Nicholas Fainlight | Business Development Associate, Hartford, CT

Nicholas Fainlight is an aspiring finance professional.

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Nicholas Fainlight: Blockchain for Businesses

Blockchain for Businesses: How Major Businesses Utilize Blockchain

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On June 5, 2017

In Finance

Blockchain technology is becoming mainstream. In early 2016, more than 40 major financial institutions were experimenting with blockchain, as reported by Wall Street. What does this mean? And how can blockchain help businesses work more effectively?

To answer this, we first have to understand what blockchain is. In the past, transactions of wealth or property have always had to go through a third party middleman. For example, if you were to send someone money over the Internet, that money would be processed through your bank. But with blockchain, such transactions are possible without an intermediary. In addition to transferring money, blockchains can transfer online representations of other types of property.

Blockchain is still a relatively new concept, but if it is utilized widely enough, it can have many benefits. Here are a few:

More certainty in transactions

Transferring through a third party allows a certain amount of trust. If you are being paid for a product, for example, you need to trust that the payee has the necessary funds in their bank account. With blockchain, this is not an issue, because the transaction is immediate.

Records movement of assets

Businesses that deal in supply chains can see a detailed record of how assets move through those chains. Blockchain transactions are stamped with a time, date, and location. Companies can use this information to keep track of expenditures and profit, as well as verify the legitimacy of their product. For example, Walmart has been using blockchain to track certain food items. This allows it to ensure that the food is coming from where it is supposed to be coming from—increasing food safety.

Simplifying the stock exchange

Currently, exchanging stocks requires the verification of multiple parties, with no transparency between them. Blockchain can simplify this process, by providing a secure, accessible, and permanent way for transfers to be made over the Internet.

On a slightly smaller scale, crowdfunding sites suffer some of the same transparency issues as the stock exchange, and also stand to benefit from blockchain.

Voting

Sites such as Boardroom and BitShares allow people to vote in an easy, fair way using blockchain. These elections benefit from blockchain’s immediacy and transparency. Currently, blockchain is only in use for small-scale decision-making, within companies or other such organizations, but if it becomes widespread enough, it could present a promising new way to vote in governmental elections as well.

Currently blockchain hasn’t entirely caught on yet. Its novelty means that many companies are suspicious of it security. Some firms also worry that it will disrupt their current business models, precisely because of the way it eliminates the middleman. However,  blockchain is still very early in its existence, and many of its potential applications haven’t been invented yet. So it’s a safe bet that, sometime in the future, blockchain will be a standard means of exchange for companies, and perhaps, for the world at large.

 

Nicholas Fainlight- Futures Trading

Futures Trading Part 4: Stops and Rolls

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On February 24, 2017

In Finance

If you’ve stuck it out this long, I commend you. Just kidding- hopefully you’ve enjoyed my four-part series on futures trading! If you stumbled upon this blog by chance and don’t know what I’m talking about, TURN BACK NOW. Not actually- but if you want a full understanding of futures trading, I suggest you start from the beginning with Futures Trading 101. This is the fourth and final section of my series on futures trading. We just looked at the risk associated with futures trading and the considerations you should make before investing in a contract, so now we’ll take a look at stops and rolls.

Stops and rolls kind of reminds me of the stop, drop and roll fire safety technique kids are taught in elementary school. The kind I’m talking about are a little different, but they’re also a safety tactic, as they go along with risk management.

Stop orders (stops for short) are a tool that investors can use to practice risk management in futures trading. They are a way for traders to buy or sell at a set price in order to limit losses and secure gains. The idea of a stop order, according to financial analysts Richard Illczyszyn, is to take the emotion of the trade by helping you set forth a plan of how much you’re willing to lose and how much you hope to gain. Stop orders allow you to back out of a trade at a set level and cut your losses to avoid substantial loss of money. In addition to having a set level at which to back out in mind, traders can also place physical stop loss orders when entering a trade that will automatically terminate the contract if the level you choose fails. It’s important to note, Investopedia states, that stop orders are not failsafe: in volatile markets, they could fail to execute at your desired level, causing you to lose more than intended.

Another movement in futures trading is rolls. Just as the basic meaning of stop orders is obvious, rolls are just what they sound like. Futures contracts have set expiration dates, so when you reach the end of your contract, you have a decision to make: do you want to close out or roll over into another expiration date? If you decide to close your position, you have the option to sell the futures you own or purchase the ones that you’re short. If you let your position roll over, then you need to close your current position and open a new one with a new contract with a longer expiration date, allowing your trade more time to succeed.

Anthony Grisanti, founder and president of GRZ Energy, advises giving yourself plenty of time (at least two weeks) to formulate a strategy if you decide to roll over your position. “That way, you can take stock of the market dynamics and not feel rushed as you manage your positions,” he says.

It’s also important to realize that there will sometimes be a roll cost associated with rolling your position to a further date, which is a normal consequence of rolling a position, as multiple variables such as market conditions, storage costs, interest rates, and dividends can cause the value of a contract to increase. A roll cost is simply the price of maintaining one’s position in a later month.

Well, this is where I leave you. I hope that I’ve provided you a strong foundation from which to continue your study of futures trading. My guide is by no means exhaustive, so I encourage you to explore other resources in your quest for trading knowledge.

 

Futures trading part 2- leverage (1)

Futures Trading Part 3: Risk

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On February 23, 2017

In Finance

If this is your first time tuning in, then you’ll probably want to check out my first two blogs in this futures trading series first, where I cover a basic introduction to futures trading and leverage. I’ve had an interest in futures trading for about as long as I’ve had an interest in finance- which is to say, it’s been awhile. It’s a tricky area of the stock market to explain to anyone because it is both a part of and separate from the overall stock market. Long story short, futures contracts have set expiration dates and stocks do not. But there’s a lot more to it than that, so I broke my explanation of futures trading into four sections covering key concepts. This is lesson three of four, covering risk.

Risk: you know what it is in general terms, but do you know how it relates to futures contracts? Unless you study the stock market as I do, probably not, but I’ll do my best to explain. Essentially, investing in futures contracts can be risky business. Managing risk is an important consideration for stock investment; however, unlike with traditional trading, with futures trading you can stand to lose more money than you put in. Therefore, you should have a full understanding of risk capital before trading in futures.

Risk capital is defined as the funds that traders can afford to lose. According to Rich Ilczyszyn, CEO and founder of iiTRADER.com, “You should not be trading futures with money reserved for necessities, such as housing, food, transportation.” Instead, you should consult an experienced broker to help you develop and assess your risk profile, and determine the right asset classes.

To know what you’re getting yourself into and avoid trading with risk capital, there are several considerations that should factor into your decisions before trading in futures. First, do your research and go with an experienced brokerage firm. Commission rates, margin requirements, level of executions, types of trade, software and user interface, and customer service are all important considerations. Also consider the level of service you require. If you’re more of a do-it-yourself person, then you may want to save yourself some money and go with a discount broker for lower commissions and fees. However, if you’ve never traded in futures before (or any stocks) then a full-service broker may be for you, as they will provide a higher level of service and advice for a slightly higher cost.

Your next considerations should be the category and type of futures that you want to trade. There are various categories involved in the futures market, which Investopedia suggests thinking of as industries. The individual contracts within these categories can be compared to stocks. For instance, agriculture energy, equity index, currency futures (FX), interest rates, and metals are all categories and there are contracts within those categories. As a general rule of thumb, you should stick to what you know when deciding which market categories and instruments you will trade. If you have a background in agriculture, for example, then you might want to trade in that category since you already have an understanding of the market.

There are also different types of trades to consider. At the most basic level, you can either buy or sell futures contracts, but there are different trading techniques employed by futures traders, starting with basic trades whereby the trader makes a wager that the price difference between investment and futures will fluctuate, and encompassing spread trades (a wager that the price difference between two futures contracts will change) and hedging (where a trader sells a futures contract to protect against a stock market decline).

My explanation of risk management in futures trading is by no means exhaustive, but hopefully it makes you realize that there are a lot of important considerations that go into futures trading and encourages you to do your research before committing to a contract.

Futures trading part 2- leverage

Futures Trading Part 2: Leverage

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On January 27, 2017

In Finance

I promised I would give you a four-part series on futures trading, and I always deliver on my promises. So ta-da, here it is for those of you who have an interest in the stockmarket like I do. In my first post about futures trading, I gave a general introduction to this area of the stock market, where I described what futures contracts are and how they work. As a refresher, a futures contract is a standardized forward contract between a buyer and a seller in which the delivery and payment of the asset occur at a future point in time. Because futures are functions of underlying assets, they are derivative products, meaning they derive their value from the price movements of the various assets they pertain to.

Leverage is a key concept of futures trading, and anyone looking to get into this field should have a thorough understanding of it. According to Rich Ilczyszyn, CEO and founder of iiTrader.com, “Leverage allows traders to make a large investment in a commodity using a comparatively small amount of capital.”

So, an investor that is interested in buying or selling a futures contract does not need to pay for the whole contract upfront; rather, they can make a small investment to stake a claim in the commodity. Investopedia gives an example to demonstrate this principle at work in the stock market: Say you have a contract valued at $350,000. This value of the contract, which trades on the CME, is derived from the level of the S&P 500; it is $250 times this level. If the S&P is at 1400, the value of the futures contract is $250 X 1400, which comes to $350,000. A person looking to initiate a trade on this contract does not need to pay the $350,000 upfront, however; they only need to post an initial margin of $21,875 (according to current CME exchange margin requirements).

Now, where leverage comes in: if the level of the S&P 500 happens to increase, then the value of the contract also goes up, and the investor makes a profit. In the example given, if the S&P rises to 1500, then the contract increases its value to $375,000, and the investor makes a $25,000 profit off their initial investment.

The investor also has a chance of losing money if the S&P falls and being hit with a margin call, requiring them to deposit more funds into their account to bring the balance back up, so risk is involved. Nevertheless, the chance of making such a large profit with a relatively small investment (leverage) is what makes futures trading so appealing.

Next time, I’ll go into more detail on the risk involved with futures trading.

Futures Trading 101-Part 1: What is Futures Trading?

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On December 12, 2016

In Finance

I recently published a blog post covering an introduction to the topic of futures trading, one of my personal favorite areas of finance. This is going to be part of a four-part series focused on the following:

  1. Intro: What is futures trading?
  2. Leverage
  3. Risk
  4. Stops and rolls/conclusion

For the original post, please follow the link here. The rest of this series will be published on this new blog dedicated to macroeconomic trends.

How to Protect Yourself from Online Shopping Fraud This Holiday Season

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On November 28, 2016

In Finance

In a similar vein to a blog I wrote recently about how to avoid overspending during the holidays, I recently came upon a Forbes article about how online shopping fraud is especially prevalent during the holidays and what you can do to protect yourself. It’s a shame that a time of year that’s supposed to be about family, faith, and giving is tinged with fraud. The sad truth is that while there are a lot of good people out there simply looking to buy some gifts for their loved ones, there are also a lot of corrupt people who will not hesitate to take advantage of others. Due in part to the transition to chip cards, the nature of fraud has changed. As a result, a survey of 125 retailers representing 13% of online sales predicts that online fraud attempts will increase 43% this year from last. Fortunately, not all hope is lost. There are some simple steps you can take to keep your information safe. Read more here.

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