Stocks

Forex Trade Signals Time Zones – What Are They?

Many traders find that the forex trading time zones can be a bit intimindating . Like many others , when I first got involved in this cash 24 hour global market , I couldn’t make a lot of sense from the time zone issue. That changed over time however and within the article I’ll let you in on a few basic insights on how the 24 hour market is handled by me and when you prepare for your next trading day, it will help you out .

The first thing you need to consider is where you live , or where you’ll be doing most of the forex trade signals trading from. This will be the single greatest factor affecting the way you look at this 24-hour market. For the purposes of our example here let’s say that California is where you life on the West Coast of the United States in the Pacific Standard Time (PST) zone which is 3 hours behind New York’s East Coast time .

Now that we’ve determined that we are going to do our trading from California , which is three hours behind the East Coast , we can start planning our forex trade signals trading day. In this never sleeping 24-hour market (but gets very quiet on weekends and major international holidays such as New Years ) the trading day stops and resets with the New York financial centers closing at about 5pm Eastern Standard Time and the Far East banking centers of Tokyo, Hong Kong, etc. about the same time are opening and starting a new day . Taking this into consideration it’s best to have your trading charts set up so that the candle or daily bar that you are using closes at 5pm EST every day .

Now that we have figured out we’re trading from the United States West Coast which is 3 hours behind NY’s Eastern Time and we’re aware of when the 24-hour market will stop and rest for another day. The next thing to consider is when you will get ready and plan for the next day . If you’re living in California , like our example, and you like staying up late then perhaps you’d like to get ready to trade the London session which is from 1am-4am PST or 4am- 7am PST. Perhaps you like sleeping and you want to sleep through the session in London but have no problem getting up early , at around 4am Pacific Standard Time so you get a look at the end of the London session and get ready for the beginning of the New York session which gets going about 5:30am Pacific Standard Time, or 8:30am Eastern Time . Maybe you don’t like to get up early and so you’d prefer to be a middle of the day trader ; not a problem . Just wait for 2pm PST or 5pm EST when Tokyo gets started and this session is when you can do your trading.

Now you clearly have knowledge of the major forex trading time zones and your days can be planned accordingly. Just remember, planning and preparation are perhaps the two most over-looked, yet important factors of success in this business and any other business .  Thinking this through you should be able to plan your forex trade signals day.

Are Franked Dividends A Free Lunch?

Self managed superannuation fund trustees often bias their investment portfolios towards companies that distribute franked dividends. This suggests they may be over valuing the benefit of dividend franking credits.
There appears to be a view that franking offers “a free lunch”, resulting in its overweighting as a driver of investment strategy.

We believe investors should not favour particular shares simply because they pay franked dividends. The usual thinking behind such behaviour is, in our view, flawed.

Four dividend franking “myths” …

We consider Four commonly held Dividend Franking Myths below:

Myth 1: Higher franking dates suggest better future share returns

Most financial analysts believe a company’s share price is determined mostly by the share market’s assessment of its after-tax profit. If they are right, then choosing one company’s shares over another based on current franking levels alone does not make sense.

Myth 2: Low marginal rate tax payer benefit more from franking credits

Some low tax rate shareholders (e.g. self managed super fund trustees) believe they get a better relative advantage (compared to higher rate taxpayers) as a result of receiving franked dividends.

Although there is no doubt that they receive an absolute advantage as a result of their lower tax rate, this will be the case regardless of the level of franking.

Myth 3: Markets incorrectly price the benefit of franking

There is a school of thought that fully franked shares provide additional benefits due to the franking credit attached to the dividend. We hope that the above discussion will cause those with this point of view to reconsider.

For those not convinced, consider that it is unreasonable to expect that the share market would remove any such arbitrage profit opportunites.

Stock markets are extremely efficient. They rapidly incorporate all known information and biases into share prices. The franking level of shares is not a secret and any benefit (real or perceived) is almost certainly already reflected in prices.

A rational investor would be prepared to pay more for the franked share compared with  the unfranked share. Fund managers will continue to pay up for any franking benefit until the higher price exactly matches the benefit.

Efficient share markets adjust to remove any arbitrage opportunities or “free lunches”.

Myth 4: That investing soley in fully franked, high yielding Australian shares is a smart Super strategy

An investment strategy that emphasises the level of franking is also likely to focus on higher dividend paying shares, to maximise the perceived benefit.

Not only does it defy the basics of a sound investment philosophy, such an approach implies an expectation of higher income and lower growth returns, effectively ignoring the relative tax advantage of capital gains tax over income tax.

Capital gains tax offers better opportunity for tax management than franking. Tax can be discounted and deferred (sometimes indefinitely) to reduce the overall tax rate.

The franked dividend investment strategy is misguided…

An investment strategy based predominantly on exploiting the perceived advantages of fully franked shares is naïve.

While franking should be a consideration, as a driver of investment strategy it ignores the importance of the primary variables in the portfolio construction equation – risk, liquidity, costs and a comprehensive tax approach.

A better investment strategy should take into consideration portfolio diversification, earnings and dividend forecasts, as well as taxation aspects.