Growth and Value: What's the Difference?

While the majority of American investors understand the importance of diversifying across growth and value investments, few are able to achieve a passing grade on a test of their knowledge of the differences between the two, according to a new American Century Investments survey.

Test your knowledge with the Growth & Value IQ quiz below:

1. Which best describes a growth stock?

a) Stock that offers guaranteed rate of growth tied to consumer price index.

b) Stock in a company specializing in agriculture, lumber, landscaping, and other organic products.

c) A stock in a company demonstrating better than average profit and earnings gains.

d) All of the above.

To Read More...

5 Advantages Of Long Term Trading

Both short term and long term trading can be effective trading strategies, however, long term trading has several significant advantages. These include the effect of compounding, the opportunity to earn from dividends, reduction of the impact of price fluctuations, the ability to make corrections in a more timely manner, less time spent monitoring stocks.

1. Compounding

Time can be investor’s best friend because it gives compounding time to work its magic. Compounding is the mathematical process where interest on your money in turn earns interest and is added to your principal.

2. Dividends

Holding a stock to take advantage of payouts from dividends is another way to increase the value of an investment. Some companies offer the ability to reinvest dividends with additional share purchases thereby increasing the overall value of your investment. Additionally, dividends are more a reflection of a company’s overall business strategy and success than volatile price fluctuations based on market emotions.

3. Reduction Of The Impact Of Price Fluctuations

To Read More...

Retirees investing way out of their depth

It started conservatively but turned into a disaster, writes Cosima Marriner.

The stockbroker Ord Minnett had a well rehearsed sales patter for prospective clients who visited its office behind the Gold Coast racetrack.

''Just 9 per cent of brokers in Australia are licensed to trade options," the prospective clients were told, "and most of that 9 per cent work here at Ord Minnett. We're the experts."

Retirees in their 60s wanting to earn an income from their life savings say they were promised returns of 20 to 25 per cent on every $100,000 they invested with the firm for conservative options trading.

And so people like Mike Rowston, Ann Tyson, John and Yvonne Schweicker, and Ken and Noelene Winton opened accounts.

The relationship started well, they say. The broker traded options on a few blue-chip stocks conservatively, made some good money for them and everyone was happy. ''The market was going well,'' John Schweicker recalls. ''If you wanted to keep your profits small and conservative, it was working.''

But in the winter of 2004 it all turned sour. Within a year many Ord Minett clients had lost all their money - millions of dollars wiped out in increasingly risky options trading. They now say that some of these trades were unauthorised.

Ten former clients have banded together to sue the firm for $2.3 million in compensation. In individual claims lodged with the Queensland Supreme Court, they allege the broker was negligent and breached its duty of care to them. They say they were not properly informed of the risks associated with the options trading, and allege the broker did not tailor its investment strategies to their individual needs.

The case comes as the Australian Securities and Investments Commission considers banning certain financial products as ''too risky'' for retail investors. It is a tacit acknowledgement that the regulator's current reliance on education and disclosure to protect investors may be insufficient.

The ASIC chairman, Tony D'Aloisio, said last month: ''At a retail level we again saw that disclosure didn't necessarily mean investors understand the risks, notwithstanding they had long PDSs [product disclosure statements], long prospectuses, documents.''

The regulator is now examining ''complex'' financial products sold to retail investors.

Ord Minnett declined to be interviewed by BusinessDay. In a statement the firm said it "is of the view that it has no liability in respect of these claims and will be responding accordingly".

It is the second court action Ord Minnett is facing relating to options trading by one of its advisers. Fifteen former clients of a Canberra adviser, Eric Hawley, are suing it for compensation for losses on trading conducted by Hawley. Ord Minnett has already reached settlements with many of Hawley's former clients.

Both cases concern brokers' legal obligations to know their clients. The Queensland claims name an Ord Minnett employee, Ben Leeden, as the private client adviser in charge of the accounts. Leeden could not be contacted by BusinessDay. It is alleged Ord Minnett did not properly supervise his trading.

"Know your client rules are an ongoing, non-negotiable responsibility of a broker with every trade," says Bernie Knapp, the Brisbane solicitor representing the disaffected clients. "They have to get informed consent from you and your trade has to be in accordance with the risk management factors that the broker is by law required to [identify] when you become a client. They are forbidden by law to invest your money outside those bounds."

Mike Rowston first heard about Leeden in 2002 from a mate at Southport Golf Club. Told this guy was making ''a fortune'' out of options trading, Rowston opened two accounts with him.

And Rowston's friend Ken Winton, a builder from Nambucca Heads in NSW, was fed up with his broker, so Rowston introduced him to Leeden.

Winton would later tell his friends Yvonne and John Schweicker, who owned the newsagency in Nambucca Heads, how well he was doing. So when the Schweickers retired to the Gold Coast they opened their own account with Ord Minnett.

Ann Tyson signed with Leeden of her own accord. Newly divorced, with no income and a home as her only asset, Tyson was looking for ways to make money. Suffering multiple sclerosis, her work opportunities were limited, and the disability pension was not enough to live on. So Tyson started researching the sharemarket, and attended an options trading course. Learning that Ord Minnett was a specialist in options, she signed with the firm.

And for a while the broker kept its clients pretty happy. But then the stakes started rising.

According to the Supreme Court claims, instead of trading five contracts at a time, Leeden suggested to clients they trade 10. And instead of sticking to safe stocks like those of the big banks, he started taking out contracts on more volatile shares.

The clients say they did not understand the implications of the more aggressive strategy. Ord Minnett denies these allegations. It says it has yet to receive "a full and proper account of the particulars of the breaches that have been alleged".

"We have undertaken a comprehensive review of the trading undertaken by the plaintiffs and we have confirmed that they at all times personally directed the trading and appeared to be fully cognisant of the implications of the trading strategy they employed," it says.

But Ann Tyson says: ''I had something like 15 or 16 positions opened at a time, and that was nuts. It was nuts because there's no way you could keep track of the ramifications of the liability that was on us.''

Mike Rowston agrees. "It started getting way, way out of hand and we didn't realise it. He was going way beyond our ability to satisfy [our liabilities] - way, way beyond."

Rowston alleges in Supreme Court filings that he was unaware of the liabilities attached to his portfolio at the time because Leeden would only represent the positive position of his trades.

The plaintiffs commissioned a forensic audit of the options trading of their accounts. It found that on a number of occasions Ord Minnett opened trades on the same stocks on the same day for superannuation funds, companies and individuals.

''This list of investors clearly has diverse risk profiles and very different expectations from their investments,'' a chartered accountant, UHY Haines Norton, reported.

''If the investment strategies of each of these diverse investors happened to align to direct Ord Minnett to make the same investment in the same option trade on the same day, then that coincidence would be extraordinarily remarkable.''

Meanwhile, the market was moving against the Ord Minnett clients. This was calamitous because they were trading what are known as naked options: the high-risk practice of selling options contracts without owning the underlying share as protection from an adverse price movement. In theory some naked options positions can lead to unlimited loss.

Whereas other brokers like Commsec require clients to have 150 per cent security (i.e. $150,000 in their account for every $100,000 they trade), the Ord Minnett clients say such limits did not exist for them. Instead, they would receive urgent requests for extra money to cover their looming liabilities.

"You could trade with no security, and when it went bad they wanted the money there and then," Schweicker says. "You put it in, they lost it and then they asked you for more."

The clients say they grew increasingly uneasy about the trading, only to be assured that they would be able to recover their losses if they stayed active in the market, increasing their exposure.

Schweicker says he had to sell his wife's 100,000 AMP shares to cover losses, Rowston contributed another $40,000 in cash, and Tyson says she was convinced to tip in $30,000 worth of Telstra shares she owned.

Tyson says she had already lost her $80,000 super nest egg and was now trading with a $300,000 loan taken out against her house, so she started asking to get out.

It all came to a head in late 2005. The new boss of the Gold Coast office, Murray Britton, informed both Mike Rowston and John Schweicker there was nothing left in their accounts. They say that was the first they knew of the extent of their trading losses.

"He said: 'Your account is no good; you can't trade anymore.'" Schweicker remembers the phone call clearly. "I said: 'I knew it wasn't travelling too well, but I had the opinion if the market stayed steady it would just slowly get out of trouble.' He said: 'Well I'm afraid that's not the case'."

ASIC has investigated the claims against Ord Minnett and said in July last year that it would ''not take any further action … at this time''.

Ben Leeden continues to work as a private client adviser in Ord Minnett's Gold Coast office. His former clients say they are still "very hopeful" of recouping some of their losses from Ord Minnett.

"I visualise it every day," Tyson says. "I do a lot of visualisation."

Source:
          The Sydney Morning Herald

To Read More...

Option Trading – Thinking “Outside The Box”

Wouldn't it be great if we could buy an option with five months left until expiration and sell an option with 2 months left until expiration for the same price? You couldn't lose. Well we can't. I love options spreads so much I realized something very important.

We can buy a spread that has a lot of time value left at almost the same price as we can sell one with less time value left. The reason really opened my eyes and gave me new insight into options. Here is what I came to realize.

I started comparing how expensive options were in relation to the other strike prices in the same month and to the other months. I wanted to know based on the price per day which options were more expensive.

The first 1 or 2 option months, as everyone knows loses time value quickly. The at the money strike prices are very expensive compared to the out of the money strike prices. Since there is not that much time left, how much can they charge for an out of the money option? Not much.

The next several months, the opposite is true. Compared to each other, the strikes that are closer to the money are cheaper in terms of price per day than the options further out of the money. Let me explain it another way using the S&P market.

6 days left at the money option cost 12 points

6 days left out of the money option cost 2 points

70 days left at the money option cost 43 points

70 days left out of the money option cost 29 points

There is more than 10X the time left but the 70 day at the money option (43 points) is only less than 4X the price than the 6 day at the money option (12 points).

The 70 day out of the money option (29 points) is almost 15X the cost of the 6 day out of the money option (2 points) but only has 10X the time value. We will buy the cheaper per day options and sell the more expensive per day ones.

Sell 6 day at the money and sell 70 day out of the money. Buy 6 day out of the money and buy 70 day at the money. This will be done for a 4 point debit. We are now buying a spread that has 10X more time value than the one we are selling and are only paying 4 points for it.

When the 6 day options expire we can sell the next month to take in more premium, still keeping the 70 day option spread.

What goes up, must come down! We have all heard this before in reference to the laws of Gravity. We have laws in the commodity markets as well. What comes down, must go up! The greatest traders of our time like Warren Buffet know this. He is perhaps the greatest Stock trader ever. He had never traded commodities until a few years ago. He bought silver in the futures market. When the market went even lower he bought more.

The “smart money”, commercials will not be scared into selling when a market they have purchased drops even further. They know better than anyone that a commodity has real value and will always be worth something.

There is a famous book, “You Can't Lose Trading Commodities”. The author buys commodities and then just waits for the market to go higher. He would purchase more as the market fell.

You need a big bankroll for this. Personally I know corn won't go to $1.00 but what if it did? I want to minimize the risk in case I want to end the trade.

I started trading the Soy Complex this way several years ago. Not with options. Strictly futures. I bought what was similar to a crush spread. I increased the contracts as the market went against me until the spread rebounded a little. Since I increased the contracts I didn't need the market to come back to where I started. It only had to rebound to the next level.

Black Jack players did this until Casinos caught on and put limits on bets. It is a known fact that futures traders make good gamblers and professional gamblers make good futures traders. I am against gambling but even gambling done with a system is not really gambling.

These card players would bet something like this: $5 lose, $10 lose, $20 lose, $40 lose, $80 win. The losses add up to $75. They would win $80, so the profit is $5. Not a lot, but they would do this all day. Black Jack is just under 50% probability for the player.

The problem is there is a slight chance that you could lose 40 times in a row. Now with Commodities we have a 50% probability and we won't lose 50 times in a row because the market can't go below zero.

Now before I go any further, I need to tell you that I am not recommending you double down on your trades. What you can find are markets that are near their lows where you can do a small scale trade. Spreads offer even better opportunities. They have a closer range (high to low).

By now you can see we only use this to go long a market since we can never be sure how much a market can go higher. First we need to find a market that is low already so we won't have to wait that long and also so there will be less capital needed.

I prefer to trade this using options. There are many ways to do this. You could buy an option in a market like soybeans and choose how many cents the market will drop before you buy more. The problem is, an option is a wasting asset. The Theta (time decay) would cause you to lose money.

I use spreads so I am not paying for time decay. I will probably sell more Theta than I buy, so if the market does nothing I will make money just on time decay.

To Read More...

Online Stock Options Trading Basics

New to Options? Want to trade option? This is the first step for you.

You may know many wealthy individuals make lots of money using options and you can try too.

Stock and Bond trading strategies run the gamut from the simple 'buy and hold forever' to the most advanced use of technical analysis. Options trading has a similar spectrum.

Options are a contract conferring the right to buy (a call option) or sell (a put option) some underlying instrument, such as a stock or bond, at a predetermined price (the strike price) on or before a preset date (the expiration date).

So-called 'American' options can be exercised anytime before expiration, 'European' options are exercised on the expiration date. Though the history of the terms may lie in geography, the association has been lost over time. American-style options are written for stocks and bonds. The European are often written on indexes.

Options officially expire on the Saturday after the third Friday of the contract's expiration month. Few brokers are available to the average investor on Saturday and the US exchanges are closed, making the effective expiration day the prior Friday.

With some basic terminology and mechanics out of the way, on to some basic strategies.

There are one of two choices made when selling any option. Since all have a set expiration date, the holder can keep the option until maturity or sell before then. (We'll consider American-style only, and for simplicity focus on stocks.)

A great many investors do in fact hold until maturity and then exercise the option to trade the underlying asset. Assume the buyer purchased a call option at $2 on a stock with a strike price of $25. (Typically, options contracts are on 100 share lots.) To purchase the stock the total investment is:

($2 + $25) x 100 = $2700 (Ignoring commissions.)

This strategy makes sense provided the market price is anything above $27.

But suppose the investor speculates that the price has peaked prior to the end of the life of the option. If the price has risen above $27 but looks to be on the way down without recovering, selling now is preferred.

Now suppose the market price is below the strike price, but the option is soon to expire or the price is likely to continue downward. Under these circumstances, it may be wise to sell before the price goes even lower in order to curtail further loss. The investor can, at least, minimize the loss by using it to offset capital gains taxes.

The final basic alternative is to simply let the contract expire. Unlike futures, there's no obligation to buy or sell the asset - only the right to do so. Depending on the premium, strike price and current market price it may represent a smaller loss to just 'eat the premium'.

Observe that options carry the usual uncertainties associated with stocks: prices can rise or fall by unknown amounts over unpredictable time frames. But, added to that is the fact that options have - like bonds - an expiration date.

One consequence of that fact is: as time passes, the price of the option itself can change (the contracts are traded just like stocks or bonds). How much they change is influenced by both the price of the underlying stock and the amount of time left on the option.

Selling the option, not the underlying asset, is one way to offset that premium loss or even profit.

To Read More...

OptionsXpress 3Q Pft Down On Low Rates, Lower Trading

NEW YORK (Dow Jones)--OptionsXpress Holdings Inc.'s (OXPS) third-quarter profit plunged by roughly a third as low interest rates and declining trading volumes offset an increase in option contracts per trade.

With interest rates near zero, optionsXpress' net interest revenue and fees dropped 66% to $4.2 million in the quarter.

The Chicago online brokerage's results also reflect a shift away from a surge in the trading of beaten-down financial stocks in late summer. That trend had boosted trades across the online brokerage industry, but activity in September shifted away from those names into more normal patterns, including options trading.

Overall, optionsXpress posted third-quarter earnings of $16.3 million, or 28 cents a share, down from $24 million, or 40 cents a share, a year earlier.

Revenue dropped 7% to $62.3 million.

However, results beat Wall Street estimates, as optionsXpress benefited from a higher average retail commission and the opening of 6,600 new accounts in the quarter, a 13% increase year-over-year.

Analysts polled by Thomson Reuters had expected, on average, earnings of 26 cents a share on revenue of $61.6 million.

OptionsXpress said its daily average revenue trades, or DARTs, a figure closely watched by analysts, fell 12% year-over-year to 42,000.

In an interview with Dow Jones Newswires, optionsXpress Chief Executive David Fisher said the company is seeing a pullback in the trading of low-priced financial stocks such as Citigroup Inc. (C), Fannie Mae (FNM) and Freddie Mac (FRE), which accounted for roughly 30% of the equities trading volumes in July.

Fisher said that while optionsXpress' equities DARTs were flat in September, the company's options trades increased 11% over the previous month.

During a conference call with analysts, Fisher said options as a percentage of total retail trades climbed to 58.5% from 56.6% in the second quarter and reached their highest level since the third quarter of 2008.

While options trading has picked up, Fisher said optionsXpress is "looking at a couple of difficult year-over-year comparisons" over the next couple of months given the surge in retail trading volumes during the panic of the financial crisis.

Fisher said the low interest-rate environment is "bad news" for optionsXpress and the online brokerage industry but added that "the good news is that they can't go any lower. So there's only upside from here, and we're likely to start seeing upside in 2010."

Fisher also said that optionsXpress plans to be active on the deal-making front as M&A activity picks up in the online brokerage space.

"I absolutely expect more deals. We are aggressively looking for deals and think it's a great use of the over $200 million in cash we have our balance sheet."

OptionsXpress' client assets increased 20% year-over-year to $6.3 billion, which Fisher said is the highest in the company's history.

The company is also beginning to see the benefits from its May acquisition of Optionetics, an investor-education firm.

"We are starting to see a steady stream of customers come from Optionetics, which is a great sign for the future," adding that those clients trade more options than the company's current customers.

Shares of optionsXpress recently traded up 47 cents, or 2.5%, at $18.74. The company's stock is down about 48% over the past year but has climbed about 22% in the past three months.

-By Brett Philbin, Dow Jones Newswires; 212-416-2173; brett.philbin@dowjones.com 

Source:
          The Wall Street Journal

To Read More...

Options Spread Trading Explained: How to Make Triple-Digit Gains From Double-Digit Opportunities

by Karim Rahemtulla, Options Expert

Thursday, October 15, 2009: Issue #1116


“Why would I want to trade options? They’re too complex and scary. I’ll lose all my money.”
If I had a dollar for every time I’ve heard this from investors, I’d be kicking back on a Caribbean beach right now.
I actually love getting questions like this. It gives me a chance to bust a few myths and educate the person on why they should add options trading to their investment arsenal.
Simply put, options give you greatly increased leverage and several different ways to make money. What’s more, any investor can – and should – use options.

Three Return-Boosting, Risk-Reducing Option Strategies
Compared to stocks, which limit your ability to either play the upside or downside, options give you greater flexibility to manage both your returns and your risk.
Here’s how…

• Covered Calls: This is one of the most basic options trades. As the name suggests, you sell call options against an existing share position in order to “cover” yourself. Because there are 100 shares in an options contract, you must own at least 100 shares of a company to execute a covered call trade. When you do, you receive a premium from selling the call option, which essentially reduces the price you paid for the shares. But you also maintain a healthy upside. This enhances your return potential, while reducing your risk at the same time.
• Put-Selling: My colleague, Lee Lowell, has highlighted the excellent double benefit that comes from selling put options. Here, you try to buy a stock at the price you want (i.e. at a discount to the current price) and get paid for it, too.
• LEAP Options: This allows you to bet on a company’s long-term outlook – be it positive or negative. The additional duration of these options gives you more time to be correct with your call, and by buying LEAPS, you only use 15-20% of the cash required to hold the actual shares.

Time to bust another myth: Options trading is not gambling. When I use options – and recommend options trades to my readers – I don’t gamble. Quite the opposite, in fact. My goal is always to lower risk…

The Options Spread Trade: Putting You in the Driver’s Seat
So I come up with ways that put me in the driver’s seat, rather than just going along for the ride and “hoping” for a particular outcome – which includes one of my favorite option strategies that can generate significant wealth – the options spread trade.

Spread trading takes you one step beyond average investors and puts you in a position to generate the kind of returns you normally only see in advertisements. It works like this…
A spread trade requires two simultaneous transactions. For some reason, this is where most people decide to tune out. Their loss. It’s this extra step that can make the difference between making 20% and 200%, or 2,000%. I know that if someone offered me a chance to add a few zeros to my returns, I’d be all ears!
For the sake of simplicity, I’ll use a bull spread for this example…

Feeling Bullish? Rise to the Occasion with Spread Trading
A bull spread implies that you expect the price to rise.
Take gold, for example. If you think gold prices will shoot to $1,500 or $2,000 over the next 30 months, you can use a bull spread to play your prediction.
We’ll do it using one of the biggest gold producers – Goldcorp (NYSE: GG).

Regular investors would play it by simply buying Goldcorp shares for $40 a pop. For 1,000 shares, that’s a hefty outlay of $40,000.
Smarter investors, though, could buy the 2012 $40 Goldcorp call options (LGX-AH). This gives you the right to buy GG for $40. And for it, you only spend $13.30 ($13,330 if you want to control those same 1,000 shares – $13.30 multiplied by 1,000 = $13,330).
Let’s say you have a $60 target price for GG shares by 2012.

• The Stock Buyer: If you buy GG shares outright, you’d make $20 – or 50%. In dollar return terms, that would be $20,000 on a $40,000 investment.
• The Option Buyer: If you bought the LEAP option and Goldcorp rises to $60, your return would be $6.70 ($60 minus $40 minus $13.30 -the amount you paid for the option). That’s a dollar gain of $6,700 on $13,330 invested.

Not too bad at all. But if you take this one step further, you’d not only reduce your risk substantially, but boost your returns substantially, too.

Here’s what to do…
“Spreading” the Wealth
Having bought the $40 call option for $13.30 and ponied up $13,330 for 10 contracts (1,000 shares), I’d then sell the January 2012 $60 call option against it (LGX-AL).
When you sell an option, you first get money back for selling the option. It also limits your upside to the strike price of the option that you sold ($60).
The $60 call option is trading for $7.30. So…

• Buy the January 2012 $40 option. Cost: $13,330
• Sell the January 2012 $60 option. Receive: $7,330
• Net cost of the trade: $6,000 ($13,330 minus $7,330)

By doing this, we’ve entered into a spread.

• The Spread: The spread is the gap between the price at which we can buy GG and where we have to sell GG. In this case, the buy price is $40 and the sell price is $60. So the spread is $20.
• The Profit: In dollar terms, our maximum upside is $20,000 ($60,000 minus $40,000 based on 10 contracts or 1,000 shares), with a cost of $6,000. This means if Goldcorp hits $60 or more, we can make $14,000 net profit on a $6,000 outlay. That’s 233% ($14,000 divided by $6,000 cost).
• The Risk: What’s more important, though, is that our maximum risk here is limited to the cost of the spread – $6,000. That’s just 15% of the amount that a regular shareholder would have at risk if he bought the shares outright ($6,000 divided by $40,000) and probably much less than the stop-loss that most people would institute on the trade.

I’d much rather risk $6,000 to make $14,000 than $40,000 to make $20,000 in any market, especially this one. And if you dump the $34,000 that you saved by executing the spread trade into an account that earns just 2% interest, you’d offset your cost by a further $900 or so, too.
The Best Spread Trading Candidates
Next time you see a stock that you want to own, consider using this spread strategy to both reduce your cost and increase your upside at the same time. This is the exact same trade I used in my 400 Report service recently to make 166% on Petrobras (NYSE: PBR). And while we could have held the position for two years, we cashed out in less than six months (yes, you can close out these trades early if you’re sitting on a handsome profit).

You can execute spread trades on any stocks that have options available. But the most popular stocks for spreads are volatile and expensive ones. Companies like Apple (Nasdaq: AAPL), Google (Nasdaq: GOOG) and Research In Motion (Nasdaq: RIMM) are ideal candidates.

Next time: Turning it up a notch into quadruple-digit profit territory.
Good investing,
Karim Rahemtulla


Editor’s Note: Karim Rahemtulla is the Investment Director of the Xcelerated Profits Report – an advisory that shows any investor how to “invest like a pro,” using the same high-level, yet easy-to-execute strategies that today’s top traders employ. For just $49 a year, you’ll see exactly how these powerful strategies work in real life, with Karim and the team issuing specific wealth-building recommendations each month on stocks, options and commodities. For more information, take a look at this report. Find more information on Karim’s LEAP options service, The 400 Report.

PR: wait… I: wait… L: wait… LD: wait… I: wait… wait… Rank: wait… Traffic: wait… Price: wait… C: wait…

(Australian Stock Market Blog, 8/26/09)

Source:
          Investment U
.

To Read More...

TSE faces competition as clearing house supports smaller platforms

The Tokyo Stock Exchange will face greater competition as a marketplace for buying and selling Japanese shares from next year after the country's main clearing house unveiled plans to support smaller alternative trading platforms.

The Japan Securities Clearing Corporation said it would start providing clearing services for the country's alternative share trading platforms from next July, a move that market participants said would help increase liquidity.

Japan's proprietary trading systems (PTS) are similar to the alternative trading platforms in the US and Europe, such as Chi-X Europe. They have won only marginal market share from the TSE in spite of having been around for at least five years.

This is partly because the trades are not cleared by a clearing house, which increases the counterparty risk for each side of the trade. As a result, many institutional investors do not use the platforms. Clearing provides a safeguard in asset trading since a clearing house acts as the buyer to every seller and also seller to every buyer in a transaction, ensuring that a deal is completed if one party defaults.

The JSCC has been discussing the viability of introducing such services since March. SBI Japannext, a PTS operator partly owned by Goldman Sachs, said it was starting preparations to use the clearing services. The JSCC said it was also in talks with other such operators. Tomohiko Hamada, a director for equity execution and programme trading at Credit Suisse in Tokyo, said: "This is good in terms of a reduction in counterparty risk from the users' perspective."

Market participants said the introduction of clearing services should help increase liquidity. It should also contribute to reducing settlement costs for investors using a number of trading venues, one participant said.

The TSE has more than 90 per cent market share, with the remainder held by Japan's regional bourses, such as the Osaka Stock Exchange. PTS platforms have about 1 per cent market share combined. Japan's largest bourse said it did not think any increase in liquidity on PTS platforms would necessarily come at the expense of the TSE.

Source:

          FINANCIAL TIMES UK

To Read More...

Stock Option Trading – New Options Clearing Corporation Rule

A few years ago on a Monday morning, I checked my brokerage account and to my surprise it showed that I had purchased 1,000 shares of AMD for a total cost of $15,000. The payment for this purchase was taken out of my brokerage money market account.

Why surprised you may ask. I had not put an order for this purchase nor did I really intend to buy AMD. I get to this in a little bit.

Had I wanted to sell the stock on that day, I would have received around $14,500, a loss of $500 in just a few hours. In the end it worked out and I sold that particular stock a few months later for a handsome profit.

But on that day I had a paper loss of $500 and if I didn’t have enough money to pay for the purchase, the

To Read More...

Online Stock Option Trading

According to the great writer Robert Kiyosaki, Online Stock Option Trading is the investment of the rich.  This is the only investment where in you can always profit no matter what is the condition of the stock market. Yes, that's true, you can make money when the market is going up and you can make money as well when the market is going down.

Let us review Online Stock Option Trading here, but first of all, let us tackle what is Online Stock Option Trading or Online Options Trading...

I've been to Online Options Trading recently, and i can say is its very difficult when you are a sentimental person or when you will be carried away with your emotion. You can loose your trade. One thing I learned in option trading is be calm and stick to the basics, don't listen to your emotions.

To Read More...