Warning Signs: 4 Indicators that Signals Market Movements

In pretty much any professional field, your competence hinges on your ability to read situations and how you should react. A lawyer in a jury trial for example has to be able to read the juries correctly in order to achieve a verdict they want. When an engineer is presented with a problem, they have to be able to identify the underlying in issue in order to fix it. An editor literally requires reading as part of their job, figuring out which part of the book requires editing before publication.

By this same line of thinking, anyone who is involved in the financial market in some way also has to be able to read the market in order to profit off of it. Investing isn’t just about choosing the right company to invest in, it’s also about picking the right time and in trading, a field that is considerably more time sensitive, the ability to read the market is even more crucial. Trading courses and book can easily get you up to speed about how to read the market but if you’re short on time, here’s a crash course on the most important things to read when it comes to the market.

 

Looking at the big picture and the microscopic details

When it comes to trading and investing, there are two categories that you should be looking out for. The first type is the economic or market indicators, which are data, news or numbers that usually have large ramifications across different economical sectors. Anything that belongs to this particular group affects the economy in general, but not to the same degree, so while you have to watch out for these indicators, you still shouldn’t react impulsively. An example would be the current trade war between the United States and China, where every update could send stocks across the world on a rollercoaster ride.

The second type is company news. Unlike the first type, news belonging to this category tends to not have major ramifications within the economy even if the news itself is particularly groundbreaking. For investors or traders that are involved with the company in question however, this might be of greater importance than the first category. An example of this category would be the scandal currently engulfing Carlos Ghosn and the Renault-Nissan Alliance, whose fallout is still mostly limited to companies within the alliance, Renault, Nissan and Mitsubishi.

Due to the relatively specific nature of the second category, they’re not particularly hard to read, it’s the more general nature of the first category that can sometimes be hard to understand. For example, we’re all in agreement that climate change is generally bad but the specific of how bad it’d be is something we’re still not fully aware of, so much so that it’s only recently people have been aware of just how much the general insect population has drastically decreased around the world.

With that in mind, I’m going to be focusing on the first category. Because of how broadly they affected the world, you should use these indicators as a sign of when to enter and exit the market and to adjust your strategies. While there are industries that might be less affected by these indicators, they’re still not completely isolated so if you’re looking for a safe harbor, you’re going to have carefully consider your options.

 

Labor data and employment, or unemployment, rate

Labor data is most frequently cited as one of the most important indicator when it comes to the health of the economy in general and for a good reason. Labor data is representative of the health of both the companies and the general public as a whole. If companies are laying off employees left and right, that’s an indicator that companies aren’t willing to invest in the economy which would also lead to the same conclusion with the consumers as less financial security would lead to less consumer spending.

The primary element of a healthy economy is the amount of money that’s changed hands and a high unemployment rate prevents that from happening. Money from companies are being passed less and less to the general public and the public followed suit by spending less money on things. A steady unemployment rate is bad enough but a rising one would be disastrous.

 

Consumer Price Index (CPI), Producer Price Index (PPI) and inflation in general

While inflation has a certain negative stigma, it’s really hard to frame rising goods prices are a good thing, much have been written on the subject of why inflation isn’t necessarily bad. Generally, I like to think of inflation like fire, it’s good in small doses and as long as it’s controllable, which is why practically every nation in the world sets a target for inflation rate. It’s the job of their respective central banks to manipulate certain numbers, such as the interest rate, to meet this target.

Inflation itself is usually measured using two metrics, CPI and PPI. CPI tracks the price for consumer goods and it’s a useful metric in determining just how cheap or expensive it is for the average public to maintain their livelihood. PPI on the other hand tracks the price for producer goods, which are usually the raw materials needed to manufacture certain products. A sudden and dramatic increase in PPI, such as when steel prices jumped because of tariffs introduced by the United States would result in a corresponding increase in CPI as well.

 

Consumer spending and activity in general

Labor data and CPI would inevitably have a degree of influence in the rate of consumer spending but the exchange of money isn’t the only number used to measure consumer activity, stock and housing prices could also be used as indicators. The common theme about stock prices is that they tend to be unrealistic, which is true if you’re looking at the current situation as stock prices are usually reflective on the future potential of the corresponding company and not where they are now.

The above reason is why Tesla, which commands a minuscule market share in the automotive market, can have a higher market cap than industry stalwarts such as GM, because the market believes that Tesla can lead the market once our electrified future arrives. Housing prices on the other hand is reflective of current market sentiments since property values are highly tied to demands, although they can also be highly dependent on the region itself but using the House Price Index (HPI), you could monitor changes across several regions to see if there’s any large-scale movement to pick up on.

 

Investor activity

One other indicator than you can use is the data to read the situation on the market is investor activity. Like stock prices, this is more indicative to future potential and identifying future market trends so this is more relevant to the long-term investor but this is still useful information to know. The thing is, this information isn’t always publicly available but you can check out reports from investment firms and venture capitalists to see where their money is being funneled. China’s Alibaba and Tencent, together with Japan’s Softbank are making huge movements in this sector so you might want to see where foreign money is heading as well.

Initial Audit: The Basics of Setting Up an Accounting System

You can’t build a house without taking care of the plumbing first. Okay, perhaps you can, if you prefer to live like 18th or 19th century settlers, in which case I’d be fine with us communicating purely through writing. So yes, while it is possible for you to live without indoor plumbing, your life would be made incredibly easier and more comfortable with the addition of indoor plumbing. This is exactly the same way I view accounting in terms of running a business.

You can technically run a business without having a proper grasp of how accounting works, simply going through the day to day operation of your business without so much a thought into where the money is going. It is theoretically possible to run a business like that, probably not for long, but if it’s simply a question of can you, then yes you definitely can. Of course, just because you can does not mean that you should, in fact I’d go further by saying that unless you plan on hiring an accounting or tax services full-time, you should set up an accounting system for your business.

 

The importance of an accounting system

When I first started receiving regular income from a tutoring gig back at Uni, getting on top of my personal finance was tough. I didn’t exactly have a lot of time then to set up a proper system so I was pretty much winging my way through Uni. I never completely ran out of money, but there were several close calls near the end of the month that is still fresh in my mind even after a decade has passed.

The crazy thing is, when I was still regularly receiving an allowance from my parents, I had always been great with managing money. I always have quite a bit of money to splurge at the end of the month and to my knowledge, I never did ask for additional money unlike my older brother at the time unless it was something completely out of my hands. It turns out however that being completely in charge of your life could deal some serious damage to your finances if you’re not being completely responsible.

It’s a good thing then that with the advent of smartphone-based apps, finding a free money management app is as easy as getting Trump to say ‘fake news’. It doesn’t actually make cutting on my expenses any easier but it does help me identify areas that I could improve on, like spending too much money on concerts and the like. Small businesses are going to need a system that’s slightly more comprehensive than a simple money management app of course and here are some pointers to help get you started.

 

Establish some ground rules

The first order of business is to set up a separate business account and credit cards, even if your business solely consists of you and a college buddy hunkering on your parents’ garage. All of your business’ income and expense should always be funneled into this account to better keep track of how your business is doing. This is the Magna Carta of accounting and failure to abide by this rule is punishable by a Twitter rant directed at you.

The next step is to decide how you are going to do manage your accounting. The tradition is called bookkeeping because it used to be done on actual, physical ledgers but thankfully, technology has progressed to a point that there are now far more efficient methods of record-keeping, not to mention more environmentally friendly. The basic method is to use a spreadsheet but there is also a plethora of dedicated accounting software you could use. Both these options usually also come with cloud support, which can be useful if more than one person is in charge of accounting.

As an added note, make sure to periodically backup your files to ensure that if for some reason you lost access to the original file, you don’t have to necessarily start from scratch.

 

Getting started with the record-keeping

Once you’re done with the logistics, the next step is to decide how the money is going to be tracked and businesses have two options in regards to this, the cash method or the accrual method. The cash method involves tracking income and expenses when they’re received or paid. For small businesses that regularly receive immediate payments, this is the preferred option but for those that regularly uses invoicing for payments, the accrual method is the way to go.

In the accrual method, income and expenses are tracked when purchases are made, even when the actual transfer of money hasn’t happened yet. For larger businesses and those that work on a project type of work, where goods and services are regularly delivered before getting paid, this is the method you’re looking for. The accrual method is consequently more complicated to manage since your records are going to have to be separated into accounts receivable and accounts payable.

After that’s settled, you’re going to have to set up a chart of accounts, which is basically a list of accounts that is relevant to the day-to-day operation of your business, such as accounts receivable and payable, rent, payroll, utilities, cash etc. The size of this chart is going to heavily depend on the size and breadth of your business so if even at the beginning it looks like it’s going to be more than you can handle, consider getting outside help from a professional.

Even when you’ve finished the process of setting up, the hard work doesn’t stop there. Unless you can make sure that every income or expenses you’ve made can be immediately inputted into the system, no matter how small, you need a temporary filing system and dedicate a time every day, or week or month just to maintain your accounting system. Record keeping is also essential to the practice of accounting and that is not negotiable.

The 4 Most Common Reasons in Tax Procrastination

During the more than two decades I’ve walked on this earth, I’ve grown to understand two things; no one in their right mind likes politics and/or taxes. Only psychopaths would be able to enjoy the former and only the dullest of the dull enjoy the latter. The sad thing is, you cannot in good conscience escape from the above two things. As much as we’d hate to admit, politics shape the course of your life and taxes are simply a part of the law.

Okay, I suppose I might be exaggerating a little bit because it is possible to go all apathetic and not care about politics and by extension society as a whole but taxes is non-negotiable, unless you’re Donald Trump, but that’s a discussion for another time. The only way you could get away with taxes is that if you hire a tax professional but you still have to pay them in the end. Contrary to popular belief, ignoring taxes won’t make it go away.

Holding out for a hero (to solve your taxes)

We’ve all procrastinated with our taxes before. You’ve done it, I’ve done it and even a colleague of mine who went on to study accounting regularly does it, although it wasn’t much of a problem for her given her expertise in the field. It’s like going to dentist, even though it’s something that’s been on my schedule for months, I still try to put it off as long as I could even know I shouldn’t. I once had an overnight train ride while dealing with a relatively minor toothache and it was far from a pleasant experience.

The thing about taxes is that even though it’s not particularly hard to handle, it is a copious amount of tedious work, and something that you shouldn’t be left to the last minute. It is actually pretty common for late-filers to overpay their taxes and giving more money to the government that you should is really not something you want to do. And yet, people still procrastinate all the time. Here’s a look at some of the most common reasons why people do their taxes up until the last possible minute.

Because they got away with it before

A crime is only a crime if you get caught; otherwise they’re just simply details. Would it surprise you that quite a majority of procrastinator are repeat offenders, present company included? The toothache thing for example was true, upon which I decided to make good use of my company’s dental plan at the time to actually start going to the dentist regularly.

By that same token, the majority of people procrastinate simply because procrastinating hasn’t hurt them in the past, and it’s possible that it would continue to stay that way for eternity. Alternatively, it might be possible that this exemplary habit of yours might cause you to actually miss a deadline for once and you’ll be fined for the ATO as a reward. Try to kick that habit as it’s better to be safe than sorry.

Because you don’t know where or how to start

For the first-timers out there, I feel you and I’m sure millions other people understand what you’re going through as well but it’s not a valid reason to put off your taxes. If you have an older relative, ask them for help or alternatively, you could simply browse the various beginner’s guides available online. Additionally, the ATO has a tax help program that is designed for this issue but it’s not open for everyone. If money is not an issue, seeking the help of a tax professional will also solve your problem.

Because they can only work when they’re pushed to the limit

Apparently there’s this thing where some people can only put in their best work when they’re under pressure. I don’t judge and I personally like to keep an open mind but I still think that this is a whole bunch of baloney. If you are one of these people, why not try doing your taxes in a pond full of crocodiles? In all seriousness though, rushing your taxes leaves you very vulnerable to error so you might want to figure out a better way of doing this.

Failure to self-regulate

Or in simple English, laziness. Look, let’s not beat around the bush shall we, this is by far the most common reason when we’re talking about taxes and I’ve been a victim of laziness quite possibly more often than you have been in my entire life. Sadly, there’s simply no silver bullet you could use in trying to overcome this. The way I usually tackle this is by inserting music in everything or adding a reward for myself after tedious tasks to give myself the impression that I’m actually working towards something.

If you’ve got someone in your life to push you to make an effort, even better although personally having to rely on someone else isn’t a strategy I like to use very much but I do know first-hand how effective it can be.

4 Tips on Finding the Right Accountant for Your Business

In the 90s classic The Shawshank Redemption, one of the two central characters of the film, Andy Dufresne, managed to parlay his experience and capabilities in accounting into a survival skill. It might sound preposterous but it actually makes perfect sense in the context of the film. Without spoiling the film too much, Andy helped the prison guards and eventually the warden on financial matters, which leaves them indebted to Andy and also why they endeavored to make his prison stay as comfortable as possible.

For those already familiar with the film, this service Andy performed proved to be a double-edged sword but my point still stands, having an accountant or tax services to help you on your financial matters can be indispensable. And before you paint me all bourgeoisie, having an accountant isn’t exclusive to the privileged whose tax can number in the millions, almost every taxpayer can benefit from having an accountant, as long as you pick the right ones.

Accountant for small businesses

For small businesses, the right accountant could be the difference from living paycheck to paycheck and having enough leftover money to grow your business. The right accountant could serve as much more than just someone who review your books at regular intervals, they could also take an advisory role, identifying parts of your business that could be optimized and helping you focus on things that are actually making you money.

The tricky thing of course is that as accountant would be privy to your financial affairs, choosing the right one involves more than just simple credentials. Just as how job interviews have to involve more than just resumes and expertise, finding the right accountant involves getting someone who’s a good match with you and your business. To help you with this incredibly important manhunt, here are some tips you could use on finding to manage your financials.

Decide what type of accountant you’d want

Before you begin your search for an accountant, figure out what type you’re looking for first. Do you need someone in-house that could manage your financial affairs on a daily basis or because of your relatively low volume of transactions, could you make do with an external accountant that you could hire on a consulting basis? Generally, if your business is still new, there would be no need for an in-house accountant but it also depends on your business.

Every accountant is equal but some are more equal than others. That is to say, accountants are more of a generic term and there are specific specializations that you might need more than others. Do you need someone who specializes in taxes? Or someone that could help you in long-term planning for your business? List specific things that you might need and see if there’s someone who could answer those questions for you.

Figure out if direct interaction is something you require

Long gone are the days where your search for an accountant means scouring the Yellow Pages and newspapers for available accountants in your area. With a quick Google search you can find anyone that suits your needs and with Skype and cloud accounting software, they could still help from even hundreds of miles away. This arrangement isn’t for everyone but if it turns out that no one in your area meets your requirements, be aware that that isn’t the game over you might think it is.

Start your search close

Instead of casting your net far and wide, look at the people close to you first. Ask friends and families whether they have any experience with accountants and their recommendations if there are any. Generally, I don’t advise mixing business with friends and/or families but if you’re comfortable with that kind of arrangement, using the service of someone close to you is your prerogative.

Additionally, you might want to look at organizations such as CPA Australia as they provide a member database of registered CPAs that you could use. Your options are going to be limited when using this option but you’d at least be guaranteed of being paired up with a legitimate accountant. Think of it as being offered a selection of the cream of the crop.

Find out if you’re a good match

Now that you have a selection of potential candidates, it’s time to find out if any of them fits with you personally. Just like how driving through the Mount Panorama Circuit in Bathurst in a video game is worlds apart from actually driving through the 3.8 mile circuit and its certifiably insane downhill section, seeing the resume of an accountant and actually seeing them in person is a whole different ballgame. Their achievements and credentials won’t matter much if they’re not someone you can work with.

The common advice is that you should try to work with an accountant that comes from a firm of similar size. If you’re a freelancer, work with a one-man operation, if you’re a small business owner, work with a small accounting firm and if you’re on a corporate level, go with one of the big 4 accounting firms. Other than the fact that this way, they will be able to understand the challenges specific to your business, their price would probably be suitable to you as well.

Try to find how the accountant works in a professional capacity. Probe them with actual questions involving your business and see how their answers measure up to your requirements. If you’re looking for someone to fill an advisory role, knowing just how well (or how badly) you interact with each other should be an important consideration.

Take Shelter: How the Impending Trade War Might Affect the Market and How to Respond

In the 2016 science fiction film Arrival, there is one specific, climactic line in the film that pretty much serves to spare the human race from being engulfed in a war with an alien race. The line, being delivered in Mandarin without any kind of translation in the film left non-Mandarin speakers befuddled. Luckily, screenwriter Eric Heisserer was kind enough to share what the line was, which in English translates to; “In war there are no winners, only widows.”

The trade war that the United States has been waging with other nations, but mostly China, isn’t a literal war but if the United States stays on this course, the end result would still be the same. As two of biggest economies in the world, a bilateral trade war between these two countries would definitely have an impact on the world as a whole and true to the quote above, there will be no winners, save for Donald Trump’s ego. If you’re looking for Australian shares to buy and invest in, it might be a good idea to take a step back and see how investors can shelter themselves from this trade war.

What defines a trade war?

So, what exactly constitutes a trade war? In layman’s terms, a trade war begins when a particular nation decides to slap a foreign nation with tariffs or quotas on imported goods coming from that nation. In retaliation, that foreign nation decides to do the same thing to that nation. A trade war then officially starts when this tit-for-tat continues on and on until the cost of exchanging goods between the two nations became so excessive that any trade between the two nations would be financially unreasonable.

Tariffs are tax levied on imported goods, also commonly referred to as customs or import fees. Quotas are a type of restriction imposed on imported goods that limit the amount of said goods that can be imported to any countries at any given moment. In and of itself, tariffs and goods aren’t necessarily bad, in fact it’s normal for nations to use these restrictions in order to protect local businesses but when used excessively, they could negatively impact the economy by raising prices across the board.

This is because in this globalized economy, it’s quite rare to see a product that is purely made by a single nation. Let’s take a look at the iPhone X for example, which is manufactured in Taiwan by Foxconn, using a chip also manufactured in Taiwan by TSMC with an OLED screen made by South Korea’s Samsung and camera sensors from Japan’s Sony. The decreasing relevance of the concept of border means that it’s quite rare to see a business that could claim that they are fully local.

As such, a full-blown trade war like the one between the United States can have a ripple effect. American companies that use Chinese suppliers will have to raise their prices to keep the same profit margin. At the same time, American companies that act as a supplier for Chinese companies might have to lose their clients because of the tariffs China is imposing on the United States. It’s almost impossible to completely insulate yourself from this trade war but there are ways you could minimize their impacts with the following methods.

It’s time to consider small-to-medium cap stocks

While large cap companies and big businesses like Apple and Ford do their business globally and are therefore vulnerable to trade war, small cap companies tend to focus on small-scale local businesses. That’s not to say that they’re not affected by the trade war, they’re just affected to a lesser degree. Now, since these companies are usually small and tend to not have a lot of information to go with them, try looking at one of the small cap ETFs available to minimize the risk.

Focus on tech companies

Companies like Facebook for example won’t be affected much by the trade war since they don’t traffic in physical goods. While it’s true that Apple could also be considered a tech company, their products are of a physical nature, which is why you should shift your focus on tech companies that provides service or a focus on research and development. Fabless chips companies, which design chips in-house while outsourcing the manufacturing, in particular are to be avoided during a trade war.

Look into the healthcare business

Healthcare companies are considered defensive stocks thanks to the robust nature of their industry, in which they remain stable when compared to the market cycles. Even in a trade war, demand for healthcare companies isn’t likely to go down. While imported drugs do exist, they represent a relatively small percentage of the market and you can reliably expect that insurance and pharmaceutical companies will safely weather a trade war.

Invest in specific sectors of real estate

For new properties that are still being built, the trade war would have an effect as one of the goods that were slapped by tariffs was steel which is necessary in construction. Additionally, the trade war might trigger an inflation, which would reduce the buying power of the population, reducing the demands for high-end real estates. However, some real estate sector, specifically the hotel industry and low-end apartments are generally more resilient than others and they’re definitely worth looking into.

Limiting the effects of a trade war

Historically, all trade wars do is reducing economic growth, which will inevitably impact all sectors of the market. When the trade war involves two of the biggest economies in the world, with one side also imposing tariffs on other relatively major economies, the impact is surely going to be massive but not necessarily immediate. Even if we’re not seeing anything yet, the impact will definitely be felt across the board in a short while. Take steps to mitigate them using the tips listed above.

The Difference between Medicare Levy and Medicare Levy Surcharge

The rising cost of medical bills and insurance premiums have caused a certain dent around the world, and Australia is among their victim. In the fiscal year covering 2016-2017, “ill health or the lack of insurance” is cited as the cause of personal insolvency by more people than the generic term of economic conditions. In another word, cancer is pushing more people to go bankrupt than economic conditions like the increasing wealth gap.

This is why finding the appropriate health insurance for you is an important issue. Not just so you don’t get caught by having to cough up medical bills from your own pocket, but also because, for certain segments of the population, getting a private health insurance can also save you from having to pay more tax, the Medicare Levy Surcharge, on top of the Medicare Levy that is customary for all citizens. For business owners, this could put an unnecessary strain on your small business tax.

How Medicare Levy works

Medicare, the publicly funded healthcare system that we have here in Australia and operated by the Department of Human Services, is partly funded by money from taxpayers. This money is called the Medicare Levy and is set at a rate of 2% of a taxpayer’s annual taxable income. This levy is mandatory for almost all citizens, with certain low income earners earning a reduction or even exemption from this tax.

For individuals earning less than $21,980, they are completely exempt from having to pay this levy while anyone earning between $21,980 and $27,475 is eligible for a reduction. Medicare is after all set up to guarantee basic healthcare for the less fortunate and as such, anyone earning below the income levels listed above doesn’t have to be hit by the same burden as those with higher income levels.

Medicare Levy Surcharge (MLS) for high earners

On top of the basic Medicare Levy, Australia has what is called an MLS for those with an annual income above certain thresholds that doesn’t have the coverage of private insurance. MLS is designed so as not to put unnecessary burden on the public Medicare system by encouraging high income individuals and/or household to get an insurance of their own. Generally, if you’re earning enough money, you probably won’t want to be stuck with the public healthcare system anyway.

MLS works on a multi tier system. For those with an income between $90,000 and $105,000, an MLS tier 1 of 1% is slapped on top of the base Medicare Levy. For those with an income between $105,000 and $140,000, an MLS tier 2 of 1,25% is added and finally for those with an income of more than $140,000, an MLS tier 3 of 1,5% is added. For families, the amount of income is doubled, i.e. tier 1 is between $180,000 and $210,000 but the MLS rate remains the same.

For MLS, the ATO uses a special version of income that is straightforwardly referred to as ‘income for MLS purposes’. This special income is the sum of the following items:

• Your base taxable income
• The amount of fringe benefits you’ve accrued
• Total net investment losses
• Total super contributions, including employer contributions and deductible personal contributions if there are any
• Exempt foreign employment income

While it is possible that your ‘income for MLS purposes’ is lower than your taxable income due to investment losses, it will be higher in most cases so make sure that this amount is lower than the threshold mentioned above if you’re not covered by private insurance. It should be noted that MLS account for every day of a single financial year, which for the ATO began in July 1st to June 30th. If you’re only covered from say, January 1st to June 30th, you still have to pay MLS from July 1st to December 31st.

To avoid being saddled with MLS, you need to have private patient hospital insurance cover. Any less, such as extras that merely cover items like dental and optical needs, would not be accepted by the ATO. To add another wrinkle, you may not choose an excess payment greater than $500 for individuals and $1,000 for couples and families. Failure to meet any of the above conditions would leave you eligible for MLS.

Avoiding Medicare Levy Surcharge

An MLS rate of 1% might seem small, but even 1% of $150,000 is $1,500, which is actually more than enough to get you basic hospital cover. Medicare is subsidized healthcare for the poor and it would be somewhat insidious for anyone earning that much money to be taking advantage of Medicare. Besides, private hospital cover will always be better than Medicare, so think of getting one as being responsible instead of just another way to avoid tax.

Ways to See the Differences between Stocks Trading Account and Demat Account

Trading is not a common topic when it comes to the world of economy. From small to big, trading has become so influential for the world’s economic values, even for Australia. Many business people in Australia are competitive when it comes to Australian shares to buy. For those of you who are interested in trading, each and every one of you should learn more about trading. Just like almost everything in the world, trading requires limitless education and research to be able to master it, and only the minds of the people who are always hungry of education can do it. Are you one of them? Then, do you know the difference between stock trading accounts and demat accounts? No? Where have you been? Just kidding, let’s find out the answer in this article! Keep reading if you want to know.

Many traders can sometimes find it difficult to understand the difference between a trading account and a demat account. However, there is one strong point for sure; investors must have trading account and demat account as one of the most important and mandatory requirements once they have entered the world of trading and investing. In short, you use a demat account to hold the securities in the dematerialised form, while you use the trading account as the intermediary between the demat account and the savings of the bank account. If you have these accounts, you can conveniently buy or sell shares.

The essence

Essentially, you use dematerialised account or the demat account to store all the shares you have sold or bought. From there, the trading account comes into the picture as the intermediary between the demat account and the bank account. Using your trading account, you can take and sell all the shares you have held in the demat account in the stock market. In short, demat account is more like the savings account or the storage facility, while trading account can be compared with the current account for the share purposes.

The function

Demat account has the capability to retain the financial instruments like securities and shares. In terms of functions, demat account can re-materialise or converse securities from the electronic form to physical form, while trading account can perform the act of selling and buying securities.

In the trading process

Basically, when you purchase a share using your trading account, the money is transferred from the linked bank account and the shares are transferred to your demat account. When your shares are sold, the shares you saved in your demat account will be taken and sold in the stock exchange, and the money you have obtained from that is transferred to your bank account.

That’s how you differentiate your trading account and your demat account. Remember that if you want to start trading, you must first open both accounts for your convenience in trading. If you want to learn more about trading, do not hesitate to contact us now and become a professional trader with us.

Learn from These Inspirational and Successful Trading Stories

Trading is one of the fairest and most unbiased professions of them all. Why? That’s because when you trade, there is no one to judge you. You don’t have to be a millionaire to trade, people don’t have to know where you come from and you are free to do anything you want, as long as it is not against the rules. For that reason, many people are interested in joining trading courses, reading trading books and many more to trade as a career path. If you are someone who is also interested in trading, these inspirational and successful trading stories will encourage you to trade more in your life. Keep reading this article to find out!

Trading stories from Rob Wilson

Rob Wilson is a part-time trader who was a Commander in the British Royal Navy. Of course, the profession itself is all about discipline, strict adherence to protocol, and where confident decision-making when being faced with limited or imperfect information truly can be a matter of life or death! That sounds like trading, right?

Wilson excellently applies those very same skills on his trading as he exclusively trades fast-moving, intraday set-ups in EUR/USD early each morning, right from the destroyer and even before reporting for duty. The most important thing to note from his story is that the fact that he can balance his work in the markets and his work in the demanding life outside is remarkable and impressive, which can inspire other traders as well.

Trading stories from Richard Dennis

Richard Dennis, a commodities trader, turned $400 into $200 million in ten years. Did you know the interesting part? He was only 23 years old when he started trading, but before that, he was reported to have borrowed $1,600 and turned it into $200 million in about 10 years of trading commodities. And when he turned 26 years old, he was already a millionaire. That’s not the only interesting fact; he only traded the $400 of the $1,600 he borrowed.

As for the techniques, Dennis used a trend following strategy: buying when the prices increased above their recent range and selling when the prices fell below their recent range. However, in 1970’s, there was a period of repeated crop failures and knowing this, he bought successively new weekly and monthly highs in trending market. Of course, Dennis kept this kind of trading strategy for longer periods of time, ridding out short term fluctuations.

He believed that with his methods, he could teach any non-trader, so that they could also achieve those same exemplary results. For that reason, the fabled “Turtle Traders” came to exist, since Dennis aimed at growing traders just as quickly and efficiently as growing turtles at a farm he had recently visited in Singapore.

That’s the trading success stories you can learn from! Remember that even those legends had their hard time during the process, that it was not as smooth as most people thought it was, but the key point in trading is to never give up. Winning or losing is natural in trading; therefore, don’t give up when you are losing, but don’t be over-confident when you are winning as well. Stay humble and stay focused. If you can learn from the best, you can learn from yourself as well.

Using Return on Assets and Return on Equity to Measure a Company

When considering which Australian shares to buy, there are a lot of criteria to be considered. Market capitalization, one figure that is often bandied around, is a measure of how a company is valued by the market. This value though tend to be based on the rosiest possible future for the company, which has little basis in reality and as such, highly improbable. It is usually a good idea to incorporate some actual real value into consideration, chief among them being profitability.

Revenue and profit

You invest in a company expecting that company to make you money. To make you money, that very same company has to be able to make money for itself, hence the importance of profitability. It is important however to clearly distinguish between profit and revenue. Revenue is the total earnings of a company that is obtained from sales. Profit is when you account for all expenses, debts, alternative income streams and operational costs together with revenue.

This distinction is important because revenue doesn’t take into account the company’s business model. If a company is making $100 million on sales per year but spent a grand total of $150 million to achieve that figure, that $100 million figure doesn’t really mean much. On the other hand, a company making merely $10 million per year by spending $7 million would be a much better bet, especially if that company could keep the same profit margin as it grows bigger.

Of course, simply using that profit as-is is not exactly the proper way to go. The above calculation does not take into account how a particular company is doing when compared to the total amount of asset they have or when compared to how much money shareholders have been investing in that company. To do that, we take into consideration other figures such as total assets and equity to calculate return on assets (ROA) and return on equity (ROE).

ROA as a measure of company’s management as a whole

Broadly speaking, ROA can be described as a comprehensive ROI in that it takes into account every asset a company has, including cash, properties, machinery, inventory, vehicles, etc and comparing the value of those assets with the company’s profit in any given year. Ironically, this comprehensive nature is also what makes it somewhat flawed, as ROA works more for certain industries than others. The formula for ROA goes like this:

 

ROA (expressed in percentage) = Net Income / Total Assets

 

When evaluating any company within a capital intensive industry, a sector in which large amount of investment is needed to make a profit, characterized by a relatively high percentage of fixed assets, ROA is especially effective. Vehicle manufacturing companies, such as American’s Boeing, Germany’s VW Group, is particularly susceptible to ROA evaluation. Oil and telecommunication companies with emphasis on infrastructure also lends well to this assessment.

On the other hand, when we’re assessing professional services company like the accounting firm PwC or commercial banks like ANZ, ROA might not be particularly useful. To combat this weakness, ROA is best used as a comparative tool to evaluate two or more companies within the same industry. Alternatively, you can use ROE as an evaluation tool, which brings me to my next point.

ROE as a measure of financial management

Compared to ROA, ROE is more focused in that it only compares a company’s net profit with shareholder’s equity. ROE measures a company’s net worth by calculating just how much profit a company is making based on the amount of money shareholders have invested. While not every company is tied up in assets, every company has equity, which is why it can be universally used as a trade-off for not being comprehensive. The formula for ROE goes like this:

 

ROE (expressed in percentage) = Net Income / Shareholder’s Equity

 

While ROA relates to how a company is doing in relation to its total asset, ROE deals specifically with investor’s money, which provides a direct correlation in how your money is doing. The key differentiator between ROE and ROA is debt, which is included in ROA but not ROE. Hence, it is to be expected that the company’s ROA will be lower than the company’s ROE but if those two figures significantly differs, you need to take a deeper look at the company’s financials.

It is normal for companies’ ROE to be in the double digits while ROA for different industries vary significantly, as stated before. Commonwealth Bank for example has an impressive ROE of 15%, exceeding the industry average of 11% but the bank’s ROA stood at a meager 1%. By contrast, oil and mining company BHP Billiton has an ROA of 3% even though the company only has an ROE of 8%. Generally, an ROE of above 10% is acceptable while ROA should always be compared with others from the same industry.

Using ROA and ROE

Other as a comparison tool when used to evaluate multiple companies within the same industry, ROA and ROE can also be used as a historical tool to evaluate a company’s stability over a period of several years. For capital intensive industries, which can be heavily affected by recession, these tools can be used to measure how companies perform during a downturn. ROA and ROE is not comprehensive enough, you need to take into account other figures such as price-to-earnings but thanks to their simple calculation, these are indispensable tools for every investor.

Consider These Factors before Opening A Trading Account

For those people who have decided to go to the path of trading, the first thing they have to do is to open a trading account. They have realised that trading does not only come from the decision of choosing shares to buy or something. It is about commitment and dedication to work harder. For that reason, many of them believe that trading is all about learning by doing, and so, they attempt on opening a trading account. However, there are countless platform providers to choose from across the world, and selecting a platform to be your preferred broker can be more significant (or complicated, we can say) than most of us realise. However, before opening a trading account, there are several things that need to be considered. In this article, we are going to tell you what to consider before that. Keep reading to find out!

Transaction Costs

Whenever you buy or sell financial products like stocks, Contract for Differences (CFDs) or Foreign Exchange (Forex), you will have to pay for a transaction cost. This means that the more you trade, the higher this cost will be. If you leave it ignored, transaction costs can significantly eat into your profits (or increase your losses) without you realising. If you want to fix this, it is important for you to make sure that transaction costs are not excessive to the point where it prevents your ability to gain profit from trades.

The Company’s Reputation

One of the obvious things to consider is the company’s reputation. Before you buy shares or stocks, the first thing to look at is the company’s reputation. You can conduct a research on the company’s background, opportunity, strengths or even weaknesses. Make sure the company you choose is not involved in any unfinished debt, or shady business. Reputation matters so much, so that you can trust the results.

Platform

The key considerations when choosing a platform lie in its user experience and availability of tools. These can comprise customisable features and charting indicators. Other crucial elements also include stop-loss features and even automated trading.

Mobile Usability

One of the most important things to consider is whether or not you can trade or watch market moves via mobile. It is important for those who seldom stay at one place. Being able to use your phones or tablets to conduct and check on trades on the go is vitally convenient and helpful as people are spending more time on their phones and constantly have their phones with them instead of laptops or personal computers. Therefore, before you open an account, check if the provider has an app that enables you to trade through mobile or tablet devices. If they do, it would really be helpful and practical in the long run.

That’s what to consider before opening a trading account. Remember that you have to be careful before selecting any provider. Check for quality first and always check on everything as well. That way, your trading can run smoothly.