Should I invest in gold?
Gold can provide diversification in a simple way, since it has a history of being generally non-correlated with most other asset classes. It is not necessarily a hedge against anything specific, as some claim, since its price movement is too random. Conventional wisdom says that investing in gold might be a good hedge against inflation or market cataclysms. Some of these beliefs are unfounded. The price of gold appears to go up only when it is in high demand (such as when the price has gone up some already), rather than in tandem to any specific market force such as inflation or interest rates. If investors have some idea of when other investors are going to pile in, such as during times of uncertainty, they will likely be able to ride an uptrend in gold prices for a while. Continue reading...
Who Establishes a 401(k)?
Employers make the decision to establish a 40(k), but it has to be good enough for employees to want to participate. An employer is responsible for establishing a 401(k) and for overseeing it as the sponsor and fiduciary. A self-employed individual can also establish an Individual 401(k), which has the same contribution limits and requires none of the testing or auditing of a regular plan. Other options for work-site retirement plans are SIMPLE IRAs, SEP IRAs, and various kinds of profit-sharing and deferred compensation arrangements. Continue reading...
What is Form 1099-INT?
IRS Link to Form — Found Here Interest income, such as that paid in certain bank accounts and government bonds, will be reported to the taxpayer and the IRS by the payer of the interest income. Form 1099-INT is the form used by these businesses or entities to report the income. Interest income from bonds and interest-paying bank accounts, such as savings accounts, and certain investments, will be reported on Form 1099-INT. The payer of the interest will submit the form to the IRS even for very small amounts of interest payments. Continue reading...
What is IRS Publication 513, Tax Information for Visitors to the United States?
IRS Link to Reporting Guidelines — Found Here Despite how it sounds, this publication is not meant for tourists to the US, but rather for non-US-citizen workers who might be considered either resident aliens or nonresident aliens, or dual-status if they can be considered both within the same year. Non resident aliens do not have to file a return if they did not earn more than the standard annual deduction amount. This guide is relatively short by IRS Publication standards, at only about 20 pages. Continue reading...
How to use the Accumulation/Distribution in trading
The Accumulation/Distribution Indicator (originally called the Cumulative Money Flow Line) tracks cash flow into or out of a security and correlates the cash flow changes to changes in the security price. By following the trading volume into or out of a security, it establishes the degree of correlation between this trading volume and the price of the security. Accumulation/distribution is designed to reveal divergences in price trends (specifically between stock price and trading volume). These divergences indicate the degree to which a security may be overbought or oversold at a given time. Continue reading...
What is Demand?
Demand is a measure of consumer’s desire to purchase goods and services. High demand for a product typically puts upward pressure on price, and vice versa. Demand is a key metric in reading price trends and a company’s ability to set price point. Weaker demand on a global macro level implies that countries are investing less, developing less, and therefore focused less on growth. Sustained downtrends in demand will generally lead to recessionary conditions. Often times, central banks will try to step-in and stoke demand by lowering the cost of money (interest rates). Continue reading...
What is a Breakeven Price?
There will be a premium paid by investors for the right to establish positions using options. The price of the underlying security must move to a certain point for the options position to become profitable. The strike price of an options contract names the price that an investor can use to buy or sell the underlying security, but the breakeven price will be the strike price plus the amount of the investor’s premium or net debit. Breakeven price can apply to a multi-option strategy such as a spread, or to a single option position. Continue reading...
What are credit derivatives?
Stemming from the hedging strategy of Credit Default Swaps, an entire speculative derivatives market continues to grow, in which tranches of credit risk and indices are traded. With the ballooning of consumer credit in recent years, it is only natural that a credit derivatives market would follow it. In essence, the risk associated with a loan or bond is separated from the actual asset and is passed on to a counter-party for a premium, and then other market participants become involved, perhaps in the form of futures contracts or other derivatives. Continue reading...
What is triple witching?
Triple witching hour is when three types of derivatives expire at once, which happens once every quarter in the US. It typically results in irregular or volatile movements in the markets. When stock market index futures, stock market index options and stock options all expire at the same time, the hour before close is called the Triple Witching Hour. This occurs on the third Friday of March, June, September, and December in the United States between 3:00 PM and 4:00 PM Eastern time. Continue reading...
How to use Bollinger Bands in trading
Bollinger Bands were developed by famous trader John Bollinger as a technical analysis tool to discern the likely trading range of a security. A Bollinger Band is typically two standard deviations from a moving average line, both above and below the average. Standard deviation is another word for the average volatility of a price over a length of time. It is typical for a trader looking up the historical price chart for a security to compare it to a moving average line. Continue reading...