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The blog section of AM Broker homes a rich articles collection that includes knowledge for traders and investors of various professional levels.

October 2019

Bitcoin mining is an interesting way of trying to make a few bitcoin tokens on the side, but it also serves a very important purpose in maintaining and keeping the bitcoin blockchain secure.

Unlike regular fiat currencies (such as US dollars or euros) bitcoin assets are not controlled by a ...

Bitcoin mining is an interesting way of trying to make a few bitcoin tokens on the side, but it also serves a very important purpose in maintaining and keeping the bitcoin blockchain secure.

Unlike regular fiat currencies (such as US dollars or euros) bitcoin assets are not controlled by a central government or bank, and new bitcoin (BTC) cannot be printed and issued like paper money. Instead, bitcoin tokens are introduced into the market via a process known as “mining”. BTC are awarded to the miners who have solved the math problems necessary to verify bitcoin transactions.

In this guide we’ll look at how mining works, why it’s a necessary component of bitcoin infrastructure, and whether it’s a good way of making a buck.

Bitcoin miners are responsible for validating transactions and ensuring the security of the bitcoin network, and miners are rewarded with BTC for their efforts. However, if you want to make a profit mining bitcoin, you’ll need to obtain some specialized hardware.

Let’s take a closer look at how you can mine bitcoin and where to start.
 

Must read before starting - Mining profitability

In many cases, the economics of cryptocurrency mining mean it will inevitably be more cost-effective to just buy Bitcoin instead of trying to mine for it.

This is because Bitcoin mining is extremely competitive, so the value of any personal mining equipment or a cloud mining contract is constantly depreciating. Even if Bitcoin prices fall, Bitcoin mining difficulty tends not to fall quite as much.

Generally, the only way cloud mining will be profitable is if Bitcoin prices keep rising for the entire duration of the contract. Similarly, unless you’re professionally mining Bitcoin on an industrial scale with wholesale electricity prices, you risk being unable to recoup the initial equipment costs unless Bitcoin prices rise sharply.

If Bitcoin prices rise, it will typically be more profitable to simply buy Bitcoin instead of investing in quickly-depreciating equipment or locking yourself into an increasingly unprofitable cloud mining contract.

If Bitcoin prices fall, your Bitcoin will still be worth something, but the cloud mining contract and mining equipment will keep rapidly losing value, while potentially earning very little Bitcoin.

>> Learn how to trade Bitcoin


What is Bitcoin Mining?

Whenever a transaction is made in bitcoin, a record of it is made on a block containing other recent transactions, like a page in a ledger. Once the block is full, bitcoin miners compete against each other to verify and validate the block and all its transactions by solving a complex cryptographic problem.

The first miner to accomplish this is awarded a set amount of bitcoin, based on the mining difficulty at the time. The verified block is then added to the blockchain, a history of all blocks verified since the beginning of bitcoin, and transmitted to all users of bitcoin so that they can have the latest blockchain.
 

Available setups

Though it was once possible to mine bitcoin with your personal computer’s CPU or a high-speed graphics card, that’s no longer the case. With the advent of increasingly sophisticated mining hardware, specifically, ASIC (application-specific integrated circuit) chips designed for the sole purpose of mining bitcoin, digging for digital gold via your desktop PC is a thing of the past.

These days, there are two main options for mining bitcoin:

  • Cloud mining
  • Personal mining

Cloud mining

To make a profit mining bitcoin, you’ll need access to the best hardware built specifically for that purpose. However, this hardware doesn’t come cheap, so some users opt to use a bitcoin cloud mining service. These services, such as Genesis Mining and Hashflare, allow you to rent sophisticated mining hardware and have someone else do the hard work for you.

The biggest advantage of cloud mining is that the initial outlay is much smaller than it is with personal mining. On the downside, the fact that you don’t physically control the hardware means there’s an increased level of risk, and there have been numerous examples of cloud mining scams over the years.

With this in mind, it’s essential to do your research and choose a reputable provider.

Personal mining

The specialized ASIC hardware needed to mine bitcoin is expensive to buy and run. This means you’ll need to be willing to make a significant investment, and also have access to cheap electricity and a fast network connection if you want to mine bitcoin at home.

The first thing you’ll need to do is to purchase an ASIC miner. Prices vary, depending on the device you choose and whether you buy new or used, but prices can range from $500 to upwards of $3,000. You’ll also need to pair it with the right bitcoin mining software.

Rather than forging ahead on your own, which would make you highly unlikely to turn a profit, it’s recommended that you join a bitcoin mining pool. These mining collectives allow you to combine your resources with other miners and receive regular rewards based on how much mining power you contribute.

You’ll need to pay a fee from your earnings to be part of the mining pool, and it’s also essential that you choose an established, reputable pool.


How to start mining bitcoin

These are your two main options for mining bitcoin:

Method 1: How to mine bitcoin with a cloud mining service

  • Choose a mining company. If you want to lease mining power and time, you’ll first need to compare cloud mining services. Compare the contracts they offer, the fees they charge and their overall reputation before making your decision.
  • Select a mining package. Next, review the contracts on offer from your chosen mining company. How long is the contract? How much does it cost? What mining hardware will be used? Are the terms of the lease set in stone or can you customize a contract to meet your needs?
  • Pick a mining pool. Once you’ve purchased a plan, most cloud mining services will require you to choose a mining pool. Compare a range of pools, and choose one with a proven track record.
  • Start mining. With these steps completed, cloud mining of bitcoin can begin. Your cloud mining account should start filling up with BTC in the coming weeks, so it’s a good idea to transfer your earnings into a secure bitcoin wallet of your own.

Method 2: How to mine bitcoin at home with your own hardware or software

  • Use a mining profitability calculator. Before going any further, use an online mining profitability calculator to work out the likelihood that you’ll be able to make bitcoin mining worth your while.
  • Choose your mining hardware. Next, compare the features and cost of ASIC mining devices before choosing the one you want to use. Keep in mind that you’ll most likely also need to buy a separate power supply unit to support the hardware.
  • Join a mining pool. To have a better chance of turning a profit, it’s recommended that you pool your resources with other miners in a mining pool. Compare a variety of pools before selecting one that’s well established and reputable.
  • Download mining software. There are several programs available designed for bitcoin mining. Some are command line programs while others offer a GUI for increased ease of use. It’s also worth pointing out that some mining pools will offer their own software.
  • Start mining. Set up a secure wallet for storing your BTC and link it to your mining rig. Make sure you stay abreast of bitcoin price developments and mining difficulty adjustments to ensure that your mining setup remains profitable.

If you want to dig for this digital gold, be aware that bitcoin mining is a complicated and costly process, and it’s no longer possible for hobby miners to compete with large mining pools and firms. However, with the right setup and approach, either by joining a pool or using a cloud mining service, it’s still possible to make a profit.
 

Bottom line

The rising costs of mining effectively and competing against large mining pools have made it harder for the hobbyist to profit on mining bitcoin.

It’s virtually impossible to mine enough bitcoin to recoup your initial cost of equipment and electricity. But if you’re not so concerned about making a buck, you could have fun panning for this cool currency.

Understanding Bitcoin Mining is important, but if you need help MetaTrader 5 provides access to the most popular form of dealing with Bitcoin, CFD trading, available 24/7.

 

 

Categories:  Education

The biggest investing mistakes occur when someone took bigger risks in the hopes of earning better returns, and instead ended up losing most of what they had. In order to determine a good return on investment, investors have to keep a realistic idea of what is a win. If you ...

The biggest investing mistakes occur when someone took bigger risks in the hopes of earning better returns, and instead ended up losing most of what they had. In order to determine a good return on investment, investors have to keep a realistic idea of what is a win. If you don’t know what is a realistic ROI, any con artist can convince you that they have something special.


What is Return on Investment (ROI)

Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments. ROI tries to directly measure the amount of return on a particular investment, relative to the investment’s cost. To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment. The result is expressed as a percentage or a ratio.
 

How to calculate ROI 

Have you calculated the return on your stock or portfolio lately, and more importantly, have you calculated its return in a meaningful way?

There are several calculations that will give you an idea of how an investment is doing. Some are more complicated than others are, but none are beyond the reach of the average investor who has a ROI calculator. 

1. Total ROI

It is a simple return of investment calculation, but it reminds us that we need to include dividends (where appropriate) when figuring the return of a stock.

ROI formula:

  • (Value of investment at the end of the year — Value of investment at beginning of the year) + Dividends / Value of investment at the beginning of the year = Total Return

For example, if you bought a stock for $7,543 and it is now worth $8,876, you have an unrealized gain of $1,333. You also received dividends during this time of $350.

What is the total return?

  • ($8,876 - $7,543) + $350 / $7,543 = Total Return
  • $1,333 + $350 / $7,543 = Total Return
  • $1,683 / $7,543 = Total Return
  • 0.2231 or 22.31% = Total Return

You can use this calculation for any time period which is a weakness since it doesn’t take into account the value of money over time.

2. Simple ROI 

A simple return on investment is similar to total return; however, it is used to calculate your return on an investment after you have sold it.

Here is the simple ROI formula:

  • Net Proceeds + Dividends / Cost Basis – 1

Here's an example: Suppose you purchase a stock for $3,000 and paid a $12 commission. Your cost basis is $3,012. You sell the stock for $4,000, and there is another $12 commission, so your net proceeds are $3,988. Dividends amounted to $126.

  • $3,988 + $126 / $3,012 – 1 = Simple Return
  • $4,114 / $3,012 – 1 = Simple Return
  • 1.36 – 1 = Simple Return
  • 0.36 or 36% = Simple Return

Like the Total Return on Investment calculation, the Simple Return on Investment tells you nothing about how long the investment was held. If you want to see after-tax returns, simply substitute “net proceeds after taxes” for the first variable and use an after-tax dividend number.

Continue reading or start playing around in a risk-free demo account and notice how ROI is calculated in real-time. After practicing, get a 12% fixed annual interest rate on your account balance.

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Understanding the Return on Investment (ROI)


For a practical understanding of return on investment, here are 3 broad categories of investments and the ROI you might expect:

1. Speculative Investments

Let’s start with rule number one: the higher the potential return, the greater the risk. Forex trading makes a great example.

Forex market is arguably among the most rewarding asset classes for traders and investors. Forex trading offers the potential for better risk-adjusted returns IF you know how to exploit it. The availability of “leverage in forex” magnify gains and losses, creates an unmatched profit potential for those with limited trading capital IF (big IF here) they learn how to control the downside risk.

For example, with 100:1 leverage in forex trading, a daily average 1% exchange rate fluctuation means 100% ROI. It also means a 100% loss. Leverage in forex trading needs to be managed very carefully to limit the risk as losses can sum up quickly.

>> Learn how to trade Forex

Gold is another example of something that might fall into the speculative category. If you get the timing right and catch gold before a crisis, you might make a fortune. In that case, you'd think gold was the best investment ever — but really what happened is you got lucky and your speculative investment happened to pay off. 

Get the timing wrong and you can watch your investment go through a long and steady decline in value, which is what happened to the price of gold from 1980 when it hit $850 an ounce to 2001 when it went under $300 an ounce; a loss of 65% of its value. If you were a gold investor during that time period you probably didn't think it was so great. If you’re thinking about investing in gold, do it as part of a diversified portfolio. 

>> Learn how to trade Gold online

2. Traditional Stocks and Stock Funds

What about blue-chip stocks or the stock market as a whole? In order to evaluate returns on this type of investment, you have to understand the difference in the level of risk you take when investing in a stock versus investing in an exchange-traded fund (ETF).

Stocks carry more risk — and more potential for reward — than other securities. While the market’s history of gains suggests that a diversified stock portfolio will increase in value over time, stocks also experience sudden dips.

To build a diversified portfolio without purchasing many individual stocks, you can invest in a type of mutual fund called an index fund or an exchange-traded fund. These funds aim to passively mirror the performance of an index by holding all of the stocks or investments in that index. For example, you can invest in both the DJIA and the S&P 500 — as well as other stock market indexes — through index funds and ETFs.

>> Learn how to invest in Stocks

3. Bitcoin

The latest speculative craze? Bitcoin and other cryptocurrencies. Whether or not cryptocurrency represents the future of financial transactions is the subject of much debate but seasoned investors know that when something rises as fast as Bitcoin did in 2017, the risk of losing big outweighs the possible rewards of scoring the big win. Bitcoin trading generated an ROI of up to 1000% for the short to medium term speculators using contracts-for-difference (CFDs) in 2018.

If you invested in Bitcoin years ago when the general public didn't know it existed, congratulations on your win but getting in after the big move isn't good risk management.

>> Learn how to trade Bitcoin


What About the 'Great Return' Stories?

What about the stories you hear about people earning spectacular returns by finding the right stock? That’s called luck. Some people win the lottery too, and we’re happy for them, but we don’t go around investing all our money in lottery tickets, do we?

It is absurd that just because one person may have made a good return on a stock or real estate investment, that you would think it is easy to duplicate the results. It’s about as easy as winning the lottery. Never follow the fads.

Understanding what is ROI and how to calculate ROI it is important, but if you need help MetaTrader 5 AM Broker provides a wide range of financial assets and advanced tools to help you get the best return for your investment. Use our 12% annual interest rate for your investing account to increase your ROI.

Additional, use an Expert Advisor Generator and create automates trading strategies with backtested returns. 

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Categories:  Investing

 

With all the ratios that investors toss around, it's easy to get confused. Consider return on equity (ROE) and return on assets (ROA), two of the most important measures for evaluating how effectively a company’s management team is doing its job of managing the capital entrusted to it ...

 

With all the ratios that investors toss around, it's easy to get confused. Consider return on equity (ROE) and return on assets (ROA), two of the most important measures for evaluating how effectively a company’s management team is doing its job of managing the capital entrusted to it. This guide will explain what are ROE and ROA, why they are important for investors and shareholders, how to calculate them and the main differences.


What is return on equity - ROE is

One of the most important profitability metrics is a return on equity, or ROE for short. Return on equity reveals how much after-tax profit a company earned in comparison to the total amount of shareholder equity found on the balance sheet.  Shareholder equity is equal to total assets minus total liabilities (A-L=SE).  It's what the shareholders "own".  Shareholder equity is a product of accounting that represents the assets created by the retained earnings of the business and the paid-in capital of the owners.

>> Other ratios to consider are Price Earning or P/E Ratio and Earnings per Share or EPS ratio


Why is Return on Equity (ROE) Important?

A business that has a high return on equity is more likely to be one that is capable of generating cash internally.  For the most part, the higher a company's return on equity compared to its industry, the better (provided it isn't achieved with extreme risk).  This should be obvious to even the less-than-astute investor.  If you owned a business that had a net worth (shareholder's equity) of $100 million dollars and it made $5 million in profit, it would be earning 5% on your equity ($5 ÷ $100 = .05, or 5%). 

To reiterate an earlier point, the higher you can get the "return" on your equity, in this case, 5%, the better.  In fact, the key to investing in stocks that will make you rich in the long-run often involves finding companies capable of generating a sustained, outsize return on equity over many decades and acquiring it at a reasonable price.

Continue reading or start playing around with a stock simulator and find stocks with the highest return on equity. When ready to go live, use our 12% annual interest rate for stock trading.

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The Formula for Calculating Return on Equity - ROE Formula

The formula for Return on Equity or ROE Formula is simple and easy to remember:

  • Net Profit ÷ Average Shareholder Equity for Period = Return on Equity

Lets take an example for ABC company. The earnings for 2018 were $21,906,000.  (Because the amounts are in thousands, take the figure shown, in this case, $21,906, and multiply by 1,000. Almost all publicly traded companies short-hand their financial statements in thousands or millions to save space). 

The average shareholder equity for the period is $209,154,000 (($222,192,000 + $196,116,000) ÷ 2).

Let's enter the numbers into the return on equity formula:

$21,906,000 earnings ÷ $209,154,000 average shareholder equity for period = 0.1047 return on equity, or 10.47%.

This 10.47% is the return that management is earning on shareholder equity. Is this good?  

For most of the twentieth century, the S&P 500 stock index, a measure of the biggest and best public companies in America, averaged ROEs of 10% to 15%.  In the 1990s, the average return on equity was in excess of 20%. Obviously, these twenty-plus percent figures probably won't endure forever unless you believe that productivity increases brought on by technology have fundamentally altered the economic paradigm the same way the industrial revolution permanently shifted the productivity baseline.

Return on equity is particularly important because it can help you cut through the garbage spilled out by most CEO's in their annual reports about, "achieving record earnings".  Warren Buffett pointed out years ago that achieving higher earnings each year is an easy task.  Why?  Each year, a successful company generates profits.  If management did nothing more than retain those earnings and earned 4% annually, they would be able to report "record earnings" because of the interest earned.  Were the shareholders better off? 

Maybe.  Maybe not. If they paid those earnings out as dividends, the shareholders could have invested them and possibly earned higher rates of return. This makes it obvious that investors cannot look at rising per-share earnings each year as a sign of success.  The return on equity figure takes into account the retained earnings from previous years, and tells investors how effectively their capital is being reinvested. Thus, it serves as a far better gauge of management's fiscal adeptness than the annual earnings per share in isolation.


What is Return on assets - ROA is

Now, let's turn to return on assets, which, offering a different take on management's effectiveness, reveals how much profit a company earns for every dollar of its assets. Assets include things like cash in the bank, accounts receivable, property, equipment, inventory and furniture.

ROA is an important measurement because it provides an idea of the underlying nature of a business in a way that differs from return on equity (ROE). Its value varies by sector and industry.

Continue reading or start playing around with a stock simulator and find stocks with the highest return on assets. When ready to go live, use our 12% annual interest rate for stock trading.

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Why Return on Assets Matters

Asset turnover tells an investor total sales per dollar of assets on the balance sheet. ROA lets an investor see how much after-tax profit a company generated for each dollar in assets. In other words, ROA measures a company’s net earnings in relation to all the resources it had at its disposal—the shareholders’ capital plus short- and long-term borrowed funds. Thus, ROA is the most stringent test of return to shareholders. If a company has no debt, the return on assets and return on equity will be the same.

Measure the ROA a company produces over a multi-year period and watch for changes. Occasionally, this shows you something is happening in the business that could be a harbinger of future prosperity or a warning of coming doom.


Two Methods of Calculation - ROA Formula

There are two acceptable ways to calculate ROA, or ROA formula:

 

  • Method 1: Net profit margin x Asset turnover = Return on assets
  • Method 2: Net income ÷ Average assets for the period = Return on assets

Method 1 requires you to calculate net profit margin and asset turnover before you can calculate ROA. In most of your fundamental analyses for the stock market, you will have already calculated these figures by the time you get around to ROA. This example will go through the entire process using XYZ as the sample business.

Using data from XYZ Company, the first step is to calculate the net profit margin. To do this, divide $469,500,000 (the net income) by the total revenue of $18,427,200,000. You'll come up with 0.025 (or 2.5%).

Next, calculate asset turnover. Average the $9,911,500,000 total assets from 2017 and $9,428,000,000 total assets from 2018 together and come up with $9,669,750,000 average assets for the one-year period you are studying. Divide the total revenue of $18,427,200,000 by the average assets of $9,660,750,000. The answer, 1.90, is the total number of asset turns. You now have both components of the equation to calculate return on assets:

.025 (net profit margin) x 1.90 (asset turn) = 0.0475, or 4.75% ROA

Method 2. The second method for calculating ROA is much shorter. Simply take the net income of $469,500,000 divided by the average assets for the period of $9,660,750,000. This is 0.04859, or 4.85%.

$469,500,000 (net income) ÷ $9,660,750,000 (average assets) = 0.04859, or 4.85% ROA

You may wonder why the ROA is different depending on which of the two equations you used. The first, longer option came out to 4.75%, while the second was 4.85%. (The difference is due to the imprecision of the calculation. Specifically, the decimal places were truncated; e.g., you came up with asset turns of 1.90 when in reality, the asset turns were 1.905654231. If you opt to use the first example, it is good practice to carry out the decimal as far as possible.)

The average ROA for the industry XYZ operates in is 1.5%, so the 4.75% ROA for XYZ suggests its management is doing a much better job than its competitors. This should be welcome news to investors.

 

Return on equity (ROE) vs return on assets (ROA)

  • Return on equity reveals, in percentage terms, how much profit a company generates with each dollar shareholders have invested. The equity is shareholder equity. 
  • Return on assets shows what percentage of its profits the company generates with each dollar of its assets. Each is derived from dividing a company’s annual net income by one of those measures. 
  • These percentages also tell you something about how efficient the company is at generating profits.

The way that a company's debt is taken into account is the main difference between ROE and ROA. In the absence of debt, shareholder equity and the company's total assets will be equal. Logically, their ROE and ROA would also be the same.

But if that company takes on financial leverage, its ROE would rise above its ROA. By taking on debt, a company increases its assets thanks to the cash that comes in. But since shareholder equity equals assets minus total debt, a company decreases its equity by increasing debt.

In other words, when debt increases, equity shrinks, and since shareholder equity is the ROE's denominator, its ROE, in turn, gets a boost.

Here again, beware of the gotchas. A company can artificially boost return on equity by buying back shares to reduce the shareholder equity denominator. Similarly, taking on more debt — say, loans to increase inventory or finance property — increases the amount in assets used to calculate return on assets.

Understanding what is Return on Equity & Return on Assets as well as the ROE & ROA formula is important, but if you need help MT5 AM Broker provides access to a wide range of stocks that can make you rich on the long run. Additional, use an Expert Advisor Generator to create automated strategies for stock and ETF trading and investing. 

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Categories:  Investing

The value of gold fluctuates from moment to moment, as it trades on public exchanges where it has a price that is determined by supply and demand. While you don't eat it or drink it, people are attracted to gold. It's been used as a currency because it ...

The value of gold fluctuates from moment to moment, as it trades on public exchanges where it has a price that is determined by supply and demand. While you don't eat it or drink it, people are attracted to gold. It's been used as a currency because it doesn't corrode, and the material allows for some absorption of light creating that yellow glow.

The reasons people buy or sell gold--creating the demand and supply flow--can be pure speculation, to acquire or distribute physical gold, and as a hedge for commercial application. For traders, the purpose of trading gold is to profit from its daily, weekly or monthly price movements.


How to trade gold?

Trading gold is speculating on its short-term price movements. Physical gold is not actually handled or taken possession of, rather the transactions take place electronically and only profits or losses are reflected in the trading account.

There are a number of ways to trade gold. One of the easiest and most popular ways to trade gold is with CFDs.

A contract for difference (CFD) is a type of contract between a trader and a broker in order to try and profit from the price difference between opening and closing the trade.

Investing in gold online saves you the inconvenience of paying for gold storage. In addition, CFDs give you the opportunity to trade gold in both directions. No matter whether you have a positive or negative view of the gold price forecast and predictions, you can try to profit from either the up- or downward future price movement.

Moreover, trading gold through CFDs is often commission-free, with brokers making a small profit from the bid-ask spread - and traders try to profit from the overall change in price.

Additionally, the 0.2% margin or 1:500 leverage offered by ambroker.com means that you have to deposit only 0.2% of value of the trade you want to open, and the rest is covered by your CFD provider. For example, if you want to place a trade for $1,000 worth of gold CFDs and your broker requires a 0.2% margin, you will need only $10 as the initial capital to open the trade.

You can trade gold CFDs right here, right now. Just sign up at ambroker.com and use our advanced web platform or download the best-in-class investment app to trade on the go. It will take you just 3 minutes to get started and access the world’s most traded markets.

Continue reading or start playing around in a risk-free demo account and start trading gold with virtual funds. Additional, use code WELCOME30 to get a $30 free welcome bonus to start trading gold on a real account. 

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Gold Trading Example

XAU/USD (Gold CFD) is trading at 1205.80 (sell price) / 1206.20 (buy price).

You decided to invest in 100 oz. of Gold CFD as you are expecting the price will go up.

Your pip value in this example will be 0.01 x 100 (trade size) = $ 1 

Example 1: Winning Trade

  • You were correct with your prediction and the price of Gold CFD goes up to 1224.50 / 1224.90, you decide to close your winning trade by selling at 1224.50 (current sell price)
  • The price of Gold CFD went up 1830 pips (1224.50 – 1206.20) in your favor.
  • Your profit is ( [1224.50– 1206.20] x 1 $ pip value) = $1830 

Example 2: Losing Trade

  • Your prediction was wrong and price of Gold CFD dropped over the next hours to 1187.90 / 1188.30, you assume that the drop will continue and decide to close the trade at 1187.90 (current sell price) to limit your losses.
  • The price of Gold CFD dropped 1830 pips (1206.20 – 1187.90) against you.
  • Your loss is ([1206.20 - 1187.90] – x -1 $ pip value) = - $1830

Please note, in order to maximize profits and minimize losses, use stop-loss and trailing stop orders available in the MetaTrader 5 platform. 

For further detailed calculations, please consult your personal account manager.


Trading Gold, ETFs and/or Stock Market

Another way to start gold trading is through a fund which trades on a stock exchange, like the SPDR Gold Trust (GLD). If you have a stock trading account, you can trade the price movements in gold.

The trust holds gold in reserve, and therefore, its value is reflective of the price of gold. The price of the SPDR Gold Trust is approximately 1/10 of the price of gold. So if gold futures are trading at $1500, then the Gold Trust will trade at approximately $150.

The trust trades like any stock trading. The minimum price movement is $0.01, therefore you make or lose $0.01 for each share you own each time the price changes by a penny. Stocks and ETFs are typically traded in 100 share blocks (called lots) so if the price moves a penny and you are holding 100 shares, you make or lose $1.

If the price moves $1, from $120 to $121, you make or lose $100 on your 100 share position. If you are holding 500 shares, you make or lose $500 on that same price move. The amount you need in your account to trade a gold ETF depends on the price of the ETF, your leverage, and position size in the lot

For trading stocks or ETFs in Indonesia, you're required to have a $1,000 minimum balance in your account. Depending on how much income you want to generate and your leverage, you may wish to have more than $5,000 available to you. 

Understanding how to start trading gold is important, but if you need help MT5 AM Broker provides direct access to Gold CFD trading as well as Gold Stocks and Gold ETFs to choose from. Additional, use an Expert Advisor generator to create automated gold trading strategies in a few clicks, without writing codes.

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Categories:  Investing

Seamless trading operations at an increased speed, without having to worry about any negative factors such as latency. The dream of all traders running a Forex EA or a Forex Robot

 

What is a Forex VPS?

A virtual private server (“VPS”) is a form of web hosting, which uses data ...

Seamless trading operations at an increased speed, without having to worry about any negative factors such as latency. The dream of all traders running a Forex EA or a Forex Robot

 

What is a Forex VPS?

A virtual private server (“VPS”) is a form of web hosting, which uses data center facilities to allow businesses to locate physical hardware to provide a direct ISP connection, with Forex VPS data centers or professional computer-server facilities providing the ability for trading entities to host their trading software for 24-hour operations.

VPS hosting has been developed to make the best of both worlds, the most favorable components of shared hosting and dedicated hosting services, placing the website on a server that also has other sites running on it, the only difference being that there are few sites per server. Technology known as virtualization is used to compartmentalize a VPS center.

Each of the sites shares the running costs of the server, either monthly or annually, with the costs considerably lower than that of a dedicated hosting site.

Virtual private servers are different from shared hosting in that your site won’t share resources with neighboring sites, each site being a partitioned server area with its own operating system, storage, RAM and monthly data transfer limits, thus providing smoother and more stable site performance.

Continue reading about Forex VPS or play around with an Expert Advisor Generator and create automated strategies in a few clicks, without writing codes.

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How Does FOREX VPS Work?

Institutional traders pay sizeable fees to site their trading engines in close proximity to the trading engines where they derive their news trades. The majority of retail traders are not able to afford the fees that institutional traders pay, which has led to increased demand in forex VPS services, which provide access to equivalent advanced facilities for 24-hour trading at significantly lower costs than a co-located facility. Retail traders also benefiting from a host site providing the necessary stability, accuracy, and speed required for trading apps used today.

The standard setup for a trader would be with a local computer connected to the internet for the trading station, normally MT4/5, to run and trade. An expert advisor (EA) attached to the trader’s computer requires the internet connection to trade. With VPS, the forex VPS bypasses the issue of the trader having to be connected to the internet, the forex VPS set up to relay data and trade orders to the Broker’s MT5 server.

MetaTrader, more commonly known as MT4 or MT5 is an electronic trading platform most frequently used by retail forex traders. The software is licensed to Forex brokers who in turn provide the software to their clients, the software used to see live streaming prices and charts as well as to execute trades and manage accounts.

>> Download MetaTrader 5 compatible with any device and operating system


Why is FOREX VPS Right For You?

Reasons for considering trading on a VPS instead of on your own computer directly would include:

  • You can connect to your platform from anywhere with a network connection, including internet cafes, allowing you the flexibility to trade anywhere, anytime.
  • When trading is automated, trades can continue even with power outages, which is particularly useful when an automated system does not require monitoring.
  • Trades can be executed while your computer is switched off.
  • VPS systems offer some of the most robust levels of security, with managed VPS servers being checked frequently to ensure that they are functioning with most service providers guaranteeing 99.9% uptime, with antivirus and other software also provided to ensure that your system is as protected as possible.
  • A VPS can execute all your trades more quickly than your computer because it is significantly faster in transmitting orders, reducing delays and slippage, slippage known to increase losses and unpredictability.

 

Key Considerations in Selecting a Forex VPS 

  • Performance: Most forex VPS use virtualization technology, allowing the forex VPS service provider to compartmentalize and split their resources amongst a number of users, the issue being a user with a high workload could impact performance for other user compartments, virtualization being done at an operating system level and not hardware level. Reduced uptime and speed could lead to increased latency.
  • Hyper-V technology is for users on forex VPS that run on Microsoft Windows Servers, with OpenVZ being for users that run on Linux, these being the only two configurations that ensure the required degree of operational stability.
  • Flexibility in Hosting Plans: There should be a range of plans available for traders to be able to make a choice that caters for individual needs.
  • Location of VPS/Broker’s Server: It is important to select a forex VPS which is co-located with your broker’s server as the latency period is reduced where the VPS is co-located with the broker’s server. This, in fact, maybe the most important consideration.
  • Uptime: a VPS should provide at least 99.99% uptime, which requires a VPS provider to have significant redundancy in the system, which allows the VPS provider to have the necessary system resources to effectively shift users to another compartment if there is downtime in a particular compartment.
  • Accept a Range of Applications: The forex VPS provider needs to be able to accept all types of forex trading strategies

The best VPS hosting for MetaTrader 4/5 expert advisors include:

VPS Host

Basic Package Price

Country

MT4

Traffic

Trial Availability

AccuWeb Hosting $15 U.S No 250GB Yes
HostingStak $29.99 Germany, United Kingdom, France, Canada Yes 30GB Yes
Cheap Forex VPS $3.95 Germany, Lithuania, Netherlands, U.S Yes Infinite Yes
Cheapvps.co $8.84 Netherlands Yes 1000GB Yes
Commercial Network Services $30 UK, U.S Yes 1000GB Yes
Dewlance $12.50 U.S No 1000GB No
DotBlock $39.95 U.S No Infinite No
eApps $11 U.S Yes 30GB No
Forex EA VPS $18 Bulgaria Yes Infinite Yes
Fozzy $24.50 Netherlands Yes 1000GB Yes
FXVM $19.95 UK, U.S Yes 250GB Yes
Hostwinds $13.50 U.S No Infinite Yes
JFOC Network Solutions $38 U.S No 200GB No
LinkUpHost $22 Bulgaria Yes Infinite Yes
Nextpointhost $18.75 Bulgaria, Germany, UK Yes Infinite Yes
Qhoster $19.95 Germany, UK, U.S No 1000GB No
Skydesks $19.95 U.S Yes Infinite Yes
SocialVPS $5.74 France, Netherlands, UK, U.S Yes Infinite Yes
Trading FXVPS $25 Germany, Netherlands, UK, U.S Yes Infinite Yes
Ultima Systems $29 NZ, UK, U.S Yes 200GB Yes
VPSServer.com $20 Germany, Netherlands, UK, U.S No 2000GB Yes
W2 Cloud $16.50 U.S Yes Infinite Yes

Payment systems include Paypal, Bitcoin, Payza, Skrill, Webmoney and credit/debit cards, Paypal being the most commonly used payment system across the service providers outlined above.

The table above shows quite a range for basic packages, the difference in prices largely attributed to the number of expert advisers than can be run on a single trading platform, together with other considerations including whether the compartmentalization occurs at hardware or software level, bandwidths, uptime and location of server, not to mention security.

VPS is certainly not for everyone, but if trades are automated or there is limited resources for placing trades, forex VPS makes sense. As for automated trades, an Expert Advisor Builder that provide backtesting, optimization and stress testing is the best option.

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Categories:  Education

Passive income. That’s the dream, right? Make money while you sleep.

For investors, passive income refers to the money you earn from sources like dividends and interest. It is the money that your money earns for you and is deposited in your family's bank account whether or not ...

Passive income. That’s the dream, right? Make money while you sleep.

For investors, passive income refers to the money you earn from sources like dividends and interest. It is the money that your money earns for you and is deposited in your family's bank account whether or not you get out of bed in the morning. The ultimate goal of most investors is to generate enough passive income that they can live a comfortable life upon retirement when they are no longer able to earn a paycheck.

For marketers and sales, passive income refers to the money you earn from successful referrals, by promoting other people's products often through an affiliate network.

When building an investment portfolio, one trick you can use to stay the course and get rich is to measure your success by the amount of passive income you are generating in cold, hard cash each year. Following this philosophy is simple because you can see tangible proof of your progress as checks are sent to you in the mail or directly deposited into your bank account.

Let's see how you can earn passive income from dividends from stock investing and interest from carry trade.


Using Stocks, Dividends and Funds for Passive Income

Owning equities such as stocks and bonds is one of the easiest and most efficient ways to generate passive income. This strategy requires the discipline to save and invest in the stock market. We recommend using an index fund in the form of either a mutual fund or exchange-traded fund (ETF). Using an index fund allows you to get diversification at a very low cost as well as the simplicity of a couple of funds instead of a number of stocks. An S&P 500 index fund, as well as a broad-based bond fund composed of government, corporate and municipal bonds in addition to an Index real estate investment trust (REIT), represents three great areas to start which brings broad diversification.  

An Example of Using Passive Income As Your Measuring Stick

Imagine you have $10,000.00 in savings that you want to invest for the long-term. You decide to buy 833 shares of General Electric at $12.00 per share. Let's say the current dividend per share is 12 cents per quarter. That is, every 90 days, you would get a check for about $100. If you have the money directly deposited, at the end of the year, you'd have nearly $400 in cash sitting in the account. 

Next year, you save an additional $10,000. You add the $400 in cash from your General Electric dividend, giving you $10,400 in fresh cash. This time, you want to diversify so you buy 74 shares of Johnson & Johnson at just under $140 per share. Let's say their annual dividend is $3.60 per share.

At the end of the second year, you are now generating $400 in passive income from your General Electric dividends and $266 in passive income from your Johnson & Johnson dividends for a grand total of $666. You ignore the fluctuations of the stock market entirely, focusing on one thing and one thing only: Whether you can get that passive income figure to grow faster than inflation. You think like a long-term business owner, not a speculator.

Continue reading or start playing around with a stock simulator and notice how you can earn passive income in real-time. Additional, earn a 12% fixed annual interest rate (APR) on your account balance.

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Using Carry Trade (Interest) for Passive Income

Carry trading is the classic pure forex play for passive income. Note right from the start that it uses leveraged instruments, and depends greatly on your forecasting a given currency trend correctly, so carry trading is for more active investors who understand leverage and have the risk and money management skills to deal with it. Passive income investors without the time or expertise should approach carry trading by using a proven trader via a managed account or social trading network. If you want to do it yourself, first get four to six profitable weeks using practice accounts, then you can more safely consider doing your own carry trading.

In essence, carry trading for passive income is just:

  • Buying the currency that pays you a higher annual yield and getting that interest paid daily into your account.
  • Selling the lower-yielding one and paying out the daily portion of that annual interest.
     
  • Earning a passive income on the difference.

That means you’re either taking long positions in pairs that have base currencies with much higher yields than their quote currencies (like the AUDJPY) or taking short positions in pairs with higher-yielding quote currencies (like the GBPAUD).

Given retail forex’s justified reputation as a tool for short-term speculators, you may find it surprising that you can earn steady passive income via carry trade.
 

Differences between Forex Carry Trade and Traditional Long-Term Buy-and-Hold Instruments

Here’s how carry trading differs from typical long-term buy-and-hold income instruments.

1. The carry trade is a classic kind of forex trade and so carries higher risk and demands more time than buy-and-hold investing.

2. Greater risk and reward via leverage. The use of leverage magnifies both gains and losses.

  • The Reward: Magnified Interest and Price Appreciation Concerning carry trading, if you’re long a pair that has a higher-yield base currency (the one on the left), leverage magnifies the actual interest earned. 

For example, if you are using 500:1 forex leverage with a $200 margin deposit to control $100,000 of AUD via having borrowed $100,000 of JPY, that annual income is based on the full $100,000 of AUD controlled, not the $200 margin deposit. Thus the annual income here is 4.65 percent of $100,000 or $4,650 (paid out on a pro-rata daily basis). Using just $200 allocated to that position, this is a 2325 percent return before considering changes in the AUDJPY’s price.

As always, if the pair rises in value, leverage magnifies those gains, too. For example, at 100:1 leverage every 1 percent move is a 100 percent profit on your margin deposit. At 500:1 leverage every 0.2 percent move is a 100 percent profit on your margin deposit, which would be another $200 in the previous example

  • The Risk: Magnified loss as previously noted, as long as you’re going long on pairs that have higher-yielding base currencies compared to their counter currencies, the magnified interest income can only help.

If, however, you were short a pair like the AUDJPY, you’d be paying out that interest for each day you held the short position.

The real risk of loss from leverage with carry trading is no different than with any other kind of forex trading —the risk that price moves against you. Using the previous example, every 0.2 percent move against you is another 100 percent of your margin deposit. This is why we recommended having cash in your account equal to at the very least 20-30 times your typical margin deposit as a general guideline. So while in the previous example you may be earning 2325 percent on the $200 deposit, you need to keep enough cash on hand (either in your forex account or somewhere else where it’s quickly accessible) to absorb whatever percentage move against you you’re willing to tolerate. That would cut your overall income yield from your account, but at 2325 percent returns on the margin committed, the net yield can still be handsome. You could keep less cash in your account and more in a higher-yielding account elsewhere as long as you’re able to transfer funds into your forex account on short notice. In addition to wire transfers, most forex brokers accept deposits via credit cards, allowing for quick deposits over the phone.

Here’s another way to deal with the amplified loss risk from leverage: punctuated buy-and-hold.

Using the proper risk and money management, you can enter and exit positions as needed. So rather than simply buying and holding through possibly crippling losses, just keep entering and exiting your selected high-interest-differential currency pairs over time, riding a multiyear trend for various periods, exiting and then reentering as per our technical analysis and risk and money management

To be successful with this type of passive income, remember:

  • Carry trading works only in times of optimism or risk appetite.
  • Higher-yielding currencies generally hold their value or appreciate only in times of optimism, so carry trades are generally not successful dur- ing bear markets in risk assets. You risk losing more from falling markets than you earn from the interest.
  • Carry trading requires more careful use of technical analysis and risk and money management

Because leverage adds to risk compared to traditional non-leveraged passive income investments like bonds or dividend stocks, we employ the full range of risk and money management such as:


The Key to Carry Trading

Ideally, you want to be long a currency with a rising interest rate and short a currency with a stable or falling rate. If there is any significant chance of the opposite occurring in your planned holding period, don’t take the trade; your capital losses could easily outweigh your income—remember that leverage magnifies losses as well as income. Using the previous AUDJPY example, assuming you held the position for one year and earned 4.65 percent, a mere 4.65 percent drop in the pair would wipe out your gains for the year. It’s not uncommon to see pairs move that much in a matter of days. You can ride out those moves if you’re confident in the longer-term trend and have the cash to avoid a margin call. Otherwise, skip the trade.

In sum:

  • Your technical analysis should indicate a healthy uptrend for your intended holding period. Those seeking a long-term (multimonth or multiyear) hold should look for pairs with healthy multiyear rising trends on monthly charts.
  • Your fundamental analysis via news released on the forex factory economic calendar, or the analysts you follow, should indicate that the currency you’re considering being long has interest rates steady or rising relative to those of whatever currency you’ll be shorting.

At a minimum, you want to be long one of the higher-yielding currencies and short one of the lower yielders, the difference in their interest rates expected to widen, or at least not shrink.

Understanding how to earn a passive income is important, but if you need help MT5 AM Broker provides access to a wide range of income vehicles. 

 

 

 
Categories:  Investing

One of the first questions new investors seem to want to ask is whether or not they should be investing in initial public offerings or IPOs, for their portfolio. An IPO, in case you haven't learned about the specifics, yet, occurs when a formerly private business decides to take ...

One of the first questions new investors seem to want to ask is whether or not they should be investing in initial public offerings or IPOs, for their portfolio. An IPO, in case you haven't learned about the specifics, yet, occurs when a formerly private business decides to take on outside investors, either by having the founders sell some of their shares or by issuing new shares to raise money for expansion, while, at the same time, listing those shares on a stock exchange or an over-the-counter market. 

Let's understand the appeal of an initial public offering and the upcoming IPOs to watch.


What is an Initial Public Offering (IPO)?

An IPO is short for an initial public offering. It is when a company initially offers shares of stocks to the public. It's also called "going public." An IPO is the first time the owners of the company give up part of their ownership to stockholders. Before that, the company is privately-owned.

When a company embarks on an IPO, it lists a certain number of shares on a stock exchange in order to raise investment capital. IPOs are one of many ways in which companies can seek to raise capital, with other popular options including finding major investors, crowdfunding or using retained earnings. After that, the company can be traded on a stock market and it may be included in a stock index composition later on.


What IPOs Mean to the Economy

The number of initial public offerings being issued is usually a sign of the stock market's and the economy's health. During a recession, IPOs drop because they aren't worth the hassle when share prices are depressed. When the number of IPOs increase, it usually means the economy is getting back on its feet again.


The Appeal of Initial Public Offering Investing

The appeal of initial public offerings is understandable. Not only are you supplying capital to the economy—capital that can grow real businesses that provide real goods and services to consumers—but you get to enjoy the dream of repeating the experience early investors in firms such as Wal-Mart, Home Depot, Walt Disney, Dell, Tiffany & Company, Microsoft, Nike, Coca-Cola, Target, or Starbucks.​

A single stock purchase in your brokerage account, a block of common stock delivered, and decades later your family is obscenely wealthy. You find a wonderful business that is destined for tremendous growth and hold on for dear life as you go along for the ride. In the case of many of these highly successful initial public offerings, the annual dividend income alone exceeded the original investment amount within a quarter of a century.  

On top of this, the aggregate cash dividends received had paid back the initial outlay many, many, times over. The shares truly became money machines, printing ever-increasing sums of cash for their owners that they could then go used however they wanted. 

Continue reading or open a stock trading account and get ready for the next IPO. Get an additional 12% fixed annual interest rate (APR) on account balance with AM Broker. 

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Pros and cons of IPOs

Pros of IPOs

A successful IPO can raise huge amounts of capital. An example of an IPO is when Alibaba floated on the New York Stock Exchange (NYSE) in 2014 and raised over $20 billion. Becoming listed on a stock exchange helps to increase the exposure, prestige and public image of a company, which means that IPOs can increase the firm’s sales and profit in the future and give a more accurate valuation of a stock.

For traders, a float can be a great way of buying a share of a company – or taking a position on its price trajectory – the moment it hits the stock market. IPOs also increase liquidity on the market, which makes it easier for buyers and sellers to fill their orders.

Cons of IPOs

When a company is listed on a stock exchange, it becomes subject to the rules and regulations of a governing body. This means that it is required to disclose financial information – including accounting, tax and profits – all of which can be useful to competitors.

Although the dissemination of information is potentially a con for businesses, for traders it makes the analysis of a company and its share price trajectory much easier because information is readily available.

IPOs also incur considerable costs to the company and require it to make itself fit for the public eye. There is also the possibility of additional funding if the market disagrees with the IPO price, which can send the share price lower straight away. These risks make floating a costly consideration for a business.

 

2019 IPOs: Companies to watch

The 2019 IPO calendar has been packed with unicorns — Wall Street’s term for a fast-growing startup company that’s valued at over $1 billion.

The opportunity to get in on the ground floor of the next Amazon, Google or Facebook is a tempting prospect for investors. But not all newly minted stocks live up to the breathless pre-IPO hype. 

It can take time for a company to find its equilibrium. Remember, if it’s a solid business and you’re investing in stocks for long-term growth (a strategy we wholeheartedly recommend), you don’t have to be first in line to buy.

Unicorns like Uber, Lyft, and Pinterest have already had their initial public offerings this year, but they’re just a few of the companies on the 2019 IPO roster. The list below includes details about the most highly anticipated IPOs this year, both upcoming and already listed:

  • Airbnb
  • Beyond Meat Inc. (BYND)
  • Chewy (CHWY)
  • CrowdStrike Holdings (CRWD)
  • Fiverr International Ltd. (FVRR)
  • Lyft (LYFT)
  • Peloton (PTON)
  • Pinterest (PINS)
  • Postmates
  • Robinhood
  • Slack (WORK)
  • The RealReal (REAL)
  • The We Company (aka WeWork)
  • Uber (UBER)
  • Zoom (ZM)

Understanding what an IPO is and which are the upcoming IPOs to watch is important, but if you need help MT5 AM Broker provides acces to a wide range of stocks, indices, commodities, currencies and cryptocurrencies. 

Get ready for the next IPO stock with 12% annual interest on your account balance.

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Additional, use an Expert Advisor Generator to build automated IPO strategies without writing codes. 

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Categories:  Investing

While perusing a financial news website, reading a financial magazine, or watching the financial news, you are likely to hear the phrase EPS when discussing the profitability of a given company. This may trigger your curiosity and make you wonder what EPS stands for, and whether you should care.


What ...

While perusing a financial news website, reading a financial magazine, or watching the financial news, you are likely to hear the phrase EPS when discussing the profitability of a given company. This may trigger your curiosity and make you wonder what EPS stands for, and whether you should care.


What is earnings per share (EPS)

Simply put, EPS is an acronym that stands for Earnings Per Share. 

Earnings per share is an important metric in a company’s earnings figures. It is calculated by dividing the total amount of profit generated in a period, by the number of shares that the company has listed on the stock market.

Earning Per Share is used to determine the value attached to each outstanding share of a company. On exchanges, the amount of profit made by companies and the number of shares they have listed can vary, so Earning Per Share gives a per-capita way of evaluating each business. It is also a way for analysts to compare companies to each other and see which has higher earnings figures.


How to calculate earnings per share - EPS formula

To calculate a company’s earnings per share, you would first need to calculate its net profit by taking net income and subtracting any dividend payments. Then you’d divide that figure by the number of outstanding shares, which is usually a weighted average over the period.

The Earning per Share formula or EPS formula is:

  • (Net Income - Dividends on Preferred Stock) / Average Outstanding Shares = EPS

Let’s say you want to buy the shares of XYZ Industries, which currently has a total net income of $900,000. If the company has 75,000 shares in circulation, this would give an EPS of $12 ($900,000/75,000).


Understanding Earning per Share

  • Basic Earnings Per Share​: A company's basic EPS, or basic Earnings Per Share, is the company's profits divided by the number of shares outstanding. This is usually calculated on both an annual and quarterly basis. For example, if the company had earnings of $500 million and had 250 million shares of stock issued and outstanding, its basic EPS would be $2.00, because $500 million profit divided by 250 million shares = $2.00.
  • Diluted Earnings Per Share: A company's diluted EPS is the same concept, except for the shares outstanding figure, which is adjusted to include shares that the company holds and which could be issued to investors in the future. If a company has a significant amount of potential dilution lurking in the books, the "real" or diluted EPS figure would be lower than the basic Earnings Per Share figure in profitable years. This is because the company's net income would need to be split by more shares. Many investors are far more interested in a company's diluted Earnings Per Share. 

>> Read also what is stock and how to invest in stocks


Why EPS is important for investors

Earning Per Share is a very important financial metric when it comes to analyzing the financial performance of a company. Many conservative investors rely on basic Earnings Per Share and diluted Earnings Per Share information to calculate how much they think a stock is worth. Specifically, Earnings Per Share forms the basis of several important financial ratios including:

  • The Price-to-Earnings Ratio or P/E Ratio: If a stock is trading at $30, and its basic Earnings Per Share for the year is $3.20, then it can be said that the firm's p/e ratio is about 9.4. The p/e ratio of a stock tells you how many years it would take a company's basic EPS to pay you back your investment cost assuming no taxes were owed on distributions, there was no growth, and all earnings were paid out as cash dividends. The p/e ratio can be inverted to calculate the earnings yield.
  • The PEG Ratio: The price-to-earnings-growth ratio, or PEG ratio, is a modified form of the p/e ratio that starts with basic EPS and then calculates the p/e ratio with an adjustment for the projected growth in earnings per share over the coming years. 
  • The Dividend-Adjusted PEG Ratio: Going one step further, the dividend-adjusted price-to-earnings-growth ratio, or dividend-adjusted PEG ratio, is a modified form of the PEG ratio that takes the basic EPS figure and then takes into account the valuation not only for the expected growth in future earnings per share but also the dividend yield.


Learning How to Use EPS

Figuring out which multiple of EPS to pay for a company listed on a local stock exchange can be tricky. Some investors set hard and fast rules, which aren't necessarily the best idea since they often don't factor in inflation, taxes, and risk, such as only paying 10x earnings for a stock. Other people pay 8.5x EPS + the expected rate of growth in EPS, a formula highlighted by legendary value investor Benjamin Graham.

Basic EPS and diluted EPS are also important because dividends are ordinarily paid out of profits. This means that if a company has an EPS of $2.00, it can't afford to pay dividends of $3.00 indefinitely. It's just not possible. Dividend investors look at the percentage of EPS paid out as dividends to gauge how "safe" a company's dividend payment is.

Understand what Earning per Share is and EPS formula is important, but if you need help MT5 AM Broker provides some important analytic tools and access to a wide range of markets. Additional, use an Expert Advisor Generator to create automated investing strategies based on EPS formula. 

 

 

 

Categories:  Investing

Value investors and non-value investors alike have long considered the price-earnings ratio, known as the p/e ratio or PER for short, as a useful metric for evaluating the relative attractiveness of a company's stock price compared to the firm's current earnings.

Made popular by the late Benjamin ...

Value investors and non-value investors alike have long considered the price-earnings ratio, known as the p/e ratio or PER for short, as a useful metric for evaluating the relative attractiveness of a company's stock price compared to the firm's current earnings.

Made popular by the late Benjamin Graham, who was dubbed the "Father of value investing" as well as Warren Buffett's mentor, Graham preached the virtues of this financial ratio as one of the quickest and easiest ways to determine if a stock is trading on an investment or speculative basis, often offering some modifications and additional clarification so it had added utility when viewed in light of a company's overall growth rate and underlying earning power.

As you discover how useful the P/E ratio can be, however, keep in mind that you can't always rely on price-to-earnings ratios as the be-all and end-all yardstick in determining whether a company's stock is expensive. There are some significant limitations, partly due to accounting rules and partly due to the inaccurate estimates most investors apply when projecting future growth rates. ​

We take a look at the Price Earning Ratio and examine what a high or low P/E ratio can tell us about a company’s share price.

Continue reading or play with a stock simulator and notice what Price Earning Ration is in real-time. 
 

Price earning ratio is - PER is

The price-earnings (PE) ratio or PER measures the current share price of a company relative to its earnings. It is also known as the price multiple, or the earnings multiple, and shows how much an investor is prepared to pay for each £1 of a company’s earnings.

The fundamental investor uses a selection of tools to determine whether a share price is overvalued or undervalued. The P/E ratio is one of these, and while it is one of the most commonly used, it is also one of the most useful, narrowing down the universe of possible investable choices.


How to calculate the Price Earning Ratio - PER formula

The P/E ratio is calculated by dividing a company’s share price by the earnings per share (EPS) figure. If a company’s EPS is $20, and the share price is $140, then $140/$20 equals seven, suggesting that an investor will be $7 for each $1 of EPS.

The P/E Ratio formula:

  • Price Earning ratio = share price/earnings per share


What does a Price Earning Ratio tells us - PER meaning

  1. A high PE ratio suggests that investors expect a high level of earnings in the future and that growth will be strong. The share price has risen faster than earnings, on expectations of an improvement in performance
  2. A low PE ratio can arise as a share price falls while earnings remain broadly unchanged

The advantage of a Price Earning ratio, like many other formulae in investing, is that it allows an investor to compare different companies using one simple calculation. For example, there are hundreds of companies in the two main UK indices alone, and pouring over their financial statements would take hundreds of hours. But filtering using a P/E ratio allows an investor to reduce the choice to a smaller number, removing those based on a particular criterion.

For some investors, a high PER might be deemed attractive. A higher PER suggests high expectations for future growth, perhaps because the company is small or is a rapidly expanding market. For others, a low PER is preferred, since it suggests expectations are not too high and the company is more likely to outperform earnings forecasts.

Buying a stock is essentially buying a portion of that company’s future earnings. Companies that are expected to grow more quickly will command a higher price for their earnings. Earnings per share can be either ‘trailing’ or ‘forward’, with the former taking into account the earnings from the past few years, and the latter relying on estimates. A company with a high trailing Price Earning ratio may be viewed as having a more reliable record than one where the forward Price Earning ratio is in its twenties.


What is considered a good Price Earning Ratio - PER understanding

Defining a ‘good’ or ‘bad’ P/E ratio is difficult. As with so many things in financial markets, it is difficult to apply a firm rule. A good way of helping to understand a company’s valuation is to look at it in the context of the broader stock index, or of the sector in which the company operates.

For example, a P/E ratio of 15 for a house building company means little unless an investor finds that the average P/E ratio for the housebuilding sector is 27. Then the company is cheap relative to the broader sector and may see outperformance as it exceeds expectations. Or a company with a high P/E ratio relative to the sector may struggle if it fails to meet forecasts.

Price Earning ratios change over time, and, like trend following in technical analysis, a company may have periods when it is overvalued and undervalued by the market.


P/E Ratio Highs and Lows of the S&P 500

At the peak of the internet/technology bubble of the 1990s, the stock market as measured by the S&P 500 Index was trading at a P/E ratio of close to 40. To date, this is an all-time high for that ratio.

At the bottom of the worst bear markets, the stock market (S&P 500 Index) has traded at a P/E ratio of close to 7.

The average P/E ratio of the market is about 14.


Very low vs very high Price Earning Ratio - PER comparison

It is arguable that a PER of five or less is not a remarkable bargain. While it might look as if the company’s prospects are being viewed too negatively, it is not a bad rule of thumb to filter out companies with a PER below this level. It suggests that the future outlook is quite bleak, and that there are far too many problems facing management.

A very high Price Earning Ratio is not necessarily a warning sign that expectations have become too high. To take a classic example, Amazon trailing P/E ratio climbed from over 70 at the beginning of 2011 to 130 by the middle of the year. But the stock climbed 46% in that same period and rose relentlessly over the next five years. If a firm can meet the expectations implied in a high P/E ratio, then it can pay off.


How to use the Price Earning Ratio in your trading - PER 

The Price Earning Ratio is a useful starting point. It is not the beginning and the end of an investor’s investigations into a company. It can overstate the positives as well as exaggerating the negatives. It also does not consider vital information such as the dividend yield, the level of debt at a company, management changes, and a host of other issues.

However, when faced with hundreds, if not thousands, of different companies, filtering by the Price Earning Ratio can be a good way of narrowing down the universe of options. It then allows an investor to put more effort into finding out more about specific companies in a sector. While it is possible to construct a stock investing strategy based purely on the Price Earning Ratio, it is perhaps better thought of as a first step along the road to making an investment in a specific company.

>> Read also how to read the news released on the forex factory economic calendar


Lessons to Learn from Past P/E Ratio Bubbles

In the early 70s, there was a group of stocks called the Nifty Fifty. These were fifty of the largest companies listed on the stock exchange, and institutions bought giant-sized positions of their stock. As stock prices soared, the Price Earning ratios of these companies grew to highs in the range of 65-92. The stock market crash of 73/74 came along, and by the early ’80s, these same companies had Price-earnings ratios of 9 to18.

No sizable company can continuously increase their earnings fast enough to justify that level of investment. The lesson wasn’t learned, however, and the situation repeated itself in the late ’90s with tech stocks. P/E ratios of the tech favorites routinely exceeded 100. Some companies had no profits, yet, commanded higher ratios compared to more conservatively run companies.

The lesson to be learned is that abnormally high P/E ratios, combined with exuberant headlines, can be a signal that the market is overheated and equity exposure should be reduced. Abnormally low P/E ratios, combined with pessimistic headlines, can be a signal that equity prices could be "on sale."

 

P/E Ratio vs. EPS vs. Earnings Yield: An Overview

The price/earnings ratio (P/E ratio), also known as an “earnings multiple,” is one of the most popular valuation measures used by investors and analysts. The basic definition of a P/E ratio is stock price divided by earnings per share (EPS). The ratio construction makes the P/E calculation particularly useful for valuation purposes, but it's tough to use intuitively when evaluating potential returns, especially across different instruments. This is where earnings yield comes in.

  • The basic definition of a P/E ratio is stock price divided by earnings per share (EPS).
  • EPS is the bottom-line measure of a company’s profitability and it's basically defined as net income divided by the number of outstanding shares.
  • Earnings yield is defined as EPS divided by the stock price (E/P).

Understanding the meaning of Price Earning Ratio and the P/E Ratio formula is important, but if you need help MetaTrader 5 AM Broker offers advanced analytic tools for investors and an integrated economic calendar. Additional use an Expert Advisor Generator 

 

Categories:  Investing

It's common to have a client call into a brokerage and asked why a currency pair has moved soo much. The short answer is often that there has been a news release but that's not a fair answer because there's more than meets the eye in a ...

It's common to have a client call into a brokerage and asked why a currency pair has moved soo much. The short answer is often that there has been a news release but that's not a fair answer because there's more than meets the eye in a news release. This article will explain what is NFP and the implications for forex traders.

 

What is Non-Farm Payroll (NFP)

Non-farm payroll is a monthly statistic representing how many people are employed in the US, in manufacturing, construction and goods companies. It can also be known as non-farm or NFP.

NFP gets its name from the jobs that aren’t included: farmworkers, and those employed in private households or non-profit organizations. The data is usually delivered on the first Friday of any given month and is available with economic calendars like the forex factory. NFP can move several markets in a major way. 

There are several other key pieces of data involved in the non-farms release, including the unemployment rate, detail on sectors, average hourly earnings and revisions of previous releases. These are all also important to the markets.

Various analysts release predictions for NFP figures in advance of the actual release, causing a great deal of speculation in the lead up to each report. 

Like most fundamental news points in the marketplace, there are three sides to every newsprint that FX traders need to understand. 

Continue reading or trade the next NFP with a $30 Welcome Bonus (use code WELCOME30 at registration)

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Reading the News Print

First, there is going to be an expectation of the news release based on the trend in fundamental news announcements and any developments. The report itself is extremely large so most traders look for three or four key pieces of information.

Typically, whether the news release is good or bad, what causes traders to be confused about the move is two points. First, was this newsprint a large miss or confirmation of what was expected. As you can imagine, a miss from expectations will cause the currency to lose value whereas a confirmation or positive surprise will cause the currency pair to move higher. 

Traders will focus on the headline figure first and foremost. When the actual number is released the forex market and the stock market will move according to whether more or fewer jobs have been created, compared to expectations.

Given the scale and complexity of data, the Non-Farm Payroll Report is often subject to large revisions of the previous month’s headline. The Bureau of Labor Statistics also revises the month prior to the previous, known as the two-month net revision.

Another important data point is the unemployment rate, which is the percentage of the total labor force that is unemployed but actively seeking work. The figure moves in relatively small increments compared to the headline reading and movements as small as 0.2% in either direction can often be viewed as a large change.

Large fluctuations in wage inflation are often factored into the Federal Reserve’s decision-making, and the number of hours worked in the reporting period may also be monitored for changes or irregularities.

There are a number of factors to think about when trading U.S. Non-Farm Payroll Report, but with a little insight and thorough preparation, it is an event that offers numerous opportunities for traders.

>> How to Trade the forexfactory.com news
 

Volatility

Volatility is a fancy term that simply means prices moving aggressively relative to prior price history with less regard to direction. Due to the significance of nonfarm payroll for the US economy, a large beat or a large mass will often result in a decent amount of volatility. A result that is in line with expectations often disappoints traders who seek volatility for big moves to trade because the expectations are often priced in.
 

Future Interest Rates Direction

The Federal Reserve of the United States has kept interest rates at zero since late 2008. They are not the only central bank dealing with a sluggish economy but nonetheless, they are faced with the question when will he raise rates of the historically low floor and will the economy be strong enough to handle that rate hike? While one newsprint does not make a trend a series of non-farm payrolls showing strength or weakness has an impact on future interest rate decisions and what the market expects of the Federal Reserve view of the economy and how they're direct interest rates, which inevitably affects the value of the US dollar.
 

Analyzing the Aftermath of NFP

Before the Non-Farm Payroll is announced on the first Friday of every month at 8:30 AM Eastern a trader should be aware of a few things. First, you should know what the market expectations are for the announcement. Second, and more importantly, you should be aware of key levels on the chart like price ranges of a prior extreme or prior correction so that if the volatility of Non-Farm Payroll causes the price to go into that range you might find yourself with an opportunity on your hands.

Many traders decide to take the morning of Non-Farm payroll off because the volatility doesn't affect the overall trend and is often more harmful to their emotions than it is beneficial for the trading account. Whatever you choose to do, what is important is how the market reacts after non-farm payroll in relation to the larger trend, whether or not it is confirmed or if a key level of support or resistance is broken on the chart, which would likely only happen on a big news surprise. 

Understanding how to read the NFP is important, but if you need help MT5 AM Broker provides advanced analytic tools and orders to trade the news. Additional, use an Expert Advisor Generator to create an automatic strategy for news trading, known as EA Forex or Robot Forex.

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Categories:  Education