What Does Exchange-Traded Fund Mean?

Exchange Traded Funds (ETF) are investment funds that trade on a stock exchange tracking the performance of an index. The index can include stocks, bonds and commodities. ETFs are good investment because they are cheap, tax efficient and because of their stock like features. In recent years Exchange Traded Funds have grown in popularity as an investment method, enabling the investors to expand their portfolios while maintaining flexibility in trading similar to stock. As an investor in ETFs, you get the diversification of an index fund and also you will be able to sell short, buy on margin and procure as little as one share.

To create an new ETF, a registered broker buys the basket (group of securities created for the purpose of concurrent buying and selling) of securities underlying the index, and exchange them with a company that establishes and administers an ETF, for a newly created ETF shares. The broker then breaks up creation units (large blocks of thousands ETF shares which can be exchanged in-kind with baskets of underlying securities when an initial ETF is established) into single shares which trade on a stock exchange, and therefore investors can buy them. The reverse process happens when the broker cashes in a creation unit on the open market, to make the quantity needed for a creation unit. After making a creation unit, the broker then turns the shares over to the company administering the ETF in exchange for individual securities underlying the ETFs.

There are several types of ETFs that a person can invest in. Some of them include: index ETFs, commodity ETFs, bond ETFs, currency ETFs, and leverage ETFs. Index ETFs hold securities and try to imitate the performance of a stock market index. To do this, index ETFs seeks to track the performance of an index by holding in its portfolio either as imitation of the trade index or as representative sample of the securities.

Commodity ETFs usually invest in precious metals and future contacts. This type of ETFs trade just like shares, are resourceful and simple and provide exposure to an ever-increasing range of commodities and commodity indices such as metals and agriculture.

Bond ETFs are ETFs investing in bonds. Mostly they flourish in economic recessions since investors pull their money out of stock market into bonds. Bond ETFs have an advantage of getting practical trading commissions.

Currency ETFs are total return products, where an investor accesses the Forex spot change, local institutional interests rates and a collateral yield.

Leverage ETFs are special type of Exchange Trusted Funds, that try to achieve returns which are more sensitive to market movements than other types of ETFs. Mostly Leverage ETFs are marketed as bull or bear funds.

There are many advantages of Exchange Traded Funds. First, an ETF can create exposure to a group of equities, styles, or market segments. In comparison to a stock, an ETF can track broader range of stocks or try to mimic the returns of a country or many countries. Secondly, well managed ETFs have lower expense ratios compared to other managed funds like mutual fund, which have high expense ratio due to costs like management costs and shareholder account expenses at the fund level. Another advantage of ETFs is that their dividends are reinvested back immediately, therefore avoiding dividend drag. Also ETFs are more tax efficient than mutual funds since most of the tax on capital gains is paid on sale and completely up to an investor.

Exchange traded Funds are flexible and are traded on major stock exchanges in the world, so when an investor buys or sells an ETF, he or she does that at the current share price in the market. ETFs are also intended to trade close to their underlying net assets value, thereby, providing a great assurance that their prices will reflect the value of underlying assets. Also in comparison to mutual funds, ETFs perform better and are efficient way to know the index performance and have a lower annual management fee.

It should be noted that, in some countries ETFs may be limited to big companies only, therefore, limiting investors to large capital stocks due to a narrow group of stocks in the market index. Also, the cost of investing in ETFs may be higher compared to investing in one particular stock.

Please note that currently there are no Exchange Traded Funds (ETFs) available in Sri Lanka (Colombo Stock Exchange) but it would be available in near future as SEC is working on the ETFs and Unit Trust regulatory framework. Please refer to The Gazette of the Democratic Socialist Republic of Sri Lanka No. 1723/4 of Monday September 12, 2011 on Unit Trust Code including Exchange Traded Funds.

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AVAFX Review Shows Many Advantages

There are literally thousands of different platforms on which one can trade in the FOREX market online. One of these is AVAFX. After performing an AVAFX review, many advantages were found over other platforms. Here, we shall attempt to point out some of these advantages.

Main Features

Two main features that we found in our AVAFX review that made this platform stand out were the training offered and the fact that they offer an international debit Master Card to facilitate easier withdrawals from one’s account.

Training includes basic lessons that everyone should view before beginning to trade on the FOREX exchange. Topics include advantages of trading FOREX, basic terms, types of orders, winning strategies, and concepts that apply to the FOREX market while not necessarily applying to other types of securities. There is also a course on Meta Trader, which is a popular alternative that many traders take advantage of regardless of which platform they work with.

Many trading platforms make it difficult to withdraw funds from one’s account after they have been deposited. AVAFX makes it easier, no matter where in the world one is located, by offering their own Debit Master Card that is good anywhere in the world. Using this card, clients can withdraw funds at ATMs or use the card to make purchases anywhere Master Card is accepted.

Other Instruments You Can Trade with AVAFX

While AVAFX is primarily a FOREX trading platform, our AVAFX review shows that one has other options when trading on this platform. Traders can invest in oil, gold, and stock indices. In addition, one can invest in individual stocks using CFDs (contracts for differences) that allow one to leverage 500 or 1000 dollars into 10000 dollars worth of stock.

Gold, oil, and stock index futures are pretty straightforward in how they are traded. CFDs give one the benefits and risks of owning particular stocks without actually having to own them. They are provided on margin, meaning that one must have a certain minimum amount on deposit to cover the margins. They allow for larger profits on relatively small investments, even after one pays commissions and any fees associated with maintaining an open position overnight. Of course smart investment choices are required because losses can be as high as profits if a position goes against one.

It is important to note that CFDs are not legal in the US due to US SEC restrictions on what it terms “over the counter” securities such as stocks. They are, however, available in the UK, Portugal, Poland, the Netherlands, Italy, Switzerland, South Africa, Singapore, Canada, New Zealand, Norway, Sweden, Ireland, France, Spain, and Japan. Other markets are making plans to issue them sometime soon. This includes the Hong Kong market.

AVAFX Deposit and Withdrawal Options

As already stated in our AVAFX review, this trading platform offers its own Debit Master Card to make it easy for their clients to access their money and make convenient withdrawals. In addition, they offer other options for making deposits and withdrawals using secure services. These include PayPal, NETELLER, Web Money, and MonyBookers.

Each of these financial services has its own rules about how one can fund an account and withdraw money from it. This means that withdrawals can take different amounts of time based on which service one chooses and how the money is to be transferred back to the individual. However, all offer security for all transactions and have guarantees in place to assure that one’s money will be available on demand.

Trading Platform

AVAFX offers its own AVA trader platform on which traders can enter the FOREX market as well as the other securities mentioned above. This platform offers all of the tools a person needs to make informed decisions based on technical analyses of the market and the available spreads.

In addition, AVAFX offers the popular Meta trader 4. This is a free downloadable software that tracks the market and provides all of the technical indicators needed to make informed choices and create orders that will be executed when the market reaches the trigger points. This free software works with many different trading platforms, including AVAFX.

After performing our AVAFX review, we found that this platform has a great deal to offer for anyone looking to start trading in FOREX. It offers education about the market and its terms, convenient methods of depositing and withdrawing funds, a solid trading platform that provides one with all of the technical information needed to make educated trading decisions and create market orders, and much more.

AVAFX is superior to many of the available options on the internet today. For this reason, anyone who is considering a foray into the world of FOREX or other securities trading online would be well served to sign up for a trading account today so you can start making money online quickly.

• Please note that currently AVAFX does not accept customers from USA.
• Forex/CFD trading involves substantial risk of loss and is not suitable for all investors. 

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Stock Valuation Part 4

Understanding Revenue Based Stock Valuation

There are many different ways to look at a company to determine if it will be a good investment. While price per share earnings are one of the most common types of revenue based stock valuation, there are times when a company may not report positive earnings due to high tax burdens, expansion costs, and other expenses. Even when this is the case, the company still produces revenue during day to day operations. Understanding some of the methods used for valuation will help you to identify the best investments.

In order to assess a real revenue based valuation, one must take a look at the price/sales ratio. This is calculated using the company’s market capitalization, a figure that is equal to the current market price of stock in the company multiplied by the number of shares outstanding. In other words, if the current share price of the company’s stock is 100 rupees and there are 1 million outstanding shares, the market capitalization would be 100 times 1 million equals 100 million rupees.

Conservative investors would then add the company’s long term indebtedness total to the current market value of the company to arrive at a more accurate figure for market capitalization. If the company mentioned above has just taken on a long term debt of 50 million rupees, this figure would be added to the 100 million rupees in share value to get a total market capitalization of 150 million rupees. This approach makes it possible to avoid getting false comparisons between two different companies when one has a huge debt and the other is debt free, even if sales are lower.

The next figure needed would be the company’s trailing revenue for the past year. This can be arrived at by looking at quarterly reports and adding the revenue reported for each of the last four quarters together.

Calculating the price/sales ratio is then a simple matter of performing the maths. Let’s assume that the company we are using as an example had revenue of 300 million rupees over the last four quarters. If we take the current market capitalization of 150 million rupees and divide it by the revenue of 300 million rupees, we arrive at a P/S ratio of 0.5. As with the P/E ratio, the lower this ratio is, the better the odds that this will prove to be a good investment.

Making use of the P/S ratio and P/E ratio to evaluate the same corporation can confirm whether it is a sound investment. A company with a low P/E and a high P/S can mean that one time gains during the last year have pumped up the earnings per share with no guarantee that such will occur again.

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Stock Valuation Part 3

Principles Of Equity Based Stock Valuation

Equity has many different meanings in the business world. Ideally, it is defined as what is left after a company pays off all of its debts, even if business were to cease immediately. This can be in the form of merchandise, cash on hand, tangible assets such as office buildings and equipment, and intangibles such as good will. When it comes to determining whether or not to buy stock in a company, one should consider the principles of equity based stock valuation.

Most investors want some real value for their dollars spent investing in a company. This is best achieved by choosing stocks from companies that have a high equity value as opposed to companies with heavy debt loads. One of the best ways to ensure this is by choosing companies that have more cash on hand than the current market value of their stocks.

A gentleman by the name of Ben Graham created a system for choosing such companies. He first took into account the amount of cash, cash equivalents, and investments that could be liquidated fairly easily. He would then divide this figure by the number of outstanding shares. This told him exactly how much of the current price per share was represented by the cash the company had on hand. He found that buying stock in a company with large amounts of cash held many benefits.

Another way to measure the value of a company is by looking at the company’s working capital. Working capital can be defined as the difference between a company’s assets and its liabilities. This represents what the company has available to use in the course of day to day operations. High working capital can be used to fund expansions and research, just as having a great deal of cash on hand.

One can also look at shareholder equity. This figure represents what would be left to divide among the shares of stock if the company were completely liquidated right now. This means that if all assets were sold right now and all the company’s debts were paid, the money that is left to split among the stockholders divided by the number of shares is the shareholder equity.

Equity based stock valuation is one of the better methods of determining if an investment is good or bad. One would much rather invest in a company with a great deal of equity than in a company with a high debt load and a great deal of risk.

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Stock Valuation Part 2.

There are many different ways to look at a company and determine how successful it is and how much the stock would be worth. One of the best ways to evaluate a company is by looking at its cash flow. This means looking at how much the company is spending vs. How much it is taking in as revenue to determine whether the company is making money or losing it.

There are, however, some factors to consider and some to discount when looking at cash flow in order to obtain a good idea of how the company is doing. Most financial advisors define cash flow as a company’s earnings before taxes, interest, amortisation, and depreciation. There are some very good reasons for discounting these items when looking at cash flow.

One should look at the company’s day to day operations without regard to interest income or taxes. Taxes vary from year to year based on changes in laws as much as changes in income. Interest income will vary based on the amount of money the company is able to keep in the bank at any given time. These variables actually have little to do with the daily operations of the business and how much it earns compared to spending.

Amortisation and depreciation are non cash expenditures that show up on a company’s balance sheet as a means of tracking the value of equipment and supplies. They serve a purpose when it comes to calculating taxes for the company, but have little or nothing to do with operating the business on a day to day basis.

Smart investors will look at cash flow when deciding whether or not to invest in a company that must lay out a great deal of cash on the front end. A good example would be a cable company. This company must lay out a great deal of cash on the front end to create their network. However, amortisation of the equipment and network takes this expense out of the equation when looking at the company’s cash flow and income. In most cases, such corporations have a growing cash flow from the beginning.

Cash flow is one of the better methods of stock valuation. This is because it looks at the actual day to day operations of the business rather than expenditures for equipment or taxes. It also discounts secondary sources of income such as interest

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Stock Valuation -Part One

The most common method of valuating stocks is based on corporate earnings. Most people look at how much a company earns per outstanding share of stock as a net profit, the amount earned after all bills are paid. To make this easier to understand, we are going to show a highly simplified example.

The earnings per share is a simple calculation that is arrived at by dividing the earnings of a company in rupees by the number of outstanding shares of stock. For example, ABC Corporation reports earnings of 1 million rupees for the year. There are a million shares of stock outstanding. 1 million rupees divided by 1 million shares equals an EPS of 1 rupee per share. This is called a trailing EPS because the calculation is based on reported numbers for the previous year. To make a more pertinent evaluation of a company’s worth, it is important to look at stock valuation – price earning ratio.

What is Price Earning Ratio?

The typical investor uses the price earning ratio (P/E ratio) to determine if a stock is worth its price. This ratio is calculated using the current stock price and looking at its earnings for the last year. An example would be ABC corporation stock price selling at 15 rupees per share. The calculation would be as follows:

15 rupees (share price) divided by the EPS of 1 rupee equals 15 P/E.

In general, it is considered that a higher P/E ratio is a good indicator of the investor’s positive attitude on a given company. However, there are other considerations that must be taken into account.

Are Low P/E Stocks Really Worth it to Buy?

In general, stocks with a low P/E ratio are not a always good buy. People may think stocks with low P/E Ratio are undervalued but there are some exceptions, based on changes taking place in the company, but the fact of the matter is that companies with low P/E ratios are generally in some sort of trouble. This could include a gloomy outlook for the future of the company or industry, a bad reputation, or a history of poor management. Because the P/E ratio is based on numbers already reported, it is possible that changes within the company can improve the value of the stock over time, but the present conditions tend to make this a poor value.

P/E and Growth Ratio and the Year-Ahead P/E and Growth Ratio (PEG and YPEG)
The P/E ratio is often used in an additional calculation to determine if a stock is a good buy. The PEG is a calculation that considers the expected growth of a company along with the P/E ratio. Because a growing company is reasonably expected to grow in value, the P/E and Growth ratio is a valuable consideration. This calculation is achieved by looking at the P/E and projected growth of the company. For example, ABC Corporation has a P/E of 10 and is expected to grow at a rate of 10 percent over the next two years. This calculation would be 10 (trailing P/E) divided by 10 percent growth in EPS equals PEG of 1.

Companies are valued low if they have a lower PEG ratio or high if their PEG is higher. The YPEG is calculated in the same manner, but it looks at expected earnings for the year ahead rather than the trailing P/E. These numbers can be attained from a number of sources online, including the corporations on financial reports and projections.

Understanding stock valuation – price earning ratio is an important first step in making wise investment decisions. Past performance can be a valuable asset in determining the value of a stock, but projected growth is at least as important, if not more so in the long run.

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Investors in the stock market are often likened to animals. The four animals can be found on the market. These are bulls, bears, chickens, and pigs. The one animal nobody wants to be likened to in the market is the pig.

The Bull

Bulls are happy animals in the stock market. The market is said to be bullish when the economy is on a steady rise and so are stock prices. During a bull market, choosing profitable stocks is easy. Stock prices are climbing along with the value of the companies one is investing in. This means that one can expect profits in the form of dividends if stocks are held or direct profits from the sale of stocks at higher prices than paid for the stocks. Many people go along for the ride when the market is bullish, but sadly, this condition can not last forever.

The Bears

Bears are not as happy as bulls. This is because the market is said to be bearish when stock prices are falling steadily due to economic crises such as a looming recession. However, bears can still make money in the market by practising the art of selling short. This means they sell stocks now that they do not yet own. When the time for the trade to be completed comes, the bear buys the stocks at a lower price than they were sold at.

Bears in the market are considered to be pessimistic about the growth of the economy. For this reason, many who are bearish about the market take the strategy of pulling out of the market temporarily. They sit on the sidelines and watch to see when the market starts showing signs of returning to positive growth. They then jump back into the market with investments in stocks they expect to begin rising in value again.

Chickens and Pigs

Chickens are those who fear losing on trades. In most cases, being a chicken in the market means this fear overrides one’s judgement when it comes to attempting to make a profit in the market. For this reason, chickens only invest in money market securities that have a guaranteed income. The returns on such investments are very low, though there is some growth on the investments.

One should never invest in anything that would make him/her lose sleep over fear of losing money. However, chickens do not take any risks at all. If the economy starts to decline, chickens will often pull all their money out of the market completely rather than risk losing anything.

Pigs, on the other hand, are those who take unnecessary risks in the hope of catching that “one big score.” Pigs make their investment choices based on “hot tips” and fail to perform due diligence before they invest in companies that are not truly financially stable. Pigs often lose their entire investment when a high risk company promises unrealistic returns, then ends up bankrupt.

People who trade stocks professionally love pigs. This is because both bulls and bears tend to reap the largest percentage of their profits from the losses experienced by pigs. The lack of due diligence on the part of the pigs leads to them selling at the wrong times and/or buying stocks that are falling in value.

What Type of Investor Will You Be?

There are many different investment strategies that are employed every day with people making money. Bulls and bears are polar opposites in the market, yet both make money by trading with care and paying close attention to developments in the business world. Even chickens make some money, though their returns are considerably lower than more aggressive investors.

One thing that one must do before getting into the market is research the available investments and know what to expect to happen with the money invested. Being conservative is always a smart choice, not to be equated with being a chicken.

Many investors combine the points of being bullish and bearish. When things are going good, they take advantage of the steady growth of the economy. When things start to slow down, they slow down as well, taking a more conservative approach to trading. In this way, they are able to make money on both swings of the market.

The one thing you never want to do is be the pig. Do not get into the market without doing your homework. Do not invest in anything that you do not understand. There is an old saying that one should keep in mind when considering a jump into the stock market, “Bulls make money, bears make money, pigs just get slaughtered!”. It would be far better to be a chicken than a pig. The four animals can be found on the market. Which one will you be most like in your investment strategies?

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Whether you’re looking into day trading for any type of market or looking into a particular market, it’s important that you understand all the markets and how they can affect each other. Day trading tips for Asian stock markets especially the Colombo Stock Market will help you understand the other markets as well.

Stocks are traded the world over and many countries have their own stock market such as the Colombo stock market. But when you’re day trading you must be aware of what the other stock markets are doing. This Stock Exchange will allow you to day trade with buying brokerage and is fully automated similar to the trading platforms used by the Stock / Forex markets

In fact, some brokers are actually in touch with all the different markets and when you want to buy or sell, they will choose the market with the best rate at the time of the sale. Being able to invest in a foreign market such as the Colombo market, which has no restrictions on foreigners investing, can allow you to take advantage of different stock prices for day trading.

This is one of the tips for selling on the Asian market, make sure your broker is one who will choose the best price in any of the markets at the time of sale.

Also, you’ll want to watch the rise and fall of the currency of the market you’re trading in, it’s vital that you know what their currency is doing. You can keep tabs on individual currency markets by watching a foreign currency market platform also known as Forex.

If you are aware of what the different currencies are doing, you’ll do better at knowing when to buy and sell in any one market. So be sure to get a Forex platform downloaded before you are trading in the Asian market or anywhere else.

Stocks are just like anything else, they may fall a bit before they begin to rise and this is where a day trader comes in. Day traders are trying to take advantage of these small rises and falls of the market in order to make a profit.

As a day trader you’re going to need to take advantage of all the news, worldwide and local in order to figure out what is going to be happening with a stock at any one time.

Politics, currency value, as well as corporation policy and employees all affect the worth of an individual stock.

As a day trader, you can use these tips to study before you actually begin trading. It’s important that you do not begin day trading with anything but your disposable income.

Those who dive into day trading with their investment portfolio often loose quite a bit of it before they learn the ins and out of the markets in question.

So before you begin day trading make sure you understand all of the markets and how they affect each other, understand how currency value can affect stock prices, and also understand how the news can affect day trading prices on a minute by minute basis. Also, of course, do not start out day trading with your rent money or retirement portfolio.

These tips will apply to all markets the world over and not just to the Asian markets or American stock market. Make sure you understand how all of this can affect the day trading opportunities you see.
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Before you buy shares it is very important to do some mathematics.
1. Look for shares with high EPS (Earning Per Share )
2. Cheap or expensive? – you can find out it by calculating PER (Price Earnings Ratio) cheap stocks are having low PER. But remember High PER shares may have good growth potential.

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