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Most investors purchase a stock with the expectation that the stock price will rise. If all goes according to plan, the investor would eventually sell the stock and realize a profit. But have you ever felt certain that a stock price would fall? What if there was a way you could profit from that situation? There is! It’s called short selling.

Short selling is rather simple, but many investors struggle to understand the mechanics of the process. This technique also has some different risks to consider.

What is Short Selling?

In simple terms, short selling is the selling of a stock that is owned by someone else. Even though someone else owns it, you’ve made a promise to deliver it. When you short sell a stock, the broker lends the stock to you.

The shares are sold, and the money is credited to your account. Then, you finish the transaction by purchasing the same number of shares to replace those you were ‘given’ by the broker.

If the price has dropped, you can buy the shares back for less than the original price and you make money. However, if the stock goes up, you’ll lose money.

The following steps show the mechanics for making a short sale:

1. Set up a margin account with your broker. Any broker will offer margin accounts. This type of account allows you to borrow money from the brokerage company. Your investments are used as collateral.

2. Place your order. You can either call your broker or complete the sale online. There will be a box on the website marked, “Short Sale.”

3. The broker will borrow the shares. The shares may be owned by the brokerage firm, another brokerage firm, or another investor.

4. The broker then sells those shares and puts the proceeds in your margin account. If the price falls, you can buy back the shares you sold at a lower price and keep the difference. If the price rises, you’ll be forced to cover the difference.

The Risks of Short Selling

Short selling is risky. Over time, stocks have a general upward drift. Look at the value of the stock market now compared to 50 years ago.

The downside is greater than the upside. Remember that the lower the price falls, the more money you’ll make and that the price can’t fall below zero. But, in theory, there’s no limit to how high the price can rise.

You’re also borrowing money. If the stock price rises too much, you’ll have to put more money toward the investment. If you can’t pay more, your brokerage firm will be more than happy to sell some of your other investments to cover it.

You can be totally on track, but have poor timing. The stock might be overpriced, but it can take some time for the stock price to adjust. During this waiting period, you’re potentially on the hook for interest and margin calls.

Conclusion

Short selling is another investing technique for your toolbox. There is more risk involved with short selling, but there can be a considerable upside. You won’t need to invest much money to control a lot of stock, since you’re leveraging your other investments.

While short selling isn’t for everyone, it provides a big opportunity for those with the risk tolerance. Consider short selling when you’re very confident that a stock value will decline.

October is the month in which the most infamous crashes historically took place. The party starts in December and continues in the early part of January with some hangover effect. So what is the January Effect?

New Year is the end of a year and the beginning of a new year. This is what makes the January Effect so special. There is usually a rally in the stocks in the first few days of January. There are various reasons behind the rally. Most of the people are trying to pay their taxes at that time of the year. The companies are trying to show a good performance at the end of the year by cleaning their balance sheets. The January Effect can be quite a rally but much depends on the strength of the economy, how good December was and is there any catalyst to move the markets. There is usually a significant rally in the early part of January that actually sets the tone for the rest of the month and sometimes for the rest of the year. New Year is party time. People are in exuberant mood. Everyone wants to forget the past year and start the coming year with high hopes and good expectations. This is what is so special about the January Effect. So what is this January Effect? January Effect actually starts in the mid December and tends to favor small stocks. The most profitable period as measured statistically has been found to start from December 31st and end around February 28th with an average rate of return of 6.6% on smaller stocks.

Now January Effect may happen or may not happen but the turn of the month that is the last day of the month and first five days of the next month form a very good seasonal pattern. Now, you must know this fact that the January Effect is not guaranteed every year. The best example is the year 2007 when the market became bearish and didnt start to look to bottom out until March 2008.

If you buy stocks at the last day of the month and hold them for the first five days for the next month, chances are you are going to make some profit. This can be a good swing trading strategy. At the end of the fifth day you move your money back into the money market funds. Turn of the month is a very good seasonal pattern that actually holds up more often than not.

You can do the same on the holidays. Move your money in on the day before the holiday and sell it on the day after the holiday. This system works because the pension funds tend to put new money to work during the holidays and the overall tendency of the market to rise improves.

People start to feel happy when the holidays approach and buy stocks before they run off to celebrate Christmas, the fourth of July, the Labor Day and so on. After the party the reality sets in the stocks are usually sold off. The holidays and those times when people traditionally take vacations often lead to higher prices. Fewer traders lead to lower trading volume which in turn tends to exaggerate price moves.

Thats because these days fall within the most bullish time period of the year, winter! The three days before the New Year Eve and the first three days trading days after the New Year are your best holiday bet for making money.

Mr. Ahmad Hassam has done Masters from Harvard University. Try This 1500 Pips A Day Forex Signal Service! Know These Candlestick Patterns! Click here to get your own unique version of this article with free reprint rights.

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If it was easy to be a billionaire then everyone would be one right? Many investors have learned how to take a very small investment and turn it into a large fortune. Wealth is just a numbers gain, if you can double or triple your money using the right investments and do this time and time again then you will soon be on your road to the billionaire club. Yes that is right the elite did not get there by being dumb, they are very intelligent and know how to make their money work for them.

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Markets tend to react to the outside events. Markets react to the seasons. Markets react to holidays. Markets react to political crisis. Markets are what the people are thinking. The day before the Presidents day is the worst day and the day after the Easter is the worst day after. However, you should keep in mind that a lot of other factors also come into play and you have a lot of room for error. The next best holiday bets are the Labor Day and the Memorial Day because they fall before the first day of trading in September and June respectively.

The best time of the year to own stocks is the Santa Claus rally which for all practical purposes is the 17 day stretch from December 21 to January 7. This is the best time of the year. Most of the folks usually feel fairly good about themselves around this time of the year.

There is a low trading volume which tends to exaggerate the trend. If the economy is not doing good and is slowing down, FED tends to lower interest rates during holidays in order to go into the new year with less of a worry. However, when you are dealing with seasonality, you should keep these facts in your mind:

1) The market is not longer static. Money has no borders now. With one mouse click money is transferred from one locality to another. The seasonal effect may get interrupted by other events. More and more people have real time access to information and larger amounts of capital than at any time in the past.

2) Institutional investors like mutual funds, hedge funds and insurance companies have become important players in the markets. So in case of an event free environment, seasonal tendencies may hold up fairly well. At the end of the year, institutional investors want to make their results look as good as possible to their shareholders and tend to buy the stocks and so on.

3) The days of long term investing or what you call buy and hold are dead! Frequent market crashes have taught the investing public that investing for the long term is fairly risky. So there is more short term trading going on. These are the times for day traders and swing traders. With fewer people willing to hold stocks for longer periods, it is very difficult to predict seasonality.

4) A lot will be written about the recent stock market crash. What were the actual causes of the recent stock market crash? Why so many big banks went belly up in matter of days. What was so special that made this liquidity problem contagious with banks all over the world? The recent market crash was the result of CMO and Default Swaps bringing down the banks and Insurance companies in ways that had not been anticipated or foreseen by the analysts. Many had assumed that derivate securities are safe. Infact they have highly unpredictable tendencies. Derivates and outside the market trading activities can result in highly unpredictable patterns.

Many things are changing. The world is always changing. There is a change in demographics also taking place. With the aging of the population, the overall trend will be towards more income producing investments. So with everyone talking about the seasonal tendencies in the market, it reliability becomes less diminished.

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Trading financial contracts and instruments such as stocks, funds, futures and options are now much easier with the latest technology advances around automation and analysis. Traders and investors can engage in options trading through the internet with discount commission schedules using advanced trading systems. There are now a variety of online brokers offering options trading services including NobleTrading, OptionsXpress and Scottrade.

Consideration when selecting an online broker for options trading takes proper analysis and research to meet your specific trading requirements. Some of the items you will need to consider are highlighted in this article.

1.Products Available Online options brokers vary in their option trading offerings. Some have restrictions which prohibit some traders to trade options on some financial instruments like stock options, futures options and currency options. Select an online broker that allows you to perform traders for your choice of options contracts.

2.Account Type A few online brokers offer single accounts to trade options, stocks and other financial contracts and instruments. Others will allow you to open multiple accounts to perform your trades. Select a brokerage which meets your specific trading requirements.

3.Commission and Charges Each online broker offers a different commission plan. Some require minimum amounts per transaction along with additional charges. The amounts vary and can be as low as $7 per instrument with additional fees of $1 to $2 per traded contract. Some online options trading brokers have hidden fees that are apparent when you first begin trading. They can include fees associated with minimum account balance requirements, account maintenance and wavy charges.

4.Access to Markets Make sure the online broker you select matches your trading style. Many option traders need delayed market access while day traders require real-time, direct, level 2 market access. Not all brokers allow trading for exchanges like ISE, AMEX, PHS, PSE, and CBOE.

5.Trading Software To be successful you need a robust trading platform which is web based and directly accessible. The online broker should provide charting software and analysis tools to help with your trading decisions. It is important to engage an online broker offer these types of platforms who also include training programs in order to properly use their tools.

6.Options Trading Strategies Options traders use a variety of trading strategies from simple call and put processes to multi-legged complex options trading strategies. Make sure your brokerage firm supports you in your options trading strategies.

7.Order Types Find out which market and limit orders your online broker supports. This is important when engaging in complex options trading strategies. Equally important is the software trading platform they offer because you need one that lends itself well to quick decisions.

To locate an online broker to meet your trading requirements begin searching the internet. Make sure you do a thorough analysis of each online brokerage before making a final decision. Finding the right online broker can give you the ability to become a successful trader and increase your overall financial portfolio.

If you want to learn more about option trading, feel free to visit our website.

A professional currency trader may be confident that the US Dollar is indicating overall weakness and the Euro is indicating overall strength for the coming six months after performing the fundamental analysis on both economies.

The next step for the position trader would be to open a long position in EUR/USD pair. This simultaneously provides the position trader with long Euro position and a short US Dollar position.

Going long on Euro and at the same time short on US Dollar, this combined trading position fulfills your fundamental outlook as the position trader on both the currencies. The long term directional bias has been formed by you as the position trader on the basis of fundamental analysis.

So position trading depends on using fundamental analysis in identifying a profitable position in the currency market. But you still need technical analysis to determine your entry and exit in the market. You will have to use technical analysis in setting up the actual trade. Pinpointing the best time for the trade entry as well as setting risk managed control strategies is best accomplished by using technical analysis.

As all currencies are traded in pairs unlike the stock market or for that matter other financial markets, this concept of strength/weakness fits extremely well with the forex markets. The position trading uses fundamental analysis in pairing strength with weakness.

Position trading with the strength/weakness model is the most logical fundamental method for approaching long term forex trading. Trading forex requires a directional commitment on two currencies for each trade, so position trading is ideal for forex trading.

You only invest in stocks that go up and down but two stocks can never be paired together in stock trading. You can buy different stocks to diversify your portfolio but can never pair two individual stocks the way you can pair two currencies in forex trading. Buying one currency because it looks like it will become stronger while simultaneously selling another currency because it looks like it will become weaker is a better way to trade as compared to stocks and other financial markets.

Your first step as a position trader should be to do fundamental research and analysis on all major currency pairs. Analyze the Central Bank policy statements, economic growth factors of these countries, global economic news etc to identify the currency with the strongest positive future prospects and the currency with the strongest negative future prospects at a given point in time.

You will have to study all the major currencies like US Dollar, Euro, British Pound, Swiss Franc and the Japanese Yen. Suppose you identify GBP and USD as the strongest loser currencies by performing fundamental analysis while EUR and CHF as the strongest gainer currencies in the foreseeable future. Possible currency pairs for position trading could be long EUR/USD, long CHF/USD, short GBP/EUR and short GBP/CHF.

Price action is never ever linear. It is always up and down with minor trends superimposed on major trends. You can enter the trades with the help of technical analysis and hold them as long as they move in the correct direction disregarding minor corrective swings and market noise.

Position trading maybe the most difficult method of approaching forex trading for the beginners! It requires a great deal of patience and faith in ones own analysis to weather the inevitable swings against the trading position. But if done properly it can be one of the most effective methods of extracting long term profits from the forex markets.

Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and currencies. Try Strignano’s Forex Signals free. Discover a revolutionary Forex Robot Trading System!

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All forex traders are looking to increase their profits by learning savvy investment strategies used by successful traders. If you are looking to maximize your return in the forex market and make it a successful business, you must first invest in the knowledge and experience of others. This means you have to learn the fundamentals and advanced trading strategies too.

Some investors use a variety of software programs to assist them in the investment process. These programs help them by tracking market trends and signals in real time. If you are contemplating using these types of programs or bots as they are known, take time to research software programs that have gained wide acceptance amongst investors.

The trend in using automatic bots to check the pulse of the market is one of the fastest growing trends in the industry. These programs make it easy for even novices to enter trades and profit with returns for each dollar invested. These programs make interpreting stop loses and targeted gains much more predictable.

Many new investors will tell you that these programs are instrumental in helping them with signals and key indicators. They are not only automatic trading bots, but a big benefit to using them is that it frees up your time in manually watching the trading signals. Software programs are great tools and therefore should be considered as a key component to your success.

Even though thee are many entry and exit trading strategies that could be used in conjunction for software bots, these software programs should never be the sole basis of your strategy. It is vitally important that you gain some real world experience in doing trades so you can learn what trading is all about. This will help you in the long run.

One of the best things you can do to become a successful trader is to learn the different trading strategies. This knowledge will help you immensely. As an example, if you are the type of trader that likes to control the limitations of a trader, then the stop loss strategy will be your training path to success.

As an example, many traders use the leverage based strategy. This type of strategy gives you access to more money to make trades above the amount you initially invested. The amount you can use is normally determined by your broker and is subject to specific terms. See a currency exchange broker to get more information.

You can succeed in forex trading. All it takes is a commitment to learn the basics and access to a demo account. There a several places to learn the basics of currency investing including several course I recommend on my website. The education you learn during the initial start-up phase of investing will determine how successful you will be.

Discover more information relating to system forex and stay informed today.

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