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Commodities are Volatile Assets

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What is the difference between an asset and a commodity?

Answer : All commodities are assets, but not all assets are commodities because assets are wide term.

Volatility and high returns go hand in hand. Assets are a property or something that are of value. There are different types of intangible and tangible things that are assets. However, in the trading and investing world, there are different classes of assets. The volatility of an asset is a huge concern for those that trade or invest capital. The prime variance of the asset is volatility over time. The higher the volatility, the wider the price ranges in terms of long term period. There are assets which are more volatile as compared to others and what makes a market attractive or unattractive is the variance of the market as different investors have a different risk profile.
One of the most important factors, for the consideration of which asset to trade or invest in, is the variance of the asset.

Just about everyone has heard of commodities. They are a unique type of asset, which provide returns that are entirely independent from bond and stock returns. Adding various types of commodity will help one diversify their portfolio of bonds and stocks which help lower the risk of the portfolio significantly and increase returns. Commodities are a rare type of asset which can even hedge from inflation due to their impact on the price of goods.

So what’re Commodities?

In order to understand commodities, one needs to understand what they entail. They can be thought of as raw materials which are used for the creation of consumer goods such as aluminum, silver, gold, natural gas, oil, wheat and cattle. They are available in just about every single industry which is why they are referred to as commodities. One can also find soft commodities which are stored for a shorter period of time such as coffee, cocoa, cotton or sugar.
commodities
From the beginning of time, the commodity market has evolved greatly when there used to be a time that farmers would store apples and sell in the market if the prices went up. Then, during the 19th century, the demand grew for standardized contracts to ensure that the commodity prices could be fixed or agreed upon. Therefore, the development began of the commodity futures exchange. These days, options and futures contracts are easily traded on different exchanges in various parts of the glove and deal in a huge variety of energy, metal and agricultural products as well as for soft commodities. The price risk is offloaded to the end users due to the standardized contracts and it helps the commodities producers significantly.
Ever since the last end of the 20th century, the commodities have undergone rapid change as an asset class. The commodity futures indexes were developed as well as the benchmark of the indices with the investment vehicles. Now, investors have the opportunity to select from a range of vehicles in order to invest in futures market of commodities, from notes to mutual funds or exchange-traded funds, which cover the vast spectrum from broad based commodity exposures to single based, and even sector based commodity exposures.

Why Should One Invest in Commodities?

The commodity market is huge and it offers some of the best risk-free returns due to its nature. It is used as a hedging tool in times where the inflation rate is unpredictable and increasing by the day. There are three main benefits for investors if they invest in commodities, namely return potential, diversification and inflation protection. These three are vital for a powerful portfolio.

As commodities are just like real assets, they would reach differently to the changes in economics as compared to bonds and stocks, or financial assets as they are referred to. For example, we know that commodities tend to profit from the rise in inflation, and are only one of the rare asset classes that does. Furthermore, the price of the services and goods increases as their demand increases, and so will the price of the commodities, almost in unison to the changes in demand. Since, the price of commodity rises as the inflation accelerates, it may be best for one to invest in commodities to hedge from inflation.
On the other hand, bonds and stocks perform better when inflation is slowing or stable. When the rate of inflation rises fast, it leads to the lowering of future cash flows value that are paid by bonds and stocks as the future cash would only be able to buy less services and goods as compared to today.

Commodities and Volatility

Active traders are attracted to those assets which have a much higher degree of volatility as compared to investors. More short-term and speculative trading activity is attracted when the price of the asset is highly volatile. Therefore, the markets that experience high price variance are a trader’s paradise as they yield opportunity for the immediate future and on the other hand, they can be an investor’s nightmare as they seek earnings that are steady.
There are different classes to choose from when it comes to the more popular markets that attract different participants. Commodities, currencies, bonds and stocks are the four most popular classes which provide a different range of volatility.

The Market

It is due to these reasons that the commodity index of Goldman Sachs, Credit Suisse and Bloomberg has been independent largely from bond and stock returns in the past, and only correlated positively to inflation.
If we look at the period from 1970 to 2015, the annual returns had a low correlation with the U.S. equities on the Bloomberg Commodity Index and there was a correlation that was close to zero with the global bonds. They were however, positively correlated to the US CPI.
Even though the correlation of equities to commodities experienced a pickup after the global financial crisis, it was only the result of the decrease in total demand which impacted many of the asset classes and resulted in a higher correlation between the two. However, since the period, commodities are responding once again to supply factors. It is due to the geopolitical instability, weather that is impacting the price of grains and even natural gas and has influenced mining or crude oil strikes which impacts metals. The factors don’t affect bond or stock market returns more importantly to a similar degree and the correlation between other asset classes and commodities has come down.
The low correlation of commodities to bonds and stocks shows what might be the main advantage of broad exposure and that is diversification. For a diversified portfolio, the movement of the asset classes would be in sync with one another, this leads to the reduction in the overall portfolio’s volatility. The consistency of the returns would be improved over time due to the lower volatility reducing the portfolio risk. It is impossible for losses to occur even with diversification.

Let we compare commodities, equities, bonds and forex volatility :

Here are little test for last 30 days. Let we take ADX indicator to measure volatility. Let we pick 10 most volatile assets in last 30 days.
Here are my small test :

Equity Volatility
Shares in companies are included in the equity asset class and so are indices which reflect the overall volatility in the stock market or other sectors within each of the equity class. Trading or investing in the equity market is the most popular option among investors.
Major indices such as the S & P 500 or the Dow Jones Industrial Average normally experience a similar variance over time unlike most stocks which do not experience such a degree of volatility. Stock prices do make significant moves in certain periods. Examples in which stocks were dramatically lowered include the recent global financial crisis in 2008, the stock market crash of 1987 and 1929.
The US is the most stable economy in the world and the US stocks are definitely much less volatile as compared to their counterparts around the globe. The market has ranged from the highs of 27.23 % and lows of 5.35 % since the financial crisis of 2008.
Bond Volatility
A bond is a debt instrument which provides a coupon or yield to the holder of the instrument. Governments around the globe offer bonds just like companies. Bonds help finance businesses and countries by borrowing from the public. The different periods along the yield curve are looked at in the bond market by traders and investors who are active in the bond market. Short-term bonds are much more valuable as compared to long-terms ones which investors only look at for a steady flow of income.
It is the Federal Reserve or the Central Bank which controls the short end of the yield curve in the United States. The interest rate is the Fed Fund rate which credit unions and banks would lend to reserve balances on overnight basis. The Fed Funds rate is dictated and controlled by the US Federal Reserve. The minimum interest rate is the discount rate which is set by the Fed Reserve in the United States for lending to different banks. Market forces influence the prices of debt instruments and bonds, that have further maturities, and the Central Bank on the other hand controls the Federal Funds as well as the Discount rate.
The long-term and medium rates can be influenced by the short-term rates, but there would be divergences that would happen. Short or long positions can be taken by bond traders depending on how they view interest rates. A short position has a view that the rates would move higher, while a long bond position would bet that the rates would decline. Most of the bond traders position themselves just along the long and shore one maturity and the yield curve to take spread out and take benefit of pricing anomalies. A consistent and safe yield is what investors in the bond market look for in their investment nest eggs. Since the wake of the financial crisis in 2008, volatility has moved higher.

Currency Volatility
Since the United States is the most stable and richest economy in the world, the dollar is the reserve currency of the world. As compared to most other asset classes, currency volatility is normally lower due to the government controls on money supply and printing into the monetary system. To a large extent, governments control money supply. The stability of a government is what the volatility of currencies is dependent upon. Therefore, the Pakistani Rupee has a higher volatility as compared to the dollar for example. Other foreign exchange instruments can also be less likely to be reserve currencies as they are less liquid. Normally, the dollar index has shown a reading of below the 10 % level.

Commodities Volatility
Coming to commodity volatility, it is the t asset class which tends to be highly volatile. Looking at just the volatility of crude oil, since 1983, it has ranged from over 90 % to 12.63 %. A similar metric is seen for natural gas. If we look at the natural gas variance on a shorter term basis, the range has been over 100% in many occasions which shows just how volatile the commodity market can be for certain commodities.
The volatility in soybeans according to the quarterly historical data has ranged from 10 % to over 75 % since the 1970s. There has been a similar trend for corn and even the sugar futures market as well as coffee futures. Silver has experienced the range from 10 % to more than 100 %. On the other hand, gold is a hybrid commodity since central banks across the globe hold the gold as a reserve asset. The yellow metal has a dual role which is of a financial asset and a metal commodity.
The hybrid nature of the gold prices has been reflected since the middle of the 70s wherein the quarterly volatility has been from 4 % to more than 40 %. This shows us that commodity volatility is high over time due to various reasons and some commodities and more volatile as compared to others.

5 Reasons behind Commodities Being More Volatile

So where is secret ? Let we figure out why commodities are volatile ?

Commodities attract investor interest through the years due to the bull market periods. There has been an increase in choice for participants in the market over the years because of the emergence of new market vehicles which trade on ETN and ETF products as well as traditional equity exchanges. Before their introduction, investors could only invest in commodities that did not have a futures account and could be done through the ownership of the physical commodity.
When traders look at the short-term advantages of commodities, they are keen on investing in commodities. Here are the five core reasons for commodities being more volatile than other asset classes.
1. Liquidity
There is much less liquidity that is offered by commodities on the futures exchanges. Even though gold and oil can be the most liquidly traded commodities, they can also be highly volatile due to various reasons.
2. Mother Nature
The weather is determined by Mother Nature and so are natural disasters which occur from time to time on our planet. A spike in the price of red metal would cause if there is an earthquake in Chile, as is the largest producer of copper in the world. The prices of soybeans and corn would skyrocket due to a drought in the US. While, the recent cold winters have led to an increase in the demand for natural gas which has led to the energy commodity of the futures contracts skyrocketing.
3. Demand and Supply
At the end of the day, commodity prices are greatly influenced by demand and supply. Demand can be considered constant, while the production of commodities varies due to various reasons such as the climate, soil, and other factors. The demand is ubiquitous and the supply changing from time to time, has led to the asset become highly volatile.
4. Geopolitics
It is almost impossible to leave out geopolitics from commodity variance. When countries go to war or place an embargo on a country that is a major producer, it leads to the prices of the commodity skyrocketing. An example of this can be the sanctions on Russia, Iran and the Iraq-Kuwait war. Wars impact production and affect or even close off logistical routes which make it impossible or highly costly to transport the goods.
5. Leverage
Finally, leverage is something that needs to be looked at. Futures do provide a high level of leverage as compared to others, and it impacts the volatility of the commodities.

How Can One Invest in Commodities?

It might have been challenging to capture all of the advantages of commodity exposure in the past. Investors have been provided with another option due to investment vehicles benchmarking with commodity futures indexes and gaining exposure. Commodity exposure helps manage against a diversified index. Asset allocation has been done since the beginning of time which shows that it is beneficial.

Are there any Risks?
Although, diversified commodity exposure does offer investors with various advantages, there are risks to commodities investment. During cyclical downturns, commodities might not perform well and if the industrial and consumer demand slows, there are other things which could impact it such as politics, natural conditions and the market.

One more thing.We see in this text that commodities are Volatile Assets. A lot of people think that volatility is bad thing, something as huge risk. No risk and volatility are different things and volatility can be huge advantage in trading. Just try!

How does Relative Strength Index work ?

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Relative Strength Index – RSI

What is Relative Strength Index ?

Short note on relative strength index: Relative strength index is technical indicator which compares current and historical gains and losses in order to define if the asset’s value is over priced or under priced. Formula for calculating RSI is:

RSI = 100 – 100/(1 + RS*)
RS = Average of x days’ up closes / Average of x days’ down closes
Relative strength index math:
relative strenght equation

Main role of this indicator is to remove noise in price movement representation. High relative strength index success rate we can see in application very often.
Example of GBPUSD chart – RSI indicator is red:
RSI indicator example

what does the relative strength index tell you ? Interval in which RSI ranges is from 0 to 100 and it shows if asset is overvalued or undervalued (relative strength index law). In fact, as the RSI closes to level 70, the asset can be considered overvalued and has a big chance to be overbought. On the other hand, when RSI reaches level 30 the asset is deemed to be oversold. The best way to use this index is as a additional information to other stock-picking tools because using only RSI trader can create false buy and sell signals which can mislead observer.

History of relative strength index

J. Welles Wilder rsi
The relative strength index was developed by J. Welles Wilder and published in a 1978 book, New Concepts in Technical Trading Systems, and in Commodities magazine (now Futures magazine) in the June 1978 issue.It has become one of the most popular oscillator indices.The RSI compares bullish and bearish price momentum plotted against the graph of an asset’s price. Wilder developed Average True Range, the Relative Strength Index (RSI), Average Directional Index, and the Parabolic SAR.

Relative strength index algorithm – How to calculate relative strength index in excel ?

I always get information from MetaTrader. So how to calculate relative strength index using excel manually ? The most simple method we can see in nice post Calculation of RSI using EXCEL.
Idea is to define close price in some time period and than start relative strength index calculation excel :

“Column E” has all closing prices.
“Column F” calculates change in price by subtracting current row from previous row.
If “Column F” value is greater than zero, value will be copied to Column G. If value is less than zero, value will be copied to “Column H”.
“Column I” calculates the average Gain over the specified period, example 14.
“Column J” calculates the average Losses over the specified period, example 14.
“Column K” calculates the value of Relative Strength (RS).
“Column L” calculates the value of Relative Strength Index(RSI).
Please visit website and download relative strength index in excel tool: Download relative strength index formula excel

You can see in this nice video relative strength index example calculation:

How we can trade using this RSI indicator – advantages of using relative strength index ?

How does relative strength index work ? We can use RSI to determine overbought and oversold moment in trading. Below 30 is oversold and above 70 is overbought.There are some rules for traders :
– Market can be oversold or overbought very long time. It is not smart to trade sell orders above 70 and buy orders below 30 without deep analysis.
– Do not buy in oversold market or sell in overbought market without some conformation in your direction (for example some big move, strong bullish or bearish candle etc.)
– The best strategy is – buy or sell after pullback and respect main trend. For example if trend is bullish on daily or H4 chart, price is above 50 RSI in strong bullish direction you can buy if price goes in oversold area on 5 minute or 30 minutes chart. See images below :
gbpusd overbought 30 minute chart
On daily chart we see bearish trend. Next 7 days price will fall 300 pips down :
GBPUSD daily profit

2) We can use RSI indicator to find divergence and predict change of the trend.On image below we can see relative strength index bullish divergence (relative strength index when to buy) :
relative strength index bullish divergence

On this image below we have relative strength index bearish divergence (relative strength index weakness) example:
relative strength index bearish divergence example

Using RSI trend lines we can avoid very often false breakout in trading or Market Has Hit an Extreme.How important are levels 30 and 70 (relative strength index bloomberg example), we can see in nice highest rsi table. In this article we can see opinion “Many technical traders view anything above 70 as a sign that the dollar is overbought and due for a correction.”

3) My favorite way to use RSI – draw trend lines on RSI chart and use for trading !
Traders can draw trend lines below and above RSI line. If price breaks trendline than trend will change. See example :
RSI trendlines
This example shows bullish trend on 30 min chart.I can make buy orders above trendline but if price breaks RSI trendline than trend is changed.Of course on 30 minute chart we can see 25% from ATR bearish trend in price breaks this line (around 20 pips).If price breaks daily trendline RSI that can give few hunderds pips profit.

Questions and answers from email messages:

1) How to find relative strength index indicator in Metatrader ?
RSI is major indicator. It is in indicator section in group oscillators.
how to find relative strength index

2. What is a good relative strength index number
Each number in RSI is “good”. It is just strength index. For example is price is above 70 or below 30 it can be excellent trend which can give more profit in future. Price around 50 can be in range market, but it can be strong trend decline or rise if we have strong divergence in that moment.

3. Should I set RSI settings on different way.Is it better rsi 8 or 14; rsi 7 vs rsi 14 ?
My advice is to use default settings. All major world traders use (mostly) the same settings so they will make decision based on default parameters.Summary, default settings is relative strength index best settings.

4. What are relative strength index disadvantages and what are advantages of using relative strength index ?
The biggest advantage is simplicity, easy reading as we see in chapter how relative strength index works. One of the biggest disadvantage is that rsi is very fast indicator and sometimes we need to wait for higher time frame price close conformation.

What is the difference between metatrader 4 and 5 – mt4 vs. mt5 ?

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Metatrader 4 vs Metatrader 5 – Which One Should You Use?

As it seems the traders are given a choice to make MetaTrader 4 vs. 5 while opening an account. Brokers can also make this decision. It’s up to the individual broker to make a decision for selection between MetaTrader 4 and 5 that must be accessible to traders or should support MetaQoutes terminal platform. Users are having usage experience of MetaTrader 5 (MT5) willing to make use of MetaTrader 4 (MT4). Most of the traders make use of most famous and older one platform known as Mt4, MetaQoutes has stopped introducing variations in their platforms, but has not made criticism or compel brokers to purchase a license for MetaTrader 5. Brokers who are keen of getting the issuance of MT4 License, MetaQOutes clogged the issuance of new MT4 License to those brokers on January 12, 2018, which means that these brokers have to make use of another platform or can accept MetaTrader 5. Decisions can become complex when there is an insufficient provision concerning the server capital for the existing Mt4 License Holders. Having this perspective, let’s make a detailed study of two types of terminal regarding their languages correspondingly.

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mt4 vs. mt5

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MetaTrader 4 vs. 5 deals with the substance of acquaintance, how much simple or easy to use and all MQL languages.
MetaTrader 4 vs 5 (MT$ vs MT5) Languages (MQL4 vs MQL5)
MetaTrader 4 was introduced globally in 2005 whereas MetaTrader 5 released in 2010. Language has similar syntax along with the prominent and major changes in keywords that distinguish both and make hard for an MQL4 file to function in MT5 smoothly and vice-versa of it as it implements the MQL5 and MT4.

MQL4 and MQL5 have many similarities with the programming language, C++. MQL4 has maintained its position or popularity in the industry even after the release of MQL5, which has helped a lot in distinguishing the programming language.
However, this feature makes the MQL4 and MQL5 interesting one and offers a flat contest to everyone because the programming language is such as which requires updates to programming languages like Python or Ruby. Variation in MQL4 and MQL5 give a meaning of going beyond the side of marketing from the MetaQoutes platform which is the major source of the promotion set it and forget it kind of tactics to make a trade with “robots” (Expert Advisors) and custom indicators. This kind of elevation creates hurdles for newcomers who just found out that their MT4 version has been updated or would find that their MT5 version will be updated and they seem like a real victim of the never terminated Software Development Life Cycle.
There will be no updates in MQL4, but there shall be continuous variation in MQL5. It will reduce the hurdles for newcomers who want to enter in MetaTrader 4. It all deals with the game of Relaxed and Comparative Limitations in Competence vs. Stimulating and Vigorous Aptitude.

Pros and Cons of MetaTrader 4 vs. 5 (MQL4 vs. MQL5)

MetaTrader 4

Advantages
There will be no variation regarding updates due to which no need to change or alter the programs comprise of new versions.
Expert Consultants and Indicators are independent to choose a file from the .mq4 file, and the — ex4 file for implementation.
MQL4 is of much benefit as it has seen that many brokers make use of MT4.
It’s pretty easy to code. Expert Advisor can make it is short and make a structure with ease.
Disadvantage
Variation in currency competences.
No circumventing proficiencies.
Overall, it is limited to the skills and capabilities that a terminal maintains.

MetaTrader 5 (MQL5)

Advantages
Language proficiency is improved by bringing some variations.
A rapid change in language syntax with the advancement in terminal technologies is a plus.
Hedging abilities.
Currency variation skills.
More stipend for more complexity.
Disadvantage
In the case of transitioning from MQL4, this is considered as the most difficult and complex language.
Libraries are important.
One expert can handle many libraries and the files attached to it.
Not anything is independent.
Most of the individuals are familiar to MQL4 are now moving towards MQL5 because MQL5 has more features and capabilities that are required at this time concerning the language structure and efficient building structure of programs compel others to learn a complex one as compared to the simpler one that is of no worth.
MQL does not demand a new programmer in mind, but it is a basic object-oriented language.
Languages can vary a little bit in their structure and syntax, of course, it demands to learn things from the very beginning while moving from MQL4 to MQL5. It is an impossible task for those people who try to convert .mp4 file in MetaTrader 5. Conversion tools fail in case of binding the huge divide concerning the code structure between Meta Trader4 and MetaTrader5. This is the matter where the structure of different files .mqh and .mq5 have to be made or sometimes various mq5 files to carry out the same task, but the real code is more vigorous incompetence, more important in backtesting.

MetaQoutes software has given an overview of MetaTrader 5 for almost seven years ago, but some traders exist who prefer to work on MetaTrader 4. There is a contrasting criticism on MT5 by the market contributors who say that MetaTrader is comparable to MT5 in its all functionalities. Then what is the major difference between MT4 and MT5?

Expert Values

MetaTrader basically designed for “over the counter” Forex tools like CFD whole, on the other hand, MetaTrader 5 was made for the stock instrumentation including shares, geographies and some other offshoots.
MetaTrader 5 platform has been made for the index of RTS standard interchange

Standards of opening positions
MT4: hedging – a lot of the transactions can be made by the trader that comes under the umbrella of multidirectional for the same tool and at the same time with the addition of place, one-direction trades. Traders know well about this process because this method involves reducing risks.
MT5: netting – the trader can make a trade of instruments in a single direction while multidirectional positions are not permitted.
A trader is allowed to open an account in MT5 and trade instruments too; except stock unavailability at this account.

Market Depth
MetaTrader 5 delivers market depth with the exchange of instruments that are being traded while from the other perspective MT4 only give a chance or an opportunity to make deals with the resources in ECN system like OTC. Both give an opportunity to traders to make a clear analysis of orders that how much have to deliver and how much have to buy, measure capacities of the gadgets, and deals with two types of trading functions:
Sell/buy instruments with the exchange of money at the spot

Place trading orders – remaining or pending orders to sell/buy a substituting tool at the fixed price
Market depth in MetaTrader 5

Market depth in MetaTrader 5

Market trade seems best to scalpers, traders who desire to perform high but a full risk trading because of market depth boost up the presentation of many people. Experts often make use of some special kind of trading tools for carrying out the processes.
Tester of strategies
MT5 gains multi-tasking and significant tester, who can execute the function by testing a portfolio, which grabs the attention of traders dealing with the standard market equipment. Quotes history can be recovered or downloaded in the terminal.
Testing results appear as a chart
MetaTrader 5 tester is given in MQL Cloud Network with the limitless contribution to make a calculation using tens of thousands of consistent PCs. A trader can only get this function if she/he has installed a special kind of application strategy Tester.

MQL4 vs. MQL5
MQL4 and MQL5 distinguishable from each other on the level of programming language platform. MQL4 is a language (MetaQoutes Language 4) basically used for machines, writings, and pointers used in MetaTrader 4. This language has limited scope as compared to the other languages, as it can be seen that this language is used for basic level calculations or simple commands.
MetaTrader 5 has a major focus on MQL5 language that is brand new, more significant and much closer or similar to the object-oriented C++. The syntax makes programming language easy to operate for developers: a trader can write code or can make changes in it, pointers and vigorous interchange by using MQL5 language under the platform of MetaEditor, as the language gives the countless opportunities.

MetaEditor – multi-tasking editors are available for the development and adjustment of trading robots and pointers
Custom advisor and trading advisors should learn to track the activities of a computer mouse and keyboard pointer, in case interrelating with some peripheral devices a special thanks or homage to the program installed in MQL5 for the event processing. MQL5 official website contains every kind of library, templates and most popular functions that are used frequently.

Conclusion
A time tested platform that is simple to use as compare to others with extra functionalities, basically considered for the Forex equipment, CFDs and some other OTC byproducts.

What is Return on Investment?

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Understanding ROI

 

The financial world is riddled with jargon and a multiple of confusing words. Without the understanding of these, it may be difficult to survive in a world filled with bankers, investors and complexed corporate environments. So, without further delay, here is everything you need to know about Return on Investment (ROI).

Return on Investment is a measure of performance, as it is used to evaluate the efficiency of the investment of interest. It can also be used as a comparative tool, as it provides information about multiple investments in a manner that is easily understood and analyzed. This is achieved through the return on investment formula which gives a quantitative analysis of the amount of return of an investment in relation to its cost.

It provides an easily usable formula that has many practical uses. For example, one is able to compare the Return on Investment from a range of assets that are not generally compared. Therefore, one could compare performance on the stock market with that of a new niche start-up by simply plugging the correct financials into the Return on Investment equation.

 

The Return on Investment Formula example

In order to calculate this, the amount earned is divided by the cost of the investment. The result is expressed as the Return on Investment ratio. Mathematically, the Return on Investment equation goes as follows:

ROI = (earnings from investment – cost of investment) / cost of investment

Sample return of investment: Next, one needs to consider how to practically calculate a Return on Investment. To this end, a return on investment example should suffice: John invested $1000 in Nice Shoe Inc in 2010. Today, he wishes to sell those shares and he sells them for a total of $1400. If he wanted to know his return on investment, John would first have to calculate his profits. This is done by subtracting costs of investments from the cost of investment: $1400 – $1000 = $400. Next, the profit must be divided in order to get the return on investment $400/$1000 = 40%. Therefore, John’s return on investment is 40%.
These equations may be made much simpler with the use of online return on investment calculators. This can make life simpler when comparing multiple investment opportunities at the same time, allowing for a simpler path to seeing the opportunity costs associated with a respective business path.

Return on Investment calculator:

How to calculate rate of return on investment in excel ?

We can calculate return on investment in excel sheet if we put equation as formula. You can download return on investment (roi) excel template.

 

Analysing the Results


Generally, any value that comes out of the Return on Investment equation as positive is considered a good return. An importance remains, nonetheless, on evaluating all options so that the investment chosen outweighs its associated opportunity cost. The opportunity cost is defined as the next best option that is forgone with the purchase of any good, service, or asset.
Consider this: John (from the example earlier) had the opportunity of purchasing shares in Nice Shirts Inc. For the same $1000 in investment, his Return on Investment would have equated 50% over the same time period. Therefore, John’s opportunity cost was greater than the profit he made buying shares in Nice Shoes Inc.
From this, one can see that opportunity cost plays an important role in decision-making. A comprehensive Return of Investment analysis may help dramatically in aid of this because, as stated in earlier, the equation provides a good basis for numerical comparison.

 

Return on Investment vs Return of Investment


 

Whilst doing these calculations, it is important to keep in mind that a return on investment does not necessarily mean a return of investment. Return on investment is speculative; Return of Investment is definite – cold, hard cash in your hands. The end goal of any investor must be to achieve Return of Investment

 

Limitations of the Return on Investment Analysis


 

Return on Investment is a profitability ratio. This means it is supposed to be an aid in the decision making of any investment opportunity. However, so that it can play a proper role in that situation, it is critical to establish that it does have limits. The equation does not take into account the time between the initial investment and the profit received. So, it may put investments that have different Rates of Return in the same category.
For example, the Return on Investment equation will say two 20% Returns on Investments are exactly the same. Even though the first investment may have achieved this in 6 months and the second in 2 years. Therefore, the Return on Investment analysis is not sufficient on its own and must be used alongside other crucial profitability measures. Such measures provide a better basis with which to make an investment decision. An example of such calculations would include the Net Present Value (NPV) and the Internal Rate of Return (IRR). These are not comprehensive and further research is suggested before making any critical decisions.
Furthermore, the Return of Investment analysis only provides historical data. This means that it cannot be a predictor of what an investment may do in the future. Although, certain implications may be drawn from this.

Criticisms of evaluating performance based on ROI include:
– Reject investment opportunities that are profitable for the company but have a negative impact on a manager’s ROI.
– Be put in charge of a business segment that includes committed costs over which a manager has no control.
– Take actions that increase ROI in the short-run at the expense of long-term performance.

Questions and answers:

 

Why is return on investment (roi) the most commonly used financial performance measure?

In every country, ROI is the most commonly used financial performance measure. Return on investment calculation allows managers of one organization to compare performance with that of other organizations.In order to increase return on investment (ROI), the company must increase sales, and/or decrease operating expenses or increase or increase unit sales.

What is good return on investment ?

What is considered a good return on investment is hard to tell. Each industry has its own average ROI. For example marketing and advertising for every $1 invested will bring you at least $2. On other side real estate and stocks can bring you cumulative high amount of profit but ROI is much smaller. See image below:
What is good return on investment

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Which investment offers the best combination of low risk and high return?


Investments like preferred stocks, utility stock, fixed annuities, brokered cds, offers the best combination of low risk and high return.
Stocks are typically high risk and high return, while bonds (especially government-secured bonds) are low risk and low return.

 

If the average return on investment is the same why buy mutual funds instead of stocks?

No. Stocks are typically high risk and high return and as an investment, bonds are less risky than stocks but generally have a lower rate of return. On the other side, one of the benefits of mutual funds is that their diversification reduces risk. Answer is : both can be risky, but average stocks investing is risky than average mutual fund investment. Most mutual funds are able to achieve a 5-7% ROI annually.

 

What is return on investment for stocks ?


As same as we calculate ROI for any other business, ROI = (gain from investment – cost of investment) / cost of investment.

 

How to Calculate an Annual Return With Stock Prices


 

Simple Return = (Current Price-Purchase Price) / Purchase Price
Annual Return = (Simple Return +1) ^ (1 / Years Held)-1

or if you have dividend:

Simple Dividend-Adjusted Return = (Current Stock Price-Dividend-Adjusted Stock Purchase Price) / Dividend-Adjusted Stock Purchase Price
Annual Dividend-Adjusted Return = (Simple Dividend-Adjusted Return +1) ^ (1 / Years Held)-1

 

Why is marketing return on investment so difficult to measure?


It can be quite difficult to measure marketing ROI, because marketing efforts usually result to intangible benefits for employees and customers.

 

What are the concepts of return on investment and risk ?


This question we have when we talk about investing and ROI. Risk increases if loss exceeds amount invested even if loss probability remains unchanged. SO higher risk corresponds to higher returns and lower risk corresponds to lower returns. Return on investment can not be only thing that we are looking for when we invest our money. Roi and risk we need to study together.

 

The Future for ROI


 

Recent times have seen the advent of the Social Return on Investments, a measurement system that takes into account the Triple Bottom Line: social environmental and economic factors. SROI helps the management of companies understand the scope of their decisions in a broader sense than just monetary policy.

Why Return on Investment Matters


Return on Investment calculations is important, as they show how your money is producing a profit. It does this in a manner that is able to show both the efficiency and the magnitude of the respective asset. Moreover, the Return on Investment analysis can act as an alarm bell, as negative products of the equation should see the immediate withdrawal of capital from the investment.
However, it must be remembered that ROI is easily manipulated and does not take into account certain crucial factors, time being an example. Despite this, it remains a critical weapon in the armory of the investor. A Return on Investment Analysis should form the foundation of any well-considered investment.

George Soros Biography

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Introduction – George Soros Bio
George Soros quotes:
My success in the financial markets has given me a greater degree of independence than most other people
george soros
George Soros was born in the year 1930, August 12 in Budapest, Hungary. Soros is an American-Hungarian author, political activist, philanthropist, business magnate and investor. He is among the most successful investors in the world. He had a network of $7.6 billion as of 2017 February after donating $17 billion to the Open Society Foundations, his philanthropic agency. George Soros Net worth was $25.2 billion as of Mar 22, 2017. In 2018., George Soros net worth is 8 billion USD.
George Soros became popular in the year 1992, during the time that he made $10 billion from one bet that was against the British pound. The speculation of the currency gave the investor profits that added up to $1 billion in the first day and more than $2 billion afterward. He even was given the “the man that broke the Back of England” nickname.


Main facts:
Father:Tivadar Schwartz
Mother: Erzebet Szucz
Brother: Paul
Ex-spouse: Annaliese Witschak and Susan Weber
George Soros children are: Alexander, Andrea, Gregory, Jonathan, Robert
George Soros is married to Tamiko Bolton, who’s 42 years younger than him from 2018.
Where is George Soros ? – He lives in New York, Katonah, USA

Education and Career
How did George Soros make his money?

He attended the School of Economics in London where he earned a bachelor of science in philosophy and Master of Science in philosophy in the years 1951 and 1954 respectively (“George Soros,” 2018). Soros could not find any jobs after he graduated and therefore he decided to settle for employment as a traveling salesman for wholesaler f of fancy gods that sold to retailers in the resort’s seaside. The individual described this moment as one of the lowest in his life. He wrote interview letters too many banks that ignored him and also humiliated him in the process of the interview (Soros, 2010). He worked as a clear at Singer and Friedlander, a bank in London. He also employed as an arbitrage trader in the years 1956 to 1969 at F.M Mayer. Here he was specializing in European stocks that were popular with the United States investors because of the formation of steel community that later transformed to the common market. Thereafter, he worked in an investment bank in the place. He later left for the US in the year 1956 where he was employed as an investment manager and an analyst for various firms.


Soros’s Philosophy of Investment
George Soros had an ability to synchronize world economic trend with leveraged and highly detailed strategy in currencies and bonds. He operated as a speculator shortly and was able to make bets on the trends of financial markets. He had a belief that the financial markets tended to depend on the amateur and professional traders and the people that purchase or sell assets on the market. Soros aimed at capitalizing on the emotional or human capacity of the influencers of the market to transform the investment decisions and opinions of others . The man was always looking for a way to stand out or be unique from the crowd as much as followed investment trends. This was one of the greatest paydays. He trusted his reaction regarding busing and selling and this made his strategy hard to emulate.

How did George Soros make his money ?
He left work in 1073 to look for his personal hedge fund, the Soros Management Fund. The fund turned to the Quantum Fund and eventually Soros was able to develop the company to a highly successful and aggressive hedge fund which made annual returns of 30% annually. There are two occasions when the fund posted profits that exceeded 100%. In the early 1990s, Soros was declared among the richest individuals on earth.

Market and Major Trades
Soros was contacted by Georges Pebereau a financier in France in the year 1988 that wanted him to take part in an effort of assembling a team of investors to buy a big number of shares in a French bank which was part of a program of privatization. Soros, however, decided not to participate in the effort and opted to move forward personally with the strategy of putting shares in four companies in France which included Paribas, Suez, and Societe Generale. In the year 1989, a French regulatory authority of stock exchange performed an investigation to know if the transaction of Soros in Societe Generale was inside trading. Soros got no information from the company and had no information of the business insider but he knew that there was a group of investors which was planning a takeover . The first investigation proved that Soros was innocent and there were no charges against him. The case was later reopened after a few years and he was convicted in the year 2006 by the French Supreme court. Soros, however, declined the charges and said that the takeover news was public knowledge and the document said that the intent of the individual to have the company shares showed that he was aware of the takeover.
George Soros Versus the British Pound – How Did George Soros Get Rich in one day ?
How did George Soros break the Bank of England?
Soros is remembered by the “the man that broke the Back of England” nickname. He is also a known speculator of currency and does not limit his efforts to a specific area geographically but considers the whole world when looking for opportunities. The man borrowed billions of dollars in the year 192 which were worth British pound then changed them to German Marks. When the pound crashed, George Soros had to repay his lenders on the basis of the lower new pound value. He pocketed an excess of around $1 billion that is the difference between the pound value and the mark value in a one-day trading
George Soros made the same move with the Asian currency during the Asian Financial Crisis of the year 1997. He took part in a frenzy which led to the collapse of the Thailand currency. The trades became so effective since those national currencies that speculators bet against mostly got pegged to other currencies. This means that there were agreements to prop up those currencies to ensure that they were able to trade in a particular ratio against that currency which they got pegged.
As the speculators placed bets, the issuers of currency got forced to try and maintain the ratio by purchasing their currency on the open market. The government later ran out of money and was pushed to abandon the effort and this made the value of the currency to plummet. The governments feared that George Soros would start having an interest in their currency. When he did, the other speculators could ion in the fray, this was described as a group of wolves on a group of elk (“George Soros,” 2018). The big amounts of money that those speculators borrowed and leveraged made it hard for the governments to handle the assault or withstand it.
Despite the success of George Soros, it is not every Bet that he placed worked in his favor. For instance, in the year 1988, he made a prediction that the markets of the United States would rise continuously. His fund, as a result, lost $300 million in the crash process even though there were lower double digits delivered returns that year. In 1999, Soros also took a hit of $2 billion in the Russian debt crisis and lost $750 million during a technology bubble where he placed a decline bet (“Investopedia, n.d.”). He was stung by this loss and as a result, bought anticipation big in of a rise and lost about $2.9 million when the market crashed finally.
Soros’s family office has trimmed the stake in the Broadband Corp. during the first quarter, the management fund holdings of Broadband Corp reduced by seventy-four thousand shares to around 8000 million. The filing also shows the disclosed Soros’s stake of around 22 million in Vice Properties Inc. which the second biggest holding of the firm. George Soros also increased the stake by 330, 00 in Aetna and made the holdings of Baxter International by around 340,000 shares.
According to the recent news, the billionaire is weighing moves into cryptocurrencies. A member of the of office family got an internal permission to trade on cryptocurrencies which is an asset that several money managers avoid because of the track record of the sector which is limited and lack of volatility and regulation. The Soros Management Fund head of macro investing, Adam Fisher got the approval but has not made any bets yet on cryptocurrencies. The green light of the fund for cryptocurrencies came after the Bitcoin price that has served as a signal to several other cryptocurrencies. Recently, regulators have begun paying special attention to cryptocurrencies and this has scared investors off (“George Soros,” 2018). The interest in bitcoin is beginning to wan with the amounts of searches falling slowly since the start of this year.
If you interested what stocks does george soros own you can see his portfolio in details.
Where does George Soros live now

George Soros is Founder/Co-Founder of Quantum Fund . He lives in large estate, located in the Bedford Hills suburb of New York, Katonah, USA.

Interesting facts:

One of the famous youtube videos is George Soros 60 minutes interview.
George Soros interview :

Conclusion
Trading like Soros is not for those with a light wallet or the faint-hearted. The drawbacks of the winning big and betting big is that betting big means losing big. If one cannot afford the loss, then definitely they can’t afford to resemble George Soros. While the macro hedge traders are the quite types and avoid spotlight as they earn a fortune, George Soros is taking and has been taking public stances on several political and economic issues. His success as a speculator and public stance has put Soros in a unique personal class. During a period of more than four decades, he made the correct moves almost every time and generated a large number of fans among investors and traders and detractors among the ones on the other end of losing for his speculative activities.

QUESTIONS AND ANSWERS from comments:

  1. How old is George Soros ?

He was born 1930. George Soros is 88 years old.

2. Who is George Soros spouse ?

Tamiko Bolton is George Soros’ third wife.

3. What is official George Soros twitter account ?
George Soros Twitter account is : https://twitter.com/georgesoros

3. What religion is George Soros ?
As we can see in interview, George Soros is atheists he doesn’t believe In God.

4. Did George Soros Say His Life’s Mission Is to Destroy the United States?
No. George Soros didn’t say this. Claim (fake George Soros newsweek 1979) “I’ve made my life’s mission to destroy the United States. I hate this country and I hate all of the people in it.” is false news. David Emery, is excellent San Francisco-based writer and he wrote several articles about fake news related to Soros.

5. Is George Soros ‘Grooming’ a Pro-Muslim Brotherhood Gubernatorial Candidate in Michigan?
Another fake news about Abdul el-Sayed George Soros relationship.

6. Is Chelsea Clinton Married to George Soros’ Nephew Marc Mezvinsky?
Another fake news. Based on Snopes.com , Baio didn’t provide any evidence that Marc Mezvinsky, Chelsea Clinton’s husband, was related in any way to George Soros.

7. Are 16 States Using Voting Machines from a ‘Soros-Controlled Company’?
George Soros voting machines were another fake news in media last several years. George Soros has no hand in the management or ownership of Smartmatic.