| In stocks trading and Forex trading, a trader should | | | | 1. What is a finance Beta? |
| be well verse with technical analysis as well as | | | | A finance Beta indicates the expected return of a |
| fundamental analysis and it is in these analysis that | | | | stock that is correlated to the return of the overall |
| traders should look at Beta to manage their risk | | | | market. |
| takings. | | | | 2. Where can traders or investors locate Beta? |
| Beta is the measurement of risk in trade and | | | | Beta can be found easily in most stock brokerage |
| investment. It measures the volatility of a stocks or | | | | sites, trading platform and trading system. |
| mutual funds in relation to the entire market It is | | | | 3. What does a zero Beta means? |
| usually used as a tool to assess the risk in buying and | | | | A Beta of 0 means that its price is not at all |
| selling of stocks. The total market has a Beta of 1. If | | | | correlated with the market. |
| stocks have a Beta of above 1, it means the stocks | | | | 4. What does a positive Beta means? |
| move more then the market overtime (stocks price | | | | A positive Beta means that the stocks generally |
| will be more volatile then the market). If the stocks | | | | follow the market. |
| move less then the market (stocks price will be less | | | | 5. What does a Beta more then 1 means? |
| volatile then the market), its Beta will be less then 1. | | | | It means the stocks are highly volatile in correlation |
| The importance of Beta is that it helps the investors | | | | to the overall market. |
| and traders to make trading and investing decision. In | | | | 6. What are the disadvantages of Beta? |
| stocks trading, stocks with higher Beta are far more | | | | Beta is poor indicators of what lies ahead as they |
| risky but have a potential of giving higher returns | | | | reflect only what had happened. Thus, it is useful for |
| while stocks on lower Beta are less risky and thus | | | | short term trading and not for long term investing. |
| may face a lower returns. | | | | Traders could use the Beta readings to manage their |
| Traders and investors could find utility stocks to | | | | risk in the trading system and their trading strategies. |
| have a Beta of less then 1 while high tech stocks and | | | | It is basically an important Risk Management Tools. |
| financial stocks to have Beta of greater then 1. | | | | |