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What is Overnight

What is Overnight

Receiving passive income is the "blue dream" of everyone, and not only the investor. We wrote about the options for passive earnings in our article "How to receive passive income monthly": buying and renting out housing, deposit, accumulative and investment insurance, investments in the stock market. Each of these options, in addition to its pros, cons, risks, has certain time parameters – months and even years. What about the day/night earnings option? At first glance, this option seems absurd and even similar to fraud. And in most cases it is. But there is also a completely legal one – overnight transactions.

The overnight option is one of the parameters known to almost every investor. In simple words, it means that you lend your assets (securities or money) to a broker overnight, and for this the broker pays you a certain% of the loan amount. It seems tempting - "money works while you sleep, and markets don't trade." But not everything is so clear. In this article, we will try to understand the internal component of overnight transactions, the benefits and risks for the investor.

What is Overnight

Before we begin to dive into the terminology, let's clarify what is "investment"? In a general sense, investments are reduced to the investment of free cash in order to increase them - due to the increase in the exchange rate of securities, as well as as a result of the payment of dividends on shares (if they are provided) or coupon payments on bonds. It would seem, why tell the obvious things, and what does the overnight deal have to do with it? The connection here is the most direct. The investor invests free cash, and with a competent investment, he makes a profit. At the same time, each owner of "securities" can carry out the necessary financial transactions "Buying" and "Selling" their assets in securities right during trading, but as soon as trading on the exchange closes, the assets actually remain "frozen" before opening without the opportunity to work with them. And so I want them to always work, even when we sleep. It is during the "downtime" of assets that the opportunity arises to earn overtime on them by resorting to overnight transactions.

Overnight is a financial term referring to short trades. In the banking sector, these are loans or deposits for 1 day. For investors – short-term lending to a brokerage organization - when an investor lends his valuable assets or free cash to a broker overnight. Each of the parties benefits from such short transactions:

  • The one who provides free funds receives a reward in the form of a certain percentage.
  • The one who borrows funds covers short–term needs for liquid funds or simply earns using borrowed funds.

Thus, an overnight transaction for an investor is an additional earning tool while he is "sleeping".

The term "overnight" is most often used in the banking environment. This term means short-term interbank lending and short-term deposits for a day. Loans for one day are not provided to individuals, but the overnight service can be considered as a one-day deposit for citizens placed in a bank.

Overnight in the banking sector

Initially, overnight transactions originated in the banking sector. When a large credit institution needs additional funds, then one of the options for closing this need is an interbank overnight. An overnight transaction is the best solution for a credit institution to attract borrowed capital for a short period.

Interbank loan overnight

Such a loan is granted for one day or night. In fact, this is a super-short-term loan. As a result, one bank issues a loan to another bank. This is convenient for all participants in the transaction, because the lender organization makes a profit from the loan issued, and the borrower organization solves its temporary financial problems at the expense of the funds received, without wasting time on additional registration.

A short loan period and sufficiently large loan amounts - measured in tens and hundreds of millions of rubles - are the main "trump cards" in such transactions. Interbank loans on loans are issued only in Russian rubles, because the exchange rate can change very much overnight. A stable overnight interest rate allows market participants to maintain access to short-term liquidity, plan liquidity management and its redistribution. The central bank ensures that the deviations of the overnight rate from the interest rate of the central bank itself are small, and keeps the overnight interest rate within a narrow interest corridor, not allowing it to go beyond it.

The current rate on overnight loans can be found on the website of the Central Bank.

Overnight interbank deposits

Overnight deposit is also a variant of interbank relations. The difference between overnight deposits and traditional ones is in the terms of provision. This is a short-term deposit for a day. As a rule, overnight deposits are deposits for large amounts. They are placed by financial organizations, large banks on the accounts of other banks. Overnight deposits are used in the interbank and money markets. The interest rate on overnight deposits is usually lower than on term deposits (we are talking about weekly terms and more). In order to contain inflation in a limited range, the Central Bank sets the amount of interest rates, including overnight. The current interest rate of the Central Bank for this type of deposit is reviewed every day and posted on the official website. Banks are forced to monitor this figure in order to adjust their internal overnight rate.

Overnight deposits for legal entities

This is a short-term deposit option, when the company places funds on deposit at the end of the working day, and in the morning the deposit amount, together with accrued interest, is returned to the settlement account. Thus, it is possible to place a deposit not only for the night, but also for a weekend and a holiday. Legal entities often resort to this service. Convenience is due to the fact that you do not need to withdraw money from the current turnover for a long time, and additional income can cover small and not very current expenses. This is also an excellent option for temporary "parking" of free funds on the account. To open a deposit overnight does not require additional paper procedures. If a company opens a bank account, then funds can be placed on an overnight deposit remotely via an Internet banking system. Simply, at the time of opening the overnight deposit, it is necessary to take care of the availability of a sufficient amount of funds on the current account. Speaking of the amount. Overnights are beneficial when placing large amounts, then even a small bet makes a profit. Overnight deposits are provided by all major banks. The conditions may be different. The same bank may offer a different interest rate, which will depend on the amount of the planned placement and the selected tariff. There are usually limits on the amount with which such a deposit can be opened.

Read more: How to evaluate growing companies? PEG Ratio

Overnight on the broker account

Each investor can receive additional income on their assets (securities, free funds) in a brokerage account if the overnight service is enabled. There are two views on this situation. Some recommend using this service and be sure to connect it with your broker if it is not enabled by default (it is better to clarify this point immediately, in order to avoid trouble). The investor will receive additional income, which is the ultimate goal of any investment! Others, in turn, strongly advise against using this tool, citing high risks. If the service is enabled (especially by default), then disable it. What to do here is up to you, of course. But in order to make decisions, you need to understand exactly what additional earning opportunities in percentages this service will bring, and what risks there are. We will analyze this with examples so that everyone can decide for themselves whether or not the "sheepskin dressing" is worth it.

The interest rate may vary from broker to broker. There are brokers who have absolutely no interest on this service. To find out for sure, it is better to ask your broker by calling the operator by phone, or ask a question in a chat by contacting the support service.

The most interesting thing is that the connected overnight is not a guarantee that the broker will charge you interest at all, especially every day. Interest will be accrued only when there is a real use of your assets, and this may not happen, because the broker usually needs "top" assets and in sufficient quantity to conduct such transactions.

While the investor is sleeping, the broker takes a security as collateral at the price set at the end of the trading day on the stock exchange, in return gives an obligation to return everything on time. In the morning, the broker returns the security and in addition pays interest for the use of the asset. All this happens without any unnecessary intervention on the part of the investor.

Independently, the broker does not have the right to use securities from investors' accounts. It is the consent to commit "overnight" that gives the broker the right to dispose of your shares, bonds and other securities. But why does a broker need this?

Securities may be needed by a broker in two cases:

  • the broker can use this type of loan to secure some of his transactions (trading in the evening session, transactions with securities on international exchanges with depositary receipts for shares of companies, etc.).
  • the broker lends securities to the trader to implement short-term strategies (such as "Short" transactions, for example).

That is, brokers are trying to "squeeze" the maximum yield from their assets and the assets of clients. Even at night, when investors are asleep, they make a profit.

Now about the benefits of overnight for the investor:

  • Additional income for the broker's use of your securities (money) in debt. And it is this benefit that investors, and brokers themselves, put in the foreground ("money should work while you sleep"). But the benefit here is doubtful. If we compare it with one-day deposits for banks and legal entities, the difference is hundreds of percent (11-16% vs 0.05% per annum). At the same time, it should be understood that banks and companies place significant funds on deposits. To get at least a little noticeable amount (for example, to cover the amount of broker commissions), you need to have the amount of the most liquid shares in the account, estimated in millions of rubles. And even this is not a guarantee that the broker will use their entire amount. He will take them as needed.
  • Additional bonuses for the connected "overnight" service. This is a kind of reward from the broker for the opportunity to use your assets when it is convenient for him. Your assets are "like a reserve" for him.

Read more: What is a PAMM account

Overnight risks for the investor

And now about the risks of overnight for investors.

  • Lack of insurance. By themselves, investments in the stock market are not insured, unlike bank deposits. Insurance does not apply to transactions with the provision of free assets to the broker. Note that overnight deposit insurance is also absent in the banking sector, but there it is fully compensated by higher deposit rates and a guaranteed refund the next day.
  • The absence of guarantees for the return of funds (assets and funds) to the original conditions of overnight. We remind you that when the overnight option is enabled, the broker can borrow securities from you and transfer them to a third party to implement some short-term strategy. And this third party is obliged to return the securities to the broker the next day so that he returns them to the investor again. This is an ideal situation. In case of default by a third party involved in the transaction, the money will most likely be refunded later. But at the same time, it is often prescribed in the terms of the brokers' tariff plans that the investor is not entitled to penalties and penalties. For an investor, this means the need for constant (or periodic) monitoring of the safety of funds in the account. Agree that this is extremely inconvenient for a long-term investor. And it may well turn out that if you go to sell shares one day, they will not be on the account.
  • High risks of losing funds if there are problems with the broker.

There is an indisputable rule in investing: investments with high returns have a higher level of risk (the "Risk-return Concept"). Increased profitability is a kind of risk premium. In cases with overnight, this rule does not work for investors. The remuneration rates for the broker's use of free funds on the investor's account are less than 1%, and often they are hundredths of a percent. Not in a day, but in a year!!! This is a rate lower than the current percentage of the bank deposit and the most conservative investment option (in bonds). At the same time, in the conditions of the tariff policy, it is often prescribed that they can be unilaterally revised by the decision of the broker.

Whether to connect overnight or not is a matter of choice for each investor. But at the same time, regardless of the decision, it is important to understand all the risks of this option.

How to disable overnight

Let's say you still decided to disable overnight. Check whether this service was enabled initially (some brokers automatically include the terms of transactions in the overnight format in the contract when opening a brokerage account). There is a way to disable this function yourself in your personal account in the application or on the website. If this is not possible, then you can directly call your broker's hotline and ask them to turn off overnight.

Read more: What is the Overnight Interest Rate?

Conclusion

So, we looked at how the overnight service works. It is worth saying that in the banking sector, this is a really effective mechanism for profitable lending and placement of available funds. Based on the parameters of the service (short term and high rate), the characteristic "money works while you sleep" applies only to bank overnight. In the case of overnight on a brokerage account, there is no question of any real benefit and its guarantees. Hundredths of % for use, which may not be. The connected overnight service, unlike bank overnight, is only a permission to the broker to take your assets when he needs exactly the amount in which it will be needed. That is, the broker's lending service is absolutely opaque and, as real practice shows, unsafe.

Earning income is the main goal of investment activity. Depending on the investor's attitude to risk, it is possible to implement different strategies with different levels of profitability. Investors may think that overnight is a great way to earn extra money during the period when the exchanges are not working. But if you get into the meaning of the investment itself, it becomes clear that investment assets continue to work regardless of the time of day and day of the week:

  • Shares are a share in a business, often in a large business that operates around the clock and does not suspend its work for weekends and holidays. There are a lot of examples – from metallurgists to companies in the retail sector.
  • Bonds are a promissory note to a specific business. This business also continues to work in order to pay interest on the loan (coupons) to the investor on time and repay its debt (the nominal value of the paper) on time. Even on weekends and holidays, coupon income (the so-called NCD) continues to accumulate, which is paid to the investor in accordance with the schedule.

In search of additional sources of income, you should not neglect the basic safety rules.


 

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There are no regular adjustments or rebalancing of the ICE US dollar index.The values and dynamics of the dollar index may be different, but the following values are taken as benchmarks.More than 100 pp. – similar values indicate the strength of the dollar relative to other national currencies from the index basket.Equal to 100 p.p. – this means that the dollar is at the level of the other currencies of the index basket.Less than 100 pp. – this indicates the weakness of the US national currency.As can be seen on the graph, the maximum index value (160 pp.) was fixed in 1985, the minimum (72 pp.) - during the 2008 crisis. At the time of publication of the article (10.08.2022), the index value is 106.303 pp. This means that the value of the dollar has increased by 6,303 p.p. compared to the baseline value. 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There are 3 phases in the behavior of the dollar:Phase 1 – Dollar growth due to increased risk aversion. The dollar is strengthening with a decrease in the growth rate of the global economy and an increase in risks in the markets. In such a situation, in order to avoid possible losses or minimize them, investors exit risky assets and direct funds to the dollar, which is considered a "safe haven currency". At this stage, the investor's goal is to preserve, not increase, the available capital. In addition, to invest in US Treasury bonds that are considered risk-free in any economic situation, dollars are also needed, which leads to increased demand for them and an increase in the exchange rate.Phase 2 - Economic recession and recession. At this stage, the economy is showing signs of slowing down or even recession, and the Fed is starting to cut interest rates. Investors are starting not to buy, but to sell the dollar in order to switch to currencies that can provide higher returns. Demand for the dollar is weak, which leads to its fall.Another factor is the relative economic efficiency of the United States and other countries. The US economy may not necessarily be stagnant, but if its economic growth is weaker than in other countries, then investors will prefer to sell US dollars and buy the currency of a country with a stronger economy. As a result, the lower part of the "smile" is formed - the dollar is falling.Phase 3 – Economic growth. The values of fundamental indicators are beginning to indicate an improvement in the economic situation, i.e. the phase of economic growth. Companies are increasing production, there are signs of economic recovery. Investors' risk appetite is returning. Thus, with stronger GDP growth in the US economy compared to other countries, the dollar is also strengthening. Thus, the key factor in the dynamics of the dollar index is relative economic growth. If the economy of the "rest of the world" can grow faster than the US economy, this will lead to a weakening of the US dollar. If the US economy is growing faster, then the US dollar will grow. In fact, the influx of foreign money into American enterprises and investments leads to an increase in the value of the dollar.An example of such a scenario is the 2008 crisis. In mid-2008, investors sought stability during the crisis period in the form of investing in the dollar, which led to its strengthening. As the situation normalized and the crisis processes slowed down, the focus of investors' interests began to shift to more profitable and risky instruments. This flow of capital led to a significant drop in the US dollar in early 2009. The recovery of the US economy from the crisis caused an increase in demand for the dollar and, as a result, its strengthening until the end of the 1st half of 2010.The factor of updating the highs of the dollar value relative to world currencies from the reserve basket in 2022: the Fed started tightening monetary policy earlier than other major central banks (against which the yield of government treasury bonds began to rise), the problems of the eurozone, the devaluation trend in the euro and yen, the weakness of stock markets. All this together makes American investments more profitable, because now they promise higher profits. Finally, investors and analysts are concerned about the global recession – the dollar is traditionally considered the most reliable asset in turbulent times.Let's take a closer look at how the change in the dollar index affects the dynamics of some investment instruments and the economy of enterprises.BondsThe increase in the profitability of investments in US Treasury bonds is accompanied by an increase in the DXY index. Bonds are traditionally considered the lowest-risk assets that allow you to save capital. At the same time, in order for them to be attractive for investment, their profitability should be higher than the inflation rate.Currently, due to an increase in the interest rate and an increase in bond yields, investors are starting to exit riskier assets of other countries, i.e. there is a flow of funds into the dollar for further investments in bonds. In addition, due to the unstable global economic and geopolitical situation, the demand for the most risk-free instruments is growing. This leads to a strengthening of the dollar.StocksA stronger dollar is not always good for equity investors. It means:A decrease in the profits of exporting companies and global corporations from sales of products in other countries.An increase in the costs of exporters, which leads to an increase in prices for the goods they produce and, as a result, a decrease in competitive advantage.Increasing the costs of foreign companies operating in the United States.Thus, the growth of the DXY index signals a weakening of the US stock market, i.e. the dollar index is basically moving opposite to the S&P 500 index.Such a decline in the market is due to the fact that a strong dollar makes imports cheaper and exports more expensive and less competitive in world markets. The rising dollar affects the profits of many global corporations.Exporting companies and global corporationsCompanies that supply their products around the world make more profit with a weak dollar.The high values of the DXY index, i.e. the growth in the value of the dollar negatively affects US exports. In this case, the volume of goods purchased by other countries decreases, because they need more of their own currency to buy the same volume. That is, US companies face the following consequences of the strengthening of the dollar:Decrease in the volume of exports.Margin reduction, as a result of a decrease in the volume of funds received, including for the development of the company. In this case, there is a significant adverse effect of exchange rate fluctuations.The weakening of the exchange rate of a foreign currency against the US dollar adversely affects the company's sales and revenues denominated in a foreign currency (other than the dollar), and usually leads to the company raising prices in other currencies to compensate for the strengthening of the US dollar, potentially reducing demand for its products. If in some cases, for some reason, the company decides not to raise prices, this negatively affects the profit that the company earns in US dollars: when converting foreign exchange earnings into US dollars, the company receives less (since the dollar has become more expensive).Importing companiesA strong dollar benefits US importers. With the growth of the dollar, imports for American companies become cheaper, and they can make more profit. For companies in other countries that import products from the United States – on the contrary, because they have to spend more of their currency to buy goods or raw materials.Commodity marketsPricing for most commodities occurs in the US dollar due to its role as the leading reserve currency. Local production costs and consumer prices can be expressed in different currencies, but for wholesale deliveries, the US dollar is used as a means of exchange. Over time, the growth of the dollar usually leads to a decrease in commodity prices, while the weakness of the reserve currency is a factor in the growth of prices in commodity markets. An increase in the DXY index leads to a decline in all commodity markets.Below is a graph of oil prices and the DXY index, which shows the inverse correlation of the dollar index with oil prices.In addition to the impact of the dollar's value on financial and commodity markets, it is worth mentioning separately the following global consequences for the economies of other countries:An increase in the debt burden on the budgets of countries that have dollar loans. After all, it is a well-known fact that the bulk of the world's debt obligations are denominated in US dollars. US banks actively lend not only to companies and businesses, but also to entire states. With the growth of the dollar, borrowers have to pay more on their debts.Emigration of capital from countries. When the national currency (other than the dollar) weakens, it forces large businesses and investors to withdraw funds from the economy of this country, which is an additional factor in the weakening of the local currency.Negative impact on economic growth. The effect of the dollar's growth is felt by importing companies, manufacturers who are heavily dependent on imported components from the United States. In the conditions of modern global globalization, it is difficult to find production facilities that are 100% provided by local markets. This is especially true for the production of complex technological products. To maintain output volumes at the same level, manufacturers need to spend more money on purchases, which often leads to losses. Therefore, a compromise option is to reduce the volume of output. On the scale of the country's economy, this means a drop in GDP.Pros and cons of the DXY Dollar IndexLike any other indicator, the US dollar index has its pros and cons:AdvantagesExtensive use of the index. The index is calculated around the clock.Availability of futures and options on the index. Index futures can act as a leading indicator of the movement of currency pairs. For example, if a bearish candle appears on his chart, it may mean that a surge will occur on the currency charts.Allows you to analyze the value of the dollar with more objectivity than the dynamics of a single currency pair.DisadvantagesA small number of currencies in the index, as well as a large proportion of the euro, which, when it fluctuates, leads to significant distortions and inadequate index values.It has stable power coefficients that do not correspond to the current modern structure of the US foreign trade turnover. The weights were last changed in 1999 after the introduction of the euro and have remained unchanged since then. However, much has changed in trade relations with the United States. For example, China, South Korea and Mexico have become key trading partners of the United States. The diagram below shows the structure of US foreign trade turnover in 2021:For a more adequate reflection of the US trade balance with other countries, the Fed calculates the Trade-weighted Dollar Index (TWDI). The basket of this index includes 26 currencies. Currency weights are recalculated annually. However, despite such a large number of currencies compared to the DXY index, the dynamics of the indices are almost the same due to the fact that the euro also has a lot of weight in TWDI.ConclusionThe US dollar index is a synthetic instrument reflecting the current dynamics of the price of the US currency. The index shows the strength or weakness of the US dollar more objectively than in relation to any one currency. This tool is used in their work by traders, investors, stock analysts. It gives a correct assessment of currency market trends and all assets in dollars. The global economic situation largely depends on the state of the American economy. The strength of the dollar can be considered as a temperature indicator not only of the US economy, but also of the global economy.The dynamics of the index indicates certain trends in the economy, but it is impossible to assess the current situation and trend by only one indicator. Moreover, the specificity of the index lies in the fact that the dynamics may indicate completely opposite trends – the dollar index shows its growth both during economic growth and during recessions. Therefore, the index can act as one of the tools in the investor's arsenal, but it is always necessary to conduct a comprehensive analysis of a number of macroeconomic indicators.
Oct 19, 2022
IndexaCo
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Technical analysis for beginners
Technical analysis for beginners One of the most popular methods of analyzing stock instruments is graphical technical analysis. Technical analysis is one of the main methods of analyzing and forecasting future asset prices.In this article we will consider the basic aspects of technical analysis: what it is, how it differs from fundamental analysis, the main tools and examples of their practical application.Technical and fundamental analysisTechnical analysis is a set of methods that allow you to analyze the chart and make a decision on buying/selling a particular instrument in the securities markets. Or, more simply, these are various ways of analyzing quotation charts in order to predict future price behavior.If fundamental analysis answers the question "which stocks or currency pair to buy?", then technical analysis shows at what point in time to buy.The fundamentalist is trying to understand the reason for the market movement, and the "tech guy" is interested in the very fact of this movement. All that a technician needs to know is that such market dynamics simply exist, and what exactly caused such a movement is not particularly important.The task of fundamental analysis is to help an investor buy a stake in a quality business. The task of technical analysis is to help the investor enter into a transaction at the best price. Or, in other words, to determine the optimal entry point.Trade directionsLong. When an investor waits for the growth of the paper, he buys them. In professional language, "longs", trades "long", long stocks / futures / etc., a long position, i.e. earns on the growth of value. In a simple way, bought cheaper, sold more expensive.Short. If a trader is waiting for the price to decrease, he sells them, in professional language "shorts", trades short, short position. Earns money by reducing the cost of the instrument.How can you sell something that was not in the portfolio?You borrow securities from a broker and sell them at the current high price. Then, when they become cheaper, the securities are bought back and given to the broker, and the difference between the "high" and "low" price is yours.Features of shorts. The broker lends the securities at a percentage. That is, if you pay only the commission for the transaction in the long, then in the short you also pay% for the debt. This should be borne in mind when calculating the profitability of the strategy and when entering a deal. The amount of the percentage must be specified with the broker. Usually, during intraday trading (when you short during the day and close the deal during the day), % is not taken, it is taken to transfer the position through the night.We wrote in detail about the technology of opening short positions in our article "How to short stocks".Graphic trendsAll technical analysis is price forecasting based on the history of the price movement itself. The market can have only two states: trend and flat (horizontal, sideways).Chart analysis always begins with determining the trend on the instrument. The trend is drawn on the older time frames so that there is an understanding of the global trend – in which direction it is necessary to look for inputs.The trend in a growing market is a consistent increase in the highs and lows on the chart.The trend in a falling market is a consistent decrease in the highs and lows on the chart.Trend rules. The trend will continue its movement rather than change direction. The task of the investor/trader is to trade according to the trend and join it at a comfortable entry point.A trend breakdown most often means a possible reversal or consolidation in the market. If the trend is strong, then we see on the chart that each previous pullback is higher (lower) than the previous one.Rules for building graphical modelsOn the uptrend chart, the trend is based on the minimums of candles/bars.On a downtrend, we build the trend on the highs of candles/ bars. For example, the global bearish trend since 2013 on the weekly chartHow to work on trends. The investor expects an entry on the test (touch) of the price of the trend line, that is, when the price has reached the line as much as possible and has strayed, it is possible to enter the transaction.Support and resistance levelsThe price chart always moves in waves. On the bases and peaks of the waves, we can see the levels at which the price turned around, or continued its movement after a long sideways movement.The support level is the border where the price turns up. It does not allow the price to fall lower.The resistance level is the boundary where the price turns down. It does not allow the price to go higher.Read more: The basis of trading: Support and Resistance levelsLevel RulesThe support line can become a resistance line and vice versa.The more often the price hits the level, the stronger it is.It's always a range, not a clear line.Mirror level.One of the strongest levels is considered to be the mirror level.Mirror levelIt can be seen on various instruments and time intervals.How to trade by levels:A risky option is to enter the breakdown level (marked with a blue arrow).Moderate - entering a position after the level test (marked with a red arrow).Stop loss - is set for the level / the nearest minimum / the mathematical risk/profit ratio is calculated.Price channelsA price channel is a limited trading range in which the price moves for a certain time. The boundaries of the trading channel are limited by two lines: support and resistance.Read more: What is Technical Analysis and why does an investor need itLike levels, price channels can be ascending, descending, and sideways depending on the phase in the market.How to build a price channel on a chart?For an ascending trading channel, it is necessary to determine the beginning of a trend movement and draw a trend line (the main channel line) along the first two lowest minimums (reference points). Then, parallel to it, project another trend line to the upper point located between them.How to trade?Most often, trading is conducted inside the channel: when testing the channel boundary – the entrance, the target is the opposite channel boundary, the stop loss is placed outside the channel boundary based on the risk guidelines of each individual trader.ConclusionTrading on the stock market is based on the same principles for everyone. But everyone's trading strategies are different - simply because investors' goals and risk profiles are different. The investor selects the most suitable strategy for him and by the level of risk, and by time frames, and by the system.The combination of fundamental and technical analysis in trading gives an excellent result.  Complementary methods allow the investor to justify the transaction based on fundamental indicators, and the use of knowledge and technical analysis tools allows you to enter into a transaction on an optimal risk/profit combination.Read more: Technical analysis on the forex market
Oct 19, 2022
IndexaCo
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How brokers cheat and how to protect against it
How brokers cheat and how to protect against it Many investors are familiar with the negative attitude of people towards investments. It is especially difficult for beginners – their relatives and friends begin to dissuade and tell scary stories of those who were deceived and lost all their savings on investments. Stories also periodically appear in the media about how an employee of some broker or bank ran away with clients' money, how the promised mountains of gold turned into black holes of capital losses.Is everything really so scary in the investment market, who is to blame for all this and how to protect yourself from fraud on the stock exchange?Who is a brokerA broker is a professional bidder. He is an intermediary between the exchange and the investor. Not all bidders can trade directly on the exchange, there are certain restrictions for this. Organizations that do not have direct access to trading on the exchange, as well as individual investors, can only trade on the exchange through an intermediary broker. The broker registers the client on the exchange, organizes the client's technical access to trading, withholds taxes in accordance with the legislation. For its activities, the broker charges clients a commission, which depends on the chosen tariff and the operations that the investor performs on his account. A bank or an investment company with a special license can act as a broker.Thus, in his investment activity, the investor contacts directly with the broker. Therefore, choosing a broker is very important. The client's capabilities also depend on the broker: available exchanges and a set of tools, the threshold amount of investment, costs and quality of service. Well, if something goes wrong, it is logical to assume that who is to blame? - broker!Broker's deception or investor's mistake?So how can a broker cheat? Next, let's look at the main traps that an investor can fall into and which can cause the loss of a significant part or even all of the funds. We will immediately warn you that there will be no loud revelations. Not all the troubles and losses in investments are deception of the broker. An investor can sometimes make mistakes himself, be led by fabulous promises, make rash decisions."He who is warned is armed" - it is important for an investor to know about all the nuances, since mistakes in investing can cost too much.Forex brokersMost often, well-known fraud schemes are associated with the Forex market. In general, Forex is an over-the-counter interbank foreign exchange market. That is, in principle, individuals cannot be participants in this market. However, there are a huge number of offers on the Internet to make money on Forex / Forex / FX, and so on. At the same time, such earnings are positioned as investments, trading, and organizers as brokers. However, such activities have nothing to do with investments. This is the market of derivative financial instruments - essentially a casino where bets are placed on changes in the exchange rate of a currency pair. And in the casino, as you know, the casino wins. No one brings these individuals to any foreign exchange market, and we are not talking about real currency trading. And, despite the fact that an article about Forex dealers appeared in the law "On the Securities Market" (they are dealers, not brokers), and the Regulator even issued licenses to several Forex dealers, this market has not become safe. The number of scammers is large, and the number of people who want to get rich here and now is no less. Clients are offered training. You can start trading with small amounts that allow you to win first. Appetites are growing, and so is leverage. Unlike a deposit and traditional investments in the stock market, such games really usually end with a loss of funds. If the client still wins, there may be problems with the withdrawal of funds, under various pretexts: for example, to additionally replenish the account to withdraw income, or to wait for some time. And they can withdraw funds in an unknown direction with the help of frankly fraudulent actions. The fantasies of scammers are limitless.Thus, real brokers have nothing to do with it, and forex games have nothing to do with real investments.Read more: Forex broker: how to choose a good brokerScam brokersThe securities market has its own schemes of deception, but they are all based on the same desire of the client to get rich quickly and easily, which scammers use with might and main. Customers are persistently lured by tens and hundreds of percent of profits, "super promotions", bonuses, cashbacks, exceptional offers, put pressure on the need to make decisions quickly, without giving time to think. An experienced investor will not be led to such offers, and an inexperienced one will be offered a consultant or mentor who will accompany his transactions. While the deposit is small, customers make a profit, and are more willing to invest more money. The "broker" is very attentive and usually aware of the financial situation of his client. Further, the options for the development of events may be different, depending on the credulity of the client and the imagination of scammers. For example, a consultant may inform you that a great deal is planned, offer to make a bigger deposit in order to break a big jackpot. And if the client no longer has his own money, he will offer a loan. Trusting clients allow the broker's employees to make transactions on their behalf without instructions from the client himself, issue a power of attorney to perform transactions on the brokerage account, provide access to the account (login, password). This is how deceived investors appear, whose assets are "merged" by a broker, or disappeared together with a personal manager. In this case, yes, the broker is a fraud, the only question is, was there a broker (a real, licensed bidder), and who and why gave him a power of attorney, provided direct access to the account?Each broker may well have its own trading platform, and this is normal. However, not all platforms are certified. Fraudulent brokers can install special programs on them that ensure price slippage, delay execution of orders, limit the client's profitability when trading derivatives, fake price charts, and other tricks that are not always noticeable to the client, but are very reflected in the state of his account. These schemes relate more to trading, rather than long-term investment, but you need to know about them in order to understand how important it is to choose the right broker.Chargeback - challenging the transaction. When the client realized that he was deceived, he can try to return the money from the false broker by contacting his bank. This complicated procedure exists, but no one will give guarantees, and it will most likely not work to return the money. The recipient and the broker may be completely different persons, the recipient may have disappeared altogether, or the client transferred money to an individual on the card, or the client does not have enough documentary evidence, and the bank is not eager to bother, some employees may not even know about the possibility of such a procedure. However, there are companies that offer money-back services from "black" brokers. If they promise a 100% guarantee and require prepayment, it is likely that the client will fall for the bait of scammers a second time.Read more: Stock market Broker: how to choose it and how to work with itClone sitesClone sites that completely duplicate the interface of the original site. The difference may be in just one sign in the address bar. The site may contain all the necessary information and documentation - information about the organization and license, only fake. Such sites belong to scammers, and the money transferred using such sites, the details specified there, will go to the scammers, and not to the client's brokerage account.Overnight on the broker accountOvernight is a loan of securities that the broker, with the consent of the client, takes from his brokerage account for his short-term transactions between trading sessions at night or on weekends and undertakes to return before the start of the trading session. Remuneration is paid to the client for overnight transactions. At the same time, the client himself allows the broker to perform such operations with his securities, sometimes without even suspecting it. This item can be included by default in the brokerage agreement. Of course, this cannot be called fraud, unless this clause of the contract is deliberately hidden from the client. But this is an additional risk for the investor. After all, in the event of a sharp jump in the prices of borrowed assets, a situation may arise when the broker will not be able to redeem and return the securities to the client. And as you know, assets on brokerage accounts are not insured. Therefore, in this case, it is up to the client to decide whether to allow the broker to make overnight transactions.Increased broker feesBrokers charge clients a commission for their services, as well as for the services of the depository. The commission amount differs from broker to broker and depends on the selected tariff. The rates may differ significantly from each other and are targeted at different categories of customers. Someone performs ten operations per quarter or per year, and someone per hour. Someone needs access to foreign exchanges, someone does not. Someone is just starting his way as an investor and forms capital with small amounts, while someone is already operating with very significant amounts. The broker can also provide a personal consultant, trader or additional analytics. Obviously, the rates for different customers will differ. Imagine that a client with a small capital chose the tariff with the lowest transaction fee, but at the same time did not pay attention to the presence of a subscription fee on such a tariff. As a result, even if there are no transactions on the brokerage account, it will incur exorbitant maintenance costs. Or an active trader client will choose a tariff without a subscription fee, but with a commission for transactions, as for investors who make few transactions. Its maintenance costs will also be overstated.Read more: What is OvernightTwin tickersThere are companies with similar tickers on the stock exchange and there are cases when investors, either afraid of missing the moment and falling behind the trend, or simply out of ignorance or inattention, bought shares of another little-known company with a similar ticker instead of the shares of the desired company, accelerating the value of the latter to an incredible size. On the one hand, the situation is curious, but it can also become seriously unpleasant, depending on the size of the transaction and the consequences. Here are some examples:APLE and AAPL: real estate investment fund REIT (Apple Hospitality Reit) and the well-known "apple" (APPLE). As a result of confusion, you can become the owner of such different assets:ZOOM and ZM: In April 2020, investors mixed up the tickers and instead of shares of ZOOM VIDEO COMMUNICATIONS (ZM - developer of video conferencing service) bought shares of ZOOM TECHNOLOGIES (ZOOM is a supplier of wireless communication equipment, currently ticker ZTNO), as a result of which the price of the latter soared by almost 800%, but not for long.TLSA and TSLA: These twin tickers also represent very different companies. The well-known technology giant TESLA and the company from the biotechnology industry Tiziana Life Sciences.In this case, of course, there is no deception, this is the mistake of the investor himself. Such a mistake can end up being expensive. Therefore, when applying for the purchase of an asset, the investor should be very careful.Read more: Practical advices on choosing a Forex broker for a beginnerMargin tradingMargin transactions are transactions with leverage, on borrowed funds provided by the broker. If successful, such transactions can bring multiple profits. However, you need to understand that if an investor makes a mistake in his calculations and strategy, then losses can reset the investor's capital. Therefore, before entering into such transactions, you should evaluate your capabilities, strategy and risks well. As Warren Buffett said, "If you combine ignorance and credit, you will get very interesting results," and it is unlikely that he meant fabulous profits. If the possibility of margin lending is not disabled in the settings of the trading program, the investor may accidentally open such a deal without even knowing about it. And this, too, is no longer a broker's fraud, but an investor's own mistake. The broker offers opportunities, and it's up to the client to decide whether to take advantage of such opportunities or not.Trading robotsTechnology is our everything. The robot is an automated trading program that connects to the interface of the broker's application or terminal and, according to a given algorithm, opens and closes transactions on the exchange, also analyzing the price movement of the instrument in accordance with the settings. Robots are more relevant for traders, not long-term investors. A trading robot is significantly faster than a human. Some robots can make up to 1000 trades per second. There is no fundamental analysis, emotions – only indicators, signals and an algorithm. The robot can trade 24/7 and monitor several instruments at the same time. This can greatly facilitate the trader's work, as well as his capital. Is the speed of trading and the number of applications so important?A trading robot can, of course, be used if a trader understands how it works, what settings and algorithms it has, regularly checks and adjusts it to the market. If not, then one day the algorithm can drain all the capital at its tremendous speed. Besides, if someone has created a robot that can make the owner rich in a short time, why would the developer sell it? After all, the more users of the robot, the less they earn. And which of the developers of trading robots is listed in the FORBES lists? And even if the developer really sold the robot with a profitable strategy that worked well in a certain market situation, the robot may not be adapted to another situation.Deciding whether or not to use a robot is also the prerogative of the investor himself, and if something goes wrong, there will be no one to blame.Read more: What are stock trading robots and how do they operateStock market manipulationManipulations on the stock market can be carried out with both stocks, derivatives, and cryptocurrencies. Individual market participants are accelerating asset quotes to sell them at the peak. Advertising, mailing lists, groups-communities of investors in social networks, including paid, fake news, insider information are in use. The object of manipulation is more often low-liquid assets of small capitalization, companies of the "last echelons" (2.3 levels of listing or unlisted list). There is usually little information on the financial condition of such companies. In the absence of market makers and regulators, lack of information, and given the low liquidity and value of the asset, it does not take a lot of money to pump up the price. Manipulation schemes are often based on trading features and traders' strategies.  As a result, manipulators earn money, and those who chased the hype and the crowd suffer losses. Manipulation is really fraud, for which a large fine or a real term can be threatened in America. Manipulations also happen in every country, mainly with third-tier stocks. They often end with a warning and a fine, however, in the case of a particularly large size or an organized group, criminal liability and imprisonment may also occur. Brokers, their employees, and other market participants may be involved in manipulations.How can an investor protect himself from fraud and mistakes1. Careful selection of a broker.The broker must have a brokerage license. It must be posted on the broker's website. You can check the license on the regulator's website. There are many other useful lists and registries on the same site: forex dealers, exchanges, trading systems, depositories, securities issuers and others:2. Really evaluate advertising promises and offers.Investing is always a risk. And the greater the expected profit, the higher the risk. No need to believe fabulous promises to get rich quickly, not troublesome, with a 100% guarantee. There are no guarantees in investments. Aggressive promising advertising, intrusive calls and "burning" super-offers should be treated with caution.3. Do not follow links from advertising offers in social networks and messengers.Perhaps the link will lead to a fraudulent site. It would not be superfluous to check whether the connection on the site is protected: the image of the lock at the beginning of the address bar.4. If you fall for the bait of scammers, you can contact the competent authorities about fraud, and your bank about the possibility of a chargeback. The probability of a refund is low, but there is a chance, and a considerable one, to fall into the trap of scammers for the second time, trying to carry out a chargeback with the help of intermediaries (perhaps the same ones who cheated the first time, but have already "retrained").5. Select the tariff deliberately in accordance with your portfolio and strategy.6. Disable overnight in the broker's application settings, for greater reliability, especially in a volatile crisis market.7. Disable the ability to make margin trades if the investor does not have sufficient knowledge and experience for margin trading. Everything can also be done in the broker's application or in the investor's personal account on the website.8. Carefully weigh whether it is worth using robot programs for trading and auto-research for investment. It may be much more effective for an investor to be trained to understand how to build and manage their investment portfolio. It is worth recalling Warren Buffett's quote again: "The risk comes from not knowing what you are doing."9. Carefully evaluate the asset before buying. What is the idea in this asset, what is its value and source of profit, does it correspond to the investor's strategy, is the price for the offered value adequate? Fundamental analysis will avoid manipulating asset prices and buying a dummy at a fabulous price. Also, preference should be given to highly liquid assets with large capitalization, which are difficult and expensive to manipulate.10. Invest in long-term debt. Traders are more susceptible to fraudulent manipulations, as they trade on news and price fluctuations. Technical analysis, signals, indicators, and often margin lending are the main tools of traders. And this is always a much greater risk than a reasonable investment in long-term investments based on fundamental analysis and diversification.11. Be a reasonable and cautious investor. Listen to official sources of information and make important decisions on your own, relying on your own knowledge, calculations and analysis. Do not follow other people's advice without passing them through the prism of your strategy. Do not give in to panic and hype. Do not forget that where there is money and the desire of people to get rich, there will definitely be scammers. Well, the most elementary thing: do not tell anyone your usernames / passwords. Law enforcement agencies and mass media regularly warn about possible fraudulent actions.Read more: What is Slippage in trading?ConclusionYou should not be afraid of cheating a broker if he meets the selection criteria: he has a license, a large number of active clients, large trading turnover, a certified trading platform, a convenient application, a tariff policy and a set of tools suitable for the investor, access to the trading platforms necessary for the investor, good customer service. You should be more afraid of your own rash actions, unjustified risk, lack of knowledge.As W. Buffett said, "The most important investment you can make is to invest in yourself." This is the safest investment and the most profitable. It is knowledge that will allow you to protect yourself from fraudsters and your own mistakes and self-deception.Learning is not scary, not difficult and cheaper than losing capital on scammers and your own mistakes. You can start with free information, which in our age of information technology has become more accessible to everyone than ever. However, it is worth filtering the information and checking its sources. You should trust only those who have achieved success themselves, invest their own funds, and were able to save and increase capital not only during periods when everything is growing in the market, but also during periods of corrections and crises.
Oct 19, 2022
IndexaCo
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The market is falling. What should investors do
The market is falling. What should investors do In 2022, there is a lot of talk about the crisis and recession. Everyone feels that something is wrong in the economy - the costs of habitual purchases have increased and, perhaps, what they have been saving for for a long time has become significantly more expensive. In addition, many economically active people are also private investors. Moreover, a significant increase in the number of investors occurred in the last 2 years, when deposit rates were not pleasing, and investments in the stock market showed impressive results. After the growth of stock markets in the post-crisis period, 2022 has become a real test for investors. First of all, for beginners who have just joined the ranks of investors. Pros could also face certain emotional difficulties.The stock market and the quotations of individual stocks can not only rise, but also fall. This is an axiom. Sometimes the drop can amount to tens or even hundreds of percent. Often investors do not understand what to do when quotes and the amount on the account "melts before our eyes". In this article, we, as practitioners whose investment portfolio has gone through a lot since 2015, but at the same time has shown and is showing decent results, will share our experience. We will tell you what is worth and what is not worth doing during the fall of the markets. Perhaps for someone these tips and recommendations will become a soothing pill when the first panic attacks appear.Calm, only calm!It is important to maintain psychological calm in a crisis, and it is doubly important for an investor – this will help avoid impulsive actions in the market, which you may regret later. There are a few simple rules that a reasonable investor should definitely not doDo not cook in the flow of negative newsIn the modern world, for most of us, the main source of news is the Internet. One has only to click on the title on a certain topic once, the search engine will immediately helpfully fill up the feed with such news. The most "clickable" news is negative, so it is not surprising that the reader of the news feed turns out to be an unwitting prisoner of the flow of negative information. The same principle works for the media – of all the events, journalists are more likely to talk about tragic ones or thicken the colors by placing the right accents. What can we say about the Internet or the philistine media, if even professional publications "sin" like this? You can even conduct an experiment by entering the query "crisis", "recession", "market collapse" and so on in the search engine. It turns out that everything will happen literally tomorrow, and you are not ready yet.It is important to understand that the objective picture of the world is often different from the one that is formed from the news. In addition, there are always more negative messages in a crisis, periods of falling markets, and due to the peculiarities of modern media, they usually fill the news feed. Do not read the news too often - it can cause constant background stress. Therefore, one of the important psychological qualities of an investor is to be able to emotionally distance himself from bad news and remain calm. It is a calm and balanced state that will help you not lose your way and follow the chosen investment strategy.Of course, it is impossible not to be interested in what is happening at all. Moreover, in the modern information world, important information obtained from reliable sources can help you make the right decision in time. Therefore, it is important to set up your sources of information in such a way as to weed out the unnecessary and not miss a really important event in the stream of momentary sensations.Do not look every hour at the changes in quotations, remember about long-term investmentOf course, an evergreen portfolio is fine. However, stocks cannot always show growth – their peculiarity is that they never grow in a straight line, although in the long term the market is always growing. The investor should be prepared for the fact that some stocks in the portfolio are growing, some are falling. In a crisis, all stocks can fall. But the stock market, like the economy, is cyclical: a crisis always gives way to a boom, and a period of growth is followed by a recession. If we choose fundamentally reliable assets in the portfolio and are confident in our choice, the momentary market conditions cannot plunge us into panic.If we look at the dynamics of the market over the past 30 years, we will see that there have been both corrections and collapses in history. The reasons and the depth of the fall were different, but what was the same was that any market decline ends, and recovery follows.Read more: Recession in the US in 2022Don't be afraid and don't panicThe stock market and the economy as a whole are developing cyclically. Periods of boom and recession have followed each other throughout the history of mankind. Of course, a lot of things collapse in a crisis, and even stable, well-developing companies may experience difficulties. However, you should not succumb to the influence of the crowd and panic, even if everyone around is just talking about the crisis. You will say it is very difficult. Indeed, it is not easy to resist when, for example, all stocks fall by 20 or 30 percent. The only thing that can be contrasted with emotions is reason. When a person reasons logically, emotions recede into the background.The Council. It is important to maintain the ability to reasonably assess what is happening. Knowledge of the basics of investing and financial literacy and the ability to apply them in practice will help to preserve the accumulated capital.Be critical of investment adviceWhat is most interesting, both experts and people who are far from investing can give advice. A separate category in the advice section is bloggers' advice. Currently, bloggers write and shoot videos about everything that subscribers read and watch, not counting explicit advertising. Investments are popular. Please, there are plenty of gurus on the Internet who give out content about investments every day. There are two main trends in the information flow of bloggers, which are better treated critically, especially in a crisis:1. It is profitable to invest - not for an ordinary person.Bloggers often write that only large investors can make good money on insiders and gray schemes at the expense of inexperienced "hamsters". What is the interest of such an author, it is clear – articles and videos with revelations always collect more views. And a novice investor wants to avoid mistakes. Someone has already burned themselves on financial pyramids and similar scams and is starting to look for what the catch might be in investing. Especially a lot of such "sensational" materials appear in times of crisis – everyone is worried about the future, and in a crisis it is as vague as ever. Therefore, bloggers write about conspiracy theories, subscribers are disappointed in the possibilities of the stock market, merge existing assets at any price and leave the market.The Council. If you sometimes find yourself reading another revealing article about conspiracy theories in the stock market, it is better to devote this time to learning the basics of investing. This is the only reasonable way out – it is fundamental knowledge that provides a solid foundation and helps to gain confidence in their actions. It is important to choose professional training in the basics of the stock market, investments and financial literacy, because there are also a lot of training offers.Read more: How to participate in an IPO2. The second topic frequently encountered by bloggers is tips on which securities to invest in.Such materials also collect a lot of views. Consulting an independent financial analyst is expensive, and bloggers give out advice for free – and the investor shifts responsibility for the final decision from his shoulders to the blogger. This is a common psychological trap of a novice investor: to look for someone who will confidently recommend what you can invest in profitably. Of course, bloggers argue their choice one way or another, without this, the recommendations would be completely unconvincing. In addition, it cannot be said that advice on the Internet is useless – perhaps there is a rational grain in them. But in order to separate really professional advice from populist statements for the sake of views and likes, it is necessary at least to understand the basics of investing. Today it is available to everyone. Moreover, investment literacy is currently a vital skill, as relevant as the ability to drive a car, for example. It is necessary to be clearly aware that only we ourselves are responsible for our investment decisions. The blogger got the right number of views – and has already earned. It does not matter to him whether those who used the voiced investment will eventually earn.The Council. It is necessary to develop at least a basic level of expertise in investments in order to be able to adequately perceive information flows from different sources. And of course, to minimize the flow of unprofessional information is not to read or watch bloggers who give out daily content for the spite of the day for the sake of views and likes.What not to do when markets fallAbove, we tried to understand what behavior in everyday life is best avoided by an investor in order to maintain calm and the ability to rationally treat a crisis situation. However, even if the above recommendations are followed, it is worth remembering that in no case should you do on the stock market in a crisis.Read more: How to make money in crisisDo not sell shares on emotionsWhen everything is falling, it may seem like a reasonable decision to save at least something and sell the shares right now. Objectively, this may mean fixing losses. Any investment decision should be balanced, and in a crisis – doubly so. It is important to conduct a fundamental analysis of the portfolio once again. If the company retains its potential and continues to develop even in a crisis, do not sell, but, if possible, average the position.Do not violate the rules of diversificationIn a crisis, even fundamentally attractive stocks can be very cheap. Investors are tempted to buy the paper they like for a large share in the portfolio. However, no one guarantees that the selected stock will recover or even increase in price, that the company will successfully cope with the crisis. In a period of uncertainty and high risks, it is more important than ever to diversify investments as much as possible so that the possible fall of one asset does not drag down the entire portfolio.We are talking more about stocks now - they attract everyone's attention in times of crisis. Of course, a balanced portfolio should also include bonds and, possibly, other financial instruments. You can read more about the diversification of the investment portfolio here.The same principle also applies to property as a whole: it is in a crisis that the temptation is great to shift capital into shares in the hope of profitably acquiring cheaper assets.Do not bring "last money" to the marketAll crises end sooner or later. However, this may not happen tomorrow or the day after tomorrow. In no case should you invest money in stocks that you may need in the near future, even if the price seems very attractive. Recovery after the crisis may take several years, and during this time the invested funds will be "frozen".Read more: Diversification of the investment portfolio: definition & methods of implementationDo not buy assets without fundamental analysisAs much as an inexperienced beginner wants to sell everything on a wave of panic, so much more sophisticated investor in a crisis wants to buy as many shares as possible at an attractive price. This is another extreme that can trap investors during a crisis. Of course, it is worth taking advantage of the opportunity to profitably acquire good assets, however, first of all it is necessary to adhere to the principles of reasonable investment. In times of crisis, fundamental analysis will help to protect against buying unreliable assets. It is important to analyze and understand whether the selected company will be able to survive the crisis, and only after that plan to buy shares.Do not expect that the market will grow tomorrowUncertainty at the moment is characteristic of the stock market as a whole – you can never predict for sure the further movement of quotations. In a crisis, the volatility of securities is even more unpredictable: when it seems that the bottom has been reached, the fall in stocks may continue (remember the well-known investor saying "To buy at the bottom - the second bottom as a gift"). Conversely, when an investor expects a further decline in prices, a market reversal may occur.Do not use margin dealsIn times of crisis, investors are tempted to bet on rapid growth or vice versa, on the continuation of the fall in quotations, and conduct transactions with leverage for a significant amount for the portfolio:borrow shares from a broker and sell them now (a "short" transaction) in the expectation that the price of the paper will fall further, and it will be possible to purchase it at a lower price and return it to the broker;borrow money from a broker and buy shares now (long or long position long sale) in the expectation that the price of the paper will rise, and it will be possible to get a positive difference after its sale.Leverage multiplies the result of the transaction - the investor can significantly increase profits or losses compared to the result that he could get from the transaction at his own expense. Of course, borrowed funds are provided by the broker at a certain percentage. Transactions with leverage are risky, they must be treated with the utmost care. Especially in a crisis, margin transactions can be a "disservice" to the investor. If the trend is guessed incorrectly, a large volume of margin transactions can lead to a margin call, that is, to the forced sale of assets by the broker to repay the debt on margin lending. The sale will be carried out at the market price at the time of sale, which may be unprofitable for the investor. Therefore, it is absolutely not necessary to use margin transactions in a crisis in the expectation that the market will grow or fall in the near future.Read more: Leverage on the stock marketConclusionIn this article, we have considered a few simple recommendations that will allow an investor to save capital in a crisis.To maintain emotional calm, you need:Do not cook in the flow of negative news.Do not look at the price changes every hour, remember about long-term investment.Be critical of investment advice.Don't be afraid and don't panic.There are also several principles of reasonable investment, which are especially relevant in a crisis:Do not sell shares on emotions.Do not violate the rules of diversification.Don't bring all the money to the market.Do not buy assets without fundamental analysis.Do not expect that the market will grow tomorrow.You can learn to be calm in a crisis situation, you can take financial literacy training and gain a certain level of expertise in investments. However, the stock market in a crisis is fraught with some temptations that can even encourage a relatively experienced investor to violate the basic principles of reasonable investment. Therefore, in order to preserve capital in turbulent times, it is necessary to strictly observe the principles given in the article. Only by understanding how to prevent the loss of existing wealth, you can move on to the next step – to increase capital.Read more: Basic knowledge of fundamental analysisAs you know, in a crisis, many assets are very cheap. Therefore, the famous phrase of Winston Churchill is the best fit for reasonable investors: "Never let a good crisis go to waste." However, the choice of reliable assets is a separate topic to which more than one article can be devoted. You can read a lot of articles or blogs about reasonable approaches in choosing reliable and promising securities, and it's better to see and hear.
Oct 18, 2022
IndexaCo
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Description of Stock Market in India
USD/INR, currency, Description of Stock Market in India India is one of the fastest growing countries in the world by many indicators, primarily by the dynamics of the parameters of the economy and population. In terms of GDP, India is already the 6th economy in the world at the moment and continues to develop, both due to internal sources of growth and by attracting external investment due to an attractive working environment. All this is accordingly extrapolated to the stock market, which shows impressive results even in the conditions of a global correction.So far, investing in the Indian stock market for an ordinary investor can be considered exotic, but the same thing happened recently with Hong Kong stocks. In this article, we will take a closer look at the stock market of India, study its parameters and structure. Since the stock market is an integral part of the economy of any country, first of all we will study the parameters of the economic development of the region.Economy of IndiaIndia is a country with an emerging economy, therefore, it is characterized by faster growth. Moreover, India's economy shows a stable outstrip of the global average GDP growth, and is currently the fastest growing in the world with an estimated growth of 6.5% in 2022.India's GDPIf we look at the dynamics of India's GDP in comparison with the indicators of some countries, we immediately notice a clear upward trend without significant fluctuations, which cannot be said about most other countries. Thus, the average annual growth rate of India's GDP since 2004 (CAGR) is 9.2%, while in the UK this value is only 1.6%, in Germany - 2.4%. This once again proves the faster growth of emerging economies, in particular, India, which has almost caught up with the UK – the forecast for the GDP of India and the UK for 2022 is $3.3 trillion and $3.4 trillion. accordingly.Currently, India is in 6th place in terms of GDP after the USA, China, Japan, Germany and the UK, but if the achieved growth rates of the region's economy are maintained, India can easily reach 3rd place in the future, overtaking Japan, Germany and the UK.Let's also look at India's GDP growth compared to other countries. This time, let's take strong economies for comparison. In India as a whole, outstripping growth is visible, the exception is the COVID-19.Read more: The world's leading Stock Exchanges and features of their functioningGDP at purchasing power parityAnother key indicator of the economy is GDP at purchasing power parity (PPP), that is, GDP adjusted for the price level in a particular country. This is a more objective and realistic indicator. GDP PPP takes into account the price level in the relevant country and allows you to determine the increase in real volumes of goods and services. There are very interesting data here: China already occupies a leading position, which it will only consolidate in the future (in terms of GDP at current prices, the first place is for the United States), and India is in 4th place and has the greatest potential with the ability to overtake the United States by 2040. If we base on the forecasts of GDP PPP of the international consulting agency Pricewaterhouse Coopers, then by the growth of this indicator over 18 years, India can outpace China by more than 2 times and the United States by more than 3.India shows really impressive results achieved due to the synergy of several factors:A competent economic policy aimed at diverse development and elimination of weak points of the economy.Development of important industries and especially agricultural (2nd place in terms of volume in the world and 17% of GDP). Industry and especially pharmaceuticals, including biotechnologies, are developing with renewed vigor. In this direction, India has become one of the industry leaders in a short period of time.Population is probably the main factor. About 1.4 billion people live in India. people (the population of United States – 301.7 million), many of whom have access to a good education, speak English, and 40-45% of the population are young people under 25. India is also now a leader in outsourcing thanks to cheap labor and competent specialists.If we look at the indicator of foreign trade turnover, we will see a multiple increase in exports of goods from India: since 2000, it has grown 9 times, the key sales markets are the European Union and the United States with shares of 17% and 16%, respectively. Interestingly, only 4% is exported to China. In India, with the development of new industries, production is actively growing, which leads to an increase in exports and greater independence of the region from the global economy, which we already see in the absence of a drop in GDP in crisis years. But for now, the country is still dependent on energy imports.The huge population of India is not only an advantage, but also brings some problems. Thus, there is a large number of poor people in the country, and this is a problem that the government is actively fighting: according to various data, the share of the poor population in India has decreased from 40-50% in 2005-2007 to 10-15% at the moment.India is the second country by population, while by area it is the seventh. Another consequence of the excess population is food shortages and unemployment. But here, too, the state is looking for various ways to solve the problem, trying to avoid the path of China, where the opposite situation has now arisen due to excessive birth control.But often impressive economic results can be crossed out by high inflation.Inflation in IndiaThe average in 2022 was 7%, which in current conditions is not a very high value, but higher than the target value of the Reserve Bank of India (RBI) at 2-6%. For comparison, the current inflation in the US is 8.3%, in the eurozone 9.1%.Read more: How the stock price is formed on the stock exchange: basic principlesStock Exchanges in IndiaThere are quite a few small exchanges in India, but the main and largest of them are 2:National Stock Exchange of India Limited (NSE) is the National Stock Exchange of India. It was founded in 1998 and is currently the largest financial market in India and the 4th trading platform in the world in terms of stock trading volume. The total capitalization is about $3,259 trillion, and securities of 2012 companies are placed on it. The exchange is the main trading platform for companies preparing for listing, and is highly technologically advanced (modern equipment with automated trading, settlement processes, etc.).The main index of the exchange is Nifty 50 with the ticker NIFTY - it includes the largest representatives of the Indian stock market.Bombay Stock Exchange (BSE) is the Bombay Stock Exchange. Founded in 1875 as an Association of Local Shareholders and based in Mumbai. It is one of the largest exchanges in the world with 5,000 companies listed on it and a total capitalization of $3,584 trillion.BSE is the first stock exchange in Asia, it was she who launched the development of the equity capital market in India. The main index is the S&P BSE Sensex (ticker SENSEX), which includes the 30 largest and most actively traded BSE shares. It was formed in 1986 and is the oldest stock index in India.In general, both exchanges are similar to each other, as they work on the same trading mechanism, settlement process and trading hours (from 9:55 to 15:30 Indian time). There is a similarity in the list of traded instruments - almost all major issuers of India are listed on both exchanges.Also, exchanges have a common industry structure. At the same time, unlike the US market, the structure is multilevel – with more detailed details:The macroeconomic sector is the business activity of a company at the macro level.Sector is a more specific sector of the company.Industry – the industry classification of the company.The main industry is a classification at the micro level, indicating the main activity of the company.Interestingly, there are no market makers on the exchanges, and trading is carried out through an open electronic book of limit orders, which makes the market more transparent, but less liquid.Due to the fact that all large companies are listed on both exchanges, the main indices of trading platforms are very strongly correlated with each other.Let's start with the industry structure of the entire stock market of India.  The absolute leadership with a share of 24% is occupied by finance. The rest of the industries are more evenly distributed and do not exceed 10% share, which indicates a good diversification of the market.Read more: What is an IPO: how the company goes on the stock exchangeSectors of the Indian Stock MarketLet's take a closer look at the main index of the Bombay Stock Exchange Sensex, which includes the top 30 companies in India.The average P/E is 34.7 (Nifty has 33.9), which is quite a large value and indicates a revaluation of the Indian market. In general, the Indian stock market has been overvalued for a long time due to the growth of the economy as a whole. Let's look at the top 5 most expensive companies (in terms of capitalization). Their list is the same for the indices of the main trading platforms of India. CompanyIndustryCapitalization, billion $P/EReliance IndOil and gas production201.525.4Tata ConsultInformation Technology138.929.8HDFC BankBanking107.020.7ICICI BankBanking77.921.8Hindu UnileverConsumer Goods 66.8Taking into account the fact that 24% of the market capitalization is occupied by the finance industry, it is logical to see 2 of its representatives in the TOP 5 by capitalization at once - 2 banks. If you look at the structure of the entire index, the financial sector companies are also larger than the rest.It is interesting to compare the profitability of the Indian market in comparison with the main American index (S&P500) and another developing country – Brazil (Bovespa index).Comparison of the profitability of the Indian market in comparison with the S&P500If we take the data after the 2008 crisis, the Indian market is significantly ahead of both the United States and Brazil.Read more: P/E Ratio: what it is needed for and how it is calculatedConclusionThe stock market of India is primarily a story about growth. India's economy is showing the brightest growth among other emerging economies. This growth is expressed by the positive dynamics of financial indicators of companies and forms a corresponding trend in stock market quotations. In 2022, when most markets are under pressure, India continues to show outstripping growth, as a result of which the average P/E of stocks has risen to 34. Of course, this increases the risks of a possible correction, which are already overstated in a developing country.
Oct 18, 2022
IndexaCo
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HKD: Is it worth buying the Hong Kong Dollar
HKD: Is it worth buying the Hong Kong Dollar The Hong Kong Dollar (HKD) is the official currency of the Hong Kong Special Administrative Region in China. Today Hong Kong is a kind of "state within a state". Hong Kong was a British colony for more than 150 years, but in 1997 it was transferred to the PRC. According to the agreement between the PRC and the UK, Hong Kong has significant autonomy until 2047. That is, until 2047, Hong Kong has full economic and political independence from China. The city can independently exercise executive, legislative and judicial power, and China is responsible for foreign policy and defense.Basically, the attractiveness of Hong Kong lies in:independence and freedom of financial institutions;free market;low taxation;absence of import duties;low level of corruption;a stable financial system;independent currency regulation, etc.All these advantages allow Hong Kong to be considered an international trade center and the global financial center of Asia. The presence of such statuses contributes to the wide spread of the national currency - the Hong Kong dollar.The Hong Kong dollar first appeared in 1895, and today it is among the most stable currencies in the world. Today, investors are increasingly eyeing the Hong Kong dollar as an alternative to the usual US dollar and euro.How the Hong Kong Dollar exchange rate is formedThe main features of the Hong Kong dollar:1. Currency regulationUnlike most currencies, Hong Kong commercial banks, not the authorities, are engaged in issuing Hong Kong dollars. There is no Central Bank familiar to the world in Hong Kong. The control functions are carried out by the local supervisory authority Hong Kong Monetary Authority, which is part of the Hong Kong Administration. The main task of this supervisory authority is the regulation of the exchange rate and, if necessary, the implementation of currency interventions from reserves.Read more: Is it worth buying Chinese Yuan CNY2. Fixed rateThe Hong Kong dollar has a fixed exchange rate. Since 1983, the Hong Kong dollar has become fully pegged to the US dollar, the exchange rate is regulated using the "currency board" regime, in which the Hong Kong dollar exchange rate can fluctuate against the US dollar within a narrow corridor from 7.75 to 7.85 HKD.The figure below shows a chart with the historical value of the US dollar to Hong Kong dollar.As we can see, indeed, for a long period, the quotes of the Hong Kong dollar against the US dollar are in a narrow range from 7.75 to 7.85 HKD for 1 USD.The fixed exchange rate of the Hong Kong dollar is an attractive condition when applying for a loan for large capitals: the stability of the exchange rate eliminates the risks of interest rate growth, i.e. companies can transparently regulate the amount of payments to borrowers. This, of course, allows the Hong Kong dollar to be an attractive international instrument of saving and investing capital for several decades.3. Currency securityThe security of the currency, as a rule, is determined by the availability of foreign exchange reserves from the issuing local regulator. The size of Hong Kong's foreign exchange reserves is about 450 billion US dollars, which gives it the 7th place in the world ranking of the most secured currencies. The money supply of Hong Kong is about 5 times the size of foreign exchange reserves, i.e. the Hong Kong dollar is backed by foreign exchange reserves by about 20%. This value is higher than that of the yuan (about 8%), but lower than the security of the Russian ruble (taking into account the blocked reserves of more than 50%).Advantages of the Hong Kong DollarStable exchange rate. Reliable linking of the exchange rate to the US dollar allows the Hong Kong dollar to protect funds from the depreciation of the ruble.Hong Kong is a global financial center. This contributes to the wide spread of the Hong Kong dollar in the world.Disadvantages of the Hong Kong DollarLow currency prevalence. It is not used often in trade relations, which makes the prospects of the currency more uncertain.In general, the Hong Kong dollar is a good instrument for long-term conservative investments in order to protect capital and can be part of a widely diversified investment portfolio. But, unfortunately, the Hong Kong dollar will not be able to fully relieve investors from infrastructure risks.Read more: USD/CNH - description, characteristics, forecasts and feautures of pairConclusionThe Hong Kong dollar is one of the most traded currencies in the world. The main reason is the stable exchange rate, which is actually pegged to the US dollar. For more than 40 years, the Hong Kong authorities have been ensuring a stable exchange rate of the local currency, avoiding devaluation by conducting currency interventions.
Oct 18, 2022
IndexaCo
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Stock tickers on the stock exchange
Stock tickers on the stock exchange All stocks traded on world stock exchanges have a lot of parameters. Some change every second or with a certain frequency (the value of the paper, the dividend yield, the number of shares in circulation, the number of securities in the lot, the level of listing, etc.), but there is also a constant parameter that operates throughout the "whole life" of the security. This is her ticker. A ticker is a short name of a financial instrument. A fairly clear parameter. It can be said that one of the basic parameters of practical investment. But there are points that will be interesting for both beginners and practicing investors to learn about.Ticker: its meaning and functions, tickers on different exchanges, mistakes of investors "with the participation" of tickers – we will tell about this in our article.What is a tickerTicker comes from the English word ticker, which means a symbol. A ticker is a symbol or a short name that is assigned to a security at the time of its registration on the exchange platform. The ticker is its unique identifier within this exchange platform.Ticker is a combination of letters of the Latin alphabet. Sometimes a ticker is an abbreviation of the name of the issuing company:Apple's AAPL tickerAMZN - Amazon's tickerIBM – ticker of International Business MachinesFor the most part, tickers are created as similar as possible to the company name in order to minimize the time of paper recognition in the windows of terminals and brokerage applications.But still there are tickers of some stocks that are completely out of tune with the name of its bearer (the issuing company). This may be due to the rebranding of the company when it changed its name. A ticker is a parameter that is given at the issuer's IPO (initial public offering on the stock market), it is stable throughout the "life" of the stock. Exceptions are reorganization processes, as a result of which a new business is formed – mergers and acquisitions (the issuer is part of another public company), the separation of individual companies from their holding. This is one of the reasons for the discrepancy. But there may be others. Each case is different.The stock ticker, trading code, Ticker symbol, Stock symbol are all one parameter that allows the investor to find the necessary trading instrument in a quick way. Also, it is the ticker, and not the full name of the financial instrument, that is more convenient to use in various infographics. For example, news resources, running information lines with trading results contain a ticker.On the websites of stock market players and news agencies, you can find a similar scheme - a market map on which companies are represented by their tickers and the block size corresponds to the market share of the security. The color shows the change in the value of asset quotations for the reporting period: growth - green, red - fall.Tickers on different exchangesA ticker is a conditional short designation of a company's stock within the framework of one trading platform.If the shares or depositary receipts of one company are traded on several trading platforms, then the tickers may be both identical and may also have cardinal differences.Read more: What is SWIFT: history of creation, participants and competitorsUsually a ticker is a set of 4-6 Latin letters. But there are many examples when the ticker consists of only one letter. Such examples are not found on the stock market, but there are enough of them on American stock exchanges. Usually, large well-known companies with an impressive history have a short one-letter ticker:F - Ford Motor Company, a well-known global automaker.T - AT&T INC., an American telecommunications conglomerate.C - Citigroup Inc., one of the largest financial holdings in the United States.V – Visa Inc is one of the world's leading companies in the field of payment technologies.M - Macy's, Inc. is a company that operates a large retail chain throughout the States with the same name.A ticker consisting of a set of Latin letters is the most common practice. But there are a lot of differences in the world. So in Japan and China, tickers are written in hieroglyphs. Since Asian markets are international – both local and foreign investors, including large institutions, are present in them, such a designation could have an extremely negative impact on the definition of securities. Therefore, in addition to the hieroglyphic ticker, Asian colleagues have additionally provided an alternative system of digital codes for foreign investors.So, for example, the shares of Asian companies would look like on the stock exchange of Taiwan or Japan:Ticker and ISINA ticker is a conditional short designation of a company's shares within a specific trading platform. An attentive investor may wonder: "Can two completely different companies, but with the same or similar names, get the same ticker, for example, in Europe and the USA? After all, no one and nothing can prevent two exchanges from assigning the same ticker even on the same day?". The answer is that there is no centralized control over all world exchanges in this matter. Therefore, there are real examples of public companies from geographically different trading platforms that have the same or similar short trading parameter:In order to avoid confusion, securities are additionally assigned a unique code within the overall global financial system. It is called the International Identification Code of the security ISIN (International Securities Identification Number). It consists of 12 characters:The first 2 digits are the country code. For USA – US, Jersey – JE, UK – GB, Germany – DE, etc.The next 9 digits are NSIN or the national identification code of the security.The last 1 digit is a check digit.The ISIN code is also used to identify bonds, futures and options. The tickers of securities on each exchange may be similar, but the ISIN of each paper is unique.All broker applications for mobile devices, exchange terminals and websites of stock and currency market participants support the general rules for identifying securities and using their attributes.Read more: What is a stock split? Why do companies split their sharesInvestor mistakes involving tickersThe trend of increasing the number of investment securities on the stock markets, on the one hand, provides more opportunities for choice, on the other hand, the complexity of choosing the best instruments in all this diversity increases, as well as the risks of making technical errors when submitting applications. Choosing the best assets is the topic of a separate and far from one article. But the problem of investors' mistakes (incorrectly put up an application, made a mistake with the number / did not take into account the multiplicity of lots, instead of a purchase application, put up a sale application and "got to the margin") is a consequence of inattention. Statistics on erroneous actions on the stock market have been accumulated: about 5% of all actions on the market are erroneous, which probably indicates that not only beginners are mistaken. And in this error statistics there are real examples of errors due to the similarity of tickers or company namesThe following case is known. Ford, whose securities are traded under the ticker F, is often confused with another less powerful company, Forward Industries, Inc. (manufacturer of protective solutions for hand-held electronic devices). Her ticker is FORD. And therefore, when a car manufacturer comes out with good news, the stock price, the latter gets an impulse to grow.But the most striking example of ticker errors is the case that occurred on October 4, 2013, when the shares of Tweeter Home Entertainment Group (a chain of stores selling televisions) rose by more than 1,000% during the day. The thing is that at that time the IPO of Twitter was planned. The reason for this incident was the consonance of the TV seller's ticker (TWTRQ) with the name Twitter.There is also a known case when during the day of February 6, 2017, the capitalization of the little-known American IT company SNAP Interactive (now Paltalk, Inc) tripled due to the fact that investors mistook the securities of this company for the papers of the owner of the famous Snapchat messenger, (Snap Inc), whose IPO was just expected.How not to make a mistake with the tickerErrors may be related to the consonance of company names and tickers. Because of such confusion, the investor may not buy exactly what he wanted. From the outside, such mistakes seem absurd, but as they say, "you can't go against statistics." Here are examples of where else an investor can "stumble":Apple Hospitality REIT, Inc is a real estate fund (REIT) specializing in investments in hotel real estate (ticker APLE). Apple Inc is a world–famous technology company, the creator of gadgets with the Apple logo (ticker AAPL).Zoom Video Communications, Inc. is an IT company that creates solutions for online video conferencing (ticker ZM). ZoomInfo Technologies Inc. is a software developer for optimizing and improving the efficiency of marketing departments (ticker ZI).Globaltrans is a company operating in the freight rail transportation industry (ticker GLTR).The list can be continued further. If you have something to share, perhaps even your experience, tell us about it in the comments under this article.Read more: How to invest in stocks and what you need to knowConclusionSecurities have a lot of parameters. Ticker, ISIN, lot content, listing level are parameters that do not characterize the paper quality in any way. We have considered such a parameter as ticker and ISIN. These metrics are used to identify a security in a wide variety of financial instruments. For an investor, a ticker is important for quickly searching for a paper, searching for information on it in various sources (usually the ticker acts as a hashtag for searching). When working with this parameter, the main task is not to confuse and replenish that 5% statistics with errors related to the similarity of tickers and the names of several public companies.For the investor, the quality parameters of the stock are of primary importance. How reliable it is and how promising it is, what are the sources of growth. And these parameters are not public data that is available to all investors. This data is the result of deep analytics of the company's business. Such an analysis includes both an analysis of the external, internal environment, and an analysis of the financial results of the company's activities. This work may seem extremely difficult, but its result is worth it. In addition, investors currently have a lot of tools at their disposal that facilitate the task of conducting a comprehensive analysis.
Oct 16, 2022
IndexaCo
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