How to Explain the Adventure of Option Trading

Before jumping into any new form of investment, it is important that you are able to thoroughly understand the activity. For instance, can you explain option trading? If it is something that you will direct your nest egg or income towards, you must be able to understand exactly what it entails.

Someone who is able to explain option trading will certainly have a very clear understanding of the basic terminology, procedures, and strategies. This is not as simple or even as "basic" as it sounds. Option trading is a somewhat unique approach to leveraging information and creating a certain level of risk management, and it doesn't even have to involve the purchase of a single stock, security or commodity.

If you can explain options trading clearly and in very few words then you are probably a good candidate to begin participating in this lucrative approach to investing immediately. If you find that an explanation is a bit too difficult to tackle, however, you may want to spend some time doing research, participating in a few classes or seminars, and developing a much clearer and adequate base of knowledge before you make your first investments.

One major mistake made by millions of investors is to simply hand over their hard-won income to a trader or brokerage without first understanding what is going to be done with their money. Even if a financial professional explains what portion of the portfolio is going to be directed at options trading, it is not good enough if the actual investor doesn't really know what it means.

So, what is a basic explanation of options trading? Without entering into a huge amount of detail, suffice it to say that an option is a contract between a buyer and a seller. The buyer is purchasing the "right" to buy or sell at least one hundred shares of an underlying asset (which could be a stock, commodity, or other financial vehicle) at a predetermined price. The seller or "writer" is obligated to honor the terms of the contract.

How does this work in the world of financial trading? It is actually very simple - let's say you are a buyer who believes a particular stock is going to rise in value by a certain time period. You approach a writer in order to purchase a "call option" to buy that stock at a fixed price before a certain date. If you exercise the option you can purchase that stock for the guaranteed price, or you can just sell your option for the profit. While that is the most streamlined and overly simplified explanation, it does indicate the way that options can be used to leverage risk.

Options Trading International offers the premier option trading system available online today. Whether you're looking to change careers or just want to learn options trading, come to Options Trading International for the best options trading system and education available.

Article Source: http://EzineArticles.com/?expert=Mark_Summer

How to Explain the Adventure of Option Trading

Before jumping into any new form of investment, it is important that you are able to thoroughly understand the activity. For instance, can you explain option trading? If it is something that you will direct your nest egg or income towards, you must be able to understand exactly what it entails.

Someone who is able to explain option trading will certainly have a very clear understanding of the basic terminology, procedures, and strategies. This is not as simple or even as "basic" as it sounds. Option trading is a somewhat unique approach to leveraging information and creating a certain level of risk management, and it doesn't even have to involve the purchase of a single stock, security or commodity.

If you can explain options trading clearly and in very few words then you are probably a good candidate to begin participating in this lucrative approach to investing immediately. If you find that an explanation is a bit too difficult to tackle, however, you may want to spend some time doing research, participating in a few classes or seminars, and developing a much clearer and adequate base of knowledge before you make your first investments.

One major mistake made by millions of investors is to simply hand over their hard-won income to a trader or brokerage without first understanding what is going to be done with their money. Even if a financial professional explains what portion of the portfolio is going to be directed at options trading, it is not good enough if the actual investor doesn't really know what it means.

So, what is a basic explanation of options trading? Without entering into a huge amount of detail, suffice it to say that an option is a contract between a buyer and a seller. The buyer is purchasing the "right" to buy or sell at least one hundred shares of an underlying asset (which could be a stock, commodity, or other financial vehicle) at a predetermined price. The seller or "writer" is obligated to honor the terms of the contract.

How does this work in the world of financial trading? It is actually very simple - let's say you are a buyer who believes a particular stock is going to rise in value by a certain time period. You approach a writer in order to purchase a "call option" to buy that stock at a fixed price before a certain date. If you exercise the option you can purchase that stock for the guaranteed price, or you can just sell your option for the profit. While that is the most streamlined and overly simplified explanation, it does indicate the way that options can be used to leverage risk.

Options Trading International offers the premier option trading system available online today. Whether you're looking to change careers or just want to learn options trading, come to Options Trading International for the best options trading system and education available.

Article Source: http://EzineArticles.com/?expert=Mark_Summer

Choosing an Option Trading Course

How much do you know about option trading? Can you explain the difference between "long" and "short" or between "call" and "put"? If so, can you offer a good description of the right strategies to use during a "bear market"? What about a neutral issue? What are your suggestions for such an item? While these questions or issues offer only a narrow sampling of the kinds of things a good options trader should eventually understand, they do indicate the need for comprehensive and ongoing education. This means that some sort of training or coursework is necessary for someone to become a flourishing trader.

So, if you hope to have any measurable level of success in options trading you are going to have to have a thorough understanding of the many terms and concepts that it involves. For this, most experienced or successful investors have used some sort of formal option trading course. Currently, people can access online seminars, real-time courses, and even complete software packages that provide both educational and investment resources. Most programs will instruct students in the subject, and then supply them with additional tools to help them obtain their goals. Such tools might include spreadsheets, analytical resources and links, and even newsletters or updates about market activities.

An option trading course is not going to ever be the "on size fits all" variety of training, however, and it is going to really pay for any investor to do a bit of research around the subject matter and topics to be covered. Obviously, a true novice is going to benefit greatly from any comprehensive option trading course or materials, but someone with pre-existing experience is going to gain far more from a course that provides details about innovative research resources, new strategies, and even training in market assessment.

How do you know which course to choose? Start by trying to explain options trading. Is this something that is very easy for you to do? If so, go ahead and consider what your personal goals happen to be where options trading is concerned. For example, do you want to find a way to develop a strategy or eliminate losses? Perhaps you want to transition from the role of "holder" to that of a "writer" and don't know how? With targeted goals it becomes easier to scour the Internet and local resources for the right kinds of training options, seminars, and courses.

Options Trading International offers the premier option trading system available online today. Whether you're looking to change careers or just want to learn options trading, come to Options Trading International for the best options trading system and education available.

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How to Learn Day Trading

The advent and spread of the Internet has created a host of new opportunities for those who want to work from home, or even for those who want to use their computers to make a bit of extra income. This is the reason that millions of people have set out to learn day trading practices and techniques.

Once the exclusive domain of large financial firms or professional brokers, day trading has become an almost casual activity performed by a huge array of people. It involves both buying and selling of specific financial instruments which are then traded during that same business day. While traders who actively buy and sell stocks, bonds, commodities and other financial vehicles are not always day traders, both groups will generally be doing many of the same things.

Consider that someone who wants to learn day trading is going to have to acquire a thorough understanding of options trading, but so too is someone who works for a financial or investment firm as well. Interestingly enough, options tend to be a major focus of day traders. This is because they are often not "exercised" but are instead sold for a profit or to reduce loss.

When you learn day trading techniques you will begin to quickly see that there are a bevy of techniques that can be either extremely high or low risk. The significant thing to understand is that no approach can be achieved without advanced knowledge and understanding. Even something as clear-cut and simple as options trading needs to be thoroughly understood before anyone can begin their career as a day trader who handles such investments throughout their work day.

Fortunately, there are all kinds of educational resources readily available for those who would like to begin to study the markets and develop a few strategies to use in order to work in day trading. The first place to look is the Internet, and today's students will find online seminars, study courses, an enormous array of classes, and even pre-packaged software options that allow someone to study at their own pace but with the help of many built-in features.

Although some view day trading as a somewhat informal approach to the financial markets which do not require employment to enjoy; if someone hopes to establish themselves as a formal trader they will have to meet specific regulations. For this, and many other reasons, it is vitally important to understand all of the facets of day trading before beginning to perform it on a regular basis.

Options Trading International offers the premier option trading system available online today. Whether you're looking to change careers or just want to learn options trading, come to Options Trading International for the best options trading system and education available.

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An Option Trading System For Anyone

Whether you are a beginner or an experienced options trader, it is likely that you see all kinds of offers, websites, and publications that promise to deliver the optimal option trading system. Do you think this is possible? Could a single set of steps be used over and over again to generate wealth and provide top-notch results?

If you have already been experimenting in the markets you know that the answer to those questions is going to be both yes and no. This is because market conditions are never consistent, and a single system or approach cannot always meet the needs or goals of every single investor. There are some approaches, however, that can implement a set of steps to reduce risk and protect wealth.

While no single approach can always be used, there is a way to use an option trading system that can succeed every single time that it is implemented. This is because there are some universal strategies that can usually deliver great results. What is important about these strategies is that they have been created to meet the needs of market conditions, and it is up to the individual investor or trader to be able to recognize the conditions when they are occurring.

What all of this translates to is the fact that any option trading system requires a great deal of understanding, knowledge, and education about the financial world and about options trading in general. It also requires some planning and goal-setting if an investor and their broker are to know that their efforts are a success and that they are on the right track. Why is that? If you don't create some goals (i.e. - we want this option trade to hedge the value of this bullish stock) then you cannot measure the outcome properly.

Any sound system begins with the establishment of the basic goals or results desired. Consider that someone might implement some option trading tactics to create a stream of immediate income while someone else might be using options as a way to slowly improve their long-term capital investments. These are two very widely varying directions and they will not often be achieved through the same techniques.

For example, the person hoping to achieve a steady stream of current income is not likely to want anything to do the LEAPS (or Long Term Equity Anticipation Securities) because these tend to have expiration dates far into the future.
A good system or approach to using option trading to improve a portfolio will include some assessment, research and preparation, and will always look at the requirements of the investor as the primary guide.

Options Trading International offers the premier option trading system available online today. Whether you're looking to change careers or just want to learn options trading, come to Options Trading International for the best options trading system and education available.

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The Role of Stock Broker Firms in Providing Intraday Tips For Stock Trading

The stock market trading experience says loss leads the way to trading success just like learning to walk makes us run later in life. The intraday trading in stock market involves risk & the stock broker firms are increasingly coming forward to help investors earn maximum profits through intraday tips. Many people have just followed the intraday tips & become millionaires in stock trading. In addition to intraday tips, the stock broker firms also provide company analysis reports & intraday news to investors. These reports, news & share tips are particularly helpful for intraday traders who deal with buying or selling of intraday trading stocks. They can either find them displayed on the stock broker websites or get the delivery in their inbox through email or on mobile by SMS. The STBT (Sell Today Buy Tomorrow) & BTST (Buy Today Sell Tomorrow) tips for NSE/BSE stock market are included under these intraday trading tips.

The stock broker firms usually employ professional technical analysts to prepare a wholesome list of profitable intraday tips. The stock trading analysts leave no stone unturned to recommend investors share tips that will help them generate maximum profit out of share trading stocks. However, investors should make it a point to do their own research before trying out hands in any day trading. Anyways, the intraday tips are reliable & can be followed without any doubt to earn good profits from share trading & that to without incurring any loss in trading investment.

The stock broker firms invite all those interested for day trading to open a trading account with them by mere registration of email IDs & mobile numbers so that users can get latest share tips, news & company research reports on their mobile through SMS or email regularly. Some of the firms offer all these services free of cost while others used to charge certain fee for them.

The intraday trading is all about buying or selling of shares on the stock market (NSE/BSE) & reselling or buying them again before the stock trading session lapses on the same day. Those having limited money for trading investment find an attractive option in intraday trading. It does not block the investment amount during the buying or selling of shares on the same day. But the buying or selling of shares has to be made during the potential rise in the share's prices so that huge profit can be earned on the prices they are really bought for. Intraday traders follow intraday tips & use margin or leverage to make significant profits on small rise in the value of shares. According to intraday tips, most of the day trading accounts prefers to initiate trading in stocks that are 5 times the value of their accounts.

The stock broker firms are the ultimate destinations for investors searching for best & accurate share calls. They bring investors the best share market tips based on their experience & expertise. These share tips present the scenario of both losses & profit in nifty tips & stock tips before the traders. Several stock broker firms provide live BSE & NSE intraday tips so that traders can take right investment decisions.

Mr. Pankaj is a Seo Expert, providing Share Tips, Intraday Tips.

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Es Emini Day Trading - Welles Wilder's Continuing Legacy in Technical Trading

Many years ago, early in my trading career, I began to gravitate from the straight support/resistance/volume trading systems and become interested in oscillators and other "exotic" indicators, as they were referred to at the time. Of course, Welles Wilder's 'New Concepts in Technical Trading Systems" was often discussed. The book was written in 1978.

I had not yet read the book.

So I went to the library to hunt down this book by arguably the greatest technical analyst of our time. I was, of course, expecting a large book with lavish charts and difficult to decipher language. But I was determined to read the book and learn a little about this area of study that Wilder was making wildly popular, much to the chagrin of the old guard and Dow theorists. Imagine my surprise when the librarian directed me to the book and it was a thinnish sort of thing, not much in the way of writing or explanation, and pretty heavy on mathematic formulae.

But what a book! And Wilder's insightful mind and thoughtful mathematic approach to trading is still resonating with traders today. The book has six individual trading systems that Wilder proposed and briefly explained the rationale behind, which, at first glance, seemed less than impressive to me at the time. You might recognize several of the names now, because they are just as relevant today as they ever were.

Wilder himself was an engineer, then a real estate broker, and finally found his groove in what then was the fairly new field of technical analysis. Yes, this thin little book I got at the library contained some of the seminal work in technical analysis because in it, he explained the theory behind his indicators which include the Relative Strength Index (RSI), Directional Movement Indicator (DMI), Average True Range (ATR), Average Directional Index (ADX), and the often misunderstood Parabolic Stop and Reverse. Many technicians consider these indicators to be the core of current technical analysis.

Thirty years later many traders have continued to use these indicators in their daily work and their popularity continues unabated, and traders have combined and cultivated the use of the indicators in ways Wilder never would have dreamed. Even more impressive, these indicators are included in every software charting package I have ever used, which is a testament to their enduring popularity and accuracy. Wilder wrote and imagined these concepts prior to the time of the truly versatile computer, which makes his achievement more impressive than ever.

With the quantification of market movement Wilder exposed the fundamental relationship between price action and the indicators ability to discern the subtle movement in prices. By implication, he was able to quantify the emotions of fear and greed and the effect they had on price action. These factors are still not fully understood, but are recognized as prime movers in the daily price action we all observe.

I would be remiss if I did not mention Wilder's later work, which in my opinion, bordered on either the greatest fraud of all time or sheer lunacy. He and Jim Sloman developed a theory of market behavior of a distinctly different flavor than his earlier work called the Delta Phenomenon. Wilder tried, with some success, to convince his admirers that the markets were actually controlled by lunar-solar-earth cycles. Based upon his past work, many individuals invested $35,000 a piece and he became (at least it is rumored) very wealthy. There are still several websites proclaiming the Delta Phenomena as a ground breaking theory for investing. Of course, Mr. Wilder and I would part ways on trading the markets based upon astrological observation. To many technical traders, the Delta Phenomena dimmed the great intellectual light of Wilder's work. The Delta Phenomena is truly some unusual stuff.

Wilder's early work is the stuff of brilliance, and I would recommend that every trader read the book, then learn the book, as a requisite to understanding modern day trading systems. Of course, my enthusiasm for his Delta Phenomena is not quite as warm. However, I feel to get a fair assessment of the man it is important, at least in summary form, to look at the body of work he produced, both good and high debatable.

I am a long time retail and institutional trader who now only trades part time, usually in the morning. I enjoy writing informational articles about my style of trading so others may benefit.

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High Risk and Low Risk Investments - Managing Risk

When looking at the different types of investments to put your money in it's important to understand the risks associated with each. Investment risk generally relates to the possibility of losing your money, either in the short term or the long term.

As an example the kind of factors to take into account regarding risk are:

* The risk of falling short term values.
* The risk of falling long term values.
* The risk the provider going out of business.
* The risk of making less than other asset types.
* The risk of choosing the wrong investment account, plan or fund.

These provide an idea of just some of the considerations to take into account before making an investment, although the above is by no means an exhaustive list.

In managing risk successfully and choosing the right investments for you the most important element of investing to get right is to realise that the investments have to be personal to you.

The way to do that is to manage the two primary elements of risk. They are:

* The risk of making investments that are inappropriate for your needs.
* The risk of making investments that are inappropriate for your attitude towards risk.

Taking steps to avoid the first will ensure that you have a well structured portfolio. That is, having allocated some money towards a cash reserve, short term money and long term investments. This will mean you have some cash to fall back on in times of need, some money saved for short term expenditures and some surplus assets invested for the future. Having done this you can be safe in the knowledge that your ongoing financial needs are well catered for.

Taking steps to manage the second will enable you to put together a well balanced long term portfolio that is in keeping with your own personal attitudes. Having assessed what type of investor you are and whether you would prefer mainly lower risk or mainly higher risk assets you can then start to choose what individual investments would be suitable. At this point the list above that relates to the risks associated with individual investments comes into play.

A table of high risk and low risk investments can help you to clarify in your own mind where certain investments sit on a scale of risk.

Ultimately most people will be suited to a well balanced mix of low, medium, and high risk investments. However the extent to which you invest in these levels of risk will come down to personal taste, appetite for risk, and your own financial circumstances i.e. whether you can afford the risks.

Jaskarn Pawar, Director, Investor Profile Ltd

If you are a UK investor with an ISA, Personal Pension or Unit Trust investments then Investor Profile's free online investment monitoring service could help make your life easier.

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10 Reasons to Invest in Gold

Usually, when the price of gold rises, the price of the dollar falls. For that reason, investors in gold try to balance operating earnings and losses against the dollar. Also as gold tends to maintain its purchasing power over time, investors tend to buy the currency to counter the effects of inflation and changes in currency values.

The purchasing power of many currencies has generally been declining as a result of the impact of rising prices of commodities and services such as gold in the last several years. Major investors such as Jim Rogers are extremely bullish on the commodities market for the next decade to come.

Reasons to consider investing in gold.

1. Gold does not lose its value every day, like paper money. Gold is not affected by inflation or devaluation as there is a limited natural supply of the precious metal.

2. Gold is considered an investment haven. Gold has shown to performance well years of crisis or war when other investment alternatives often loss value.

3. Gold is not under political control. Governments and Central Banks can try influence prices through buying or selling of gold but that is still a free market.

4. Currently, gold reserves are limited as there is limited resources available while experiencing demand from countries such as India and China who are adding to their reserves at record levels.

5. It is an easy investment. Which is globally accepted as currencies.

6. It can be safe and profitable investment.

7. Its main use is for diversity in countries reserves. There is very little gold for sale and that accumulate as a reserve, so it is expected to increase its price.

8. Allows various forms of investment. Ingots, certificates of deposit, futures and options on gold mutual funds.

9. Gold is considered the best investment in times of crisis.

10. Do not pay VAT (Value Added Tax) on purchases (but do pay interest for paper and holding fees for physical).

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Fixed Income Investments That Fall in Between Treasuries and Corporate Bonds

Today, treasury bonds do not have high yields and corporate bonds are risky. There is, however, a middle tier of fixed income investments. These securities have higher yields than treasuries, but aren't as risky as corporate bonds.

These investments fall in four categories:

1. Ginnie Mae - This government agency creates securities out of mortgages originated by federal agencies - including the Federal Housing Administration and Department of Veteran Affairs. Like treasuries, these securities are fully backed by the U.S. government. However, Ginnie Mae securities have two disadvantages over treasuries: call risk (the principal may be paid off early) and no state tax exemption. Each of these slice about a quarter point from the expected return. As a result, you should only look at Ginnie Mae securities that yield at least half a point over comparable treasury bonds.

2. Fannie Mae and Freddie Mac - These quasi-federal agencies buy mortgages and package them into securities. They also can issue debt. These securities are "implicitly" backed by the U.S. government, which makes them slightly more risky than fully backed securities (like treasuries). However, it is very unlikely that the government would not bail them out.

3. FDIC Backed Bank Bonds - These are bonds that are issued by commercial banks and fully backed by the government's Federal Deposit Insurance Corporation.

4. Debt Issued By The Federal Home Loan Bank or Tennessee Valley Authority - Like Fannie Mae and Freddie Mac Securities, these fixed income investments are implicitly (rather than fully) backed by the U.S. government. Like treasuries, they are exempt from state income tax, but they do have call risk.

These four types of securities can help you create a well-diversified and high-performing portfolio.

Over the years, Praveen Puri, a trading and financial veteran, developed a passion for simplicity, minimalism, and Eastern philosophy. He developed a pure Zen trading system. It uses no news reports, indicators, charts, or parameters to distract you from Now. They are nothing but crutches that keep you hobbling around, instead of surfing in flow with the market.

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What Are Bond Ratings?

When you begin to look into investing in bonds you will quickly come across the term, bond ratings. In order to help investor determine what the most suitable bond to invest in is, there has been a series of ratings developed by a few reputable industry companies. These ratings are design to provide the investor with risk rating profile of the bonds on offer in the market place. One of the most common has been developed by Standard and Poor's and this is referenced widely within the financial industry. The descriptions below are based on the Standards and Poor's ratings.

The rating scale is based from levels A to D, and there are multiple ratings within each level. The highest rating is the triple A, these are deemed to be the safest and less risky investments. The other levels are double A and A, the double A is a very safe investment and the A is safe but could be impacted if economic conditions change, for the worse. The B level consists of triple B, double B and B. Triple B is the highest in this level and should provide adequate protection for your investment but that protection is less that the A level ratings. Double B and B bonds respectively are not as safe as the triple B rated bonds and slightly better than the C level bonds. The investment in double B and B bonds is a speculative investment and the risk that is known to be with speculative investment should be considered. The risks are that the ability for the organisation to repay the bond maybe affected by the organisations exposure to business and economic down turns in trading.

The C level bonds are far more speculative than the B level ones, therefore your risk exposure increases significantly. The D level is given when an organisation has already defaulted on payments to existing investors. This rating may also signify that there is an active bankruptcy petition, which needless to say is an extremely risky investment to consider undertaking. The use of plus (+) or minus (-) is applied to bond ratings from double A to triple C, to further define these rating levels. You interpret these as the plus being slightly higher, meaning less risk and the minus being slightly lower with more risk. There are times when bonds do not have a rating applied to them, this will be identified with a NR (no rating) to the actual bond.

Tom has been writing for many years now. Not only does this author specialize in financial matters, you can also check out his latest web site at http://cheapmotorcyclehelmetsshop.com/ which reviews and lists the best motorcycle helmets for motorcycle safety.

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Call Option

A call option on a share or any asset is a right to buy the share at an agreed exercise price. Suppose that the current share price of company X share is $130. You expect that price in a three month period will go up to $150. But you do fear that the price may also fall below $130. To reduce the chance of your risk and at the same time to have an opportunity of marking profit, instead of buying the share, you can buy a three month that option on company X share at an agreed exercise price of, say, $125.

Ignoring the option premium, taxes, transaction costs and the time value of money, will you exercise of your option if the price of the share is $130 in three months?

You will exercise your option since you get a share worth $130 by paying an exercise price of $125. You will gain 5$ that is, the pay off or the value of your at expiration is $5. Your call option is in the money at maturity.

What will you do if the price of the share is $120 when that on company X expires?

Obviously, you will not exercise the option. You gain nothing. Your call option is worthless, and it is out of the money at expiration. You may notice that the value of your call option can never be less than zero.

Call Premium

A call buyer exercises his right only when the outcomes are favorable to him. The seller of that, being the owner of the asset, gives away the good outcomes in favor of the option buyer. The buyer of a call option must, therefore, pay up front a price, called call premium, to the call seller to by the option.

The call premium is a cost to the option buyer and a gain to the call seller. What is the net pay off of the buyer and the seller of a call option when the call premium (that the buyer has to pay to the seller) in involved?

http://professional-edu.blogspot.com/2009/12/109-call-option.html

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Invest in Bonds at Your Own Risk

You can invest in bonds to earn more interest, but if you do invest in bonds beware: it's at your own risk. Some of the safest and best bond funds are insured for credit risk and pay interest that is free from income taxes. None insure you against investor losses. And losses are virtually guaranteed when interest rates go up.

Some of the best bond funds today are municipal bond funds that are tax-exempt in terms of federal income tax on the interest earned from the securities in the portfolio. That's the good news. It gets even better. Some of these funds insure the investor against default of the bond issues held in the portfolio. And then there's the bad news called interest rate risk. It applies to municipal, corporate, government bonds and all of the mutual funds that invest in them.

The FDIC might insure you against loss in your bank savings account and the federal government will tell you on their web site that savings bonds are safe investments. But that's not the same as when you invest in bonds, even the U.S. Treasury issue which is the safest long-term debt security in the world. Marketable securities called BONDS all have risk associated with their ownership.

Even the best bond funds in the land do not claim to protect investors against a rising interest rate environment. In fact, every bond fund in America warns potential investors of the potential losses. Every one of them put it in writing for all to see in the prospectus and other investor material.

The truth of the matter is that after 35 years of investing and as many years communicating with the average investor I've learned one thing above all else. People don't understand the risks associated with bond investing. So let me save you thousands of dollars or so in the future by laying it out for you in simple terms.

Investors large and small have an intense interest in bond investing today because interest rates are at historical lows. People want to make more interest and that's the primary attraction of bonds of all kinds. Visualize a piece of paper that promises to pay you 5% a year for the next 20 years or so. For a $1000 investment you get $50 a year in interest and then you get your $1000 back upon maturity in 20 years or whatever. That's a bond, and the $50 figure never changes.

Now visualize the value of that same piece of paper as it continues to exist, if interest rates offered by new bond issues went up to 10% and paid $100 a year. And consider how unhappy you would be earning ½ the interest you could be earning with a new bond issue. With interest rates near all-time lows, the direction of future rates seems obvious to even the most casual observer.

The math need not be sophisticated or complex. Somebody will be willing to buy your piece of paper, but you won't get anywhere near $1000 for it unless you hold on until it matures. Meanwhile, whoever holds it is making a lousy interest rate for as long as rates are higher than what your paper promises.

It doesn't matter whether you own an individual issue or a bond fund. When interest rates go up these debt securities lose value because they become less attractive as income-producing investments. Long-term issues and bond funds that invest in them get hit the hardest. When interest rates are high and start coming down it's a great time to invest in bonds. You earn an attractive income while the value of your investment goes up.

A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.

Jim is the author of a complete investor guide, Invest Informed, designed for average investors or would-be investors of all levels of financial background and experience. To learn more about investments and investing and his new financial guide go to http://www.investinformed.com.

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