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The stock market trend refers to the condition of the trading system. Because of the stock market instability, it should be known that your stocks could win, could lose or could break even.
Since breaking the stock market system is complicated and has never been done. Here are some guidelines in following the trends of your stocks.
1) Research and planning. The stock market is a place where people should always be informed of their environment, the prices, and all the factors needed in determining the value of your stocks. In entering the market, you should be ready and well-planned. Simple information about the companies, indexes, and a competent trading system could help you move your stock picks forward.
2) Think rationally. Although the stock market could provide you with significant income, it requires time and attention to details. When trading, you should not expect to that you would automatically receive millions of dollars. Although it is a possibility, always remember that the stock market is never a hundred percent accurate all the time. So if you have an intention of quitting your day job, you should think again.
3) Street talk. This means that information by someone you know about the stock market trends could not be always reliable. Make sure that before believing in someone about the trading system, you should always research first. And after researching, always try to verify the facts before placing your money in danger.
4) Emotional burden. In the stock market, emotions are not needed your daily routine. You should be able to let go of your emotions and ego for you to succeed in what you need to do. Remember that when you enter the stock market, you should release your fears and greed from your mind. Replace these with discipline, patience and confidence in doing what you know you have to do. It is important that you control the negative side of your mind because having emotional burdens does not help you in the success of your stock trade.
5) Management. Planning how to manage your money and preventing it from risks is a vital key to trading success. Management is a serious aspect of the stock market. Before stepping into the stock market floor, you should be able to follow your steps in trading for you to keep the profits you have earned and make it grow.
6) Trading. You should know what to do in trading both a rising and falling market. When you know the facts in dealing with your stocks when the market falls, you could make more money and adjust smoothly with the trends.
Understanding the nature of the stock market, including its pros and cons, doesn’t have to be confusing one. Many people fear that in order for them to know the nature of the stock market, they have to understand a gamut of stock and marketing terms and all that jazz.
On the other hand, some people saw behind the veneer of all these economic gibberish, and saw the potentials of what they could get from investing in the stock market.
In a nutshell
Simply put, the stock market is the market to buy and sell stocks and shares. This is where company stock gets traded. The term is also used to describe the totality of all stocks in one country. That is why we hear reporters talking that “the stock market was up today” or that “the stock market went down after the dollar fell to the euro.”
What are the pros and cons of the stock market?
One of the reasons why we need the stock market is because it is an important factor for the US economic system to operate. Through the stock market, US companies improve their financial viability and expand their operations by raising funds from selling stocks. Without the stock market, our companies become slower in their growth and might falter in the increasing competition in the US as well as against international companies.
Another reason for the existence of the stock market is that it also has role in personal financial planning. This is because many individuals buy stock shares as part of their personal financial strategies. More importantly, most Americans have a stake in the stock market because retirement programs invest in stocks. It has shown that retirement programs earn a lot more by investing in common stocks than other options such as saving the funds in banks.
Of course, the stock market also has its downsides. Remember that the stock market is not a tool for instant success. True, there are cases of one getting wealthy by investing in the market, but this involves having shares in various company stocks, which means a lot of research, time, and money. One also gets rich when some stocks become “hotter” such as the “dot-com” bubble in the nineties, but when the initial buzz around these stocks falter, the value of these stocks tend to crash.
Exchange-traded funds, or ETFs, are investment companies that are legally classified as open-end companies or Unit Investment Trusts (UITs), but that differ from traditional open-end growth stock companies and UITs in the following respects:
- ETFs do not sell individual shares directly to investors and only issue their shares in large blocks (blocks of 50,000 shares, for example) that are known as “Creation Units.”
- Investors generally do not purchase Creation Units with cash. Instead, they buy Creation Units with a basket of securities that generally mirrors the ETF’s portfolio. Those who purchase Creation Units are frequently institutions.
- After purchasing a Creation Unit, an investor often splits it up and sells the individual shares on a secondary market. This permits other investors to purchase individual shares (instead of Creation Units).
- Investors who want to sell their ETF shares have two options: (1) they can sell individual shares to other investors on the secondary market, or (2) they can sell the Creation Units back to the ETF. In addition, ETFs generally redeem Creation Units by giving investors the securities that comprise the portfolio instead of cash. So, for example, an ETF invested in the stocks contained in the Dow Jones Industrial Average (DJIA) would give a redeeming shareholder the actual securities that constitute the DJIA instead of cash. Because of the limited redeemability of ETF shares, ETFs are not considered to be—and may not call themselves—mutual funds.
An ETF, like any other type of investment company, will have a prospectus. All investors that purchase Creation Units receive a prospectus. Some ETFs also deliver a prospectus to secondary market purchasers. ETFs that do not deliver a prospectus are required to give investors a document known as a Product Description, which summarizes key information about the ETF and explains how to obtain a prospectus. All ETFs will deliver a prospectus upon request. Before purchasing ETF shares, you should carefully read all of an ETF’s available information, including its prospectus.
The websites of the New York Stock Exchange, American Stock Exchange and NASDAQ provide more information about different types of ETFs and how they work. An ETF will have annual operating expenses and may also impose certain shareholders fees that are disclosed in the prospectus.
Currently, all ETFs seek to achieve the same return as a particular stock market indexes. Such an ETF is similar to an index fund in that it will primarily invest in the securities of companies that are included in a selected market index. An ETF will invest in either all of the securities or a representative sample of the securities included in the index. For example, one type of ETF, known as Spiders or SPDRs, invests in all of the stocks contained in the S&P 500 Composite Stock Price Index.
A promissory note is a form of debt – similar to a loan or an IOU – that a company may issue to raise money. Typically, an investor agrees to loan money to the company for a set period of time. In exchange, the company promises to pay the investor a fixed return on his or her investment, typically principal plus annual interest.
While promissory notes can be legitimate investments, those that are marketed broadly to individual investors often turn out to be scams. The SEC and state securities regulators across the nation have joined forces to combat the fraudulent sale of promissory notes to investors. But we can’t stop every fraud.
That’s why you should ask tough questions – and demand answers – before you consider investing in a promissory note. Be sure you understand how they work and what risks they pose. These tips will explain how promissory note fraud can occur and will help you to spot the scams.
Anatomy of a Promissory Note Fraud
Fraudsters across the nation have recently begun to use promissory notes as vehicles to defraud investors out of hundreds of millions of dollars. Most promissory note scams follow predictable, fraudulent fact patterns:
- The fraudsters – who may or may not be affiliated with the company – persuade independent life insurance agents to sell promissory notes, luring them with lucrative commissions of up to twenty or even thirty percent. These agents often do not have a license to sell securities. And in selling the notes, they frequently rely solely on the information the company gives them – which later proves to be false or misleading.
- Investors purchase the promissory notes, enticed by the promise of a high, fixed-rate return – up to fifteen or twenty percent – with a very low level of risk. The promissory notes may appear all the more attractive because the seller falsely claims that they’re “guaranteed” or insured. And few investors ask tough questions about these investments because they know and trust the sellers, insurance agents with whom they’ve done business in the past.
- The fraudsters use a portion of the money they collect from investors to pay the sellers their commissions. But they typically abscond with the rest, squandering it on personal expenses or high-flying life styles.
- They may also use some of the proceeds to support an elaborate “Ponzi” scheme in which money coming in from the sale of new notes pays the interest on older notes. Some fraudsters try to avoid repaying investors’ principal by convincing investors to “roll-over” their promissory notes upon maturity. These investors may, for at least a time, continue to receive interest payments – but they rarely get their principal back.
Promissory note scams often target the elderly, bilking them of their retirement savings at a time when they can least afford to lose it. But no one is immune. Fraudsters rarely discriminate when it comes to separating investors from their money. And most investors don’t even realize their investment dollars are at risk until it’s far too late.
Tips To Avoid Promissory Note Scams
Here’s how you can avoid the costly mistake of investing in a sham promissory note:
- Bear in mind that legitimate corporate promissory notes are not usually sold to the general public. Instead, they tend to be sold privately to sophisticated buyers who do their own “due diligence” or research on the company. If someone calls you up or knocks on your door trying to sell you a promissory note, chances are you’re dealing with a scam.
- Find out whether the investment is registered with the SEC or your state securities regulator – or whether it’s exempt from registration. Most legitimate promissory notes can easily be verified by checking the SEC’s EDGAR database or by calling your state securities regulator, which you can find at the website of the North American Securities Administrators Association. If the promissory note is not registered, you’ll have to do your own thorough investigation to confirm whether the company has the ability to pay its debt.
- Be skeptical if the seller tells you that the promissory note is not a security. The types of promissory notes involved in promissory note scams usually are securities and must be registered with either the SEC or your state securities regulator – or they must meet an exemption.
- Make sure the seller is properly licensed. Insurance agents can’t sell securities – including promissory notes – without a securities license. Call your state securities regulator, and ask whether the person or firm is licensed to sell securities in your state and whether they have a record of complaints or fraud. You can also get this information by calling NASD’s public disclosure hotline at (800) 289-9999 or by visiting their website.
- Beware of promises of “risk free” returns. These claims are usually the bait con artists use to lure their victims. Always remember that if it sounds too good to be true, it probably is.
- Watch out for promissory notes that are supposedly “insured” or “guaranteed,” especially if a foreign insurance company is involved. Be sure to call your state insurance commissioner to find out whether the foreign insurance company can legally do business in the United States.
- Compare the rate of return on the promissory note with current market rates for similar fixed-rate investments, long-term Treasury bonds, or FDIC-insured certificates of deposit. If the seller promises an above-market rate on a short-term note, proceed with caution.
What To Do If You Run into Trouble
If you believe you’ve invested in a promissory note scam, act promptly. By law, you only have a limited time to take legal action.
Contact the SEC’s Office of Investor Education and Advocacy. You can send us your complaint by using our online complaint form. Or you can reach us as follows:
U.S. Securities & Exchange Commission
Office of Investor Education and Advocacy
100 F Street, N.E.
Washington, D.C. 20549-0213
Fax: (202) 772-9295
You should also contact your state securities regulator and, if an insurance agent sold you the promissory note, your state insurance commissioner.
Many investors use closing prices reported in the newspapers to monitor their holdings. But not all closing prices are the same, and the differences may be important to you. Here’s what you should know about closing prices:
“Closing price” generally refers to the last price at which a stock trades during a regular trading session. For many market centers, including the New York Stock Exchange, the American Stock Exchange, and the Nasdaq Stock Market, regular trading sessions run from 9:30 a.m. to 4:00 p.m. Eastern Time.
But a number of market centers offer after-hours trading. Some financial publications and market data vendors use the last trade in these after-hours markets as the closing price for the day. Others, however, publish the 4:00 p.m. price as the closing price and display prices for after-hours trading separately.
This discrepancy in the way the media and others report closing prices can cause confusion – especially when a single, low-volume after-hours trade occurs at a price that’s substantially different from the 4:00 p.m. closing price. For example, an investor might read on a company’s website that its stock closed at one price but then see a much different price on theconsolidated tape flashing across the bottom of her or his television screen. Or, the next day, the investor might hear that the stock opened “up” when, in fact, it opened “down” compared with the price at the 4:00 p.m. close.
To help clear up this confusion, the central distributor of transaction prices for exchange-traded securities – the Consolidated Tape Association – implemented a system designed to make closing prices uniform. Under this system, the regular session closing price for stocks will be the 4:00 p.m. price. Sometimes orders come in before 4:00 p.m., but they can’t be filled until after 4:00 p.m. Therefore, the CTA produces a 4:15 p.m. Stock Market Report for vendors and the media that includes regular session trades that are reported before 4:15 p.m. but should be included in regular session 4:00 p.m. prices. Any trades that take place during after-hours trading sessions will be “tagged” with the letter “T” on the consolidated tape and will not affect the regular session closing price (or the regular session high and low prices). The Nasdaq Stock Market, which operates a similar system for trades in its securities, uses similar conventions.
Because the closing price for the same stock may continue to be reported differently among various media and market data vendors, investors should try to understand what the reported price is based on. For example:
- Does the newspaper or vendor indicate that the closing price is based on the regular trading session price established on the security’s primary market, such as the New York Stock Exchange, the American Stock Exchange, or the Nasdaq Stock Market?
- Does the closing price reflect the last trade reported over the consolidated tape as of the close of the regular trading session at 4:00 p.m. Eastern Time?
- Does the closing price reflect the last trade reported over the consolidated tape in after-hours trading?
Investors may be able to find this information if their newspaper or vendor system describes how the closing price is being reported.
If you subscribe, or are thinking about subscribing to, an investment newsletter service that offers “auto-trading,” please read this investor alert. Investment newsletters market “auto-trading” programs as a way to receive quick execution of trades recommended by the investment newsletter. In an “auto-trading” program, you establish an account at a brokerage firm that has agreed to accept trading instructions from the investment newsletter. In order to allow “auto-trading” in your account, you must sign an agreement with the broker authorizing it to accept trading instructions directly from the investment newsletter and to execute trades in your account without first getting your permission. The broker will make trades in your account without consulting you about the price, the type of security, the amount and when to buy or sell.
“Auto-trading,” like any other arrangement that allows someone else to trade in your account without first asking your permission, can be highly risky. Here are some steps you’ll want to take to check out an auto-trading program, before you hand over any money:
Check Out the Newsletter — Find out whether the firm that’s selling the investment newsletter is registered to do business as an investment adviser. Generally, the SEC considers firms that publish investment newsletters and that also engage in “auto-trading” to be investment advisers.
Independently Confirm Performance — Be wary of claims of superior performance, especially ones that rely upon “cherry picking” successful recommendations and ignoring those that generated losses. You’ll want to see a complete track record of how the firm’s recommendations fared over several months to evaluate whether it is living up to its promises. If the firm isn’t willing to provide this information, think twice about entrusting your accounts and your money to them.
Follow the Money — Find out whether the firm offering the investment newsletter is being paid by others to recommend particular stocks. This is particularly important because you are giving the firm the ability to make trades in your brokerage account without asking your permission. You’ll want to evaluate any conflicts of interest they might have in making recommendations.
Fully Vet the Broker — Before you establish a brokerage account with the firm the newsletter recommends, be sure to thoroughly check out the disciplinary history of both the brokerage firm and any sales representative assigned to your account.
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Be very wary if any firm claims to always make profits investing in the stock market, or if the firm claims to make extraordinarily high profits for customers. If it sounds too good to be true, it usually is!
When you open a brokerage account, you must sign a new account agreement. You should carefully review all the information in this agreement because it determines your legal rights regarding your account.
Do not sign the new account agreement unless you thoroughly understand it and agree with the terms and conditions it imposes on you. Do not rely on statements about your account that are not in this agreement.
Ask for a copy of any account documentation prepared for you by your broker.
The broker should ask you about your investment goals and personal financial situation, including your income, net worth, and investment experience, and how much risk you are willing to take on. Be honest. The broker relies on this information to determine which investments advice to recommend to you. If a broker tries to sell you an investment before asking you these questions, that’s a very bad sign. It signals that the broker has a greater interest in earning a commission than determining whether the investment is consistent with your investment goals and tolerance for risk.
The new account agreement requires that you make three critical decisions:
- Who will make the final decisions about what you buy and sell in your account? You will have the final say on investment decisions unless you give “discretionary authority” to your broker. Discretionary authority allows your broker to invest your money without consulting you about the price, the type of security, the amount, and when to buy or sell. Do not give discretionary authority to your broker without seriously considering the risks involved in turning control over your money to another person. Note that except on a limited basis, your broker cannot accept discretionary authority unless he or she is also registered as an investment adviser.
- How will you pay for your investments? Most investors maintain a “cash” account that requires payment in full for each security purchase. But if you open a “margin” account, you can buy securities by borrowing money from your broker for a portion of the purchase price.
- How much risk are you comfortable taking? In a new account agreement, you must specify your overall investment objective in terms of risk. Categories of risk may have labels such as “income,” “growth stocks” or “aggressive growth.” Be certain that you fully understand the distinctions among these terms, and be certain that the risk level you choose accurately reflects your investment goals. Be sure that the investment products recommended to you reflect the category of risk you have selected.
Be wary of buying stocks on margin. Make sure you understand how a margin account works, and what happens in the worst case scenario before you agree to buy on margin. Unlike other loans, like for a car or a home, that allow you to pay back a fixed amount every month, when you buy stocks on margin you can be faced with paying back the entire margin loan all at once if the price of the stock drops suddenly and dramatically. The firm has the authority to immediately sell any security in your account, without notice to you, to cover any shortfall resulting from a decline in the value of your securities. You may owe a substantial amount of money even after your securities are sold. The margin account agreement generally provides that the securities in your margin account may be lent out by the brokerage firm at any time without notice or compensation to you. The firm’s lending of securities does not affect the value of your account.
When opening a new account, the brokerage firm may ask you to sign a legally binding contract to arbitrate any future dispute between you and the firm or your sales representative. Signing this agreement means that you give up the right to sue the firm or your sales representative in court.
Securities exchanges, such as the New York Stock Exchange (NYSE) and American Stock Exchange (Amex), as well as the Nasdaq Stock Market, have the authority to halt and delay trading in a security. A trading halt—which typically lasts less than an hour but can be longer—is called during the trading day to allow a company to announce important news or where there is a significant order imbalance between buyers and sellers in a security. A trading delay (or “delayed opening”) is called if either of these situations occurs at the beginning of the trading day.
There are two types of trading halts and delays—regulatory and nonregulatory. The most common regulatory halt and delay happen when a company has pending news that may affect the security’s price (a “news pending” halt or delay). By halting or delaying trading, market participants can have time to assess the impact of the news. Another type of regulatory halt happens when a market halts trading in a security when there is uncertainty over whether the security continues to meet the market’s listing standards. When a regulatory halt or delay is imposed by a security’s primary market, the other U.S. markets that also trade the security honor this halt.
Nonregulatory halts or delays occur on exchanges, such as the NYSE and Amex (but not on Nasdaq), when there is a significant imbalance in the pending buy and sell orders in a security. When an imbalance occurs, trading is stopped to alert market participants to the situation and to allow the exchange specialists to disseminate information to investors concerning a price range where trading may begin again on this exchange. A nonregulatory trading halt or delay on one exchange does not preclude other markets from trading this security.
You can find out what stocks have had their trading halted on the NYSE, Amex, and the Nasdaq Stock Market, as well as on the OTC Bulletin Board.
The SEC does not halt or delay trading in a security for news pending or order imbalances, but it can suspend trading for up to ten days and, if appropriate, take action to revoke a security’s registration.
The major stock and commodities exchanges have instituted procedures to limit mass or panic selling in times of serious stock market declines and volatility. These mechanisms are known as Circuit Breakers, the Collar Rule, and Price Limits. Circuit Breakers establish whether trading will be halted temporarily or stopped entirely. The Collar Rule and Price Limits affect the way trading in the securities and futures markets takes place. Here’s a description of each one:
Circuit Breakers
The securities and futures markets have circuit breakers that provide for brief, coordinated, cross-market trading halts during a severe market decline as measured by a single day decrease in the Dow Jones Industrial Average (DJIA). There are three circuit breaker thresholds—10%, 20%, and 30%—set by the markets at point levels that are calculated at the beginning of each quarter. The formulas for these thresholds are set forth in the New York Stock Exchange (NYSE) Rule 80B.
For example, on April 1, 2007, the average value for the DJIA for the preceding month (March 2007) was used to calculate point levels (rounded to the nearest 50 points). This resulted in the Level One (10%) circuit breaker set at 1,250 points, Level Two (20%) circuit breaker set at 2,450 points, and the Level Three (30%) circuit breaker set at 3,700 points.
Collar Rule
Under NYSE Rule 80A, if the DJIA moves up or down two percent (2%) from the previous closing value, program trading orders to buy or sell the Standard & Poor’s 500 stocks as part of index arbitrage strategies must be entered with directions to have the order executions effected in a manner that stabilizes share prices. The collar restrictions are lifted if the DJIA returns to or within one percent (1%) of its previous closing value.
The 2% collar rule threshold is set by the NYSE at a point level that is calculated at the beginning of each quarter. For example, on April 1, 2007, the average value for the DJIA for the preceding month (March 2007) was used to calculate a point level (rounded to the nearest 10 points). This resulted in the 2% collar rule threshold being set at 180 points.
Price Limits
The futures exchanges set the price limits that aim to lessen sharp price swings in contracts, such as stock index futures. A price limit does not stop trading in the futures, but prohibits trading at prices below the pre-set limit during a price decline. Intra-day price limits are removed at pre-set times during the trading session, such as ten minutes after the thresholds are reached or at 3:30 p.m. (all times are Eastern), whichever is earlier. Daily price limits remain in effect for the entire trading session. Specific price limits are set by the exchanges for each stock index futures contract. There are no price limits for U.S. stock index options, equity options, or stocks.
A growth stock is defined as shares of a company whose earnings are predicted and expected to grow at a rate which is above average in relation to the market. A growth stock report will feature normally growth stocks that does not pay a dividend since the company prefers in re-investing its retained earnings in terms of capitals. So, it is also called the Glamour Stocks. Growth stock investment is said to be a better option as they offer good value for return.
- Majority of the technology companies produce growth stocks. Since these stocks are tied to the popular trends, the industrial development creates profits at a sustained rate. They belong to the industrial sectors like, telecommunications, alternative energy and also new classes of drugs.
- Majority of the growth stock companies constitute the industry leadership. The investor should not only concentrate on the no. 1 and ignore the second or the third players, since they too offer a chance to make good money from a given situation.
- The growth related companies always take advantage of special situations. Since they cater to niche markets, they usually happen to supply hot products and services that are in demand. It can be a ‘whacky wall walker’ or a miracle drug for an uncommon disease. The tax-loss selling opportunity also defines a special situation.
- Stock market volatility affects every company. A top company, who gets affected due to a business mistake during this period, can surely recover and survive the shock with the aid of superior management and financial strength. They therefore, make good investment options.
- Often companies that are known as side-door or back-door, offers great growth stocks. It grandly pays to invest in the suppliers more than the frontline players. Since most of the general investors concentrate on the frontline players, the suppliers who have good potential usually get neglected and the investors miss the chance to make profit. The examples are biotech supply companies like the lab gear or the chemicals. They in fact perform better and faster than the companies who develop exciting new drugs.
The investors should build up his investment interests in two separate portfolios. There is one for growth stock industries which promotes high growth, fosters high profits and trade in fast mode. The second one can be for the blue chip high growth stocks. The strategy ought to be to hold them for both immediate and long term gains.
