Investing in cryptocurrency

Investing in cryptocurrency

Investing in cryptocurrency

Managing risk in financial markets is a well-established discipline. Whether investing in equities, bonds or currencies, widely accepted practices protect market practitioners when they are buying, selling or intermediating. Risks are typically aligned into different categories, including market risk, credit risk and operational risk, and complex formulae are used to determine how much capital should be kept in reserve to absorb losses. When investing in cryptocurrencies, however, many of these traditional assumptions fall flat.

The product is still new and relatively untested, volatility is unpredictable and, with a small, albeit growing, investor base, the market is much less liquid, making it tougher to unwind positions. This doesn’t mean investors should avoid cryptocurrencies altogether, but it does necessitate a different approach to risk.

“Volatility and unpredictable liquidity are a reality of this market. Sadly, with weak governance, fraud is also a real possibility. This is compounded with new currencies proliferating at an extraordinary pace, as the barriers to entry for an initial coin offering are very low,” says Richard Longmore, managing director of capital markets consultancy Finoesis and formerly a senior manager in fixed income, currencies and commodities at UBS.

Investing in cryptocurrencies can bring huge rewards as well as risks

The risks may be different and tougher to manage but when investing in cryptocurriencies, as in any financial market, participants need to balance risk with reward. Following a huge spike in the value of bitcoin at the end of 2017 – it rose from $7,000 to almost $20,000 – some investors have already realised huge gains. The attractive rewards are luring new participants into the market every day, including banks, asset managers and hedge funds.

As these institutions move in, it represents a landmark shift for this emerging asset class, which had previously been largely the domain of individual day traders who had little to lose from dabbling in bitcoin. For institutions, the risks of investing in cryptocurrencies can be much greater, not least because they are typically managing money on behalf of others.

“Mark-to-market considerations are clearly a large issue for institutional investors. Volatility in these currencies is a given and thus the danger of stop losses triggered in a wild ride is ever present,” says Mr Longmore.

“Consider also know-your-customer and anti-money laundering requirements. Being what they are, cryptos present enormous difficulties. An individual investor might not have too many concerns, but an institutional investor runs considerable risks from both a reputational viewpoint and from possible sanctions.”

While volatility has eased since the end of last year, the epic move in bitcoin has increased risk appetite both for existing and newer participants, with the realisation that even just a modest exposure to cryptocurrencies could turn out to be lucrative.

Illiquidity is a major risk when investing in cryptocurrencies

Even if only investing a small proportion of the portfolio in cryptocurrencies, however, investors should be mindful of the risks they face. Every practitioner will have an opinion on what the biggest risk may be, but few would contest that the illiquidity of crypto assets is one of the toughest risks to manage.

It is a reality in any emerging asset class that until participation becomes mainstream and widespread, liquidity is likely to be unpredictable. This means that while it may be easy to take on a position and buy into a currency, it can be much harder to unwind, particularly at times when the market is under stress and prices are plummeting.

Simon Tobler, head of trading at Swiss startup Crypto Finance AG, likens investing in cryptocurrencies  to trading currencies such as the Argentine peso or Thai baht in which there is far less turnover and lower liquidity than in major currencies. Before joining Crypto Finance, which provides asset management, brokerage and storage for crypto assets, he traded foreign exchange options at Credit Suisse.

Mr Tobler says: “Bitcoin trades more like emerging market currencies than the majors, because it is highly illiquid with few big market makers and no corporate flow. The illiquidity leads to sharp intraday moves, and makes it difficult to manage your risks and adjust your positions in real time.”

If the market continues to attract new participants, liquidity should improve, but this will take time, particularly for institutions that must secure multiple approvals to trade new products. Even then, their participation is likely to be modest at first.

“Liquidity is increasing,” says Gabriel Wang, analyst at research and advisory firm Aite Group. “As the market cap of cryptos is rising fairly quickly, market makers, exchanges and over-the-counter desks continue to pop up in the market, and the current market size has attracted more and more institutional interest and order flow. This is driving up liquidity and trading volume.”

Investors must be aware of regulatory risk 

Beyond liquidity, more idiosyncratic risks should be considered. In a market that is still developing, there are legitimate concerns over the potential for fraud and market manipulation, so investors must take necessary precautions. More established assets such as bitcoin or ethereum may be a safer bet than the newer coins, for example.

Regulatory risk is also important, as central banks and regulators around the world have taken very different stances on this evolving asset class. In China, for example, exchanges and financial institutions have been banned from handling crypto assets. While officials in other countries may have been less heavy handed, with most central banks keeping a close watch on the sector, further intervention is always possible.

“Political and regulatory risk has declined as this space has become more accepted, but investors should certainly be careful when investing in the newer coins because there is a risk of sudden discontinuation or regulatory intervention,” warns Mr Tobler.

Managing this unique combination of risks is not straightforward. Whereas standard practice in financial markets would be to model key risks and set aside capital for a worst-case scenario, these idiosyncratic risks are much more difficult to measure and manage when investing in cryptocurrencies.

Investing in cryptos: little downside but potentially unlimited upside

When investing in a high-risk asset class, investors would typically diversify across multiple products, but this approach is difficult in the crypto world as most coins are very highly correlated as they tend to move in the same direction. Diversification, therefore, offers little protection in the event of a sudden price move.

“Due diligence is always advised, but in the world of cryptocurrencies, the level required, given the landscape, is exponentially higher and more difficult. A mindset change is required not only from the requirements of a considerably more volatile and illiquid market, but given its extraordinary speed of evolution,” says Mr Longmore.

The most prudent approach for new investors might be to hold just a very small proportion of their portfolio in cryptocurrencies

Given the unpredictability of risk and the potential for high returns, the most prudent approach for new investors might be to hold just a very small proportion of their portfolio in cryptocurrencies. This would give some exposure without excessive risk as the market continues to mature.

“By the end of 2017, a lot of portfolio managers had to explain to their clients why they had only achieved single-digit returns in traditional asset classes, while some crypto funds had earned up to 2,000 per cent from recent volatility. There is ultimately little downside from investing 1 per cent of the portfolio in cryptocurrencies, but the potential upside is almost unlimited,” Mr Tobler concludes.

What Is a Fiduciary


What Is a Fiduciary ?

A fiduciary is a person given the power to act on behalf of another and put their interests first. The Investment Advisors Act of 1940 is a law that was enacted in order to regulate advisors who, for compensation, give advice to others as to the value of securities or as to the advisability of investing in, purchasing or selling securities. The law establishes principles for how advisors should treat their clients, which courts have interpreted to be fiduciary obligations. (For more, see: An Introduction to the Profession of Fiduciary Advisor.)

The advisor, as a fiduciary, owes the client a duty of loyalty, which means they must act in the best interest of the client. If a conflict of interest exists, the advisor must make full and fair disclosure of all material facts so the client can make an informed decision whether to proceed with a transaction.

Additionally, the advisor owes the client a duty of care, which means the advisor’s advice, based on a reasonable inquiry of the client’s financial situation, investment experience and investment objectives, is in the client’s best interest.

In other words, according to the Securities and Exchange Commission (SEC) rules and the Investment Adviser’s Act of 1940, the five responsibilities of a fiduciary are:

  • Put client’s interests first.
  • Act with the utmost good faith.
  • Provide full and fair disclosure of all material facts.
  • Do not mislead clients.
  • Expose all conflicts of interest.

The Department of Labor, not the SEC or Financial Industry Regulatory Authority (FINRA), has broadly redefined financial advice to include investments and insurance recommendations, for compensation, to plans, participants and IRA owners.

Currently, only independent registered investment advisors (RIAs) are required to act in a fiduciary capacity. Brokers or financial advisors working for a broker-dealer firm or an insurance company are only held to a suitability standard (not a fiduciary standard).

Fiduciary vs. Suitability Example

To better understand the difference between a fiduciary standard and a suitability standard, let’s try an everyday example: buying a car. Assume you are looking for a car that costs less than $25,000 and gets over 25 miles per gallon. Those two requirements alone would leave you with a rather long list of cars that would be suitable to you.

However, most of us would do further investigation and consider additional criteria. For example: Which models have the best safety record? Which ones have the best maintenance/repair history? Which ones have the best resell value? You work to find a car that does not just meet your basic needs or is suitable, but one that is best for you.

Would you feel comfortable making your car buying decision by simply relying on the salesperson representing the car manufacturer? Or, would you feel more comfortable using an independent research organization such as Consumer Reports to help find the best car for you?

Apply this idea to your money and the type of advisor you’d want to manage it and give you advice on investments. Demand an independent, fiduciary level of care for something as important as your financial future.

source: investopedia

Economic factors

Economic factors

Economic factors that affect the forex market

Each day trillions of dollars is trading in Forex marketplace from all over the world. Forex is the biggest global market. Some of economics trends and events can effect on this market and below we will discuss about these factors. Of course we can not ignore macroeconomics in Forex market.

What do Macroeconomics do in Forex

Forex market is primarily driven by overarching macroeconomic factors and this is what that influence a trader decisions about value of a single currency at each time. The economic health of a nation’s economy is an important factor in the value of its currency. This economic health consists of many events and information that may change on a daily basis. but what are these factor that influence an economy’s standing and drive changes in the value of its currency. Below you can see some of these factors :

Capital Markets and Forex

The global capital markets are the most visible indicators of an economy’s health, while stock and bond markets are the most noticeable markets in the world. It is difficult to miss the release of public information in capital markets, as there is a steady flow of media coverage and up-to-the-second information on the dealings of corporations, institutions and government entities. 

Similarly, many economies are sector-driven, such as Canada’s commodity-based market. In this case, the Canadian dollar is heavily correlated to the movements of commodities such as crude oil and metals. A rally in oil prices would likely lead to the appreciation of the loonie relative to other currencies. Commodity traders, like forex traders, rely heavily on economic data for their trades, so in many cases the same economic data will have a direct affect on both markets.

The bond markets are similarly critical to what is happening in the forex market, since both fixed-income securities and currencies rely heavily on interest rates. Treasury price fluctuations factor in to movements in currencies, meaning that a change in yields will directly affect currency values. Therefore, it is important to understand how bonds — government bonds especially — are valued in order to excel as a forex trader.

International Trade and Forex

Another key factor is the balance of trade levels and trends between nations. The trade levels between nations serve as a proxy for the relative demand of goods from a nation. A nation with goods or services that are in high demand internationally will typically see an appreciation of its currency. For example, in order to purchase goods from Australia, buyers must convert their currency into Australian dollars (AUD) to make the purchase. The increased demand for the AUD will put upward pressure on its value.

Trade surpluses and deficits also exemplify a nation’s competitive standing in international trade. Countries with a large trade deficit are net buyers/importers of international goods, resulting in more of their currency being sold to purchase the currency of other nations in order to pay for the international goods. This type of situation is likely to have a negative impact on the value of an importing country’s currency.

Political Impact on Forex Markets

The political landscape of a nation plays a major role in the economic outlook for that country and, consequently, the perceived value of its currency. Forex traders are constantly monitoring political news and events to gauge what moves, if any, a country’s government may take in the economy. These can include measures from increasing government spending to tightening restrictions on a particular sector or industry.

The fiscal and monetary policies of any government are the most important factors in its economic decision making. Central bank decisions that impact interest rates are keenly watched by the forex market for any changes in key rates or future outlooks.

Economic Releases and Forex

Economic reports are the backbone of a forex trader’s playbook. Maintaining an economic report calendar is crucial to staying current in this fast-paced marketplace. GDP may be the most obvious economic report, as it is the baseline of a country’s economic performance and strength. GDP measures the total output of goods and services produced within an economy. One key thing to remember, however, is that GDP is a lagging indicator, meaning that it reports on events and trends that have already occurred.

Inflation is also a very important indicator, as it sends a signal of increasing price levels and falling purchasing power. However, inflation is a double-edged sword, as many view it as placing downward pressure on a currency due to retreating purchasing power. On the other hand, it can also lead to currency appreciation, as it may force central bankers to increase rates to curb rising inflation levels. Inflation is a hotly-contested issue among economists, and its effects on currencies are rarely straightforward.

Employment levels, retail sales, manufacturing indexes and capacity utilization also carry important information on the current and forecasted strength of an economy and its currency, serving as a suitable complement to the factors we’ve outline above.

source: Nick K. Lioudis

financial crisis

financial crisis

Global financial crisis strikes

IT IS 2020. The world economy is in a deep recession. Two years have passed since America imposed tariffs on many of its trading partners, prompting retaliation from China, Canada, the European Union and others. Negotiations to resolve differences faltered amid tensions over trade surpluses and deficits. The effects of the protectionist measures seemed modest at first, when global economic growth was still fairly strong. But costs gradually started to add up for businesses and consumers. Investments faltered. Global supply chains choked.

Then, in 2019, the American business cycle turned. In China, confidence in corporations’ ability to service debt fell. Financial markets plummeted. As the renminbi lost value, making Chinese products cheaper abroad, the American government placed even tougher quotas on many imports. Surplus goods from China flooded into other markets, where pressure to raise import barriers became irresistible. The downturn worsened. Job losses soared into the tens of millions.

This account is fiction, of course. But ten years ago this autumn, something similar might well have unfolded.

When Lehman Brothers, an investment bank, imploded in September 2008, a casualty of the subprime mortgage meltdown, contagion quickly spread to major financial institutions in America and Europe. Banks stopped lending money to each other. Borrowing costs skyrocketed, business lending shrivelled up, trade finance almost dried up. The world economy was suffocating.

In the twelve months from April 2008, global trade, industrial output and the value of the stock market all fell faster than they had during the first year of the Great Depression of the 1930s.

Fortunately for us, that is where the parallels ended. Four years on from the crash of 1929, global economic output was still well below pre-crisis levels. World trade had fallen by two-thirds. In contrast, by 2012, not only were output and trade volumes well above pre-2008 levels, but foreign direct investment had more or less recovered, and extreme poverty had continued its steady decline.

Why was the period after 2008 different?

For one, governments had a better policy toolkit. They were able to stimulate their economies by spending more and slashing interest rates. Their predecessors in the 1930s, in thrall to misguided ideas about balanced budgets and the gold standard, had resorted to import restrictions, which proved collectively catastrophic.

Another big reason for the effectiveness of governments’ response to the 2008-09 crisis was international co-operation. In November 2008, the G20 collectively pledged to provide fiscal and monetary stimulus and to refrain from protectionism. This assured each country that its policies would be reinforced, not weakened, by those of its counterparts. Through the World Trade Organisation (WTO), governments monitored each other’s trade and investment restrictions, and worked to solve a shortfall in trade finance. Governments did end up introducing various small-bore protectionist measures, but markets remained broadly open.

This co-operative response relied on positive-sum thinking. The Federal Reserve provided trillions of dollars of liquidity to foreign as well as domestic banks, directly and through swap lines with central banks in Europe and Japan, because it recognised that financial stability abroad would enhance financial stability at home. The focus on “win-win” outcomes allowed governments to invert the late MIT economist Charles Kindleberger’s famous description of 1930s policymaking. This time, countries kept the global public interest in mind, and by doing so, better protected their respective national private interests. The system worked.

Would it work again today? It doesn’t look promising. The ongoing trade hostilities are the product of a zero-sum approach to global economic relations. Too many leaders now dismiss international rules as unfair impingements upon national sovereignty.

Yet the fact is that cross-border flows of goods, services, capital and data have left us profoundly interdependent. One country’s fiscal, monetary, and regulatory policies affect another’s growth. Even if trade and investment were drastically curtailed, we would still have to deal with the cross-border implications of climate change, migration, cyber-security, terrorism and pandemic disease. To claim the nation-state can exert complete sovereignty in the face of these transnational challenges is not just a lie; it deliberately lowers defences against their economic and social consequences. National stability and prosperity demand that governments co-operate to build global resilience.

To be sure, multilateralism in the age of instant communication can no longer be the primarily inter-governmental process of the post-war decades. Modern multilateralism will be the collective product of different actors engaging across borders in different configurations. This is already happening. The Paris Agreement on climate change has spurred research and development into low-carbon technologies; major cities have allied to share information and technical advice about reducing emissions. International agreements have taken useful steps forward on curbing banking secrecy and corporate tax avoidance, and making big banks less vulnerable to destabilising failure.

The frontiers of trade governance can be usefully pushed forward by bilateral and regional agreements, as well as within the WTO. Governments could, for instance, usefully define shared parameters for policies to encourage emerging digital technologies such as artificial intelligence and advanced robotics. Clear global rules would minimise trade tensions and solidify incentives to invest. They would also foster competition based on ingenuity rather than “buy domestic” policies or other market restrictions like forced tech transfer or breaches of intellectual property rights. Authorities currently playing regulatory catch-up with a handful of powerful tech companies might welcome the opportunity to redefine a more open and fairer playing field.

Multilateral co-operation is frequently derided as naïve idealism. In fact, the opposite is true: it is a matter of cold self-interest for countries’ future economic and security prospects. As Benjamin Franklin put it, we must hang together, or we will hang separately.

finance process

finance process

What are financial processes?

Financial processes refer to the methods and procedures completed by the Office of Finance. They include, but aren’t limited to:

  • Data collection
  • Budgeting
  • Planning (strategic planning, P&L and balance sheet planning, HR planning, capital planning, project planning, production and capacity planning, sales and operational planning, etc.)
  • Forecasting (long-range forecasting, rolling forecasts, cash flow forecasting, etc.)
  • Modeling
  • Financial close
  • Consolidation
  • Reporting (management, statutory, disclosure)

Why are financial processes important?

Sound financial processes are the backbone of a financially viable organization. The results that financial processes produce should underlie every decision, every budget line item and every direction change.

Sound financial processes equate to a clearer insight into the fiscal reality of your organization. If you can easily see a 360-degree view of your organization, you can shape the direction of your company based on what the numbers tell you, not just speculation.

Streamlined financial processes result in business decisions based on that financial reality.
When you produce business models and forecasts based on a single source of information, the plans, budgets and strategic decisions you make will be more informed and accurate as a result.

Optimized financial processes lead to effective use of your human resources. There’s nothing worse than having highly qualified financial professionals bogged down in menial tasks like data entry when they could be adding value to your company through analysis.

Centralized financial processes give you more confidence in what the numbers are telling you.
If you’ve instituted financial processes using a centralized system, you’ll get the benefit of increased confidence. When you aggregate corporate data into a single source, there’s no risk of overlap or miskeyed information when multiple contributors are filling in reports. With data control and validation, you’ll be able to define accountability, track revenues and expenditures more accurately. When financial processes are decentralized or siloed, errors due to overlap or simple misinformation are more likely to occur. How could you ever be sure you’re using the right numbers?

How to improve financial processes?

  • Unify financial processes. Connect all finance processes in a unified software system that handles all processes from close through to disclosure.
  • Get a single version of the truth. When a software system automatically populates and refreshes data, the risk of human error is removed.
  • Streamline collaboration. Once you connect all financial processes, the next step is to connect the people that complete them. Enable users to collaborate by choosing a solution that facilitates, tracks and streamlines communication within the same single environment where other financial processes are completed.

Common financial mistakes in daily life

Common financial mistakes in daily life

Common financial mistakes

People sometimes suffer economic hardships because they make mistakes in their financial lives. Even if you’re already facing financial difficulties, knowing about these mistakes can help you survive. Below you can find some of these mistakes that can help you a lot to find your way:

1- Excessive spending

May be it does not seems much when you order extra double burger but these even one dollar can mean a lot in your life. stop for a pack of cigarettes, have dinner out or order that pay-per-view movie, but every little item adds up. Just $25 per week spent on dining out costs you $1,300 per year, which could go toward an extra mortgage payment or a number of extra car payments.

2- Never ending payments

Things like cable television, music services or fancy gym memberships can force you to pay unceasingly but leave you owning nothing. When money is tight, or you just want to save more, creating a leaner lifestyle can go a long way to fattening your savings and cushioning yourself from financial hardship.

3- Living on Borrowed Money

Using credit cards to buy essentials has become somewhat normal. But even if an ever-increasing number of consumers are willing to pay double-digit interest rates on gasoline, groceries and a host of other items that are gone long before the bill is paid in full, don’t be one of them. Credit card interest rates make the price of the charged items a great deal more expensive. Depending on credit also makes it more likely that you’ll spend more than you earn.

4- Buying a New Car

Millions of new cars are sold each year, although few buyers can afford to pay for them in cash. However, the inability to pay cash for a new car means an inability to afford the car. After all, being able to afford the payment is not the same as being able to afford the car. Furthermore, by borrowing money to buy a car, the consumer pays interest on a depreciating asset, which amplifies the difference between the value of the car and the price paid for it. Worse yet, many people trade in their cars every two or three years, and lose money on every trade.

Sometimes a person has no choice but to take out a loan to buy a car, but how much does any consumer really need a large SUV? Such vehicles are expensive to buy, insure and fuel. Unless you tow a boat or trailer, or need an SUV to earn a living, is an eight-cylinder engine worth the extra cost of taking out a large loan?

If you need to buy a car and/or borrow money to do so, consider buying one that uses less gas and costs less to insure and maintain. Cars are expensive, and if you’re buying more car than you need, you’re burning through money that could have been saved or used to pay off debt.

5- Spending Too Much on Your House

When it comes to buying a house, bigger is not necessarily better. Unless you have a large family, choosing a 6,000-square-foot home will only mean more expensive taxes, maintenance and utilities. Do you really want to put such a significant, long-term dent in your monthly budget?

6- Treating Your Home Equity Like a Piggy Bank

Your home is your castle. Refinancing and taking cash out on it means giving away ownership to someone else. It also costs you thousands of dollars in interest and fees. Smart homeowners want to build equity, not make payments in perpetuity. In addition, you’ll end up paying way more for your home than it’s worth, which virtually ensures that you won’t come out on top when you decide to sell.

7- Living Paycheck to Paycheck

In March 2018, the U.S. household personal savings rate was just 3.1%, according to Federal Reserve data. Many households are living paycheck to paycheck, and an unforeseen problem can easily become a disaster if you are not prepared. The cumulative result of overspending puts people into a precarious position – one in which they need every dime they earn and one missed paycheck would be disastrous. This is not the position you want to find yourself in when an economic recession hits. If this happens, you’ll have very few options. 

Many financial planners will tell you to keep three months’ worth of expenses in an account where you can access it quickly. Loss of employment or changes in the economy could drain your savings and place you in a cycle of debt paying for debt. A three-month buffer could be the difference between keeping or losing your house. 

8- Not Investing

If you do not get your money working for you in the markets or through other income-producing investments, you cannot stop working – ever. Making monthly contributions to designated retirement accounts is essential for a comfortable retirement. Take advantage of tax-deferred retirement accounts and/or your employer-sponsored plan. Understand the time your investments will have to grow and how much risk you can tolerate. Consult a qualified financial advisor to match this with your goals if possible. 

9- Paying Off Debt With Savings

You may be thinking that if your debt is costing 19% and your retirement account is making 7%, swapping the retirement for the debt means you will be pocketing the difference. But it’s not that simple. In addition to losing the power of compounding, it’s very hard to pay back those retirement funds, and you could be hit with hefty fees. With the right mindset, borrowing from your retirement account can be a viable option, but even the most disciplined planners have a tough time placing money aside to rebuild these accounts. When the debt gets paid off, the urgency to pay it back usually goes away. It will be very tempting to continue spending at the same pace, which means you could go back into debt again. If you are going to pay off debt with savings, you have to live like you still have a debt to pay – to your retirement fund.

10-  Not Having a Plan

Your financial future depends on what is going on right now. People spend countless hours watching TV or scrolling through their social media feeds, but setting aside two hours a week for their finances is out of the question. You need to know where you are to know where you are going. Make spending some time planning your finances a priority.

Budgeting Tips

Budgeting Tips

Budgeting Tips

The budgeting process can operate like a coin sorting machine. We dump in our income for the month and the sorter (budget) separates it into the various categories of saving, investing, giving or spending. Just as the coin sorter accounts for all of the change, the budget process accounts for the use of all of the income arriving that month. Nothing is wasted, lost or frivolously spent.

But how do you get started? What tools do you use to get it done each month? Are there some basic budgeting tips to remember?

Budgeting tools come in all shapes and sizes. It can be as simple as a legal pad or an Excel spreadsheet. For those more tech savvy, low-cost online tools also exist to help in the budget process. Regardless of which method you use, the basic process is the same.

Review Expenditures

For those who have never budgeted before, I always suggest they look forward by first looking back. As well as can be determined, look back to the previous month or two’s expenditures and see where your money went. Unless your bank balance grew, something happened to the money. Was it spent on expenses? If so, on what expenses was it spent and how much on each type? Was it sent to a savings or investment account? Was a portion of it donated?

There may be amounts you can’t account for. A check was cashed or an ATM withdrawal was made and you don’t remember what you did with the money. Account for what you can.

Estimate Incoming Expenses

With this information in hand, turn your attention to the upcoming month. In most instances, families have a reasonable idea of the income they are expecting the next month. Yes, there are instances of seasonal work or perhaps unpredictable commissions that make determining the amount of income difficult. But even in these situations, a reasonable estimate of the next month’s expected income should be possible to determine.

Determine How Your Money Will Be Spent

Your next step will be to act like that coin sorter: allocate that estimated income into all the ways you plan to spend, save, invest and give away those dollars. Every dollar should be accounted for. If you leave it unassigned it will surely be spent, or more likely wasted, on some unknown purchase. Lost money slows down or prevents you entirely from creating financial freedom and control.

When my family started creating a spending plan each month, we were shocked at how much we were spending in some categories with nothing to show for it. The budget allowed us to tell our money where to go instead of wondering where it went. Don’t underestimate the value of going through the process.

Basic Budgeting Tips to Remember

  • Only budget one month at a time and don’t plan on doing it once and copying it over and over. Yes, many of the items will be the same month-to-month. But variables always arrive, whether it’s a bonus at work, or an expense that only occurs quarterly or annually. Focus on just the next month.
  • For those who are married, your budget should be a collaborative process between a husband and wife, not a document prepared by one and forced on the other. It’s fine for one to prepare the first draft of the budget, but both parties should have their voices heard and their priorities included in the spending plan.
  • For those who are single, find an accountability partner. It is tough, especially in the first few months when it seems like a lot of work with limited benefit, to stick with creating a spending plan every month. Having someone to hold you accountable to do so will help tremendously. If possible, find someone going through the process on their own, too, so you can hold each other accountable.
  • Anticipate the budget process to not go well for several months. You didn’t climb on a bike and ride perfectly the first time. In fact, you may have skinned your knee a few times before become proficient. Budgeting is a skill, too, and it takes time to learn. It also takes time for sporadic expenditures that are easily forgotten to reoccur and remind you of their existence.
  • Once the budget is prepared, it should be treated as if it was prepared in pencil, not etched in stone. During the month, things will arise that weren’t in the budget. When that happens, get back together with your spouse (if married) to adjust the budget as necessary. You’re not in Congress, so if you need to spend more in one area, you’ll need to reduce another planned expenditure. Working on this together will not only solve the financial issue, but could also strengthen your marriage in the process.
  • The monthly planning process should continue, no matter what level of financial success you achieve. You never “graduate” from planning. But the process will get easier and less time consuming as you gain experience.

There’s not a budget that exists that will work for everyone. You must budget accordingly to your own personal financial situation. Once you determine what works for you, stick to regularly maintaining your budget. A budget can work for people in various financial situations, it just takes time and effort to make sure it is being used properly

source: investing

what is corporate finance?

corporate finance

What is corporate finance ?

Corporate finance varies across the world and deals with decisions and techniques that deal with many aspects of a company’s finances and capital.

In some countries corporate finance deals with transactions in which capital is raised in order to create, develop, grow or acquire businesses connected to a corporate transaction that leads to the creation of a new equity structure or shareholder base, and the related issue, underwriting, purchase or exchange of equity (and related warrants) or debt. 

Types of transactions

  • Raising seed, start-up, development or expansion capital
  • Mergers, demergers, acquisitions or the sale of private companies
  • Mergers, demergers and takeovers of public companies, including public-to-private deals
  • Management buy-out, buy-in or similar of companies, divisions or subsidiaries – typically backed by private equity
  • Equity issues by companies, including the flotation of companies on a recognised stock exchange in order to raise capital for development and/or to restructure ownership
  • Raising capital via the issue of other forms of equity, debt and related securities for the refinancing and restructuring of businesses
  • Raising capital for specialist corporate investment funds, such as private equity, venture capital, real estate and infrastructure funds
  • Financing joint ventures, project finance, infrastructure finance, public-private partnerships and privatisations
  • Secondary equity issues, whether by means of private placing or further issues on a stock market, especially where linked to one of the transactions listed above
  • Raising debt and restructuring debt, especially when linked to the types of transactions listed above

Professional roles

Corporate Finance advisers

In the UK, the term generally refers to those who act as advisers on the types of transactions listed above. This may also include sponsors or nominated advisers for IPOs.

Such lead advisers may be from investment banks, accountancy/professional services firms or independent advisory firms (sometimes known as “boutiques”). In some cases, they may also include individual consultants who specialise in such work.

Reporting accountants (ie those who carry out financial due diligence or transaction support)

Accountants employed by the buyer of or investor in a business or a specialist investment fund to ensure that the financial workings of the target company are fully disclosed and are in order. The scope of such work can be driven by the requirements of the investor/buyer, or by regulation, and the reports issued can be private or public, depending on the circumstances.


Solicitors who are primarily involved in advising on the types of transaction listed above, including legal due diligence.

Private equity providers

Private equity/venture capital professionals engaged in buying, selling and providing finance to businesses.

Debt providers/bankers

Bankers, other debt providers and debt-advisory specialists who are principally involved in the types of transactions listed above.


Brokers who advise on and support raising capital for transactions (IPOs, acquisitions, disposals etc.)

Other due diligence

Other specialist advisers employed to support the types of transaction listed above, if they are primarily engaged in supporting such transactions. Examples include commercial due diligence, environmental due diligence, insurance and other types of consultancy work.

Company directors/executives

Directors and executives in companies who primarily focus on the types of transactions and projects listed above, in order to support corporate development.

Risk Management in Forex

Risk Management Basics

Risk Management Basics

Risk management is the most important difference between your survival or death in forex market. Even if you can have the best trading system in the world it is possible to fail without proper risk management. Risk management can be limiting your trade lot size, hedging, trading only during certain hours or days, or knowing when to take losses.

Why Forex Risk Management Is Important

Risk management is one of the most key concepts to surviving as a forex trader. It is an easy concept to grasp for traders, but more difficult to apply. Brokers in the industry like to talk about the benefits of using leverage and keep the focus off of the drawbacks. It causes traders to come to the trading platform with the mindset that they should be taking a large risk and aim for the big bucks. It seems all too easy for those that have done it with a demo account, but once real money and emotions come in, things change.

Controlling Losses

One form of risk management is controlling your losses. Know when to cut your losses on a trade. You can use a hard stop or a mental stop. A hard stop is when you set your stop loss at a certain level as you initiate your trade. A mental stop is when you set a limit to how much pressure or drawdown you will take for the trade.

Figuring out where to set your stop loss is a science all to itself, but the main thing is, it has to be in a way that reasonably limits your risk on a trade and makes good sense to you. Once your stop loss is set in your head, or on your trading platform, stick with it. It is easy to fall into the trap of moving your stop loss farther and farther out. If you do this, you are not cutting your losses effectively, and it will ruin you in the end.

Using Correct Lot Sizes

Broker’s advertising would have you think that it’s feasible to open an account with $300 and use 200:1 leverage to open mini lot trades of 10,000 dollars and double your money in one trade. Nothing could be further from the truth. There is no magic formula that will be exact when it comes to figuring out your lot size, but in the beginning, smaller is better. Each trader will have their own tolerance level for risk.

The best rule of thumb is to be as conservative as you can. Not everyone has $5,000 to open an account with, but it is important to understand the risk of using larger lots with a small account balance. Keeping a smaller lot size will allow you to stay flexible and manage your trades with logic rather than emotions.

Tracking Overall Exposure

While using reduced lot size is a good thing, it will not help you very much if you open too many lots. It is also important to understand correlations between currency pairs. For example, if you go short on EUR/USD and long on USD/CHF, you are exposed two times to the USD and in the same direction. It equates to being long 2 lots of USD. If the USD goes down, you have a double dose of pain. Keeping your overall exposure limited will reduce your risk and keep you in the game for the long haul.

The Bottom Line

Risk management is all about keeping your risk under control. The more controlled your risk is, the more flexible you can be when you need to be. Forex trading is about opportunity. Traders need to be able to act when those opportunities arise. By limiting your risk, you ensure that you will be able to continue to trade when things do not go as planned and you will always be ready. Using proper risk management can be the difference between becoming a forex professional, or being a quick blip on the chart.



Financing is the process of providing funds for business activities, making purchases or investing. Financial institutions such as banks are in the business of providing capital to businesses, consumers and investors to help them achieve their goals. The use of financing is vital in any economic system, as it allows companies to purchase products out of their immediate reach. Put differently, financing is a way to leverage the time value of money (TVM) to put future expected money flows to use for projects started today. Financing also takes advantage of the fact that some will have a surplus of money that they wish to put to work to generate returns, while others demand money to undertake investment (also with the hope of generating returns), creating a market for money.

There are two main types of financing available for companies: debt and equity. Debt is a loan that must be paid back often with interest, but it is typically cheaper than raising capital because of tax deduction considerations. Equity does not need to be paid back, but it relinquishes ownership stakes to the shareholder. Both debt and equity have their advantages and disadvantages. Most companies use a combination of both to finance operations.

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Equity Financing

“Equity” is another word for ownership in a company. For example, the owner of a grocery store chain needs to grow operations. Instead of debt, the owner would like to sell a 10 percent stake in the company for $100,000, valuing the firm at $1 million. Companies like to sell equity because the investor bears all the risk; if the business fails, the investor gets nothing. At the same time, giving up equity is giving up some control. Equity investors want to have a say in how the company is operated, especially in difficult times, and are often entitled to votes based on the number of shares held. So, in exchange for ownership, an investor gives his money to a company and receives some claim on future earnings. Some investors are happy with growth in the form of share price appreciation; they want the share price to go up. Other investors are looking for principal protection and income in the form of regular dividends.

Debt Financing

Most people are familiar with debt as a form of financing because they have car loans or mortgages. Debt is also a common form of financing for new businesses. Debt financing must be repaid, and lenders want to be paid a rate of interest in exchange for the use of their money. Some lenders require collateral. For example, assume the owner of the grocery store also decides that she needs a new truck and must take out a loan for $40,000. The truck can serve as collateral against the loan, and the grocery store owner agrees to pay 8 percent interest to the lender until the loan is paid off in five years. Debt is easier to obtain for small amounts of cash needed for specific assets, especially if the asset can be used as collateral. While debt must be paid back even in difficult times, the company retains ownership and control over business operations.

The Weighted Average Cost of Capital (WACC)

Firms will decide the appropriate mix of debt and equity financing by optimizing the average weighted cost (WACC) of each type of capital while taking into account the risk of default or bankruptcy on one side and the amount of ownership owners are willing to give up on the other. Because interest on debt is typically tax-deductible, and because the interest rates associated with debt is typically cheaper than the rate of return expected for equity, debt is usually preferred. However, as more debt is accumulated, the credit risk associated with that debt also increases and so equity must be added to the mix. Investors also often demand equity stakes in order to capture future profitability and growth that debt instruments do not provide.

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