But what is high frequency trading? How does it work? Who does it? And more importantly, how does it impact the rest of us, particularly those of us who are typical long-term investors?

In a nutshell, high frequency traders (or HFTs) trade on electronic markets, using sophisticated computer programs and high-speed infrastructures, enabling them to send multiple orders in short bursts of a few seconds. These short bursts can consist of thousands of orders per second.

So far so good. What is more worrying however is the danger that some high frequency traders might use their ability to enter and exit the market at sub-millisecond levels to engage in predatory practices, such as front-running (which is in fact illegal).

How could they do this? Consider this situation. A high frequency trader wants to see if there is a big institutional order lying in wait to buy a particular stock. So he sends thousand of sell orders into the market followed immediately by cancellations, all within the space of a few hundred microseconds (i.e. less than a thousandth of a second). By the time the institutional investor has seen the sell orders coming in and reacted, those sell orders have been pulled and the institutional investor has shown its hand. This is just one example of where high frequency traders have the potential to “get one over” the rest of the market.

It’s is tricky situation and the regulators are struggling to come up with the best way to deal with it all.

One idea that is doing the rounds at the moment is for the regulators to put in place a cancellation fee if more than a certain number of orders are cancelled within a certain timeframe. The HFTs would not be able to engage in the predatory practice outlined above without being able to cancel the majority of their orders. So if they had to pay a fee for doing this, it would make the practice less profitable for them.

This has been proposed at high levels in the US, for example by Senator Kaufman and various influential bloggers, e.g. the Themis Trading Blog and Tyrone Cortese at the High Frequency Trading Review are also supporting it. We await to see if it is actually introduced.

Beginners to the stock market may not automatically want to go into option trading. It may be smarter to get experience with other more stable types of trading before going into the riskier business of option trading. Also, be advised that options trading may appear to be quite simple, but usually isn’t the case. As with many other types of trading on the stock market, option trading gives you the opportunity to make huge profits, but you can also lose huge profits as well. Those new to option market should understand this and may not to initially invest a large amount of money at first, it may be smarter to start off with a smaller amount of money, then add more as you gain more experience. Operating with a large capital can be very risky, and should not be done unless you are a very experienced trader.
When involved in stock option trading, it’s important to have a large amount of stats an analysis reports on the market, that way you’ll be able to make well informed decisions. Research as much as you can beforehand, there are many online option trading websites have a large amount of material that you may find useful. Flexibility and maneuverability are also very important when trading, so that if any changes happen in the market, you’ll be able to quickly and easily change your option trading strategies as well. Even if you’ve thoroughly researched your strategy, sometime there’s no telling how the market could change, you’ll need to be prepared to respond quickly to these changes.
Researching and education has to be a personal effort. Remember that the more you know about your subject, the better prepared you will be. There are many online articles and training courses on option trading, it’s better to come too prepared than unprepared.
If you haven’t done option trading before, you’ll probably want to find a trustworthy firm that will be able to help you choose different strategies and recommend which one you should use. Be practical when forming your option trading strategies and don’t make risks that are too big. A company or firm will help you to make better decisions; they’ll also be able to give you additional advice on the market, as you become more experienced, you may eventually be able to launch out on your own. When investing, be sure that you’ll know exactly when to invest and when not to, these decisions can only be made through knowledge and experience.

It’s easy to see why. When you make a Roth IRA withdrawal, the money you take out is tax-free, so it could be a good way to maximize your investment while minimizing the amount of tax you pay.

The rules for investing in a Roth IRA are simple and straightforward. As long as you are earning a taxable income, you are eligible to invest. The income could come from any taxable earnings, whether wages, commissions, bonuses, tips or other declared income.

If you follow the simple rules you are given, you can do really well with the Roth IRA as it is a great way to save. Because you’ve already paid tax on the money you invest in the plan, the earnings from the plan are completely tax-free. As your savings plan grows, there is no tax implication at all, whether you withdraw your money early or take regular amounts from it once you’ve retired.

One of the most flexible types of Roth IRA is a self-directed Roth IRA, which gives you a wide range of instruments to invest in, whether stock, bonds, real estate or mutual funds.

If you’re not sure whether you should be investing in a Roth IRA or a 401k, the best thing to do is to get some independent financial advice. By looking at your own specific circumstances, a financial advisor will be able to help you decide which is the right plan for you.

The key difference is that with the Roth IRA, you pay money in that has already been taxed so everything you withdraw is tax-free, whereas with a 401k, payments are made into the plan from your gross (i.e. pre-tax) income, so money you withdraw is taxable.

Some of the ways you can trade natural gas is through purchasing stock in a natural gas company. Another way is to trade the nat gas futures market. Other ways to trade this market is through natural gas ETFs and natural gas mutual funds.

Which investment vehicle is right for you? You have to decide what type of investor you are. Do you prefer to trade the short-term swings in the market or would you rather take a longer view of the market? There is no right or wrong answer. You must find a style of trading that matches your personality.

If you need action and enjoy trying to pick off point in the market, then trading natural gas futures may be for you. Gas futures are notoriously volatile and if you can stomach the quick moves, then you may do well in it.

Perhaps you like to do your own research and look for undervalued companies, then picking stocks in individual companies is what you should do. This is for the type of investor who likes to find stocks on their own, hoping to discover something in a stock before the crowd does.

Natural gas mutual funds give you a way to invest in this market. When you invest in a mutual fund, you are relying on professional analyst and managers to select stocks that hopefully appreciate. Mutual funds allow you to have the diversity of many stocks in your portfolio. Natural gas mutual funds allow you to invest a set amount each month thereby accumulating stocks each month automatically. This is a very passive way to trade.

Natural gas ETFs have become a very popular way to invest in this market. ETFs (which stand for exchange traded funds) are a bit if a hybrid of a stock and mutual fund. An ETF is usually made up of a basket of stocks trying tot match an underlying index. For example there is a natural gas ETF that only invest in natural gas producers. This gives you the diversity of a mutual fund, but and ETF can be traded like a stock. This allows you to trade the ETF in and out during the day. Mutual funds do not allow you to day trade; you can only trade a mutual fund at its NAV and the end of the day.

Decide what type of investor you are and what are you comfortable trading. The natural gas market can be an excellent market to trade, but research and see what investment vehicle is best for you.

By taking one simple step of separating your standard trading account from your experimental account you will have more freedom to try new things.  I have found that I don’t put in the necessary effort into my trading experiments if I’m not trading with a little bit of money.  I have a separate practice account set up that I keep a small fraction of my trading capital.  I don’t expect to turn a profit with this account, but I do expect that the knowledge I gain from using that account will show me greater returns.  If you are able to put in 100% effort using a trading account that has no money, by all means do that.  It is much cheaper to test out a theory when you aren’t risking your money.  I have tried using a practice trading account in this manner, but I realized that I was just randomly making trades without diligently researching anything.  If you chose to use a paper money account, keep tabs on whether you are actually learning from the process.

For you to be able to get the best out of your investment with your trading system, then you should avoid these mistakes for you to get the best out of your investment. These mistakes are:

1. Digging the Bottom – This is a mistake that usually happens when a person tries to select a stock that appears to be dragging the bottom. But there are uncertainties in this industry and sometimes stocks at the bottom have chance to go up. It is better for you to wait and track the trade before you decide to buy shares in a certain stock.

2. Trying to Hit the Top – It is better for you to hold the current position that you have and it will keep you moving up to lock in to your gains. This is because hitting the top first, you may not be able to hold that position in a steady base and it may change its position drastically, the same thing with your money.

3. Trading against the trend – This may be a good idea. But this is only good if you are planning for a short term investment. But regardless to all of that, you should always confirm your analysis by looking at a chart that has a longer period of time. And also be aware of the business cycle and the impacts that it does to your invested trade.

4. Trading without a strategy – This is a very common rule in the trading industry. Because without a strategy in this industry, there is no way that you can survive the drastic changes that can occur. You have to make sure that you design a strategy that can help you cover your back after a hard fall.

5. Trading is a Business – Surely, everyone knows this fact. But you need to remember that never to fall so deep with a stock no matter how much money you have invested in it. If you do, you’ll probably lose everything in the process. You should always stick to your plan as it is.

First, on the list is to budget. I took scuba diving in college. I know, what does this have to do with budgeting? Well, there was something my dive instructor said over and over again, “Plan your dive and dive your plan.” The point here is to make a budget, and actually use your budget. Don’t stray and spend frivolously.

Second research what you are buying. The internet is a wonderful resource. You can find out about anything. You get get customer reviews, professional reviews, product specs, or anything else. Whether it is cereal or a car, do research.

Finally, buy what you can use not what is on sale. Sure, you can go to Costco or Sam’s and buy a ton of bread. However, if you don’t use it before it goes bad you have just wasted your money.

These are just a few concepts. The point here is to actively think about this. Don’t go into the New Year with wallet open. Be calculated and informed. If you do, you can and will get your personal finances in order.

It appears to me that Obama is going to win. Before you give me a high five or start calling me a socialist, that is not intended as an endorsement. Just an observation. If we assume that Obama is going to win, how can we take advantage of this? Green Energy.

Obama has said that he wants to get the US off dependence of foreign oil in ten years. That is a bold and aggressive task. That means he will use the government to fund research, give tax breaks, and other measures to accomplish this. Or at least try. This puts green energy in a good position. So this is an area I am going to spend a lot of time learning more about and finding some possible good investments within the next year or two as I expect to be able to start investing some within about two years. Plus, with the economy the way it is, it will likely be a couple of years to get things turned around. We technically haven’t hit a recession yet.

I know that McCain could possible still win. If he does, I think it would require a slightly different approach. He will be pushing for more nuclear plants. I am just looking at the polls and making the best guess I can. And since I think the key for financial security is planning ahead, I am going to try and get ahead of the curve.

-Kevin

If you go to the link above, it is an interactive chart. However, I just took a screen shot to show something. If you look, you will notice that every downturn is small and short followed by long periods of growth. Yes, this economy is bad at the moment. However, it is not the end of the world. We will see another period of growth soon.

What these short periods of recessions tell us is that we need to be prepared. Clearly screaming at us that an emergency fund is needed. As well as being diversified with our investments. As you get closer to retirement age, you should be moving away from stocks. All too often we get complacent in the periods of prosperity, only to panic at any hiccup. Plan ahead and you will be just fine.

-Kevin