allabouttradingonline.com

By: rcallaby

For most people, the stock market is a scary thought because they have seen the devastating effects it can have when things go wrong. Stock plummeted after Enron, and even when mergers are announced as with the case of Chase and Bank One, the stock market feels the effects. Even DuPont has seen its stock prices drop when negative information is publicized, so the stock market, for the most part, is a fickle entity.

How does a new investor avoid the pitfalls of the stock market? Research is the only way, and it’s no ironclad guarantee. That means before you invest, you adopt the habit or reading the NYSE and DOW reports in the daily newspapers as well as reading the business section of the newspaper for any reports that may affect the stock prices of a company you may be considering. Of course, sadly, utility companies are always making money, but they are doing it at the expense of consumers like you and me. For some people, investing in the electric or water company is the only place they feel safe, but with all of the mergers of electric companies, that isn’t even a very safe investment in the 21st Century.

A new investor needs to do some heavy reading and studying before investing in the stock market. This is not something that should be decided impulsively, but rather needs fully researched over time. In addition to following the current trends in the stock market, the potential investor needs to also research past trends, and be sure to research far enough in the previous years to ascertain that the company stock is stable for the most part. This requires, as an educated guess, at least five years worth of research, maybe more if time allows. For those who have been in the working force for a few years, the trend has been one of difficulties, and sometimes the most stable company has seen their stock plunge during times of recession or bad publicity.

In addition to checking the history of a company, and the stock market overall, a potential investor should check the trends of companies who have been involved in mergers to see how their stock fared before the merger was announced, afterwards, during acquisition, and after acquisition. After all, the potential for a company after a merger may be a negative one, so it’s important to know how the stockholders and potential investors saw the strength of the company. The price of a company’s stock is a measure of its strength in the economy, and without that, strength, the stockholders can force an unfriendly merger, whereby the stockholders take over the company.

Once you have decided the safest investment for you to make, you need to decide on a financial advisor or broker. It isn’t wise to try to make a direct buy because although it may be cheaper, the services of a broker will prevent or lessen the financial loss in the event of a drop in price. A broker can see the trend and advise you to sell your stock in a given corporation based on trends that are showing. Unless you have learned a great deal about the stock market, there is no way you, as a new investor, can predict these things. The price you pay a broker for managing your account is well worth the peace of mind you will have in knowing your financial interests are uppermost in the mind of your broker. Even with mutual funds, if you have any stocks in your portfolio, which most mutual funds investors do, it’s important to have a broker who can move those stocks around in the event of a downhill trend.

While foreign currency trading offers its rewards, especially when you are able to trade in major currencies like the US dollars and Euro, caution against advertisements and brokers that offer instant riches must be observed.

There is move to regulate foreign currency traders. Unfortunately, not all in the industry are registered. Not entirely illegal, many unregistered brokers populate the financial markets.  Extra precaution is suggested for individuals and companies when they deal with forex brokers.

The United States has passed a federal law, the Commodity Futures Modernization Act of 2000 that gives authority to the commission to investigate suspicions of frauds in the transactions.

Frauds in Forex trading have telltale signs and you must be aware of these. Be wary of schemes that offer quick riches.  An experienced Forex brokers will tell you currency trading is not a risk free business and only those with real analytical methods can succeed in the field. And, even when projections seem sound, there is no way of telling exactly how strong a currency will hold out against many factors. So watch out for those who promise large profits no matter the economic condition is.

Most brokers ask for margin investments. If you are not fully aware of how this works, do not venture into it. You may be losing s more than you earn in the long run. Beware also of the “interbank market” service that brokers may offer. In reality, only large banks, corporations and investment institutions have access to this loose network of currency traders.

To be sure about the credibility of the brokers you are getting, study their profiles and company background seriously and extensively. Stick with a shortlist of firms that are registered with the regulatory commission on commodity futures.

Forex trading is done on a much greater scale than any other kind of market in the world. Some 1.9 trillion dollars are handled every single day. About 73 percent of all forex trading is done by 10 international banks with names you’re familiar with: Merrill Lynch, Citigroup, and so forth. National banks and other financial institutions account for another chunk of forex trading, and transactions by “day traders” — regular individuals, people like you and me — account for only 2 percent of all trading.

Nonetheless, many average investors do try their hand at forex trading, and there are many financials institutions who handle such transactions. It’s known as “retail forex,” and it’s handled much the same way that day trading of stocks is handled.

The downside is that unlike the stock market, the forex market is not particularly well regulated, and people inexperienced with it can be taken advantage of. The U.S. Commodity Futures Trading Commission (CFTC) gives several bits of advice for amateur forex traders.

Among the CFTC’s tips:

- Avoid companies that predict or guarantee large profits, or that promise little or no financial risk. There is ALWAYS a financial risk in forex trading, and no one can guarantee profits when it comes to speculative endeavors.

- If someone won’t give you his background, don’t deal with him. Likewise, always check out a company’s track record before doing any trading with them.

- The Internet is a haven for shady types. Be wary of anyone wanting you to send cash.

- Above all, remember that if an opportunity sounds too good to be true, it probably is!

There are plenty of honest and reliable forex trading firms out there, including ones that operate online. But even if the trading company is legitimate, there are still risks inherent in trading. Because currency rates can fluctuate for such a variety of reasons, it’s difficult to predict what investments to make. Even seasoned professionals get blindsided sometimes.

In short, forex trading can be lucrative, but only if you know what you’re doing. Before embarking on any investing, study the details of how the market works, what causes fluctuations, how to interpret financial indicators, and all the other ins and outs of the market. Forex trading isn’t something to be entered into lightly. There is much potential for profit, but there is even greater potential for loss, both at the hands of unscrupulous trading firms, and of your own inexperience.