Beware of Binary Options (BO) Trading!


Despite its newness, BO trading has almost gone mainstream. The promise of fast and easy attainment of riches fuels its overwhelming proliferation.

People with no experience whatsoever embark on this adventure. After all, opening an account takes seconds. Placing a trade is swift and instant, and so is losing money!

The business model of the so-called binary options brokers (many of them are regulated by gambling authorities, if at all) is an old-fashion scheme, where the winners take part of the losers’ money, and the house keeps the rest. Does that remind you of any other business model?!

New brokers are popping up everywhere. The only region that doesn’t welcome them as much is North America. None of them is recognized or regulated by financial authorities in either Canada or The US.

The platforms, the graphs, the glamour, and even the so-called “rules” play on the psychology of the users, who soon become losers of hard-earned funds.

What is the split? Probably one winner in every 100 or more members. So let’s run a quick calculation. The winner is so good, he/she nets $1000 a day. The losers, on the other hand, give up an average of 50/member. Total loss: 50 *100 = 5000. The winner gets a grand, and the house keeps four; not bad at all! Keep in mind that this example assumes a very low-end of the game. Usually, the split is one winner out of at least 500. And the losers let go of more than 50 a piece.

Is that business, investment, or even trading?

No. It is not, by any measure. It’s a new form of online gambling. People talk about using technical analysis to “predict” the closing price of an asset, when the trade expires. What’s that called? Betting, right. Fighting the odds, with eyes less than half-oppened.

Financial markets are unpredictable on the long-term, let alone for minutes and/or seconds. A price graph may decide to have a “hiccup” right before expiry, costing you all the money you’ve put on that price closing higher (or lower) than the entry point. The reason could be a piece of news, High Frequency Trading (HFT), or any other unpredictable event that may have taken place momentarily, causing a trend to change direction, wiping out your “investment.”

Is that fair? Well, first, no one forces you to do it. And second, which is more important, this is an emotional rollercoaster. Very few people can maintain their composure in the face of such rapid changes. Those are the few winners, exactly as in poker, or any other money game.

Money is a vehicle to exchange real value. Playing with it isn’t healthy, both for the individual and the economy.

Please notice that nothing is being exchanged, not even futures (for example, commodities or stocks). The whole deal is about prediction and speculation. The “trader” buys the “right” to put money on a probability, which is affected by factors that are entirely outside the reach and control of the trader. Can you buy and sell probabilities? You can utilize statistical data to make an informed investment decision. Here, that piece of information has become the asset!

We need to know the traps so we wouldn’t step on them.

Go back to the articles on this blog, or any other source you trust. Gain the knowledge of real investment, real work. Know your options, and never commit money to buying fish in the ocean!

The Wealth Maker

Business and Technology: Allies or Adversaries?


Not long ago, trade was at the core of business: The exchange of value between the buyer and the seller, physically. People used to travel, on horseback, carrying their homeland goods, to distant territories. They would trade the goods they have with what the other country had to offer.

Nowadays, billions of dollars get exchanged everyday, across the globe, without anything physical being “traded”. The wonders of technology!

Millions go online to trade commodities they never own, or to bet on price movements of stocks, indices, currencies or commodities. What is being exchanged? Where is the value transferred from the seller to the buyer?

Has technology added an inherent value to business dealings?

Has it made making money easier or losing it faster?

A merchant in ancient times wouldn’t lose his shirt overnight. Today, a business may go down in days, due, in part, to a blind reliance on technology.

Technology is a tool, a means to an end. When a business adopts any new technology, it must “serve” the mission of that business. Failing to do so, is a sign of either picking the wrong technology, or not having the right expertise to correctly utilize it.

The other concern when it comes to entirely relying on the instantaneous availability of technology is the probability of the opposite! What would a business do in case of a power failure, a major software crash, a loss of connection to the intranet (the business’s own internet, sometimes called Virtual Private Network (VPN); a tunneled network that securely rides over the public Internet)?

Here are some guidelines concerning the “marriage” between business and technology:

  • What is the business about, regardless of “how” it’s going to reach its objectives?
  • Who are the “people”, human beings, whom will run that business?
  • Does this business need to rely “critically” on any technology? what is the percentage?
  • What is the technology strategy? One that is “derived” from the overall business strategy, not the other way around, even if the business is all about “making” technology. In other words, a hi-tech enterprise
  • Do we have, in-house, the expertise to select, procure, install, configure, test and run the technology we need, or do we need to outsource it?
  • Risk management: Document, in details, a Standard Operating Procedure (SOP) to follow in case of a technical malfunction, no matter how small. The overarching objective is to keep the business running, at its best, and keep customers happy
  • Have we considered implementing five nines High Availability (99.999 % HA)? There is no such thing as 100% availability, but five nines is close, yet not enough, alone

The list could go on. Add to it what’s relevant and specific to your business.

This article is an invitation to be aware of the wonders of technology, its limitations, and the best approaches to utilizing it for the good of a business.

The author loves technology and comes from a scientific/technology background, yet the misuse of a wonderful tool turns it from being an ally to becoming and adversary…

 

The Wealth Maker

How To Trade?


Trading is different from value investment in several ways. While VI is long-term in nature, trading is short-term by definition. VI focuses on the fundamentals of the business you’re investing in, trading is concerned about price movements and technical analysis.

In the last article, I talked about a special type of trading, called Binary Options (BO) Trading. In this post, I’m going to spend some time elaborating on trading in general.

Trading, as the name implies, is an exchange of two investment aspects, over a short period of time. A trader buys an investment instrument, at an attractive price, hoping that its price will go up (or down) over a certain period of time. This is an exchange between time and money.

If the instrument’s price went up, say after three hours of purchase, the trader could “long” the asset (sell it at a profit), retrieving the principal plus the difference between the original (entry) price, and the current (higher price).

If the instrument’s price went down, below the entry price, the trader would have few options here: He could “short” the trade, meaning he would sell the instrument at a loss, to avoid further loses, he could wait, if his information and best judgement expected the asset to go back up, at least to the entry price. Or he/she could set a “stop-loss” price, at which the trading platform would sell the asset automatically. Usually, the stop-loss and “take profit” prices are set at the inception of the trade. Setting these two price limits is tricky. It takes experience, knowledge of current market conditions, vision, and decisiveness (and a touch of good luck). “Take-profit” is the price at which the platform would sell (or buy) the asset, making a preset profit for the trader.

As you can trade on the way up, you can also trade when prices go down. In this case, you wait till the price reaches a point of saturation. To determine such point, you need to use your technical analysis skills. If you looked at the asset’s price vs time graph, and noticed a clear peak, that might be an indication that a price descend would follow. You would sell the asset at that high price, and then buy it back when it fell down. Your profit would be the difference between the two prices.

Some price peaks are deceiving. The price goes down for a short period of time, then moves up, reaching even a higher peak. In that situation, a trader would lose money if he/she had traded on the speculation of a price downfall.

It’s obvious that the two most important decisions here are: When to enter a trade (buy an asset or sell it), and when to exit (sell an asset or buy it).

In the next post, I’ll shed more light on these two critical calls. The successful trader never takes these two lightly. They actually distinguish a careful and wise trader from a lousy one. Since this is not gambling, lousiness and panic are the trader’s worst enemies.

The Wealth Maker

Online Investment – Binary Options


 

Binary Options (BO) trading is probably the furthest from Value Investing (VI), when it comes to investment fundamentals. While in VI we focus on the business behind the symbol, A BO trader is almost completely concerned with current price movements. Some BO platforms offer options with a 15-minute life span!

BO is a relatively new version of day trading. Most BO transactions finish within an hour. Recently, some platforms started giving the trader the option to choose longer expiration periods.

The basic concept behind BO trading is to “predict” if the “asset’s” price is going to move up or down relative to the entry price.

Here’s an example: Let’s assume the trader is interested in crude oil’s price movements. The trading platform offers crude as one of the available BO assets. The trader needs to have some funds in his or her account in order to trade. The minimum amount per BO trade varies from one platform to another. Usually between $10 and $50.

Let’s say the platform in this example requires $30 to trade one BO asset. The trader selects crude, enters the minimum trading value, which is $30, then he or she has to decide, or “predict”, whether crude price will go up or down from the current price, say at the top of the hour.

From looking at the charts; trying to forecast price movement trends, reading the latest news, and using his/her best judgement and “gut feeling”, the trader decides to choose the “UP” option. Once he hits “Buy” or “Submit”, the platform registers the price at which the trader “entered” the trade. Let’s say the price was $91.5 per barrel, and the entry time was 10:15 AM.

The trader can either wait, or look for other trades, if he or she still has funds in his/her trading account (because the $30 for the crude trade has already been deducted from the available trading balance).

Now let’s fast forward to 11:00 AM. It’s the time when the BO trade expires. If the price was above 91.5, say 91.51, or more, then the transaction is said to be “In the Money”, and the trader would gain a percentage on top of the original $30. That percentage ranges between 70% and 85%. Let’s use 80%. This means: 30 *1.8 = $54, would be returned to the trader’s BO account balance, with a net profit of $24.

On the other hand, if the price was below the entry price at the expiration (11:00 AM in our example), say 91.49, or less, the transaction is said to be “Out of the Money”. The trader would lose the trading deposit ($30), but some platforms return between 5% to 15% to the account balance. If the trader had started with a balance of $100, he or she would end up with $74.5 (assuming the returned percentage was 15%).

In rare cases, the transaction expires “At the Money”, which is exactly $91.5. In that case, the trader gets back the $30, without any gain or loss.

From the above example, we can see why this kind of short-term investment is called binary. Because it has only two possible outcomes at the expiry of the trading transaction.

BO trading is stressful. Although the potential of making huge returns rapidly is obviously there, so many traders lose all their capital, especially when they get emotional, and try to retaliate, by investing even more to recover their loses.

There is also a factor of luck, and another of speculation here. That’s why experienced traders enter several transactions simultaneously, with the hope that more than half of the trades would end in the money.

Another aspect of BO trading is its heavy reliance on technical analysis. If you lack that skill, the process becomes closer to gambling than trading.

Most, if not all, BO platforms require a minimum deposit of $100, or more, just to start trading (this is different from the amount required per trade). They also run strict verification procedures, before a trader can withdraw any profits, especially if the platform was regulated.

Before engaging in this risky investment, you should research the provider (the BO platform) extensively. Read the FAQ. Evaluate your technical analysis capability, and only use money which you’re prepared to lose! Never use your milk or bread money…

I strongly suggest that if you’re a novice trader, you should steer away from BO trading.

All the best,

The Wealth Maker

Making Money Online – MLM


 

This is the third article in our discussion of the different approaches to making online money. Please read the first article before reading any other article in the series. It sets the right stage for what comes next.

  • 2. MLM

Multilevel Marketing (MLM) is based on an existing business model, which has been around for quite some time, even before the proliferation of the web and e-commerce. The basic idea is to build a matrix. There are different types of matrices, but they all share a common concept: When you refer a new member to an online program (business), that new member is placed “under” you (not physically, of course :-). When that member refers another member, that second member is placed under the first member, which you had hired.

Since you’re on top of the matrix, you receive a percentage of any commission earned by either one of the two members. That is the simplest matrix. It’s called a linear matrix. It could grow whenever new members join, to a certain number of layers. For example, if it was a 10-layer deep matrix, you would share the commissions of nine people under yourself, in addition to your  own commissions.

Another type is called the binary matrix. As the name implies, this matrix has two branches: Right and left. The first member you sponsor (or bring in to the business as an affiliate), sits on the right of left branch. The second sits on the other branch. Each one of the two would have his/her own two branches under him/her, and so on. This MLM tree type resembles binary trees data structures, used by several programming languages. Again, there has to be a limit to the number of branches, or the depth of the matrix.

MLM requires marketing/sales skills. No matter how much the sales pages tell you that everything would be “done for you”, when the rubber hits the road, you’ve got to promote or sell something, in order to build your own matrix, your own commission structure.

For people who don’t like marketing, or lack the necessary skills, this money-making approach is not exactly for them.

I’ve mentioned this in the first article, and I’m going to repeat it again here: Making money online is not much different from making money off-line. The reach could be farther, the information could be easier to gather, but the basic skills are the same. If you’re a good marketer off-line, once you learn how to find your way around the web, you would be a good online marketer. As simple as that.

Before delving into any MLM scheme, any type of matrix, ask yourself: Is MLM for me? If the answer was yes, then you would ask: Do I know how to market and sell products, services, memberships, fish in the ocean, etc… Based on your answer, you may decide what your next step would be.

So how does it work? The first step is to join an online “program”. Depending on the age of the program, you would be put in the next empty spot on the matrix, or a matrix. Your first task is to build your own matrix, regardless of where you had started. You need to bring people in, and place them under you, so that you maximize your income, by having those people work partially for you. But you still need to market and sell the products and/or services of the program. Your marketing skills, your negotiation and convincing skills, are called for to sell the  program to new members, as well as selling the products and services of that program (in order to gain your own commissions).

How would you market/sell? That’s what we covered in the second article on “online advertisement”. It takes using banners, referral links, email campaigns, etc. The banners have to be placed strategically, so they would attract online traffic, and hence visitors. Once the visitors convert, you’ve got yourself a sale (or a new member, if you were still hunting for new affiliates to fill up your matrix). Please refer to that article for full details.

The main advantage here is the potential of recruiting an army of sellers, who share with you the fruits of their own sweat, just because you’d brought them into the program (not very fair, in my opinion).

The downside is the complexity of the model: The matrix, the pay structure, the selling of ideas and products, the management and motivation of remote team members, and the necessity to do all of that online, and sometimes, via conference calls.

The above covers key concepts of this huge subject. To get the full scoop, you  must research. And please, don’t  join “any” MLM program. Find something that can show and prove a track record of stability, fairness and success. Another key aspect you need to make sure of is whether the program pays its members on time or not. Or whether it pays at all!

Any comment, addition, or question are very welcome. You may use the form below. Your information, as always, is kept strictly confidential.

Till the next post, stay safe, do your homework, and only join the best programs (if you’re convinced that MLM is for you).

The field is full of programs. You have the chance to shop for the right program for you. Take your time. Email or call the program’s administrator. Ask questions. Use search engines to find as much information as possible about the program you intend to join. If you sent an email, and no one replied within 48 hours, move to the next program on your list. Responsiveness is the first indicator of a good or bad program.

All the Best!

The Wealth Maker

Making Money Online


Before you start reading this article, why don’t you perform a simple Google search on the title of the post. I just did: 54,600,000 results! And counting.

Why all this interest in making an online income, whether a supplementary income, or a main one? I don’t think there’s one definite answer, but among the reasons could be the following:

1- The economy is still soft. Finding a traditional job is not that easy anymore

2- The hype: So many people have the false impression that making money online is easy, and requires minimum, or no work at all. That’s why the failure rate is more than 95%!

3- Unlike making money off-line, scam is the mainstream of most advertised opportunities

4- A lot of workers have become fed up with corporate cultures. They want to have their own thing. Unfortunately, while the frustration is understandable, securing a viable alternative online is difficult, to say the least

Does the above mean you can’t build your own online empire? Not at all. It just sheds the light on some of the facts that most of us ignore, as we become hyped up by the attraction of easy, fast money.

Millions are being promised within a month or less. When you get in, you realize that those millions were made under very special circumstances, which you can’t imitate, unless you “upgrade” to the premium “package”, spending more money on an illusion!

So what should you do?

The first step would be to ask yourself: Why do I want to make money online? Even if the answer was clear in your head, write it down, in as much details as possible. This would be your vision.

The next question is: Do I have what it takes to create some sort of an income on the Cyberspace? To answer this one, you first need to know “What it takes”, right?

I can tell you few of the factors, but you must do your own research as well.

It takes time, dedication, the ability to work alone, or in other words, discipline. It takes time management skills, and it may take some money; a starting capital. Finally, it takes finding the right, legitimate online opportunity, that fits your needs, your resources and your skills. A business that has the potential to fulfill your vision.

The third question is: How would I find such an opportunity? And how would I know it’s legitimate, not scam? You’ve got to search for it my friend! Exactly like searching for a business opportunity off-line. It could be joining an exsiting online business as an “affiliate”, making money through commissions. Or it could be starting your own online business.

I’m going to leave you now to think about this topic. Please share your thoughts and/or questions.

In the next post, I’ll talk about different categories of online opportunities. Stay tuned!

Wish you happy and safe online “work”…

The Wealth Maker

High Yield Investment Programs (HYIP’s)


Looking for quick and easy riches has become a fertile soil for fraud. Today I’ll talk about a trend that has been gaining momentum due to the current financial atmosphere around the globe.

HYIP’s have been popping up out of nowhere every day. They play on the novice investor’s emotions, and to some extent, greed.

The promise is very tempting: Put down as low as $1, and start earning an hour later. If you kept re-investing, you could convert that one buck into $200 easily within 48 hours.

Now try to withdraw all or some of your earnings. To make things look professional, and to get you deeper into the greed hole, the program may actually process your first, and probably second, withdrawal requests. By doing so, it gains your trust, and makes you either leave your profits in the program, or even worse, deposit more cash, lured by the promise of fast accumulation of wealth.

Usually, not all investors ask to withdraw their profits at the same time. This gives the program admin enough maneuvering room to circulate the money among the members, till that admin runs out of spending cash. Now here is the critical point in the life cycle of an HYIP: The organizers wouldn’t distribute all the cash. They keep the bulk for themselves. Absent any real investment activity, such as trading, or real estate investing, the only available cash is the sum of the members’ deposits!

Once they run out of “spending” cash, the modern thieves shut down the site abruptly, disappear, and take with them most of the invested money.

Are there any legitimate HYIP’s out there? If there were, they would be very hard to find. And the only way to test their legitimacy is trial and error.

The web is full of HYIP “monitors”. They invest in a certain program and watch it for a number of days. After that, they give it their blessings as “Paying”. Big deal! Yes, they do pay for some time, but no one knows when they will disappear.

This phenomenon is not new. The proliferation of such programs has increased exponentially because of the web. It’s so easy to find a web host who accepts your site as anonymous, which gives you the freedom to close shop anytime you want!

This is hard to regulate. The only cure, in my opinion, is knowledge. Investing, like any other trade, requires proper training. No respectful training house would encourage you to invest in such programs

Today they call themselves HYIP’s. Who knows what the acronym would be tomorrow? Lucrative Profits Made Easy (LPME), or something else!

I invite the readers of this post to comment, share their experiences, and suggest ways to limit such harmful behaviours from distorting the image of a worthwhile industry like investing.

Till the next post, stay safe and away from suspicious investment vehicles!

The Wealth Maker

How to Weather Mr. Market’s Moods


By now, you probably have created a portfolio of carefully picked stocks. Each has a wide Margin Of Safety (MOS). We did talk about how to achieve that in a previous post. Simply put: Never pay the price tag. Not only that; but go to the extent of paying 50 cents for each dollar. You may wonder: But how? If I found a beautiful business, and fell in love with it, how could I wait till its price fell to those levels?

The answer is the following: Since Mr. Market is moody, its movements are not always logical. Often times it does punish a good, or even a great, business, and yank its share price way down. If you did your homework of investigating good businesses and placing them on your radar screen, you would capture that opportunity and buy as many shares as you could. This also requires having cash put aside for such instances.

So back to the title of this post, in order to withstand price fluctuations, especially in times of uncertainty, or even recessions, you need a portfolio that has been built based on the principles we’ve been talking about; that’s number one. Number two, you need the emotional stamina to stay put! Yes, do nothing till the storm passes. In the middle of the hurricane, you can remain stable, because you know your businesses are good, and you know you had bought them at attractive prices, so they will bounce back for sure.

Any action you take, you will most probably regret later when the sun rises the next morning! Sometimes inaction is the best of actions. It’s helpful here to have a longer view of your investment, part of your investment strategy (which I will talk about in a future post) is to decide a time span of your portfolio. This could be three, five, or even 10 years. Having that in mind, helps you ignore monthly fluctuations and weather the storm!

Till the next post, happy investing 🙂

The Wealth Maker

Day Trading


The reason I’m writing about day trading, although it contradicts the basics of what we’ve been covering so far, is to give the reader an idea about something that’s out there. An investment instrument that has been around for quite some time. It sheds more clarity on the original topic when you talk about its opposite.

So what is day trading?

A day-trader, as the name implies, starts and finishes his or her trades within one market day. An NYSE market day, for example, starts with the market bell at 9:30 AM EST, and closes at 4:00 PM EST.

A day-trader relies on the minor changes in stock prices throughout the trading day. In other words, he/she rides the fluctuation waves of share prices.

Let’s take an example. Suppose the day-trader got information that RIM is going to fluctuate a lot today. The expected scope of fluctuation is $2. So RIM’s share price will hover, say around 58-60 (remember, this is still a pure speculation, the price might take a different course altogether).

If the trader wants to ride the wave downward, he/she speculates that the price will go down from the time he/she buys the share. If the trader wants to ride the wave upward, he/she speculates that the price will go up from the time he/she buys the share.

Let’s, for the sake of explanation, say that RIM’s share price was 58.5 at 10:00 AM. The trader “expects” the price to go up, so he/she buys a 1000 shares based on that expectation. If the stock makes it up, and reaches, say, 58.7, the trader can sell the 1000 shares and make $200 profit. If, on the other hand, Mr. Market was in a bad mood that day, and wanted to punish RIM for some reason, and slams the price down to 56.87, oops, the day-trader has just lost $1,630 in less than an hour! Of course if he/she was nervous enough to sell.

Here comes the difference between a day-trader, and a value trader. For the latter, that drop in price is only a reflection of Mr. Market’s mood changes, and it means nothing next year, or even next month. The fundamentals upon which the value trader had made the decision to buy RIM (if he did) should still hold.

In conclusion: Even if a day-trader beats the market in a few trades, most of the time, at the end of the trading day, the house wins. This kind of business takes patience, discipline and a long-range view. Fighting Mr. Market on a daily basis, expecting big profits by riding price waves, reflects a micro-view, and ends in a lot of wounds..

I should also mention that day-trading is not restricted to the stock market. It could be done in a variety of markets like energy, metals, commodities, etc. Usually it’s referred to as future trading.

Till the next article, never lose money 🙂