Day Trading Rules For Rookies: Don't Play It By Ear!

The prospect of making quick money lures many to the world of day trading. The participants in this game, besides professional traders, can be retirees, executives, teachers, small business owners, housewives, etc. who try and make a fortune through their computer screens.  Remember, the profits which may draw you to day trading are virtual and it’s your trading style that can transform them into real gains--a daunting task, especially as a rookie.

There are rules for every game, even day trading! If you are a new player, it’s important that you are mindful of the basic set of rules. These rules are certainly not binding, but they can help you to make some crucial decisions and give broader guidelines.

1) Knowledge 

“Knowledge is power.” Knowledge here includes information about the basic trading procedures and tools, information about stocks you plan to trade (like company financials, reports and charts), knowing the latest in the stock markets, keeping track of events that affect stocks, etc. Day trading can become more difficult and risky in the absence of knowledge. As a rookie, do your homework; make a list of stocks which are on your wish list, keep yourself informed about the selected companies and general markets, scan a business newspaper and visit reliable financial websites on a regular basis. An informed decision is a better decision.

2) Being Realistic

Being realistic about profits is important. As you gear up to trade, make sure that you don’t lose out on decent gains in the greed for more! Markets are tricky and it’s better to settle down for a smaller profit than ending up losing heavily. Don’t repent losing out on a chance. If required, you can always buy the same stock when it dips. Every small profitable trade will help boost your confidence and also give you a chance to try out the strategy again.

3) Margin Trading

Trading on margin means that you are borrowing money from a brokerage firm to trade. When used properly, margins help to amplify the trading results; amplification is just not of profits, but of losses as well, if a trade goes against you. As a rookie, keeping control on the amount of indulgence is vital and trading with cash-in-hand helps to achieve that. To begin with, indulge in day trading without using margin. The high margin requirements for day trading on margin also act as a barrier for many to trading on margin.  

4) Entry & Exit 

Knowing the price at which you wish to enter at and exit can help you book profits as well as save you from a wrong trade caused by unnecessary confusion. Don’t play it by ear; you must have some pre-fixed levels in your mind for every stock you plan to trade. In case the markets are not favorable, exit to cut losses.

5) Number of Stocks

As a beginner, it is advisable to focus on a maximum of one to two stocks during a day trading session. With just a few stocks, tracking and finding opportunities is easier. If you simultaneously trade with many stocks, you may miss out on chances to exit at the right time.

6) Rush Hours

Many orders placed by investors and traders begin to execute as soon as the markets open in the morning, and thus contribute to price volatility. A seasoned player may be able to recognize patterns and pick appropriately to make profits. But as a novice, it is better to just read the market without making any moves for the first 15-20 minutes. The middle hours are usually less volatile while the movement again begins to pick towards the closing bell. Though the rush hours offer opportunities, as a novice it’s better to avoid that time to trade.

7) Set a Amount Aside

Day trading is risky and there is a high chance of losses. As a rookie, set aside a surplus amount of funds that you can trade with and are prepared to lose (which may not happen) while keeping money for your basic living, expenses, etc. This will ensure that you are not increasing the risk quotient by neglecting your day-to-day needs whilst day trading.

8) Time

Above all else, day trading requires your time. Don’t consider it as an option if you have limited hours to spare. The process requires a trader to track the markets and spot opportunities, which can arise any time during the trading hours.

9) Avoid Penny Stocks

Keep away from penny stocks as a beginner in day trading. These stocks are highly illiquid and chances of hitting a jackpot are often bleak. Don’t trap yourself in a trade which is difficult to exit!

10) Limit Orders

When you place a market order, it is executed at the best price available at the time of execution. Thus there is no “price guarantee” in a market order.A limit order, meanwhile, does guarantee the price, but not the execution. Limit orders help you trade with more precision wherein you set your price (not unrealistic but executable) for buying as well as selling.

11) Unreliable Sources

Don’t trust any SMS, mail, advertisement, etc which claim about super normal profits. It’s not that all such sources are bogus but authentication is required. As a rookie be sure not to be tricked by someone who for a commission lands you with a bad trade.

12) Emotion

There are times when the stock markets test your nerves. As a day trader you need to learn to keep confidence, greed, hope and fear at bay. The decisions should be governed by logic and not emotion. This may be hard for a beginner but only someone who can learn to control his or her emotions can be successful. Before plunging into the real time arena, it can be a good idea to try a simulation exercise. (Investopedia has a stock simulator here.)

The Bottom Line 

Day trading requires time, skill and discipline. Skill is developed over a period of time as you participate in the markets and trade with discipline by devoting your time. A sound understanding of some good day trading strategies can provide a foundation to this endeavor.  Self learning is the best way to learn and as Jesse Livermore, a legendary trader said, “I know from experience that nobody can give me a tip or a series of tips that will make more money for me than my own judgment.” 

How to choose the right ETFs

The goal of most investors is to manage risk, seek income, and achieve long-term growth. These goals, of course, need to be built on a solid foundation: the “core” of a portfolio. The idea of the core is to establish the right mix of exposures and investments, at an attractive price point, that seek to drive value over the long term.

With over 5,000 ETFs to choose from, building your core with ETFs does require a framework. Institutional investors have extensive due diligence processes for selecting investment products and in many cases, a whole staff to do the work. Based on my extensive work with institutions I propose using a simplified approach when selecting ETFs for the core of your portfolio. Here are the five key questions you should be asking:

1. Provider – How well do you know your provider?

Consider both the ETF provider’s experience in the ETF market, as well as the provider’s size, scale, track record and level of commitment to the ETF industry and to managing exposures versus a rule or an index. Different ETF providers have different investment philosophies. Importantly, your ETF provider should offer value add services, including a user-friendly web site with tools to help you build your core. For example, iShares utilizes the interactive Core Builder tool to help investors navigate possible ways to achieve this objective.

2. Exposure – Can you get the exposure you want?

​ETFs, even within a particular asset class or segment of the market, can vary significantly. Pay attention to the index and ask your financial advisor questions about differences between products and its ability to track a core index or benchmark. Understand the exposure you want and ensure the ETF you select is capturing that.

3. Structure – Are there risk & cost implications from the ETF structure?

Look for ETFs whose product design balances desired exposure with cost and tax efficiency, as well as liquidity. In general, the ETF structure can help minimize the unintended tax consequences. Generally speaking, ETFs tend to have lower turnover relative to actively managed funds, which can help minimize annual capital gains taxes.

4. Liquidity – Can you trade when you need to?

Because ETFs trade on exchange, liquidity is a huge factor in why many investors utilize them. Even for core holdings, which are by definition more long-term in nature, you still want to ensure you have the ability to trade when it’s time to dial up or down your exposure. However, be sure to examine the liquidity of the ETF itself, as well as liquidity of underlying securities.

5. Costs – What is the total cost of ownership?

Expense ratios are important, however all implicit costs including trading and market impact, should be factored in. Your financial advisor can help you estimate the impact of your trade before it’s placed.

How to Calculate the Value of an ETF

ETFs, like mutual funds, are a good way to get exposure to many individual stocks without taking positions in any one of them on an individual basis.  But unlike mutual funds, ETFs trade throughout the day, just like the underlying holdings. So while making an investment in an ETF is a good way to get broad exposure to stocks, bonds or commodities without taking on specific risk, calculating performance may be a bit tricky.  

Net Asset Value

Both mutual funds and ETFs calculate NAV, or net asset value, at 4pm EST.  The NAV is the value of each share measured by the value of all the fund’s underlying holdings at their closing prices.  However, because the ETF trades throughout the day, there are times when the NAV and the actual market price differ, although the differences tend to be minuscule.  Therefore, for calculation purposes, the most readily available measure to use is the NAV but if you need to calculate more precise performance, then you can use the intraday net asset value (iNAV) if available. 

Calculation

Let’s use an example of an investment in EFT A.  The NAV of ETF A is $100 and you buy 50 shares for a total cost of $5000 ($100*50).  Three months later, the NAV is $115.  Your 50 shares are now worth $5750 ($115*50) for a profit of $750 ($5750-$5000).  Your holding period return is

($5750-5000)/$5000=15%

The Bottom Line

The performance displayed on a brokerage statement for an ETF held in your portfolio may differ slightly from the calculation you make from NAV because the market value may be marginally different than the NAV.  However, these variations should only be slight and minimally impact your total performance.  One of the benefits of investing in an ETF is that it is actively traded which should compensate for the minimal dispersion between the actual bid/ask spreads and traded bid/ask spreads that make up the variance between market value and NAV.  

Is Now The Time For Momentum Stocks?

In active trading, there are various avenues to take when picking stocks. In some cases, traders will take positions in stocks that are trading within strong trends in anticipation that the crowd will be caught on the wrong side and that the price will drastically swing in their direction. This type of trader is known as a contrarian. Deciding when the trend will reverse is the hard part of such a strategy, and some traders will invariably find themselves holding onto a losing position while the momentum continues.

As of late, traders waiting for a reversal have only seen stocks climb higher, which is why there has been a rise in popularity in a style known as momentum trading. The theory used by momentum traders is that the ‘trend is your friend until it ends.’ Momentum traders will stick with their position in a defined trend until they receive confirmation from several technical indicators that suggests the trend is reversing.

For those who don’t closely follow the market, choosing a momentum stock can also be difficult because at this point in the trend many technical and fundamental indicators suggest that the stock is fully valued and ripe for a pullback. Rather than choosing a momentum stock blindly and adding it to a portfolio, it may prove wise to check out the iShares MSCI USA Momentum Factor ETF (MTUM). As you can see from the chart below, this ETF is been trading within a strong uptrend ever since its inception on April 16, 2013, and it doesn’t look like it is about to reverse any time soon. 

Looking at the Components of MTUM

The iShares MSCI USA Momentum Factor ETF tracks large- and mid-cap U.S. stocks that exhibit strong price momentum. The fund currently has $307.7 million in net assets and holds 125 different stocks. The ETF is relatively liquid and carries a reasonable expense ratio of 0.15%. In terms of sector weighting, the MTUM ETF is heavily weighted toward health care, industrials and Information technology, which as suggested in previous articles, are all trading within extremely strong uptrends. Top holdings of the MTUM fund shown in the table below could be great candidates for any active trader's watch list. 

Trading the Momentum of Facebook

Facebook has been a momentum stock of choice for many traders since August 2013 when the company announced better-than-expected earnings. It showed the market that it was figuring out how to monetize mobile traffic at a faster rate than expected. As you can see from the chart below, the golden crossover between the 50-day and 200-day moving averages back in August 2013 was the signal of the beginning of a long-term uptrend. Many active traders will likely hold a position in FB until it closes below the support of its 200-day moving average. The recent tightening between the peak near $72.50 and its 200-day moving averages provides momentum traders with a more favorable risk/reward ratio and could lead to heavy buying over the weeks ahead.

The Bottom Line

When it comes to active trading, strong trends can last much longer than expected. This has led to a rapid increase in the popularity of exchange traded funds such as the iShares MSCI USA Momentum Factor ETF, which have been designed specifically to track this trading style. For traders looking for momentum candidates for their own portfolios, it could be a great idea to check out the components of the fund listed in the table above. 

Impact Investing: Making A Difference And A Profit

Most investors spend their time chasing returns. But what if there was a way to do good while also turning a profit?

Several not-for-profit organizations have recently been teaming up with money mangers and investment banks to create and market a new line of products that offer investors the opportunity to engage in what is now being touted as impact investing, a form of socially responsible investing. The goal of this scheme is to invest money in companies, organizations, funds or projects anywhere in the world that can effect a positive social change, while at the same time deliver a financial return to investors. 

One Step Further

Interest in the idea has been growing steadily over the past couple years and so have the number of products being offered. For some time, a breed of investment management companies such as Pax World Management, Domini Social Investments and Parnassus Investments have been offering mutual funds that invest in socially and environmentally conscious and responsible companies. But today’s impact investors are going one step further, looking to invest in bonds and other investment vehicles that invest directly in socially oriented projects.

An example of a vehicle used in impact investing is a microfinance loan, which help people with little or no access to capital start a new business. High-net-worth individuals, in particular, are finding these offerings attractive and are willing to take on some calculated risk to invest in them. Businesses started with microfinance loans are providing competitive returns to their investors through the bonds that back them. In some instances, impact investment vehicles have been able to garner higher returns for their investors than the broader markets did, especially during down cycles.

One example of an impact investing project is a community solar program. A platform called Mosaic allows people to invest as little as $25 to fund solar projects that save money for homeowners, schools or other institutions while reducing carbon emissions.

Not Just The Rich

What may have begun as a niche for wealthier investors is starting to get the attention of the larger retail market. Accordingly, the number of organizations offering these products is increasing. One such organization is ImpactAssets, which offers donor-advised funds and impact investing notes to individuals and advisors looking to produce positive social and environmental change. Each year, the organization publishes a list of 50 investment managers who specialize in impact investing techniques.

ImpactAssets is also closely tied to the Calvert Foundation, which offers investment and lending opportunities, such as the Calvert Community investment notes, a series of debt securities that start at a minimum investment of $1,000.

Growing Interest and Variety

Goldman Sachs has also jumped on the impact investing bandwagon. Just last year, it rolled out its GS Social Impact Fund, which deploys capital toward the physical, social and economic revitalization of disadvantaged communities across the U.S. The fund’s investment strategy is to addresses social challenges and to mobilize new sources of private capital into the social-impact arena, while also providing its investors with a financial gain.

The Rockefeller Foundation was one of the first foundations to experiment with social impact bonds in conjunction with the Global Impact Investors Network (GIIN), a not-for-profit organization dedicated to increasing the effectiveness of impact investing. The foundation also funded the development of a metrics to measure the performance of these social enterprises and impact investing funds.

And now, with the guidance of the Rockefeller Foundation, some of the biggest U.S. investment banks, including Goldman Sachs Group, Inc. (GS), JP Morgan Chase & Co. (JPM), and Bank of America Corp. (BAC), have created social impact bonds that are being applied to issues such as asthma, early childhood education, diabetes, and prison rehabilitation programs.

With investor demand for impact investing products continuing to rise as the idea becomes more mainstream, several financial institutions, such as Morgan Stanley (MS), Merrill Lynch and UBS Inc. (UBS) have also been developing impact-investing platforms that their wealth advisors can tap when clients request impact investment funds geared toward a certain cause.

Morgan Stanley Wealth Management’s Investing with Impact platform recently began offering about 100 third-party products, including exchange-traded funds, mutual funds and some other “do good” alternative investment products. It's also looking to offer private debt and equity investments to impact investors in the near future.

Returns Keep Them Coming Back

The move by these investment banks and money managers to offer more impact investing products seems to be a profitable one. A GIIN and JP Morgan study that looked at 125 impact investors who committed $10.6 billion to impact investing in 2013 found that about 91% reported that their impact investments were meeting or exceeding their financial expectations. Approximately 54% said their investments were targeting market-rate returns. The group, as a whole, plans to increase their investments in this sector by 19% this year, which would result in close to $13 billion in investments.

Millennial Next In Line

The next generation of investors is already exhibiting a desire to put their investment dollars behind projects, companies and funds that are in line with their own core valves. Millennials, or people born between the early 1980s and the early 2000s, are the latest group of investors who see impact investments as a way to stand up for their beliefs while also investing in their own futures.

Studies show that these investors are also now turning to financial professionals to help provide them with opportunities to generate a strong financial return, while creating a positive social impact. They want their advisors to offer them value-based investing products as an alternative to what is being offered to them in the general markets. And while they may be young, and low on cash at the moment, this segment of the population shouldn’t be overlooked. Millennials are expected to inherit about $41 trillion in wealth from their parents, and they are already looking for ways to invest it.  

Skewed To Wealthier Investors...For Now

More and more opportunities will continue to open up for investors seeking to align their own financial futures with their desire to make a difference in the world. For now, though, most scalable impact investing options are still geared to wealthier investors. For those investors with less than $3 million to invest, sustainable and responsible investment vehicles, such as mutual funds focused on socially and environmentally responsible investments, are still the way to go. Private deals that require a fair amount of due diligence may still be too risky for the average investor.

The Bottom Line

The desire to meld investments and social responsibility is growing at a fast pace among the rich and not-so-rich. And the groundwork has been laid for the creation of numerous products to meet the demand of a new generation of socially conscious investors. As long as such investments produce competitive returns – both financial and social – their popularity will only grow.

Can High Fund Returns Be Deceiving?

We’ve all heard that ubiquitous warning: “Past performance does not guarantee future results.” Yet looking at a menu of mutual funds in, say, your 401(k) plan, it’s hard to ignore the ones that have crushed the competition in recent years.

On one level, it makes sense that the one-year or five-year returns of a fund tend to carry a lot of weight. Unless investors have the time and wherewithal to investigate each basket of securities on their own, they’re likely to rely on the information that’s right at their fingertips.

But are historical outcomes a good indicator of results down the road? The data would seem to indicate otherwise. One study looked at mutual-fund data over a 16-year period and found that just 7.8% of the top 100 fund managers in any given year retained that distinction the following year.

A separate report by Standard & Poor’s showed that only 21.2% of domestic stocks in the top quartile of performers in 2011 stayed there in 2012. And slightly more than 7% remained in the top quartile two years later.

Subsequent Performance of Mutual Funds in the Top Quartile in 2011

Source: Standard & Poor’s

History Often Doesn’t Repeat 

Why are past results so unreliable? Shouldn’t star fund managers be able to replicate their performance year after year?

Certainly, some actively traded funds beat the competition fairly regularly over a long time period. But the inherent unpredictability of the market means that even the best minds in the business will have off years.

A study by investment firm Robert W. Baird & Co. looked into this phenomenon. What the company found was that, even among fund managers who outpaced the market over a 10-year span, many experienced two- or three-year stretches where they trailed the pack.

Translation: If you’re looking at a fund's recent outcomes and the numbers look unimpressive, it’s hard to tell if it’s a bad manager having a bad year or a good manager having a bad year.

There’s an even more fundamental reason not to chase high returns. If you buy a stock that’s outpacing the market – say, one that rose from $20 to $24 a share in the course of a year – it could be that it’s only worth $21. And once the market realizes the security is overbought, a correction is bound to take the price down again.

The same is true for a fund, which is simply a basket of stocks or bonds. If you buy right after an upswing, it’s very often the case that equilibrium is about to bring it back down.

What Really Matters

Rather than looking at what happened in the past, investors are better off taking into account the various factors that do influence future results. In this respect, it might help to learn a lesson from Morningstar, one of the country’s leading investment research firms.

Dating back to the 1980s, the company assigned a star rating to each fund based on risk-adjusted returns. However, research showed that these scores demonstrated little correlation with future success.

Morningstar has since introduced a new grading system based on five P’s: Process, Performance, People, Parent and Price. With the new rating system, it’s looking at the fund’s investment strategy, the longevity of its managers, its expense ratios and other relevant factors. The funds in each category earn a Gold, Silver, Bronze or Neutral rating.

The jury’s still out on whether this new method will fare any better than the original one. Regardless, it’s an acknowledgement that historical results, by themselves, tell only a small part of the story.

If there’s one factor that does consistently correlate with strong performance, it’s fees. This explains the popularity of index funds and ETFs, which, at a much lower cost than actively traded funds, mirror a market index.

According to Vanguard, a whopping 68% of large-cap value funds trailed their benchmark over the past 10 years. What this shows is that, given the complexity of stock movements, it’s hard even for skilled managers to pick enough winners to make up for the higher price tag of their funds.

The Bottom Line

It’s tempting to judge a mutual fund based on its recent returns. But if you really want to pick a winner, look at how well it’s poised for future success, not how it did in the past.

Interested In Healthcare Stocks? Look At This ETF

Healthcare has been one of the hottest sectors in the financial markets over the past few months. Key exchange-traded funds in this sector have seen returns ranging from 10.54% to 18.08%. Two of the most popular ETFs used by retail investors to track this sector are the iShares U.S. Healthcare ETF (IYH) and the Healthcare Select Sector SPDR ETF (XLV).

The IYH ETF is used by many retail traders to gain exposure to U.S. healthcare equipment and services, pharmaceuticals and biotechnology companies. As of of June 25, 2014, the fund sector breakdown was divided between 68.18% pharmaceuticals & biotechnology and 31.70% healthcare equipment & services.

Performance of IYH

Taking a look at the chart of IYH, you’ll see that it has been trading within a very strong uptrend over the past five years. You’ll also notice that it is trading near all-time highs, and based on its chart, it doesn’t look like this trend will end anytime soon. Taking a look at the Relative Strength Index, the MACD and the bullish divergence between key long-term moving averages confirms that the upward momentum is likely to continue.

Components of iShare U.S. Healthcare ETF

When looking for ideas for investing in the healthcare sector, it's a wise move to investigate the top holdings of key ETFs, such as IYH. The table below shows its top holdings.

Taking a look at the chart of JNJ, which is the ETF’s largest holding, you’ll see that it is trading near all-time highs. Based on the technical indicators it doesn’t seem like this trend is about to reverse and it wouldn’t be surprising to see long-term traders protect their positions by setting a stop-loss order below the 200-day moving average, which is currently at $93.66. Given that there is no overhead resistance, the trend is definitely in the upward direction, and ETFs such as IYH will continue to benefit until key indicators confirm a reversal in the uptrend.

Another key holding of the IYH fund is Merck & Co., which is also trading near all-time highs and looks positioned to make a continued move higher. As you can see from the chart below, the 50-day and 200-day moving averages are diverging and the price is currently testing the near-term swing high of $59.39. If the bulls are able to send the price above this level on significant volume then there would be little overhead resistance that would prevent a move toward the mid $60 level. 

The Bottom Line

As shown on the chart of the iShares U.S. Healthcare ETF above, companies within the healthcare sector seem to be poised to make a move higher. Based on the analysis of key holdings such as Johnson & Johnson and Merck & Co., this sector should be near the top of any active traders' watch list.

Why You Should Invest In Green Energy Right Now

It's no secret that the global energy demand continues to rise. Driven by emerging economies and non-OECD nations, total worldwide energy usage is expected to grow by nearly 40% over the next 20 years. That'll require a staggering amount of coal, oil and gas.

But it’s not just fossil fuels that will get the nod. The demand for renewable energy sources is exploding, and according to new study, we haven’t seen anything yet in terms of spending on solar, wind and other green energy projects. For investors, that spending could lead to some serious portfolio green as well.

Rising Market Share

The future is certainly looking pretty “green” for renewable energy bulls. A new study shows that the sector will receive nearly $5.1 trillion worth of investment in new power plants by 2030. According to a new report by Bloomberg New Energy Finance, by 2030, renewable energy sources will account for over 60% of the 5,579 gigawatts of new generation capacity and 65% of the $7.7 trillion in power investment. Overall, fossil fuels, such as coal and natural gas, will see their total share of power generation fall to 46%. That’s a lot, but down from roughly from 64% today.

Large-scale hydropower facilities will command the lion’s share of new capacity among green energy sources. However, the expansion by solar and wind energy will be mighty swift as well.

The Bloomberg report shows that solar and wind will increase their combined share of global generation capacity to 16% from 3% by 2030. The key driver will be utility-scale solar power plants, as well as the vast adoption of rooftop solar arrays in emerging markets lacking modern grid infrastructure. In places like Latin America and India, the lack of infrastructure will actually make rooftop solar a cheaper option for electricity generation. Analysts estimate that Latin America will add nearly 102 GW worth of rooftop solar arrays during the study’s time period.

Bloomberg New Energy predicts that economics will have more to do with the additional generation capacity than subsidies. The same can be said for many Asian nations. Increased solar adoption will benefit from higher costs related to rising liquid natural gas (LNG) imports in the region starting in 2024. Likewise, on- and offshore wind power facilities will see rising capacity as well.

In the developed world, Bloomberg New Energy Finance predicts that CO2 and emission reductions will also help play a major role in adding additional renewable energy to the grid. While the U.S. will still focus much of its attention towards shale gas, developed Europe will spend roughly $67 billion on new green energy capacity by 2030.

Impressive Renewables Growth

While fossil fuels will still be a massive source of power, the growth in renewables will still be impressive. And that impressive growth could be worthy of portfolio position for investors. The easiest way to play it is through the PowerShares WilderHill Clean Energy ETF (PBW).

The $200 million ETF tracks 57 different “green” energy firms, including stalwarts like Canadian Solar Inc. (CSIQ) and International Rectifier (IRF). So far, PBW hasn’t lived up to its promise and the fund has managed to lose around 8% a year since its inception in 2005. That’s versus a 7% gain for the S&P 500. Yet, the fund is truly a long term play and could be a good buy at these levels given the estimated spending. Another option could be the iShares Global Clean Energy (ICLN), which only has about 35% of its portfolio in U.S. stocks.

For solar and wind bulls, both the Guggenheim Solar ETF (TAN) and First Trust ISE Global Wind Energy ETF (FAN) make adding their respective sectors a breeze. Cute tickers aside, both the TAN & FAN have been monster winners over the last few years as both solar and wind power makers have once again returned to profitability. With the sun shining and the wind at their backs, the new report could help push share prices higher over the next few decades.

Finally, as stated above, hydropower will be the dominant renewable energy source driving spending in the years ahead.  While General Electric Co. (GE) exited the hydropower turbine business a few years ago, it still makes software and other products for the industry. More importantly, its recent buy of France’s Alstom SA will put it right back in the driver's seat of the hydro-market. Alstom is one of the leading producers of hydropower turbines in the world. Not to be outdone, rival Siemens AG continues to focus on small-scale hydro-electric facilities. Both GE & Siemens make ideal selections to play that renewable sources expansion.

The Bottom Line

Bloomberg New Energy Finance’s recent report shows just how far renewables will go towards our generation needs. Given the anticipated spending spree in the sector, investors who choose to "go green" could see their holdings grow along with the demand for energy.

If You Buy Stocks Online, You Are Involved in HFTs

High-frequency trading has gotten a lot of buzz following the publication of Michael Lewis’ book “Flash Boys: A Wall Street Revolt”.  Although an astounding tale of how trades get hijacked by high frequency traders, the most compelling information it reveals is how most trades actually get executed. When investors put in an order to buy or sell a stock, they are unaware that often HFTs are involved; actually half to two-thirds of trades executed in the U.S. involve HFT, according to many experts. 

The proliferation of HFT began when the US government implemented new laws aimed at leveling the playing field by giving every trade the same chance of receiving best price execution.  Regulation NMS (National Best Bid and Offer), enacted August 2005, established “order protection rules” designed to prevent the execution of trades at inferior prices by requiring trades get routed to the best prices first then follow an ordered sequence of best prices until the full order is filled.

Reg NMS created a proliferation of exchanges in which orders can be filled; it also opened the door for more nefarious activities like front-running and kickbacks.This occurred in many forms but one in particular, the sale of order flow by online brokers, greatly impacts the individual investor. 

Online brokers sold order flow (the ability to execute orders) to the highest bidders, usually to high-frequency trading firms.  These trading firms took that information to front-run the trades so that the individual trades got executed at a higher price.  Similarly, the banks that regulated the orders also controlled the information about the orders.  As such, they were able to process the orders best befitting their profitability.  Usually that meant first sending it into their “dark pools”, their internal pool of stocks where they match buyers and sellers.  The orders, if not completely filled within the dark pools, were routed to other exchanges and it is surmised that the tread routes the banks chose depended on which exchanges paid the banks to most to receive the orders.  Banks and firms were paid to send orders to some exchanges creating an enormous conflict of interest.  In both cases the individual investor would be none the wiser, unaware of if he was receiving best pricing since online brokerage accounts are at an information disadvantage (online quotes are usually slow to update). 

The Bottom Line

A simple market order may not be so simple after all; individual investors should consider setting a limit on the price to "front run" the front-runners! Otherwise, the next time you hit the “Order Enter” button, you’ve gotta think “Am I getting the best price available?”

"Value" Investments: Social, Faith & Eco-Investing

Your head knows all the reasons why investing is good for you: tax benefits, retirement savings, tuition, mortgage, healthcare. But does your heart have questions? Perhaps you're concerned that companies you invest in are participating in fracking or other environmentally controversial  activities. Or maybe you believe strongly in humane treatment of all animals and don’t want your hard-earned money to go to companies that use animals for testing or other painful purposes. Other common concerns are exploitation of workers in less-developed countries or issues that go against your religious beliefs.

If you want your investments to grow, but not at the expense of beliefs you hold strongly, it’s time to look into investing with your heart – the new "value" investing. So what are your options?

Socially Responsible Investing

Also called ethical investing, socially responsible investing (SRI) aims to provide both profit on investments and encouragement to businesses that promote social good in various areas, including environmental stewardship, human rights, health-related issues and reduction in poverty. Although SRI has been around for decades, its popularity has surged in recent years. According to Forbes, currently $1.00 out of every $9.00 under professional management in the United States is in an SRI investment. While you can invest individually in companies that share your social concerns and goals, most investors choose to simplify the process with mutual funds or exchange-traded funds created around SRI.

Eco-Investing

Eco-investing, or green investing, is a subset of socially responsible investing that focuses on issues related to the environment. Technologies of interest to green investors cover a wide gamut of industries, including:

Renewable energy sources such as wind, solar, hydroelectric and geothermal
Energy-storage technology such as batteries for hybrid or electric cars
Biofuels made from non-petroleum sources
Green and energy-efficient building materials

Recycling

Other technologies related to eco-investing are those used for organic farming, including green pesticides and fertilizers, and green consumer products such as cosmetics, foods, healthcare products and pharmaceuticals.

Some companies often included in lists of eco-friendly investment opportunities aren’t specifically involved in environmental issues, but rather, strive to reduce their carbon footprint by making use of recycled materials, energy-efficient stores and offices, and more efficient shipping practices.

Impact Investing

While socially responsible investing often seeks to avoid doing harm by refraining from funding companies engaged in technologies or practices typically seen as harmful, impact investing funds individuals, companies or technologies not only in expectation of financial returns, but to achieve a measurable positive social impact. While non-profit organizations or for-profit companies most commonly do impact investing, individuals can participate in impact investing through microloans, bonds or impact investing firms such as Mosaic and Calvert Foundation.

Faith-Based Investing

Whether you’re Christian, Jewish, Hindu or Muslim, if your religion is an integral part of your worldview, you might want your investments to share that viewpoint. Faith-based financial managers invest in mutual funds and stocks that do not violate religious beliefs. For example, a Catholic mutual fund firm might steer clear of companies that violate traditional Catholic tenets, such as participating in stem-cell research, marketing products to same-sex couples or manufacturing contraceptives. 

Many faith-based investment firms avoid “sin stocks,” which generally cover alcohol, tobacco, gambling, pornography, weapons and high-interest loans. Typically, funds will invest in stocks of companies that are known to treat employees fairly, not harm the environment and support social good.

Bottom Line

When it comes to investing, your highest priority is probably receiving the best return possible on your money. But that doesn’t mean you have to check your values at the broker's door. When you seek to invest in ways that match your ethical principles, whether that be socially responsible investments, eco-investing, impact investing or faith-based choices, you have the satisfaction of knowing that your investment not only directly helped your own finances, it also worked to promote your beliefs in the world at large.

Why Your Next Dollar Should Go To Mexican Stocks

The World Cup has brought attention back to former emerging market superstar Brazil. As the 'B' in 'BRIC,' its abundant natural resources, strong government and growing middle class, have made it the poster child for growth in the region. Investors seem to agree, as there is now $4 billion in the broad iShares MSCI Brazil Index ETF (EWZ).

And while there is still plenty of samba left in Brazilian stocks, another Latin American nation could be a better long term bet. America's southern neighbor, Mexico, could be one of the most dynamic places for investors to place their money right now.

Regaining Manufacturing Muscle 

Thanks to a series of free-trade agreements with the United States and other nations, Mexico is quickly becoming a manufacturing powerhouse. Trade now represents 60% of Mexico's total GDP, and more than 80% of its exports are manufactured goods. That figure has quietly tripled since 1980, and has strengthened even more since the implementation of North American Free Trade Agreement (NAFTA).

And even better days could be ahead for Mexico.

Those trade agreements, with Japan and nations in the European Union, have brought in a tremendous amount of foreign direct investment. According to Mexico’s Finance and Public Credit Secretariat, the nation saw a record amount of FDI in 2013 at over $35 billion. That’s nearly a 178% increase over 2012. And that number is set to grow even more as several multinational corporations like Callaway Golf Co. (ELY) and Caterpillar Inc. (CAT) have begun expanding their operations in Mexico.

The reason is simple: lower costs.

Mexico continues to gain manufacturing market share away from rivals like China. First, energy costs are cheaper, as Mexico benefits from cheap natural gas produced in the United States, as well as its own petroleum production. There are now several pipelines that move natural gas downwards into the nation for electricity generation. Secondly, transportation costs are low, as both rail and truck traffic into the U.S. is robust. Finally, Mexico benefits from lower labor costs. Due to Chinese wage inflation, labor costs in Mexico are now about 20% cheaper. Just ten years ago, it was double China’s rate.

That shift and manufacturing growth will help Mexico see a 3.9% boost to its GDP this year, and a 4.7% increase in 2015, according to Mexico's finance ministry.

Tapping Into Mexican Manufacturing 

Given Mexico’s continued success as the world’s manufacturer, investors may want to consider overweighting it in their portfolios. While most Latin American focused ETFs, such as the SPDR S&P Emerging Latin America (GML), include hefty allocations to Mexico, there are ways to directly tap into Mexico’s maquiladora muscle. The easiest is through the iShares MSCI Mexico Capped ETF (EWW).

EWW tracks 59 different Mexican firms, including telecom giant America Movil (AMX) and Wal-Mart Stores, Inc.'s (WMT) Mexican subsidary Wal-Mart de Mexico (WMMVY). Expenses for the nearly $3 billion fund are low at 0.48%. More importantly, EWW has been a tremendous performer. Since its inception in 1996, the fund is up nearly 845%. The Deutsche MSCI Mexico Hedged Equity ETF (DBMX) can be used, as well, to take the peso out of the equation.

One of the benefit of NAFTA has been the proliferation of Mexican companies on U.S. exchanges. One of the best plays could be cement producer CEMEX (CX). CX was hit hard during the recession, as a result of dwindling construction activity, as well as an ill-timed acquisition. However, things seem to be on the mend, as the recovery in the U.S. bodes well for CEMEX’s bottom line. Analysts now have a $14 price target on the stock. Likewise, steel maker Grupo Simec (SIM) could be a good U.S. recovery choice.

Finally, as we’ve seen in other parts of the emerging world, an expanding local economy leads to an expanding middle class. And Mexico is no different. That makes both FEMSA (KOF) and Grupo Televisa (TV) prime picks. KOF is the leading Coca-Cola Co. (KO) bottler in thw world, while TV is the leading television broadcaster/programmer in Mexico.

The Bottom Line

Mexico is quickly moving to become a leading world manufacturer. Several free-trade agreements, along with lower labor and transportation costs, are boosting its manufacturing muscle.

Has the Stock Market Turned?

Talking Points:

• The Uk100 has failed to break over 6,900
• Price is still trading above support
• A lower low must be made for the trend to turn

Stock markets around the world have been making record runs over the past few years. However, with prices taking a pause, many traders are left to wonder if or when their favorite equities indices will turn. While fundamentally this can become a challenge, technical traders can use a series of price action clues to help them identify if indeed the market has turned. Today we will review the UK100 and identify tips to help better time the market. Let’s get started!

Learn Forex –UK100 Resistance Points

(Created using GCM’s Marketscope 2.0 charts)

Support & Resistance

The first clues that a trend has turned revolve around finding levels of support and resistance. In the event of an uptrend prices must be making higher highs, which in turn suggest rising points of resistance. The chart above displays a weekly graph of the UK100 (FTSE). Even though prices have generally been rising, prices have stalled under 6,900. While the lack of a new high doesn’t suggest that the market has turned, in the absence of a new breakout the trend should be at least in the interim considered stalled.
Now to get the full story of price action, technical traders should also identify key areas of support. In order for an uptrend to be concluded price must be seen breaking down towards a series of lower lows. These areas can be identified by pinpointing areas of price support. Below we can again see the UK100, but this time we have added an advancing line of support as a series of higher lows have been printed on the chart. In the absence of a breakout or any lower lows, traders can continue to say that the prevailing trend has not changed.

Learn Forex –EURUSD Trading Blocks

(Created using GCM’s Marketscope 2.0 charts)

Trading a Turn

Even in the absence of new highs or lows traders can begin looking for new trading opportunities. In these scenarios traders should consider trading a breakout. This will allow traders the opportunity to have entry orders pending in the event that price does turn and moves towards a fresh low. Entry orders can also be helpful in the event that a trend continues. If your order is set to sell the market pending a reversal under a point of support and price breaks resistance to a higher high, the order can simply be deleted. Traders will then be free to look for other opportunities.
Identifying key technical levels takes practice. You can get started analyzing the UK100 along with your favorite currency pairs such as the EURUSD with a Free Forex Demo with FXCM. This way you can develop your trading skills while tracking the market in real time!

Register HERE to start your FOREX learning now!

This Asian Nation Is Poised For Steady Growth

The Philippines presents one of the most spectacular comeback stories in recent times. The country, which had been lagging far behind its regional peers, is now making its presence know among the world's most vibrant economies, and is now spoken of as a ‘tiger cub’ and ‘Next Eleven economy.’

The leadership of President Benigno Aquino III has provided needed stability for the archipelago nation, which has been known for its political tumult. That has allowed a revival in domestic and international business confidence for a nation that once was second only to Japan in prosperity. Need proof? The Philippines recently hosted the World Economic Forum on East Asia, where corporate leaders, policymakers and the press from across the globe met to talk business.

The Philippine economy has witnessed a tremendous transition to growth over the last decade. It has managed stellar returns and amassed huge foreign exchange reserves while keeping inflation and interest rates under check. Despite Typhoon Haiyan (known as 'Yolanda' in the Philippines), which hammered the country in 2013, the Philippine economy grew by 7.2% last year, making it the fifth-largest in Southeast Asia. That compares to to a 4.7% average from 2008-2012. According to research by IHS Inc., the Philippines economy is projected to have a long-term economic growth of 4.5-5% (per year) from 2016 to 2030, reaching $1.2 trillion by 2030. 

Stocks Respond to Growth

Backed by strong economic growth, Philippine stocks have outpaced regional peers. In fact, the Philippine market has been in an extended uptrend over the last four years, and has withstood global headwinds and weakening confidence in emerging markets. The market’s PSEi Index posted YTD returns of over 16% as of early June 2014, led by sectors such as business process outsourcing (BPO), cement and consumer products.

The availability of a skilled and educated work force that is proficient in English – along with low labor costs – make the Philippines a preferred BPO destination. The BPO sector is expected to grow rapidly and offer employment to approximately 110,000 additional workers over the next two-to-three years. Interestingly, there is no publicly listed company that derives the bulk of its revenue from the BPO business. Instead, investors can allocate to companies that merely benefit from BPO, such as real estate. Leading names in this category are Robinsons Land Corp. (RLC), SM Investments Corp. (SM), SM Prime Holdings, Inc. (SMPH), Megaworld Corp. (MEG) and Ayala Land, Inc. (ALI).

Rising infrastructure investment, along with need to rebuild after last year's typhoon and earthquakes (the nation sees frequent seismic and volcanic activity), means that cement companies could be a good play. Companies like Holcim Philippines, Inc. (HLCM) and Lafarge Republic, Inc. (LRI) stand to benefit.

And in a nation of roughly 100 million people, the consumer products sector should not be ignored. Companies to study include Universal Robina Corp. (URC), Pepsi-Cola Products Philippines, Inc. (PIP) and RFM Corp. (RFM). Similarly, energy producer First Gen Corp. (FGEN) should be considered.

How to Gain Access?

• Direct Route

One way international investors can access individual Philippine stocks is through a local brokerage house that serves international clients. Investors content with paying the higher commissions by going this route can access a wide array of sectors and stocks, not to mention have more flexibility on entering and exiting positions. Some well-known brokers include Citiseconline, FirstMetroSec and BPItrade.

• American Depositary Receipts (ADRs)

Access via ADRs is a more conventional route, but your choice is limited to the Philippine Long Distance Telephone Co. (PHI), the only Philippine company currently trading on NYSE. There are many companies that trade on the pink sheets or over the counter (OTC), however.

• Mutual Funds

Conservative investors interested in accessing the Philippine market, albeit somewhat indirectly, can choose diversified Asia-focused mutual funds, as there are no funds that invest exclusively in the Philippines. Most funds have small allocations to the Philippines, though, because market values in the country tend to be small by comparison. 

• Exchange-Traded Funds (ETFs)

Gaining access to the Philippines market through an ETF is a convenient option. Investors can pick either a general ETF that features the Philippines or a Philippine-focused ETF that offers exclusive exposure to the country. The only ETF focused solely on the Philippine markets is the iShares MSCI Philippines Investable Market Index Fund (EPHE), which offers exposure to around 44 companies and has a net asset value of about $354 million. The fund's top-five holdings are Ayala Land, Inc. (ALI), Universal Robino Corp. (URC), BDO Unibank, Inc. (BDO), JG Summit Holdings, Inc. (JGS) and Philippine Long Distance Telephone Co. (TEL).  (For more on this topic, see: Five Minute Guide To Philippines ETF Investing)

The Bottom Line

The challenge for the Philippine economy lies in the sustainability of economic growth. Its economy is primarily driven by what's arguably an overreliance on the BPO sector and remittances from over 11 million overseas Filipino workers. Poverty and unemployment remain salient issues, as well as an uneven distribution of wealth. The country’s business climate needs to be improved to attract foreign direct investment FDI – namely into into manufacturing and tourism – and to mobilize domestic investment. With newfound political stability and a large, skilled, and motivated workforce, many are betting that the Philippines will rediscover past prosperity.