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Archive for May, 2010

All futures contracts are generally made for the purpose of speculation or hedging. As such, the general procedure for settlement is the neutralization of the original contract by an opposite contract on settlement, so that only difference between the current and the contract price is paid or received. It is rare that actual delivery of the goods is taken, and the price paid in settlement of futures contracts.

Futures trading is the most notable feature of business activity on the commodity exchange. In fact, the commodity exchanges are organized mainly for futures contracts. The futures contracts are made for two distinct purposes: speculation and hedging. Accordingly, they are either speculative or hedging contracts. Speculative activity is such an important part of the commodity exchanges that commodity exchanges are sometimes referred to as the speculative market.

All speculation represents an attempt on the part of individual to peep far into the future out of the window of the present. Speculation refers to an attempt to estimate the future trend of prices and proceed on that basis, to result in profit. Commodities may be bought at the current price with the assumption of selling them at a higher price in future or vice-versa.

The line between gambling and speculation is very thin. On the surface both appear to be the same, but in fact speculation refers to the taking up of legitimate enterprise (purchase or sale of property, commodities, etc.) on the basis of an analysis of market trends and other factors that have a bearing on prices. When, however, people start speculating recklessly and blindly without applying their mind and intelligence, and without possessing the resources necessary to meet their commitments, it degenerates into sheer gambling.

In recent days oil market has witnessed surge in global oil price. Crude oil went to a two-month high on concern that U.S. refiners will fail to produce enough gasoline to keep up with peak demand this summer.

Short fall in supply of oil from Nigeria and uncertainty on Iranian nuclear issues are already keeping buyers of oil nervous. Delivery in May future hit $68 per barrel, a 20 pct jump from last years $56.5 per barrel, only $2.85 from August 2005 high’s of $70.85.

Since last 3 years oil market has been witnessing a substantial rise in the average price of oil. Last week number of oil analyst and agencies have one again raised their 2006 average forecast price to $63.

US Energy department Data reported that refineries are operating around 86 pct of their capacity. Analyst estimates that during same period last year, plants utilised 94 percent of their capacity. Not to forget that February, March & April are also crucial as all the maintenance work is done during these months.

There is difference of opinion as experts differ on whether the current soaring oil demand will outstrip the current supplies, and how quickly.

But for oil watchers, what could be more concerning is that if the current surging demand from China and India persists then Saudi Arabia, which has a known 25% global oil reserve, may see its oil reserves dwindle in twenty years time. Many leading oil analyst says Saudi Arabia is believed to be forced to over supply http://www.topsuppliers.com .

The country has the ability to produce 15 million barrels per day. Middle Eastern Oil analyst is of view that if Saudi Arabia produces 15 mbp, the lifespan of Saudi Arabia’s proven oil reserve of 260 billion barrel, 100 billion has already been used and therefore the reserves can be used in our lifetimes.

Meanwhile, last year’s impact of five major hurricane hitting United States of America still has the biting effect on the oil industry. Coastal oil refineries are still fighting to deliver maximum production.

Developing oil sands or natural gas-based diesel fuel is slower and more expensive proposition, though researchers are making every effort to produce an alternate to counter oil price.

US President George W Bush in his one of his State Union address in February, called for intense effort to develop more efficient fuel sources. The US Energy Department and the Agriculture Department spend tens of millions of dollars every year on biomass-based energy research and development. This is in addition to the billions of dollars. More than $4 billion was spent in 2004.The U.S. provides in subsidies for the production of corn, from which most domestically produce ethanol is derived.

Considering how ethanol is produced, corn or sugarcane is grown, harvested and delivered to an ethanol plant. Growing and harvesting the corn and heating the reheating the fermented corn of sugarcane to produce ethanol of a high quality to replace some of the gasoline in car requires enormous amount of energy.

According to researchers, it was found that it takes 30 pct more energy to top make ethanol from corn. Wood biomass takes 55 pct more energy. Swiss grass takes about 50 pct. Ethanol is just highly uneconomical product in the West, as compared in developing countries, also due to low labour wages. It also contributes to air pollution. Cars running on gasoline containing ethanol produce more air pollution than cars running gasoline alone.

Another research work on Pig manure is underway. One pig produces 10 pounds of manure to yield up to 21 gallon of crude oil. Hence, it is estimated manure from America’s 60 million pigs could produce 50 million barrels of oil a year. Framers can earn $10 per pig from manure.

There are all very expensive propositions. The researchers would continue to search for oil alternate, but substitute for oil may still be far away. With current pace of global growth, thirst for economic boom and demand incurring due to population explosion is unending.

I have very few reasons to believe that oil prices will fall to USD 50 per barrel and would rather like to argue that we would continue to see higher oil price trend. Without which search for new oil find could not be met due to high exploration cost. Oil price could also be kept high intentionally, to give investors incentive to explore oil and to developed alternate fuel find which requires billions of Dollars. With growing annual demand for 2 million barrel per day, most of it coming from Asia, one single event that disrupts oil production could send prices sky rocketing. Current demand for global oil is 84 million barrel per day. I expect the oil to trade in a USD 75-80 range in a short span of time. Not long ago talking of oil price averaging USD 60 was a sin. So let us get prepared for the next coming big move.

There are many many advantages over the various other ways of investing. First of all it is a 24 hr market, except for weekends of course. You have the US market then the european and then the Asian. One of the great times to trade is during the over lapping periods. The USA and European overlap between 5am & 9am eastern and the European & Asian between 11pm & 1am eastern. Usually the busiest time and best to trade.

The is also the risk factor for the accounts. With futures and options you can get margin calls that can wipe you out. If you get caught in a bad trade not only do you lose the money in the account but you may have to come up
with alot more from your pocket. It can be very risking.But not in Forex. Worst case senerio you could lose whats in you account. But you would have to do something really stupid. Like making a big trade on a Fundamental day and leave it alone. If market takes a bad move and you weren’t there. OOOPS. But That wouldn’t happen with a smarth trader.

Then there are the demo accounts which is an account where you can trade using all the right things, platform,charts,and information. But you are using play money, or what we call paper trading too.

Plus with Forex you have a mini account. Instead of needing thousands of dollars to get into it. You can open an account with as little as $300.00. Now of course you will be trading at 1 tenth of a trade. IN other words you controling 10,000 instead of 100,000.00 These are call lots. Which also means you will only risk 1 tenth too!

So if you would love to learn to do investing and not
have near the risk you really need to take a closer look at
Forex trading.

Many people ask “just what is considered illegal or suspicious activity when moving cash?” Some people have gone to the bank with the cash proceeds of a garage sale or a car sale on the weekend, and recounted horror stories of multiple questions by bank employees and have sometimes been reported to the government as suspected criminals.

The reality is that such reporting is very plausible. Most western countries have enacted cash transaction legislation that mandates it. In Australia, anything over $10,000 must be reported to regulators, and any amount under that that bank staff deem suspicious. Likewise in the U.S. So, if you’re unusually scruffy-looking and wander into a bank with $4,000 cash to deposit, it’s very possible you will be reported by the teller. (See our article Money Laundering Defined on the web site www.powerprivacy.com for details on U.S. Currency Transfer Reports, or CTRs.)

Here’s a list of most things that can trigger staff’s suspicion and get you reported next time you go to the bank. Banks will not give you a list of or even admit the existence of these criteria, regardless how much you ask:
- A customer refuses to provide identification or explain the purpose of a transaction.
- A customer has a known criminal background and engages in substantial transactions.
- A customer is ignorant of basic facts regarding the transaction or is unconcerned about rates, taxes, etc.
- A customer is controlled by another person, particularly where the customer appears unaware, infirm or elderly and is accompanied by a non-relative.
- A customer conducts cash transactions when his/her employment or business does not ordinarily generate or require such amounts of cash.
- A customer repeatedly sends or receives wire transfers of any dollar amount when his/her business does not normally require or originate such wires.
- A customer has no apparent source of income, yet conducts repeated transactions.
- A customer offers a seller a gift, gratuity or bribe to complete a transaction.
- A customer divides transactions into smaller amounts to avoid identification or reporting requirements.

Suspicious Customer Behavior
- Customer has an unusual or excessively nervous demeanor.
- Customer discusses your record keeping or reporting duties with the apparent intention of avoiding them.
- Customer threatens an employee attempting to deter a record keeping or reporting duty.
- Customer is reluctant to proceed with a transaction after being told it must be reported.
- Customer suggests payment of a gratuity to an employee of the financial institution.
- Customer appears to have a hidden agenda or behaves abnormally, such as bypassing the chance to obtain a higher interest rate on a large account balance.
- Customer who is a public official opens account in the name of a family member who begins making large deposits not consistent with the known legitimate sources of income of the family.
- Customer makes a large cash deposit without counting the cash.
- Customer frequently exchanges small bills for large bills.
- Customer’s cash deposits often contain counterfeit bills or musty or extremely dirty bills.
- Customer who is a student uncharacteristically transfers or exchanges large sums of money.
- Account shows high velocity in the movement of funds but maintains low beginning and ending daily balances.
- Transaction includes correspondence received that is a copy rather than original letterhead.
- Transaction involves offshore institutions whose names resemble those of well-known legitimate financial institutions.
- Transaction involves unfamiliar countries or islands that cannot be found in an atlas or map.
- Agent, attorney or financial advisor acts for another person without proper documentation such as a power of attorney.

Suspicious Customer Identification Circumstances
- Customer furnishes unusual or suspicious identification documents and is unwilling to provide personal background data.
- Customer is unwilling to provide personal background information when opening an account.
- Customer opens an account without identification, references or a local address.
- Customer’s permanent address is outside the bank’s service area or outside the country.
- Customer’s home or business telephone is disconnected.
- A business customer is reluctant to reveal details about the business activities or to provide financial statements or documents about a related business entity.
- Customer provides no record of past or present employment on a loan application.
- Customer claims to be a law enforcement agent conducting an undercover operation, when there are no valid indications to support that.

Suspicious Cash Transactions
- Customer comes in with another customer and they go to different tellers to conduct currency transactions of less than $10,000.
- Customer makes large cash deposit containing many $50 and $100 dollar bills.
- Customer opens several accounts in one or more names, then makes several cash deposits that are less than $10,000.
- Customer conducts unusual cash transactions through night deposit boxes, especially large sums that are not consistent with the customer’s business.
- Customer makes frequent deposits or withdrawals of large amounts of currency for no apparent business reason, or for a business that generally does not generate large amounts of cash.
- Customer conducts several large cash transactions at different branches on the same day, or orchestrates persons to do so on his behalf.
- Customer deposits cash into several accounts in amounts below $10,000 and then consolidates the funds into one account and wire transfers them outside of the country.
- Customer attempts to take back a portion of a cash deposit that exceeds $10,000 after learning that a currency transaction report will be filed on the transaction.
- Customer conducts several cash deposits below $10,000 at automated teller machines.
- Corporate account has deposits or withdrawals primarily in cash rather than cheques.
- Customer frequently deposits large sums of cash wrapped in currency straps, stamped by other banks.
- Customer makes frequent purchases of monetary instruments for cash, in amounts less than $10,000.
- Customer conducts an unusual number of foreign currency exchange transactions.
- Customer frequently uses foreign currency to purchase bank cheques under $3,000.

Suspicious Non-Cash Deposits
- Customer deposits a large number of traveller’s cheques often in the same denomination and in sequence.
- Customer deposits money orders bearing unusual markings.

Suspicious Wire Transfer Transactions
- Non-accountholder sends wire transfer with funds that include numerous monetary instruments of less than $10,000 each.
- An incoming wire transfer has instructions to convert the funds to bank cheques and mail them to a non-accountholder.
- A wire transfer that moves large sums to secrecy havens such as the Cayman Islands, Hong Kong, Luxembourg, Panama or Switzerland.
- An incoming wire transfer followed by an immediate purchase by the beneficiary of monetary instruments for payment to another party.
- An increase in international wire transfer activity, in an account with no history of such activity or where the stated business of the customer does not warrant it.
- Customer frequently shifts purported international profits by wire transfer out of their home country.
- Customer receives many small incoming wire transfers and then orders a large outgoing wire transfer to another country.
- Customer deposits bearer instruments followed by instructions to wire the funds to a third party.
- Account in the name of a currency exchange house receives wire transfers or cash deposits of less than $10,000.

Suspicious Safe Deposit Box Activity
- Customer’s activity increases in the safe deposit box area, possibly indicating the safekeeping of large amounts of cash.
- Customer often visits the safe deposit box area immediately before making cash deposits of sums less than $10,000.
- Customer rents multiple safe deposit boxes.

Suspicious Activity in Credit Transactions
- A customer’s financial statement makes representations that do not conform to Generally Accepted Accounting Principles.
- A transaction is made to appear more complicated than it needs to be by use of impressive but nonsensical terms such as “emission rate,” “prime bank notes,” “standby commitment,” “arbitrage” or “hedge contracts.”
- Customer requests loans to offshore companies or secured by obligations of offshore banks.
- Customer suddenly pays off a large problem loan with no plausible explanation for the source of funds.
- Customer purchases certificates of deposit and uses them as collateral for a loan.
- Customer collateralises a loan with cash deposits.
- Customer uses cash collateral located offshore to obtain a loan.
- Customer’s loan proceeds are unexpectedly transferred offshore.

Suspicious Commercial Account Activity
- Business customer presents financial statements noticeably different from those of similar businesses.
- A large business presents financial statements that are not prepared by an accountant.
- Retail business that provides cheque cashing service does not make large withdrawals of cash against cheque deposits, possibly indicating that it has another source of cash.
- Customer maintains an inordinately large number of accounts for the type of business purportedly being conducted.
- Corporate account shows little or no regular, periodic activity.
- A transaction includes circumstances that would cause a banker to reject a loan application because of doubts about the collateral’s validity.

Suspicious Trade Financing Transactions
- Customer seeks trade financing on the export or import of commodities whose stated prices are substantially more or less than those in a similar market situation.
- Customer makes changes to a letter of credit beneficiary just before payment is to be made.
- Customer changes the place of payment in a letter of credit to an account in a country, other than the beneficiary’s stated location.
- Customer’s standby letter of credit is used as a bid or performance bond without the normal reference to an underlying project or contract, or in favor of unusual beneficiaries.

Suspicious Investment Activity
- Customer uses an investment account as a pass-through vehicle to wire funds, particularly to off-shore locations.
- Investor seems unconcerned about the usual decisions to be made about an investment account such as fees or suitable investment vehicles.
- Customer wants to liquidate a large position through a series of small transactions.
- Customer deposits cash, money orders, traveller’s cheques or bank cheques in amounts under $10,000 to fund an investment account.
- Customer cashes out of annuities during the “free look” period or surrenders early.

Suspicious Employee Activity
- Employee exaggerates the credentials, background or financial ability and resources of a customer, in written reports the bank requires.
- Employee frequently is involved in unresolved exceptions or recurring exceptions on exception reports.
- Employee lives a lavish lifestyle that could not be supported by his or her salary.
- Employee frequently overrides internal controls or established approval authority or circumvents policy.
- Employee uses company resources to further private interests.
- Employee assists transactions where the identity of the ultimate beneficiary or counter party is undisclosed.
- Employee avoids taking holidays.

Due to an overwhelming request of questions about Day Trader Status I have decided to write this newsletter to look at these issues. Whether you know about it or not, you don’t want to accidentally learn about Day Trader Status by a notice from your brokerage firm saying that you are now tagged as a Day Trader!

WHAT IS A DAY TRADER?

A Day Trader is someone who does four intra-day trades in five consecutive trading days. Let me address some terms here to help you understand this better:

Intra-day trade: A trade that is opened and closed in the same trading day (round trip).

Five Consecutive Trading Days: These are calendar days that the market is open, all in a row. For example:

If the market was open on Monday through Friday that would be five consecutive days.

Then we would have Tuesday through Monday for the next five consecutive days (unless Monday was a holiday in which case it would then be Tuesday through Tuesday.

Next, we would have Wednesday through Tuesday, and so on. The key is five trading days in a row.

HOW TO AVOID IT

One of my favorite students, Debi D, taught me to use a calendar to record my intra-day trades. By placing an “X” on the day

you do intra-day trades, (2 X’s if you do two, 3 X’s if you do 3 in that day) you can avoid accidentally getting to four by

looking at your calendar. Make sure you mark the days the market is closed on your calendar.

WHY DOES IT MATTER?

I thought it mattered a lot, but after my research for this newsletter, it appears there actually are some great benefits

being classified as a “Day Trader” if the $25,000 is not an issue for you. Basically there are two issues at hand:

ISSUE ONE: Your brokerage firm will likely impose the NASD requirements of maintaining at least $25,000 in your trading

account – and you have 5 days to comply. If you have this kind of money there is no issue! However, if you are starting out

with limited funds to trade it could be a big issue! One important note – always ask for one time of forgiveness! Many

students told me they did and the status was removed – so ASK! There may be a way around it, but I am not sure. From my

reading of the requirements, the penalty for not complying is that you are subject to cash only trades, (which are what we

were doing anyway with options)!

There is a really incredible benefit though if you are tagged a Day Trader and maintain the $25,000 minimum value in

your account. You may be eligible for day-trading margin, which is 4 times account buying power. WOW DO I EVER LIKE THIS

ONE!! This buying power may only be used intra-day and may not be held past market close. Orders exceeding Day-Trading Buying

Power will be rejected.

ISSUE TWO: Tax Consequences with the IRS

Actually upon my research into the IRS Publications it does not appear as bad as I thought. A tax firm specializing in trading activity, says:
o They allow a full deduction of all trading losses in the year they occur, thereby circumventing the historical $3,000 net capital loss rule.
o They allow full current expensing of trading expenses without limitation, thereby circumventing the limitation on miscellaneous itemized deductions.
o They enable the active trader to still take advantage of the beneficial long term capital gain rules.

o They enable the active trader to circumvent the restrictive “Wash Sale” rules normally applied to investors, thereby alleviating a huge record-keeping nightmare.

o They allow the active trader to deduct losses on open as well as closed positions.

Continuing on with my IRS research:

You would report your trader’s activity as a business on Schedule C of your 1040, possibly allowing all the deductions for your classes and tools, versus a limitation on deduction for passive trading that would have had to be reported on your

Schedule A with a 2% AGI limitation deduction. But here is the sweet deal: you can still elect to report your gain or loss on

Schedule D as a capital gain unless you made the mark-to-market election, (which has you claim the income as ordinary income on Form 4797 instead of Schedule D – see IRS Publication 550 for more information on this). Just to be safe, you better talk to an accountant that specializes in stock market trading. Being a retired accountant, I want to tell you that most accountants will not know how to treat your trading income properly – you need to understand this.

The proper classification of your investment activities is important to determine how income and expenses are to be reported.

Traders that buy and sell securities frequently can report their purchases and sales result in capital gain and loss, and their deductible expenses are trade or business expenses.

Happy Trading!

Darlene Powell with Better Trades

Angel investors are one of the financing options that you can look into when you decide to start your own business venture. Business start-up is not only a crucial process it also requires a lot of time, effort, and of course money. If you do not have the money needed to fund your business, then how can you start your operation? That is why, when you start planning your business venture, you have to carefully consider your capital. And if you do not have a large amount to start with, you can rely on angel investors to provide you capital. But before looking for one, you have to make sure that you understand the angel investors definition.

Angel investors are high-net worth and accredited individuals that give financial aid to future business owners who are in need of start-up money. They are well-educated, have valuable experience in business, and possess a large sum of money which they invest in exchange for ownership equity. They are usually the best financing option during the early stage of the business. Nowadays, lots of individuals choose to become angel investors. And so when you start your search for the right angel investor, it is important that you know the angel investors definition of each type.

Corporate Angel Investors Definition

Corporate angels are former business executives who have retired early or have been replaced. Although investment is one of their goals, they look for personal opportunity at the same time. So, usually they want to acquire a position in the business as part of the deal. But this should be thoroughly discussed since some corporate angels can be too controlling.

Entrepreneurial Angel Investors Definition

Entrepreneurial angels are successful business owners themselves. Unlike the corporate angels, they can take bigger risks and provide larger amount of money since they have a steady income source. Usually, these businessmen want to assist future business owners to have a successful start-up and eventually a competitive business. The major advantage of these angels is that they are less demanding and they allow the business owner to grow in his own, with them only as financial back-up.

Enthusiast Angel Investors Definition

Enthusiast angels are retirees who simply enjoy getting involved in different business deals and transactions. They are mostly above 65 years old and are already wealthy even before they start their own businesses. Just like the entrepreneurial angels, they also don’t want to play any role in business management.

Micromanagement Angel Investors Definition

Micromanagement angels are individuals who have exerted their own efforts in order to become wealthy. Because of their experience, they believe that they know exactly how a business should be managed. Although they are not active participants in management, they can be very visible when the management of the business starts to have problems and is not doing well.

Professional Angel Investors Definition

Professional angels are lawyers, accountants, and doctors who want to make investments in companies that offer a service or product with which they have little experience. Their main goal of investing is to be hired by the business at the same time as consultant in their area of expertise.

These are the different types of angel investors that you might encounter when you start looking for the right angel investor for your business. By keeping these angel investors definitions in mind, you can easily decide which one is appropriate for you.
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