“Unlock Liquidity in your Stocks and Shares”

Investing in stocks including penny stocks provides traders with the opportunity to dramatically increase their profits, however, it also provides an equal opportunity to lose your trading capital quickly. These 5 tips will help you lower the risk of one of the riskiest investment vehicles. Penny Stocks are a penny for a reason. While we all dream about investing in the next Microsoft or the next Home Depot, the truth is, the odds of you finding that once in a decade success story are slim. These companies are either starting out and purchased a shell company because it was cheaper than an IPO, or they simply do not have a business plan compelling enough to justify investment banker’s money for an IPO. This doesn’t make them a bad investment, but it should make you be realistic about the kind of company that you are investing in. Trading Volumes Look for a consistent high volume of shares being traded. Looking at the average volume can be misleading. If ABC trades 1 million shares today, and doesn’t trade for the rest of the week, the daily average will appear to be 200 000 shares. In order to get in and out at an acceptable rate of return, you need consistent volume. Also look at the number of trades per day. Is it 1 insider selling or buying? Liquidity should be the first thing to look at. If there is no volume, you will end up holding “dead money”, where the only way of selling shares is to dump at the bid, which will put more selling pressure, resulting in an even lower sell price. Does the company know how to make a profit? While its not unusual to see a start up company run at a loss, its important to look at why they are losing money. Is it manageable? Will they have to seek further financing (resulting in dilution of your shares) or will they have to seek a joint partnership that favors the other company? If your company knows how to make a profit, the company can use that money to grow their business, which increases shareholder value. You have to do some research to find these companies, but when you do, you lower the risk of a loss of your capital, and increase the odds of a much higher return. Have an entry and exit plan – and stick to it. Penny stocks are volitile. They will quickly move up, and move down just as quickly. Remember, if you buy a stock at $0.10 and sell it at $0.12, that represents a 20% return on your investment. A 2 cent decline leaves you with a 20% loss. Many stocks trade in this range on a daily basis. If your investment capital is $10 000, a 20% loss is a $2000 loss. Do this 5 times and you’re out of money. Keep your stops close. If you get stopped out, move on to the next opportunity. The market is telling you something, and whether you want to admit it or not, its usually best to listen. If your plan was to sell at $0.12 and it jumps to $0.13, either take the 30% gain, or better still, place your stop at $0.12. Lock in your profits while not capping the upside potential. How did you find out about the stock? Most people find out about penny stocks through a mailing list. There are many excellent penny stock newsletters, however, there are just as many who are pumping and dumping. They, along with insiders, will load up on shares, then begin to pump the company to unsuspecting newsletter subscribers. These subscribers buy while insiders are selling. Guess who wins here. Not all newsletters are bad. Having worked in the industry for the last 8 years, I have seen my share of unscrupulous companies and promoters. Some are paid in shares, sometimes in restricted shares (an agreement whereby the shares cannot be sold for a predetermined period of time), others in cash. How to spot the good companies from the bad? Simply subscribe, and track the investments. Was there a legitimate opportunity to make money? Do they have a track record of providing subscribers with great opportunities? You’ll start to notice quickly if you have subscribed to a good newsletter or not. One other tip I would offer to you is not to invest more than 20% of your overall portfolio in penny stocks. You are investing to make money and preserve capital to fight another battle. If you put too much of your capital at risk, you increase the odds of losing your capital. If that 20% grows, you’ll have more than enough money to make a healthy rate of return. Penny stocks are risky to begin with, why put your money more at risk ? Learn MORE about STOCK AND SHARES LOANS….courtesy WIKIPEDIA. STOCK PICKING… Stock picking is a very complicated process and investors have different approaches. However, it is wise to follow general steps to minimize the risk of the investments. This article will outline these basic steps for picking high performance stocks. Step 1. Decide on the time frame and the general strategy of the investment. This step is very important because it will dictate the type of stocks you buy. Suppose you decide to be a long term investor, you would want to find stocks that have sustainable competitive advantages along with stable growth. The key for finding these stocks is by looking at the historical performance of each stock over the past decades and do a simple business S.W.O.T. (Strength-weakness-opportunity-threat) analysis on the company. If you decide to be a short term investor, you would like to adhere to one of the following strategies: a. Momentum Trading. This strategy is to look for stocks that increase in both price and volume over the recent past. Most technical analyses support this trading strategy. My advice on this strategy is to look for stocks that have demonstrated stable and smooth rises in their prices. The idea is that when the stocks are not volatile, you can simply ride the up-trend until the trend breaks. b. Contrarian Strategy. This strategy is to look for over-reactions in the stock market. Researches show that stock market is not always efficient, which means prices do not always accurately represent the values of the stocks. When a company announces a bad news, people panic and price often drops below the stock’s fair value. To decide whether a stock over-reacted to a news, you should look at the possibility of recovery from the impact of the bad news. For example, if the stock drops 20% after the company loses a legal case that has no permanent damage to the business’s brand and product, you can be confident that the market over-reacted. My advice on this strategy is to find a list of stocks that have recent drops in prices, analyze the potential for a reversal (through candlestick analysis). If the stocks demonstrate candlestick reversal patterns, I will go through the recent news to analyze the causes of the recent price drops to determine the existence of over-sold opportunities. Step 2. Conduct researches that give you a selection of stocks that is consistent to your investment time frame and strategy. There are numerous stock screeners on the web that can help you find stocks according to your needs. Step 3. Once you have a list of stocks to buy, you would need to diversify them in a way that gives the greatest reward/risk ratio. One way to do this is conduct a Markowitz analysis for your portfolio. The analysis will give you the proportions of money you should allocate to each stock. This step is crucial because diversification is one of the free-lunches in the investment world. These three steps should get you started in your quest to consistently make money in the stock market. They will deepen your knowledge about the financial markets, and would provide a sense of confidence that helps you to make better trading decisions. our stock trading rules are your money. When you follow your rules you make money. However if you break your own stock trading rules the most likely outcome is that you will lose money. Once you have a reliable set of stock trading rules it is important to keep them in mind. Here is one discipline that can reap rewards. Read these rules before your day starts and also read the rules when your day ends. Rule 1: I must follow my rules. Naturally if you develop a set of rules they are to be followed. It is human nature to want to vary or break rules and it takes discipline to continue to act in accordance with the established rules. Rule 2: I will never risk more than 3% of my total portfolio on any one stock trade. There are many old traders. There are many bold traders. But there are never any old bold traders. Protecting your capital base is fundamental to successful stock market trading over time. Rule 3: I will cut my losses at 5% to 15% when I am wrong without question. Some traders have an even lower tolerance for loss. The key point here is to have set points (stop loss) within the limits of your tolerance for loss. Stay informed about the performance of you stock and stick to your stop loss point. Rule 4: Never set price targets. This is a style that will allow me to get the most out of rising stocks. Simply let the profits run. Realistically, I can never pick tops. Never feel a stock has risen too high too quickly. Be willing to give back a good percentage of profits in the hope of much bigger profits. The big money is made from trading the really BIG moves that I can occasionally catch. Rule 5: Master one style. Keep learning and getting better at this one method of trading. Never jump from one trading style to another. Master one style rather than become average at implementing several styles. Rule 6: Let price and volume be my guides. Never listen to any opinion about the stock market or individual stocks you are considering trading or are already trading. Everything is reflected in the price and volume. Rule 7: Take all valid signals that show up. Don’t make excuses. If an entry signal shows up you have no excuse not to take it. Rule 8: Never trade from intra-day data. There is always stock price variation within the course of any trading day. Relying on this data for momentum trading can lead to some wrong decisions. Rule 9: Take time out. Successful stock trading isn’t solely about trading. It’s also about emotional strength and physical fitness. Reduce the stress every day by taking time off the computer and working on other areas. A stressful trader will not make it in the long term. Rule 10: Be an above average trader. In order to succeed in the stock market you don’t need to do anything exceptional. You simply need to not do what the average trader does. The average trader is inconsistent and undisciplined. Ask yourself every day, “Did I follow my method today?” If your answer is no then you are in trouble and it’s time to recommit yourself to your stock trading rules. Investing in BLUE CHIP STOCKS.. Investing in conservative blue chip stocks may not have the allure of a hot high-tech investment, but it can be highly rewarding nonetheless, as good quality stocks have outperformed other investment classes over the long term. Historically, investing in stocks has generated a return, over time, of between 11 and 15 percent annually depending how aggressive you are. Stocks outperform other investments since they incur more risk. Stock investors are at the bottom of the corporate “food chain.” First, companies have to pay their employees and suppliers. Then they pay their bondholders. After this come the preferred shareholders. Companies have an obligation to pay all these stakeholders first, and if there is money leftover it is paid to the stockholders through dividends or retained earnings. Sometimes there is a lot of money left over for stockholders, and in other cases there isn’t. Thus, investing in stocks is risky because investors never know exactly what they are going to receive for their investment. What are the attractions of blue chip stocks? 1. Great long-term rates of return. Unlike mutual funds, another relatively safe, long term investment category, there are no ongoing fees. You become a owner of a company. So much for the benefits – what about the risks? 1. Some investors can’t tolerate both the risk associated with investing in the stock market and the risk associated with investing in one company. Not all blue chips are created equal. If you don’t have the time and skill to identify a good quality company at a fair price don’t invest directly. Rather, you should consider a good mutual fund. Selecting a blue chip company is only part of the battle – determining the appropriate price is the other. Theoretically, the value of a stock is the present value of all future cash flows discounted at the appropriate discount rate. However, like most theoretical answers, this doesn’t fully explain reality. In reality supply and demand for a stock sets the stock’s daily price, and demand for a stock will increase or decrease depending of the outlook for a company. Thus, stock prices are driven by investor expectations for a company, the more favorable the expectations the better the stock price. In short, the stock market is a voting machine and much of the time it is voting based on investors’ fear or greed, not on their rational assessments of value. Stock prices can swing widely in the short-term but they eventually converge to their intrinsic value over the long-term. Investors should look at good companies with great expectations that are not yet imbedded in the price of a stock. Entities in the trading system : here are four entities in the trading system. Trading members, clearing members, professional clearing members and participants. Trading members: Trading members are members of NSE. They can trade either on their own account or on behalf of their clients including participants. The exchange assigns a Trading member ID to each trading member. Each trading member can have more than one user. The number of users allowed for each trading member is notifi ed by the exchange from time to time. Each user of a trading member must be registered with the exchange and is assigned an unique user ID. The unique trading member ID functions as a reference for all orders/trades of different users. This ID is common for all users of a particular trading member. It is the responsibility of the trading member to maintain adequate control over persons having access to the fi rm’s User IDs. Clearing members: Clearing members are members of NSCCL. They carry out risk management activities and confi rmation/inquiry of trades through the trading system. Professional clearing members: A professional clearing members is a clearing member who is not a trading member. Typically, banks and custodians become professional clearing members and clear and settle for their trading members. Participants: A participant is a client of trading members like financial institutions. These clients may trade through multiple trading members but settle through a single clearing member.—————————————- Fair value of a common stock : A lot of discussions have been devoted towards finding fair value of an investment. The goal of every investors is to find undervalued investment and sell it when it reaches fair value. Admittedly, this is the hardest part of investing. So, what is fair value? Fair value is a point where the price of an investment reflect its earning power. Fair value is relative and it depends on other factors beyond the investors’ control. In here, we will discuss on calculating fair value within our own boundary of control. In short, calculating fair value of an investment depends on the rate of return expected and the risk taken to achieve that return. Higher risk needs higher reward. It is quite simple. So, what asset constitute lower risk investments? We can only compare. First thing that comes out of my mind is Certificate of Deposit (CD). You are guaranteed certain return (interest rate), if you can hold for a certain pre-determined time frame. You would never lose your principal at the end of the time frame. The next low risk investment is Treasury Bond. This is the bond issued by the United States government, which is deemed to be safest in the world. There are certain risks associated with the small fluctuation in the bond price. However, if you held the bond until maturity, you are guaranteed certain rate of return. Your rate of return depends to certain extent on the price that you bought the bond at. The next higher risk investment is buying common stock. This is what we are going to focus more here. It is considered higher risk than the two types of investments mentioned previously because you have a higher chance of losing money on your investments. Earlier, we established that higher risk needs higher reward. Therefore, stock investing requires a higher reward. So, what does this have anything to do with fair value? Quite simply, the price of a common stock that we buy must gives us a higher annual return than bonds or CD. For example if a CD gives you a 3% return, treasury bonds give you a 4% return, then you would want your stock gives you a higher return of perhaps 6%. What does it means for a stock to give investor a return of 6%? It never really say it, doesn’t it? You are partly right. While it is not explicitly shown, you can do a little digging and find out how much the return of your stock investment would be. For example, if your Certificate of Deposit (CD) gives you a 2% annual return, for $ 100 of investment, you would earn $ 2 every year. Let’s assume that you want your stock to give you a return of 6%, which is higher than CD or treasury bond. This implies for every $ 100 invested in common stock, it needs to give us a return of $ 6 annually. Where can we get this information? You can get it on Yahoo! Finance or other financial publications. All we need to do is find the share price of a common stock and the profit per share (also known as earning per share) of that particular stock. Let’s use an example to illustrate my point. Magna International Inc. (MGA) is expected to post a profit of $ 6.95 per share for fiscal year 2005. Recently, the share is trading at $ 73.00. The annual return of buying Magna stock is therefore $6.95 divided by its share price $ 73.00. This gives us a return of 9.5%. Will Magna continue to give investors a 9.5 % return year after year? It depends. If the stock price rises, Magna will return less than 9.5 % annually. What else? Well, Magna might not constantly produce the same amount of profit year after year. It might even produce a loss! So, you see, stock investing is inherently risky because there are two moving part in the equation. Price of the common stock and the profits produced by the company itself. That is the reason why investor need to aim for higher return when choosing their stock investment. All right. So, let’s move on to the crucial thing in investing in common stock. What is the fair value of Magna stock assuming a constant profit of $ 6.95 per share? Personally, I assign fair value of a common stock to be at least 2% above the rate of Treasury bond. Please note that I am using the 10 year bond here. Recently, treasury bond can give us a 4 % return. Therefore, the fair value of Magna common stock is when it can give me a return of 6% So, what is the fair value of Magna common stock in this case? For a profit of $ 6.95 per share, the fair value of Magna common stock is $115.80 per share. That’s right. At $ 115.80 per share, Magna common stock will return investors 6% annually. Having said that, we should never buy a common stock at fair value. Why? Because our investing purpose is to make money. If we buy stocks at fair value, then when do we profit from it? Do we expect to sell it when it is overvalued? Sure, it would be nice if we can do that all the time. But to be conservative, let’s not bank on our stocks reaching overvalued level. There you go. I have explained how to calculate fair value in a common stock. Of course, the $ 6.95 per share profit figure is the expectation of profit compiled by Yahoo! Finance. It is not in any way an endorsement to buy Magna common stock. You should do your own calculation to verify that number. How to make money in the stock market : here are abundant of money in the stock market. However, not everybody can get the money out from there. Some people can gain a lot from the stock market but some has lost a lot of money there. It is very indecisive. Sometime at that moment, you loss money but after a few days, you may earn a profit and sometime is reverse. So, how should we do to get the money out from the stock market? Usually, there are two ways to get the money out from the stock market; that are investing and trading. The difference between trading and investing is trading involves buying and selling share, future or option within a short period of time; whereas investing is buying share, future or option and hold it for quite a long time, usually one year or more before selling it. What is the difference between share, future and option? What we know is that option is much cheaper than the share and future, usually is tenfold lesser than the share price. So, if you have an amount of money that enough for you to buy 100 units share, you can use that amount of money to buy 1000 units option. And the return of investment is almost the same between share and option. Therefore, you will earn around tenfold if you buy option rather than share or future. However, the disadvantage is that if you lose on that trade, you will lose almost tenfold also. When we trade option, the amount of money that we can profit and lose is almost same as if we trade share. However, we need a lot of money to buy share compared to buy option. This causes the percentage of the profit and loss for buying option is much higher than share. The example is like when you buy $10 for one unit of share and $1 for one unit of option. When the share price drops for $0.10, the percent drop for buying share is 1% but for buying option, the percent loss is 10%. That’s why the percentage of the profit and loss for buying option is huge compared to buying share even though the share price fluctuates in a small amount. Due to the high profit and loss when buying option, trading or investing option is just like gambling. It is quite normal that the return of investment is more than 100%. But it is also quite normal that you could lose all your money in the investment or trading. In order that you can earn more than lose, you need to know some basic option trading strategy and technical analysis. Option is different from the share. Option has time value; whereas, share does not have time value. The value of one share will not depreciate due to the passage of the time. It is only affected by the supply and demand and also the company performance. However, option value will depreciate when the time has passed. When the time reaches to the option expiration date, there is no more time value for that option. That’s why, you need to use strategy to trade option, in order that you can minimize the loss and maximize the profit. The very basic two option trading strategies are bullish call spread and bearish put spread. Bullish call spread is used when the stock price is anticipated to rise in the coming months; while, bearish put spread is used when the stock price is anticipated to drop in the coming months. Steps that are involved in this strategy are buying in the money option and selling out of the money option. In the money option is the option that has time value and intrinsic value; whereas, out of the money option only has time value. When the stock price moves to the positive side (generated money side), in the money option will generate profit and the out of the money option will cause loss. However, the minus of the profit and the loss is the net profit that has generated from this strategy. When the stock price moves over the out of the money strike price, the profit will become maximized. Continuously moving of the stock price to the positive side will not generate any profit. In this situation, we will close both positions to take the profit out from the market. If the stock price moves to negative side (opposite side that cause loss), in the money option’s value will depreciate and the out of the money option will generate profit. However, the profit, which is generated from the out of the money, is limited to the price that you have sold. The subtraction between out of the money’s profit and in the money’s loss is a negative value. This is because the profit that is generated from the out of the money option is less than the loss that is caused by in the money option. Out of the money option’s profit is limited in this strategy and in the money option’s loss is unlimited. If the stock price continuously moves to the negative side, you may lose all of your capital. So, what is the difference from buying naked option and buying option using spread strategy? The difference is that you may lose more money if you buy naked option and lose less money if you buy spread. This is because you do not generate any profit when you just buy naked option; whereas, profit is generated from the out of the money option if the stock price moves to the negative side. The disadvantage of the spread is that the commission, which is charged by the broker firm, is double compared to the naked option. This is because, naked option only involves one position; whereas, spread involves two positions. Each position will be charged with commission separately. Besides, the purpose of selling out of the money option in the spread strategy is to minimize the loss of the time value of the in the money option. Actually, both in and out the money option’s time value would depreciate when the time has passed. Because we do not own the out of the money option; therefore, we can keep the money that we have received from selling that option. When the time value of this out of the money option has depreciated, we used lower price to buy back the option. So, we sell at high price and buy back at low price; therefore, we earn money. The money that we have earned usually is enough to cover the loss of the time value from the in the money option. However, you still lose the intrinsic value of option if the stock price moves to the negative direction. So, bullish call and bearish put spreads are two of the very basic option trading strategies. However, it is not guaranteed 100 % win from the stock market. You still need to learn to predict the stock price direction accurately using technical, fundamental and news analysis.

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Title: Unlocking Liquidity: Navigating Stock and Shares Loans for Optimal Returns

Introduction:

Investing in the stock market offers immense opportunities for profit, but it comes with inherent risks. One avenue that allows investors to access liquidity without liquidating their holdings is through stock and shares loans. In this comprehensive guide, we explore the dynamics of stock and shares loans, providing valuable insights to help investors navigate this financial tool for optimal returns.

I. Understanding Stock and Shares Loans:

A. Definition and Fundamentals:

Stock and shares loans, often referred to as securities-based lending, involve leveraging a portfolio of stocks or shares as collateral to secure a loan. This mechanism enables investors to access capital without the need to sell their securities.

B. Mechanism of Stock Loans:

  1. Loan Amount Determination: The loan amount is typically a percentage of the market value of the securities used as collateral, influenced by factors such as security type, market conditions, and the borrower’s creditworthiness.
  2. Collateralization: Investors’ portfolios serve as collateral, allowing for the borrowing of funds against the value of the securities.
  3. Interest Rates: Competitive interest rates, reflective of the secured nature of the loan, contribute to the appeal of stock and shares loans.

II. Benefits of Stock and Shares Loans:

A. Liquidity Enhancement:

  1. Preservation of Investments: Investors can unlock liquidity while retaining their investment positions, avoiding the need to sell valuable holdings.
  2. Strategic Flexibility: Stock and shares loans empower investors to capitalize on market opportunities without immediate liquidation, fostering strategic and flexible decision-making.

B. Tax Efficiency:

  1. Capital Gains Deferral: Borrowing against securities provides a means to defer capital gains taxes, offering a tax-efficient approach to accessing capital.
  2. Interest Deductibility: Some stock and shares loans may offer tax-deductible interest, enhancing the financial benefits for borrowers.

III. Risk Mitigation and Considerations:

A. Market Risks:

  1. Value Fluctuations: Ongoing monitoring of collateral value fluctuations is essential, with a focus on maintaining acceptable loan-to-value ratios to avoid margin calls.
  2. Forced Liquidation: In extreme market conditions, lenders may require the sale of securities to meet collateral requirements, emphasizing the importance of liquidity considerations.

B. Financial Health of Borrowing Companies:

  1. Profitability Assessment: Examining the borrowing company’s ability to generate profits is crucial, considering factors such as sustainability, potential financing needs, and the possibility of strategic partnerships.
  2. Research for Lower Risk: Conducting thorough research helps identify companies with a proven track record of profitability, reducing the risk of capital loss.

IV. Strategic Entry and Exit Planning:

A. Volatility Management:

  1. Setting Stops: Given the inherent volatility of penny stocks, implementing close stop-loss orders is essential to manage risk effectively.
  2. Profit Lock-In: Establishing clear profit-taking strategies, such as taking gains at predetermined levels or implementing trailing stops, helps secure profits while allowing for potential further upside.

B. Timely Decision-Making:

  1. Market Signals: Paying attention to market signals and adjusting strategies accordingly enables investors to respond to changing market conditions promptly.
  2. Flexibility in Planning: Having clear entry and exit plans allows investors to adapt to market dynamics, aligning with the principle of disciplined and informed decision-making.

V. Evaluating Information Sources:

A. Choosing Reliable Newsletters:

  1. Distinguishing Quality: Not all penny stock newsletters are equal. Investors should subscribe to reputable sources with a track record of providing accurate and unbiased information.
  2. Monitoring Opportunities: Tracking the performance of recommended stocks and assessing the legitimacy of opportunities helps subscribers gauge the reliability of newsletters.

VI. Portfolio Diversification and Risk Management:

A. Capital Allocation:

  1. Limiting Exposure: Allocating a reasonable percentage, such as 20%, of the overall portfolio to penny stocks helps manage risk and preserves capital for other investment opportunities.
  2. Growth Potential: While penny stocks carry inherent risks, allocating a portion of the portfolio allows investors to capitalize on the growth potential of these high-volatility assets.

VII. Understanding Stock Loans and Fair Value:

A. Fair Value Calculation:

  1. Consideration of Time Value: Recognizing that options, unlike shares, have time value, helps investors implement strategies to maximize returns and mitigate time decay.
  2. Spread Trading Strategy: Utilizing strategies like bullish call spreads and bearish put spreads allows investors to manage risk and potential losses while aiming for favorable returns.

B. Comparison of Investment Vehicles:

  1. Risk-Return Analysis: Evaluating the risk-return profile of different investment instruments, such as shares, futures, and options, aids investors in making informed decisions aligned with their financial goals.
  2. Spread Strategy Advantages: Recognizing the advantages of spread strategies, despite higher commission costs, provides insights into minimizing potential losses while maximizing returns.

Conclusion:

Stock and shares loans offer a unique avenue for investors to access liquidity, preserve investments, and strategically navigate the complexities of the financial markets. By implementing effective risk management strategies, staying informed through reliable sources, and understanding the intricacies of fair value calculations, investors can unlock the full potential of stock and shares loans while minimizing potential downsides. As with any financial instrument, careful research, disciplined decision-making, and adaptability to market conditions are paramount for success in the dynamic world of investing.

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