Finance Advisor

How to Trade Commodity Stocks

2010-09-04T05:57:00.000-07:00

Find a good financial website:

Using a good financial website to track commodities, commodity futures, and the dollar is essential to understanding the market and timing your entrance into certain commodity stocks. Examples of useful reference sites includes: Yahoo Finance, Bloomberg, and CNBC.

Understand the yield curve and currencies:

The yield curve is a good indicator of the risk people are willing to take in the market. If people are willing to take risk then the yield curve will be steep. This indicates people are willing to buy into the market and the trend will be upwards.

Choose a commodity and understand the fundamentals:

Understanding the commodity you are trading is essential. For instance, if automobiles are selling faster than usual you will want to buy a steel company such as United Steel (X). If the dollar is weak commodities will likely move higher because of the carry trade and the willingness of foreign countries to profit by buying our commodities at a cheaper price. Understand how the stock moves, the trend of the stock, and other related news specific to the stock and commodity.

How to Market tips for making money with commodities

2010-09-04T05:19:00.000-07:00

The commodities market has been given a bad name because of the extreme volatility and losses that people have experienced with it. For years people have recommended stocks to be the safer bet, but is this still true? I have been trading commodities for ten years now and have learned plenty of valuable lessons that have made me a lot of money. There is millions to be made trading commodities but you have to understand what to look for. I am going to give six simple but effective tips on how to trade commodities successfully!

1. Find a volatile market that you want to trade. High volatility might be bad with stocks, but it is a very good thing with commodities. The more volatility in the market, the more opportunities there are to make money.

2. Instead of trading commodity futures, consider trading commodity options. People have a bad taste in their mouth from all the horror stories they have heard about trading futures, and most of the bad stories are probably true. To make this simple, when you trade futures contracts you can lose more money than you put in, which in my opinion is a very risky bet. Trading a commodity options contract is much safer because you can only lose what you put in, therefore you don't have to worry about losing your life savings.

3. It doesn't take a lot of money to make a lot of money!! Most people think you have to have a lot of money to make money with commodity options, and this is just not true. If you have a couple thousand dollars to trade with, you can make a nice bundle of money.

4. Don't put all of your eggs in one basket! Once you have found a volatile market to trade don't listen to all the speculators, and put all of your money on what they say. I can't even count how many times I listened to a specialist and lost my money. The beauty of trading in a volatile market is that you don't have to know which way the market is going.

5. When you fish on both sides of the boat you are more likely to catch a fish! What I mean by this is purchase a call option with the first thousand, which means you make money when the price goes up. The second thousand needs to be spent on a put option, which means you make money when prices go down. This is a very basic concept that many traders use, but is highly effective in a volatile market. This gives you insurance on your investment, and eases the stress about which way you want the market to go. I have personally made over twenty thousand dollars in one trade using this strategy, and investing no more than two thousand dollars.

6. Take the money and run! Before you start trading decide how much money you want to make and stick to it. Understand that profit is profit no matter how big or small it is. Don't get greedy just because the market has made a big move, because it can turn against you in a second, so take your profit. This is one of the most simple, but yet hardest thing to do when trading. A one thousand dollar profit may not seem like much, but when you do it five to ten times it can be quite substantial.

How to Learn to Trade in Commodities

2010-09-04T04:41:00.000-07:00

Commodities trading has an attraction for many people because it offers the opportunity for large short-term profits. If you want to trade in commodities, be aware that it is a high risk form of trading that is not for the casual investor. Commodities themselves are simple--they are raw materials--gold, oil or wheat--rather than finished products. Trading in commodities is not simple. You will need to be knowledgeable about the structure of commodities markets like the Chicago Board of Trade (CBT), economic factors and government policies that affect commodities, and the nuts and bolts of finding and interpreting prices and market trends.

1. Understand what a commodity futures contract is. When a producer like a farmer wants to reduce his risk, he will sign a contract that guarantees him the current market price when it comes time to deliver his crop. This is how all futures contracts work, whether the commodity is soybeans, silver or petroleum. Commodities traders buy and sell these contracts to make a profit based on fluctuations in the market price.

2. Know the risks. Futures contracts are traded on margin. When you buy a contract, you only put in a small amount of the total price (usually 10 percent or even less). Modest price rises can double your money, but a 10 percent fall in the price of a commodity can wipe out the money you put up.

3. Start to learn to trade in commodities by reading articles and books on the subject. Don’t get overconfident after doing a little study, though. Trading intelligently in commodities is as much a matter of practice as it is of study (see Resources below).

4. Familiarize yourself with sources of information. Successful traders rely heavily on watching market trends. Find daily prices in the newspaper, online or in financial publications like the Wall Street Journal (see Resources below). You will also need to learn to read and interpret commodity price charts.

5. Focus on one or two types of futures contracts. Market trends change when economic factors or industry conditions are altered. A decision by OPEC to change oil output affects the market, for instance. A sudden freeze in Florida can send orange juice prices skyrocketing. The more you know about a particular commodity, the better you will be able to anticipate how events will impact prices. It’s wise to initially concentrate on a few commodities.

6. Practice before you risk real money. As you learn to trade in commodities, make a habit of carrying out mock trades using real information. Futures contract trading is rapid and short-term, so it’s ideally suited to “armchair investing.” You can test your growing knowledge this way without placing your money at risk and learn from your mistakes with no harm done.

7. Open a brokerage account and begin to trade commodities. Some brokers can assist you with expert advice and resources. These “full-service” brokerage firms do charge more, but you may feel it’s worthwhile. If you prefer (especially when you have some real-world experience) you may want to save money on fees and commissions by using a discount broker. In either case, you can open an account quickly and easily (usually online) with a minimum deposit of around $1,000 (see Resources below). Making trades is simple. You can trade online or you call your broker and place a buy order. Experienced traders usually place a “stop” sell order at the same time they buy. This is an order to sell automatically at a lower price, so if there is a sudden drop in price, your losses will be minimized.

How to Form a Commodity Trading Business

2010-09-04T03:32:00.000-07:00

The commodity markets offer enormous opportunity for skilled traders who excel at trading derivatives, but can be confusing for those who want to use their talent to manage money for investor. The SEC (Security & Exchange Commission) has strict guidelines for handling investors money and that can be an obstacle for those who don't know how to form a commodity trading business. Fortunately, by following a few key guidelines, you can begin trading commodities for investors without running afoul of the SEC.

Setting Up Shop

1. Contact the CFTC (Commodity Trading Futures Commission) to register as a CTA, or Commodity Trading Advisor. CTAs are registered with the CFTC and receive management and/or incentive fees based for their services as professional money managers that make up the managed futures industry.

2. Apply and pass the the National Commodity Futures Examination (NCFE or Series 3) within the two years prior to your application. You will be asked a series of 120 questions and will need a passing score of 70 percent to qualify. You can get information on this certification by contacting the National Futures Association.

3.List and show proven results of your annual performance as a commodity trader so that you can show a track record to potential investors. Make sure you detail your trading style, annual percentage gain, draw downs, and detail each trade, if possible, as well as the final result.

4.Contact the NFA and CTFC after passing your Series 3 exam. Complete the required forms - Form 7-R and complete Form 8-R, fingerprint card and fee of $85 for each individual principal.

5.Consult with a legal advisor on structuring a legal entity to manage investor's money, such as a Limited Liability Company, or LLC. A LLC serves as a 3rd party entity that serves as the vehicle

out of which you will conduct the affairs of your commodity trading business. It also serves as a protective shell in that it helps limit your liability in the event of catastrophic loss or litigation.

6.Solicit clients through advertisements or through stock brokerages. However, be sure to present a DDOC, or disclosure document, to give to prospective clients. The NFA and CFTC require that you draft a DDOC for all potential investors that details the fees, your trading results, losses, your business information, trading methods, and other relevant information so that investors can make a sound decision to invest with you.

Man vs. Machine: Forex Robot Trading

2010-08-07T08:07:00.000-07:00

Forex trading has grown exponentially in recent years giving rise to a vast and booming new industry including the advent of numerous new banks and brokers, software platforms, trading methods, and other related tools. With the gradual ubiquity of high-speed internet, Forex trading has become ultra-popular due to its flexibility, low cost, high liquidity and long operation hours. In Forex trading, there are primarily two main methods of trading – manual and automated. When you trade manually you open and close market orders yourself. You can still use a variety of functions such as pending orders, stop-loss, take-profit and trailing stops, but the trading decisions are always yours. In automated trading you delegate all your trading decisions to a computer program which is also known as a robot or expert advisor. Surely, you can control it by entering some parameters or changing various settings, but all orders are carried out by an automated system.

In recent years, the rapid development of “robot” or automated trading in the Forex market has received an incredible amount of attention. There is no doubt that the dream of having an investment that creates untold riches on its own with almost no outside interference or interaction from anyone is extremely attractive to most people. A cursory review of major Forex related websites and their associated forums, blogs and ad columns reveals that robot traders are a fast changing, highly active and intensely competitive business. However, what it also reveals is that many of those creating the robot traders are the same authors and supporters that extol the virtues of using them.

On the surface, the advantages of robot trading appear to be many. Today, computing and information technology has developed to a very high level. Computer calculations can be thousands of times faster than humans and can perform without error at incredible speeds with flawless accuracy. Furthermore, robot trading can be more efficient than an average human trader as it is not limited by fatigue nor prone to mismanagement or negligence and can never be affected by the onset of frail human emotions such as greed or fear. In addition, a robot trader can take a high number of trades more frequently and is able to manage multiple, even unrelated, trades simultaneously as well.

While these seem to be very impressive and persuasive arguments for the use of a robot trader in reality the performance is mixed. Surely, there are many robot trader programs that can have amazing performances over relatively short period of time. Many marketeers profess to have found the ‘holy grail’ and promote their products as “easy money” and a way to “earn while sleeping”, but we have found through a great deal of thorough testing a number of various robot traders that claims like these are dubious.

The fact is, most robot traders are very simple. A robot that is designed to take into account long term probabilities, historic support and resistance, master fibonacci levels, market structure, macro-economic fundamental events, volume, systemic disparities (such as ebb and flow of risk appetite and fluctuations in the carry trade, etc..), detecting divergence and setting dynamic (an realistic) stop losses are definitely few and far between. Due to this fact, most robots cannot survive the long run without major draw downs in account equity. Some operate with questionable money management and many remove stop losses altogether (if that is actually a way to prolong or perpetuate success).

Automatic trading appears to have great potential but their ‘intelligence’ is limited to programming. Certainly, while many of the weaknesses of human manual trading are seemingly eliminated with robot traders most robots manufacturers know that robots cannot solve all the problems associated with trading. Discretion and judgment are some advantages that humans may possess over their robot counterparts, although even these can be subject to errors. We have tested numerous robot traders and have yet to find one that can be consistently profitable for any appreciable period of time. All have lost money in the long run. Perhaps, the best automatic system has yet to be developed and that the answer is only a matter of time. Currently, the market is full of empty promises and even emptier computer codes which cannot truly offer a reliable and valuable automatic Forex trading system. Perhaps, the combination of a robot trader and a manual trader could combine the best characteristics of both. In any case, without good money management neither can succeed for very long.

Forex Expert Manager

2010-08-07T00:17:00.000-07:00

As we know that foreign currency market can give investors an opportunity to participate in the exciting world of forex trading. With daily average turnover of well over US$1 trillion - 30 times larger than combined volume of all U.S. equity markets - forex market gives unlimited potential profit to forex traders everyday. But without adequate skills, knowledge and experiences, it would be too hard to gain profits from forex market. And statistics says that more than 95% forex traders has lost their money in this jungle market.

And now I encourage myself to offer you Forex Managed Account service on investor’s trading account behalf. I will trade professionally on your trading account and only charge you 30% from your monthly total net profit. You don’t have to pay anything unless you see profit in your account balance.

A forex managed account is also ideal for those investors who prefer to have their capital managed by professionals. This is a viable solution for individuals who are looking to diversify into Forex without hands-on involvement. It is an effective way for retail nvestors to benefit from the knowledge of professional traders.

If you are interested to join this Managed Account service, you could register from one of following brokers under our referral:

( More brokers will be announce as soon as they are available ).

Before you join this Managed Account Services, please be noticed that I use Martingale System which is considerable as a high risk system. We may gain high profit, but also can wipe out our trading account as well. This system may not be suitable to every investor. So please let me know if you are ready to take your risk.

Please make sure you confirm whether you registered under my referral or not, as I will not trade for account which is not my referrals. Minimum deposit is $1,000 and will be traded in mini dollar account. You can make deposit to the broker you choose after you get my confirmation.

Detailed steps to join this Managed Account services :

Register your trading account from link : Insta Forex or Master Forex.
Send your account number and trader password to me via email, so I can check if you are registered under my referrals.
After we confirm, then you can make deposit at least $1,000 into your trading account in the forex broker you choose.
I will trade your account starting from the first week of the month.
When your account is in profit next month, you have to withdraw your profit from your forex broker and send me 30% from your net profit for my performance fee. Performance Fee Payment will be made using Liberty Reserve, Webmoney or Paypal.

I hope this would be clear to you. Shall you have more questions, please feel free to contact me. Thank you.

News trading

2010-08-06T22:16:00.000-07:00

I certainly came across enough of the news trading marketing from the trading marketing wizards to have my curiosity peaked. I did my own investigation into how things are in the world of news trading as compared to how it was done when I first got into the forex business a few years ago. My first purchase was the ‘Forex Bootcamp Papers’ ebook by Tom Yeomans, which goes over the general method (of trading expected versus actual news data releases), as well as some background of the various data releases and what they they mean to the economy of that country.

I trialed the Trade The News audio broadcast service for a week. I can see how this would be useful in keeping abreast of relevant news items as they break during the trading day but it definitely did not seem adequate to the task of allowing you to the trade the economic data releases the second they are released. It obviously takes the presenter time to read out the relevant numbers, which can often take up to a minute or so, depending on how many numbers are being released at the same time.

I then investigating some other services being offered to help the cash strapped trader make the big money trading news releases. The fastest way to get the news data is either by subscribing to Bloomberg or Reuters; unforunately, signing up for these can be rather expense. Bloomberg is $1700 per month and you have to pay for the first three months up front, as well as signing up for a minimum contract period. The latest batch of forex news trading services use these more expensive data feeds, and then can pass on buy or sell recommendations if the actual data release is sufficiently different from the expected figure. Bloomberg does not let these services forward on the actual data release figure, but does allow them to forward on the deviation amount between the actual and the expected numbers.

I signed up for a month with ForexMasterMaker (which is a terrible name I think), as they offered the generic service of being hooked up to Bloomberg at their end, and passing on the deviation figure to their clients, via an online chatroom setup in Omnovia. While this basic service seems to be no more or less than what is offered by several other competitors, I was intrigued in that they were soon to release an application that each client could have installed on their own PC that would receive the deviation information and auto trade the news release, thus hopefully bypassing the time lag in even having to comprehend if the news release was tradeable or not. Set up your deviation parameters in the application and let it decide on whether a buy or sell trade is warranted. Unfortunately, this auto trade application has yet to make an appearance, so I can’t comment on how useful or successful it might be.

I have sat in on enough data releases now to have a fair idea if it is an approach that will work for me. At this stage I think I have to side with pretty much everything that Dirk says in this latest newsletter.

When it comes to trading news data releases there are basically three strategies that can be applied:

1. Trade the spike.
2. Fade the spike
3. Trade the aftermath of the spike in the minutes that follow the news release

Let’s take a quick look at each of these in turn. To trade the spike you need to know which direction the market is going to go immediately, and then get in your order before everyone else. All the forex news services that purport to help you trade the news that are hooked up to Bloomberg are trying to do just this. They have their ‘trigger’ values set up, that if the actual data release is sufficiently different from the expected data then the market is guaranteed to go in a certain direction.

As Dirk mentions in his newsletter most of the big players will sit on the sidelines of these news releases, which means that the amount of liquidity that will be available at the time of the news release could be anything. The other two enemies of the news trader trying to make money on the spike is time and their broker’s spread (assuming that their broker even allows them to trade the news in the first place). To make money on the spike you have to get your order in before anyone else. It takes time for the deviation amount to make its way from your news trading service to your PC. It takes time for you to process that information and make a judgement as to whether you want to make a trade or not, and if that trade should be a buy or a sell. It then takes time for your order to go from your PC to your broker’s server. Having an application on your PC that makes that split second decision for you (such as the one that ForexMasterMaker.com are supposedly working on) can definitely cut down on the time here, but how can you guarantee that you’ll be able to beat everyone else who is doing the same thing? Someone with more money can have their setup to be faster; they could have their computer physically located closer to Bloomberg (which is in New York), to cut down on the time it takes the Bloomberg data release to arrive at their computer, as well as using a broker that is also physically located in close vacinity too. They could pay to use dedicated internet lines to make sure they have the least amount of latency possible. This is a battle that the small retail trader will never win.

The second major impediment to trading the spike is your broker’s spread. The broker mentioned in Dirk’s newsletter that he says that recently started to widen their spread around news releases can only be Oanda. Brokers need to be able to make money to stay in business. A deal desk broker will generally be losing money on news releases if you’re making money. To dissuade traders from placing orders around news releases times they will widen the spread, thus making the chance of a quick profit on a sudden market move relatively unattractive to the trader. More often than not, the spread will widen dramatically just after the news release. I witnessed multiple instances where even if you had gotten in with your order before the spike occured, the spread would widen to such an extent that it was almost equal to the amount of the spike. Exitting for a quick profit is then next to impossible. Your only chance to evade the spread conumdrum is to use a broker that does not use a dealing desk, and uses an ECN. If nothing else, my investigation into news trading has resulted in my evaluation of forex brokers as they stand today. Things certainly move at pace in the world of forex brokers, and there have been some nice new features that brokers offer that were not available a few years ago. I have opened up back up brokerage accounts with Oanda and EFX as a result of this latest broker appraisal.

A third reason that spike trading won’t get you very far in the long run goes back to the liquidity issue. If you are trading a small amount of money then getting a fill on your order should generally not be a big deal (if you are quick enough to get in before the spike). Things are a world apart if you have a lot more money and are trying to get a fill on an order for a huge position. You will more than likely not be able to get a fill for your order all at one price, and who knows how much of a gap there will be between ticks. You could find yourself with part of your order filled at the bottom of the spike, and the rest of it filled right at the top of the spike. Not exactly an ideal situation in which to find yourself. Of course, most people trading the news don’t have such large accounts, so it’s not exactly something they have to worry about!

Let’s move on to the second possible news trading strategy: fading the spike.

This one is tricky in that there is no real way of knowing beforehand if the spike is going to fade at all. At least when trying to trade the spike you can use some quantifiable data (the news release itself) to determine if you have a valid trigger to enter a trade. The most popular entry technique for fading the spike is to fade if the actual news release is pretty much in line with the expected data value; if a spike happened anyway, then the reasoning goes that the expected data number was already factored into the market, so it should return to that price level given that the actual news release is in-line with what was expected. I have no statistical analysis to back up if this reasoning is an edge or not, but to me it seems to be more of a crap shoot than anything else. I think it equates to attempting for a quick scaple move.

The final strategy involves digesting the news release, waiting for the spike to do its thing and then making a decision if there is a trade to be made. In Tom Yeomans’ words: ‘Using your brain’. If your trigger value is conservative enough, then after a spike and fade there should be a good chance that the market will move in the direction as dictated by the trigger. The market should move over the coming minutes in that direction. An entry is made if the spike fades, or else at market if no fade appears. A predetermined profit objective level is used to know when to exit the market (generally some previously identified support or resistance level). If anything this is a microcosm of the relation analysis advocated by Dirk. The danger here comes from the random nature of the market as such short time frames. I don’t have enough experience of using this sort of trading method to comment further on it. This final strategy seems to be the methodology used by Tom Yeomans, as he uses the Trade The News audio broadcast to receive his news data, and is thus not attempting to trade the spike at all. He is also very conservative in the trigger values he looks for; far more conservative then most of the other news trading services that are currently out there.

And that is news trading in a nutshell, as it stands today.

Not quite the walk in the park that all the forex marketing wizards would have you believe.

Trade carefully.

Don’t trust your broker, but trust your forex counter party

2010-08-06T21:48:00.000-07:00

Because the forex market is not a centralized exchange regulated by exchange rules which assure participants that their transaction will be honoured, you have to trust your counter party. What makes this dynamic so interesting is that your counter party also has to trust you and that if this mutual trust is violated someone is going to come short.

Unfortunately retail traders are prone to seek opportunities to exploit the perceived faults in their counter parties’ armour. The moment that this threatens the sustained profitability of the counter party these schemes fall flat – they always have and they always will.

Scalper arbitrage was probably the first of these schemes. As marketing wizards competed to lure more clients, they decreased spreads and margin requirements which opened opportunities for arbitrage pip scalpers to enter the fray using a variety of tricks at the expense of their counter party – the market maker. The pip scalpers had fantastic demo account track records. Things changed the moment the market makers’ (real) money was on the table. This was probably the first fight that the retail traders (the pip scalpers) lost hands down against the market makers, who simply instructed their dealers to identify the pip scalpers who didn’t heed the warnings, and take them out. Problem solved.

The second one was straddling news releases. The thing the retail traders tried to exploit was marketing wizards luring clients with guaranteed fixed spreads and guaranteed stops. It was basically just the US non-farm payrolls that really attracted this group a few years ago. They would place entry orders on both sides of the market just before the data release. Apparently a win-win scenario. So what did the market makers do? They refused to guarantee that they would execute your price on the level you had entered it. As a result they could enter you at a bad price and then take you out on the stop on the retracement and even if you then made money on the other leg of the straddle, it was hardly enough for you to cover your loss on the first stopped-out leg.

However, systemic risk for the market maker remained a problem. If a few hundred or thousand retail traders take 100:1 and 200:1 bets on a data release, the market maker became seriously exposed. Market makers are there to make money, not to run the risk of blowing up on one economic data release.

The problem was that they had to cover themselves against the positions taken by the non-farm payroll straddlers by hedging their exposure at their own clearing houses. Now you try to convince a big bank dealer to take a huge position one minute before non-farm payrolls release. He will send you packing. So the market makers couldn’t off-set their risk and thus had to carry the risk of huge and highly leveraged positions themselves. One bit of bad luck and a whole month’s profits could be wiped out.

The market maker makes the rules

There was a particular non-farm payrolls day a few years ago during which, just before the release, the market was run up about 60 or 70 points and on the data release it was run down about 150 points. Blood flowed on “Forex Street”. The shoot-out was rigged. Rumours abounded that a large futures company caused this outrageous price movement. The market makers had had enough and changed the rules of the game to restore order and prevent news release straddles that could harm them.

How did they do this? Well, they made adjustments to their business practices and their contractual arrangements with clients. Spreads are fixed under normal market conditions and so stops will be honoured under normal market conditions, but not under abnormal market conditions – market makers were free to widen their spreads and thereby pass the risk on to the trader. Sometimes they simply wouldn’t allow traders from entering orders shortly before keenly watched data releases. And the decision as to what constitutes normal and abnormal market conditions rests exclusively with the retail forex market maker. Problem solved.

The Class of 2006 News Traders vs Market Makers

Straddling is no longer an option, so News Traders do the next best thing. They try to beat the gun by guessing the direction of the market’s first move, and then they try to benefit with highly leveraged positions.

There are a few challenges, however:

Being fastest on the draw. This means you need to get a good price close to the pre-release price and before your market maker removes the arbitrage opportunity (initial price spike according to News Trading theory) in an instant.

Being fastest on the draw also means you have to draw faster than the rest of the mob trying the same thing. The risk of them jumping the gun enters the equation.

Before you can actually start drawing to shoot, you have to decide what this data release actually means and how all those who react after you, will react to the data release. What will have the main and immediate affect, the headline or the details?

In other words you must take a guess if this data release will indeed cause a large enough move for you to risk taking the highly leveraged position and secondly, you have to guess correctly the direction of this move vis-à-vis the US dollar.

Opportunists who can see what is going on don’t try to jump the gun but jump in counter the first spike, causing more erratic price movements.

Here is a challenge for anybody who thinks he is going to make a living by consistently beating the odds in a well-publicised shootout with the ever-evolving dynamics I have described above.

Let’s assume you will be able to beat the gun and regularly get an extremely good fill on your news trade. All you will be dependent on then is to analyse the market correctly to understand if the first spike will be up or down (let’s look at it from a USD perspective).

How do you determine that? Well that’s the question, and it doesn’t have a simple answer, despite what the News Trading gurus, analysts and TV talking heads say. There are simply too many factors playing a role: the history of this particular data release, expectations, how far expectations are off or might be off, the actual figures of the data release, the expectations’ reaction to its own expectations, the expectations reaction to the data, it just goes on and on until the final result is just another bout of randomness.

If you don’t believe me try tossing a coin over a period long enough to get a representative sample and then compare your results with that of your guru’s. News Traders – architects of their own demise.

Let’s look at the dynamic the Class of 2006 News Traders cause in the FX market:

They don’t straddle the market beforehand. They jump in the market on the data release mostly in the same direction (there aren’t many gurus promoting this loony method to lose money). What happens? They cause a sudden great demand for a currency, let’s say euro. As a result euro’s price spikes up - I am talking a few seconds. Our news traders’ orders get filled usually at a worse price than they had hoped for but nevertheless they are in the market and then two things happen – this is before most professionals, still looking at the details of the release, even paid attention to the immediate price action. First this sudden demand just vanishes, so there is no upwards momentum to cause the follow-through the news traders hope will give them their measly pip target on their highly leveraged position. Secondly the weak “highly leveraged” hands with a few pips profit decide to get out, and in a wink there is suddenly euro supply and a turnaround materialises.

During all of this you have a market maker trying to make a decent market for decent clients and now having to manage this crazy action in a traditionally illiquid market. It took a very prominent forex market maker specialist - in fact the one currently with the highest net capital according to the CFTC reporting - about two months to figure out that they have a bunch of hooligan traders on their hands that could cause them serious damage. Their response, as I mentioned above, was to start fooling around with the spreads in order to discourage and chase away News Traders.

Fixed and floating spreads are a topic of a future newsletter, but understand this: widening spreads, thus increasing the cost and the risk to deal, is a basic protection mechanism of the forex market. In the week following 9/11 the New York Stock Exchange was closed as a protective measure against market meltdown. The forex market increased the spreads to 30 - 40 pips on the most popular pairs and 80 – 100 pips on the less liquid pairs.

News Trading is fundamentally an arbitrage opportunity, but like all arbitrage opportunities it will vanish very quickly if the market catches on. There is already evidence that this is happening and this evidence is clear from the reporting of the sudden change in fortunes of some of the gurus now selling this as a subscription opportunity. Whereas past records are reportedly flawless, recent records are certainly not.

In this case, just as with the initial pip scalpers, the arbitrage is basically a duel between the mob of retail traders and their market maker. There will only be one winner. The death knell for News Trading as a popular strategy

Why do people latch on to News Trading? Because they buy the pitch sold to them by marketing wizards that News Trading is the new way to become a consistent winner. There is no other reason. Unfortunately marketing wizards have already realized that News Trading can make good money for them (but not for you). Here is the proof:

One of the biggest forex marketing wizard companies is behind the popularisation of the 2006 News Trading fad. You must understand that News Trading only makes sense if it is done highly leveraged and very regularly. According to this specific crowd you must push the leverage and you must, wait for this, “place close stops”, because “it will be suicide to use the high leverage without close stops”. (And this is true, but it is only a half-truth, and as with all half-truths it is the other half that kills you.) If this strategy were to be put forward by an individual he would appear foolish. But touted and encouraged by a market maker and their introducing brokers it appears legitimate and savvy.

I downloaded a free report some two years ago from a company. The report gave statistical evidence regarding very short-term price behaviour and supports my contention that it is basically random and that there is no edge to be derived from searching for repetitive linear patterns in these very short-time frames. This company has now changed its view on the randomness of short-term price behaviour. Needless to say they now push News Trading. Unlike some outfits who ask subscription fees for their services (guessing which way the market will go after data releases) everything is free, but you must open a trading account to use their automated News Trading service at the big marketing wizards mentioned above. Even documentation prepared by the big marketing wizards above is provided by this company.

It is pretty clear who sits behind the current popularisation of News Trading. The beneficiaries of regular highly-leveraged-tight-stop trading strategies are the market makers and their marketing agents who promote the viability of this kind of hair-brained trading.

(I again want to point out that while professionals may even play along and have a punt on some data releases it will never be a consistent feature of their professional strategy to expose themselves to any great degree. Yet this is what you are encouraged do: take all your trading capital, gear it up like crazy and take a punt on what is essentially an event with a 50 / 50 probability of satisfying your highly leveraged bet. The placement of a close stop practically ensures that in every instance you do not make money, the market maker gets a nice pay out in addition to whatever he made on the spread.)

And that is why I say you can bet your bottom dollar that most fools who try News Trading will lose. Different game, but the same people are selling it. Here is an example of why you should be very afraid.

A prominent and respected analyst at one of the largest market makers (and marketing wizards) wrote an article on News Trading in which the technical analysis approach to intra-day trading is debunked. Now this should make your ears prick up because they were (and still are) the very ones punting it – to take your money. Ever innovative, they have come up with News Trading as the big new thing, though in this research article news trading in the spot forex market is discouraged. So what is the solution – can retail traders win?

Yes they can win. They can win if they first of all do not fall for the tricks of marketing wizards. In order to be able to do that you must understand the market very well. Secondly you need to have a strategy that is, or has aspects of it, used by professionals.

Thirdly, and this is very important - you must not catch the unwanted attention of a market maker.

Do not violate the trust relationship that is supposed to exist by trying to exploit weaknesses in the system and create a scenario where your market maker can only lose. He holds the aces because he can change the rules of the game. If you have a strategy that offers a winning edge, you will be able to negotiate this market and make money without resorting to any fundamentally flawed concepts and tactics which attract the sort of attention from your counter party that will end up costing you money.
There is more than one way to make money trading any market and there are a myriad of factors playing a role in being successful, including having a scientific edge, being a master of relevant analysis and working through the constant changes in the markets. Success as a trader does not come cheaply, it does not come overnight and it does not come from running after every fad touted by marketing wizards. Success is hard earned, requiring application of, and dedication to, sound trading and business principles.

Mortgage Life Insurance

2008-08-09T07:37:00.000-07:00

Mortgage protection life insurance is simply insurance that is meant to pay off your mortgage in case of your death while the mortgage is not fully paid.

The original type of mortgage life insurance followed the amount of the mortgage balance so, as your mortgage obligation decreased, so did the amount of insurance. Today it usually makes more sense to get mortgage life insurance equal to the original mortgage amount but instead of a decreasing amount of insurance, you simply get the most inexpensive level term insurance.

Recently it has become more common to buy return of premium policies for mortgage term life insurance. The reason this type of insurance is used is that currently traditional mortgage life insurance rates are not as competitive as most term life rates. and with return of premium, if you keep the policy, you get all the payments paid back to you.

The most affordable is the level premium, level benefit term life policy. This type of insurance can be purchased for a period of time such as 30 years, 25 years, 20 years etc. The policy amount is guaranteed not to decrease and the premium can be guaranteed for the full period of time.

Traditional mortgage protection life insurance is occasionally still marketed by banks and some agents but it may make more sense for you to get:
1. An insurance policy with guaranteed lower rates than a mortgage life insurance policy
2. One that will pay off your mortgage in case of your death
3. The insurance amount does not decrease.

To get a mortgage life insurance quote or an instant life insurance quote for other needs, click here.

Return of Premium Insurance to cover your mortgage

Another method becoming more and more popular is Return of Premium Term Life Insurance. This type of life insurance is term insurance with the added and unique benefit that when you keep it for the full term (20 years, 30 years) you get all your premiums back, tax free!

Using this method, the insurance will be there to pay off your mortgage but in the likelihood that you live and you keep the policy, the insurance company guarantees to return all the money that you paid on the policy and since it’s considered a return of what you put in, it comes back tax free. This kind of mortgage term life insurance can be more appealing since it is likely that you will live to the end of the term period.

This money that comes back to you on a return of premium life insurance policy is money that you can use to enhance retirement, take a trip you dreamed about or just enjoy any way you please.

Learn more about types of life insurance or get an instant life insurance quote online.

By : http://www.lifeinsure.com

1 Spread on Major Pair and Welcome Bonuses on FXClearing

2008-08-02T12:25:00.000-07:00

FXClearing, a boutique forex brokerage from Ottawa, Canada. Our goal is to provide a level of service to forex traders of all levels, as normally experienced only by much bigger individual and institutional clients at other brokerages.

Working with FXClearing you can trade confidently and comfortably being supported by our professional multi-lingual support staff.

Here at FX|Clearing, individual forex traders of all sizes can find something to like. We invite you to explore our institutional trading terms and advanced trading platform, and if you have any questions just contact us for any assistance. Our ultimate goal is to create the finest trading environment for our clients.

About Us

FX Clearing Group Inc. (Ontario Corp) was registered in the Ministry of Government Services (formerly Ministry of Consumer and Business Services) on Sep. 15, 2006. Registration #1710457.

There is no forex licensing in Canada, and we are not required to obtain a security license if no Canadian clients are accepted.

In accordance with the law we report to FinTRAC, a Canadian government anti-money laundering organization.

We are dedicated to providing excellent trading terms, transparent operations, automatic execution, and other benefits normally provided only to larger institutional clients.

FX Clearing Group, Inc. complies with the following regulations:

FX|Clearing carrying on business as an online Forex Exchange Dealer for foreign investors adheres to the Personal Information Protection of Electronic Documents Act (Canada) (hereinafter the “Act”).

As a Foreign Exchange Dealer, FXClearing is required by law to collect from individuals personal information such as: name, date of birth, addresses, occupation, and a copy of federal documents. Personal information supplied to FXClearing is confidential and FXClearing will not sell or in any way distribute such information provided to FXClearing to any third parties unless authorized to do so by the individual or as required by the Financial Transactions and Reports Analysis Centre of Canada (“FinTRAC”) or other applicable regulations.

FXClearing is also required by law to be sensitive to “suspicious activities” and “suspicious transactions” which activities and transactions FXClearing must report to FinTRAC and FXClearing must be sensitive to terrorist activities of individuals, entities, and countries identified by the United Nations and other national and international agencies.

In order to comply with its ongoing record keeping and disclosure requirements, FX|Clearing has appointed a compliance officer who may be contacted for questions or complaints regarding FXClearing’s treatment of personal information at compliance@fxclearing.ca

OPEN AN ACCOUNT

Just sign up here to get your bonus www.fxclearing.ca

Trading Term

Trading Hours:
Sun 17:00 EST - Fri 16:00 EST.
Swap Schedule:
Positions rolled over at 17:00 EST.
Interest on Unused Margin:
2% annually.
Platform:
MetaTrader 4.
Contract Sizes:
1,000 (micro - for mini accounts only), 10,000 (mini) and 100,000 (standard) lots can be traded on Mini and Professional accounts.
Execution:
Automatic. All entry and stop orders are honored during normal market conditions.
Spread Widening:
Spreads are fixed. Only during the major news announcements may spreads be expanded.
Scalping:
Methodical scalping (picking) is not allowed.
Grid/Martingale-type strategies and expert advisers are prohibited, because they lose clients' money while overloading our servers.
Expert Advisers:
Most types of EAs are generally allowed, however, certain types of EAs cannot be adequately hedged by our dealing desk, and thus may be prohibited.
See your trading agreement for details.
Margin Call:
Margin Calls protect you from losing more money than you have in your account. Positions will be automatically closed out when account equity is not sufficient to maintain the margin. Click here to read about the margin call procedures.
Stop and Limit Orders:
All stop and limit orders up to 10 standard lots will be honored under normal market conditions.
Deposit Currencies:
Paypal and Moneybookers deposits are available in USD, EUR, GBP and JPY without conversion; You will see you profit/loss in the currency of deposit and will be able to withdraw it in the same currency, thus avoiding currency conversion fees.
No third-party deposits or withdrawals are allowed.

Spread:
1 pip on EUR/USD, USD/JPY, GBP/USD, and USD/CHF;
For full spread list, click here.
Leverage:
Choose from 200:1, 400:1, or 500:1
Minimum Deposit:
$1.00
Maximum Deposit:
$5,000 - but you can continue to grow your account beyond this through profitable trades.
Maximum Lots for Auto Execution:
No maximum.
Swap Interest:
Swap-free. No swap interest paid or earned.
NEW: Micro Lots!
Contract sizes of 1,000 are now available for Mini accounts.

Spread:
2 pips on EUR/USD and USD/JPY;
3 pips on GBP/USD and USD/CHF;
For full spread list, click here.
Leverage:
50:1, 100:1, 200:1, or 400:1 for accounts from $5,001 to $10,000;
50:1, 100:1, or 200:1 for accounts from $10,001 to $30,000;
50:1 for accounts from $30,001 and up;
Minimum Deposit:
$5,001 and up
Maximum Deposit:
No maximum.
Maximum Lots for Auto Execution:
5 standard 100k lots
Swap Interest:
Positions EARN or PAY interest, depending on instrument.

Detail Term

http://www.fxclearing.ca/eng/services

Deposit Fund

After you have applied for a live account and were approved by FX|Clearing, you will receive instructions for delivering funds to your trading account.

There are several methods of deposit available, including Wire Transfer, PayPal, and Moneybookers.

No deposit fees apply.

Withdawal Fund

In order to withdraw funds from your account, please download, complete, and return to us the Withdrawal Request Form, which you can download by clicking here.

Fax your completed withdrawal form to +1-208-988-6799 or scan and email it to withdrawal@fxclearing.ca

All withdrawals are FREE as long as you maintain a trade volume of 10 standard 100k lots (or 100 mini lots) per month, at least.

Furthermore, FX|Clearing does not charge for withdrawals via third-party payment services such as PayPal and Moneybookers.

However, these third-party services may charge their own transaction fees. Please consult their respective websites for information about their transaction fee schedule.

Withdrawals via direct bank wire transfer incur a fee of $30 per transaction.

Contact Information

Address:	FX Clearing Group, Inc. 412-840 Springland Dr. Ottawa, ON K1V6L6 Canada
Tel:	+1-613-435-7429
Fax:	+1-208-988-6799
Email:	support@fxclearing.ca

The Rupee Checking Savings Account

2008-07-22T08:12:00.000-07:00

The Rupee Checking Account is a savings account opened in India. The money deposited in to the account is converted to Indian Rupees, as per the foreign exchange rate2. You can operate the account like any other, from anywhere in the world. Your family in India can also make transactions, as a mandatee.
•
The account is for Non-Resident Indians and Indians travelling abroad on work with a valid passport and a valid H1/L1/J1/H1-B visa
•
The Rupee Checking Account can either be an NRE or NRO account
•
The Rupee Checking Account can be opened with an initial credit of USD 1000 (equivalent) and you can enjoy a waiver on the minimum balance for the next 10 years. In the absence of a specific offer Rs. 40000 needs to be maintained as minimum balance in the account. This earns you an interest of 3.5% per annum
•
You can deposit money into the account from anywhere in the world and enjoy privileges such as easy money transfers2 and FREE Demand Draft3 issuance and deliveries at over 700 locations in India
•
The Rupee Checking Account gives you the flexibility to transact on your account, from anywhere in the world.
•
You and your joint account holders (if any) will receive
- FREE International ATM / Debit Card
- Checkbook
- Online access to your account
•
Your mandatee (if any) in India will receive a
- FREE ATM / Debit Card
- Checkbook (if the facility is provided).

Many Needs, One Account

With the Rupee Checking Account, you can not only transfer money to India easily, but also do much more. It is an account that opens up a window to all your financial needs in India so that you can take care of your family from miles away.

With the Rupee Checking Account, you can -

•	Insure - Buy an Indian insurance policy, or pay the premiums of existing insurance policies. Protect your family and plan their lives Currently not available for Kenya, US & Canada based customers.
•	Invest - Tap the potential of the Indian economy. With the Citibank Rupee Checking Account, you can invest in various schemes , such as - Mutual Funds, Deposits and Real Estate in India Investments in India via the Rupee Checking Account is not applicable for customers residing in U.S.A., and Investments in India via Citibank Online is not applicable for customers residing in Canada & Australia.
•	Avail Home Loans - You can help your family in building their dream home. Avail a Citibank Home Loan, or pay the EMIs of home loans from other financial institutions
•	Pay Utility Bills - Pay the utility bills of your family in India - such as electricity, telephone and mobile bills, right from where you are
•	Send Gifts to India - Be part of every occasion that your family celebrates. All you have to do is, visit our Great Offers shopping page to start shopping online with your Citibank Rupee Checking Account Debit Card. Get up to 40% off on various merchandise

Non-Resident External Account (NRE account) can be a current / savings account held in India, in Indian Rupees. The account can be funded primarily by funds from abroad. In an NRE account -

•	The principal amount and the interest are fully repatriable (can be converted to any foreign currency)
•	Income from the interest on the amount is non-taxable
•	The money from the account can be transferred to any other account
•	The interest earned in the savings account is 3.5% per annum⁴. The current account is a non- interest bearing account.

Non-Resident Ordinary Account (NRO account) is a current / savings account held in India, in Indian Rupees. An NRO account is best suited for NRIs who have sources of income in India, such as rent, interest gained from any mutual fund, pension, etc.

In an NRO account -

•	Current Income like rent, dividend, pension can be remitted abroad through the NRO account. Funds which can be repatriated from the NRO are subject to a maximum limit of USD 1 million per financial year.
•	Income from the interest on this account is liable for Indian Income Taxes
•	The interest earned in the savings account is 3.5% per annum⁴. The current account is a non- interest bearing account.

Compare, Select and Save on Health Insurance

2008-07-20T09:09:00.000-07:00

iSelect has been established to help you choose a health insurance policy that suits your needs. iSelect.com.au has created one of the fastest growing destinations for consumers to compare, select and purchase a range of health insurance policies from participating health funds. Consumers are increasingly demanding more information prior to committing to a particular product. Working with its participating health funds, together we help provide informed choices for consumers. iSelect is a leading Australian health insurance comparison site (ranked 2nd by Hitwise June 2007). Launched in 2000, iSelect has become a site of choice for shoppers to compare, select and save across a range of great policies. iSelect operates nationally and is based in Melbourne.

Ten ways to save money on life insurance

2008-07-20T08:54:00.000-07:00

Just as there are different life insurance plans to meet your needs, there are different ways to save money on life insurance.

The most important is to shop around. There are hundreds of insurance companies, offering a wide variety of plans and prices. You could save big bucks just by doing some comparison shopping.

Here are 10 more ways you can save money on your next life insurance purchase.

1. Consider term insurance

Some financial planners advocate life insurance policies with cash value components because they force you to save money. Others recommend you buy term insurance for the cheaper premium and then invest the difference.

Term life insurance gives you the most coverage for your buck.

Cash value in life insurance should not be considered a traditional investment, because any withdrawals or loans not repaid will reduce your death benefit. Also, if you take a partial withdrawal from the cash value of your policy in an amount greater than your total premiums, the withdrawal in excess of your total premiums is considered income to you and, therefore, taxable. In addition, every year you own the policy, more of your premium money goes to pay for the cost of insuring you, and less of it goes toward the cash value.

Furthermore, the difference in premiums between term vs. perm life insurance is not just a matter of a few dollars per year. According to the Society of Actuaries, premiums for whole life can be 5 to 10 times higher than the same amount of level term life, depending on the kind of level term being compared. For example, if you're comparing the premiums of 30-year level term it will be a smaller multiple, while premiums on a 10-year term policy could be a larger multiple.

2. Seek out low-load policies

"No-load" or "low-load" life insurance policies have fewer expenses built into them, such as agent commissions and fees, than other life insurance policies. This can mean lower premiums. For variable life insurance, these lower expenses mean a higher percentage of your premium goes to work for you right away, allowing you to build your cash value faster.

No-load policies can be purchased through financial advisors who charge flat fees rather than collecting commissions from insurance companies. Some companies also sell "low-load" policies directly to customers, such as Ameritus and TIAA.

3. Don't buy a guaranteed issue policy if you are healthy or even with some negative medical history

"Guaranteed issue" life insurance policies require no medical exam and are sold to anyone who applies and pays the premium. Since there is no underwriting done, guaranteed issue policies are riskier for the insurer and are, therefore, more expensive than fully underwritten insurance policies. While these policies can be a great way for people who have medical problems to obtain life insurance, if you're healthy — or even if you have some medical problems — you'll get better rates by opting for an underwritten policy, for which you take a medical exam.

The high premiums, combined with a low face amount for the death benefit, can make guaranteed issue life insurance a less desirable option. For some of these policies, you could end up paying more in premiums after only a few years than your beneficiaries might ever receive from the death benefit.

4. Shop online first

While not all online life insurance quoting services will give you the best quote available for term life insurance, they can still be a useful source of information about prices. Just remember, the more personal information you give, the more accurate your online quote will be, but "the lowest quote" should still only be used as a baseline for shopping around.

5. Improve your health

Having health problems can make it hard for you to buy life insurance. High blood pressure, diabetes and heart disease are among the conditions that can make life insurance companies pump up your rate.

Then there are rates for smokers. Smokers may pay significantly greater premiums than non-smokers, and you can't quit the day before you apply. For many companies, the minimum "nicotine-free" period is two years for a non-smoker rate. Some companies will consider you a smoker for as many as five years after your last cigarette.

If you smoke marijuana, pipes or cigars, but not cigarettes, you still must admit to being a smoker on the policy application, although insurers don't generally differentiate between different types of smoke inhalation. (Marijuana users must also disclose drug use.)

Insurance companies use urine tests to check for the presence of nicotine. If you chew tobacco, you might end up paying smoker rates for your life insurance policy.

If you're healthy but somewhat overweight, you will likely be quoted higher rates too.

If you have a pre-existing medical condition that could lead to higher rates, you'll make your underwriters happier and probably get yourself lower life insurance premiums by showing your insurer a history of improving your health, taking your medications regularly and acting responsibly about your health.

6. Don't buy more, or less, than you need

Many experts say the best way to determine the amount of life insurance you should purchase is a needs analysis. It's a basic formula: short-term needs + long-term needs - resources = how much life insurance you need. Michael Snowdon of the College for Financial Planning in Denver says this method is "probably the most accurate approach in what is an inaccurate and imprecise science." Insure.com's Life Insurance Needs Estimator Tool can help.

Experts advise that you do an analysis at least once every three years, or whenever you have a major life change. For example, if you have a new baby, you have to recalculate college education needs and child-care costs. If you own a home, a mortgage is likely your biggest financial burden. Because your mortgage balance decreases with each payment, it's important to include those revised figures in your calculations.

7. If you need more life insurance, consider a rider as opposed to a new policy

Just because your needs change doesn't mean you should run out and buy a new life insurance policy. In many cases, a rider adding extra coverage to an in-force whole life insurance policy can let you expand your coverage without sacrificing your built-up cash value. At the same time, be sure to shop around. If you're still in good health, you might be able to get a better deal by buying a supplemental term life policy to supplement your original one.

8. Buy as soon as the need exists

An advantage to buying life insurance as soon as possible is that your premiums are lower. As you age, life insurance gets more expensive. Many term policies give you the option to renew your coverage at the end of the term without undergoing another medical exam. You also can lock in premiums by asking for a "level premium" policy, which means for a specific time period, say 20 years, your premium rate stays the same. After that term expires, your rates will increase. But if you don't have any dependents, your money will be better spent elsewhere.

9. Check your credit report before you apply

Just as you should check your credit rating before applying for a loan, you should have a look at your credit report before purchasing a life insurance policy.

If there are problems with your credit, you could be denied coverage or be placed in a higher risk class because insurance companies will be concerned you would let the policy lapse due to non-payment of premiums. If this happens in the first couple of years that a life insurance policy is in force, the insurer stands to lose money because of the high up-front commissions they pay to agents.

The total first-year compensation payout on a life insurance policy may be as high as 100 percent, considering agent commissions, supervisory overrides and production bonuses.

10. Pay your insurance bill annually

Once you've found the best insurance policy for your needs, find out if you can save money by the way you're billed. Some insurers charge you less if you pay annually and more if you pay monthly.

In general, the fewer payments you make over the course of the year (known as fractional premiums), the less you'll pay overall. Also, some insurers charge less if they can deduct the premiums directly from your checking account.

Life Insurance Basics

2008-07-20T08:26:00.000-07:00

Many of us buy life insurance because we want to make sure that our loved ones, especially dependents, remain financially secure after we die. Income replacement is the No. 1 reason people buy life insurance.

Non-earning caregivers also have an important — and often overlooked — economic value that should be covered by life insurance.

Life insurance is also purchased by those interested in achieving specific business or estate-transfer goals.

There are many types of life insurance policies depending on your goals, and there are huge price differences among different companies offering identical coverage. Policies are available from hundreds of life insurance companies in the United States. Most financial planners recommend that each family income provider carry no less than 10 times their annual income in life insurance, but an even better way to determine your coverage need is to use an online calculator like Insure.com's Life Insurance Needs Estimator Tool

Here's an orderly way to go about shopping for life insurance:

1) Assess your needed life insurance amount .
2) Decide on the most appropriate policy type for your goals.
3) Choose possible companies by setting high standards for financial stability ratings.
4) Shop until you find the best price.
5) Look at ways to save money on life insurance.

Life insurance is a long-term proposition, so you should pay particular attention, at time of purchase and throughout the life of the policy, to the financial stability ratings of your life insurance company. Ratings indicate a company's ability to pay claims.

Assessing your life insurance needs

The first step in life insurance planning is to analyze your life insurance needs — meaning the economic needs of dependents left behind:

Before purchasing a life insurance policy, consider your financial situation and the standard of living you want to maintain for your dependents or survivors. For example, who will be responsible for your final medical bills and funeral costs? Would your family have to relocate or otherwise change their standard of living after losing your income? The assumption of immediate death is necessary to determine the current life insurance needs for a family or individual.

Add in the longer term financial needs of the remaining family members, such as: children's expenses, income for the surviving spouse, mortgage and other debt payoffs, college education funds and an additional emergency fund.

Because life insurance needs change over time, your life insurance amount should be reevaluated periodically. We recommend a review at least once every five years or whenever you experience a major life event such as a change in income or assets, marriage, divorce, the birth or adoption of a child, or a major purchase such as a house or business.

In theory, you should have a declining need for life insurance as you age because fewer people remain dependent upon you for income support. Exceptions would be protecting a business entity or paying taxes on a large estate for heirs. If the purpose of buying life insurance is to pay estate taxes, then you’ll need permanent life insurance, which is in-force as long as you live and pay premiums.

Policy choices

Life insurance policies are divided into two main types:

Term life insurance, which provides only death protection without any side funds or “cash values” (offering the least expensive cost per $1,000 of death coverage purchased).
Permanent life insurance, which has “cash value” accounts in which a return-on-investment component becomes an often complex and expensive part of the policy (most expensive cost per $1,000 of coverage).

Term life insurance

The simplest of all life insurance to understand and the cheapest to buy: Term life insurance provides death benefit protection without any savings, investment or “cash value” components for the term of the coverage period.

Term life insurance is available for set periods of time such as 10, 15, 25 or 30 years। With "annual renewable term life," your policy automatically renews each year and premiums increase as you get older. Choose "level term insurance" if you want your premium to stay the same for the duration of the policy. Also available is "decreasing term insurance," where premiums remain level but your death benefit declines over time. This is good if you want to cover only a specific debt that decreases, such as a mortgage or business loan.

As long as you pay your premiums, the company cannot cancel you.

Term life insurance is a popular choice because of the long rate-guarantee periods and because premiums are at all-time lows. However, if you get to the end of your policy term and still need life insurance, you'll need to shop for a new policy, which will then be priced based on your older age and health status.

Choosing an initial rate-guarantee period is easy: Match the period of time your dependents need your income to the available rate-guarantee periods. For example, if your children are young and you have decades to go on your mortgage, try 30-year term life. If your children are leaving the nest and your home is paid off or nearly paid off, 10-year term might fit the bill.

Other policy provisions that drive the popularity of term life insurance are guaranteed renewal and guaranteed convertibility.

Guaranteed Renewal. Before you buy a term life policy, ask the agent or company to confirm to you that the policy contains a guaranteed renewable option, which grants you the right to continue coverage beyond the initial rate-guarantee period without a medical exam. This feature, found in most term life policies sold today, is extremely important should you become sick and uninsurable toward the end of your rate-guarantee period.
For example, say that you’ve been paying $800 per year on a $500,000, 20-year level term life policy and develop cancer near the end of the 20-year period, thus making you uninsurable. Assuming that you want to continue the coverage, a guaranteed renewable clause would allow you to continue the coverage beyond 20 years on an annual renewable basis without an exam, albeit at a much higher annual premium of, say, $8,000 in year 21, $11,000 in year 22, and so on.
You may have sticker shock right now but these premiums don’t look so high when you are very sick and uninsurable but still in need of coverage.

Guaranteed Convertible. Another built-in feature of most term life policies is the right to convert your coverage to any cash value policy that the company might offer at current rates without having to take another physical exam. This feature may be the future if you decide you want cash value life insurance.

If you'd like term insurance to cover you for a certain period of time but you're confident you'll outlive the policy, consider a "return of premium" (ROP) term life insurance policy. Under this type of policy, if no death benefit has been paid by the end of your insurance term, you receive all your premiums back (tax-free). Return of premium term life insurance generally costs 50 to 150 percent more than a comparable term policy but it provides a way to hedge your bets no matter what happens.

For more, read "Return of premium" term life insurance comes of age.

Term life insurance is widely available on the Internet, from direct-to-consumer life insurance companies and from insurance agents and brokers.

For more, read The basics of term life insurance.

Cash value life insurance

If you want more than a death benefit from your life insurance policy and like the idea of a long-term savings account (not insured by any federal agency) or stock market investment, you might consider cash value life insurance such as whole life, universal life or variable life। But be prepared to pay much higher premiums per $1,000 of coverage precisely because you are now funding a cash value account and paying fees and expenses.

In many cash value policies, the annual premium does not increase from year to year. Universal life policies allow you to fluctuate or even skip premium payments, which in turn adjusts your death benefit amounts.

Unlike term life insurance, which is easily compared online, cash value insurance is often marketed by agents and brokers in a face-to-face setting, where needs and strategies can be discussed.

Because of the complexity and dizzying array of possible outcomes for permanent life insurance, regulators insist that cash value insurance be sold using pre-approved illustration formats. These illustrations can run to 15 or more pages. Cash value life insurance illustrations are divided into two major sections: guaranteed values and projected or “illustrated, non-guaranteed” amounts. Illustrations can be complex and hard to compare in an apples-to-apples way.

Pay particular attention to the guaranteed death benefit and premium-payment sections because these columns contain the actual company promises. If you don’t like what you see there, walk away.

Another caveat: Many cash value policies contain harsh penalties for surrendering the policies in the early years. Changing your mind within the first few years is an expensive decision.

For more on cash value and an example of a policy illustration, see Cash value in life insurance: What's it worth to you?.

Whole life

Ordinary whole life insurance offers “permanent protection” with a cash value account that grows over time। Whole life provides a level death benefit and level premiums throughout your life and for as long as you continue to pay the premiums। For example, a healthy 40 year-old female might pay $4,200 per year for a $500,000 whole life policy. The premium remains level at $4,200 per year for the rest of her life and, in the event of death at any age, the policy will pay $500,000 to her beneficiary.

Whole life also contains a cash value account that builds over time, slowly at first and gaining steam after several years. You can withdraw your cash value or take out a loan against it, but remember, if you die before you pay back the loan, the death benefit paid to your beneficiaries will be reduced. For example: Susan has a $500,000 whole life policy in force and, over the years, has borrowed continually from the cash value. Her total loan amount and accrued interest totals $300,000. When Susan dies, her beneficiary will receive $200,000 because the life insurance company will first pay itself back from the death benefit.

Understand what your beneficiaries will receive upon your death. If you have a traditional whole life policy, your beneficiaries receive only the death benefit no matter how much cash value you've built up. Other payout options available for higher premiums are:

Death benefit plus cash value
Death benefit plus return of premium

Whole life policies can be issued as "participating" or "nonparticipating." Participating policies typically cost more but may return annual dividends if the insurer has a good financial year. Dividends are never guaranteed. Nonparticipating whole life insurance offers no dividends.

Buyers of whole life insurance like the certainty of fixed premiums with a known death benefit for life. They also appreciate the "forced savings" component and watching their cash value account build up.

Universal life

This kind of policy offers greater flexibility than whole or term life. Universal life has many moving parts to understand before you buy.

After your initial premium payment, you can reduce or increase the amount of your death benefit. Also, after your initial payment, you can pay premiums any time and in any amount, as long as you don’t miss a minimum payment level. In some cases, there are limits to how much extra you can pay in advance. If you choose to increase your death benefit, you may have to provide medical proof that your health has not deteriorated.

You will need to manage these policies to maintain sufficient funding, especially because the insurance company can increase charges.

Some new universal life policies perform like term life insurance: They can be configured at the time of purchase to provide both level death benefits and level premiums that are guaranteed for life as long as you pay the scheduled premium.

Variable life

Variable life offers a death benefit with a side fund that operates like an investment account. It shifts the uncertainties of investment gains and losses to the policyholder.

The insurance company invests your premiums and offers you a choice of funds in which your money will be invested. Returns are not guaranteed. The amount of money your beneficiaries will receive and the cash value of your policy depend on how well the underlying accounts perform. Theoretically, the cash value can go down to zero and, if so, the policy will terminate. Some variable life policies will guarantee a minimum death benefit.

Other permanent life considerations

When your cash value account grows large enough, it can be used by the insurer to pay your premiums for the rest of your life. This is known as being "paid up." You can still withdraw your cash value, but you'll have to resume premium payments to keep the policy in force or settle for a reduced benefit that the remaining cash value can support. Your policy illustration will show you how long it may take for your whole life policy to be "paid up."

If you no longer want your whole life policy, you can surrender it to receive the current cash surrender value or convert it into an annuity, but keep in mind that cashing in a permanent policy after only a couple of years is an expensive way to get insurance protection for a short time.

For more on permanent life insurance, see The basics of whole life insurance

Riders add benefits

You can add riders to your life insurance policy that guard against a number of unpleasant situations. Your insurer will have its own list of available riders, but here are a few:

Accelerated death benefit rider (aka living benefits rider): Pays the benefit early if you become terminally ill.
Accidental death benefit rider: Pays an extra benefit if you die as the result of an accident.
Long term care rider: Pays for long term care expenses should you not be able to do some of the "activities of daily living," such as dressing or toileting.
Waiver of premium rider: Waives premium payments should you become totally disabled.

How life insurance is priced

Life insurance is priced based on your life expectancy, the face amount you request and the length of the policy, whether it's the duration of your life (whole life) or a specific period (term life).

Because your current and past health conditions impact your life expectancy, insurers want to know as much as possible about your health condition. Common conditions such as high blood pressure, heart disease, obesity, cancer and depression can all raise your premiums or even result in a declination.

Based on your medical history, you'll be grouped into a category such as "preferred plus," "preferred," "standard" and "substandard." Your category ultimately determines your premiums. For more, read How life insurance companies view you: Underwriting categories.

Insurance buyers with severe health conditions or a combination of conditions can find it hard or impossible to find life insurance. They are known as "impaired risks." Local agents may not be experienced enough to find a company that specializes in insuring people with certain medical conditions. Fortunately, impaired-risk specialists have expertise in knowing where to direct applications for folks with medical conditions. For more, read How impaired-risk specialists find life insurance for people with medical problems.

The life insurance buying process

The life insurance applications process is paper-intensive, can take weeks and often seems intrusive for people who value their privacy. A face-to-face paramedical examination is generally required for policies in excess of $100,000, which means, at minimum, giving of both blood and urine samples to the paramedical professional.

Expect questions in detail regarding your lifestyle, intended foreign travel destinations, your family health history and your personal health history। Do you intend to scuba dive? Have you had parents or siblings with heart disease or cancer before age 60? Have you ever taken any medicine for anxiety or depression? These, and more, are the kinds of questions to expect.

Sometimes multiple interviews are required in order to verify your information. The paramed examiner typically asks these questions face-to-face and often insurance companies will conduct follow-up telephone interviews so that you can verify the first set of answers. Regardless of the type of life insurance you buy, most policies require you to meet certain guidelines regarding your lifestyle and health history.

For more, read The lowdown on life insurance medical exams.

If it sounds tempting to shortcut this process by fudging on an answer or withholding information, don’t do it. It’s a crime in all 50 states to lie about or conceal information on a life insurance application. Besides, policies obtain through fraud can be voided at claim time.

Insurers will likely report your medical exam results (reported as numbered codes) to the Medical Information Bureau (MIB), which maintains a database of those who have applied for life insurance in the last seven years. If you've given different answers to medical questions in the past, it will raise a red flag with the MIB. The goal of the MIB database is to reduce fraud.

All standard life insurance policies generally cover death by any cause at any time in any place, except for death by suicide within the first two policy years (one year in some states).

If you know don't care to go through the underwriting process, you have two other, more expensive, options:

Simplified issue life insurance can be purchased after answering only a few medical questions. There is no medical exam required. However, if you report health problems, you will likely be declined. Also, if you are healthy, or even if you have some negative medical history, an underwritten policy is still going to be your least expensive.
Guaranteed issue life insurance is sold to anyone who applies (up to an age limit) and is by far the most expensive way to purchase life insurance. This should be considered only by those who are declined for everything else but still need life insurance. These policies have graded death benefits, meaning your beneficiaries won't receive the full death benefit until several years into the policy.

In naming a beneficiary, keep in mind that the life insurance company will want to see only the names of those who are financially dependent upon you. An acquaintance, friend or relative, absent of a financial relationship, will not do.

Working with an agent

After reviewing the various life insurance policies available, you might still be unsure about which best meets your needs. The American Council of Life Insurers (ACLI) recommends consulting an insurance agent. ACLI spokesman Jack Dolan says an agent can recommend policies that will meet your needs. “Look at the recommended policy with care to be sure it fits your personal goals.

Carefully study your agent's recommendations and ask for a point-by-point explanation. Make sure the agent explains items you don't understand. Because your policy is a legal document, it is important that you know what it provides.

Insure.com offers these recommendations for deciding which type of life insurance to purchase:

If your agent recommends a term life policy, ask:

What is the Standard & Poor's, A.M. Best, Fitch, Moody’s and Weiss ratings of this insurance company?
What is the initial rate-guarantee period? Is this policy renewable past the initial rate-guarantee period without a physical exam? If so, what are the premiums?
Is this policy convertible to permanent insurance without a physical exam? If so, for what period of time do I have the right to convert?

If your agent recommends a cash value policy, ask:

What is the Standard & Poor's, A.M. Best, Fitch, Moody’s and Weiss ratings of this insurance company?
Can you tell me, in writing, why you are recommending cash value insurance for me at this time?
Why should I combine my life insurance protection needs with my investment objectives?
Can you please prepare an analysis for me that shows the true cost of this cash value insurance policy over 5, 10, 15, 20, 25 and 30 years vs. buying term life and investing the difference in long term bonds over those same time periods?
How much is your first-year commission on this proposed cash value policy vs. your commission on an equivalent term life insurance policy?
Are these proposed annual premiums within my budget?
Why do you think that I can commit to paying these premiums over the long term, perhaps decades?
How much will I receive if I surrender the policy?

A Term Life Insurance

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Term life insurance is the simplest type of life insurance. It is usually meant to be temporary, covering the insured for a fixed amount of time, with premiums that often increase as the insured ages. Like any other type of life insurance, term life insurance represents a legal contract between the owner of the policy and the insurance company, and like any type of contract, it has a language of its own. Knowing the definitions of common terms can help you understand exactly what you’re paying for when you buy term life insurance.

Annual renewable term life Term life insurance that is renewable each year for a fixed period of time, usually 5, 10, 15, 20 or 30 years. The annual premium increases each year, based on the chances of the benefit being paid. In the earliest years, the premium is usually very affordable, but by the end of the term, it may become financially unviable.

Beneficiary The person or persons who will be paid if the person insured by the life insurance policy dies

Cash value The amount of money that is available on the life insurance policy for loans or withdrawals. Term life insurance has no cash value, since it only pays off if the insured dies (or under other conditions named in the insurance policy)

Convertible term insurance Term insurance that can be converted to whole life insurance by the owner of the policy without providing evidence of insurability

Dividend A cash payment that is a return on part of the premiums paid by the owner of the policy based on a number of variables. Term life insurance does not pay dividends.

Face Value The amount of the death benefit that will be paid, not including additional amounts that will be payable in the case of accidental death, or under special provisions

Insurability Acceptability of the insured person to the insurance company. In term life insurance, insurability is often not an issue, and proving insurability may not be necessary when converting term life insurance to whole life insurance.

Insured The person in whose name the policy is issued. The insured may or may not be the owner of the policy. If the insured dies, term life insurance pays a benefit to the beneficiary/ies

Insurer The insurance company

Level Term Life Insurance A version of term life insurance where the premium is guaranteed to remain the same for a certain period of time – often 10, 15, 20 or 30 years. The longer the level term, the more expensive the premiums are, since the older years are averaged into the overall premium.

Policy owner The person who pays the premiums on the insurance policy

Premiums Payments made to the life insurance company to keep a policy in force

Renewable Term Life Insurance that is in force for a stated period, and can be renewed by the policy holder (or owner) at the end of each term for a limited number of terms without proving insurability of the insured