Currency Trading for Dummies

Currency Trading for Dummies

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Recomendations

Recomendations

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Why Trade Futures?

By Sam Seiden, an experienced equities and futures trader, as well as a trading educator*

I have been trading futures for approximately 15 years. When speaking to people about trading and investing today, I find that many still think of futures speculating as high risk Wild West gun slinging, and this could not be further from the truth. The truth is, in many ways, these are the lowest risk markets in the world and really do make the most sense for people looking to get involved in market speculation.

Teaching exactly what futures are and how to trade them is what we do in Online Trading Academy's week-long course, which is beyond the scope of this piece. However, I can give you a run-down on the four main benefits of the futures markets, so you know what you are getting into.

1. The Tax Break: There is a major tax break when you trade futures. It is the 60 / 40 long-term capital gains benefit, which is much more attractive than stock trading. This makes a big difference and is something many people simply don't know.
2. Leverage: Futures offer incredible leverage. Many people think they need to get involved in options to attain a lot of leverage. The futures markets offer much more leverage than stocks or options do. If you think this means high risk, think again. If you use protective stops, these markets become some of the lowest risk markets in the world because, in the high-volume / liquid futures markets, it is more likely that your stop will get filled where you want than it would in stock trading.
3. Low Risk: Each day, we can find stocks gapping double-digit percentage points on the open. If it is a gap in your favor, that's great, but, if it is not, your trading or investment account can be ruined. In the high-volume / liquid futures markets, gaps like this don't happen. While there is always the risk that a major gap can happen in any market, can you imagine a 10% gap in the 30-Year Bond, the S&P, the 10-Year Note, and many more? There are some futures markets that don't have much volume and gap sometimes, but we don't trade those.
4. Non-Correlated Market Opportunity: For me, the most important reason to get involved in the futures markets is that these are the only markets in the world that offer non-correlated opportunity. There are always small exceptions, but, for the most part, most stocks simply move in the same direction as the S&P over time. It is not common that you will be short one stock and long another, and both will make a profit.

In futures, however, you can be long the S&P futures, short crude oil futures, long the Yen futures, short the 10-Year Note futures, and all these positions can be very profitable at the same time. Also, when you trade the futures, you have a global opportunity at your fingertips. Some of the futures markets I trade in Europe have much more volume than any of the markets here in the U.S.

The chart shown previously is the NASDAQ futures and represented a potential shorting opportunity going into the session on the day this article was originally published in December 2007. When you trade just one NASDAQ futures contract, you are making or losing $20 per point. For example, if you had bought one at 2040.00 and sold it at 2041.00, you would have made $20.

If you like using moving averages or any indicator or oscillator, you would use them the same in futures as you do in stocks. In the 10-Year Note futures chart shown previously, you can see that the buy signals from a moving average cross-over or a pullback to up-sloping moving averages works fine when applied properly.

I trade more than 20 futures and Forex markets with one simple supply (resistance) and demand (support) strategy, and the benefits to trading these markets are fantastic. The goal of this piece is not to convert stock traders to futures traders. It is simply to help educate people on what futures are and some of the benefits of trading them. There are other benefits, too, such as hedging your portfolio risk with the S&P futures, hedging your adjustable rate mortgage risk with the 10-Year Note Futures, and more.

If you would like more practical information on futures trading, you can email me. If you want to learn more about the specifications on some of these markets, you can always go to the websites of the exchanges, such as the Chicago Mercantile Exchange and the Chicago Board of Trade. When you go to these websites, click on the "contract specification" tabs, and, there, you will find the numbers behind these futures contracts.

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IPOs - not profitable always

Investors who subscribed to the initial public offer, in the first quarter of 2006, of shares by Sadbhav Engineering are a fortunate lot. Against an investment of Rs 185, the stock closed at Rs 1,080 on Wednesday, an appreciation of more than five-fold in the space of just two years.

So, is investing in initial public offerings (IPO) a safe bet? The answer is no, if we go by the performance of the IPOs of the last two years. Actually there is one in two chance that you wouldn’t have made any money at all. According to data available on NSE Web site, around 181 companies had come out with IPOs to raise money since the commencement of the bull-run that began in early 2006. Of these, about 50 per cent – 92 stocks to be precise – are quoting below the issue price. Seventy companies approached the market for funds in 2006. The number increased to 89 in 2007 and it is 13 in the year to date.

IPOs have been punished across sectors and irrespective of the subscription levels. For instance, shares of companies as diverse as Reliance Power, Future Capital, MindTree Consulting and Sobha Developers which had evoked strong response from investors at the time of initial placement are currently ruling below their issue prices. Even ICICI Bank which came out with a follow-on public issue at Rs 940 is currently quoting well below that price.

A Mumbai-based broker said: “When a stock first starts trading, its price moves up to higher level on pent-up demand. Investor demand is often unusually heavy due to the hype surrounding an IPO, particularly for high-profile companies.”

But even among those that did not evoke a frenzy in the run-up to the IPO on the scale of Reliance Power, there have been significant losers. Uttam Sugar Mills (81 per cent), Broadcast Initiatives (80 per cent) and Raj Rayon (79 per cent) are some of the companies that registered major losses.

For investors, the sentiment had turned so adverse in recent times towards any fresh commitment that many companies were forced to withdraw their IPO plans. Among the few that postponed their plans for mobilisation of capital from the public included such high-profile issues as Emaar MGF and Wockhardt Hospitals.

But there have been a few notable exceptions among the IPO stocks besides Sadbhav Engineering that have emerged unscathed despite the Sensex losing 6,000 points in just two months. Though they have declined from their peaks, are still quoting higher than the offer price even while the market has been under a strong bear hug. MIC Electronics is one such. As against the issue price of Rs 150, the share closed at Rs 703.7 on Wednesday, a return of 369 per cent over cost.

According to analysts, investing in IPOs is also as risky as investing in secondary markets. Investors must go beyond the allure and hype of IPOs and educate themselves about the company’s fundamentals, they said.

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Advance Tax Numbers

Company Name	Jan-Mar 2008	Jan-Mar 2007
Ambuja Cements	170	100
Bank of India	191	150
Bank of Baroda	220	50
BPCL	240	275
Castrol	46	24
Central Bank of India	221	-
Dena Bank	50	10
HDFC Bank	250	165
ICICI Bank	250	125
Indian Hotels	44	2
IndusInd Bank	19	12
Larsen & Toubro	170	80
Mahindra & Mahindra	116	83
MRPL	100	20
Reliance Industries	443	118
SBI	1,418	690
Tata Chemicals	90	65
Tata Motors	75	190
Tata Power	43	-
TCS	115	20
Tech Mahindra	-	6
Tata Steel	300	350
UltraTech Cement	155	110
Union Bank	130	100

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IPO Analysis - Kiri Dyes and Chemicals

Kiri Dyes and Chemicals manufactures reactive dyes and dye intermediates. Promoted by Pravin A. Kiri and incorporated on 14 May 1998, the company’s production plant is located in Gujarat: three units in Ahmedabad and one unit in Vadodara.

The product range comprises more than 120 dyestuffs used by textiles, leather, paints and printing-ink industries. Production capacity totals10,800 tonnes per annum. Integrating backward, Kiri Dyes and Chemicals commenced manufacturing vinyl sulphone (VS) in April 2006, with a capacity of 3,600 tonnes, and H-acid from March 2007, with capacity of 3,600 tonnes, giving it a presence in the dye intermediate business.

With plans for further backward integration, the IPO is to fund capital expenditure to set up a plant to manufacture sulphuric acid, oleum and chloro sulphonic acid, with a combined capacity of 1,80,000 tonnes, and a dyes and intermediates unit. A 2.9-MW power plant that can run from the steam generated by the sulphuric acid plant is also on the anvil. The electricity generated will be sufficient not only to run the sulphuric acid plant but also the intermediate plants of VS and H-Acid.

Following the expansion, the capacity to manufacture sulphuric acid will be 1, 00,000 tonnes, oleum 43,200 tonnes and chlorosulphonoic acid 36,000. The plant to manufacture sulphuric acid and its sub-products is to be completed by December 2008. Around 25% of the capacity of sulphuric acid, oleum and chlorosulphonic acid will be used to produce dye-intermediates: H-Acid and V.S. The remaining produce will be marketed directly to bulk end-users in the detergent and chemical industry and other large consumers.

The capacity to produce dyestuff will be increased 3,000 tonnes to 15,000 tonnes by the fiscal ending March 2010 (FY 2010). The capacity to manufacture dyes intermediates VS will become 4,200 tonnes in FY 2009 and then further increase to 4,800 tonnes in FY 2010. The capacity to produce H-acid will increase to 4,200 tonnes in FY 2010.

Kiri Dyes and Chemicals entered into a memorandum of understanding with the Zhejiang Lonsen Group on 1 November 2007 to establish a manufacturing facility in India to produce reactive dyes. Both the parties have agreed to start with a production capacity of 20,000 tonnes of reactive dyes and to increase it further to 50,000 tonnes when the opportunity arises after successfully implementation and operations of the initial production capacity. The new plant is to be set up by end 2008. The initial capital investment would be US $ 10 million. Of this, Lonsen is to invest US $ 6 million and Kiri Dyes and Chemicals US $ 4 million to establish a new manufacturing plant in India.

Strengths:

1. Stringent environmental laws in the western countries have led to discontinuance of production of certain dyes for textiles and leather. This has led to shift in manufacturing capacity from the US and the European Union to South East Asia. Climatic conditions in India are favourable for the manufacture of such products. Also, the new usage of dyestuffs in electronic, high-tech printing, and bio medical applications augurs well for the high-valued dyestuff products.
2. Backward integration and JV with global giants will help to save cost and strengthen research and development facility.

Weaknesses:

1. Operates in a highly competitive and unorganised business environment with many big and small players exporting and manufacturing dye and dyestuff. The increased competitive pressure may adversely affect margin.
2. Had negative cash flows of Rs. 4.88 crore and Rs.9.42 crore from operating income in FY 2007 and FY 2006.
3. Currently paying MAT (minimum alternate tax) on account of benefits of exemption received under Section 10 B of the Income-Tax Act, 1961, as it is a 100% export-oriented unit (EOU). This status will expire in March 2010. The withdrawal of tax incentives would increase the tax liability and adversely impact profitability.

Valuation

At a price band of Rs 125-Rs 150, the P/E works out to 10.5-12.6 times on half-yearly annualised EPS of Rs 11.9 on post-issue equity of Rs 15 crore, The average TTM P/E for dyes and pigment industry is around 6.

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Is the US economy heading for a collapse?

March 20, 2008
An open letter to Mr Ben Bernanke, chairman, US Federal Reserve:

Sir,

Decades back, one of your predecessors splendidly captured the post-gold standard and the consequent free float of the US dollar scenario rather succinctly when he termed the US dollar as 'our currency, others' responsibility.'

It is this responsibility cast on outsiders like me that compels me to write this open letter to you.

As I write this, I am fully conscious of the fact that we are living in exceptionally troubled times. I am equally conscious of the fact that being the chairman of the US Federal Reserve, you are in effect the central banker to the entire world. Surely, it is an unenviable position.

Your actions, sir, not only impact the United States economy, it does have the potency to impact the global economy. That explains, partly, if not wholly, the 'why' to this letter.

Yes, I am indeed aware of the sub-prime crisis that has engulfed the entire global financial sector. I am sure you are fully aware as to how your predecessor, Mr Alan Greenspan -- one of the most influential economists of our times -- described the sub-prime crisis in his book -- The Age of Turbulence. According to him the American economy was 'facing not a bubble but a froth -- lots of small, local bubbles that never grew to a scale that could threaten the health of the overall economy.'

Yet, as events turns out, I suspect, Alan Greenspan is wrong. But the point is not merely the judgemental capacity of Alan Greenspan. Rather, it reflects poorly on the American regulatory mechanism.

After all, wasn't he the product of a system that was repeatedly touted as fail-proof; at least in surveillance, supervision and regulation? And my worry is that you too are a product of the very same system that has compelled him to be wrong.

Saving US economy from the US Fed!

In fact, the starting point of the present conundrum was the American assumption about globalisation. In hindsight, your assumption that the world was 'flat' seems to be incorrect. In fact, it was skewed, tilted, slanted -- anything but flat.

Based on such simplistic assumptions that you can prepare a global order for the world, you unleashed a war between interest rates and the index, between spenders and savers, between exporters and importers, and between producers and consumers. In this war, your countrymen -- or institutions that were controlled by Americans -- mostly wrote the rules.

More importantly, the US Fed sided with the index, consumers, spenders and importers -- all in the name of free market, capitalism and, of course, globalisation.

And you thought the world had no other options but to follow your model. It is in this connection I am reminded of the title of the famous book, Saving Capitalism from Capitalists by Raghuram Rajan, the noted economist.

I only hope and pray that your actions do not lead to a situation where we need to save the American economy, the US dollar and, by extension, the entire global financial system from complete collapse from your actions or inactions. Save the US economy from the US Fed!

Systemic failure?

Your actions over the past few months wherein you have reduced the benchmark interest rates from 5.25 per cent to 2.25 per cent now is akin to a village hakim (doctor) in India, prescribing his only concoction as medicine to patients suffering from sterility to those in advanced stages of pregnancy.

By merely prescribing rate cuts repeatedly since September 2007, to an outsider it would seem that the US Fed is keen to attack the symptoms rather than to address the systemic malaise.

In a scenario where the wave of bad news keeps coming regularly, with rumours of financial institutions going belly-up hitting markets continuously, and with markets alternating between crisis and calamity, one is not sure about the efficacy of the interest rate cuts effectuated by you. More importantly markets are not responding to your line of treatment.

Or is the diagnosis of the entire problem wrong?

All of us want to know -- in case the problems persist -- whether you will cut the benchmark interest rates to zero? Assuming that the pains in the markets are not mitigated even then, what is the monetary, or for that matter, policy instrument available to deal in such a scenario?

Crucially, even six-months after we first heard about this crisis, despite all the surveillance, systems and procedures, we are yet to figure out the aggregate value of the sub-prime losses. Despite all the tall claims about the efficacy of your regulators, why is that we are still kept in the dark? Is it that they are unable to fathom the problem?

Or is it a comprehensive failure of the entire system? I am scared as experiences from 9/11 demonstrate that American surveillance systems are indeed suspect -- both on fiscal and physical matters.

Is it a mere $100-200 billion, as it was reported originally and thereupon dismissed as inconsequential by some? Or is it $400-600 billion as reported by UBS or Goldman Sachs subsequently? Or is it $1 trillion as reported by economists like Roubini and others? Or is it something more that compels you to be silent?

Lack of trust compounded by silence

Whatever it be, an official statement from you clearly defining the extent of the problem, would be in order. At least that in my opinion, sir, would put an end to the uncertainty that is plaguing the financial markets all across the globe. And, sir, as you know, markets abhor uncertainty, for lack of trust is highly corrosive.

Nouriel Roubini captures this paradigm brilliantly when he states: 'The lack of trust in counterparties -- driven by the opacity and lack of transparency in financial markets, and uncertainty about the size of the losses and who is holding the toxic waste securities -- will add to the impotence of monetary policy and lead to massive hoarding of liquidity that will exacerbate the liquidity and credit crunch.'

Sir, the problem that is confronting the US economy does not only concern liquidity, profitability, capital adequacy or solvency. It concerns credibility of the system leading to lack of trust. And your studied silence is compounding the issue.

When rouges go berserk

But this is not a mere issue of even a trillion dollars as others opine. As the Fed chairman, I am sure you are aware of the magnitude of the problem. Let me elaborate.

Sir, you may recall that it often said that when normal men go berserk they are called rouges. When rouges go berserk, it is called the global financial system -- a system that is defined, dominated and denominated by the world of derivatives.

Sir, as you may be aware that derivatives are creatures of the world of 'virtual finance' that dominates the world of 'actual finance,' several times over.

With the best of financial minds engaged in devising complex and exotic derivative instruments, regulators across continents are oblivious to the net impact of these instruments (aggregate value estimated to be in excess of $500 trillion in 2007 when the world GDP is approximately $40 trillion only) on global economy.

In this world of virtual finance, currency, commodity, and stocks have been uniformly converted into financial assets. And as every market gyrate violently, risks would materialise, then crystallise and get actualised, the cascading effect of this highly leveraged game in the world of 'virtual finance' on the relatively tiny world of 'actual finance' is indeed mind-boggling.

Sir, no wonder you are silent on the extent of the potential damage -- both on actual and virtual finance. And this is eloquent testimony to the fact that the markets are beyond your control, your surveillance and your regulations.

Sir, I am sure you would know that even on the morning of November 9, 1989 (A different 9/11) one could never have predicted the fall of the Berlin wall that evening. That in turn signified the fall of Communism. Though analysts had predicted its fall for over two decades, the abruptness did catch everyone by surprise.

Sir, the world does not want to be caught once again by such nasty surprise. Already economists like Martin Wolff (in the US) and Gurumurthy (in India) have predicted large-scale intervention by the 'US public sector' to bail out private finance firms from collapse. The recent bail out of Bear Stearns was an indicator of what lay ahead.

But this solution seems to suggest the conversion of the US into a perfect socialist state -- socialism for the rich, mighty, privileged and those who were reckless with others' finances.

In the alternative, the US runs the risk of going the erstwhile USSR way with the only variation that abrupt collapse of the US, unlike USSR, could have profound impact on global economy.

Either way it would seem that you are following the Russian model. What a fall for a country that was held to be a model for free markets and capitalism! Surely Karl Marx would be chuckling at your predicament.

Sir, your silence on all these matters is funereal. And the list of those who doubt the very viability of the US economy is growing by the minute. Let me confess with a heavy heart, sir, today, I have joined that bandwagon.

With best regards,

M R Venkatesh

The author is a Chennai-based chartered accountant. He can be contacted at mrv1000@rediffmail.com

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No insider trading on RPL - Reliance

Reliance Industries Ltd. (RIL) said the company and its other group companies have complied with all rules and regulations. The Mukesh Ambani-owned RIL was reacting to media reports that capital market regulator SEBI was probing alleged insider trading in Reliance Petroleum shares. RIL said it will cooperate and provide all the necessary information to the concerned authorities. SEBI is investigating trading in Reliance Petroleum shares, the Minister of State for Finance Pawan Kumar Bansal said in the Rajya Sabha. "SEBI has informed that it has initiated an examination in the matter," Bansal said.

The minister was responding to a question by SP leader Amar Singh on whether the Government has acted against the promoters or affiliates of RIL regarding insider trading activities in Reliance Petroleum. In November, RIL raised Rs40.23bn (US$1bn) by selling 4% stake in Reliance Petroleum. While actual date for the stake sale is not known, shares of Reliance Petroleum moved up sharply between late October and early November

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Market Holidays

List of Trading Holidays - 2008



1. Mahashivratri 6th March 2008 Thursday


2. Id-E-Milad 20th March 2008 Thursday


3. Good Friday / Holi (1st Day) 21st March 2008 Friday


4. Ambedkar Jayanti 14th April 2008 Monday


5. Mahavir Jayanti 18th April 2008 Friday


6. Maharashtra Day 1st May 2008 Thursday


7. Buddha Purnima 19th May 2008 Monday


8. Independence Day 15th August 2008 Friday


9. Ganesh Chathurthi 3rd September 2008 Wednesday


10. Ramzan Id / Gandhi Jayanti 2nd October 2008 Thursday


11. Dasera 9th October 2008 Thursday


12. Diwali (Laxmi Pujan) 28th October 2008 Tuesday

13. Diwali ( Bhaubeez) 30th October 2008 Thursday

14. Gurunanak Jayanti 13th November 2008 Thursday


15. Bakri-Id 9th December 2008 Tuesday


16. Christmas 25th December 2008 Thursday

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Fed Slashes Rates by Three-Quarter Points

With recession fears growing, the Federal Reserve slashed the federal funds rate by three-quarters of a point. Most investors expected a full-point reduction. Today’s cut comes on the heels of the Bear Stearns bailout and U.S. Treasury Secretary Henry Paulson saying the U.S. economy is in "sharp decline."

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