Free Stock Market Investing Tips

You may have wondered if there are people out there who consistently make money from the stock market. And yes, there are people out there who are consistently making money from the stock market because if they were not making money from market they would not be there and the markets would not be there too. These people are no smarter than you. They do not work any harder and neither are they lucky than you.
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Preferred Stock is a very different creature from what is generally referred to as common stock. Common stock is what most investors think of when they purchase stock. It really is the most “common” type of stock traded. Stock is that equity in a company that an investor purchases. Preferred stock is quite the opposite. Preferred stock is ownership within the traded company, but with added perks. It is almost like a bond, with guaranteed rights to a company’s assets if the firm were liquidated.

Preferred stockholders have a greater claim to the firm’s assets than common stockholders do. For this reason, when dividends are paid, the claims from preferred stock are paid first - before any dividends are paid to common stock claims. This difference in classification is most essential during times of insolvency by the firm, however. If a company were to be liquidated, preferred stockholders are paid before common stockholders get a single penny.

Also, the dividends that are paid to preferred stocks are quite different from common stocks. Dividends are generally paid at regular intervals, not intermittently when a company’s board decides to, which is commonly how dividends for common stock are paid. Oftentimes these dividends are guaranteed by the firm.

So with all these added perks to common stock what are the disadvantages? First off, preferred stock is not issued by every publicly traded company. The cost of raising capital through preferred stock for a firm is 35% greater than through issuing bonds because the dividends paid are not tax deductible. Preferred stock represents a fraction of the total stock market in the US at around $200 billion in August 2006, compared to $16 trillion for equities and $5 trillion for the bond market. Also, there are corporate tax advantages available to corporate ownership of preferred stock that can never be realized by individuals. For this reason, it is common to see corporations snapping up preferred stock issuances.

Mutual funds are collections of stocks or bonds that are managed by an “investment professional.” Mutual funds cover the whole spectrum of investment possibilities - specific sectors, objectives, etc. These objectives are outlined in the mutual fund prospectus. The mutual fund investor purchases shares in the fund; the price of the fund varies daily according to its’ trading price - just like other publicly traded assets. Purchasing shares in the fund gives the investor a position in the fund.

The mutual fund shareholders pay an annual fee to an investment representative who buys and sells stocks for the fund. However, the prospective mutual fund investor must be careful in selecting a mutual fund. While they may advertise in being professionally managed, the truth is most mutual funds underperform average stock market returns. Another difficulty with mutual funds involves understanding the fees involved in owning shares in a mutual fund. Lots of “fine print” can be involved. It is very important to read the prospectus.

But if you do your research as you would with any other investment, there are good mutual funds out there worth your hard-earned dollars. Read the prospectus on the mutual fund and study how the fund has performed over the years. Make sure the fund has been around for a while so a good, lengthy track record can be established. The diversification within a well-managed mutual fund can guard against market adjustment periods. The real advantage the investor gets with a mutual fund is the level of expertise gained in the fund’s management. Seeking out funds that are actively managed and managed well is essential when researching mutual funds. Some of the best managed mutual funds are not run by the big investment companies, but by smaller firms. Another advantage in mutual fund ownership is the fact that transaction costs are lower due to the high volume buying and selling of shares involved. Minimum investment is also usually low, sometimes as low as $100.

Future contracts, also known as futures, are standardized legally binding agreements between a buyer and seller to receive (known as taking a “long” position) or deliver (known as taking a “short” position) a commodity or financial instrument sometime in the future, at a price that has been agreed upon today. These contracts are identified according to the previously agreed maturity date an example can be, an August 2008 Wheat futures contract or a June 2008 S&P 500 stock index futures contract.

Futures are often traded in open-outcry and auction-style trading pits, at designated stock exchanges. Electronic trading systems like, Chicago Mercantile Exchange’s (Globex System are also used, in certain exchanges. Chicago Mercantile Exchange was the first to introduce futures trading. The exchange clearinghouse guarantees the performance and counterparty risk elimination, by substituting itself as the buyer to the seller and as seller to the buyer. The futures trade customers are required to post margin deposits, not against the market value of the commodity in the futures contract but as a performance bond or “good-faith deposit”, with an exchange member firm which, in turn, must deposit margin with the exchange, which ensures the market participants’ ability to honor their financial commitments and cover any obligations which might arise out of their trading activities.

A “long” position is the one in which we buy, i.e. receive a futures contract, and selling, i.e., delivering a futures contract is referred to as taking a “short” position. A long futures position profits when the futures price goes up, and a short futures position profits when the futures price goes down. Maturing futures contracts expire on specific dates, usually during the contract month. The futures trader may also offset or exit his obligation at any time before the contract matures, by selling what was previously bought, or buying what was previously sold. This way, a trader is relieved of any obligation to make or take delivery of the underlying commodity or financial instrument.

Futures contracts have standardized terms and trade on centralized exchanges. Its participants in futures trading can be divided into two broad categories: Hedgers, who actually deal in the underlying commodity or financial instrument and seek to protect themselves against adverse price fluctuations, and Speculators, who seek to profit from price swings.

The vast majority of futures contracts, in fact, are closed out by offsetting market transactions prior to their maturity, rather than through the delivery process.

Futures trading also carry significant risk, since; the futures contracts generally entail high levels of leverage. Due to this they have been at the heart of many market blowups. The most famous of all may well be Long Term Capital Management (LTCM); despite of having the best financial brains on their payroll, LTCM managed to lose so much money so rapidly that the Federal Reserve Bank of the United States was forced to intervene and arrange a bailout to prevent a meltdown of the entire financial system. Enron, Nick Leeson and Barings Bank have also faced the brunt of “futures” mismanagement.

In the United States, futures transactions are regulated by the Commodity Futures Trading Commission.