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Safe Investing; Fraud, Scams, and Money Laundering
The following information is taken from the FSF Blog, Learn
safe investing. Comments are welcome and can be posted at that blog.
Safe investing is all about risk versus
return. An absolutely safe investment will give a lower return than a more risky
safe investment. Very high advertised returns indicate a non safe investment. We
will learn about safe investing and about finance and investment in general. An
important aspect of safe investing is fraud avoidance.
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Contents
To assist you in finding entries from the FSF safe
investing blog we provide a categorised table of contents:
Financial markets and other investment and information channels
Finance and investment books
Financial fraud and scams
Internet security
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Find finance & investment books
US:
Amazon.com
UK:
Global Investor Bookshop
South Africa:
Kalahari.net
Share prices & trading
South Africa:
ShareNet
US:
The Street.com
SharePlanner
Write creative articles
Research & generation: Instant
Article Wizard
Grammar, style & spelling: WhiteSmoke
Effective writing: Freelance
Writing Course |
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Saturday, February 7, 2009
What about day trading?
[Blog #4 on financial markets]
There are five main types of trading that technical
traders can utilise:
 | Scalping |
| Day trading |
| Momentum trading |
| Swing trading |
| Position trading |
They involve time frames from between seconds or
minutes (for scalping) to weeks and months (for position trading) and
everything in between.
A successful technical trader should at least be
proficient in several different strategies, but every trader should
specialise in one particular strategy and master it. This is dependent
on:
| your personality, |
| your timeframe and tolerance for risk, and |
| the current market environment. |
Day trading used to be the preserve of financial
firms, professional investors and speculators. Many day traders are bank
or investment firm employees working as specialists in equity investment
and fund management. Day trading is the system of speedily buying and
selling securities throughout the day in order profit from the marginal
changes in the market for that particular day.
Day trading can be a fast paced and exciting hobby
that depends upon the trader having the most up to date information.
Some of the more commonly day traded financial instruments include
stocks, options, futures contracts and currencies. In the ideal world,
day trading strategies let investors garner profits from the tiny
increases in the market. Day trading requires a great deal of time and
close attention.
Day trading is not a get rich quick scheme - don't try
to make it one. Day trading requires in-depth knowledge of the
securities markets and trading techniques and strategies. In attempting
to profit through day trading, you must compete with professional,
licensed traders employed by securities firms. Day trading can't really
be considered safe investing. You must realise that it may be a zero sum
game – for every winner there is a loser!
Make sure you're ready and willing to monitor the
near-perpetual shifts that occur moment to moment in the stock market.
Day trading is quite easy once you have the proper
education. Technical analysis and fundamental market analysis are both
necessary for successful day trading. Technical analysis is the
counterpart of fundamental analysis.
Fundamental analysis is basically the ability to
analyse a company’s financial strength and determine a decision based
on value. Fundamental investors look for stocks that are below their
intrinsic value. The objective in fundamental analysis is to make a
projection on its future business performance.
Simply put, technical analysis is the process of
analysing market (price) action and using past data on charts to attempt
to forecast the highest likely outcome of the future. Charts are the
primary tool. Technical analysis can be learnt in a short period of
time. There are no financial statements to read over. It requires the
reading and interpreting charts, their patterns, and determining the
highest likely short-term outcome of the future.
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Internet security products
thwate
Trusted Site Seal
Kaspersky
Internet security and anti virus |
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Saturday, January 31, 2009
Dollarisation of Zimbabwe - update
 The
Zimbabwean government has for the first time acknowledged that the
Zimbabwe dollar has no value, after acting Finance Minister Patrick
Chinamasa, on Thursday, 29 January, detailed the country’s budget
proposal in the US greenback. The proposal, which will officially pave
the way for the disappearance of the local currency in trading, will
make dealing in multiple currencies legal for all Zimbabweans, in theory
to curb hyperinflation. The inflation rate is the highest in the world
and has seen the local dollar crumble to its current worthless position.
The economy has for weeks been informally ‘dollarised’ with almost
all sectors trading in US dollars (and the SA Rand), and the new budget
proposal has made the move official.
See the Now a 100 trillion dollar
note! posting of 22 January 2009
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Thursday, January 29, 2009
Wesabe
is a social-networking site that also lets users track their finances and
helps you with safe investing. Users and financial experts share tips on
saving, investing and spending. Traffic on Wesabbe has more than doubled
in the last four months. [A social network site focuses on building online
communities of people who share interests, or who are interested in
exploring the interests and activities of others – in this case
finances, ie a financial social networking site]
In November, Wesabe and the UK newspaper giant The
Telegraph entered a partnership to offer co-branded
tools on the Telegraph website.
Wesabe anonymously aggregates data from it's customers to provide tips and
recommendations for it's members. Importantly, they've got data that spans
the market, something that banks themselves have tried (with account
aggregation) and largely not been able to make work very well. Wesabe
applies wisdom of the crowd thinking to personal finance and debt.
Wesabe Mobile is available which also provides members with an easy way to
record and track where they are spending cash. Wesabe holds out the
promise to help consumers validate their financial decisions based on what
other people like them are doing. Wesabe is both versatile and powerful.
You can set spending targets, monitor your account on a mobile and
download a Vista gadget for instant account access. Wesabe is rolling out
new graphs to more easily allow users to track spending and monitor their
income.
Wesabe cleverly uses two levels of tags: one for “just this entry” and
another for “each time this transaction occurs”. This is powerful, but
can be confusing, too. Wesabe is different, in that it is re-defining
financial advice, and references in a banking context. Wesabe allows you
to tag all your line items (expenses, deposits, etc) with arbitrary tags,
so you can easily view groups of transactions. Within any tag you can set
up spending targets and it will show you how close or far to that goal you
are for the month at any given point.
A new feature of Wesabe, the Cutback Tool, focuses on a specific part of
the problem, probably the one most easily controlled; namely, recurring
fees and expenses. The Cutback Tool flags all your recurring expenses,
then shows you how much money you’d save annually if you reduced or
eliminated the spending. The tips provided are not perfect, but they are
already useful in the many markets where the company has a concentration
of users and it will get better and better as more users contribute more
data.
Wesabe a very innovative solution for getting your financial data into a
nice clean format that is ripe for analysis. On a higher level, they are
using the wisdom of crowds to try teach us personal finance best
practices. They interact amazingly closely with customers. For example,
Wesabe usues collective wisdom to tell you how much you are spending on
your services – say, car insurance – relative to its other users, and
showing tips that are relevant to the tags you choose. Wesabe has nothing
like the rich functionality of Quicken. It is basically a community site
where you can upload your financials to manage your budget.
Wesabe uses a downloadable application to keep you safer – no
credentials are stored on their website. The service utilizes SSL
connections and authentication – keeping member data safe and private
yet readily available. Wesabe spends a lot of time and energy trying to
build up trust. That's a good move.
Wesabe has three advantages over Quicken:
| It’s only online. |
| It has added tagging to transactions that are shared
among users - when enough users tag a specific merchant, that tag is
automatically added as a suggestion to your transaction. |
| It is security-focused. Your third-party bank and
credit card account credentials are not stored on Wesabe’s servers
– instead they are downloaded to your personal computer. Hackers
can’t access your account credentials by breaking into Wesabe’s
servers. |
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Friday, January 23, 2009
Remember we are encouraging safe investing, so we repeat:
Have you recently responded to a request to update your logon details
via a link supplied in an email? If so, contact your bank or other
financial service provider.
Don't fall victim to fraud - always be alert. Look out for any
suspicious emails, websites, account activity or phone calls that
involve your financial information. If so, contact your bank or other
financial service provider.
Take care! This e-mail was distributed to banking clients
_____________________________________________________
From: Absa Bank Limited [mailto:upgrade@absa.co.za]
Sent: 10 November 2008 11:39To: undisclosed-recipients
Subject: New Online Secure Server
Importance: High
Dear Absa Customer,
We are proud to inform you that we have put a stop to the increasing
spam attacks and security riskon our online banking servers by
introducing the New Online Secured Database GX-5.
We are automatically registering all our customers to the secured server
for added security and for aconvenience online banking experience. This
registration is mandatory to all customers andunregistered accounts will
be deleted from our server.
Proceed with your registration below.
Sincerely,
Absa Bank Limited
_____________________________________________________
What to look out for when identifying an e-mail or phishing scam:
| Deceptive Subject Lines: These
look as if they are genuinely related to the company supposedly
sending the e-mail. |
| Forged Sender’s Address: An easy
deception method to make the e-mail appear as though it has come
from the company it is claiming to be. |
| Genuine Looking Content: They copy
images and text styles of the real sites in order to fool the
reader. Trusts and authentication marks are duplicated and they may
even have genuine links to the company’s privacy policy and other
pages on the legitimate website to create an illusion of
authenticity. |
| Disguised hyperlinks: E-mails may
display a genuine website address, but when you click on it, the
hyperlink will take you to a different website. Look out for a long
website address as it will take you to the site after the ‘@’
symbol. Example: http://www.genuine-site.com-name@fraud-site.com.
If you clicked on this hyperlink it would take you to http://fraud-site.com/
as it is after the @ symbol. |
| E-mail Form: These forms
containing your personal information are submitted to remote
computers, which the fraudsters access and then use your information
to commit fraud on your bank accounts. |
3 things you should do if you believe that
your banking details have been compromised
| Change your sign-on details immediately (PIN and
Password). This can usually be done securely online within your
banks Internet Banking service or at your branch. |
| As an added precaution, contact contact your bank
or other financial service provider and let them know that you
suspect that your personal banking details may have been
fraudulently obtained. |
| Monitor your accounts for unusual activity and
report any suspicious activity immediately to your bank or other
financial service provider. |
_____________________________________________________
Need more information. See our posts of December 20,
December 27 and January 01
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Thursday, January 22, 2009
Less than two weeks after releasing a $50 billion note
that could buy two loaves of bread, the dictatorship in Zimbabwe has
released a $100 trillion note (see below). The current official exchange
rate puts the value of the note at US$300, although the value
deteriorates daily due to the 231 million percent inflation rate
ravaging the country. Many believe the inflation rate is much higher.
The informal market values it at US$30.
Zimbabwe, because of the great instability, cannot be
considered a place for safe investing. However when the situation
stabilises there will be many opportunities for purchasing assets there
(especially using foreign currency).
Because of inflation, the Reserve Bank of Zimbabwe
(central bank) has introduced a new family of trillion dollar banknotes
in denominations of $100 trillion, $50 trillion, $20 trillion and $10
trillion that go into circulation, starting with the $10 trillion note.
The $20 trillion, $50 trillion and $100 trillion notes will be
introduced gradually. The Reserve Bank of Zimbabwe said the notes would
ensure that those in formal employment withdraw their salaries with
minimal hassle (?).
Zimbabweans are no longer using their valueless currency
in the informal sector, preferring to do business in rands or US
dollars.
The Zimbabwean newspaper
reports that South Africa has shunned a proposal by Zimbabwe to adopt
its currency saying the inflation in the neighbouring country will
affect its economy.
However, in his leaked draft economic reform programme dubbed the
Comprehensive Economic Reforms Needed to Turn Around the Economy,
central bank governor Gideon Gono has announced that the rand will be
adopted informally.
He said the move was meant to stabilise prices in the
collapsed economy, that was once the pride of Africa.
“It is imperative that Zimbabwe informally adopts the rand alongside
the Zimbabwe dollar, to eliminate distortions associated with the use of
multiple currencies,” said Gono in the draft document.
“The randfying of the Zimbabwean economy is envisaged to give
substantial impetus to current efforts geared at stabilising prices.
This will lay a solid foundation upon which successful economic recovery
initiatives will be anchored.”
The rand is already being used informally, and remittances from
Zimbabweans in South Africa ensure a flow of rands into Zimbabwe. To
adopt the rand formally, Zimbabwe would need to join the Multilateral
Monetary Area, MMA. However, for Zimbabwe
to become a member of the MMA it would need to align its fiscal and
monetary policies with South Africa for the formal use of the rand to be
effective and be sustainable. This seems unlikely under
the present regime.
This issue first raised its head in July 2007, when
things were not as bad as they are now. We reported the following:
We look at the proposal that Zimbabwe joins the rand
monetary area (now known as the multilateral monetary area, MMA), and
adopt the rand as its currency. This could be either directly as rand
banknotes, or as a new Zimbabwean dollar linked to the rand on a
one-for-one basis. To ensure equality and confidence, the rand would be
legal tender (e.g. it can be used to pay for goods and services) in
Zimbabwe.
Before discussing this more, it is useful to briefly discuss the rand
and how it is valued and how its value is maintained. The rand (ZAR or
R) is the national currency of South Africa and the South African
Reserve Bank, SARB, (central bank) has the responsibility for supplying
it and ensuring it keeps its value for the purposes of buying and
selling goods and services.
So, ideally, when you buy a loaf of bread for R8 rand today it will
still cost R8 this time next year (no or zero inflation). In reality,
there is some inflation, especially in developing countries. It is usual
to measure the internal (domestic) value of a currency against a basket
of goods and services from time to time (the change in the level of
inflation) and externally against a strong foreign currency (the
exchange rate), e.g. the United State dollar, USD.
The multilateral monetary area, MMA, is well established and includes
South Africa, Namibia, Lesotho and Swaziland. The rand is legal tender
in these countries and their currencies are pegged to it so that their
exchange rates with foreign currencies such as the US dollar are the
same as the rand’s. A new MMA Zimbabwean dollar would be freely
convertible into rand on a one-to-one basis (that is, at par).
The main advantage for Zimbabwe in joining the MMA is the stability of
the exchange rates and the value of the currency for purchasing goods
and services. Exporting and importing of goods and services to MMA
countries involves no risk that the exchange rate will change for the
worse – the prices are essentially in rand and thus the effect is the
same as a supplier in Gauteng “exporting” to a buyer in the Western
Cape.
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Wednesday, January 21, 2009
The residential property market is usually considered a
safe investment. However, the fall in house prices is a cause for
concern all over the world.
In South Africa the
situation is also a cause for concern, but now may be the time to make a
safe investment in houses. An excerpt from the latest report from
Standard Bank is now available.
Standard Bank: House price growth slipped
into red in 2008
What is the latest?
With the data for the final month of 2008 in Standard Bank’s
residential property book now available, the annual growth in the median
price can be evaluated against previous years’ growth performances.
Recall that growth in Standard Bank’s residential median property
price peaked in 2004 when a rate of 24.2% (smoothed average) was
recorded. Given developments in the economy such as the start in the
upswing of the interest rate cycle, the rate of increase declined
steadily to 6.6% in 2007. In 2008 the average median property price
declined further to 0.3%, the first decline since 1996. In real terms,
using the CPI to deflate the nominal data, the decline comes to nearly
12%. On a smoothed basis, growth in the monthly price declined steadily
and has been in negative territory since June of 2008. By December the
growth came to 3.1%. The residential property book for December 2008
shows that the smoothed value of the median residential property
financed by the bank was R592 000. The data reflect a very fragile
property market.
While the trend in house prices as depicted by the smoothed data is of
general interest, the unsmoothed or raw data is of importance for
technical reasons and a variety of other reasons also. For 2008, the raw
data show that the median house price declined by 1.6%, down from the
8.3% increase calculated for 2007. The annual numbers mask some dramatic
swings in the generally volatile monthly data. Two factors increased the
volatility of the 2008 data. The base effects of the distortions created
by the introduction of the National Credit Act (NCA) in 2007 were
present in the middle of 2008, when strong declines in growth were
reported. This is part from the ongoing impact of the NCA which
effectively led to a tightening in lending criteria. A second factor
occurred when the distribution of property prices changed. This happened
later in 2008 when a decline in the number of middle- and lower=priced
properties processed was reported. Put differently, the proportion of
higher-priced properties making up the bank’s December loan portfolio
increased, resulting in a higher median price for the month, as the raw
data show.
What are the overall developments in the
housing market?
Growth in Standard Bank’s residential median property
price peaked in October 2004. The South African housing market has been
in the doldrums since mid-2006 when the upward phase of the interest
rate cycle commenced. The 500 basis points increase in the repo rate
between mid-2006 and mid-2008 placed huge
stress on the economy in general and households in particular. The
reduced affordability of housing, exacerbated by higher mortgage rates,
high food and fuel prices, a sharply slowing economy, and the
implementation of the NCA, led to a decline in the demand for
residential property and a substantial softening in house price growth
ensued. ... more
Click
here the get the full report (PDF).
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Friday, January 16, 2009
Books provide you with the more
detailed information to enjoy safe investing. We suggest the following:
Useful South African
books (Kalahari)
Understanding
South African Financial Markets,
van Zyl, Botha & Skerritt
 A
reference and guide for commerce students, public servants and the
business fraternity, giving an overview of how the various institutions
in the South African financial system operate as well as of the
different financial markets in the economy and the instruments traded in
those markets. Contents: Rudiments of the South African financial
system; The South African Reserve Bank; Banks; Microfinance
institutions; Regulation of the financial markets; Insurers; Retirement
funds; Investment institutions; Risk and return; The money market; The
bond market; The share market; The foreign exchange market; and
Derivatives.
Economics for South African students,
Louis et al Fourie, Philip Mohr
 Economics
for South African students is an introduction to economics in general,
set against a contemporary South African background. The easy style and
many practical examples make this publication accessible. The title
covers all the material usually prescribed for introductory courses, and
it lays a solid foundation for intermediate and advanced studies in
economics.
Useful USA books (Amazon)
The
Neatest Little Guide to Stock Market Investing,
Jason Kelly
From the
time of its first publication five years ago, The Neatest Little
Guide to Stock Market Investing has established itself as a clear,
concise, and highly effective approach to stocks and investment
strategy. Since the dot.com crash and ensuing bear market, significant
changes have come about in the investing world, and The Neatest
Little Guide takes this into account. In this revised edition,
readers will learn: Strategies on how to double the Dow with one simple
investment and the latest products required for this approach; Methods
investors can use to avoid disasters such as Enron and WorldCom.
Thoroughly updated reference lists, including new websites, new
software, new brokers, and new publications. With the right information
for investors to keep pace, and rooted in the principles that made it
invaluable from the start, The Neatest Little Guide to Stock Market
Investing is a resource that no serious investor can be without.
Stock Investing for Dummies,
Paul Mladjenovic,
Stock Invest i covers all the proven tactics and
strategies for picking the right stocks. Packed with savvy tips on
today’s best investment opportunities, this book provides a
down-to-earth, straightforward approach to making money on the market
without the fancy lingo. With a different strategy for every investor -
from recent college grad to married with children to recently retired -
his valuable reference is a must-have. It also features tips and tricks
on how to tell when a stock is on the verge of declining or increasing,
how to protect yourself from fraud, and common challenges that every
investor must go through, along with resources and financial ratios.
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Thursday, January 15, 2009
How can you trust a website?
Authentication + Encryption +
Certification Authority = Trust
Conducting financial transactions over the Internet requires a safe
investing environment. One of the biggest problems facing Internet
business today is the issue of trust and security. Most consumers are
concerned about the safety of their credit card and personal details.
Many people simply don't trust the Web, fearing that their transactions
might not be safe.
A critical issue for suppliers is how to win a your trust
and convince you that it is perfectly safe to make online purchases or
conduct safe investing on the suppliers website. The easiest and most
secure way to achieve this is through authentication
and encryption.
Why is authentication important?
In the age of faceless Internet commerce, authentication
provides crucial online identity. People and companies
need to get to know one another before conducting business. In
traditional commerce, people rely on physical credentials – such as a
business licence or lD document – to prove their identities and assure
the other party of their ability to transact safely.
A business partner's identity must be established before
it can be trusted in conducting safe investing or other trade. At the
most basic level, there must be a process which verifies that an
organisation or individual exists, has a name, and is entitled to use
that name. This process may also establish other identification
attributes. Trusted third parties or delegated authorities often play a
key role in confirming the identity attributes of participants at the
time identification takes place.
Once the participant's basic identity and identification
attributes are established and verified in "real" world, it
must be issued with a credential such as an ID document
or a business licence that can be used to prove identity. In the digital
world, the most robust form of credential is the digital
or Server Certificate
signed by a trusted Certification Authority. [note #1]
How authentication works
Authentication allows the receiver of a digital message to be
confident of both the identity of the sender and the integrity
of the message. When Web visitors connect to websites, they reach one of
two kinds of servers. If the servers are secure, visitors will get
messages indicating that fact; similarly, if they are not secure, there
may be warnings to that effect. A secure website is one
that has been authenticated and has a certificate.
The certificate tells users that an independent third party has agreed
that the website belongs to the company it claims to belong to. A valid
certificate means that users can be confident that they are sending
confidential information to the place they think they are sending it.
The basic premise is that the Certification Authority,
CA, is vouching for the link between an individual's identity and his or
her public encryption key. The CA provides a level of assurance that the
public key key contained in the certificate does indeed belong to the
entity named in the certificate. For an Web user to determine whether a
legitimate CA issued the certificate, he must verify the issuing CA's
signature on the certificate.
CA's must be absolutely certain that they are issuing
certificates to the "correct" company. They must be sure that
the company they are certifying owns the Internet Domain Name they have
certified, that it is registered as a business, and that its registered
name is the same as that on the certificate the CA is signing. Once the
CA has done what is, essentially, a background check on all these
elements, the CA signs off on the public key. Then the Secure Sockets
Layer (SSL) will start functioning. SSL, another
critical element of a secure website, ensures that the information sent
by a server is identical to that received by a Web visitor - that no
change has taken place.
How can you tell if a website/company is
authentic?
Before submitting information or purchasing goods, you need to know that
the company you are doing business with is who it claims to be. Web
shops can buy Server Certificates from many different companies (CAs).
But Internet applications are configured to trust only those Server
Certificates that come from a few highly reputable companies. So, if
someone sends you his or her Server Certificates (either via e-mail or
from a website you visit) and it is from a CA that the application does
not trust, you will get an alert message asking if you want to trust the
new CA.
When you visit a website you can be sure that
transactions with the site are secured by looking for the following easy
cues:
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The URL in the browser window displays
"https:" at the beginning, instead of “http:”
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| In Internet Explorer, a padlock icon appears in the
bar at the bottom of the IE window. IE users can find out a
website’s encryption level by following these steps:
- Go to the website you want to check.
- Right-click on the website's page and select Properties.
- Click the Certificates button.
- In the Fields box, select "Encryption type". The Details
box shows you the level of encryption (40-bit or 128-bit). |
[1] Internet applications are configured to
trust only those Server Certificates that come from a few highly reputable
companies, e.g. thawte,
VeriSign, Entrust
 [based
on the thawte document
The Value of Authentication] |
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Wednesday, January 14, 2009
Share trading made easy
[Blog #3 on financial markets]
Do you want to build your own wealth and
invest in shares, but don’t know exactly where to start? There’s no
reason why investing has to be complicated. Investing in your future is
smart/ In this blog we look at online share trading.
Why trade online yourself? Safe investing
can now be accomplished by trading online through the Internet. You
effectively eliminate the "middle man" or financial advisor that
you would normally just instruct to invest on your behalf. This also means
that you end up saving lots of money on professional fees associated
with investing through someone else.
Once you’ve committed yourself to investing, it’s
important to understand that the more you practice
the better you get! Take time doing research about a company you’re
interested in investing in.
How do you know whether you’re doing the right thing?
A simple way to test the way you’re going about your
decision-making is to practice on the simulated stock exchange which is
often provided by your share trading platform.
There’s nothing more satisfying than learning a new
skill. By educating yourself, you’ll realize that investing isn’t as
complicated as people make it out to be.
Trading costs
Trading costs are an important aspect when you decide to
start investing. There are a variety of costs involved so we’ll have a
look at how you can minimise them and make the most out of this
experience.
The main cost involved is the brokerage
fee and is based on the value of the transaction. When you use an
online share trading vendor you are minimizing a lot of the costs involved
as you don’t take up too much of the stockbroker’s time. You pay a
brokerage fee every time you buy or sell shares as well as a monthly fee
for holding your shares. This fee structure differs from broker to broker
so make sure you find out details from your individual broker.
What’s a fair price?
Before deciding what a fair price is for a share let’s
look at some basic investing terms:
| The market for a share (or its trading price) is
based on its buy and sell prices, not the last traded
price. |
| If you place a market order, you’ll be asking for
the market price. This means that you must either buy at the
lowest sell price or sell at the highest bid for the share. |
| You are looking to buy shares at a fair value –
this is the value that is considered to be reasonable in light of all
the circumstances – how the shares are performing, what the growth
prospects of the company are etc. |
| Remember that if you are investing for the long
term, you shouldn’t be too concerned if you see some fluctuations
in the share price – if you see a bit of a dip don’t stress
out and immediately sell your share – look carefully at why the
share price has dropped and then decide whether it’s worth selling. |
Practice, practice, practice!
Most share trading vendors offer simulated
trading or a real-time stock trading game. It’s the perfect
facility for you to learn how to trade, and because no "real"
money changes hands, it’s completely risk-free!
Test out your investment theories and strategies through
simulation and you’ll get the peace of mind that you’re reading to
start trading in the real market before you know it!
The real trading process
Once you’re ready to actually buy and sell shares on
the market it’s helpful to understand how a trading system actually
works. The stock exchange trading system matches buyers and sellers for
each listed share. The trading system continuously looks to match
bids and offers, comparing the new orders and those on the system to each
other and executing trades whenever they match.
Market depth is
an important aspect of this process – this is when you’re able to see
the volume and price of all buyers and sellers in the market for a
particular share. Viewing this information will help you analyse how that
share is performing over a period of time.
Also have a look at the bid/offer spread
on the share – basically what the buyers are prepared to pay and
what the sellers are prepared to sell at. Once you have established what
the last price traded was and what the above "spread" is, you’ll
be in a good position to decide what price you can bid for the shares that
you want.
Once you’ve decided on the price, you need to decide
whether you’re going to place a price limit on your order or if
you’re going to place an "at market" order. A price
limit means that you tell your broker what the maximum price is
that you’re willing to pay for that share, while the "at best"
order is based on what the sellers want. It is generally recommended that
you place a price limit order as prices can change very quickly and you
don’t want to receive a nasty surprise if you pay way more or less for
the shares you want. Once you’ve bought your shares, you’ll receive a broker’s
note as confirmation of the trade. The funds will be deducted from
your account on the settlement date.
In later blogs we will look choosing shares and at how
official investor protection enables safe investing.
[based on the ShareNet
report Guide to Investing on the JSE] |
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Tuesday, January 13, 2009
Warning ! CFD trading
Please heed the following warning
on contracts for difference CFDs [note #1]. We provide this warning in
the interests of safe investing.
Due to the current market conditions a number of financial authorities
are announcing rule changes that affect short-selling physical stocks.
These rule changes are put in place protect the integrity and quality of
the securities market and strengthen investor confidence and safe
investing.
Please note that margin requirements for new trades of offered CFD
instruments may have changed. These instruments are constantly being
re-evaluated and margin requirements may be changed without notice based
on market volatility.
It is strongly recommended that you avoid CFD trades.
US CFDs
The US Securities and Exchange Commission (SEC) has temporarily banned
naked short-selling of US stocks and short-selling in general in US
financial stocks. This affects the short-selling of CFDs on US stocks.
For more information and latest announcements please visit the SEC
website.
UK CFDs
The UK’s Financial Services Authority (FSA) has temporarily
banned short-selling of UK financial stocks. This affects the
short-selling of CFDs on UK financial stocks. For more information and
latest announcements please visit the FSA
website.
Australian CFDs
The Australian Securities and Investments Commission (ASIC) has banned
naked short selling and, in addition, stipulated covered short selling
must be disclosed. The official ASIC announcements can be found on the ASIC
website.
Swiss CFDs
The Swiss Federal Banking Commission (SFBC) has emphasized that naked
short selling is currently not permitted. Saxo Bank is currently
reviewing what types of short CFD trading is allowable. For more
information and latest announcements please visit the SFBC
website.
[1] A contract for difference (CFD) is a contract
between two parties, typically described as "buyer" and
"seller", stipulating that the seller will pay to the buyer
the difference between the current value of an asset and its value at
contract time. (If the difference is negative, then the buyer pays
instead to the seller.) For example, when applied to shares, such a
contract is an equity derivative that allows investors to speculate on
share price movements, without the need for ownership of the underlying
shares
Contracts for difference allow investors to take long or short
positions, and unlike futures contracts have no fixed expiry date,
standardised contract or contract size. Trades are conducted on a
leveraged basis with margins typically ranging from 1% to 30% of the
notional value for CFDs on leading equities.
[based on an iStock posting]
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Saturday, January 10, 2009
Things you have to know about share markets
[Blog #2 on financial markets]
A major segment of financial markets is the capital market. This
consists of the equity, or share, market; and the money and bond
markets. We are first going to look at the share market and what it
means for safe investing.
The share market
The terms shares, equities or stocks are used interchangeably
to describe marketable financial instruments of listed companies quoted
and traded on a financial exchange (or stock exchange). These shares
represent ownership by investors of the productive assets of listed
companies. A stock exchange facilitates the raising of share capital by
companies (borrowers) in the primary share market, and the trading of
these shares in the secondary share market by investors (lenders).
Companies could source finance through the issuance of share capital or
debt (borrowed funds). Share capital is raised through the issuance of
shares, while debt is raised through the issuance of debentures and
corporate bonds, or the incurrence of loans. The fundamental difference
between shares and bonds is that shareholding represents
co-ownership in contrast to bondholders being creditors.
Bondholders in their capacity as creditors (lenders of money) of the
private company issuing debt are entitled to regular interest
payments and repayment of principal at maturity. An investment
in bonds delivers a steady cash flow in the form of interest receipts,
and bondholders' prior claim on company assets make bonds more safe
investing than shares. In normal circumstances, the lower level of risk
associated with investments in bonds compared to shares should result in
a lower level of return on bonds than on shares.
Shareholders in their capacity as co-owners of the company are entitled
to share in profit by way of dividend payments
(payments out of profits after tax and other prior claims) and in capital
gains or losses (capital appreciation and depreciation). This
depends on the market's assessment of the company as reflected by
changes in market prices (the ruling share price at the time of the last
recorded transaction) of listed shares.
In contrast to bonds, shares have no fixed maturity. Furthermore,
shareholders can dispose of listed shares at current market prices in
the secondary share market on a stock exchange.
Different classes of share
Listed companies can usually issue different types or classes
of share to raise capital. the differentiation between the two main
classes of share is based on shareholder priority in terms of rights to
the distribution ot earnings (a company's net income or net profit
during a specific period). The distribution of earnings to preference
shares ranks higher than ordinary shares. This means
that the dividends on preference shares have to be paid before dividends
on ordinary shares are paid. Ordinary shares are the most widely used
type of share. The dividends paid on ordinary shares can be in excess of
dividends on preference shares, but the dividend payment remains
uncertain, reflecting the higher degree of risk associated with
dividends on ordinary shares relative to preference shares.
The two main characteristics of ordinary shares can be summarised as:
| the right to residual claim of income and assets
after all prior claims - means that investors bear the full risk of
the company and share in the profits by way of dividends only if
profits are made after all other payments such as interest on debt
and dividends on preference shares, |
| limited liability - means that, at worst,
shareholders can only lose the capital invested (may not really be
considered as safe investing). |
Other types of ordinary share are nonvoting ordinary
shares, deferred ordinary shares, bearer shares, and nil-paid letters -
these are not discussed here.
The primary and secondary share markets
The share market can be categorised as either the primary market (where
newly issued shares are offered), or the secondary market where
subsequent trading takes place. Borrowers raise share capital in the
primary market and investors trade these shares at current market prices
in the secondary market.
Issuing activity in the primary market determines the size of the pool
of shares available for trade in the secondary market, whereas
transactions in the secondary market determine the tradability (the ease
with which shares can be traded), marketability (buying and selling
shares without an impact on the price), and liquidity (ability to
convert shares into cash or to purchase shares at short notice) of the
pool of shares, and assist in the price formation process.
The secondary share market can be disaggregated into four markets:
| the formal market where listed shares on a stock
exchange (the licensed formal exchange) are traded; |
| the over-the-counter (OTC) market, an unlicensed
informal market for the trading of shares; |
| trades in listed shares off exchange; and |
| direct trades between buyers and sellers without
the intermediation of brokers.
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The trade-off between demand and supply for shares
influences the determination of the share prices. Issuers of share
capital are also in competition with borrowers and investors in the bond
market and other asset markets. Changes in investors' preferences for
certain asset classes (financial and non-financial assets such as
shares, bonds. cash, real estate etc.) also affect the availability of
funding in the primary share market. Switching between asset classes by
investors reflects investors' ever-changing assessment of expected risks
and returns as market conditions change.
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Saturday, January 3, 2009
Things you have to know about financial markets
[Blog #1 on this subject]
It is unwise for you to invest in financial markets from a basis of
ignorance, especially if you are managing your own portfolio of
securities. Safe investing and avoiding fraud are facilitated when you
gain an understanding of financial markets and instruments. We will help
you in this regard by providing a series of blogs about investing for
beginners [note 1].
In the first series of blogs we will look at the various capital (share,
bond) and money markets typically faced by a trader or available to an
investor. We will introduce various cash instruments, and
help you understand their function, price and mark-to-market their interim
values, and risk management.
Further assistance will be provided in the form of financial market book
reviews
[Note 1. A sort of "investing for dummies" or "investment
101"]
But. first we will look at financial system in general.
The financial system
Basically, the financial system is a set of arrangements embracing the
lending and borrowing of funds by non-financial "economic units"
and the intermediation of this function by financial institutions in order
to facilitate the transfer of funds, to create additional money when
required, and to create markets in debt instruments so that the price and
allocation of funds are determined efficiently.
There are six essential elements of a financial system:
1. Lenders and borrowers - the non-financial economic
units (eg individuals and companies) that undertake the lending and
borrowing process.
2. Financial intermediaries, which interpose themselves
between the lenders and borrowers.
3. Financial instruments, which are created to satisfy
the needs of the various participants.
4. Money creation (when required) - the unique money
creating ability of banks.
5. Financial markets - the institutional arrangements and
conventions that exist for the issue and trading (dealing) of financial
instruments.
6. Rate of interest, or the time value of money = the
price of money.
Financial markets
The participants in the financial markets are the borrowers (issuers of
securities), the lenders (buyers of securities), the financial
intermediaries (buyers and issuers of securities) and the brokers, fund
managers, speculators, exchanges and regulators.
The terminology used can sometimes be confusing. For example, reference is
made to the primary market, the secondary market, the spot market, the
options and futures markets, financial exchanges, the money market, the
capital markets, the debt markets, the swap market. and so forth. We will
endeavour to clarify the picture, over time in further blogs.
Primary and secondary markets
A fundamental distinction has to be drawn between the primary and
secondary markets in securities. The market for the issue of new
securities to borrow money for consumption or investment purposes is
referred to as the primary market.
The markets in non-negotiable instruments, eg mortgage loans, savings
deposits and life policies, are entirely primary markets, while negotiable
certificates of deposit, shares and bonds, for example, are issued in the
primary market, but traded in the secondary market.
Secondary market is the term used for the markets in which previously
issued securities are traded. These markets exist in many of the
securities referred to in the previous section, but they differ in terms
of so-called breadth and depth or liquidity, sometimes vastly.
When discussing the secondary market, it is important to distinguish
between brokers and market makers. Brokers act on behalf of other
financial market participants (principals) in return for a commission
(although sometimes they may take speculative positions - act as
principals for their own profit). Market makers are financial
intermediaries, mainly banks, who are appointed by the issuers to perform,
this function.
Market making means that the market makers are prepared to quote buying
and selling prices/rates simultaneously for certain securities; the
spreads quoted by them are small, and they are prepared to deal in
reasonable volumes. Because these institutions are prepared to hold
portfolios of securities for this purpose, they need to be adequately
capitalised - usually the large domestic and international banks.
An active secondary market in securities is important for
five reasons:
| It assists the primary market - improves the ability
of issuers to place securities, by providing investors with the
assurance that they will be able to dispose of securities If they so
desire. |
| It provides the basis for the determination of rates
to be offered on new issues. |
| It registers changing market conditions rapidly,
indicating the receptiveness of the market for new primary issues. |
| It enables investors to rapidly adjust their
portfolios in terms of size, risk, return, liquidity and maturity. |
| It enables the central bank to buy and sell
securities in order to influence liquidity in the financial markets
(open-market operations).
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Our next blog will look at the share market.
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Thursday, January 1, 2009
Another important aspect of safe investing may be the
vulnerability of your Internet browser to interception The following
two precautions should be implemented.
1. Web browsers
A website should be accessible via all main web browsers and browsing
devices. Most Windows based PCs are preinstalled with Microsoft
Internet Explorer (IE). Because of this, IE is the browser most
attacked by viruses and spyware and is a threat to
safe investing and doing your banking and other financial transactions
via the Internet. .
We recommend that you use the most up-to-date version of your
preferred browser, because they are more secure than older
versions. If you use IE it is particularly important for safe
investing to run a virus scanner regularly and keep it updated
with the latest security patches from Microsoft.
2. Caching
Internet browsers have the ability to remember a page from a website -
this is called caching. This makes Internet surfing quicker, but
vulnerable to interception. Thus, for security, online banking pages
are usually delivered with instructions to the browser not to cache
(remember) the information. While most browsers obey these
instructions IE ignores them and under certain circumstances a cached
page of information may be viewed.
To prevent this make sure that IE has the following settings:
>Tools > Internet Options > Advanced > Do not save
encrypted pages
>Tools > Internet Options > General > [Browsing history]
Settings > Automatically
>Tools > Internet Options > Advanced > Empty Temporary
Internet Files folder when browser is closed
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Thursday, January 1, 2009
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Tuesday, December 30, 2008
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Saturday, December 27, 2008
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Monday, December 22, 2008
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Saturday, December 20, 2008
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