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October 11, 2017 / 0 Comments

Recent Stock Market Trends to Pay Attention To

The stock market is constantly changing and shifting, and with this comes a lot of varying trends. If you are an experienced traders, you would have heard of the terms bull and bear. The terms are used to describe the general trend of the stock market, whether it is increasing or decreasing at any given time. If the market is described as bullish, is it increasing (getting better), but if it is bearish, it is decreasing (getting worse).

According the professionals, the market is currently in a bullish state and is increasing every day. However, although this is a general trend, there have been many individual trends in stocks that you should be paying attention to. In particular, it appears that online and tech companies are starting to see large increases in share prices. This article will look at some of the trends in 2017 and will focusing on the big elephant in the room – the consistent increase in prices.

A Bull Market

If you have been trading in the stock market, you may have noticed that the market has been in a bullish state for what feels like forever. The rise has been going on steadily since 2009 and has been interesting to say the least when you take a look at 2017. The market has been so good that ever small percentage drops have received horrifying reactions.

The most shocking thing about this bull market is related to how long it’s been going on. The rise in the market has been related to the Federal Reserve’s low interest rates and the increase in bond buying. The market rise is currently standing at the second longest since 1900. To put it into a different perspective, the S&P 500 has risen by around 267% since the trend began. Although there is not much change in the stock market for 2017 when you consider this rise, the steadiness of the market in 2017 has raised suspicion. a-bull-vs-bear

The Market is Surprisingly Steady

As well as being on a steady incline, in 2017 specifically, the market has been very steady. In fact, this year, the market has hit a new record, as stocks haven’t been this steady since 1965. Back then, investors like Warren Buffet were gaining control of Berkshire Hathaway and Martin Luther King Jr. was leading a march about civil rights.

Many professionals in the industry are saying that 2017 should be looked at with one eye turned to the past, and investors should take the opportunities available. It seems that large events such as Britain leaving the EU and the recent election have had the largest impact on the stock market so far. Anything else has had minimal effect.

Will it last?

So the real question that is on everyone’s minds is, “will this last?” Many people are suggesting that a downward turn is approaching, similar to what happened in the last recessions. In most cases, when the bull market finally ends, there will be a sharp downturn of around 20%, which will hurt a lot of traders and businesses. However, these trends needs to be watched closely and you need you take advantage of rising opportunities. The stocks are great at the moment and have been quoted as “magical”. Just keep an eye on the rise and make sure you don’t get stuck if the market takes a dive.

June 20, 2017 / 0 Comments

Stock Market Futures: Everything You Need to Know

Want to know what are stock market futures? Here is everything you need to know about them. Stock futures are trade contracts that give you the necessary power required to buy or sell stocks at the agreed fixed price by a specific date in the future. When you accept the contract, you are required to uphold all the terms of the agreement. The contracts have consistent specifications like the method of payment, tick size, price per unit quotation, expiry date and market lot. stock-market

Stock Futures math

Futures Price = (Spot Price + Carrying Charge)
The stock futures price is usually higher than the spot price. Futures price is a price for which a commodity can be sold or bought for delivery in future. The spot price is the present-day market price at which a commodity can be sold or bought for immediate delivery and payment. Carrying Charge or Cost of Carry is the storing cost of a physical commodity like metals or grains over a period of time or until the futures contract matures less all the expected dividends within the contract period. stock-market-bids
Example:
The spot Price of ABC = 2000 and Interest Rate = 8% p.a.
So, the Futures Price contract for 1 month =2000 + 2000*0.08*30/365 = 2000 + 13.15= 2013.15

Meet the Players

1. Hedgers

Hedgers can be exporters, importers, manufacturers, and farmers. The main aim is to buy and sell futures in a bid to secure future price of a commodity to be sold later in the cash market. Those holding the contract for a short time will want to get as high prices as possible while for long term holders it is vice versa. Usually, almost all the risks associated with price volatility are reduced. Hedging sometimes can be used to lock the price margins between the price of raw materials and that of the finished product.

2. Speculators

The other market players’ main aim is to benefit from the risks associated with the futures market. Speculators profit from the price changes that hedgers try to protect. When hedgers are trying to reduce risk the speculators are trying to increase it in order to maximize their bottom line. If the hedger is anticipating a future decline in prices then he or she would be selling to the speculator such a contract at a low price. Also, the speculators enter the market for the sake of profits only through selling and buying futures but not owning the commodity.

Characteristics of Stock Market Futures

Contract size – it is also referred to as a lot. What this means is that one contract can have many shares and the number of shares included is the size of the contract. When buying and selling futures, a single share is not usually traded. For example, if a contract has 300 shares, the selling and buying will involve the whole bunch.
Expiry – there are three types of maturities associated with stock futures. They include near month contracts (1 month), middle month contracts (2 months) and far month contracts (3 months). All maturities expire on their particular contract months (last Thursday of the contract month) and they are traded simultaneously. All stock futures contracts are for future transactions. So, the contract duration determines how far in the future it will be settled.
Leverage – this is having control of commodities worth more than your capital. With just a small amount of cash, you have the green light to enter into a stock futures contract worth more than what to can afford, at the moment, to pay. A small shift in prices can mean a huge loss or profit.
Pricing and limits – the stock futures market price quotations are done in the same way as in cash market, that is, per unit, cents or dollars. However, there are restrictions on the price movements for a futures contract. So, there is an upper and a lower price boundary set per day that heavily relies on the previous day closing.

Conclusion

Lastly, the profits and losses are determined by the prices between the closing price and the opening price of the futures. For example, if an investor buys “Y” futures at $530 each in November, he or she may sell the same futures at $550 each in the same month. In that case, the investor would bag a profit of $20 per future. But if he or she sells the same futures at $505, then he or she would make a $25 loss per future.
References
http://money.howstuffworks.com/personal-finance/financial-planning/stock-future.htm
http://www.bseindia.com/markets/Derivatives/DeriReports/FAQsStockFutures.aspx?expandable=5
https://www.kotaksecurities.com/ksweb/Research/Investment-Knowledge-Bank/what-are-futures-contracts
http://www.investinganswers.com/financial-dictionary/optionsderivatives/futures-1002
http://www.sharemarketschool.com/futures-understanding-the-basic-terms/
https://www.thebalance.com/what-are-futures-definition-and-examples-1031172

April 26, 2012 / 0 Comments

Emotional Investing in the Stock Market

Emotional Investing in the stock market is a reaction to underlying beliefs… many of which are hopeful in nature but as true as Santa Claus. Sure, we all know that Santa Claus is based on the non-fictional figure Saint Nicholas. But, it has been extorted and twisted into what we now know as a mythical fairy tale. Similarly, the way in which the stock market ebbs and flows is based on some historical realities and beliefs… many of which are extorted and twisted today. So what are some of these myths and how can individual investors separate the aspirations from the actualities?

Presumptions of the Stock Market

Most investors, even those that have experienced the ups and downs of elation and crisis, hold fast to an inherent belief that the stock market is somehow rational. And why wouldn’t we? After all, the economic pundits of our day seem to have not only a prediction (which is often wrong) but also an explanation for every action and reaction in the stock market. They often use their pencils and erasers to link “A” with “D” conveniently erasing “B” and “C” from our memories. Then they point out, “See, it all makes sense when you consider….” All of the commentary and “professional” elucidation confuses and satisfies the average investor… lulling us into a “Santa Claus” belief.

Irrational Emotional Investing

Rational markets? Fair? Not a chance… let’s take a look at an example. Here’s how we got to this point… for months and even the past few years, we’ve been watching and waiting for signs of recovery. In 2009, people started talking about “green shoots” and other optimistic references. But it wasn’t until the end of 2011 that this optimism was founded in real numbers… with several companies seeing increasing revenues in an environment of cautious optimism.

After four months (record months) of increases in several stocks, we’ve seen a dip in the past several weeks. And the “professionals” who were late on the wagon of recovery are now trying to catch up to the latest changes. Europe? Sure, blame Europe again. But here’s where it moves from reality to fantasy.

It’s one thing for the US and Canadian stock markets to be impacted by what’s happening in Europe, or any other part of the world for that matter. After all, even when it comes to economics, It’s a Small World. Yet, that’s not a good reason to paint every stock with the same economic brush. Take ROST for example… a fantastic stock with no European exposure. Yet, it finds itself being held down by the reaction to Spain’s issues. Consider LULU… another company with no measurable exposure to Europe… yet, just because it is apart of the Canadian and US markets that are being dragged down, it too is experiencing some drawdowns on its stock price.

Divorcing Decision Making from Your Emotions

Maybe it’s time to refocus on the underlying story of the markets… not on the popular fantasy of hope and despair that seem to drive people’s investment decisions. After all, the St. Nicholas story is compelling… and a great model of how people can live their lives to reflect a greater good on a daily basis, not just at Christmas. But it’s about time we stop looking for Santa and his Reindeer in the sky and our non-existent chimneys. Similarly, rather than tuning into the latest reports from the pundits of where the markets are headed and why, we need to look at the underlying reality of the stock market. After all, earnings (particularly revenues) are steadily increasing in many Canadian (non-resource based) and US companies.

The stock market is not rational… nor fair. During days when we see triple digit drops, there’s no need to panic. Here at Invest in the Markets, we use the following motto to advocate strategic investing, not emotional investing: “Protect Capital, Minimize Risk, Maximize Returns.” Practically, here’s just a few brief ways of how that looks in these recent market conditions.

Stick to the Plan – We use calculated stop losses that don’t take any emotion or reaction into account. These protect our capital, ensure we get out of losing positions early and with minimal losses as well as take our profits and put them in our pockets.

Have a Shopping List – When a pullback happens and some of our favourite stocks drop in price, we add them to our shopping list. We never buy on the way down, in case it goes further than we thought or we misunderstood the reasons. Instead, we “buy the rise” and take advantage of discounted prices.
Avoid Predictions through Preparations – One of the results of corrections and crises is the so-called “professional” advisors feed on our fears. They explain things in language we don’t understand and they pull out their erasers, removing the dots in order to connect the one’s that are left over. And it’s easy to do… because we all go in asking “why?” We look to them for predictions and they readily provide them to us… even if they are simply part of a larger pool of “advisors” who have been wrong time and time again. Instead of looking for predictions, choose a more realistic approach and simply plan through preparations. Use your plan, write out a shopping list, and act when the markets tell you it is the right time.

One of the most challenging things for average investors to do is to divorce their decision making from their emotions. Yet, if we are able to adopt a strategic plan that minimizes our emotional influence on our investment decisions, we’ll be more profitable and successful investors. Remember, it’s not fair… and it’s not rationale. Therefore, it’s hard to predict and react correctly and consistently. Instead, take hope out of your equation for investing. Go back to the basics and plan your actions, instead of reactions, so that you can avoid emotional investing in the stock market.