Online Investment

Forex Market :

FOREX (FOReign EXchange market) is an international foreign exchange market, where money is sold and bought freely. In its present condition FOREX was launched in the 1970s, when free exchange rates were introduced, and only the participants of the market determine the price of one currency against the other proceeding from supply and demand.

As far as the freedom from any external control and free competition are concerned, FOREX is a perfect market. It is also the biggest liquid financial market. According to various assessments, money masses in the market constitute from 1 to 1.5 trillion US dollars a day. (It is impossible to determine an absolutely exact number because trading is not centralized on an exchange.) Transactions are conducted all over the world via telecommunications 24 hours a day from 00:00 GMT on Monday to 10:00 pm GMT on Friday. Practically in every time zone (that is, in Frankfurt-on-Main, London, New York, Tokyo, Hong Kong, etc.) there are dealers who will quote currencies.

FOREX is a more objective market, because if some of its participants would like to change prices, for some manipulative purpose, they would have to operate with tens of billions dollars. That is why any influence by a single participants in the market is practically out of the question. The superior liquidity allows the traders to open and/or close positions within a few seconds. The time of keeping a position is arbitrary and has no limits: from several seconds to many years. It depends only on your trading strategies. Although the daily fluctuations of currencies are rather insignificant, you may use the credit lines, that are accessible even to currency speculators with small capitals ($ 1,000 - 5,000), where the profit may be impressive. (You can learn more about it in the section: The main principles of trading.)

The idea of marginal trading stems from the fact that in FOREX speculative interests can be satisfied without a real money supply. This decreases overhead expenses for transferring money and gives an opportunity to open positions with a small account in US dollars, buying and selling a lot of other currencies. That is, on can conduct transactions very quickly, getting a big profit, when the exchange rates go up or down. Many speculative transactions in the international financial markets are made on the principles of marginal trading.

Margin trading is trading with a borrowed capital. Marginal trading in an exchange market uses lots. 1 lot equals approximately $100,000, but to open it it is necessary to have only from 0.5% to 4% of the sum.

For example, you have analyzed the situation in the market and come to the conclusion that the pound will go up against the dollar. You open 1 lot for buying the pound (GBP) with the margin 1% (1:1000 leverage) at the price of 1.49889 and wait for the exchange rate to go up. Some time later your expectations become true. You close the position at 1.5050 and earn 61 pips (about $ 405). For the calculation of 1 pip click here.

Everyday fluctuations of currencies constitute about 100 to 150 pips, giving FX traders an opportunity to make money on these changes.

In FOREX, it's not obligatory to buy some currency first in order to sell it later. It's possible to open positions for buying and selling any currency without actually having it. Usually Internet-brokers establish the minimum deposit such as $ 2000, for working in the FOREX market, and grant a leverage of 1:100. That is, opening the position at $100,000, a trader invests $1,000 and receives $99.000 as a credit. The major currencies traded in FOREX, are Euro (EUR), Japanese yen (JPY), British Pound (GBP), and Swiss Franc (CHF). All of them are traded against the US dollar (USD).

In order to assess the situation in the market a trader has to be able to use fundamental and/or technical analysis, as well as to make decisions in the constantly changing current of information about political and economic character. Most small and medium players in financial markets use technical analysis. Technical analysis presupposes that all the information about the market and its further fluctuations is contained in the price chain. Any factor, that has some influence on the price, be it economic, political or psychological, has already been considered by the market and included in the price. The initial data for a technical analysis are prices: the highest and the lowest prices, the price of opening and closing within a certain period of time, and the volume of transactions.
A technical analysis is founded on three suppositions:

* Movement of the market considers everything;
* Movement of prices is purposeful;
* History repeats itself.

That is, technical analysis is a statistical and mathematical analysis of previous quotes and a prognosis of coming prices.

A number of technical indicators have been installed into the PRO-CHARTS trading system. Analyzing the indicators one can come to the conclusion about further movements of the quoted currencies. For a more detailed description of the indicators, analyzing price charts and volumes of trading, click here.

Fundamental analysis is an analysis of current situations in the country of the currency, such as its economy, political events, and rumors. The country's economy depends on the rate of inflation and unemployment, on the interest rate of its Central Bank, and on tax policy. Political stability also influences the exchange rate. Policy of the Central Bank has a special role, as concentrated interventions or refusal from them greatly influence the exchange rate.

At the same time one should not consider fundamental analysis just as an analysis of the economic situation in the country itself. A far bigger role in the FOREX market belongs to the expectations of the market participants and their assessment of these expectations. Various prognoses and bulletins, issued by the participants, have a strong influence on the expectations. Very often an effect of the so-called self-filfilling prophecy occurs when market players raise or lower the exchange rates according to the prognosis. But a deep and thorough fundamental analysis is available only for big banks with a staff of professional analysts and constant access to a wide field of information.

In spite of these different approaches, both forms of analyses complement one another. Traders who act on the basis of a fundamental analysis, have to consider some technical characteristics of the market (the main rates of support, such as resistance and resale), and supporters of the technical approach to the market must track the main news (interest rates, important political events).

The main merits of the FOREX market are:

* The biggest number of participants and the largest volumes of transactions;
* Superior liquidity and speed of the market: transactions are conducted within a few seconds according to online quotes;
* The market works 24 hours a day, every working days;
* A trader can open a position for any period of time he wants;
* No fees, except for the difference between buying and selling prices;
* An opportunity to get a bigger profit that the invested sum;
* Qualified work in the FOREX market can become your main professional activity;
* You can make deals any time you like.

Stock Market :

STOCK IS OWNERSHIP, simple as that.

Buy a share of Microsoft and you acquire a tiny sliver of the software giant, tying your fate to that of Chairman Bill Gates, for better or worse. This is ownership in the most literal sense: You get a piece of every desk, contract and trademark in the place. Better yet, you own a slice of every dollar of profit that comes through the door. The more shares you buy, the bigger your stake becomes.

OK, So How Is a Stock Valued?
The stock market itself is basically a daily referendum on the value of the companies that trade there. All those guys screaming at each other? Their job is to take in the day's news and distill it down to a single question: Will it help the companies I own make money in the future, or will it prevent them from doing so? If Microsoft loses a court battle to the Justice Department, look for its shares to fall. But if strong economic numbers come out promising better PC sales, traders will buy with a vengeance.

Earnings (a.k.a. profits) are the supreme measure of value as far as the market is concerned. Wall Street is obsessed with them. Companies report their profits four times a year and investors pore over these numbers -- expressed as earnings per share -- trying to gauge a company's present health and future potential.

The market rewards both fast earnings growth and stable earnings growth. Stock traders will even pay up for a money-losing company that promises to earn a lot in the future (witness 1998's explosion in Internet stocks). Things the market will not tolerate are declining earnings or unexplained losses. Companies that surprise Wall Street with bad quarterly reports almost always get punished.

What About Risk?
While history shows that stocks will rise given the fullness of time, there are no guarantees -- especially when it comes to individual stocks. Unlike a bond, which promises a payout at the end of a specified period plus interest along the way, the only assured return from a stock is if it appreciates on the open market. (While many companies pay shareholders dividends out of their earnings, they are under no obligation to do so.) The worst-case scenario is that a company goes bankrupt and the value of your investment evaporates altogether. Happily, that's rare. More often, a company will run into short-term problems that depress the price of its stock for what seems an agonizingly long period of time.

For all the risk, however, there are ways to manage your exposure. The best is to diversify by owning a variety of stocks. That way, no single company can harm you. (Check out our Risk vs. Reward section for more on diversification strategies.) It's also important to remember that investors are well compensated for rolling the dice with equities. Historically, the long-term return from stocks is about 11% annually, while bonds -- which are less risky -- return just 5.2%. Over time, that spread can make a huge difference in the earning power of your savings (see The Power of Compounding).

One final note: Along with ownership, a share of stock gives you the right to vote on management issues. Company executives work at the behest of shareholders, who are represented by an elected board of directors. By law, the goal of management is to increase the value of the corporation's equity. To the extent this doesn't happen, shareholders can vote to have management removed.

That's the way it is supposed to work, anyway. As we noted above, one of the grim realities of the stock market is that individual investors rarely amass enough stock to be able to exert any tangible influence over a company -- that's left to big institutional shareholders or groups of company insiders. Consequently, it behooves you to carefully research management's competence before you buy a stock. And the best measure of that may be the company's ability to consistently deliver earnings over time.

Brokers:

Tips for Checking Out Brokers and Investment Advisers

Federal or state securities laws require brokers, investment advisers, and their firms to be licensed or registered, and to make important information public. But it's up to you to find that information and use it to protect your investment dollars. The good news is that this information is easy to get, and one phone call or web search may save you from sending your money to a con artist, a bad financial professional, or disreputable firm.

Before you invest or pay for any investment advice, make sure your brokers, investment advisers, and investment adviser representatives are licensed. Always check and see if they or their firms have had run-ins with regulators or other investors.

This is very important, because if you do business with an unlicensed securities broker or a firm that later goes out of business, there may be no way for you to recover your money — even if an arbitrator or court rules in your favor.
Brokers and Brokerage Firms

The Central Registration Depository (or "CRD") is a computerized database that contains information about most brokers, their representatives, and the firms they work for. For instance, you can find out if brokers are properly licensed in your state and if they have had run-ins with regulators or received serious complaints from investors. You'll also find information about the brokers' educational backgrounds and where they've worked before their current jobs.

You can ask either your state securities regulator or NASD to provide you with information from the CRD. Your state securities regulator may provide more information from the CRD than NASD, especially when it comes to investor complaints, so you may want to check with them first. You'll find contact information for your state securities regulator on the website of the North American Securities Administrators Association. To contact NASD, either visit NASD's BrokerCheck website or call NASD's toll-free BrokerCheck hotline at (800) 289-9999.
Investment Advisers

People or firms that get paid to give advice about investing in securities generally must register with either the SEC or the state securities agency where they have their principal place of business. Investment advisers who manage $25 million or more in client assets generally must register with the SEC. If they manage less than $25 million, they generally must register with the state securities agency in the state where they have their principal place of business.

Some investment advisers employ investment adviser representatives, the people who actually work with clients. In most cases, these people must be licensed or registered with your state securities regulator to do business with you. So be sure to check them out with your state securities regulator.

To find out about investment advisers and whether they are properly registered, read their registration forms, called the "Form ADV." The Form ADV has two parts. Part 1 has information about the adviser's business and whether they've had problems with regulators or clients. Part 2 outlines the adviser's services, fees, and strategies. Before you hire an investment adviser, always ask for and carefully read both parts of the ADV.

You can view an adviser's most recent Form ADV online by visiting the Investment Adviser Public Disclosure (IAPD) website. At present, the IAPD database contains Forms ADV only for investment adviser firms that register electronically using the Investment Adviser Registration Depository. In the future, the database will expand to encompass all registered investment advisers—individuals as well as firms—in every state.

You can also get copies of Form ADV for individual advisers and firms from the investment adviser, your state securities regulator, or the SEC, depending on the size of the adviser. You'll find contact information for your state securities regulator on the website of the North American Securities Administrators Association. If the investment adviser is registered with the SEC, you can get the Form ADV at a cost of 24 cents per page (plus postage) from the SEC.

Hedge Funds :

Generally, a hedge fund is a lightly regulated private investment fund often characterized by unconventional investment strategies and often making use of legal structures (sometimes offshore) to mitigate the effects of local regulation and tax regimes. In contrast to regular investment funds, which are usually limited to only being able to "go long" (buy) instruments such as bonds, equities or money markets, hedge funds also have the ability to "short" (sell) instruments which they believe will fall in price. In this way, hedge funds are able to create more complex investment structures which can, for example, profit in times of market volatility, or even in a falling market. They are primarily organized as limited partnerships, and previously were often simply called "limited partnerships" and were grouped with other similar partnerships such as those that invested in oil development. Hedge funds are normally open to institutional or otherwise accredited investors.