loss button. There are very experienced traders who wouldn't use one, for their own valid reasons, but for the beginner, or hobby trader, unless you're scalping, I would suggest using it.

Day Trading Community - A Group of Traders Dealing in Stocks

2008-08-25T09:15:00.000-07:00

Online trading communities are become a norm now-a-days. A bunch of people with similar interests come together and form a community. Day trading community is also an online community formed by a group of persons who like to trade in different financial instruments on the same trading day.

Day trading is a term that signifies that you buy and sell financial instruments within the same trading day, whereby all stock positions are normally closed before the stock market closes for the trading day. The positions are not necessarily always to be closed.

People who participate in this kind of trading are called day traders.

So, such like-minded persons join together to form an online day trading community, whereby they share and discuss their viewpoints on various changes in stock market. They may discuss different rates at which various instruments are floating in the market. Some of the financial instruments in which they commonly day trade may include stocks, currencies, stock options, and an array of futures contracts such as equity index futures, interest rate futures, and commodity futures.

Day trading community has its own importance in that people that form this community have similar tastes and way of thinking. They are willing to share information with one another with purity and without any ill will. They are more than willing to pass on any information that may hold key to earning profits in a given day of trading in specific instruments.

A day trading community normally follows certain rules regarding registration of members who want to join such a community. Following certain regulations is a must to avoid any frauds or embarrassing situations.

A day trading community's registration system may ask for e-mail address validation by transmitting a link to the email address that must be clicked on by the person seeking registration to validate the email address.

A day trading community should be clear about what it expects from its members. It can put up expectations in a particular page covering clear community guidelines. A day trading community's communication with its members should be clear, direct, and done frequently. Information sharing can be a powerful tool for such a community.

What is a Margin Account?

2008-08-25T09:14:00.000-07:00

You may have heard of margin accounts several times and wondered what they were and if you
needed one. Basically, margin accounts give you greater flexibility for trading with your brokerage. However, the added benefits come with greater risks, so please read your broker's agreements
carefully.

Benefit #1 - Borrowing Money
There are three main benefits of having a margin account over a standard cash account. The first one is the ability to instantly borrow money from your brokerage in order to buy more shares than you could afford with just your cash. This is called leverage because it allows you to do more with less. Of course with the ability to gain much more, there is also the ability to lose that much more! Given that fact, it is generally not recommended to borrow very much money for trading. However, the borrowed money may also be used for a personal loan rather than trading. This is an easy way to get cash fast without a complicated loan application.

Brokerages usually offer very competitive interest rates because your cash and stocks are used as collateral. Interest will usually be charged for every day that the loan is outstanding, so you probably do not want to use margin for a long-term investment.

Benefit #2 - Day Trading
The second benefit is it makes day trading much easier by avoiding the settling period. With a normal cash account you must wait three trading days after you sell your shares in order to use the money from the sale. With a margin account, the brokerage effectively lends you that money during the settling period so you can continue trading right away.

However, you cannot do unlimited day trading without meeting some more requirements. If you perform more than three trades within a five-day trading window, the government will consider you to be a "pattern day trader". That really just means that you will be required to keep at least $25,000 in your margin account at all times to continue day trading. So be mindful of how many day trades you perform. Many beginners get caught in this trap without realizing it.

Benefit #3 - Short Selling
The third benefit is the ability to short-sell. Short selling allows you to make a profit by selling high and then buying low on a company that is falling in price. The short sale involves you borrowing shares from your brokerage and immediately selling them on the open market. You will then owe the brokerage that many shares in the future. When you finally do buy back the shares and return them to the brokerage, hopefully you will have made a profit. Keep in mind that short selling involves extra risks and restrictions by your brokerage and the government bodies.

Maintaining Margin Requirements
If you borrow money within your margin account, your current cash level and stocks are used as collateral. Therefore, if your account drops in value, so does your collateral. If that value drops too far, your brokerage may request that you send them more cash. This is called a "margin call". If you fail to meet their requirements, they have the right to automatically sell some of your shares in order to get back some of the cash you borrowed from them.

Should You Invest in Futures Trading?

2008-08-10T08:09:00.000-07:00

In futures trading you are speculating about whether the price of a commodity will rise or fall.

For example, let's say that you decided to speculate on hogs. If you thought that hog prices would be rising in the future you would purchase a hog futures contract. If you thought that hog prices would be falling then you would sell your hog futures contract. Whether you wanted to buy or sell, there has to be a buyer and a seller.

Investors are attracted to futures trading because it isn't terribly complicated. In traditional stock markets there are literally thousands of stocks to choose from, whereas in the futures market there are only about forty markets to speculate on.

Another reason why investors like futures trading is because it is very easy to buy or sell futures. The futures market is affected by the extreme weather conditions such as droughts, hurricanes, tornadoes, and freezes because these can affect agricultural crops. Money can be made whether prices go up or whether prices go down. Still, another reason that futures trading is viewed so positively is that commission fees are much lower than those paid in stock trading.

The most important reason that traders dabble in commodities is because there is an enormous opportunity for big gains in a short period of time. Of course, the potential for big profits exists because there is a risk for huge losses as well. No trader should ever get involved with the commodities market with the intention of getting rich quick. Those who do that usually endure huge losses. Only take risks that you construe to be acceptable losses.

You can begin trading in the commodities market with small purchases.

The smaller the trade you make, the less that you risk. You can still make profits on small trades, but it may take you quite a long time.

Gains and risks are interrelated. The more that you put at risk means that there is more to be made in gains. The trouble is that you must be able to manage your risks. No one can consistently make the right calls about what to buy and sell, so at some point you will be wrong.

Never invest more money than you can afford to lose. The other way to minimize your risk is to put a stop loss order in. The stop loss will automatically kick in when it reaches your set price and then your commodities will be sold so that you can stop the loss from getting too bad.

If you think you can handle these risks, then give futures trading a try.

Penny Stock Trading can be the most lucrative form of making money in stocks. What other vehicle can make 500%+ in less than one month? Learn to trade the correctly and you can make a fortune.

Article Source: http://EzineArticles.com/?expert=Mark_Crisp