Mutual Fund Investing vs Stock Investing

It seems strange to compare mutual funds to stocks since mutual funds are primarily composed of stocks, but it is important to distinguish the two because there are some notable advantages to using mutual funds.Get FocusedI will admit that investing in individual stocks can be fun because each company has a unique story. However, it is important for people to focus on making money. Investing isn't a game. Your financial future depends on where you put you hard earned dollars and it shouldn't be taken lightly.DiversificationThere is no greater advantage to using mutual funds than diversification. Do you honestly believe wealthy investors purchase just a couple of stocks? Of course not! If they are not using mutual funds (many do), than they are purchasing a large number of stocks.Smart investors diversify because it greatly reduces risk without sacrificing returns. If the idea of diversification is new to you, I recommend this article.Professional ManagementBy purchasing mutual funds, you are essentially hiring a professional manager at an especially inexpensive price. It would be a bit cocky to think that you know more than mutual fund manager. These managers have been around the industry for a long time and have the academic credentials to back it up. Saying you could outperform a mutual fund manager is similar to a football fan sitting on their couch saying "I could have made that catch" -possible, but not likely.Even if some of us are better at picking stocks than a professional and their support staff, most of us would not want to spend the amount of time it takes to watch, research and trade the market on a daily basis.EfficiencyBy pooling investors' monies together, mutual fund companies can take advantage of economies of scale. With large sums of money to invest, they often trade commission-free and have personal contacts at the brokerage firms.Ease of UseCan you imagine keeping track of a portfolio consisting of hundreds of stocks? The bookkeeping duties involved with stocks are much more complicated than owning a mutual fund. If you are doing your own taxes, or are short on time, this can be a big deal.LiquidityIf you find yourself in need of money in a short amount of time, mutual funds are highly liquid. Simply put in your order during the day and when the market closes a check will be sent to you or you can have it wired to a bank account. Stocks can be much more difficult depending on what kinds of stocks you are invested in. CD's offer no liquidity (not without a hefty fee) and bonds can be difficult, too. Some mutual funds also carry check writing privileges, which means you can actually write checks from the account, similar to your checking account at the bank.CostMutual funds are excellent for the new investors because you can invest small amounts of money and you can invest at regular intervals with no trading costs. Stock investing, however, carries high transaction fees making it difficult for the small investor to make money. If an investor wanted to put in $100 a month into stocks and the broker charged $15 per transaction, their investment is automatically down 15 percent every time they invest. That is not a good way to start off!Wealthy stock investors get special treatment from brokers and wealthy bank account holders get special treatment from the banks, but mutual funds are non-discriminatory. It doesn't matter whether you have $50 or $500,000, you are getting the exact same manager, the same account access and the same investment.RiskIn general, mutual funds carry much lower risk than stocks. This is primarily due to diversification (as mentioned above). Certain mutual funds can be riskier than individual stocks, but you have to go out of your way to find them.With stocks, one worry is that the company you are investing in goes bankrupt. With mutual funds, that chance is next to nil. Since mutual funds typically hold anywhere from 25-5000 companies, all of the companies that it holds would have to go bankrupt.I won't argue that you shouldn't ever invest in individual stocks, but I do hope you see the advantages of using mutual funds and make the right choice for the money that you really care about.

Total permanent disability insurance provides benefits when a person is permanently disabled and can no longer work in their profession, often taken as an adjunct to life insurance.Locked Funds Insurance is a little known hybrid insurance policy jointly issued by governments and banks. It is used to protect public funds from tamper by unauthorised parties. In special cases, a government may authorise its use in protecting semi-private funds which are liable to tamper. Terms of this type of insurance are usually very strict. As such it is only used in extreme cases where maximum security of funds is required.Marine Insurance covers the loss or damage of goods at sea. Marine insurance typically compensates the owner of merchandise for losses sustained from fire, shipwreck, etc., but excludes losses that can be recovered from the carrier.Nuclear incident insurance - damages resulting from an incident involving radioactivive materials is generally arranged at the national level. (For the United States, see Price-Anderson Nuclear Industries Indemnity Act.)Environmental Liability Insurance protects the insured from bodily injury, property damage and cleanup costs as a result of the dispersal, release or escape of a pollutant.Political risk insurance can be taken out by businesses with operations in countries in which there is a risk that revolution or other political conditions will result in a loss.Professional Indemnity Insurance is normally a mandatory requirement for professional practitioners such as Architects, Lawyers, Doctors and Accountants to provide insurance cover against potential negligence claims. Non licensed professionals may also purchase malpractice insurance, it is commonly called Errors and Omissions Insurance and covers a service provider for claims made against them that arise out of the performance of specified professional services. For instance, a web site designer can obtain E&O insurance to cover them for certain claims made by third parties that arise out of negligent performance of web site development services.Property insurance provides protection against risks to property, such as fire, theft or weather damage. This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, inland marine insurance or boiler insurance.Terrorism insuranceTitle insurance provides a guarantee that title to real property is vested in the purchaser and/or mortgagee, free and clear of liens or encumbrances. It is usually issued in conjunction with a search of the public records done at the time of a real estate transaction.Travel insurance is an insurance cover taken by those who travel abroad, which covers certain losses such as medical expenses, lost of personal belongings, travel delay, personal liabilities.. etc.Workers’ compensation insurance replaces all or part of a worker’s wages lost and accompanying medical expense incurred due to a job-related injury.A single policy may cover risks in one or more of the above categories. For example, car insurance would typically cover both property risk (covering the risk of theft or damage to the car) and liability risk (covering legal claims from say, causing an accident). A homeowner’s insurance policy in the U.S. typically includes property insurance covering damage to the home and the owner’s belongings, liability insurance covering certain legal claims against the owner, and even a small amount of health insurance for medical expenses of guests who are injured on the owner’s property.Potential sources of risk that may give rise to claims are known as “perils”. Examples of perils might be fire, theft, earthquake, hurricane and many other potential risks. An insurance policy will set out in details which perils are covered by the policy and which are not.May 13How an insurance company makes moneyProfit = Earned Premium + Investment Income - Incurred Loss - Underwriting Expenses.Insurers make money in two ways. Through underwriting, the process through which insurers select what risks to insure and decide how much premium to charge for accepting those risks and by investing the premiums they have collected from insureds.The most difficult aspect of the insurance business is the underwriting of polices. Based on a wide assortment of data, insurers predict the likelihood that a claim will be made against their polices and price products accordingly. At the end of the policy term, the amount of premium collected minus the amount paid out in claims is the insurer’s underwriting profit.An insurer’s underwriting performance is measured in their combined ratio. The loss ratio (incurred losses and loss-adjustment expenses divided by net earned premium) is added to the expense ratio (underwriting expenses divided by net premium written) to determine the company’s combined ratio. The combined ratio is a reflection of the company’s overall underwriting profitability. A combined ratio of less than 100 percent indicates profitability, while anything over 100 indicates a loss.One company that is famous for achieving underwriting profit is American International Group.Berkshire Hathaway, by contrast, is famous for making its money on “float” rather than underwriting profit. “Float” describes a process by which insurers invest insurance premiums as soon as they are collected and make interest on these monies before claims must be paid out.Naturally, the “float” method is difficult to carry out in an economically depressed period. Bear markets do cause insurers to shift away from investments and to toughen up their underwriting standards. So a poor economy generally means high insurance premiums.Insurers currently make the most money from their auto insurance line of business. Generally better statistics are available on auto losses and underwriting on this line of business has benefited greatly from advances in computing. Additionally, property losses in the US, due to natural catastrophes, have perpetuated this trend.

Mutual Funds

Far too often investment writers incorrectly assume that their readers understand what a mutual fund is. Read this article as an absolute starting point for learning about mutual funds. Then we can start tackling the tougher mutual fund subjects in a process that will make you a smarter investor.Getting StartedBefore I dive into the definition of a mutual fund, it is important that you have a basic understanding of stocks and bonds. There are certainly more variations of each than I will cover here, but I don't want to confuse you, so I will keep it simple.StocksStocks represent shares of ownership in a public company. Examples of public companies include IBM, Microsoft, Ford, Coca-Cola, and General Mills. Stocks are the most common ownership investment traded on the market.BondsBonds are basically a chance for you to lend your money to the government or a company. You can receive interest and your principle back over predetermined amounts of time. Bonds are the most common lending investment traded on the market.There are many other types of investments other than stocks and bonds (including annuities, real estate, and precious metals), but the majority of mutual funds invest in stocks and/or bonds.Mutual FundsA mutual fund is simply a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the pooled money into specific securities (usually stocks or bonds). When you invest in a mutual fund, you are buying shares (or portions) of the mutual fund and become a shareholder of the fund. Mutual funds are one of the best investments ever created because they are very cost efficient and very easy to invest in (you don't have to figure out which stocks or bonds to buy).By pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification.DiversificationDiversification is the idea of spreading out your money across many different types of investments. When one investment is down another might be up. Choosing to diversify your investment holdings reduces your risk tremendously.The most basic level of diversification is to buy multiple stocks rather than just one stock. Mutual funds are set up to buy many stocks (even hundreds or thousands). Beyond that, you can diversify even more by purchasing different kinds of stocks, then adding bonds, then international, and so on. It could take you weeks to buy all these investments, but if you purchased a few mutual funds you could be done in a few hours because mutual funds automatically diversify in a predetermined category of investments (i.e. - growth companies, low-grade corporate bonds, international small companies). On the next page, I clearly explain how diversification works using a "Wheel of Fortune" concept.

History of Forex trading

Initially, the value of goods was expressed in terms of other goods, i.e. an economy based on barter between individual market participants. The obvious limitations of such a system encouraged establishing more generally accepted means of exchange at a fairly early stage in history, to set a common benchmark of value. In different economies, everything from teeth to feathers to pretty stones has served this purpose, but soon metals, in particular gold and silver, established themselves as an accepted means of payment as well as a reliable storage of value.Originally, coins were simply minted from the preferred metal, but in stable political regimes the introduction of a paper form of governmental IOUs (I owe you) gained acceptance during the Middle Ages. Such IOUs, often introduced more successfully through force than persuasion were the basis of modern currencies. Before the First World War, most central banks supported their currencies with convertibility to gold. Although paper money could always be exchanged for gold, in reality this did not occur often, fostering the sometimes disastrous notion that there was not necessarily a need for full cover in the central reserves of the government.At times, the ballooning supply of paper money without gold cover led to devastating inflation and resulting political instability. To protect local national interests, foreign exchange controls were increasingly introduced to prevent market forces from punishing monetary irresponsibility.In the latter stages of the Second World War, the Bretton Woods agreement was reached on the initiative of the USA in July 1944. The Bretton Woods Conference rejected John Maynard Keynes suggestion for a new world reserve currency in favour of a system built on the US dollar. Other international institutions such as the IMF, the World Bank and GATT (General Agreement on Tariffs and Trade) were created in the same period as the emerging victors of WW2 searched for a way to avoid the destabilising monetary crises which led to the war. The Bretton Woods agreement resulted in a system of fixed exchange rates that partly reinstated the gold standard, fixing the US dollar at USD35/oz and fixing the other main currencies to the dollar - and was intended to be permanent.The Bretton Woods system came under increasing pressure as national economies moved in different directions during the sixties. A number of realignments kept the system alive for a long time, but eventually Bretton Woods collapsed in the early seventies following president Nixon's suspension of the gold convertibility in August 1971. The dollar was no longer suitable as the sole international currency at a time when it was under severe pressure from increasing US budget and trade deficits.The following decades have seen foreign exchange trading develop into the largest global market by far. Restrictions on capital flows have been removed in most countries, leaving the market forces free to adjust foreign exchange rates according to their perceived values.But the idea of fixed exchange rates has by no means died. The EEC (European Economic Community) introduced a new system of fixed exchange rates in 1979, the European Monetary System. This attempt to fix exchange rates met with near extinction in 1992-93, when pent-up economic pressures forced devaluations of a number of weak European currencies. Nevertheless, the quest for currency stability has continued in Europe with the renewed attempt to not only fix currencies but actually replace many of them with the Euro in 2001. This project is fairly advanced now and the final structure and fixed levels were decided in May 1998. After this a dangerous three-year period loomed, where devaluation candidates could be attacked nearly without risk until the final introduction of the Euro in this Millennium. -->The lack of sustainability in fixed foreign exchange rates gained new relevance with the events in South East Asia in the latter part of 1997, where currency after currency was devalued against the US dollar, leaving other fixed exchange rates, in particular in South America, looking very vulnerable.But while commercial companies have had to face a much more volatile currency environment in recent years, investors and financial institutions have found a new playground. The size of foreign exchange markets now dwarfs any other investment market by a large factor. It is estimated that more than USD1,200 billion is traded every day, far more than the world's stock and bond markets combined.

Forex trading examples

Example 1 An investor has a margin deposit with Saxo Bank of USD 100,000.The investor expects the US dollar to rise against the Swiss franc and therefore decides to buy USD 2,000,000 - 2% of his maximum possible exposure at a 1% margin Forex gearing.The Saxo Bank dealer quotes him 1.5515-20. The investor buys USD at 1.5520.Day 1: Buy USD 2,000,000 vs CHF 1.5520 = Sell CHF 3,104,000.Four days later, the dollar has actually risen to CHF 1.5745 and the investor decides to take his profit.Upon his request, the Saxo Bank dealer quotes him 1.5745-50. The investor sells at 1.5745.Day 5: Sell USD 2,000,000 vs CHF 1.5745 = Buy CHF 3,149,000.As the dollar side of the transaction involves a credit and a debit of USD 2,000,000, the investor's USD account will show no change. The CHF account will show a debit of CHF 3,104,000 and a credit of CHF 3,149,000. Due to the simplicity of the example and the short time horizon of the trade, we have disregarded the interest rate swap that would marginally alter the profit calculation.This results in a profit of CHF 45,000 = approx. USD 28,600 = 28.6% profit on the deposit of USD 100,000.Example 2: The investor follows the cross rate between the EUR o and the Japanese yen. He believes that this market is headed for a fall. As he is not quite confident of this trade, he uses less of the leverage available on his deposit. He chooses to ask the dealer for a quote in EUR 1,000,000. This requires a margin of EUR 1,000,000 x 5% = EUR 10,000 = approx. USD 52,500 (EUR /USD 1.05).The dealer quotes 112.05-10. The investor sells EUR at 112.05.Day 1: Sell EUR 1,000,000 vs JPY 112.05 = Buy JPY 112,050,000.He protects his position with a stop-loss order to buy back the EUR o at 112.60. Two days later, this stop is triggered as the EUR o strengthens short term in spite of the investor's expectations.Day 3: Buy EUR 1,000,000 vs JPY 112.60 = Sell JPY 112,600,000.The EUR side involves a credit and a debit of EUR 1,000,000. Therefore, the EUR account shows no change. The JPY account is credited JPY 112.05m and debited JPY 112.6m for a loss of JPY 0.55m. Due to the simplicity of the example and the short time horizon of the trade, we have disregarded the interest rate swap that would marginally alter the loss calculation.This results in a loss of JPY 0.55m = approx.USD 5,300 (USD/JPY 105) = 5.3% loss on the original deposit of USD 100,000.Example 3 The investor believes the Canadian dollar will strengthen against the US dollar. It is a long term view, so he takes a small position to allow for wider swings in the rate:He asks Saxo Bank for a quote in USD 1,000,000 against the Canadian dollar. The dealer quotes 1.5390-95 and the investors sells USD at 1.5390. Selling USD is the equivalent of buying the Canadian dollar.Day 1: Sell USD 1,000,000 vs CAD 1.5390. He swaps the position out for two months receiving a forward rate of CAD 1.5357 = Buy CAD 1,535,700 for Day 61 due to the interest rate differential.After a month, the desired move has occurred. The investor buys back the US dollars at 1.4880. He has to swap the position forward for a month to match the original sale. The forward rate is agreed at 1.4865.Day 31: Buy USD 1,000,000 vs CAD 1.4865 = Sell CAD 1,486,500 for Day 61.Day 61: The two trades are settled and the trades go off the books. The profit secured on Day 31 can be used for margin purposes before Day 61.The USD account receives a credit and debit of USD 1,000,000 and shows no change on the account. The CAD account is credited CAD 1,535,700 and debited CAD 1,486,500 for a profit of CAD 49,200 = approx. USD 33,100 = profit of 33.1% on the original deposit of USD 100,000.

Different types of loans

Banks have different types of loans available for small businesses. Knowing the correct type of loan to ask for is essential in getting the bank to approve your loan.There are two types of loans: secured loans and unsecured loans.Secured loans are loans that are secured by collateral. The lender will take a security interest in your property. If you do not pay the loan back the lender has the right to seize your collateral. Most lenders will require collateral to secure a small business loan and they make take a security interest in your business and/or personal assets. Lenders will not lend you more than 100% of the value of your collateral and will usually only lend you 60% to 80% of its value.Unsecured loans, as the name implies, are loans that are not secured by any collateral. Credit cards, while not technically loans, are the most common example of unsecured debt. The lender is loaning you money based on your reputation and credit worthiness. It is very, very rare to find a lender willing to give you an unsecured loan for a new business. They are not willing to take the risk because you have no track record for them to work from. The Typical Loans Banks Will Provide to Small BusinessesUnsecured Credit Lines - Banks and lenders will often provide lines of credit to small businesses. These are generally set as a maximum amount of money you can borrow. The credit line amount and interest rates vary greatly from lender to lender and from business to business. There are generally three factors the bank will look for:1. Does your business have its checking account with the bank?2. How long has your business been in existence?3. What is your personal credit score and your business’s credit history? Most lenders will also provide you with a business credit card in addition to a line of credit.Short-Term Loans - Short-term commercial loans may provide a good source of working capital for your business. The length of these loans is usually no more than three years and the loan will require fixed payments of principal and interest. Short-term loans will need to be secured by adequate collateral and will usually have a fixed interest rate because of the short length of the loan. Long-term Loans - Long-term loans are almost exclusively used for equipment and other asset purchases. Lenders will not lend your businesses money for longer than three years unless the loan is for a specific asset purchase or for the refinancing of an exisitng asset. These loans are secured by the assets being acquired and will generally have various loan covenants such as interest rate changes and prepayment penalties associated with them.

What is Forex??

What is Forex ? The Foreign Exchange market, also referred to as the "Forex" or "FX" market, is the largest financial market in the world, with a daily average turnover of well over US$1 trillion -- 30 times larger than the combined volume of all U.S. equity markets. Unlike other financial markets, the forex market has no physical location or central exchange. It is an over-the-counter market where buyers and sellers including banks, corporations, and private investors conduct business. A true 24-hour market, Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, London, and New York.the unmatched liquidity and around-the-clock global activity make forex the ideal market for active traders.Technical and Fundamental Analysis ? There are two basic approaches to analyzing the currency market, fundamental analysis and technical analysis. The fundamental analyst concentrates on the underlying causes of price movements, while the technical analyst studies the price movements themselves. A Technical Analysis is what one uses to attempt to predict future price movements, based on past time framed analysis and the reading / understanding of graphics. The study of specific factors, such as wars, discoveries, and changes in Government policies, which influence supply and demand, and consequently prices in the market place.Psychology of Trading ? Fundamental and technical factors are undeniably essential in determining foreign exchange dynamics. There are, however, two additional factors that are paramount to understanding short-term movements in the market. These are expectations and sentiment. They may sound similar, but remain distinct.Forex vs Equities and Futures ?Commission Free Trading20 : 1 Leverage (or even greater)24-Hour MarketAbility to Profit in Up or Down MarketSuperior liquidity The 8 most important trading recommendations ?The Trend is your friend.In up-trends, buy the dips; in downtrends, sell bounces.Let profits run, cut losses short. Always use protective stops to limit losses and move them only to reduce potential losses or protect newly achieved profits. Why trade Forex with Realtime Forex SA ? ?Realtime, competitive pricesCommission FREEQuick and efficient tradingSecure transactionsProfessional back-office servicesMarket InformationMargin

What is FOREX trading?

Foreign Exchange Market (Forex) is the arena where a nation's currency is exchanged for that of another at a mutually agreed rate. It was created in the 70's when international trade transitioned from fixed to floating exchange rates, and nowadays is considered to be the largest financial market in the world because of its tremendous turnover.All currencies are traded in pairs and each is assigned with an abbreviation. Here are some of them:Currency Abbreviations (Table 1)EUR EuroUSD US DollarGBP British PoundJPY Japanese YenCHF Swiss FrancAUD Australian DollarCAD Canadian DollarNZD New Zealand DollarSGD Singapore Dollar The rate at which currencies are exchanged one for another is called the currency exchange rate. For example, "EUR/USD exchange rate is 1.2505" means that one Euro is exchanged for 1.2505 US Dollars.The exchange rate of any currency is usually given as the Bid price (left) and the Ask price (right). The Bid price represents what will be obtained in the quote currency (US Dollar in our example) when selling one unit of the base currency (Euro in our example). The Ask price represents what has to be paid in the quote currency (US Dollar in our example) to obtain one unit of the base currency (Euro in our example). The difference between the Bid and the Ask price is referred to as the spread.1.0 lot size for different currency pairs (Table 2)Currency 1.0 lot size 1 pipEURUSD EUR 100,000 0.0001USDCHF USD 100,000 0.0001GBPUSD GBP 100,000 0.0001USDJPY USD 100,000 0.01AUDUSD AUD 100,000 0.0001USDCAD USD 100,000 0.0001EURCHF EUR 100,000 0.0001EURJPY EUR 100,000 0.01EURGBP EUR 100,000 0.0001GBPJPY GBP 100,000 0.01GBPCHF GBP 100,000 0.0001EURCAD EUR 100 000 0.0001EURAUD EUR 100 000 0.0001NZDUSD NZD 100,000 0.0001USDSGD USD 100,000 0.0001CHFJPY CHF 100,000 0.01Margin:1% of transaction size for account balances below $ 100,0002% of transaction size for account balances up to $ 250,0004% of transaction size for account balances above $ 250,000 Calculating profit/lossFor example, EUR/USD exchange rate is 1.2505/1.2509 and your leverage is 1:100. You believe that EUR/USD will go up and buy 0.1 lot of EUR/USD at 1.2509 (Ask price) - for the contract size refer to Table 2. As we can see from Table 2, 1.0 lot of EUR/USD is 100,000 EUR, which means that 0.1 lot (our example deal size) is 10,000 EUR.So, you buy 10,000 EUR and sell 10,000*1.2509=12,509 USD. In fact to fund this position you do not have to have 12,509 USD but only 125.09 USD. The rest of the money (in our example 12,383.91 USD) is leveraged to you by Alpari (UK).Leverage (or gearing) mechanism allows you to open and hold a position much larger than your trading account value. 1:100 leverage means that when you wish to open a new position, then you need to support a deposit 100 times less than the value of the contract you are interested in.For example, you believe that EUR/USD is moving higher and buy 10,000 EUR and sell 12,509 USD. Assuming you are right and EUR/USD goes up to 1.2599/1.2603 and you decide to close the position: when you close a long position you sell the base currency (10,000 EUR in our example) and buy the quote currency (10,000*1.2599 = 12,599 USD):Transaction EUR USDOpen a position: buy EUR and sell USD + 10,000 - 12,509Close a position: sell EUR and buy USD - 10,000 + 12,599Total: 0 + 90NB: When you close a short position you buy the base currency and sell the quote currency.To fund this position you only need 100 EUR (approximately 125 USD) not 10,000 EUR. The profit on this position is 90 pips (1.2599-1.2509=0.0090). A pip or point is a minimal rate fluctuation. For EUR/USD 1 pip is 0.0001 of the price (see Table 2).This example shows a favourable outcome. If EUR/USD had fallen you would realise a loss not a profit and with leverage this loss will be magnified. For example, if you close the position at 1.2419, your loss would be $90. Should you have doubts about your understanding of risks, please consult your financial adviser.Rollover / Interest PolicyForeign exchange trading at Alpari (UK) is dealt on a "Spot" basis only. This means that all trades settle two business days from inception, as per market convention. The settlement date is referred to as the value date. Alpari (UK) does not arrange physical delivery of currencies hence, all positions left open from 10:59:45 p.m. to 10:59:59 p.m. (London time) will be rolled over to a new Value Date.As a result, positions are subject to a swap charge or credit based on the "Rollover / Interest Policy" webpage.Please note that since 03 June 2007 Alpari (UK) Limited no longer closes and reopens the positions which are open at 11:00 pm London time. Instead we have introduced a more convenient method of rollover which involves debiting or crediting a customer’s trading account when he/she holds open positions overnight.The cost of rollover is based on the interest rate differential of the two currencies. Let’s assume that the interest rates in the EU and USA are 4.25% p.a and 3.5% p.a respectively. Every currency trade involves borrowing one currency to buy another. If you have a buy position of 1.0 lot in EUR/USD, then you earn 4.25% on your Euros and borrow USD at 3.5% per year.In other words:If you have a long position (i.e. bought) and the first currency in the currency pair has a higher overnight interest rate than the second currency, then you receive a gain.If you have a short position (i.e. sold) and the first currency in the currency pair has a higher overnight interest rate than the second currency, then you lose the difference.If you have a long position (i.e. bought) and the first currency in the currency pair has a lower overnight interest rate than the second currency, then you lose the difference.If you have a short position (i.e. sold) and the first currency in the currency pair has a lower overnight interest rate than the second currency, then you receive a gain. Please note that if you open and close a position before 10:59:45 p.m. (London time) you will not be subject to a rollover.The act of rolling the currency pair over is known as tom.next, which stands for tomorrow and the next day. NB: When you roll an open position from Wednesday to Thursday, then Monday next week becomes the value date, not Saturday; therefore the rollover charge on a Wednesday evening will be three times the value indicated on the "Rollover / Interest Policy" webpage.Why trade Forex?Unlike other financial markets Forex has no physical location, like stock exchanges, for example. It operates through the electronic network of banks, computer terminals or via telephone. The lack of a physical exchange enables Forex to operate on a 24-hour basis, spanning from one time zone to another across the major financial centres (Sydney, Tokyo, Hong Kong, Frankfurt, London, New York etc). In every financial centre there are many dealers, who buy and sell currencies 24 hours a day during the whole business week. Trading begins in the Far East, New Zealand (Wellington), then Sydney, Tokyo, Hong Kong, Singapore, Moscow, Frankfurt-on-Maine, London and ends in New York and Los Angeles. Below there are approximate trading hours for regional markets (London time):Japan00:00-06:30Continental Europe06:30-13:00Great Britain8:30-15:30USA14:30-21:30 Forex has some advantages which make it very popular among investors:Liquidity. Forex is the largest financial market in the world, with the equivalent of over $3-4 trillion changing hands daily whereas traded volume on the stock markets equates to only 500 billion US dollars.Flexibility. Forex is a 24-hour market, which offers a major advantage over other markets, for example, stock exchanges which are only open during regional business hours. You can respond to breaking news immediately if the situation requires it and customise your trading schedule.Lower transaction costs. Traditionally there are no commissions or charges on Forex, except for the spread.Margin. Our 1:100 leverage (only for deposits below $ 100,000) is a powerful tool. You need to support a deposit of 1,000 US dollars to make a deal with $100,000. Such high leverage combined with rapid rate fluctuations can make this market profitable but at the same time risky: please see Risk Warning below.Risk Warning: Under margin trading conditions even small market movements may have a great impact on the customer's trading account. You must consider that if the market moves against you, you may sustain a total loss greater than the funds deposited. You are responsible for all the risks, financial resources you use and for the chosen trading strategy.More about risks » Forex GlossaryBase currency is the first currency in the pair. Quote currency is the second currency in the pair.USD/JPY=120.25Base currencyQuote currencyRateThis abbreviation specifies how much you have to pay in quote currency to obtain one unit of the base currency (in this example, 120.25 Japanese Yen for one US Dollar). The minimum rate fluctuation is called a point or pip.Most currencies, except USD/JPY, EUR/JPY, CHF/JPY and GBP/JPY where a pip is 0.01, have 4 digits after the period (a pip is 0.0001), and sometimes they are abbreviated to the last two digits. For example, if EURUSD is traded at 1.2389/1.2394 the quote may be abbreviated to 89/94.The currency pairs on Forex are quoted as the Bid and Ask (or Offer) prices:BidAskUSD / JPY =120.25/120.30Bid is the rate at which you can sell the base currency, in our case it's US dollar, and buy the quote currency, i.e Japanese Yen.Ask ( or Offer) is the rate at which you can buy the base currency, in our case US dollars, and sell the quote currency, i.e. Japanese Yen.Spread is the difference between the Bid and the Ask price.Pip is the smallest price increment a currency can make. Also known as a point. e.g. 1 pip = 0.0001 for EUR/USD, and 0.01 for USD/JPY. Currency Rate is the value of one currency expressed in terms of another. The rate depends on the supply and demand on the market or restrictions by a government or by a central bank.Lot Size is the number of base currency, underlying asset or shares in one lot defined in the contract specifications. For details refer to the Table 2.Lot is an abstract notion of the number of base currency, shares or other underlying asset in the trading platform.Transaction (or deal) size is lot size multiplied by number of lots.Long Position is a buy position whereby you profit from an increase in price. In respect of currency pairs: buying the base currency against the quote currency.Short Position is a sell position whereby you profit from a decrease in price. For currency pairs: selling the base currency against the quote currency.Completed Transaction consists of two counter deals of the same size (open and close a position): buy then sell or vice versa.Leverage is the term used to describe margin requirements: the ratio between the collateral and the value of the contract. 1:100 leverage means that you can control $100,000 with only $1,000 (1%).Margin is the collateral required by Alpari (UK) to open and maintain a position.Balance is the total financial result of all completed transactions and deposits/withdrawals on the trading account.Floating Profit/Loss is current profit/loss on open positions calculated at the current prices.Equity is calculated as balance + floating profit - floating loss.Free margin means funds on the trading account, which may be used to open a position. It is calculated as equity less necessary margin.

Hedge Funds vs Mutual Funds

When the stock market is doing poorly, talk of using hedge funds tends to increase. Although hedge funds are not mutual funds, people often mistake them as such. The word "hedge" implies defensive management or insurance against bad times, but the truth is hedge funds come in hundreds of varieties and often use leverage.Hedge Funds vs. Mutual FundsAssuming you understand mutual funds, let's take a look at the key differences between mutual funds and hedge funds:　Mutual FundHedge FundRegulationSEC registered investment vehiclesPrivate investment vehicles (not regulated)Minimum InvestmentUsually small minimum investmentsLarge minimum investments required (average $1 million)InvestorsNot limited to the number of investors and investors can purchase many fundsAre limited to 499 investors ("limited partners") who can invest in any one fundAvailabilityAvailable to the general publicMust be an accredited investor (net worth must exceed $1 million or individual income must have been in excess of $200,000, or joint income must have been in excess of $300,000 in the past two years, plus investor must expect the same level of income in the current year)LiquidityDaily liquidity and redemptionLiquidity varies from monthly to annuallyShort SellingMaximum 30% of profits from short sales (although other bear fund options exist)Manager may short sell oftenLeverageLess leverageMore leverageDown MarketsSome funds are defensively managed and others, like index funds, hold during bad markets.Most hedge fund strategies try to hedge against downturns in the markets, but effectiveness depends on the fund.DefinitionA public pool of investment capital organized to invest in a portfolio composed of often predetermined type of securities.A private pool of investment capital organized into a limited partnership to invest in a portfolio made up of a variety of securitiesFeesLimits Imposed by the SECNo Limits. Hedge funds typically charge high fees, usually a combination of 1-2% of your assets plus a percentage of the profits (usually 20%)Bottom LinePutting my mutual fund bias aside, I recommend potential hedge fund investors to proceed with extreme caution. There is limited information about hedge funds and the information that you do find is often plagued with survivorship bias and willingness to share performance bias (those that are doing well are more likely to share their performance). Try to stick with hedge funds that have been around for a while - you certainly don't want to invest with a company that has opened and closed many hedge funds. Lack of regulation, bad liquidity and high fees are other issues issues that should be considered. Most of all, don't put all your money into hedge funds.Of course, I am not an "accredited investor" - so what do I know?

Mortgage Basics

Adjustable or floating rate, 15-year or 30? How much mortgage can you afford? These are just a few of the many questions home buyers will find information on in this report.Before You StartTake a fresh look at your household budget to determine how much you can spend on a mortgage each month.Request free copies of your credit report. (You're entitled to receive a free one annually from each of the nation's main credit reporting agencies.)Familiarize yourself with all of the variables generally associated with financing a home, such as interest rate policies, terms, points, fees, etc.　Financing the American DreamBuying a home is the biggest financial investment most of us will ever make. As with any large project or goal, it requires dealing with a variety of complex issues. The best approach is to divide the process into manageable tasks. The following deals with the first steps of gathering your records, determining what you can afford, and understanding mortgage options.Put Your Own Financial House in OrderBefore you go looking for a home, you should determine how much home you can afford. Most lenders will prequalify you to borrow up to a certain amount. Prequalification allows you to focus in on a realistic price range and makes you a more attractive buyer. Whether or not you want to prequalify, eventually you'll need to complete a loan application and it may take some time to gather and assemble the required information.It's also a good idea to review your credit report. Contact local lenders to determine which credit bureaus they use. Then contact the credit bureaus and request a copy of your credit report (in most states, credit bureaus are required to provide individuals with a free copy of their report). Review your report to ensure that all information is correct. If you have past credit problems, don't lose hope. Be prepared to present a rationale for each slipup, and demonstrate an improvement in your ability to pay bills on time.How Much Mortgage Can You Afford?The Federal National Mortgage Association (Fannie Mae) is a government-sponsored organization that purchases mortgages from lenders and sells them to investors. Two income-to-debt ratios established by Fannie Mae are standard requirements for conventional mortgages. The first requirement is that monthly mortgage principal and interest payments (P&I), plus insurance and property taxes, cannot exceed 28% of the buyer's gross monthly income (some exceptions may apply to increase this limit to 33%). The second requirement limits total monthly debt payments (housing, credit cards, car payments, etc.) to 36% of gross monthly income. In addition to these requirements, you may have to pay 10% to 20% down on the total purchase price to qualify for a conventional mortgage.　Mortgage Rates and Minimum Incomes Needed to Qualify　　Interest RateMonthly PaymentMinimum Annual Income4%$454$21,7705%$510$24,4796%$570$27,3407%$632$30,3388%$697$33,4609%$764$36,69110%$834$40,01711%$905$43,42612%$977$46,905Mortgage companies use ratios to analyze your mortgage payment. The above example shows the monthly payments of principal and interest, and income needed to qualify for a $95,000 mortgage at various interest rates, amortized on a 30-year schedule, assuming a payment ratio of 25%.Source: National Association of Home Builders, Economics Division.

Types of Mortgages

How much house you can buy also depends on your mortgage's term and interest rate. The term is the length of time (usually 15 or 30 years) over which payments will be paid. The rate can be fixed (meaning it doesn't change over the loan's term) or adjustable (it fluctuates with market conditions). Thirty-year fixed-rate mortgages remain the most popular. The longer term lowers the monthly payment, while the fixed rate provides stability over the life of the loan. Given relatively low interest rates, these mortgages are attractive to buyers planning to stay at least six or seven years in their new home. The drawbacks are low principal payments in the early years, and the risk that market rates will decline over the term. However, if your credit history is sound and you have sufficient income, you can usually refinance your mortgage when rates decline.A 15-year term lowers the interest rate, reduces total interest payments, and increases principal payments. But it also increases monthly payments. If you can't afford the higher payments now, you might opt for a 30-year mortgage. If there are no prepayment penalties, you can make additional principal payments as your income increases. Making just one extra monthly payment a year will pay off a 30-year mortgage in less than 22 years and can save tens of thousands of dollars in interest costs. If you plan to stay in a home no more than three years, you might want an adjustable-rate mortgage (ARM). ARMs offer initial rates that are lower than fixed mortgages. At some point, usually after the first year, rates are tied to market conditions and are subject to potential rate increases. Most ARMs include a cap on rate increases in any given year, as well as over the life of the loan. Some ARMs offer initial rates at least 2% below fixed rates and limit increases to 1% annually and 5% to 6% over the life of the loan. Many home buyers are attracted by the affordability of an ARM during the initial period. However, you should be confident that your future income will be sufficient if both interest rates and your monthly payments increase.Another popular mortgage involves a balloon payment. A balloon is a lump-sum payment that pays off the loan in full after a fixed period of time. Generally the rates on balloon mortgages are 1/4% to 3/4% less than on 30-year fixed mortgages, but during an initial period of between 3 and 15 years, payments are similar. After this period, the remaining outstanding principal balance is either due in full or subject to refinancing. This is a good option for home buyers who plan to sell before the final payment is due. But because property values fluctuate, you may not be able to sell when you want. You may also face higher payments if you are forced to refinance at a higher rate, and there is also a risk that you may not be in a position to refinance when the balloon becomes due.Three Steps to Finding the Right MortgageEstimate how long you expect to live in the house. If the answer is less than three to five years, consider an Adjustable Rate Mortgage (ARM), which typically starts out with a lower rate. If you plan to live in your new home longer than five years, a fixed-rate mortgage offers protection against rising interest rates.Shop around for mortgage rates. Banks, credit unions, and mortgage companies all offer mortgages. Compare at least six lenders in your area.Add up all the costs for each lender. Include fees, points, closing costs, etc., to arrive at the total mortgage cost for each lender.Interest Rate PointsPoints are interest paid in advance to reduce the rate on a loan. One point is equal to 1% of the mortgage amount. The general rule is that 1 point is worth 1/8 of 1% off the loan rate. The decision to pay points for a lower rate is based on how much the seller is willing to contribute to points, how long you plan to stay in the house, and how important lower payments are compared to higher closing costs. You will need to calculate the long-term value of points based on these factors, keeping in mind that points are generally tax deductible in the year paid.Other AlternativesIf you cannot afford a conventional mortgage, there are a variety of alternatives. An anxious seller will sometimes offer owner financing. Federal Housing Administration (FHA) loans offer down payments as low as 3%, but may require the buyer to purchase mortgage insurance. (The FHA is a government agency responsible for insuring affordable housing mortgages.) The Veterans Administration (VA) offers no-money-down mortgages to qualified veterans of the U.S. military. Finally, there are local affordable housing advocates that offer low-cost, low down-payment loan alternatives. For further information, contact the FHA, VA, Fannie Mae, or your local mortgage lender or real estate broker.SummaryThe first step in acquiring a home mortgage is to gather the information you'll need to include in a mortgage application.Review your credit report by ordering a copy from the credit bureaus used by local mortgage lenders.Prequalifying for a mortgage lets you know how much you can afford and makes you a more attractive buyer.Conventional mortgages limit housing costs to 28% of gross income and total debt payments to 36% of gross income.Mortgage terms are usually 15 or 30 years. The longer the term, the lower your monthly payment, but the higher your overall interest costs.Thirty-year loans often permit additional principal payments. One additional monthly payment per year will reduce a 30-year loan to 22 years.Interest rates are fixed or variable over the term of the loan. Variable rates may be best for buyers who plan to sell within three years.Generally speaking, one point is worth 1/8 of 1% off the loan rate.A balloon payment is a lump sum payable at the end of a specified term.Points and interest on mortgages or home equity debt are usually tax deductible.ChecklistWhen your credit reports arrive, review them for accuracy. Correct any mistakes immediately.Get prequalified for a loan. Paying off debts ahead of time might qualify you for a better mortgage.If you're a veteran, contact the U.S. Veterans Administration to find out whether you're eligible for a no-money-down mortgage.