What about day trading?

[Blog #4 on financial markets]

There are five main types of trading that technical traders can utilise:

• Scalping
• Day trading
• Momentum trading
• Swing trading
• Position trading

They involve time frames from between seconds or minutes (for scalping) to weeks and months (for position trading) and everything in between.

A successful technical trader should at least be proficient in several different strategies, but every trader should specialise in one particular strategy and master it. This is dependent on:

• your personality,
• your timeframe and tolerance for risk, and
• the current market environment.

Day trading used to be the preserve of financial firms, professional investors and speculators. Many day traders are bank or investment firm employees working as specialists in equity investment and fund management. Day trading is the system of speedily buying and selling securities throughout the day in order profit from the marginal changes in the market for that particular day.

Day trading can be a fast paced and exciting hobby that depends upon the trader having the most up to date information. Some of the more commonly day traded financial instruments include stocks, options, futures contracts and currencies. In the ideal world, day trading strategies let investors garner profits from the tiny increases in the market. Day trading requires a great deal of time and close attention.

Day trading is not a get rich quick scheme - don't try to make it one. Day trading requires in-depth knowledge of the securities markets and trading techniques and strategies. In attempting to profit through day trading, you must compete with professional, licensed traders employed by securities firms. Day trading can't really be considered safe investing. You must realise that it may be a zero sum game – for every winner there is a loser!

Make sure you're ready and willing to monitor the near-perpetual shifts that occur moment to moment in the stock market.

Day trading is quite easy once you have the proper education. Technical analysis and fundamental market analysis are both necessary for successful day trading. Technical analysis is the counterpart of fundamental analysis.

Fundamental analysis is basically the ability to analyse a company’s financial strength and determine a decision based on value. Fundamental investors look for stocks that are below their intrinsic value. The objective in fundamental analysis is to make a projection on its future business performance.

Simply put, technical analysis is the process of analysing market (price) action and using past data on charts to attempt to forecast the highest likely outcome of the future. Charts are the primary tool. Technical analysis can be learnt in a short period of time. There are no financial statements to read over. It requires the reading and interpreting charts, their patterns, and determining the highest likely short-term outcome of the future.

Dollarisation of Zimbabwe - update

The Zimbabwean government has for the first time acknowledged that the Zimbabwe dollar has no value, after acting Finance Minister Patrick Chinamasa, on Thursday, 29 January, detailed the country’s budget proposal in the US greenback. The proposal, which will officially pave the way for the disappearance of the local currency in trading, will make dealing in multiple currencies legal for all Zimbabweans, in theory to curb hyperinflation. The inflation rate is the highest in the world and has seen the local dollar crumble to its current worthless position. The economy has for weeks been informally ‘dollarised’ with almost all sectors trading in US dollars (and the SA Rand), and the new budget proposal has made the move official.

See the Now a 100 trillion dollar note! posting of 22 January 2009

Do you know about Wesebe?

Wesabe is a social-networking site that also lets users track their finances and helps you with safe investing. Users and financial experts share tips on saving, investing and spending. Traffic on Wesabbe has more than doubled in the last four months. [A social network site focuses on building online communities of people who share interests, or who are interested in exploring the interests and activities of others – in this case finances, ie a financial social networking site]

In November, Wesabe and the UK newspaper giant The Telegraph entered a partnership to offer co-branded tools on the Telegraph website.

Wesabe anonymously aggregates data from it's customers to provide tips and recommendations for it's members. Importantly, they've got data that spans the market, something that banks themselves have tried (with account aggregation) and largely not been able to make work very well. Wesabe applies wisdom of the crowd thinking to personal finance and debt.

Wesabe Mobile is available which also provides members with an easy way to record and track where they are spending cash. Wesabe holds out the promise to help consumers validate their financial decisions based on what other people like them are doing. Wesabe is both versatile and powerful. You can set spending targets, monitor your account on a mobile and download a Vista gadget for instant account access. Wesabe is rolling out new graphs to more easily allow users to track spending and monitor their income.

Wesabe cleverly uses two levels of tags: one for “just this entry” and another for “each time this transaction occurs”. This is powerful, but can be confusing, too. Wesabe is different, in that it is re-defining financial advice, and references in a banking context. Wesabe allows you to tag all your line items (expenses, deposits, etc) with arbitrary tags, so you can easily view groups of transactions. Within any tag you can set up spending targets and it will show you how close or far to that goal you are for the month at any given point.

A new feature of Wesabe, the Cutback Tool, focuses on a specific part of the problem, probably the one most easily controlled; namely, recurring fees and expenses. The Cutback Tool flags all your recurring expenses, then shows you how much money you’d save annually if you reduced or eliminated the spending. The tips provided are not perfect, but they are already useful in the many markets where the company has a concentration of users and it will get better and better as more users contribute more data.

Wesabe a very innovative solution for getting your financial data into a nice clean format that is ripe for analysis. On a higher level, they are using the wisdom of crowds to try teach us personal finance best practices. They interact amazingly closely with customers. For example, Wesabe usues collective wisdom to tell you how much you are spending on your services – say, car insurance – relative to its other users, and showing tips that are relevant to the tags you choose. Wesabe has nothing like the rich functionality of Quicken. It is basically a community site where you can upload your financials to manage your budget.

Wesabe uses a downloadable application to keep you safer – no credentials are stored on their website. The service utilizes SSL connections and authentication – keeping member data safe and private yet readily available. Wesabe spends a lot of time and energy trying to build up trust. That's a good move.

Wesabe has three advantages over Quicken:

• It’s only online.
• It has added tagging to transactions that are shared among users - when enough users tag a specific merchant, that tag is automatically added as a suggestion to your transaction.
• It is security-focused. Your third-party bank and credit card account credentials are not stored on Wesabe’s servers – instead they are downloaded to your personal computer. Hackers can’t access your account credentials by breaking into Wesabe’s servers.
  

Don't be a victim of online fraud

Remember we are encouraging safe investing, so we repeat:

Have you recently responded to a request to update your logon details via a link supplied in an email? If so, contact your bank or other financial service provider.

Don't fall victim to fraud - always be alert. Look out for any suspicious emails, websites, account activity or phone calls that involve your financial information. If so, contact your bank or other financial service provider.

Take care! This e-mail was distributed to banking clients
_____________________________________________________

From: Absa Bank Limited [mailto:upgrade@absa.co.za]
Sent: 10 November 2008 11:39To: undisclosed-recipients
Subject: New Online Secure Server
Importance: High

Dear Absa Customer,

We are proud to inform you that we have put a stop to the increasing spam attacks and security riskon our online banking servers by introducing the New Online Secured Database GX-5.

We are automatically registering all our customers to the secured server for added security and for aconvenience online banking experience. This registration is mandatory to all customers andunregistered accounts will be deleted from our server.

Proceed with your registration below.


Sincerely,

Absa Bank Limited
_____________________________________________________

What to look out for when identifying an e-mail or phishing scam:

• Deceptive Subject Lines: These look as if they are genuinely related to the company supposedly sending the e-mail.
• Forged Sender’s Address: An easy deception method to make the e-mail appear as though it has come from the company it is claiming to be.
• Genuine Looking Content: They copy images and text styles of the real sites in order to fool the reader. Trusts and authentication marks are duplicated and they may even have genuine links to the company’s privacy policy and other pages on the legitimate website to create an illusion of authenticity.
• Disguised hyperlinks: E-mails may display a genuine website address, but when you click on it, the hyperlink will take you to a different website. Look out for a long website address as it will take you to the site after the ‘@’ symbol. Example: http://www.genuine-site.com-name@fraud-site.com. If you clicked on this hyperlink it would take you to http://fraud-site.com as it is after the @ symbol.
• E-mail Form: These forms containing your personal information are submitted to remote computers, which the fraudsters access and then use your information to commit fraud on your bank accounts.

3 things you should do if you believe that your banking details have been compromised

• Change your sign-on details immediately (PIN and Password). This can usually be done securely online within your banks Internet Banking service or at your branch.
• As an added precaution, contact contact your bank or other financial service provider and let them know that you suspect that your personal banking details may have been fraudulently obtained.
• Monitor your accounts for unusual activity and report any suspicious activity immediately to your bank or other financial service provider.

_____________________________________________________

Need more information. See our posts of December 20 and 27 and January 01

Now a 100 trillion dollar note!

Less than two weeks after releasing a $50 billion note that could buy two loaves of bread, the dictatorship in Zimbabwe has released a $100 trillion note (see below). The current official exchange rate puts the value of the note at US$300, although the value deteriorates daily due to the 231 million percent inflation rate ravaging the country. Many believe the inflation rate is much higher. The informal market values it at US$30.

Zimbabwe, because of the great instability, cannot be considered a place for safe investing. However when the situation stabilises there will be many opportunities for purchasing assets there (especially using foreign currency).

Because of inflation, the Reserve Bank of Zimbabwe (central bank) has introduced a new family of trillion dollar banknotes in denominations of $100 trillion, $50 trillion, $20 trillion and $10 trillion that go into circulation, starting with the $10 trillion note. The $20 trillion, $50 trillion and $100 trillion notes will be introduced gradually. The Reserve Bank of Zimbabwe said the notes would ensure that those in formal employment withdraw their salaries with minimal hassle (?).

Zimbabweans are no longer using their valueless currency in the informal sector, preferring to do business in rands or US dollars.

The Zimbabwean newspaper reports that South Africa has shunned a proposal by Zimbabwe to adopt its currency saying the inflation in the neighbouring country will affect its economy.

However, in his leaked draft economic reform programme dubbed the Comprehensive Economic Reforms Needed to Turn Around the Economy, central bank governor Gideon Gono has announced that the rand will be adopted informally.

He said the move was meant to stabilise prices in the collapsed economy, that was once the pride of Africa.

“It is imperative that Zimbabwe informally adopts the rand alongside the Zimbabwe dollar, to eliminate distortions associated with the use of multiple currencies,” said Gono in the draft document.

“The randfying of the Zimbabwean economy is envisaged to give substantial impetus to current efforts geared at stabilising prices. This will lay a solid foundation upon which successful economic recovery initiatives will be anchored.”

The rand is already being used informally, and remittances from Zimbabweans in South Africa ensure a flow of rands into Zimbabwe. To adopt the rand formally, Zimbabwe would need to join the Multilateral Monetary Area, MMA. However, for Zimbabwe to become a member of the MMA it would need to align its fiscal and monetary policies with South Africa for the formal use of the rand to be effective and be sustainable. This seems unlikely under the present regime.

This issue first raised its head in July 2007, when things were not as bad as they are now. We reported the following:

We look at the proposal that Zimbabwe joins the rand monetary area (now known as the multilateral monetary area, MMA), and adopt the rand as its currency. This could be either directly as rand banknotes, or as a new Zimbabwean dollar linked to the rand on a one-for-one basis. To ensure equality and confidence, the rand would be legal tender (e.g. it can be used to pay for goods and services) in Zimbabwe.

Before discussing this more, it is useful to briefly discuss the rand and how it is valued and how its value is maintained. The rand (ZAR or R) is the national currency of South Africa and the South African Reserve Bank, SARB, (central bank) has the responsibility for supplying it and ensuring it keeps its value for the purposes of buying and selling goods and services.

So, ideally, when you buy a loaf of bread for R8 rand today it will still cost R8 this time next year (no or zero inflation). In reality, there is some inflation, especially in developing countries. It is usual to measure the internal (domestic) value of a currency against a basket of goods and services from time to time (the change in the level of inflation) and externally against a strong foreign currency (the exchange rate), e.g. the United State dollar, USD.

The multilateral monetary area, MMA, is well established and includes South Africa, Namibia, Lesotho and Swaziland. The rand is legal tender in these countries and their currencies are pegged to it so that their exchange rates with foreign currencies such as the US dollar are the same as the rand’s. A new MMA Zimbabwean dollar would be freely convertible into rand on a one-to-one basis (that is, at par).

The main advantage for Zimbabwe in joining the MMA is the stability of the exchange rates and the value of the currency for purchasing goods and services. Exporting and importing of goods and services to MMA countries involves no risk that the exchange rate will change for the worse – the prices are essentially in rand and thus the effect is the same as a supplier in Gauteng “exporting” to a buyer in the Western Cape.

Is the residential property market safe?

The residential property market is usually considered a safe investment. However, the fall in house prices is a cause for concern all over the world.

In South Africa the situation is also a cause for concern, but now may be the time to make a safe investment in houses. An excerpt from the latest report from Standard Bank is now available.

Standard Bank: House price growth slipped into red in 2008

What is the latest?
With the data for the final month of 2008 in Standard Bank’s residential property book now available, the annual growth in the median price can be evaluated against previous years’ growth performances. Recall that growth in Standard Bank’s residential median property price peaked in 2004 when a rate of 24.2% (smoothed average) was recorded. Given developments in the economy such as the start in the upswing of the interest rate cycle, the rate of increase declined steadily to 6.6% in 2007. In 2008 the average median property price declined further to 0.3%, the first decline since 1996. In real terms, using the CPI to deflate the nominal data, the decline comes to nearly 12%. On a smoothed basis, growth in the monthly price declined steadily and has been in negative territory since June of 2008. By December the growth came to 3.1%. The residential property book for December 2008 shows that the smoothed value of the median residential property financed by the bank was R592 000. The data reflect a very fragile property market.

While the trend in house prices as depicted by the smoothed data is of general interest, the unsmoothed or raw data is of importance for technical reasons and a variety of other reasons also. For 2008, the raw data show that the median house price declined by 1.6%, down from the 8.3% increase calculated for 2007. The annual numbers mask some dramatic swings in the generally volatile monthly data. Two factors increased the volatility of the 2008 data. The base effects of the distortions created by the introduction of the National Credit Act (NCA) in 2007 were present in the middle of 2008, when strong declines in growth were reported. This is part from the ongoing impact of the NCA which effectively led to a tightening in lending criteria. A second factor occurred when the distribution of property prices changed. This happened later in 2008 when a decline in the number of middle- and lower=priced properties processed was reported. Put differently, the proportion of higher-priced properties making up the bank’s December loan portfolio increased, resulting in a higher median price for the month, as the raw data show.

What are the overall developments in the housing market?
Growth in Standard Bank’s residential median property price peaked in October 2004. The South African housing market has been in the doldrums since mid-2006 when the upward phase of the interest rate cycle commenced. The 500 basis points increase in the repo rate between mid-2006 and mid-2008 placed huge
stress on the economy in general and households in particular. The reduced affordability of housing, exacerbated by higher mortgage rates, high food and fuel prices, a sharply slowing economy, and the implementation of the NCA, led to a decline in the demand for residential property and a substantial softening in house price growth ensued. ... more

Click here the get the full report (PDF).

Learn more: January finance and investment book reviews

Books provide you with the more detailed information to enjoy safe investing. We suggest the following:

Useful South African books (Kalahari)

Understanding South African Financial Markets,
van Zyl, Botha & Skerritt

A reference and guide for commerce students, public servants and the business fraternity, giving an overview of how the various institutions in the South African financial system operate as well as of the different financial markets in the economy and the instruments traded in those markets.Contents: Rudiments of the South African financial system; The South African Reserve Bank; Banks; Microfinance institutions; Regulation of the financial markets; Insurers; Retirement funds; Investment institutions; Risk and return; The money market; The bond market; The share market; The foreign exchange market; and Derivatives.

Economics for South African students,
Louis et al Fourie, Philip Mohr

Economics for South African students is an introduction to economics in general, set against a contemporary South African background. The easy style and many practical examples make this publication accessible. The title covers all the material usually prescribed for introductory courses, and it lays a solid foundation for intermediate and advanced studies in economics.


Useful USA books (Amazon)

The Neatest Little Guide to Stock Market Investing,
Jason Kelly

From the time of its first publication five years ago, The Neatest Little Guide to Stock Market Investing has established itself as a clear, concise, and highly effective approach to stocks and investment strategy. Since the dot.com crash and ensuing bear market, significant changes have come about in the investing world, and The Neatest Little Guide takes this into account. In this revised edition, readers will learn: Strategies on how to double the Dow with one simple investment and the latest products required for this approach; Methods investors can use to avoid disasters such as Enron and WorldCom. Thoroughly updated reference lists, including new websites, new software, new brokers, and new publications. With the right information for investors to keep pace, and rooted in the principles that made it invaluable from the start, The Neatest Little Guide to Stock Market Investing is a resource that no serious investor can be without.

Stock Investing for Dummies,
Paul Mladjenovic,

Stock Investing For Dummies covers all the proven tactics and strategies for picking the right stocks. Packed with savvy tips on today’s best investment opportunities, this book provides a down-to-earth, straightforward approach to making money on the market without the fancy lingo. With a different strategy for every investor - from recent college grad to married with children to recently retired - his valuable reference is a must-have. It also features tips and tricks on how to tell when a stock is on the verge of declining or increasing, how to protect yourself from fraud, and common challenges that every investor must go through, along with resources and financial ratios.

How can you trust a website?

Authentication + Encryption + Certification Authority = Trust

Conducting financial transactions over the Internet requires a safe investing environment. One of the biggest problems facing Internet business today is the issue of trust and security. Most consumers are concerned about the safety of their credit card and personal details. Many people simply don't trust the Web, fearing that their transactions might not be safe.

A critical issue for suppliers is how to win a your trust and convince you that it is perfectly safe to make online purchases or conduct safe investing on the suppliers website. The easiest and most secure way to achieve this is through authentication and encryption.

Why is authentication important?
In the age of faceless Internet commerce, authentication provides crucial online identity. People and companies need to get to know one another before conducting business. In traditional commerce, people rely on physical credentials – such as a business licence or lD document – to prove their identities and assure the other party of their ability to transact safely.

A business partner's identity must be established before it can be trusted in conducting safe investing or other trade. At the most basic level, there must be a process which verifies that an organisation or individual exists, has a name, and is entitled to use that name. This process may also establish other identification attributes. Trusted third parties or delegated authorities often play a key role in confirming the identity attributes of participants at the time identification takes place.

Once the participant's basic identity and identification attributes are established and verified in "real" world, it must be issued with a credential such as an ID document or a business licence that can be used to prove identity. In the digital world, the most robust form of credential is the digital or Server Certificate signed by a trusted Certification Authority. [note #1]

How authentication works
Authentication allows the receiver of a digital message to be confident of both the identity of the sender and the integrity of the message. When Web visitors connect to websites, they reach one of two kinds of servers. If the servers are secure, visitors will get messages indicating that fact; similarly, if they are not secure, there may be warnings to that effect. A secure website is one that has been authenticated and has a certificate. The certificate tells users that an independent third party has agreed that the website belongs to the company it claims to belong to. A valid certificate means that users can be confident that they are sending confidential information to the place they think they are sending it.

The basic premise is that the Certification Authority, CA, is vouching for the link between an individual's identity and his or her public encryption key. The CA provides a level of assurance that the public key key contained in the certificate does indeed belong to the entity named in the certificate. For an Web user to determine whether a legitimate CA issued the certificate, he must verify the issuing CA's signature on the certificate.

CA's must be absolutely certain that they are issuing certificates to the "correct" company. They must be sure that the company they are certifying owns the Internet Domain Name they have certified, that it is registered as a business, and that its registered name is the same as that on the certificate the CA is signing. Once the CA has done what is, essentially, a background check on all these elements, the CA signs off on the public key. Then the Secure Sockets Layer (SSL) will start functioning. SSL, another critical element of a secure website, ensures that the information sent by a server is identical to that received by a Web visitor - that no change has taken place.

How can you tell if a website/company is authentic?
Before submitting information or purchasing goods, you need to know that the company you are doing business with is who it claims to be. Web shops can buy Server Certificates from many different companies (CAs). But Internet applications are configured to trust only those Server Certificates that come from a few highly reputable companies. So, if someone sends you his or her Server Certificates (either via e-mail or from a website you visit) and it is from a CA that the application does not trust, you will get an alert message asking if you want to trust the new CA.

When you visit a website you can be sure that transactions with the site are secured by looking for the following easy cues:

• The URL in the browser window displays "https:" at the beginning, instead of “http:”
• In Internet Explorer, a padlock icon appears in the bar at the bottom of the IE window. IE users can find out a website’s encryption level by following these steps:
  - Go to the website you want to check.
  - Right-click on the website's page and select Properties.
  - Click the Certificates button.
  - In the Fields box, select "Encryption type". The Details box shows you the level of encryption (40-bit or 128-bit).

[1] Internet applications are configured to trust only those Server Certificates that come from a few highly reputable companies, e.g. thawte, VeriSign, Entrust

[based on the thawte document The Value of Authentication]

Share trading made easy

[Blog #3 on financial markets]

Do you want to build your own wealth and invest in shares, but don’t know exactly where to start? There’s no reason why investing has to be complicated. Investing in your future is smart. In this blog we look at online share trading.

Why trade online yourself? Safe investing can now be accomplished by trading online through the Internet. You effectively eliminate the “middle man” or financial advisor that you would normally just instruct to invest on your behalf. This also means that you end up saving lots of money on professional fees associated with investing through someone else.

Once you’ve committed yourself to investing, it’s important to understand that the more you practice the better you get! Take time doing research about a company you’re interested in investing in.

How do you know whether you’re doing the right thing?
A simple way to test the way you’re going about your decision-making is to practice on the simulated stock exchange which is often provided by your share trading platform.

There’s nothing more satisfying than learning a new skill. By educating yourself, you’ll realize that investing isn’t as complicated as people make it out to be.

Trading costs
Trading costs are an important aspect when you decide to start investing. There are a variety of costs involved so we’ll have a look at how you can minimise them and make the most out of this experience.

The main cost involved is the brokerage fee and is based on the value of the transaction. When you use an online share trading vendor you are minimizing a lot of the costs involved as you don’t take up too much of the stockbroker’s time. You pay a brokerage fee every time you buy or sell shares as well as a monthly fee for holding your shares. This fee structure differs from broker to broker so make sure you find out details from your individual broker.

What’s a fair price?
Before deciding what a fair price is for a share let’s look at some basic investing terms:

• The market for a share (or its trading price) is based on its buy and sell prices, not the last traded price.
• If you place a market order, you’ll be asking for the market price. This means that you must either buy at the lowest sell price or sell at the highest bid for the share.
• You are looking to buy shares at a fair value – this is the value that is considered to be reasonable in light of all the circumstances – how the shares are performing, what the growth prospects of the company are etc.
• Remember that if you are investing for the long term, you shouldn’t be too concerned if you see some fluctuations in the share price – if you see a bit of a dip don’t stress out and immediately sell your share – look carefully at why the share price has dropped and then decide whether it’s worth selling.

Practice, practice, practice!
Most share trading vendors offer simulated trading or a real-time stock trading game. It’s the perfect facility for you to learn how to trade, and because no “real” money changes hands, it’s completely risk-free!

You can visit SharePlanner and TheStreet.com in the US and Sharenet in South Africa for further information.

Test out your investment theories and strategies through simulation and you’ll get the peace of mind that you’re reading to start trading in the real market before you know it!

The real trading process
Once you’re ready to actually buy and sell shares on the market it’s helpful to understand how a trading system actually works. The stock exchange trading system matches buyers and sellers for each listed share. The trading system continuously looks to match bids and offers, comparing the new orders and those on the system to each other and executing trades whenever they match.

Market depth is an important aspect of this process – this is when you’re able to see the volume and price of all buyers and sellers in the market for a particular share. Viewing this information will help you analyse how that share is performing over a period of time.

Also have a look at the bid/offer spread on the share – basically what the buyers are prepared to pay and what the sellers are prepared to sell at. Once you have established what the last price traded was and what the above “spread” is, you’ll be in a good position to decide what price you can bid for the shares that you want.

Once you’ve decided on the price, you need to decide whether you’re going to place a price limit on your order or if you’re going to place an “at market” order. A price limit means that you tell your broker what the maximum price is that you’re willing to pay for that share, while the “at best” order is based on what the sellers want. It is generally recommended that you place a price limit order as prices can change very quickly and you don’t want to receive a nasty surprise if you pay way more or less for the shares you want. Once you’ve bought your shares, you’ll receive a broker’s note as confirmation of the trade. The funds will be deducted from your account on the settlement date.

In later blogs we will look choosing shares and at how official investor protection enables safe investing.

[based on the ShareNet report Guide to Investing on the JSE]

Warning ! CFD trading

Please heed the following warning on contracts for difference CFDs [note #1]. We provide this warning in the interests of safe investing.

Due to the current market conditions a number of financial authorities are announcing rule changes that affect short-selling physical stocks. These rule changes are put in place protect the integrity and quality of the securities market and strengthen investor confidence and safe investing.

Please note that margin requirements for new trades of offered CFD instruments may have changed. These instruments are constantly being re-evaluated and margin requirements may be changed without notice based on market volatility.

We strongly recommend avoiding CFD trades.

US CFDs
The US Securities and Exchange Commission (SEC) has temporarily banned naked short-selling of US stocks and short-selling in general in US financial stocks. This affects the short-selling of CFDs on US stocks. For more information and latest announcements please visit the SEC website.

UK CFDs
The UK’s Financial Services Authority (FSA) has temporarily banned short-selling of UK financial stocks. This affects the short-selling of CFDs on UK financial stocks. For more information and latest announcements please visit the FSA website.

Australian CFDs
The Australian Securities and Investments Commission (ASIC) has banned naked short selling and, in addition, stipulated covered short selling must be disclosed. The official ASIC announcements can be found on the ASIC website.

Swiss CFDs
The Swiss Federal Banking Commission (SFBC) has emphasized that naked short selling is currently not permitted. Saxo Bank is currently reviewing what types of short CFD trading is allowable. For more information and latest announcements please visit the SFBC website.

[1] A contract for difference (CFD) is a contract between two parties, typically described as "buyer" and "seller", stipulating that the seller will pay to the buyer the difference between the current value of an asset and its value at contract time. (If the difference is negative, then the buyer pays instead to the seller.) For example, when applied to shares, such a contract is an equity derivative that allows investors to speculate on share price movements, without the need for ownership of the underlying shares
Contracts for difference allow investors to take long or short positions, and unlike futures contracts have no fixed expiry date, standardised contract or contract size. Trades are conducted on a leveraged basis with margins typically ranging from 1% to 30% of the notional value for CFDs on leading equities.

Things you have to know about share markets

[Blog #2 on financial markets]

A major segment of financial markets is the capital market. This consists of the equity, or share, market; and the money and bond markets. We are first going to look at the share market and what it means for safe investing.


The share market
The terms shares, equities or stocks are used interchangeably to describe marketable financial instruments of listed companies quoted and traded on a financial exchange (or stock exchange). These shares represent ownership by investors of the productive assets of listed companies. A stock exchange facilitates the raising of share capital by companies (borrowers) in the primary share market, and the trading of these shares in the secondary share market by investors (lenders).

Companies could source finance through the issuance of share capital or debt (borrowed funds). Share capital is raised through the issuance of shares, while debt is raised through the issuance of debentures and corporate bonds, or the incurrence of loans. The fundamental difference between shares and bonds is that shareholding represents co-ownership in contrast to bondholders being creditors.

Bondholders in their capacity as creditors (lenders of money) of the private company issuing debt are entitled to regular interest payments and repayment of principal at maturity. An investment in bonds delivers a steady cash flow in the form of interest receipts, and bondholders' prior claim on company assets make bonds more safe investing than shares. In normal circumstances, the lower level of risk associated with investments in bonds compared to shares should result in a lower level of return on bonds than on shares.

Shareholders in their capacity as co-owners of the company are entitled to share in profit by way of dividend payments (payments out of profits after tax and other prior claims) and in capital gains or losses (capital appreciation and depreciation). This depends on the market's assessment of the company as reflected by changes in market prices (the ruling share price at the time of the last recorded transaction) of listed shares.


In contrast to bonds, shares have no fixed maturity. Furthermore, shareholders can dispose of listed shares at current market prices in the secondary share market on a stock exchange.

Different classes of share
Listed companies can usually issue different types or classes of share to raise capital. the differentiation between the two main classes of share is based on shareholder priority in terms of rights to the distribution ot earnings (a company's net income or net profit during a specific period). The distribution of earnings to preference shares ranks higher than ordinary shares. This means that the dividends on preference shares have to be paid before dividends on ordinary shares are paid. Ordinary shares are the most widely used type of share. The dividends paid on ordinary shares can be in excess of dividends on preference shares, but the dividend payment remains uncertain, reflecting the higher degree of risk associated with dividends on ordinary shares relative to preference shares.

The two main characteristics of ordinary shares can be summarised as:

• the right to residual claim of income and assets after all prior claims - means that investors bear the full risk of the company and share in the profits by way of dividends only if profits are made after all other payments such as interest on debt and dividends on preference shares,
• limited liability - means that, at worst, shareholders can only lose the capital invested (may not really be considered as safe investing).

Other types of ordinary share are nonvoting ordinary shares, deferred ordinary shares, bearer shares, and nil-paid letters - these are not discussed here.

The primary and secondary share markets
The share market can be categorised as either the primary market (where newly issued shares are offered), or the secondary market where subsequent trading takes place. Borrowers raise share capital in the primary market and investors trade these shares at current market prices in the secondary market.

Issuing activity in the primary market determines the size of the pool of shares available for trade in the secondary market, whereas transactions in the secondary market determine the tradability (the ease with which shares can be traded), marketability (buying and selling shares without an impact on the price), and liquidity (ability to convert shares into cash or to purchase shares at short notice) of the pool of shares, and assist in the price formation process.

The secondary share market can be disaggregated into four markets:

• the formal market where listed shares on a stock exchange (the licensed formal exchange) are traded;
• the over-the-counter (OTC) market, an unlicensed informal market for the trading of shares;
• trades in listed shares off exchange; and
• direct trades between buyers and sellers without the intermediation of brokers.

The trade-off between demand and supply for shares influences the determination of the share prices. Issuers of share capital are also in competition with borrowers and investors in the bond market and other asset markets. Changes in investors' preferences for certain asset classes (financial and non-financial assets such as shares, bonds. cash, real estate etc.) also affect the availability of funding in the primary share market. Switching between asset classes by investors reflects investors' ever-changing assessment of expected risks and returns as market conditions change.

How was the first week of trading?

We supply a thumbnail of the markets at the end of the first week of 2009.

International Markets

The US saw a negative start to the year with the Dow Jones down just under 3% on Friday morning. Tuesday saw ADP Employment change down 693 000, some 200 000 fewer jobs than expected. Poor Q4 earnings from Walmart and Abercrombie came out lower than estimates had suggested, prior to Thursdays spot market open.

2009 looks set to continue being gloomy with job losses mounting globally and interest rates falling with the UK cutting, once again on Thursday, by a further 50bps. However, banks have stated that the lower interest rates will not be passed onto customers, nullifying some of the effect that the cuts are supposed to have in stimulating the economy.

Crude oil took a big hit this week, as the falling equity markets added to the Department Of Energy figures, suggesting that stockpiles of crude rose dramatically last week and adding downward pressure on the black gold. We expect the outlook for oil to be poor for at least the first quarter of the year and quite possibly longer.

Gold is also down on the back of a stronger USD. Platinum, surprisingly, is up around 10% on the back of increased demand from India, renewing supply concerns due to the lower prices that have been traded over the previous six months.

Souh African Markets

With the first full week of trading for the New Year, the ALSI Front Month Future ended relatively flat to Thursdays close at 20,293. The first half of the week saw some good gains, taking much direction from international markets. Many people continued to focus on the developing plans from President-elect Barack Obama regarding the stimulus package, speculating that the US economy may recover this year.

Platinum and energy stocks were also under focus with good gains in the underlying commodities pushing producers higher. Gold producers were the worst performers this week as gold came under pressure amid a stronger dollar.

[based on a Global Trader report]

Things you have to know about financial markets

[Blog #1 on this subject]

It is unwise for you to invest in financial markets from a basis of ignorance, especially if you are managing your own portfolio of securities. Safe investing and avoiding fraud are facilitated when you gain an understanding of financial markets and instruments. We will help you in this regard by providing a series of blogs about investing for beginners [note 1].

In the first series of blogs we will look at the various capital (share, bond) and money markets typically faced by a trader or available to an investor. We will introduce various cash instruments, and help you understand their function, price and mark-to-market their interim values, and risk management.

Further assistance will be provided in the form of financial market book reviews

[Note 1. A sort of "investing for dummies" or"investment 101"]

But. first we will look at financial system in general.

The financial system

Basically, the financial system is a set of arrangements embracing the lending and borrowing of funds by non-financial "economic units" and the intermediation of this function by financial institutions in order to facilitate the transfer of funds, to create additional money when required, and to create markets in debt instruments so that the price and allocation of funds are determined efficiently.

There are six essential elements of a financial system:
1. Lenders and borrowers - the non-financial economic units (eg individuals and companies) that undertake the lending and borrowing process.
2. Financial intermediaries, which interpose themselves between the lenders and borrowers.
3. Financial instruments, which are created to satisfy the needs of the various participants.
4. Money creation (when required) - the unique money creating ability of banks.
5. Financial markets - the institutional arrangements and conventions that exist for the issue and trading (dealing) of financial instruments.
6. Rate of interest, or the time value of money = the price of money.

Financial markets

The participants in the financial markets are the borrowers (issuers of securities), the lenders (buyers of securities), the financial intermediaries (buyers and issuers of securities) and the brokers, fund managers, speculators, exchanges and regulators.

The terminology used can sometimes be confusing. For example, reference is made to the primary market, the secondary market, the spot market, the options and futures markets, financial exchanges, the money market, the capital markets, the debt markets, the swap market. and so forth. We will endeavour to clarify the picture, over time in further blogs.

Primary and secondary markets
A fundamental distinction has to be drawn between the primary and secondary markets in securities. The market for the issue of new securities to borrow money for consumption or investment purposes is referred to as the primary market.

The markets in non-negotiable instruments, eg mortgage loans, savings deposits and life policies, are entirely primary markets, while negotiable certificates of deposit, shares and bonds, for example, are issued in the primary market, but traded in the secondary market.

Secondary market is the term used for the markets in which previously issued securities are traded. These markets exist in many of the securities referred to in the previous section, but they differ in terms of so-called breadth and depth or liquidity, sometimes vastly.

When discussing the secondary market, it is important to distinguish between brokers and market makers. Brokers act on behalf of other financial market participants (principals) in return for a commission (although sometimes they may take speculative positions - act as principals for their own profit). Market makers are financial intermediaries, mainly banks, who are appointed by the issuers to perform, this function.

Market making means that the market makers are prepared to quote buying and selling prices/rates simultaneously for certain securities; the spreads quoted by them are small, and they are prepared to deal in reasonable volumes. Because these institutions are prepared to hold portfolios of securities for this purpose, they need to be adequately capitalised - usually the large domestic and international banks.

An active secondary market in securities is important for five reasons:

1. It assists the primary market - improves the ability of issuers to place securities, by providing investors with the assurance that they will be able to dispose of securities If they so desire.
2. It provides the basis for the determination of rates to be offered on new issues.
3. It registers changing market conditions rapidly, indicating the receptiveness of the market for new primary issues.
4. It enables investors to rapidly adjust their portfolios in terms of size, risk, return, liquidity and maturity.
5. It enables the central bank to buy and sell securities in order to influence liquidity in the financial markets (open-market operations).

_________

Our next blog will look at the share market.

Be aware of two aspects of your browser when conducting financial transactions

A further important aspect of safe investing may be the vulnerability of your Internet browser to interception The following two precautions should be implemented.

1. Web browsers

A website should be accessible via all main web browsers and browsing devices. Most Windows based PCs are preinstalled with Microsoft Internet Explorer (IE). Because of this, IE is the browser most attacked by viruses and spyware and is a threat to safe investing and doing your banking and other financial transactions via the Internet. .

We recommend that you use the most up-to-date version of your preferred browser, because they are more secure than older versions. If you use IE it is particularly important for safe investing to run a virus scanner regularly and keep it updated with the latest security patches from Microsoft.

2. Caching

Internet browsers have the ability to remember a page from a website - this is called caching. This makes Internet surfing quicker, but vulnerable to interception. Thus, for security, online banking pages are usually delivered with instructions to the browser not to cache (remember) the information. While most browsers obey these instructions IE ignores them and under certain circumstances a cached page of information may be viewed.

To prevent this make sure that IE has the following settings:
>Tools > Internet Options > Advanced > Do not save encrypted pages
>Tools > Internet Options > General > [Browsing history] Settings > Automatically
>Tools > Internet Options > Advanced > Empty Temporary Internet Files folder when browser is closed

How to keep your Internet banking session secure

We repeat that an important aspect of safe investing is fraud avoidance. My bank provided me with the following information for safe online banking. [1]:

Check the site is secure
When you visit a website (especially a transaction website) you should look for a padlock in the browser window. The padlock indicates that you are in SSL (secure socket layer) mode, which means that every request or information that you send from the browser to our secure site is encrypted (scrambled and encoded).



Secure sites use digital security, a Trusted Site Seal is a dynamic image appearing on a secure website that allows online banking customers to tell at a glance that they can trust the website, that the online site is validated and that they can transact safely and securely and share information free of worry.

Leading providers of digital security are thawte, VeriSign, Entrust

1. First National Bank (South Africa)