What is the Difference Between Investing and Speculating ?

Benjamin Graham defined speculation in his classic book, The Intelligent Investor, as primarily “anticipating and profiting from market fluctuations.”
He defined investing as “acquiring and holding suitable securities at suitable prices.” When it comes to investing, valuation always matters.

The FaceBook IPO has been a good example of “The Difference Between Investing and Speculating”


Consider a volatile junior gold mining company that has an equal chance over the near term of skyrocketing from a new gold mine discovery or going bankrupt. With no news from the company, investors would tend to shy away from such a risky trade, but some speculators may believe that the junior gold mining company is going to strike gold and may buy its stock on a hunch. Speculators look for a high return on a spec investment.
Many speculative investors will buy several companies in a growth field and hope that one or two pay off big in order to cover the losses of the companies that fail to produce a profit.


Consider a large stable multinational company. The company may pay a consistent dividend that increases annually, and its business risk is low. An investor may choose to invest in this company over the long-term to make a pre-determined satisfactory return on his or her capital while taking on relatively low risk. Additionally, the investor may add several similar companies across different industries to his or her portfolio to diversify and further lower their risk.

I hope the above trading information was of help to you.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

FaceBook Value and Speculation or Investment ?

I’m not one to usually comment on an individual stock but so many have asked about FaceBook that I feel compelled to contribute my view.

1) Is FaceBook Growing? The only figures I’ve heard for months is the 900 million users number. Therefore there has been very little, if any, increase in month over month FaceBook users.
This is a red flag!

2) What is a FaceBook User? Based on current information a FaceBook user is someone who has a FaceBook account. Let’s keep in mind that it is almost impossible to close a FaceBook account. Therefore; out of the 900 million users 200 million are basically non-functioning accounts.
NEW TOTAL 700 million users.

3) Let us also figure that one person can and usually does have more than one account. Therefore; out of the 700 million users 200 (account holders) million users have two accounts.
NEW TOTAL 500 million users.

4) Now lets look at what reality can define as an active user. An active user can be defined as signing into their FaceBook account more than once per week. Therefore; out of the 500 million users or account holders there are 200 million users who do not sign into their FaceBook account more than once a week. Now we are down to 300 million active users.
NEW TOTAL 300 million users.

5) What FaceBook wants you to believe;
900 million users dived into 100 billion dollar stock offering equals about 1,111 dollars per user.

6) Now let us use the 300 million ACTIVE FaceBook users;
300 million users into 100 billion dollar stock offering equals about 3,333 dollars per user.

You can see how the actual price paid per active user triples from $1,111 to $3,333.

Let us also consider the fact that the major owner and CEO of the company never really wanted to let his GROWING company go public. Then one day he woke up and said “I want to go public”. No he did not. He and his consultants and board members said “our growth has stalled and now is the the time to go public”.

What FaceBook did was offer to the public the next two to three years of POTENTIAL growth.
In other words purchasers of FaceBook shares just paid what the company may be worth in 2015. That is a three year wait and see investment at future par value.

Therefore one might believe that a current investment in FaceBook is speculation and not an investment.

Does FaceBook have the potential to monetize and become a major player? My view is that it is surely possible but the road ahead has several major turns (generating a profit) and unpredictable storms (competition) in it’s path.

This link added on 5-25-12 “5 signs Facebook hates its shareholders”

This link added on 6-13-12 What Facebook Stock Is Worth?

I hope the above trading information was of help to you.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

Forex Trading Taxation IRS

While trading forex currency markets can be a confusing field to master, filing taxes in the U.S. for your profit/loss ratio can be just as confusing. Different IRS rules may apply depending on the method or methods you choose to trade forex currencies.

For Options and Futures Forex Trading Investors
Forex traders specializing in options and/or futures are grouped in what are known as IRC 1256 contracts. These IRS-sanctioned contracts mean traders get a lower 60/40 tax consideration. What this means is 60% of gains or losses are counted as long-term capital gains/losses and the remaining 40% as short term.

The benefits of this tax treatment are as follows:

1) Time: Many forex futures/options traders make several transactions per day. Of these trades, up to 60% can be counted as long-term capital gains/losses.
2) Tax Rate: When trading stocks (held less than one year), investors are taxed at the 35% short-term rate. When trading futures or options, investors are taxed at a 23% rate (calculated as 60% long-term times 15% max rate plus 40% short-term rate times 35% max rate).

For Over-the-Counter Forex Traders (OTC) Investors

Most spot traders are taxed according to IRC 988 contracts. These contracts are for foreign exchange transactions settled within two days, making them open to ordinary gains and losses as reported to the IRS. If you trade spot forex you will likely automatically be grouped in this category.

The benefits of this tax treatment are as follows:

1) Loss protection: If you experience net losses through your year-end trading, being categorized as a “988 trader” serves as a large benefit. As in the 1256 contract, you can count all of your losses as “ordinary losses” instead of just the first $3,000.

Comparing the Two Forex Trading IRS Taxing Rules

IRC 988 contracts are simpler than IRC 1256 contracts in that the tax rate remains constant for both gains and losses – an ideal situation for losses. 1256 contracts, while more complex, offer more savings for a trader with net gains – 12% more.

The most significant difference between the two is that of anticipated gains and losses.

Select Your Forex Trading Taxing Category Carefully

Now comes the tricky part: deciding how to file taxes for your situation. What makes foreign-exchange filing confusing is that while options/futures and OTC are grouped separately, you as the investor can pick either a 1256 or 988 contract. The tricky part is that you have to decide before January 1 of the trading year.

The two types of forex filings conflict but at most accounting firms you will be subject to 988 contracts if you are a spot trader and 1256 contracts if you are a futures trader. The key factor is talking with your accountant before investing. Once you begin trading you cannot switch from 988 to 1256 or vice versa.

Most traders will anticipate net gains (why else trade?) so they will want to elect out of their 988 status and in to 1256 status. To opt out of a 988 status you need to make an internal note in your books as well as file with your accountant.

This complication intensifies if you trade stocks as well as currencies. Equity transactions are taxed differently and you may not be able to elect 988 or 1256 contracts, depending on your status. (For another solution to tax issues, see Benefits Abound For Active Traders Who Incorporate.)

Keeping Track of Your Performance Forex Trading Record

Rather than rely on your brokerage statements, a more accurate and tax-friendly way of keeping track of profit/loss is through your performance record. This is an IRS-approved formula for record keeping:

* Subtract your beginning assets from your end assets (net)
* Subtract cash deposits (to your accounts) and add withdrawals (from your accounts)
* Subtract income from interest and add interest paid
* Add other trading expenses

The performance record formula will give you a more accurate depiction of your profit/loss ratio and will make year-end filing easier for you and your accountant.

When it comes to forex taxation there are a few things you will want to keep in mind, including:

1. Deadlines for filing: In most cases, you are required to elect a type of tax situation by January 1. If you are a new trader, you can make this decision before your first trade – whether this is in January 1 or December 31. It is also worth noting that you can change your status mid-year, but only with IRS approval.
2. Detailed record keeping: Keeping good records (and backups) can save you time when tax season approaches. This will give you more time to trade and less time to prepare taxes.
3. Importance of paying: Some traders try to “beat the system” and earn a full or part-time income trading forex without paying taxes. Since over-the-counter trading is not registered with the Commodities Futures Trading Commission (CFTC) some traders think they can get away with it. Not only is this unethical, but the IRS will catch up eventually and tax avoidance fees will trump any taxes you owed.

The Bottom Line
Trading forex is all about capitalizing on opportunities and increasing profit margins so a wise investor will do the same when it comes to taxes. Taking the time to file correctly can save you hundreds if not thousands in taxes, making it a transaction that’s well worth the time.

Read more…

I hope the above currency trading information was of help to you.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

Gold and Silver Still In Weekly Downtrend Margins

I’ve just checked the weekly charts for gold and silver. Both metals seem to be contained within a downtrend chart line when viewed on the weekly basis chart.

The daily chart downtrend was broken for gold when 1690- 1700 area was breached to the upside.

The daily chart downtrend for silver was breached to the upside when silver surpassed 30 dollars per ounce.

Here are links to the daily and weekly charts for gold and silver.

I hope the above currency trading information was of help to you.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

Why the Euro Zone and EU Might Help Unite Europe !

The European Union (EU) and the Euro Zone (EZ) are made up of countries. These countries are not states similar to the states in the United States. The states in the USA were and are designed to work with a central government.

The European Zone (EZ) and it’s counter part the Eurpean Union (EU) are a much more loosely put together central ruling body with no real bite because EZ member states (countries) are sovereign nations. This is why it is difficult for EU to operate efficiently as one Centralized Europe as does the USA’s central government in Washington D.C.

Now; let us look at the current situation in Europe’s EZ. Some say Greece and the rest of the PIIGS (Portugal, Ireland, Italy, Greece, Spain) nations might flee the EZ. My question is this “flee and then do what” ? It is my belief that the PIIGS as well as other EZ nations will be “force negotiated” into accepting diminished sovereign rights in exchange for bailouts and continued inclusion in the EZ. These new agreements will essentially bring the smaller and less efficient EZ member countries closer to a state level instead of a expensive, inefficient, economic rouge sovereign nation as is currently the situation. Will all nations accept these new terms? No, but almost all will to some degree or another. Is this a totally stable situation? No, but neither where the thirteen original state colonies of the USA.

Was this seek, destroy and absorb small and less efficient sovereign EZ Nations by design. Well, I do not want to be called a conspiracy theorist so I’ll leave that call up to you to decide. One thing you can be sure of is that the German Region will have much to say about how the new, more centralized EZ is governed and thus they will have accomplished much of what Germany could not do with two world wars. The French need not worry as they will be spared to some extent as long as they cooperate in the early stages.

EITHER WAY; at some point in the future the EZ and EU will be a lean, more streamlined and efficient union. Will the Euro survive? Yes, as long as the fiat money system survives. Will it go down in value? Yes. Will it go up in value? Yes.

I hope the above currency trading information was of help to you.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

Fascinating Forex Market Correlations You’ll Want to Use

Received from the TraderPlanet.com and written by Jim Wyckoff.

Experienced futures traders know there are many correlations among futures markets—some of which are valuable guides in helping to determine specific market trends, and some of which are fickle. This educational feature will examine some basic correlations among futures markets, and will likely be most beneficial to the less-experienced traders. However, it just might be a good refresher for the experienced traders who may have forgotten a few of the market correlations.

It is important to emphasize that market correlations are never 100% predictable, and that some market correlations can and do make 180-degree turns over a period of time.

U.S. Dollar-Gold: The gold market and the dollar usually trade in an inverse relationship. This has been the case for many years. During times of U.S. economic prosperity and lower inflation, the dollar will usually benefit as money flows into U.S. paper assets (stocks and bonds), while physical assets (gold) are usually less attractive. Conversely, during times of weaker U.S. economic growth, higher inflation or heightened world economic or political uncertainty, traders and investors will tend to flock out of “paper” assets and into “hard” assets such as gold. Inflation is a bullish phenomenon for gold.

U.S. Dollar-U.S. Treasury Bonds: Usually, a stronger dollar means a stronger bond market because of good demand for U.S. dollars (from overseas investors) to buy U.S. T-Bonds. T-Bonds are also seen as a “flight-to-quality” asset during times of economic or political instability. In the past, the U.S. dollar has also benefited from “flight-to-quality” asset moves. However, since the major terrorist attacks on the U.S. and the resulting damage to the U.S. economy, the safe-haven status of the “greenback” has been much less pronounced.

Crude Oil-U.S. Treasury Bonds: If crude oil prices rally strongly, that is a negative for U.S. T-Bond prices, due to notions that inflationary pressures could reignite and become problematic for the economy. Inflation is the arch enemy of the bond market. Rising crude oil prices are also bullish for the gold market.

CRB-U.S. Treasury Bonds: The CRB Index is a basket of commodities melded into one composite price. A rising CRB index means generally rising commodities prices, and increasing inflation. Thus, a rising CRB Index is negative for U.S. Treasury Bond prices.

U.S. Stock Indexes-U.S. Treasury Bonds: Since the bull market in U.S. stocks ended just over two years ago, stock index futures prices and U.S. Treasury bond futures prices have traded in an inverse relationship. When stock prices are up, bond prices are usually down. However, during the long bull market run that preceded the current bear market, stock and bond prices traded in tandem. In fact, years ago, before all the electronic overnight futures trading had begun, the best way to get a good read on how the stock indexes would open was by early trading in the T-bond market. (T-Bond trading opens 70 minutes before the stock indexes).

Silver-Soybeans: This corollary may be more fiction than fact, at least nowadays. But during the “go-go” days of soaring precious metals and soybean prices, it was said that if soybean futures would lock limit-up, bean traders would buy silver futures.

Cattle-Hogs: The point to mention here is that if strong price gains or losses occur in one meat futures complex, there is likely to be somewhat of a spillover effect in the other meat complex. For example, sharp losses in the cattle or feeder cattle futures will likely weigh on the hogs and pork bellies.

Currency Futures-U.S. Dollar Index: Most major IMM currency futures contracts are “crossed” against the U.S. dollar. Thus, when the majority of the currencies are trading higher, it’s very likely that the U.S. Dollar Index will be trading lower. It’s a good idea for currency traders to keep a watchful eye on the U.S. Dollar Index, as it’s the best barometer for the overall health of the U.S. dollar versus major foreign currencies.

U.S. Stock Indexes-Lumber: Lumber is a very important commodity for the U.S. economy. It is literally a building block for the nation. If the stock market is sharply higher, lumber futures prices will be supported. A big sell off in the stock market will likely find selling pressure on lumber futures.

N.Y. Cocoa-British Pound: London cocoa futures trading is as important (or even more important) than New York cocoa futures trading, on a worldwide basis. London cocoa futures trading is conducted in the British pound currency. Thus, big fluctuations in the pound sterling will impact the price of U.S. cocoa futures, due to the cross-currency fluctuations of the British pound versus the U.S. dollar. Keep in mind there is constantly arbitrage taking place between the New York and London cocoa markets, and thus the currency cross-rates between the pound and the dollar are very important.

Grains-U.S. Dollar Index: A weaker U.S. dollar will be an underlying positive for the U.S. grain futures markets because it makes U.S. grain exports more competitive (cheaper prices) on the world market. Larger-degree trends in the U.S. dollar will have a larger-degree impact on the grains.

I hope the above currency trading information was of help to you.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

Difference Between Euro and Euro Dollar

As received from Answers.com

These are quite different things. Be careful not to confuse the two!

The euro is the currency of European Monetary Union (European Countries).

Euro dollar refers to bonds that are issued by companies in US dollars outside the US. Let’s say a global company wants to raise money from non-US investors and issues a bond traded in, say, Europe or Asia. The interest and principal on the bond are paid in dollars.
The name “Eurodollar” is because this market was historically concentrated in Europe, but it is now global.

I hope the above currency trading information was of help to you.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

A Deadly Sign for Silver

Received from the YoloHub.com and written in part by Jeff Clark

Precious metals bulls are getting all worked up over the price action in silver. Why shouldn’t they? The price of the metal is up 18% in just the past three weeks. It’s showing a 10% gain on the year. And analysts are predicting more gains to come.

All of a sudden, everyone loves silver.

I love silver, too. But I’m not buying it here. Not after what happened last week.

Last week, silver’s 50-day moving average (DMA) crossed below its 200-DMA. Technical analysts refer to this action as a “death cross,” and it is considered a bearish development. This is textbook technical analysis 101. Everybody who pays attention to charts knows this is a bad sign.

But ever since the death cross occurred, I haven’t heard anyone talk about it. Not a single soul.

To be completely honest, I’m not a big fan of following the 50- and 200-DMAs. They’re just too popular. Everyone else pays attention to them, so their use as a technical tool is diluted. I prefer to look for signals no one else is following.

But the death cross on silver’s chart is a clear bearish sign… And no one noticed it. That makes me want to pay attention.

It has been three years since the last silver death cross. In September 2008, the 50-DMA crossed below the 200-DMA… And the price of silver dropped 30% in the next two months.

If we get the same sort of action this time around, the price of silver could fall as low as $25 per ounce by the end of the year.

Please understand that I’m not predicting that severe of a decline. I just won’t be surprised if it happens. But I am suggesting that if you’re looking to buy silver, you may get a better opportunity to do so a few weeks from now.

I hope the above currency trading information was of help to you.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

LIBOR definition, how does it effect the Forex Markets ?

Received from the Daily Reckoning.com and written in part by Eric Fry

“The signs of credit distress are increasing.

One of the most telling forms is the direction of LIBOR interest rates. LIBOR stands for “London Interbank Offered Rate.” It is the rate at which banks borrow unsecured funds from other banks in the London wholesale money market (or interbank lending market).

In most circumstances, LIBOR rates track short-term Treasury rates. But in the midst of crisis conditions, LIBOR rates tend to spike, while Treasury rates fall. That’s exactly what happened during the credit crisis of 2008.

During the last few weeks, LIBOR rates have been on the rise once again. They have not risen high enough to sound a distress signal, but they have risen high enough to raise an eyebrow.

Let’s call it an early warning sign.

This warning sign is still flashing amber. Since our warning in early September, LIBOR rates have continued their steady upward climb, which indicates that credit stresses are increasing.

Meanwhile, government bond yields in the PIIGS nations of Portugal, Italy, Ireland, Greece and Spain are also surging higher — another clear sign of distress.”

I’ve been told that LIBOR is also referred to as the London Inter Bank Overnight Rate. The rate which banks loan each other funds.

Here is how LIBOR is described by Wikipedia; The LIBOR rate is the average interest rate that leading banks in London charge when lending to other banks. It is an acronym for London Interbank Offered Rate (LIBOR, /ˈlaɪbɔr/) Banks borrow money for one day, one month, two months, six months, one year etc. and they pay interest to their lenders based on certain rates. The LIBOR figure is an average of these rates. Many financial institutions, mortgage lenders and credit card agencies track the rate, which is produced daily at 11 a.m. to fix their own interest rates which are typically higher than the LIBOR rate. As such it is a benchmark for finance all around the world.

I hope the above currency trading information was of help to you.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

The Euro, ECB and the EuroZone

Received from Project-Syndicate.org and written by Nouriel Roubini

NEW YORK – The eurozone crisis seems to be reaching its climax, with Greece on the verge of default and an inglorious exit from the monetary union, and now Italy on the verge of losing market access. But the eurozone’s problems are much deeper. They are structural, and they severely affect at least four other economies: Ireland, Portugal, Cyprus, and Spain.

For the last decade, the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) were the eurozone’s consumers of first and last resort, spending more than their income and running ever-larger current-account deficits. Meanwhile, the eurozone core (Germany, the Netherlands, Austria, and France) comprised the producers of first and last resort, spending below their incomes and running ever-larger current-account surpluses.

These external imbalances were also driven by the euro’s strength since 2002, and by the divergence in real exchange rates and competitiveness within the eurozone. Unit labor costs fell in Germany and other parts of the core (as wage growth lagged that of productivity), leading to a real depreciation and rising current-account surpluses, while the reverse occurred in the PIIGS (and Cyprus), leading to real appreciation and widening current-account deficits. In Ireland and Spain, private savings collapsed, and a housing bubble fueled excessive consumption, while in Greece, Portugal, Cyprus, and Italy, it was excessive fiscal deficits that exacerbated external imbalances.

The resulting build-up of private and public debt in over-spending countries became unmanageable when housing bubbles burst (Ireland and Spain) and current-account deficits, fiscal gaps, or both became unsustainable throughout the eurozone’s periphery. Moreover, the peripheral countries’ large current-account deficits, fueled as they were by excessive consumption, were accompanied by economic stagnation and loss of competitiveness.

So, now what?

Symmetrical reflation is the best option for restoring growth and competitiveness on the eurozone’s periphery while undertaking necessary austerity measures and structural reforms. This implies significant easing of monetary policy by the European Central Bank; provision of unlimited lender-of-last-resort support to illiquid but potentially solvent economies; a sharp depreciation of the euro, which would turn current-account deficits into surpluses; and fiscal stimulus in the core if the periphery is forced into austerity.

Unfortunately, Germany and the ECB oppose this option, owing to the prospect of a temporary dose of modestly higher inflation in the core relative to the periphery.

The bitter medicine that Germany and the ECB want to impose on the periphery – the second option – is recessionary deflation: fiscal austerity, structural reforms to boost productivity growth and reduce unit labor costs, and real depreciation via price adjustment, as opposed to nominal exchange-rate adjustment.

The problems with this option are many. Fiscal austerity, while necessary, means a deeper recession in the short term. Even structural reform reduces output in the short run, because it requires firing workers, shutting down money-losing firms, and gradually reallocating labor and capital to emerging new industries. So, to prevent a spiral of ever-deepening recession, the periphery needs real depreciation to improve its external deficit. But even if prices and wages were to fall by 30% over the next few years (which would most likely be socially and politically unsustainable), the real value of debt would increase sharply, worsening the insolvency of governments and private debtors.

In short, the eurozone’s periphery is now subject to the paradox of thrift: increasing savings too much, too fast leads to renewed recession and makes debts even more unsustainable. And that paradox is now affecting even the core.

If the peripheral countries remain mired in a deflationary trap of high debt, falling output, weak competitiveness, and structural external deficits, eventually they will be tempted by a third option: default and exit from the eurozone. This would enable them to revive economic growth and competitiveness through a depreciation of new national currencies.

Of course, such a disorderly eurozone break-up would be as severe a shock as the collapse of Lehman Brothers in 2008, if not worse. Avoiding it would compel the eurozone’s core economies to embrace the fourth and final option: bribing the periphery to remain in a low-growth uncompetitive state. This would require accepting massive losses on public and private debt, as well as enormous transfer payments that boost the periphery’s income while its output stagnates.

Italy has done something similar for decades, with its northern regions subsidizing the poorer Mezzogiorno. But such permanent fiscal transfers are politically impossible in the eurozone, where Germans are Germans and Greeks are Greeks.

That also means that Germany and the ECB have less power than they seem to believe. Unless they abandon asymmetric adjustment (recessionary deflation), which concentrates all of the pain in the periphery, in favor of a more symmetrical approach (austerity and structural reforms on the periphery, combined with eurozone-wide reflation), the monetary union’s slow-developing train wreck will accelerate as peripheral countries default and exit.

The recent chaos in Greece and Italy may be the first step in this process. Clearly, the eurozone’s muddle-through approach no longer works. Unless the eurozone moves toward greater economic, fiscal, and political integration (on a path consistent with short-term restoration of growth, competitiveness, and debt sustainability, which are needed to resolve unsustainable debt and reduce chronic fiscal and external deficits), recessionary deflation will certainly lead to a disorderly break-up.

With Italy too big to fail, too big to save, and now at the point of no return, the endgame for the eurozone has begun. Sequential, coercive restructurings of debt will come first, and then exits from the monetary union that will eventually lead to the eurozone’s disintegration.

Nouriel Roubini is Chairman of Roubini Global Economics, Professor of Economics at the Stern School of Business, New York University, and co-author of the book Crisis Economics.

I hope the above currency trading article was of help to you.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.