Stock Trading - How to Invest in Stocks

In this article, we shall add to the glossary of stock trading basics by explaining what are stock market orders.

Stock market orders: As more and more investors start to trade online to take advantage of the reduced transaction costs and the convenience, it is important for them to be totally conversant with the methodology of placing buy and sell orders with their brokers. You can, in fact, use a variety of buy and sell orders so that you can take more control over the transaction and not be entirely at the mercy of the broker. Some types of orders exercise control over the transaction by price while others control it by time.

Here is a rundown on the various types of orders that you can use with your broker.

Market order: this is the quickest and the simplest method of placing an order and getting it fulfilled. In a market order, you instruct the broker to buy or sell at the prevailing price at the moment of execution. If you are following the market, do not expect to get the exact price that used the on-screen but you can expect a price that is fairly close unless your stock is hugely volatile. Remember that there is no guarantee of any price and you will simply had to trust the broker to do his best. This is also the cheapest type of order in terms of transaction cost.

Limit order: the limit order is an order in which you instruct the broker to buy or to sell at a specific price. If your price is not available, the transaction will not go through. You therefore have control over the price at which you will enter or exit a position. Remember to check with your broker what he charges to execute limit orders. If the charge is higher than you would like, and your stock is not particularly volatile, you may be better off placing a market order.

Stop loss order: stop losses are standard risk management practices that prevent you from taking large losses on open-ended positions. You predetermine what losses you can live with on a particular stock and, if that price is reached, you sell straightaway and crystallise your losses. Remember that you will lose some of the time at least and the trading discipline enforced by a stoploss means that you can limit your losses to what you are comfortable with. You will normally place a stoploss order by giving the broker a price trigger that would be below the prevailing market price. The moment the stock drops to your stoploss price, your order becomes a market order which the broker will execute instantly.

Trailing stop order: this operates in a similar fashion to a stoploss order except that it is used to protect a profit rather than contain a loss. If your stock is already in profitable territory, you set a take profit price to protect you against a sudden drop in the price. If your take profit price is reached the order immediately becomes a market order and your broker will sell without reference to you.

Good till cancelled order: this means that the order continues to to be in effect until you cancel. This is used in conjunction with other orders to control the timing.

Day order: a day order is an order that is valid only for that particular trading day. If the order cannot be executed, you will need to place a fresh order on the following day.

All or none order: this means that the entire order has to be filled and a partial execution is not acceptable. This is useful particularly in the case of thinly traded stocks.

For more information articles on stock trading and stocks to buy visit our Stock ideas website.

Retirement Planning

Single Premium Immediate Annuities (SPIAs) And IRAs

A single premium immediate annuity is an annuity contract with an insurance company in which the contract owner contributes one lump sum (single premium) and immediately begins to receive annuity distributions either monthly, quarterly, semi-annually or annually from the insurance company. Oftentimes the agreement with the insurance company is to receive a specified amount for life pursuant to the account holders life expectancy. Commonly referred to as a SPIA, this annuity has no accumulation period, or period of time in which the annuity grows in value due to appreciation of the underlying assets and/or due to future contributions (future premium payments).

Most SPIA distributions are regular, level payments. Your primary distribution options include:
1. Single Life - The SPIA distribution payments cease upon the death of the account holder.
2. Joint and Survivors Annuity - The SPIA distribution payments (lower in amount than single life payments) continues to pay annuity distributions to a surviving beneficiary.
3. Period Certain - The SPIA distribution payments cease after a specified period of time, even after the account holders death, in which case the designated beneficiary receives the remaining distributions.

The main purpose of a SPIA is to provide retirement benefits for the account holder and/or spouse. SPIA's are funded either with after-tax contributions (known as non-qualified SPIA) or with pre-tax contributions (known as qualified SPIA). After-tax SPIAs distributions are part tax-free (a portion of the distribution is considered a return of contribution and, thus, not taxable). Pre-tax contributions are funded by employee retirement plan assets which are, themselves, funded with pre-tax contributions such as 401(k) plan employee contributions and employer matching contributions. In this case the SPIA is created when the retirement assets are converted to a SPIA, upon retirement. This pre-tax, or qualified SPIA most often involves the utilization of an Individual Retirement Arrangement (IRA).

Pre-Tax SPIAs and IRAs
There are only two types of IRAs:
1. Individual Retirement Account and
2. Individual Retirement Annuity

A Pre-Tax SPIA may be purchased by rolling retirement funds into an Individual Retirement Account and then purchasing a SPIA, inside an Individual Retirement Account. In such case, the IRA is the owner and recipient of the SPIA distributions and Required Minimum Distribution (RMD) rules apply to the Individual Retirement Account, which includes the value of the SPIA.

A Pre-Tax SPIA may be purchased by rolling retirement funds directly into an Individual Retirement Annuity, which then purchases the SPIA. In such case the SPIA distributions are considered paid directly to the individual owner of the SPIA. With an Individual Retirement Annuity there is no IRA Account RMD requirement (the SPIA calculates its own separate minimum distribution amount) as the IRS assumes the IRA Annuity will pay out distributions that equal or exceed any RMD calculation.

In some cases an individual will roll over retirement funds into an IRA Account and then use some of those funds to purchase a SPIA. There is much confusion regarding the RMD rules in this case so let's clear it up. When you use part of your IRA Account to purchase a SPIA, the SPIA is part of the IRA Account and you must calculate your RMD by including the value of the SPIA. This can be tricky as the value of the SPIA may not be easily determinable every year. Because an RMD is based on the value of the funds in the IRA Account at the end of the prior year (i.e. a 2011 RMD is based on the value of your IRA Account as of 12/31/10) you must include in this value calculation the value of the SPIA. How is this done? You must determine the present value of the SPIA at the end of the prior year so that the value of the Individual Retirement Account can be determined in order to then determine the RMD.

Because of this added complexity in buying a SPIA inside an Individual Retirement Account, knowledgeable financial advisors will advise purchasing a SPIA through the use of an Individual Retirement Annuity and avoid the purchase within an Individual Retirement Account.

Tom is a Certified Public Accountant, a Certified Financial Planner, CLTC (Certified Long-Term Care) and President of Cerefice & Company, the largest CPA firm in Rahway, New Jersey. Tom works with clients helping them manage their money, retirement planning, college savings, life insurance needs, IRAs and qualified plan rollovers with an eye towards maximizing tax benefits and minimizing taxes. Tom is founder of the Rich Habits Institute and author of "Rich Habits".

Stock Market Investing - who is looking to stay invested in a particular company

Many people think that if you are a long-term investor who is looking to stay invested in a particular company for several years, the timing of your entry point is not that important. However this isn't necessarily the case because timing is actually very important.

Okay so it doesn't really matter if you buy a stock at 340p or 345p, for example, if you are planning a long-term investment, but you have to look at the bigger picture. Unfortunately the share price of an individual company is not entirely dependent on their own fortunes. It also moves in accordance with the wider stock market.

There are exceptions of course. If you invest in small-cap stocks then you will find that they are relatively independent of the wider market, and the share price is mainly driven by company-specific news and results.

However on the whole you have to be aware of the wider market when investing in mid and large-cap stocks. The fact is that you could invest in the strongest, most profitable company that is growing both it's earnings and it's dividend payouts every single year. However if the wider stock market is trading at very high levels when you buy the shares, you may find that the share price will be dragged down quite significantly (despite the strong fundamentals) if the wider stock market index suddenly reverses to the downside.

You should also pay attention to the industry the company is in as well. For instance you could be invested in the strongest company in a particular sector, but if you get some negative news coming out which affects the whole industry, there is every chance that the share price of your particular company will fall along with most of the others in the sector.

So the point is that timing is everything. Ideally you should hold on to your money until the wider stock market is massively oversold. When this happens you can simply filter through various stocks to find the strongest most profitable companies, because you can be sure that their share price will also be oversold and trading at bargain levels when this happens.

Similarly if there is a particular sector you are interested in, such as mining for instance, you should wait until this sector as a whole is heavily oversold, and then invest in the strongest companies from within this sector, or those have that have been sold off the most and now represent the best value based on forward earnings projections.

Either way you can generate some significant profits if you take your time and concentrate on purchasing a stock at exactly the right time. Just remember the old mantra - buy low and sell high - and you should do just fine.

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Stock Market Bubble

A combination of forces such as rapidly increasingly stock prices, market confidence that the companies have strong potential of churning future profits, individual speculation at every corner, and a widely available investment capital create an environment which inflates the stock prices and gives rise to a situation that is termed as stock market bubble.

The most common question that occurs in our minds while talking of bubbles is that what actually causes the bubbles to form and then what is it that again causes it to burst. Interestingly, it has been noted that greed and only greed causes a bubbles and then fear lets it go pop. We are all aware that stock market is predominantly ruled or controlled by greed and fear.

A bubble will form without causing much ripple due to the influence of what is known as the herding effect. When a stock market hype starts, everyone gets a wind of the hot new stock in the market and tries to buy as much as they can. We sit back and enjoy as the profits shoot up with the skyrocketing prices. We then get more and more greedy and wait and watch but forget to sell.

Even the stock gurus and analysts who dominate the media add on to the hype and trendily pitch their latest stock picks. They show the rosy side of the picture with the aid of complex research analysis, flashy charts and attractive graphs. But what they do not do is remind the people to sell off and take home the profits. It thus takes time for the news of selling to reach the grapevine.

By that time however, the big-time investors or as called the smart money segment will have sold the shares and have cashed in some of those unrealized paper-only profits. The peak is thus reached as everybody is in and now the speedy downturn begins as the panic selling starts and stock prices tumble. This is exactly when it is said that the stock market bubble has popped.

The small and big everyday buy and hold investors get frustrated and shun away from the stock market. They walk away from the stock market with a determination to wait till the market psychology has regained its composure or never to return at all. But the illusions of euphoria, the pleasures of taking home high returns are too seductive for them to ignore the stock market for long. They thus come back and with a similar hope as in the time of the formation of the previous bubble and repeat the mistake of investing when the market is once again moving up and thus contributes to the next bubble.

During the times of bubbles, you ought to keep higher cash reserves than you hold normally. In order to reap profit out of a bubble situation you need to be careful and smart. You should invest only in those shares that aren't overvalued. It is easy to tell when you are in a bubble situation but difficult to time the burst. Bubbles may take a long time to burst and in case you are holding too long the continuous inflation may result in severe losses. Bubble investing is certainly different from bull market investing. Play safe and put only a fraction of your money in bubble play.

There are several examples of big time stock market bubbles that continue to intrigue the economists world over. To highlight some exceptional bubbles we should site the examples such as the tech or dot com bubble that peaked in 2000, the oil bubble that peaked in July 2008 when the oil prices had shot up to $147 per barrel and then the housing bubble that popped in 2007-2008.

However, instead of playing too cautiously or being too much wary about these bubbles one should just take some unprecedented and calculated risks and try and gain something out of the bubble situation.

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Retirement Income and Inflation Protection Strategy

Master limited partnerships (MLPs) are ongoing businesses which pay out most of the cash flow to investors. Master limited partnerships are like bonds in that they pay out regular cash to investors. However, they are unlike bonds in that the payout to investors has historically risen with inflation and through increasing profits. Master limited partnerships are also like stocks in that they are equities and trade on the New York Stock Exchange or NASDAQ. Unlike typical companies, the income of the MLP is not taxed at the corporate level. All the money that would have been taxed is passed along to the investors. The effect is that there is substantially more cash available to investors.

Investors seeking to build a MLP portfolio should consider the following:

• The balance sheet and income statements are reviewed for strength.
• Projections for distribution increases over the next three to five years are ascertained.
• Examine the ratio of cash flow paid out to investors with the amount that has been available to pay out.
• Divide the MLPs into three risk profiles which are as follows: Rock Solid, Secure and Other.
• Examine the percentage of the cash payment to investors that is tax deferred.
• Review research from a variety of companies and industry sources.

Unlike bonds, MLPs have a history of raising distributions at a faster rate than inflation. For example - Buckeye Pipeline, headquartered in Radnor PA, paid out $1.20 in 1991. Today, Buckeye pays out $3.71 per year, a 209 percent increase in nineteen years.

When people as me about the risks of MLPs compared to bonds, I ask them if they would be happy to be assured they would get their money back in a twenty year U.S. Treasury bond. If we look back over the last nineteen years, would you have been happy getting your money back from a triple A rated bond? A first class stamp was $.25 at the beginning of 1991.

If you invested $10,000 into a twenty year U.S. Treasury bond you would have received approximately $800 per year for twenty years. In January of 1991 you could have bought 3,200 first class stamps per year. Today you could only buy 1818 stamps per year. If you had invested the same $10,000 in Buckeye Pipeline, you would have received approximately $1000 per year and bought 4000 stamps. Today you could purchase 7026 stamps per year with the cash flow generated.

So, with Buckeye you could purchase 7026 stamps vs. 1818 stamps per year from the U.S. Treasury bond. The original investment was the same. When understanding risk, it is important to rank the risk. If you consider inflation as a risk over the next fifteen years, you need to own something that can raise prices and pay you an increasing return. Of course there is no guarantee that the future return from a portfolio of MLPs will grow at any particular rate. Just as there is no way to guarantee just how fast the purchasing power of the U.S. dollar will drop over the next fifteen years. I am willing to bet that you will buy fewer postage stamps in 2025 than you can today with the income you receive from U.S. Treasury bonds.

©DeWitt Capital Management

David T. DeWitt, CFP specializes in Creating Income for Life, Growth Stocks and IRAs. For our latest report, visit our website at http://www.incomingchecks.com

Day Trading Techniques - How to Exploit the Open to Make Money

Quite often the open is unusually high or low in relationship to a normal trading range a particular day, so called gaps. One reason might be that the market is overreacted on special news.

There is an old adage saying that "the market abhors a vacuum", meaning that most gaps (not all) eventually will be filled. In this regards, many traders exploit these gaps in the open to make a quick profit in a short amount of time.

Here's how you can do it if you have gaps on the upside:

If the stock opens unusually high it is telling you that the buyers are so motivated and they are prepared to pay more for the stock that day than they did throughout yesterday's trading range.

In this case you'll enter the market at a point close to the lower part of the gap and place stop-loss a safe distance under your entry position.

Here's how you can do it if you have gaps on the downside:

If the stock is open unusually low, it is telling you that the sellers are so fearful and they are willing to liquidate at prices well below yesterday's trading range.

In this case you'll enter the market at a point close to the start of the gap and place stop-loss a safe distance over your entry position.

Such positioning as pointed above is often low risk because you soon find out whether you are right or not. If you are wrong, the market will tell you by moving quickly beyond the gap areas. So, exploit the gaps in the open can often be a great way to make money day trading.

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Day Trading, Buying and Selling Strategies

The term 'day trading' is used to define the act of buying and then selling a stock in the same day. A day trader tries to make a profit by taking advantage of small price changes in the market through leveraging a large amount of capital. There are a few common day trading strategies, and these have been listed below:

There are certain stocks that are great for day trading systems, and a trader may choose them depending on their price and availability. A trader will look for two qualities when daily trading a stock and those are its volatility and its liquidity. The volatility of a stock is its estimated price range for that day; this is the price range in which the trader will then operate. The more volatility a stock has the great the profit may be, and the greater the loss may be. The Liquidity is what allows you to exit and enter the stock at a quality price.

One example day trader strategy favorite is Sun Microsystems. The reason why many day traders buy this stock is because it is very cheap to purchase and very liquid and volatile. Other stocks like this are very convenient for day traders.

One of the most popular trading strategies is called Scalping. This practice sells the stock immediate after profit can be made from selling it. This type of trading tends to move very fast, with the traders watching the moment the stock becomes profitable so they can sell it.

Daily Pivots is a strategy that allows profits from the volatility of the stock. This is accomplished by buying stocks during the low time of the day and when the high time of the day comes, the stocks are then sold. When traders short stocks after they have had a rapid upward move, the process is called Fading. This strategy uses the assumption that the stocks have been over bought, and earlier buyers are already making profits from and selling they're stocks. In addition, they also try to scare out any existing or potential share buyers. This strategy is very risk, but if all goes well it can generate a huge profit.

The Momentum strategy utilizes strong trend moves or trading on news releases. The day trader will buy when there has been news releases and then continue on with they're trend until there are signs of reversal.

Generally, daily trading requires the same tools that are used when trading normally. Buying shares is quite the same as normal trading, but the exits are very different. Most of the time, you will want to exit when interest of the stock has decreased. With day trading, investors are more vulnerable to quick price raises and drops, much more so than normal trading. Trading can be a very difficult thing to master, and there are many who try it and fail. But if you create one or more good day trading strategies, with practice and persistence you can stand to make a great amount of profit.

The author has spent a lot of time learning about stocks for cheap and how to find value stocks. Read more about stock trading investments at John Espinosa's website.