Unlike the stock market, where once trading closes at 5 p.m., FOREX is a 24-hour-a-day market. Currency exchange covers the entire world and all 24 time zones, so this is good in that it results in billions upon billions of dollars of transactions per day. But it also means that forex traders have a constant entry of information to keep track of. So how do forex traders stay on top of things? Most of them use forex alerts of some kind.
A forex alert is a simple message sent to the user informing him of the latest change in the forex market via e-mail or cell phone text message. Forex alerts often recommend action of some kind and are available from many online forex brokers and other companies.
Even if you limit yourself to just the “majors” -- U.S., Eurozone, Great Britain, Australia, Japan and Switzerland – there are still 15 currency pairs to keep an eye on and no one can follow all the markets all the time. What’s more, sometimes things are steady for long periods of time, while other periods are marked by great activity. So that’s why forex alert is very useful to them who want to make profit from forex market.
There are two ways how the sites that offer forex alerts work. Some send out alert every 24 hours, informing the latest information and changes on the forex market when the others send alerts only when something crucial happens. These systems use their own formula to determine what constitutes “something crucial” and of course charge more money for their extra services. It is still up to the individual trader to act or disregard the information sent by the alerts.
Some are part of a wider alert program that also handles your stocks and bonds. You can adapt the type of alerts you get based on your style, either conservative or aggressive trader, and how active you plan to trade. Some brokers include forex alerts as part of their service, while others charge extra money for them.
Alerts are a precious way for busy investors to live their daily lives without having to continuously watch the forex rate. No system is perfect, of course, and trader is recommended to do a little browsing on his own to make sure that his alert does not miss a thing.
Learn More About Forex Trading Here !
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Monday, December 29, 2008
Tuesday, December 16, 2008
Forex Trading Survival - How to Survive With Just 1 Trade Per Week in Currency Trading
By Daniel S. S.
Many people want to make as much profits as possible from the forex market, therefore they always want to be in the market so that they will not miss any trading opportunity. Is this the correct way to trade forex?
The fact that 95% of the people loose money in forex trading is because they lack of trading discipline, money management, patience and most of all, they are too eager to trade (trigger happy).
Forex trading is about high probability trade setups, and to win in forex by trading many times a day is not easy at all. You are lowering the probability of winning a forex trade.
You can be those short-term traders and scalpers who make a few profits here and there but receive a lot of stress in return OR be a trader who takes in only one or 2 trades per week and able to satisfy your monthly needs.
Let me give you an example. Trader A needs to trade everyday to make 10 pips per day(out of 20 trading days) in order to achieve 200 pips per month. Trader B only needs to trade for 2 weeks which can make him 100 pips per week. Which will you choose? 80% chose the latter after I asked them this question.
A lot of people start forex trading with the first method because they want quick profits out from the market or lack of confidence that the trend will sustain. Every each and individual has their own preferences, I can't say which is wrong and which is right.
But if you are trading forex for already quite sometime, you should have realized that often a perfect trade setup is the one that you are looking for. You know that you can make an excellent living from forex trading if you are able to find just 1 of the ideal trade setups per week.
I personally use some forex technical indicators to detect the high probability trade setups and will make sure that those indicators are all in the same direction before I decide to trade. I do not like to trade for small profits because firstly, I have a high risk to reward ratio (profit target of at least 60 pips if my stop loss is 30 pips) to meet.
Secondly, I only go along with the real trend, and it's the real trend that brings me the big fish.
I understand that some people will disagree by saying that a forex trend does not occur everyday. That's the point I want to prove, there is no real trend everyday, that's why I only trade once or twice per week, or even per 2 weeks, but already it's enough for my income.
The main point I want to get across is that you only need a few of the high probability setups to make some excellent returns. If you are not sure what kinds of methods are able to do that, please download my FREE ebook which provides the information and forex trading system that you need to trade successfully.
About the author:To learn more forex tips and discover a time tested, simple but proven trading system, download my 56-page "Forex Trading To Riches" ebook free at http://www.forextradingpower.comThe author, Daniel S, is the owner of http://www.ForexTradingPower.com where he provides premium forex tips and resources.
Read More..
Many people want to make as much profits as possible from the forex market, therefore they always want to be in the market so that they will not miss any trading opportunity. Is this the correct way to trade forex?
The fact that 95% of the people loose money in forex trading is because they lack of trading discipline, money management, patience and most of all, they are too eager to trade (trigger happy).
Forex trading is about high probability trade setups, and to win in forex by trading many times a day is not easy at all. You are lowering the probability of winning a forex trade.
You can be those short-term traders and scalpers who make a few profits here and there but receive a lot of stress in return OR be a trader who takes in only one or 2 trades per week and able to satisfy your monthly needs.
Let me give you an example. Trader A needs to trade everyday to make 10 pips per day(out of 20 trading days) in order to achieve 200 pips per month. Trader B only needs to trade for 2 weeks which can make him 100 pips per week. Which will you choose? 80% chose the latter after I asked them this question.
A lot of people start forex trading with the first method because they want quick profits out from the market or lack of confidence that the trend will sustain. Every each and individual has their own preferences, I can't say which is wrong and which is right.
But if you are trading forex for already quite sometime, you should have realized that often a perfect trade setup is the one that you are looking for. You know that you can make an excellent living from forex trading if you are able to find just 1 of the ideal trade setups per week.
I personally use some forex technical indicators to detect the high probability trade setups and will make sure that those indicators are all in the same direction before I decide to trade. I do not like to trade for small profits because firstly, I have a high risk to reward ratio (profit target of at least 60 pips if my stop loss is 30 pips) to meet.
Secondly, I only go along with the real trend, and it's the real trend that brings me the big fish.
I understand that some people will disagree by saying that a forex trend does not occur everyday. That's the point I want to prove, there is no real trend everyday, that's why I only trade once or twice per week, or even per 2 weeks, but already it's enough for my income.
The main point I want to get across is that you only need a few of the high probability setups to make some excellent returns. If you are not sure what kinds of methods are able to do that, please download my FREE ebook which provides the information and forex trading system that you need to trade successfully.
About the author:To learn more forex tips and discover a time tested, simple but proven trading system, download my 56-page "Forex Trading To Riches" ebook free at http://www.forextradingpower.comThe author, Daniel S, is the owner of http://www.ForexTradingPower.com where he provides premium forex tips and resources.
Read More..
Forex Trading System - Best Mathematical Algorithms For Profit
By Kelly Price
The trend in Forex trading systems is towards using complex mathematical algorithms to predict Price turns in the market but which are the best? Lets take a look...
Lets first of all define what a mathematical theory is - it's a theory that works all the time. Now as yet, there is no algorithm that works all the time and the reason is quite simple - the markets don't move to certainties just probabilities but are any of these complex theories able to make a profit?
Most Forex trading systems that make money are simple not complex!
The more complex you make the rules the more likely it is to fail as there are too many elements to break.
You see a lot of vendors selling systems online which are supposed to beat the markets but they don't. These vendors simply do a back test on data knowing the closing prices and bend the system to fit the data. Going forward of course you can't do this and the system collapses and loses.
We see technology enrich our lives in many areas but in the Forex market technology and complicated theories don't and the reverse is true they help you lose. If you want an example of how technology doesn't help you then consider this:
30 years ago 95% of traders lost and the ratio remains the same today, despite the amount of technology traders throw at the market.
If you want to enjoy trading success, forget about technology and complication and keep it simple and robust; you then need what I will refer to as the missing link and that's the correct mindset.
Trading is not about just a method, it's about having the discipline to apply it.
If you don't have the discipline to execute your trading signals, you have no system.
You have to trade with discipline through periods of losses until you hit a home run and this is something most traders simply cannot do. They either think they won't face these periods or lack the confidence to have the discipline required.
The Good News
Is anyone can learn to trade, as trading is essentially simple and anyone can adopt the right mindset if, they have confidence in what there doing and they have the right Forex education.
If you want to win at Forex, forget mathematics and complex theories, use a simple one instead, apply it with discipline and you will be well rewarded for your efforts.
About the author:
FREE ESSENTIAL FOREX TRADING PDF's! + SUCCESSFUL FREE TRADING SYSTEM
For a complete resource on how to win at Forex trading and 2 Essential FREE Trader PDFs and an exclusive RISK FREE Forex Trading Course visit our website.
The trend in Forex trading systems is towards using complex mathematical algorithms to predict Price turns in the market but which are the best? Lets take a look...
Lets first of all define what a mathematical theory is - it's a theory that works all the time. Now as yet, there is no algorithm that works all the time and the reason is quite simple - the markets don't move to certainties just probabilities but are any of these complex theories able to make a profit?
Most Forex trading systems that make money are simple not complex!
The more complex you make the rules the more likely it is to fail as there are too many elements to break.
You see a lot of vendors selling systems online which are supposed to beat the markets but they don't. These vendors simply do a back test on data knowing the closing prices and bend the system to fit the data. Going forward of course you can't do this and the system collapses and loses.
We see technology enrich our lives in many areas but in the Forex market technology and complicated theories don't and the reverse is true they help you lose. If you want an example of how technology doesn't help you then consider this:
30 years ago 95% of traders lost and the ratio remains the same today, despite the amount of technology traders throw at the market.
If you want to enjoy trading success, forget about technology and complication and keep it simple and robust; you then need what I will refer to as the missing link and that's the correct mindset.
Trading is not about just a method, it's about having the discipline to apply it.
If you don't have the discipline to execute your trading signals, you have no system.
You have to trade with discipline through periods of losses until you hit a home run and this is something most traders simply cannot do. They either think they won't face these periods or lack the confidence to have the discipline required.
The Good News
Is anyone can learn to trade, as trading is essentially simple and anyone can adopt the right mindset if, they have confidence in what there doing and they have the right Forex education.
If you want to win at Forex, forget mathematics and complex theories, use a simple one instead, apply it with discipline and you will be well rewarded for your efforts.
About the author:
FREE ESSENTIAL FOREX TRADING PDF's! + SUCCESSFUL FREE TRADING SYSTEM
For a complete resource on how to win at Forex trading and 2 Essential FREE Trader PDFs and an exclusive RISK FREE Forex Trading Course visit our website.
Read More..
Monday, December 8, 2008
Automatic Forex Trading Systems - Which Automatic Forex System Is The Best?
by James V. Jackson
The Forex market is the largest financial market in the world. It is open 24 hours a day, 5 days a week. The trading volume in this market is 3-4 trillion USD a day. But even though there is huge profit potential, the 95% of traders fail.
Why do most Forex Traders Fail?
Do you want to break the Forex Code and gain huge rewards?
Read this Forex Systems Review to find out which is the best forex software!
About the Author
Choose the Best Automatic Forex System. Read this Forex Systems Review!
The Forex market is the largest financial market in the world. It is open 24 hours a day, 5 days a week. The trading volume in this market is 3-4 trillion USD a day. But even though there is huge profit potential, the 95% of traders fail.
Why do most Forex Traders Fail?
- They lack discipline ( Being unable to keep your emotions under control can result in huge losses ).
- They over leverage ( They fail to select the proper amount of leverage ).
- They have a poor money management strategy ( They don't keep track of their gains and losses and They don't calculate their risk ).
- They lack education. Many beginners believe that they can open an account, throw a couple of thousands dollars at it and make a profit. But this is not the case. In order to become a successful trader, you need to educate yourself in every aspect of trading, like learning how to read charts, practicing in a demo account and many others.
- They don't use the right tools. It is essential to follow a solid trading plan and to use a reliable Forex software.
Do you want to break the Forex Code and gain huge rewards?
Read this Forex Systems Review to find out which is the best forex software!
About the Author
Choose the Best Automatic Forex System. Read this Forex Systems Review!
Lear More About Forex Trading Here !
Read More..
Sunday, December 7, 2008
Forex Strategies
by Praveen Ortec
This article is about forex trading strategies. Know more about various forex strategies used by forex traders for maximizing their profit and also minimizing their loss. Learn about the need of a forex strategy for an online forex trader.
Forex strategies are essential for a forex trader to profit from the market. Forex trading strategies make a trader more sophisticated and confident by helping him in making right calculations about the market. In a market with always changing exchange rates it is foolishness to trade hysterically by just following the emotions or advices from unreliable sources.
There are lots of forex trading strategies followed by forex traders. They can be broadly classified in to two type of strategies are profit maximizing strategies and risk minimizing strategies. The strategy differs with individuals as each trader has unique needs and has unique trading abilities. A trader must design a forex trading strategy according to many factors such as his or her initial investment, account size, trading ability, risk tolerance, currency pairs trading, geographical limitations/advantages, the broker to which he is affiliated, the trading system he/she uses, the profit goal (short-term profit or long-term profit), etc.
The most followed forex profit maximizing strategy is the leverage. Leverage allows forex traders to trade with more funds than in his or her account. The leverages are provided by the forex brokers to their clients. The usual leverage is 100:1 – i.e., for $1 in account the trader can borrow $100 from his broker. Day traders get much more leverage than other traders and the ratio leverage differ with brokers and also with the account minimum, type of contract trading etc.
The most popular forex risk minimizing strategy is the stop loss order. Stop loss orders help traders to limit their loss by stopping a trade at a preset price. Forex trading systems allows traders to set their stop loss order prices. One related strategy is the trailing stop losses, which are proportional stop loss prices that come into play only when the prices are falling. There are also many other types of stop loss orders available which mainly depends on the broker to which the trader is affiliated to.
One another related strategy is the automated order entry. Automated order entry enables a trader to enter into a trade at a preset price rate automatically. The trader can set the price at his trading platform. Automated order entry methods help traders to enter the market at most favorable time. Apart from these strategies forex traders can use forex futures and forex options to cover the loss and well as to cover the profit. These contracts help forex traders to buy or sell currencies at a predetermined rate at a point of time in future.
Apart from these trading strategies, forex trader follow many other strategies for choosing currency pairs, trading hours, entrance and exit prices etc. Irrespective of the type of the strategy, all forex strategies involve risks. The success of a forex strategy depends on many factors like the market condition and the discipline of the trader.
About The Author
Praveen Ortec works for NobleTrading.com, an Online Forex Trading Broker offering free advanced Forex Trading System and forex trading information through Stock and Forex Market Trading Blogs.
Read More..
This article is about forex trading strategies. Know more about various forex strategies used by forex traders for maximizing their profit and also minimizing their loss. Learn about the need of a forex strategy for an online forex trader.
Forex strategies are essential for a forex trader to profit from the market. Forex trading strategies make a trader more sophisticated and confident by helping him in making right calculations about the market. In a market with always changing exchange rates it is foolishness to trade hysterically by just following the emotions or advices from unreliable sources.
There are lots of forex trading strategies followed by forex traders. They can be broadly classified in to two type of strategies are profit maximizing strategies and risk minimizing strategies. The strategy differs with individuals as each trader has unique needs and has unique trading abilities. A trader must design a forex trading strategy according to many factors such as his or her initial investment, account size, trading ability, risk tolerance, currency pairs trading, geographical limitations/advantages, the broker to which he is affiliated, the trading system he/she uses, the profit goal (short-term profit or long-term profit), etc.
The most followed forex profit maximizing strategy is the leverage. Leverage allows forex traders to trade with more funds than in his or her account. The leverages are provided by the forex brokers to their clients. The usual leverage is 100:1 – i.e., for $1 in account the trader can borrow $100 from his broker. Day traders get much more leverage than other traders and the ratio leverage differ with brokers and also with the account minimum, type of contract trading etc.
The most popular forex risk minimizing strategy is the stop loss order. Stop loss orders help traders to limit their loss by stopping a trade at a preset price. Forex trading systems allows traders to set their stop loss order prices. One related strategy is the trailing stop losses, which are proportional stop loss prices that come into play only when the prices are falling. There are also many other types of stop loss orders available which mainly depends on the broker to which the trader is affiliated to.
One another related strategy is the automated order entry. Automated order entry enables a trader to enter into a trade at a preset price rate automatically. The trader can set the price at his trading platform. Automated order entry methods help traders to enter the market at most favorable time. Apart from these strategies forex traders can use forex futures and forex options to cover the loss and well as to cover the profit. These contracts help forex traders to buy or sell currencies at a predetermined rate at a point of time in future.
Apart from these trading strategies, forex trader follow many other strategies for choosing currency pairs, trading hours, entrance and exit prices etc. Irrespective of the type of the strategy, all forex strategies involve risks. The success of a forex strategy depends on many factors like the market condition and the discipline of the trader.
About The Author
Praveen Ortec works for NobleTrading.com, an Online Forex Trading Broker offering free advanced Forex Trading System and forex trading information through Stock and Forex Market Trading Blogs.
Read More..
Basic Forex Terminology For The New Traders
by Jason Hamilton
Trading Forex is far the major business of big professionals with global actions such as those from banks, commercial establishments with global participation, and Forex brokers. Forex trading is not just a piece of cake, as some people would like you to believe.
Trading Forex is like many categories of trading terms in this world, what makes it different are the items that being trade and the influence factors.
Analysis:
Most learn how to read trends and charts by doing two different types of analysis, technical and fundamental. You will need to study how to analyze trends and charts, and you'll need to learn how to do two different forms of analysis. Trading Forex by using technical analysis and trends is all about probabilities in that when you enter a long position. For example, you want all of your chosen signals to be signaling an upwards movement, therefore indicating a high probability of an upwards movement taking place.
Charts:
Charts that are used for trading the Forex usually clearly reflect the various price levels of a currency. Charts can be looked at by various time scales and supply detailed information about price movement as well analytical overlays. Charts for Forex can be adjusted in numerous dissimilar ways.
Demo accounts:
Demo trading will let you get the experience you need to be successful as a Forex trader. Demo accounts act just like a real trading accounts, the only difference is that the money you are trading is not real and no actual trades are ever made. You should demo trade until you can trade Forex profitably.
Spread:
Spread the difference between the bid and the ask rate. Spread is also fixed under the common market conditions. Spreads involve the bring back on your trading strategy in a big way. Spreads can vary grounded on the currencies you are trading and what character of account you open.
Trading:
Trading takes place straight amongst the two counterparts necessary to make a trade, whether over the telephone or on electronic networks all over the world. Trading one or two mini lots at one time can however add up to nice profits.
ConclusionTrading Forex is definitely not a way to get rich very quick. Executing foreign exchange orders with this fulfillment in mind will nearly certainly result in financial hardship. Forex trading is not easy however provides significant potential for profit, as more and more people are discovering. Forex trading is never set on pause, which ensures true 24 hour trading and the ability to trade during virtually any important event.
Trading the Forex market is an highly hands during practice, and in order to truly get a grasp of the possibilities, the analysis, and other information involved. It is a good idea for beginners to set up a practice (demo) account to gain more experience in this market.
Jason Hamilton has been successfully trading the Forex market since 2002. He recently reviewed the popular Forex trading robot, which can be read at: Fap Turbo Forex
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Thursday, December 4, 2008
Currency Trading - 6 golden rules to be successful
by Jeff Boo
You may be a winner in the Forex market but beware; there is always new knowledge in this market for you to acquire. Currency trading is not an easy route to move along as it has a tough environment and thus to be able to remain a winner, it is essential for you consistently upgrade and train in currency trading.
If you wish to maintain your success level, below are the 6 golden rules in currency trading for you to follow;
1. Admit your mistake. There are times when you make the wrong decision and you lost money in trading. Do not point finger at the markets for going south or other related factors. Shoulder your own responsibility and admit your mistake. The important part here is to learn your lesson and plan your next move.
2. The importance of constantly upgrade and learn Never stop training! Once you do that, the risks of failing in currency trading will increase. Constantly attending related course, reading related books and learning from experienced traders are some ways of sharpening your skills. Positive results will be reflected in your account in no time.
3. Take failures positively Many newbies enter the market enthusiastically and exit the market disappointedly because they lost money and take it very negatively. Failures are opportunities for you to learn from your mistake and move on from there. Do some analysis of your steps and you should be able to find out what actually went wrong. Plan your next step accordingly.
4. Stay away from trade you have no confidence in In currency trading, always enter a trade only you have no doubt about it. You need to have that level of confidence before you enter. If you enter the trade which in the first place you have no confidence in, the agony of seeing the market going south may be too great for you to take. Some inexperienced traders would stop their currency trading totally after such bad experiences.
5. Trust you methodology The markets cannot be always correctly predicted. There are times when your prediction actually went wrong due to the nature of the markets. If you have followed your own methodology and took the correct step as planned, then you do not have to regret.
6. Develop good analytical skill Winning in currency trading requires good analytical skill. Before entering a trade, analyze and see if you have any positive factors that give you the reason to enter the trade. Entering a trade just because of the level of the price, hearsay or gut feeling is dangerous. Learn to analyze from visual aids available like graphs and charts to help you move your next step.
To be a successful trader in currency trading requires you to consistently remind yourself of these 6 golden rules. As the environment of the currency trading market is demanding, it is only wise to constantly upgrade, update and train in areas pertaining to this line.
About the Author
Jeff Boo is an Internet Marketer who is very much interested in Forex trading. He is enthusiastic in sharing his experiences accumulating more wealth. Log on to http://tinyurl.com/569r9f to find out about a very useful product that he recommends
Read More..
You may be a winner in the Forex market but beware; there is always new knowledge in this market for you to acquire. Currency trading is not an easy route to move along as it has a tough environment and thus to be able to remain a winner, it is essential for you consistently upgrade and train in currency trading.
If you wish to maintain your success level, below are the 6 golden rules in currency trading for you to follow;
1. Admit your mistake. There are times when you make the wrong decision and you lost money in trading. Do not point finger at the markets for going south or other related factors. Shoulder your own responsibility and admit your mistake. The important part here is to learn your lesson and plan your next move.
2. The importance of constantly upgrade and learn Never stop training! Once you do that, the risks of failing in currency trading will increase. Constantly attending related course, reading related books and learning from experienced traders are some ways of sharpening your skills. Positive results will be reflected in your account in no time.
3. Take failures positively Many newbies enter the market enthusiastically and exit the market disappointedly because they lost money and take it very negatively. Failures are opportunities for you to learn from your mistake and move on from there. Do some analysis of your steps and you should be able to find out what actually went wrong. Plan your next step accordingly.
4. Stay away from trade you have no confidence in In currency trading, always enter a trade only you have no doubt about it. You need to have that level of confidence before you enter. If you enter the trade which in the first place you have no confidence in, the agony of seeing the market going south may be too great for you to take. Some inexperienced traders would stop their currency trading totally after such bad experiences.
5. Trust you methodology The markets cannot be always correctly predicted. There are times when your prediction actually went wrong due to the nature of the markets. If you have followed your own methodology and took the correct step as planned, then you do not have to regret.
6. Develop good analytical skill Winning in currency trading requires good analytical skill. Before entering a trade, analyze and see if you have any positive factors that give you the reason to enter the trade. Entering a trade just because of the level of the price, hearsay or gut feeling is dangerous. Learn to analyze from visual aids available like graphs and charts to help you move your next step.
To be a successful trader in currency trading requires you to consistently remind yourself of these 6 golden rules. As the environment of the currency trading market is demanding, it is only wise to constantly upgrade, update and train in areas pertaining to this line.
About the Author
Jeff Boo is an Internet Marketer who is very much interested in Forex trading. He is enthusiastic in sharing his experiences accumulating more wealth. Log on to http://tinyurl.com/569r9f to find out about a very useful product that he recommends
Read More..
Wednesday, December 3, 2008
Understanding the Mortgage Meltdown; What happened and Who's to Blame
by: Richard Gandon
People are losing their homes and many more will lose their jobs before the mortgage meltdown works its way through the system.
To paraphrase Alan Greenspan's remarks on March 17th, 2008, “The current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the Second World War. The crisis will leave many casualties.”
How many casualties? Experts are predicting that in the next few years, between 15 and 20 million homeowners could have homes worth less than what they owe. Walking away from a bad situation may actually make sense for people who mortgages that are 'upside down' considering the fact that refinancing is out of the question and home equity is nonexistent.
It seems quite easy to point fingers at greedy Wall Street titans for causing the sub-prime mortgage crises. They after all, put together the deals that allowed banks to underwrite mortgages and then offload these liabilities to investors. What many fail to realize is that there is no shortage of blame to go around from homeowners buying more home than they could afford to real estate agents looking for more commission dollars. Mortgage brokers and bankers, the banks themselves, ratings agencies such as Moody's and Standard & Poor's, Wall Street, the Fed and last but certainly not least, the Federal Government.
Let's start with the homeowners--the people who are now in the process or soon to enter the process, of losing their homes. Some of these people had never before owned a home and as such, may not have been prepared for the costs associated with homeownership. Basic financial literacy is sorely lacking in this country despite there being no shortage of budgeting and tracking programs readily available such as Quicken and Microsoft Money. The lack of financial literacy does not absolve these buyers of their responsibility. Every borrower receives a truth in lending disclosure statement. Here is a portion of what the act covers:
The purpose of TILA (Truth In Lending Act) is to promote the informed use of consumer credit by requiring disclosures about its terms and cost. TILA also gives consumers the right to cancel certain credit transactions that involve a lien on a consumer's principal dwelling, regulates certain credit card practices, and provides a means for fair and timely resolution of credit billing disputes. With the exception of certain high-cost mortgage loans, TILA does not regulate the charges that may be imposed for consumer credit. Rather, it requires a maximum interest rate to be stated in variable-rate contracts secured by the consumer's dwelling. It also imposes limitations on home equity plans that are subject to the requirements of Sec. 226.5b and mortgages that are subject to the requirements of Sec. 226.32. The regulation prohibits certain acts or practices in connection with credit secured by a consumer's principal dwelling.
Much of the subprime mortgage crisis can be traced directly back to variable-rate mortgages. As is clearly stated above, “TILA does not regulate the charge that may be imposed for consumer credit. Rather, it requires a maximum interest rate to be stated in variable-rate contracts secured by the consumers dwelling.” It also clearly states that TILA also gives consumers the right to cancel certain credit transactions that involve a lien on a consumer's principal dwelling. One has to wonder whether or not these homeowners:
Read More..
People are losing their homes and many more will lose their jobs before the mortgage meltdown works its way through the system.
To paraphrase Alan Greenspan's remarks on March 17th, 2008, “The current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the Second World War. The crisis will leave many casualties.”
How many casualties? Experts are predicting that in the next few years, between 15 and 20 million homeowners could have homes worth less than what they owe. Walking away from a bad situation may actually make sense for people who mortgages that are 'upside down' considering the fact that refinancing is out of the question and home equity is nonexistent.
It seems quite easy to point fingers at greedy Wall Street titans for causing the sub-prime mortgage crises. They after all, put together the deals that allowed banks to underwrite mortgages and then offload these liabilities to investors. What many fail to realize is that there is no shortage of blame to go around from homeowners buying more home than they could afford to real estate agents looking for more commission dollars. Mortgage brokers and bankers, the banks themselves, ratings agencies such as Moody's and Standard & Poor's, Wall Street, the Fed and last but certainly not least, the Federal Government.
Let's start with the homeowners--the people who are now in the process or soon to enter the process, of losing their homes. Some of these people had never before owned a home and as such, may not have been prepared for the costs associated with homeownership. Basic financial literacy is sorely lacking in this country despite there being no shortage of budgeting and tracking programs readily available such as Quicken and Microsoft Money. The lack of financial literacy does not absolve these buyers of their responsibility. Every borrower receives a truth in lending disclosure statement. Here is a portion of what the act covers:
The purpose of TILA (Truth In Lending Act) is to promote the informed use of consumer credit by requiring disclosures about its terms and cost. TILA also gives consumers the right to cancel certain credit transactions that involve a lien on a consumer's principal dwelling, regulates certain credit card practices, and provides a means for fair and timely resolution of credit billing disputes. With the exception of certain high-cost mortgage loans, TILA does not regulate the charges that may be imposed for consumer credit. Rather, it requires a maximum interest rate to be stated in variable-rate contracts secured by the consumer's dwelling. It also imposes limitations on home equity plans that are subject to the requirements of Sec. 226.5b and mortgages that are subject to the requirements of Sec. 226.32. The regulation prohibits certain acts or practices in connection with credit secured by a consumer's principal dwelling.
Much of the subprime mortgage crisis can be traced directly back to variable-rate mortgages. As is clearly stated above, “TILA does not regulate the charge that may be imposed for consumer credit. Rather, it requires a maximum interest rate to be stated in variable-rate contracts secured by the consumers dwelling.” It also clearly states that TILA also gives consumers the right to cancel certain credit transactions that involve a lien on a consumer's principal dwelling. One has to wonder whether or not these homeowners:
- Bothered to read the truth in lending act disclosure at all.
- Understood what the truth in lending act disclosure meant.
- Chose to ignore the information printed clearly the truth in lending act disclosure.
A number of months ago, just as the subprime mortgage crisis was beginning to unfold, The New York Daily News ran an article about a family in New York City, who had bought a home and were now faced with the prospect of foreclosure. The article was sympathetic to this family, highlighting the fact that they're living the American dream and that this dream was about to come to an end. What I found to be distressing was the fact that clearly visible in the photo that accompanied this sympathetic article was a very expensive flat screen television hanging on the wall. Perhaps I'm naïve, but I can assure you that if I were faced with the prospect of losing my home and having my family put out on the street, there is absolutely no way that I would still have that expensive television hanging on my wall. It would have been one of the first things to be sold and some financial relief would be found by jettisoning what I'm sure was the expensive cable bill.
Clearly the public needs easy access to financial literacy courses. Too bad we don't see the need to make this a mandatory course of study in our educational system.
Mortgage bankers and brokers have in the last four or five years been raking in cash by the bucket load in the form of commissions paid when mortgages they've originated, close. Many of these people have not needed to do much in the way of prospecting. Instead, their phones have run off the hook as people have jumped on the homeownership and refinancing and take out extra cash bandwagon, despite their ability to pay for their home. No-document loans were readily available without the borrower having to produce documentation that backed up their income. Clearly this practice can and indeed has, lead to substandard loan underwriting processes. Were some of these mortgage bankers and brokers dishonest? Sure. Were all of them dishonest? I think not. To have a massive nationwide conspiracy, where thousands and thousands of people involved in the mortgage banking and mortgage brokering profession got together to create this situation is simply not feasible. Yes, some of the blame does belong with those in the mortgage industry, but they were simply a small cog in the huge machine that created this mess.
Let's discuss real estate agents. In 2007, we bought a home, and also sold a home. The agent we used to purchase our home was absolutely fantastic. In our opinion, she went above and beyond to make our deal happen. She answered every phone call, followed up on every concern and was the epitome of professionalism. We consider this individual to be a friend, and we have sent referrals her way that have resulted in her earning additional commissions. We will continue to recommend her to all who ask or mention that they'd like to buy or sell a home in our area.
The real estate agent, we used to sell our home, could not have been more different. We got our old home ready to sell prior to closing on our new home. We decided to list it as “For Sale by Owner.” In the event that we didn't sell this home on our own, it was our intention to list it with an agent as soon as we had closed on the purchase our new home. Literally, from the day we put the sign in front of our home and listed it on a “For Sale by Owner” website we were inundated with phone calls from real estate agents. We were told many lies and were constantly harassed; although we had already made it quite clear to every agent who called, and there were more to 60 who did; that we were willing to pay half the commission-the same as they would have received had they sold another agent's listing. We also told every agent that called that we had already lined up an agent to sell our home in the event that we chose to no longer sell it ourselves. Our deadline was the closing date of our new home purchase. We did have an interested buyer who shortly after our closing date decided to keep looking so we listed our home with a local agent so that we could concentrate on getting our new home ready for our moving date at the end of the school year. This agent showed our home a maximum of two times and got an offer which we accepted. We ended up getting $1,000 less than we had wanted in a declining Real Estate market. The agents who had called many times to harass us called our listing agent on a number of occasions and he lied telling them that the house was under contract when in fact it wasn't at that time-clearly a breach of our agent's fiduciary duty. Quite frankly an ethical agent would have continued to show our home until closing in the event that the deal fell through.
But wait, there's more. Our agent also acted as the buyer's mortgage broker. At the closing table, we learned that he had signed documents from the buyer stating that he (our agent) represented them and we had signed documents stating that he represented us. We also learned that the buyer had effectively put down approximately 2-3% of the purchase price when financed closing costs were factored into the equation. Their first mortgage had what we thought was a high fixed rate and their second mortgage came with a rate in excess of 8.5%. Because the closing happened in August, literally in the midst of the first wave of the meltdown, if they didn't close on the day they did (August 31st, 2007), Citibank wasn't going to extend their rate. When my wife & I have bought houses in the past, it had always been a very happy day. These people looked absolutely shell-shocked at the closing table. I'm not convinced that they knew just how much their monthly payment was going to be until closing day. We knew down to the penny well in advance having budgeted and planned everything on a spreadsheet. Were these people stupid or just inexperienced and mislead by a greedy combination of real estate agent & mortgage broker? I'm extremely confident that they are intelligent people but inexperienced and taken advantage of by an unscrupulous agent.
The banks are also culpable. Prior to bank deregulation, Savings and Loans provided mortgages to home buyers and kept these loans on their books. Non-performing loans had a negative effect on the S&L's profitability which of course caused tighter lending guidelines such as job stability and decent down payments in order for prospective home buyers to be approved for a mortgage. Way back then, a home buyer had to actually save up enough money for a down payment 10 or even 20% before a bank would ever consider underwriting a mortgage. The checks & balances kept banks solvent and borrowers responsible. Although this approach worked, some cried foul stating that the regulated system was racist and discriminatory-and there certainly was some truth to this. Skipping forward to the present, banks made a bundle on mortgages over the past five or six years. For the most part, they allowed their underwriting criteria to be stretched so far out of alignment that almost anyone could and indeed did, qualify for a mortgage despite their ability to pay. Some folks even applied for and received mortgages for more than the property was worth. Sometimes for as much as 25% more than their property was worth!
Under the prior system, 125% mortgages would not have been possible because of course these loans were held on the banks' books and could have led to losses that would have had to have been absorbed directly by the bank.
So what went wrong? Under the current system, these loans were sold to the big Wall Street investment firms who repackaged them as collateralized mortgage obligations (CMO's), Mortgage Backed Securities (MBS's) and other similar acronyms. These instruments were then sent to the ratings agencies for their blessing and more importantly a letter rating. Many of these structured finance deals receive AAA ratings-the highest ratings available meaning that in theory, these instruments were least likely to default. How does one create a 'triple A' or AAA rated financial instrument out of sub-prime mortgages? Herein lies the magic. These Asset Backed Securities (ABS) are made up of different tranches or slices, each carrying a different risk and reward level. The first dollar of principle and interest is applied to the securities with the highest rating, and the first dollar of loss is applied to the tranche with the lowest ratings. The lower slices are designed to provide a security blanket that in theory protects the higher-rated securities. The investment banks that package or 'structure' these securities in order to earn fat fees when they sell them to investors are the same entities that pay the ratings agencies to rate these instruments. Clearly the possibility for conflict of interest is present. If investors and not the investment banks that stand to rake in millions in fees were to pay for the rating, the potential for this conflict of interest would be negated. Furthermore, the investment banks have a vested interest in convincing the ratings agencies of the credit worthiness of these securities.
So we've already pointed fingers at homeowners, some greedy, many more I suspect, naïve or uninformed, real estate agents-one out of more than 60 in my experience was a gem, mortgage brokers & bankers, banks, Wall Street and ratings agencies so who's left? The Federal Reserve and the Government of course.
The Fed as its known is responsible of the country's monetary policy and for supervision and regulation of banks. This is the definition of the Fed's roles in their own words:
Monetary Policy
The Fed is best known for its role in making and carrying out the country's monetary policy-that is, for influencing money and credit conditions in the economy in order to promote the goals of high employment, sustainable growth, and stable prices.
The long-term goal of the Fed's monetary policy is to ensure that money and credit grow sufficiently to encourage non-inflationary economic expansion.
The Fed cannot guarantee that our economy will grow at a healthy pace, or that everyone will have a job. The attainment of these goals depends on the decisions of millions of people around the country. Decisions regarding how much to spend and how much to save, how much to invest in acquiring skills and education, how much to spend on new plant and equipment, or how many hours a week to work may be some of them.
What the Fed can do, is create an environment that is conducive to healthy economic growth. It does so by pursuing a goal of price stability-that is, by trying to prevent inflation from becoming a problem.
Inflation is defined as a sustained increase in prices over a period of time.
A stable level of prices is most conducive to maximum sustained output and employment. Also, stable prices encourage saving and, indirectly, capital formation because it prevents the erosion of asset values by unanticipated inflation.
Inflation causes many distortions in the market. Inflation:
- hurts people with fixed income-when prices rise consumers cannot buy as much as they could previously
- discourages savings
- reduces economic growth because the economy needs a certain level of savings to finance investments that boost economic growth
- makes it harder for businesses to plan-it is difficult to decide how much to produce, because businesses can't predict the demand for their product at the higher prices they will have to charge in order to cover their costs
Bank Regulation & Supervision
The Fed is one of the several Government agencies that share responsibility for ensuring the safety and soundness of our banking system. The Fed has primary responsibility for supervising bank holding companies, financial holding companies, state-chartered banks that are members of the Federal Reserve System, and the Edge Act and agreement corporations, through which U.S. banking organizations operate abroad.
The Fed and other agencies share the responsibility of overseeing the operation of foreign banking organizations in the United States. To insure that the banking system remains competitive and operates in the public interest, the Fed considers applications by banks for mergers or to open new branches.
The passage of the Gramm-Leach-Bliley (GLB) Act in November 1999, was the culmination of a multi-decade effort to eliminate many of the restrictions on the activities of banking organizations.
Some of the main provisions of the GLB are:
- Repeals the existing limitations on the ability of banks to affiliate with securities and insurance firms
- Creates a new organizational form that allows banking organizations to carry new powers. This new entity called a "financial holding company," (FHC) and its non-banking subsidiaries are allowed to engage in financial activities such as insurance and securities underwriting
The Fed's enlarged role as an umbrella supervisor of FHCs is similar to its role in supervising bank holding companies. The Federal Reserve Banks will supervise and regulate the FHCs while each affiliate is still overseen by its traditional functional regulator.
The Fed has to delineate the financial relationship between a bank and other FHC affiliates. Its primary goal is to establish barriers protecting depository institutions from the problems of a failing affiliate. To do this efficiently the Fed has to ensure increased communication, cooperation, and coordination with the many supervisors of the more diversified FHCs.
The Fed has access to data on risks across the entire organization, as well as information on the firm's management of those risks. Regulators will be in a position to evaluate and presumably act on risks that threaten the safety and soundness of the insured banks.
It would appear that the Fed has failed to curb housing inflation which played a role in this entire debacle then made matters worse and in their efforts or lack there of, to properly supervise banking institutions.
Finally the government, a.k.a. Uncle Sam, the big Kahuna 10,000 pound elephant etc. Where do we begin? How about with: 'Where were they?'
It now appears that after millions of horses are out of the barn (some horses ran, others were foreclosed upon) the government wants to step in with a bailout to save the rest. While nobody wants to see people lose their homes, the question that must be raised is this: What about all those of us who were responsible? Those of us, who scrimped and saved up a decent down payment, bought less-house than we could afford and who live below our means? Many of us drive older cars and keep them longer. We don't run out and buy the latest and greatest at inflated prices, we watch, wait and budget.
When the World Trade Center was attacked, families who decided not to sue received government payouts and we certainly don't begrudge them as I'm sure that given the choice, they'd prefer to still have their loved-ones over the money. The problem, in typical government fashion is that those who were responsible and had insurance policies in place received less than those who were irresponsible and didn't plan ahead. I'm not talking about dishwashers at Windows on the World and blue collar workers; I'm talking about executives, traders and people who should have known better.
Now our government, the same government that sat by idly watching as this bubble got bigger and bigger despite many warnings, wants to step in and bailout people who are in danger of losing their homes. There has been no talk about educating people, let's not teach people to fish, rather, let's give them a fish and bail them out once again at the expense of those who are responsible.
Clearly, by keeping the majority of the population financially ignorant, there is a lot of money to be made by the poverty industry.
About The Author
Richard Gandon is the Managing Director of The Financial Learning Network, dedicated low-cost online to financial literacy seminars. His 'Understanding the Stock Market" course was made into a CD-ROM and is in use in more that 50,000 classrooms nationwide. Every year since 1998, Richard has teamed up with a fifth grade class in Georgia to teach them about the stock market online. Richard has more than 20 years of financial services industry experience including as a broker, trader, licensing trainer and managed both a sales group and Central Inquiry, a Historical Equity & Index Research group at Standard & Poor's.
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