Saturday, September 22, 2007

Forex Market Heats Up For The Individual Trader

There has been a plethora of new financial instruments coming on stream for individuals in recent years. A few provide more leverage than just buying and selling stocks. Among the most rewarding markets opening up to traders is the FOREX (Foreign Exchange Market).

Why? Money or currency is the ultimate commodity. Every time a company or government buys or sells products and services in a foreign country, they are subject to a foreign currency trade, the exchanging of one currency for another. May individuals and organizations also trade currencies for speculative purposes. In contrast to the worlds stock markets, foreign exchange (Forex) is traded without the constraints of a central physical exchange.

Transactions are instead conducted via telephone or online networks. With this transaction structure in place, the Foreign Exchange market has become by far the largest marketplace in the world. With all these currency transactions going on daily, it is no wonder that the foreign currency exchange market (known as Forex or FX market) is the largest financial market in the world. It is much bigger than all the US Stock markets combined with a daily trading volume larger than that of all the worlds stock markets put together!

In addition, it is the least regulated market providing the greatest liquidity to investors. Trillions of dollars of foreign exchange activity takes place very day. From 1997 to 2000, daily Forex trading volume surged from US$5 billion to US$20Trlllion. The Forex market continues to grow at a phenomenal rate. This high volume is advantageous from trading standpoint because transactions can be executed quickly (with minimal slippage) and with low transaction costs. (Small bid/ask spread).

Before the Internet, only corporations and wealthy individuals could trade currencies in the Forex market through the use of proprietary trading systems of banks, often through private banking.

These systems required about $1Million to open an account. Thanks to the proliferation of the internet, today self directed investors with only a few thousand dollars and smaller financial firms can have access to the forex market 24 hours a day with the same liquidity as larger market participants.

For traders, Forex trading provides an alternative to the stock market trading. Whilst there are thousands of stocks to choose from, there are only a few major currencies to trade (Dollar, Yen, British Pound, Swiss franc and the Euro are the most popular). Forex trading also provides a lot more leverage than stock trading and the minimum investment to get started is a low lower. In addition, you have the ability to choose flexible trading hours (Forex trading goes on 24 hours a day!) and lower margin requirements.

As a result, foreign exchange trading has long been recognized as a staple and superior investment vehicle by central banks, major banks, multinational corporations (MNC), individual investors and speculators, institutional funds and hedge funds.

Trading or speculation makes up 95% of the daily volume. The other 5% of daily volume consists of governments and commercial companies converting one currency into another from buying and selling goods and services. The other 5% of daily volume consists of governments and commercial companies converting one currency into another from buying and selling goods and services.

More individual traders are jumping on this Forex Market bandwagon as it opens up opportunities to trade a global market on a flexible schedule and low barrier of entry.

Alvin has been an active investor in the equity , derivative and forex market. Get more articles and resources he has compiled at

How Can I Find The Best Performing Mutual Funds?

As the old saying goes, "You judge a horse by its track record," and that is probably true in most instances. However, it is not necessarily true when assessing the performance of mutual funds. Using past performance to determine a fund's future performance is much like looking behind you to see ahead. It is not exactly an effective measure.

There are several companies that assess mutual funds and assign them ratings based on specific criteria. Quite often, those criteria consist of viewing the fund's past performance over a five year or ten year period. However, this method has not proven to be effective in determining how a fund will perform in the future. So, short of polishing up the ole crystal ball and calling in to the psychic hotline, what is the conscientious investor to do?

Morningstar is one of the first companies that springs up when folks start talking about mutual fund ratings. As the most popular fund rating company, Morningstar uses a star system to rate funds, with five stars being top performers and one star being poor performers. However, the crux of Morningstar's ratings system is on past performance and that system may prove to be somewhat flawed.

Another source of fund rating is Lipper Leader Fund Ratings. Lipper uses five criteria in ranking mutual funds: total return, consistent return, preservation, tax efficiency and expense. They do factor in past performance, but the system seems to be more focused on analytical formulas than on past performance. Interestingly, investors must register with Lipper in order to access the fund rankings while Reuters uses Lipper rankings, yet allows immediate access to the information.

Business periodicals such as Business Week often publish their rankings of mutual funds, often on an annual basis. Business Week, for example, does publish the "Mutual Fund Scorecard" annually in their magazine, but it can be accessed online at their website. On the website, the Scorecard is updated monthly.

There are many magazines for business and investing that publish stock picks and mutual fund ratings. Some publish the information on an annual basis while others do so monthly. A discerning investor will be able to decipher the information and make an educated decision based upon the information from these publications as well as other sources.

Schwab's One Source Select List uses "rigorous criteria" to establish a list that is published quarterly and outlines their version of top ranking mutual funds. While the Schwab name is well known and trusted in the business and investing community, the disclaimer that precedes the ratings seems to be longer than the explanation for how the experts established the ratings. However, they do have an easy to understand table that lays out all the information on each fund. They even draw you pictures to show your risk level on each fund.

The bottom line here is that if you want to use ratings as a method of selecting the mutual funds in which you want to invest, it would be wise to assess several different sources with different ranking methods and see which mutual funds consistently rise to the top. Using just one rating source may not be an entirely effective method if you wish to invest wisely.

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