You are currently browsing the tag archive for the 'Mutual Fund' tag.
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.
Growth stocks are characterized by strong growth rates. The small cap companies are supposed to maintain an above of 10% growth rate for its last five years and the bigger or the blue chip companies need to record a neat 5% to 7% growth rate. They must also produce a substantially sound return on equity. The investor can take a look at the earnings per share and the pre-tax margins of the company. The projected stock price can act as a sound clue to gauge the potential returns. The investor is required to possess a good amount of judgment ability and common sense while evaluating growth stocks. A stock may not theoretically meet all the given requirements but still manage to show visible signs of substantial signs of visible growth being a significant player in the industry. A sound investor is usually slated to reap the maximum benefits through stock investment.
An investor who intends to succeed the stock market game needs to be a careful player who can judge and buy stocks when the rest are selling and sell their stocks when the rest are busy buying. The golden rule of the market is that the over-sold stocks will always go further up. The sensibility lies in figuring out these types of stocks and market research reveals that the growth stocks are the exact definition to these types of stocks.
Stock identification is dependant on information. Company brochures and websites can offer good information. Internet is replete with details of stock market news and industry information. Reliable, comprehensive and honest information always characterizes a sound company background and more often than not, the stock turns out to be a growth stock.
Investment should be distributed wisely in order to ensure good returns. It is advisable to invest in more than one growth stock. Keeping the market volatility in mind, this provides a good buffer even if unfortunately one of the companies happens to fall into an unpredictable situation. Even the most reputed blue chip companies have witnessed downfalls in the stock market. Then this strategy also offers the opportunity to the investor to reap multiple benefits of successful returns from all the stocks.
The growth stock picks enable the predictions enable the investor to look at profits or returns in a typical smaller short term moves. This is an advantage, since the investor is better equipped to calculate his investment equations and can assess the situation in a more clarified manner.
The New York Stock Exchange and the Nasdaq Stock Market—the highest volume market centers in the U.S. today—have traditionally been open for business from 9:30 a.m. to 4:00 p.m. Eastern Time. Although trading outside that window—or “after-hours” trading—has occurred for some time, it used to be limited mostly to high net worth investors and institutional investors.
But that changed by the end of the last century. Some smaller exchanges now offer extended their hours. And, with the rise of Electronic Communications Networks, or ECNs, everyday individual investors can gain access to the after-hours markets. Before you decide to trade after-hours, you need to educate yourself about the differences between regular and extended trading hours, especially the risks. You should consult your broker and read any disclosure documents on this option. Check your broker’s website for available information on trading after-hours. As with trading during regular hours, the services offered by brokers during extended hours vary. You should therefore shop around to find the firm that best suits your trading needs.
While after-hours trading presents investing opportunities, there are also the following risks for those who want to participate:
- Inability to See or Act Upon Quotes. Some firms only allow investors to view quotes from the one trading system the firm uses for after-hours trading. Check with your broker to see whether your firm’s system will permit you to access other quotes on other ECNs. But remember that just because you can get quotes on another ECN does not necessary mean you will be able to trade based on those quotes. You need to ask your firm if it will route your order for execution to the other ECN. If you are limited to the quotes within one system, you may not be able to complete a trade, even with a willing investor, at a different trading system.
- Lack of Liquidity. Liquidity refers to your ability to convert stock into cash. That ability depends on the existence of buyers and sellers and how easy it is to complete a trade. During regular trading hours, buyers and sellers of most growth stocks can trade readily with one another. During after-hours, there may be less trading volume for some stocks, making it more difficult to execute some of your trades. Some stocks may not trade at all during extended hours.
- Larger Quote Spreads. Less trading activity could also mean wider spreads between the bid and ask prices. As a result, you may find it more difficult to get your order executed or to get as favorable a price as you could have during regular market hours.
- Price Volatility. For stocks with limited trading activity, you may find greater price fluctuations than you would have seen during regular trading hours. News stories announced after-hours may have greater impacts on stock prices.
- Uncertain Prices. The prices of some stocks traded during the after-hours session may not reflect the prices of those stocks during regular hours, either at the end of the regular trading session or upon the opening of regular trading the next business day.
- Bias Toward Limit Orders. Many electronic trading systems currently accept only limit orders, where you must enter a price at which you would like your order executed. A limit order ensures you will not pay more than the price you entered or sell for less. If the stock market moves away from your price, your order will not be executed. Check with your broker to see whether orders not executed during the after-hours trading session will be cancelled or whether they will be automatically entered when regular trading hours begin. Similarly, find out if an order you placed during regular hours will carry over to after-hours trading.
- Competition with Professional Traders. Many of the after-hours traders are professionals with large institutions, such as mutual funds, who may have access to more information than individual investors.
- Computer Delays. As with online trading, you may encounter during after-hours delays or failures in getting your order executed, including orders to cancel or change your trades. For some after-hours trades, your order will be routed from your brokerage firm to an electronic trading system. If a computer problem exists at your firm, this may prevent or delay your order from reaching the system. If you encounter significant delays, you should call your broker to determine the extent of the problem and what you can to get your order executed.
The risks involved in investment in penny stocks are:
The company might go bankrupt and may even disappear from exchange
If the price of the company’s stock is extremely low valued, so much so that it is not even a dollar, it might be a real cause of worry. The company will drop down to the sink together with the lot of your investment baggage.
The penny brokerage firms being dishonest
Firms are found to charge markup without the investors consent. If an investor wants to sell a rapidly dropping stock, they enforce their influence on the investor’s buying or selling by absenting themselves from the process. This is unjust and illegal. Many firms have been charged with legal notices on this account. But then you cannot buy the penny stocks from a regular broker, since mostly they are sold over-the-counter and many penny stocks do not also appear alongside other stocks in the newspaper. You therefore require the aid of a penny brokerage firm for buying and selling your stocks. So, utmost caution must be exercised on deciding on the person or the organization with whom the investor decides to trade with. But even that does not guarantee security. There are complete possibilities that an investor might be overcharged, maneuvered or plain swindled.
It is difficult for the investor to gather correct and proper information about the penny stocks
The companies which offer penny stocks are mostly new in the market and some are not even completely established. They might be selling stocks simply to commence their business. So, detailed information regarding such penny stocks and the respective companies are not accessible to the investors easily. The investors have no other option but to completely rely on the penny brokerage firms in order to obtain the present worth and the volume information regarding the penny stock. These firms offer information on the penny stocks that they offer. This entails that there is no single reliable and impartial source of information on the entire lot of penny stocks floating in the stock market . The investor has the option of solely depending on a brokerage firm to obtain even a list of penny stocks available. And of course, this extra information is not free of charge.
Investors get intrigued at the probability of getting massive returns even with a negligible initial investment. But after they do bring in some quick preliminary profits, thus raising the hopes, the disappearance of the company is equally quick, leaving the hapless investor scampering for support.
Some mutual funds that charge front-end sales loads will charge lower sales loads for larger investments. For example, a fund might charge a 5% front-end sales load for investments up to $25,000, but charge a load of 4% for investments between $25,000 and $50,000 and 3% for investments exceeding $50,000. The investment levels required to obtain a reduced sales load are commonly referred to as “breakpoints.” In this example, the breakpoints were $25,000 and $50,000. Funds that offer breakpoints can set them at their discretion.
The SEC does not require a fund to offer breakpoints in the fund’s sales load. If breakpoints exist, the fund must disclose them. In addition, a brokerage firm that is a member of FINRA should not sell you shares of a fund in an amount that is “just below” the fund’s sales load breakpoint simply to earn a higher commission.
Each fund company establishes its own formula for how they will calculate whether an investor is entitled to receive a breakpoint. For that reason, it is important to seek out breakpoint information from your financial advisor or fund. You’ll need to ask how a particular fund establishes eligibility for breakpoint discounts, as well as what the fund’s breakpoint amounts are.
Some funds base eligibility for a breakpoint discount upon the investments of all of the individuals within a household and, in some instances, may include multiple accounts of an individual within the household. Others look only at the total amount you personally have invested. Keep in mind that you may be entitled to aggregate investments made in all of your accounts to calculate whether you may receive a breakpoint. These might include brokerage accounts you or other members of your household have at different firms, college savings accounts (so-called “529 plans”) and retirement accounts. You might be able to aggregate purchases in different funds within a fund family or aggregate different classes of shares of the same fund.
You may be entitled to combine your previous fund purchase amounts to obtain a breakpoint discount upon a purchase you make today. Or, you might be able to obtain a breakpoint discount for an investment today if you agree to make additional purchases in the future. In such case, you would sign a “letter of intent” to make additional purchases in the future. Be aware, though, that if you don’t carry through with your promised future purchases, the firm may retroactively collect a higher fee.
Always check to make sure that you have been credited the breakpoint discounts to which you are entitled. If you think you should have gotten the benefit of a breakpoint but did not, first contact your broker (or the fund if you did not use a broker) and ask that you be given the discount. If you aren’t happy with the answer, or if you don’t understand what you’re told, write a letter to your broker or mutual fund and ask for a written reply.
Before a potential investment there are several points which the growth investor must take into account. Does the company which he has zeroed on in, possess a stable management and whether its finance credibility is positioned for sustained growth. Then he must check whether the present economic environment will benefit the particular industry of which the company is a part? And above all, the value of the stock is very important.
To determine a sound entry price for a strong growth stock can be a difficult task. But to determine the success of an investment, it is the most important factor. An investor would ideally be inclined to buy into a growth company very early, because he would naturally like to garner enough profit from its persistent growth. But at the same time it is very important for the investor not to place a huge chunk of his premium on his apprehension of the company’s growth potential. For, doing so might limit his future profits from another possible sector.
At the starting point the investor needs to decide about his own investment preference. He can either be a ‘value’ or a ‘growth’ investor or he can be both. But it is always advisable to choose a primary focus. It’s important to note that growth and value investment are not contradictory options but are rather two different approaches to an identical situation.
An investor can decide his own inclination regarding which strategy appears the most appealing. Given below are the basic characteristics of growth stock investment :
- The average growth rates in revenue and earning of these companies are higher in comparison to the other companies.
- These companies cater to such industrial sectors which are continuously expanding. They are smoothly sailing through the current demographic and economic cycle.
- These companies do not pay dividends.
- These companies are characterized by such high growths that they often end up beyond the earning estimates.
- The continued growth of the company determines the holding period.
Growth investment is all about estimating and predicting the future. It is constantly in the investor’s thought that whether the respective company would maintain the same steady pace in the stock market . He must be extremely concerned about the company plans and policies like revenue, earnings, and sales and so on. He needs to keep an eye on the industry and the level of participation of the company in that growth. Some attentive reading done online and the financial press can immensely help the growth stock investor. Another notable feature of the growth stock is that it belongs to growth industries. A growth industry is usually related to some kind of technology. Next, the growth stocks belong to companies that are small to mid-sized. In fact a wide range of factors keep the large companies away from maintaining a steady growth rate.
Stock trading software is one of the more common ways for investors to make trades. If you did a search on any of the search engines, you would find hundreds of options to choose from. Stock trading software helps an investor to make investment analysis decisions without having manually to do the technical analysis. Nearly all data is provided to you, as well as analysis of it, so you can make decisions faster and easier. It is especially helpful to those that are looking to make more decisions on investments themselves. It works well for just about all traders including short and long-term investors, day traders or those who are just starting out.
How to do you select the right type of software? There are several things to keep in mind when doing so, including:
1. Choosing stock software that you are comfortable with using. Some programs give you free trials while others provide you with ample training tutorials. Gather this information and use the software program. Being comfortable in using the software means, you will be more confident in your decisions.
2. Looking for more established software trading software companies instead of going with the newest product launched. Those that have stuck around long term have had to keep up with the trends, and at the same time, they are often more proven machines.
3. Avoiding the hype. Any software program that promises to make you rich overnight or to do all the work for you is one that you really cannot trust in. Rather, you want to find a company that can provide you with quality and respectable use. If a program’s promises like this were true, wouldn’t all programs be offering it?
4. Multifunctional software programs which are better equipped to provide you with more use. Look for these programs instead of using those that are one dimensional. For example, many offer real time stock quotes. That is fine, but others will provide you with a more all in one package.
5. Do not be afraid to move. If you simply do not like what you have, move to another program. You are not tied down.
Stock trading software is an excellent tool to have, but remember that you are still responsible for every facet of your trading skill and strategy. These will not make the decisions for you, but they will give you the investment tools to make those decisions.
This can be a real tricky one. You have to do it at the right time. When you decide to sell off your stock, be sure you are doing it for the right reasons.
Here’s a step-wise guide to do it:
Step 1:
Sell-off your stock, when you are not sure whether you can handle the risk. Maybe this game of speculation is sending you on a wild roller-coaster ride. In that case, select something that’s more conservative.
Step 2:
In case you bought a growth stock because you anticipated that to skyrocket on account of a merger or something likewise, in that case, sell it the moment you achieve the goal.
Step 3:
Avoid panic selling but do it when you really notice cloud in the horizon that’s likely to spell a disaster in the stock market.
Step 4:
When you find your stock falling between 6 to 8%, get rid of it. Let me tell you that this figure is an indication that there is a definite chance of a decline
Step 5:
It can happen so that your stock suddenly begins to receive lots of hype and love from the Wall Street. If due to this, your stock gets overrated, sell it out before you find the bubble getting popped.
Step 6:
Trust hard data to release your stock. Sell it when you feel it has reached its pea. So, the catch is in going as per facts to sell your stock rather than a gut feeling.
Step 7:
It may so happen that due to certain reasons, you find that your stock isn’t quite moving. Maybe at this juncture, you just might develop a liking towards the “story” of another company. Don’t jump into it. Rather, do a good research of the new name…gather the facts and then feel free to trade if you decide so.
Step 8:
Make sure that there is a balance in your portfolio. In case, you find that you have excess of stock of the same kind, simply sell off the weaker stock.
Tips…
Carry out an extensive research. Remember, investing is no way a gamble. Never trade solely on your hunches. Rather follow your hunch, if you have a strong hunch to back it up.
If you hear a piece of bad news about an otherwise strong company, don’t get panicked and start selling the stocks out of fear. In fact, it can be a boon in disguise. In fact, I can site you, with many instances where big groups have bounced back after being hit with a scandal or a temporary set back.
