Journal of Finance and Accounting – TanasiJournal

Archive for January, 2010

There’s no doubt that futures trading is inherently a risky business. Anyone who tells you it is 100% risk free is either ignorant or trying to sell you something. The truth is futures trading is a gamble. There’s no telling when you are going to win or when you are going to lose. The best strategy is to play this game based on the cards you have and hope for the best.

Futures trading does have huge rewards if you win and that’s probably the reason many people are attracted to it. However the chances of you losing big is just as great if not greater particularly if you are new to futures trading.

I outline the 4 main risks when trading in futures. You might want to read further before deciding futures trading is suitable for you.

1. Speculative Business

Futures Trading is speculative in nature. No matter what the experts tell you or predict, it is not always 100% accurate. Take it with a pitch of salt. The best investment strategy is not to put all your eggs in one basket, divesting your investment among different financial instruments.

2. Financial Backing

Futures Trading requires a large capital outlay at the beginning which is expendable. Therefore it is definitely not for the faint of heart. If you are thinking of making money in futures trading to pay your bills, then my advise is don’t. You should not use money to pay your bills/loans/grocery to dabble in futures trading. Only use money you can afford to expend.

Ideally, a person who wants to play in futures trading should have at least $10,000 USD in his/her personal trading account.

3. Technical Knowledge

Futures Trading requires an intimate knowledge of financial instruments. At the very least, you should be knowledgeable in the 4 main investments categories namely, income, growth, speculation and inflation hedges. Without adequate knowledge, it will restrict you to where you can invest on the market and lose potential revenue on a particular sector of the financial market.

You might be thinking I can always rely on my broker for advice. While it’s good to seek the advice of someone knowledgeable, you should be able to make intelligent decisions on your own and the only way to do that is if you have sufficient knowledge.

4. Only Invest What You Can Lose

I would not advise someone new to trading to dabble in futures simply because of the risks involved.

You should have a balanced portfolio with only a certain percentage invested in futures. My advise is about 10% but that depends on your financial standing and your investment strategy. In general, only use money that you can afford to lose in futures trading.

The 4 main risks I outline above is not meant to discourage you from futures trading. What I want to make clear is you fully understand the risks involved and also what you need to do to better your chances at winning in futures trading.

Reward cards are a way for credit card companies to give a little back to their customers. You can take advantage of this by selecting a rewards card that gives you rewards for doing what you do anyway, be it paying for your pet, shopping online, or going out for a night on the town. With that in mind, let’s take a look at four of the best Visa rewards cards available:

Pet Rewards Visa

This card can be personalized to display a photo of your pet, or the card holder can choose from three stock designs. It’s a good choice for pet owners with feed and veterinary bills. Card holders receive 500 bonus points after their first purchase, plus one point for every dollar spent on everyday purchases. Two points are earned for each dollar spent on purchases from participating vet clinics, feed stores, pet stores, and animal food retailers. Customers can start earning rewards with just 750 points accumulated, and those points can be put toward veterinary services, discount certificates for pet food, and donations to animal shelters.

Chase Amazon.Com Platinum Visa Card

If you do a lot of shopping online at the retail giant Amazon.Com, this is the card for you. When shopping with this card, you will earn 1,500 bonus points after your first Amazon purchase. After that, you will earn 3 points for every dollar spent on Amazon.Com, and 1 point for each dollar spent on purchases elsewhere. For every 2,500 rewards points you earn, you will get a $25 Amazon rewards gift certificate. If you add authorized users to your account, they will earn points for you with their purchases, too. Additionally, the card comes with a zero-interest introductory period of six months, and no annual fee. They even offer online management reports to help you track your spending. This sounds like a pretty sweet deal for frequent Amazon customers.

Chase Freedom Points Visa

This card was designed with everyday living in mind. Just about anyone could take advantage of the rewards it offers, because reward points are earned through common purchases – groceries, gas, and fast food. Eligible purchases, which include just about anything you can buy at a grocery store, gas and service station (including repairs and car washes), or quick service restaurant (including coffee houses), will earn you three points to the dollar. Card holders earn one point for each dollar spent everywhere else. Rewards can be claimed starting at 1,000 points. Also, there is no annual fee, and no interest for up to six months.

Bank of America Visa Signature with WorldPoints

If you like the finer things in life, and you frequently go out for entertainment, this card can help you get good seats, last-minute reservations, and hard-to-find gifts for someone special. How? The Visa Signature with WorldPoints features a personal concierge service. Card holders earn one point for every dollar they spend, and can redeem the points for preferred seating at sports, entertainment, and other events. Travel upgrades are also available, and at a discount. No annual fee, no interest on balance transfers or cash advance checks for one year, and absolute fraud protection make this card a tempting option.

By using a rewards card, you are earning points and discounts to put toward purchases you would frequently make anyway. This makes life a little easier, which is a reward in itself.

1. Don’t know how to choose the right share to buy
2. Don’t know when to bail out of a losing share
3. Don’t know when to take profit on a winning share
4. Don’t Know how to construct a proper portfolio

1. Don’t know how to choose the right share to buy…

How does beginners choose what shares to buy amongst thousands of shares? You might choose to listen to your share broker, or listen to your “experienced” relative, or listen to free “share pick” on the internet…etc… and you will end up losing money.

Because individual share behavior is very complex, only the most professional full time traders have the right technology to make proper share pick decisions. Such experience and technology is simply not available especially to the beginner trader.

2. Don’t know when to bail out of a losing share…

The deadliest killer of beginner traders is not knowing when to get out of a losing share. Too many traders hold on to their shares until it is worth nothing. Most beginners will hold on hoping that the share will stage a rebound because you simply do not have the technology to tell if a share will ever rebound! The only way for a beginner to prevent losing everything is for an expert to tell them when to get out of a trade.

3. Don’t know when to take profit on a winning share…

How many times have you heard stories around you of people who hold on to shares which made them a lot of money until one day, the share turned around on them into a severe loss?

Too many people keep thinking that their winning shares will keep on winning forever and never knew when to take profit… until the shares crashed on them! The problem is again that telling when a share is losing upward momentum is extremely difficult.

4. Don’t know how to construct a proper portfolio…

Do you know that many shares actually move up and down together no matter what? Do you know that there are shares that totally move opposite to each other? Do you know that many shares actually move exactly opposite to the way the market is moving? Do you know that there are shares that do not ever move? Do you know that there are shares that are on the verge of getting delisted?

If you do not know the above, how would you ever be able to intelligently put different shares together so that you can make money? What if you put a share together with a share that moves exactly opposite to it? Would you ever make money?

That is why a lot of people are turning to trading a much more reliable and much more stable instrument; Market Index or Market Index ETF.

Read about how trading an index based strategy can help you overcome all these problems at http://www.mastersoequity.com/MOE_ridetheflow.htm