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03:54

We have to admit that when Forex Market trader started using the software called the Forex Robot, it brought the trading in the Forex Market to the next level. We have let go now of the days of traditional trading. The traders that still used, and still on grasp to the old way of trading are often left to rot, and should dust themselves up for sitting for a long time in front of their computers to do their trading. By now, we have Forex Robot that not only send you trading signals, but are able to aid you to formulate and do your trade automatically. By the help of these Forex Robots, traders can avoid the common mistakes to their trading that often led up in ruing their business; we could say that Forex robots help in teaching discipline among traders.

One of the major things that a Forex Trader must do is to create for himself/herself a plan for a particular Forex Trading strategy. By not doing this first key step, a trader might get himself lost in the world of Forex Market, without plans and strategies; the world of trading for them would be complicated. Some traders often submit themselves to simulations in order for them to improve more on their field. Without letting go of a single dime, some brokers often merge these Forex Robots software with 'play money' mode to see if their plans are working. Practice, and honing yourself well on the craft, plus some researches for you to have a better understanding on the system in the Forex would led your way up to the top.

The most experienced Forex Traders search for plans and strategies to get rid of the unhelpful impact of humanly emotion trying to enter their trading equation. The best of the best traders in the world often share to the newbie in the business to stick to the hard facts, and learn how to get back on their very first theses, exclusive of any human psychology; because some of the trades might lure you to use your intuition, letting you ruin your original mindset. Traders now, who used Forex Robots is confident that they can calmly put their data on their computer and let the efficient Forex Robot software run for themselves, basically doing all the works for you.

As we all know, the Forex Market is like a battlefield; with traders from all parts of the world battling it out, using all their improved arsenals, their skills and wits so that they could gain something from the Market. If you let yourself be eaten up by these big traders all over the globe, you might get yourself in the verge of bankruptcy. With people trading in currency many hours a day, you might as well say that the Market requires a very vast amount of human endurance, but it is key to observe that human strength has its limitations; it could not go on for hours and hours. But worry not, with the help of these Forex Robots software, a trader can let his trading on autopilot, letting the Forex Robot work for you, and that is to say that these Robots can go on several hours without rest, leaving you ample time to enjoy other things, and give you a vast amount of time to strategize your new battle plan for the Forex Market. After purchasing a Forex Robot, you won't see yourself as a slave of your business; the Robot would now be there to take your work from you.

Once you key in all the necessary things you want to put in to your trade, you would let now the Forex robot to run by its own system, letting you run away from the computer. You would be able to save more time now; you won't be waiting now for applicable signals for you to trade successfully in the Forex Market. By automatically letting your Forex Robot do the trading for you, they can execute your plans without your help. By this, you can let go of your emotions on doing your trading, for some trades in the Forex Market lure you to use your gut feeling, making you forget of all your solid strategy.

The common principle in trading states that 'buy low, sell high'. This has been around in the Forex Market arena for a long time. But, some of the Forex traders often forget this single advice. There are times that the currency is low, but some traders are hesitant to buy the currency, because they fear that it might go lower. Also, when greed comes into play, some don't just sell in hopes that it would go higher. The Forex Robot could prevent all these mishaps, you are now ensured that your plans are carried out, that you can buy and sell on your most advantage.

Some traders though, used the Forex Robot without really thinking, they just log on to their accounts, and guess positions they think they are advantageous. Of course, the Forex Market is not all pure luck, without thinking and educating yourself in the Forex Market, you would often lose. But there are traders too who used blacktest to double check if their plans and strategies are really working, this wound enable them to gain more from the business, by taking advantage of all the good things that a Forex Robot software can do.

You can say by now, that by the help of these Forex Robots, you can make yourself better on your business. And by that, you get extra credit by gaining more profit from the usual; you can now be one of those smart traders who got rich from the business. Again, Forex Robots give you almost all the advantages there is in the Forex Market, plus that it could give you a lot of free time to do more things.

Having the best things on hand would let you succeed from the Forex market; don't go into the battlefield in the world of Forex without any help from a Forex Robot.


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05:06

I wanted to talk a little about how to learn Forex trading with Forex Nitty Gritty.

Unlike some people, I'm not going to pretend to denounce Forex Nitty Gritty as a scam, then try and tell you to buy it. Frankly, it really doesn't matter to me if you buy it or not. I'm just here to give you my opinion.

Forex Nitty Gritty is a new Forex trading course released by Bill Poulos. This is the same 30+ year trader and mentor that has produced trading courses such as Forex Profit Accelerator (which I've been using and loving for about 8 months or so now), and Forex Income Engine (which in my opinion was a complete flop until he recently re-released it as Forex Income Engine 2.0).

However, Forex Nitty Gritty is different than Forex Profit Accelerator and Forex Income Engine in many ways. First, Forex Nitty Gritty was designed and developed for the beginner Forex traders. His previous courses, and many others I've seen, are generally developed for more experienced and advanced traders. Then beginning traders get it, don't have any idea what to do with it, don't ask for support from his great support staff, and return it, frustrated. But Forex Nitty Gritty, being designed for the beginner, leaves that all behind.

Another way it is different, is that it has great support specifically to help the Forex trader beginner learn and understand how to trade Forex. All too often, I see trading systems and methods, Forex robots and automated trading systems, aimed at taking money from unsuspecting people and providing nothing of value. Forex Nitty Gritty has redefined customer support by providing a LOT of ways for the beginning forex trader to learn.

And Forex Nitty Gritty is priced for beginners too. It doesn't cost thousands of dollars like many other great courses. As a matter of fact, it costs less than almost all of the forex courses, robots, automated trading systems and other such things. It doesn't cost much more than those junky 20 page ebooks that people sell to unsuspecting beginners. And Forex Nitty Gritty is MUCH MORE than that. As a matter of fact, here is only SOME of the things you'll learn with Forex Nitty Gritty:

The Overview Module covers topics such as (but not limited to) What Forex is, who trades Forex, explaining the forex markets, forex pairs and forex trading requirements.

Module 2 starts teaching the mechanics of forex, such as what the major pairs are, the most active hours traded, how to read price quotes, leverage and margin, how to calculate profit and loss, order types, buying and selling, forex software, bar and candlestick charts, and timeframes.

Trading mechanics are continued in Module 3, teaching investing vs. trading, fundamental and technical analysis, indicators and technical tools, common price patterns, and even talks a bit about Forex Robots, Automated Trading Systems, and "Black Box" systems.

And Forex Nitty Gritty comes with another 4 modules to provide amazing learning potential for beginner forex traders!

So to all those people that try and pass off Forex Nitty Gritty as a scam, I say shame on you. You either believe in a product, or you don't. Do I think it will work for everybody? Nope. I think that it is the perfect course for a beginning forex trader, IF you want to put forth a little time and effort to actually learn how to trade forex profitably. No, this isn't the golden egg laying goose either. But for less than a hundred bucks, it provides you with SO MUCH incredible information about how to trade forex, it would be silly to pass up on it, if you truly want to learn.

The information in this course, the way it is presented, the support you get along with the course, all the examples and topic by topic training you receive, to make sure you "get it" is worth its weight in gold. You can spend a hundred bucks on a good dinner or two. Isn't it worth that to truly learn and understand the Forex markets?

I think it is. Even I got something out of this course. Yes, for the price, I couldn't pass it up either. And Forex Nitty Gritty was worth every penny, and more.


A neat site that busts forex robots: Forex Robot Busters [http://forexrobotbusters.com]

Visit us at our website: Forex Mastery Blog [http://forexmasteryblog.com]

Good trading and be smart out there,

Mark K.

05:04

One essential ingredient that you must have when starting on line foreign currency exchange trading is an account with a Forex trading broker. The currency trading broker is your connection into the markets and they will provide the essential cover that allows you to trade with margins.

The question is how do you select the best Forex brokers. There are at least 7 criteria points to be considered when you are deciding where best to shop for a Forex currency trading broker.

1. Dependable

This works on multiple levels. You need a broker that you can rely upon to be trustworthy and who will not all of a sudden vanish like a puff of smoke from the internet taking with them all of your hard earned money. The FX market is surprisingly devoid of regulations so there are a vast number of Forex brokers to choose from and as is like with many things in life some Forex trading brokers are more honest than others.

The first step is to check up on the reliability of the currency trading broker and to confirm your online Forex broker is regulated. In the USA this means that you want a Forex trading broker that carries a current registration with the Commodity Futures Trading Commission (CFTC) and also the National Futures Association (NFA).

Check for a Forex currency trading broker with an unblemished record regarding any complaints logged against them on the National Futures Association website. Other countries have their own regulatory bodies for example the Financial Services Authority in the UK performs the same function.

Another consideration is whether the online Forex broker's trading platform is reliable. The Forex trading platform is the financial software that will connect you to the FX markets whenever you want to trade. If the online Forex trading platform is often offline then this will cause you some major problems. For example you could miss out on either opening or closing a trade at the optimum time.

It would be best to check a number of online Forex trading forums for feedback from individual users regarding the amount of downtime that they have experienced. Remember it is like with all online forums do not listen to the loudest voice as they may have a vested interest either way in recommending or not recommending who in their opinion are the best Forex brokers

2. Services Provided by the Best Forex Brokers

The Forex markets trade for a full 24 hours each day that's from Sunday evening through to Friday afternoon Eastern Standard Time. Check that your Forex broker's trading platform is reachable available during all of these times, The best Forex brokers trading platforms will be available and they will also offer around the clock customer support on Forex trading days.

Check that they cover at the seven main currencies that are USD, JPY, CAD, AUD, CHF, EUR and GBP certainly the best Forex brokers will.

The best Forex brokers will offer you a minimum of the following essential tools, which are instant execution of your Forex trade at the price displayed, technical analysis charts and financial trading charts. Most will also offer a training program to teach the basics of using the tools.

3. Forex Broker Costs

Online Forex brokers do not make commission charges to their customers so the way they make their income is from the difference in the Forex trading spread. The Forex spread is the differences between the buying and selling prices on any of the currency pairs. The Forex trading spread is usually any spread between 1 pip and even sometimes less to around 3 pips; this will depend upon the online Forex brokers terms of service and the currency pair being traded.

The piece of the pie taken by the spread can make all the difference between achieving a profit or making a loss in your Forex trading account. This will affect both the immediate term and also the longer term so you will need to scrutinize closely at what level the spread will be computed. If you can decide which pairs you are likely to trade most frequently the spread on those pairs will be more important to you than on others. For example I prefer the USD/GBP trading pair, which is known as cable.

Beware of special short term marketing maneuvers like special offers of lower Forex trading spreads that may not last long once you have committed your funds.

Consideration need to be given on how much is the minimum amount of capital you can invest in order to open a Forex trading account. Good advice given to new traders is to start out small, which means looking for a Forex broker who will let you open an account with a minimum of $250 or hopefully less.

4. Margins, which are also known as Deposits

Margins are a variable that change from Forex broker to Forex broker. A lower margin requirement means giving you a higher leverage, and higher leverage can give you the ability to create greater profits, or losses from a fund of the same size. Margins allow you to magnify the opportunity to make more money

5. Size of the Trade also known as Lot Size

Trade size varies from one broker to another. Generally 100,000 trading units of currency is considered a standard lot, 10,000 of trading units is a mini lot, and 1,000 trading units is a micro lot. Some brokers do offer fractions of a lot too, which give you more power to set your own lot size. This could be perceived as a bonus or just an added complication depending on your point of view.

There are other matters to be considered which include the interest paid on the Forex margin account, the rollover charges when trades continue over to the next trading day and any other FX trading policies that the broker may have which could affect your Forex trading account commerciality. These are the main points that you should be looking out for when choosing the best Forex trading broker.

6. Customer Service

This is very important especially when you have just started out using a Forex trading platform. Like with all new things there will inevitably be teething troubles and you will want to be able to speak or email someone and get an instant response. The best Forex brokers will provide this service.

7. Forex Exit Strategy

There will be a time when you want to realize some of the profits that you have made and be able to withdraw your money quickly and easily. Make sure that you are able to get your money within a couple of days as some online Forex brokers insist on a 14 day delay which is totally unnecessary


Get Free Forex eBook [http://www.greatforexworld.com/members/] - James Roshwood writes about Forex and welcomes new visitors to his excellent Forex Blog - GreatForexWorld.com by giving them a cool free forex gift. To get your free tips regarding forex trading and to visit the blog at Great Forex World just click on this link ==> Get My Free Forex eBook [http://www.greatforexworld.com/members/]

05:03

Forex trading in the trading and investing world has become what Texas Holdem is to the poker world. It has exploded, with over $3.5 trillion being traded every day. Forex is a zero sum market. That means there are winners, and an equal number of losers. Generally, retail Forex traders like you and I are on the losing side. But educated investors CAN and ARE on the winning side.

The truth is, 95% of retail traders lose money in the Forex market. They get frustrated, try system after system, and still lose money. The market is full of gimmicks and "unbeatable" robots that will trade for you making you thousands overnight while you sleep. To be successful in Forex Trading, we have to become independent traders. We can't depend on some forex robot to trade our money for us in the hopes that we make thousands of dollars. We can't depend on other people to trade our money for us, like managed broker accounts. They get paid on the number of trades they make, not whether we are profitable or not. Bottom line is that nobody cares about our forex trading success and our financial well being as much as we do ourselves. Become an educated investor and trader, and you will be more successful.

THE TRUTH ABOUT FOREX

People are flocking to Forex trading with the dream of the old California gold rush. Billions of dollars can be made, all you need to do is get your hands on some of it, right? But if it is so easy, and you can plug in a robot, or give somebody your money to trade for you, how come you are the only one to keep losing your money? You're not. Forex trading has become an industry for predators in search of prey. They sell you on gimmicks and get rich quick schemes. It all sounds great, especially for the low price of $97 - $247 on average. And you don't even have to work at it, or educate yourself, or spend any time at all on trading forex! Woooo hoooo!

One of the latest crazes to hit the Forex Market lately are these so called Forex Robots, or Automated Trading Systems. In a nutshell, you buy this program, install it, turn it on, and it makes you money without you having to know anything about forex trading at all. You can "double your account in 30 days" even while you sleep. No education. No work. You don't even need to know what Forex IS, much less how to trade it. Just buy this or that robot that will trade for you and make you thousands of dollars every month. A dream come true.

Well, robots don't work. If they did, those top banks and financial institutions certainly would be using them and not have fallen to financial woes. Beyond that, just so we can say this with authority, we have tested one of the biggest money making robots on the market today, FAP Turbo. It makes a LOT of money... for the guys selling it, not for the people buying it. Sure, some people make money with it. A blind horse is bound to find water ONCE in a WHILE, right?

However, if you want to do a little work, and educate yourself a little bit, and learn the proper way to trade Forex, then there is a new course on the market just for you. Forex Nitty Gritty is just that course.

30+ Year Trading Expert and Mentor Bill Poulos Creates Forex Nitty Gritty

Bill Poulos is a veteran trader with over 30 years of practical experience. He has helped and mentored thousands of investors make even more money in the market by teaching solid methods based on sound fundamental trading principles and methods.

All of his courses cost several hundred to several thousands of dollars, and WELL WORTH every penny. I myself have used his Forex Profit Accelerator course and obtained returns of 58% per month on average for the past 7 months. Yes, I can show you the actual broker trade data and prove it.

But he wants to help the beginning traders now. And he is mentoring Forex Nitty Gritty for only $97 at the time of this writing. In a personal phone discussion with him, he did tell me that one of the reasons was so that he can help teach people that are new to forex, or that haven't succeeded in forex, because he wanted to later sell them the more expensive advanced courses. (Hows that for honesty?). But I'll be honest here, his main goal is to keep people from making the basic mistakes that wipe out their trading account. Bill Poulos is passionate about helping people to learn and understand the Forex market, and to be able to trade it successfully. Yes, he likes the money his students give him. But he really doesn't need it. He has made a great deal of money trading, and mentoring people, and really has no need for more. He could retire this minute, very well off and never look back. But he WANTS to help people learn to trade successfully. So why does he charge so much for his courses? Because it gives the people learning them value and desire to learn. If he mentored people for free, those people just wouldn't care to learn as much. It's a fact. Scientifically proven. Not to mention that his time IS valuable, and he deserves a little something for giving 30+ years of knowledge to his students.

But Forex Nitty Gritty is different. It is an entry level course for new forex traders, or people that have been in the forex market and not been successful. People that have gotten ripped off by the gimmicks and robots and the unscrupulous "trainers" that really have no business taking peoples money. Bill knows exactly what causes failure in the markets, and he is teaching people that, and much more.

HOW TO SUCCEED IN FOREX TRADING WITH FOREX NITTY GRITTY AND BILL POULOS

There are many things you must do, and many more you must avoid, in order to succeed in Forex trading. Bill Poulos teaches you them in Forex Nitty Gritty.

One of them is that you must focus on high probability, low-risk trades. Nothing more. This means you only take the trades that have the highest probability of being profitable, and the lowest risk of losing your trading account value. Generally this will cause you to have fewer trades, but they will be quality trades and generally more profitable. You will stop trading the less desirable trades that have a higher degree of moving against you. And that means you will win trades with higher profits than the losses you sustain. And yes, you will have losses. But the wins more than make up for that, making you profitable.

With Forex Nitty Gritty, you will only have to spend about 20 minutes a day trading. You will identify any new trades, and manage current trades. You will set entry prices, stop losses, and take profit orders. You will practise good money management rules that will increase your potential profit and lower your overall risk. And yes, it will only take you about 20 minutes a night.

Forex Nitty Gritty also includes optional daily videos that show various trade setups, to help you learn the market the right way. And videos teaching you the basics of forex, and forex trading. The Forex Nitty Gritty Insiders website has a lot of core information and training to help the new traders, or those of us that want to learn how to be more profitable.

Like I said, we tested FAP Turbo, and several other robots as well. And what we found out through our testing is that it doesn't work. Go ahead and review our testing of Fap Turbo, but don't buy it or any other robot unless you want to risk losing your account balance. Forex Nitty Gritty is not some lame automated trading system. It is a solid course with a great trading method that will help you learn Forex trading and be potentially profitable.

FOREX NITTY GRITTY SUMMARY

If you are new to trading in the Forex Market, or you've had problems being profitable, or you've ever had your account wiped out by those "Holy Grail" forex robots and automated trading systems, then Forex Nitty Gritty is for YOU. Learn Forex Nitty Gritty and you too can potentially generate consistent profits while learning how to be among the 5% of retail forex traders that are successful.

Happy Trading!

05:01

Low-priced stocks are an investor's delight: they’re cheap, so you can buy more of them. And at such low prices, they may have a lot more room to grow over the years. (Related Don't Let Stock Prices Fool You)
But how to find low-priced stocks which are a value investment? In this article, Investopedia provides a list of the top 10 stocks under $10. All stocks are in diverse sectors. Along with the basics about the company’s business, we will include current prices, market cap valuations, earnings per share, and beta values (a measure of how volatile the security is in relation to the market). A few companies have negative or zero EPS values, which is very common for growth companies. All the selected companies have a minimum market cap of over 300 million dollars and high average daily trading volume, ensuring sufficient market valuation and liquidity. This list does not include penny stocks.

1. AK Steel Holding Corp (AKS): A manufacturer of multiple steel products, NYSE-listed AK Steel operates 10 steel plants in the states of Indiana, Kentucky, Ohio and Pennsylvania. Its product line includes a diversified product set of coated, flat-rolled, cold-rolled, and hot-rolled carbon steel, stainless steel and electrical steel products. It also has a coke-producing plant in West Virginia. It operates steel product trading through AK Coal Resources, Inc., a subsidiary company. Currently trading at $5.67 per share, it has a market cap of $1.01 billion, an earning per share of -1.83, and a beta of 2.26.
2. Rite Aid Corp (RAD): NYSE-listed Rite Aid Corp operates a retail chain of drugstores in the United States, comprised of more than 4,500 stores across 31 states. Its saleable product range include prescription drugs, over-the-counter medicines, health and beauty products, food items, greeting cards, and convenience products. It also offers various services like photo processing, medical testing, physical examinations, vaccination, and immunization. It supports online and call-based shopping. Currently trading at price of $8.29 per share, it has a market cap of $8.2 billion, an earning per share of 2.08, and a beta of 1.63.
3. Regions Financial Corp (RF): NYSE-listed Regions is a financial holding company which has three segments: 1) business services, 2) consumer services, and 3) wealth management. It provides financial series spanning across retail, commercial, and mortgage banking; wealth and asset management; insurance; brokerage; and other specialty financing. It has more than 1600 branches across multiple states in the United States. It also operates Regions Bank, which is a commercial bank, and owns Regions Insurance group as a wholly owned subsidiary. Currently trading at price of $9.98 per share, Regions has a market cap of $13.38 billion, earnings per share of 0.73, and a beta of 2.07.
4. CNH Industrial NV (CNHI): NYSE-listed CNH is a Holland-based firm and manufacturer of vehicles and heavy machinery equipment. It operates through four main segments. The agricultural equipment segment constitutes agricultural equipment with known brands like Steyr, New Holland, and Case IH. The construction equipment segment produces construction-related equipment, like bulldozers, under the brands of New Holland Construction and Case Construction Equipment. The trucks and commercial vehicles segment manufactures commercial vehicles like trucks, buses, and special vehicles under the brand Iveco, Iveco Bus, and Heuliez Bus. The Powertrain segment has transmission systems, engines, and power generation through the FPT Industrial brand. Currently trading at price of $8.89 per share, it has a market cap of $12.05 billion, earnings per share of 0.02, and a beta of 2.05.
5. Eldorado Gold Corp (EGO): NYSE-listed EGO is a mining company focusing on gold, iron ore and silver-lead-zinc mines. It has gold mines in Turkey, China, Greece, Romania, and Brazil. Iron ore and silver-lead-zinc mines are in Brazil. Currently trading at price of $5.13 per share, it has a market cap of $3.68 billion, earnings per share of 0.09, and a beta of 0.46.
6. Kosmos Energy (KOS): NYSE-listed Kosmos Energy is a holding company whose subsidiaries operate in oil and gas exploration and production business. It has global operations across multiple countries in Africa, Europe, and South America. It has a strong asset base which includes production development projects, exploration licenses, and other properties. Currently trading at price of $9.31 per share, it has a market cap of $3.61 billion, earnings per share of 0.31 and a beta of 1.79.
7. Great Lakes Dredge & Dock Corp (GLDD): NASDAQ-listed GLDD primarily provides dredging services in the east coast, west coast, and Gulf coasts of the United States. It also does some international work. The company has two main segments--dredging services, and environmental and remediation services. The dredging business involves replenishment or preservation of navigability of waterways and the protection of shorelines through the removal or replenishment of soil, sand, or rock. The environmental and remediation segment provides soil, water, and sediment environmental remediation for the municipal and private party markets. Currently trading at price of $5.85 per share, it has a market cap of $353.35 million, an earnings per share of 0.24, and a beta of 1.2.
8. Siliconware Precision Industries (SPIL): NASDAQ-listed SPIL has a unique business line—it is into semiconductor packaging and testing services. It has multiple segments: a packaging services segment for semiconductor circuits, a bumping services segment offering wafer bumping, and testing services involving testing across 8- and 12-inch wafer-sort testing, final testing, and system level testing. It also has other business lines like flash memory cards. Business operations are spread across Taiwan and North America. Currently trading at price of $8.12 per share, it has a market cap of $5.05 billion, earnings per share of 0.62, and a beta of 1.25.
9. BlackRock Capital Investment Corporation (BKCC): NASDAQ-listed BKCC is a private equity firm which provides customized financing solutions to mid-size companies having annual revenues in the range of $50 million to $1 billion. BKCC is externally-managed, non-diversified closed-end management investment firm. Currently trading at price of $9.5 per share, it has a market cap of $710 million, earnings per share of of 1.70, and a beta of 0.97.
10. Northwest Biotherapeutics, Inc. (NWBO): NASDAQ-listed NWBO operates as a development stage biotechnology firm. The company is developing vaccines for cancer and immunotherapy products for cancer treatment. NWBO has developed DCVax technology which it claims to be applicable to most cancers. Currently trading at price of $8.12 per share, it has a market cap of $624 million, earnings per share of -2.11, and a beta of 2.86.

The Bottom Line
Investors like low-priced stocks because they cost less and offer the possibility of high returns over time. But do not confuse cheap stocks with undervalued stocks. Investors should practice due diligence before deciding on investing or trading in any securities. (Related Cheap Stocks Can Be Deceiving)

Disclaimer: At the time of writing, the author was not holding any positions in any of the mentioned stocks.

Read more: Top 10 Stocks Under $10 Dollars In 2015 | Investopedia http://www.investopedia.com/articles/active-trading/052015/top-10-stocks-under-10-dollars-2015.asp#ixzz4aj9qYBZg
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02:03

Gross Domestic Product (GDP) is one of the most widely used measures of an economy’s output or production. It is defined as the total value of goods and services produced within a country’s borders in a specific time period – monthly, quarterly or annually.

GDP is an accurate indication of an economy's size, while GDP per capita has a close correlation with the trend in living standards over time, and the GDP growth rate is probably the single best indicator of economic growth. As Nobel laureate Paul A. Samuelson and economist William Nordhaus put it, “While GDP and the rest of the national income accounts may seem to be arcane concepts, they are truly among the great inventions of the twentieth century.” Here’s why.

Why GDP is Important

Samuelson and Nordhaus neatly sum up the importance of the national accounts and GDP in their seminal textbook “Economics.” They liken the ability of GDP to give an overall picture of the state of the economy to that of a satellite in space that can survey the weather across an entire continent. GDP enables policymakers and central banks to judge whether the economy is contracting or expanding, whether it needs a boost or restraint, and if a threat such as a recession or inflation looms on the horizon.

The national income and product accounts (NIPA), which form the basis for measuring GDP, allow policymakers, economists and business to analyze the impact of such variables as monetary and fiscal policy, economic shocks such as a spike in oil price , as well as tax and spending plans, on the overall economy and on specific components of it. Along with better informed policies and institutions, national accounts have contributed to a significant reduction in the severity of business cycles since the end of world War II.

GDP Calculations

GDP can be calculated either through the expenditure approach (the sum total of what everyone in an economy spent over a particular period) or the income approach (the total of what everyone earned). Both should produce the same result. A third method – the value-added approach – is used to calculate GDP by industry.

Expenditure-based GDP produces both real (inflation-adjusted) and nominal values, while the calculation of income-based GDP is only carried out in nominal values. The expenditure approach is the more common one and is obtained by summing up total consumption, government spending, investment and net exports.

Thus, GDP = C + I + G + (X – M), where

C is private consumption or consumer spending;

I is business spending;

G is government spending;

X is exports, and

M is imports.

Why GDP Fluctuates

GDP fluctuates because of the business cycle. When the economy is booming and GDP is rising, there comes a point when inflationary pressures build up rapidly as labor and productive capacity near full utilization. This leads the central bank to commence a cycle of tighter monetary policy to cool down the overheating economy and quell inflation.

As interest rates rise, companies and consumers cut back their spending, and the economy slows down. Slowing demand leads companies to lay off employees, which further affects consumer confidence and demand. To break this vicious circle, the central bank eases monetary policy to stimulate economic growth and employment until the economy is booming once again. Rinse and repeat.

Consumer spending is the biggest component of the economy, accounting for more than two-thirds of the U.S. economy. Consumer confidence, therefore, has a very significant bearing on economic growth. A high confidence level indicates that consumers are willing to spend, while a low confidence level reflects uncertainty about the future and an unwillingness to spend.

Business investment is another critical component of GDP, since it increases productive capacity and boosts employment. Government spending assumes particular importance as a component of GDP when consumer spending and business investment both decline sharply, as, for instance, after a recession. Finally, a current account surplus boosts a nation’s GDP, since (X – M) is positive, while a chronic deficit is a drag on GDP.

Drawbacks

Some criticisms of GDP as a measure of economic output are:

• It does not account for the underground economy – GDP relies on official data, so it does not take into account the extent of the underground economy, which can be significant in some nations.
• It is an imperfect measure in some cases – Gross National Product (GNP), which measures output from the citizens and companies of a particular nation regardless of their location, is viewed as a better measure of output than GDP in some cases. For instance, GDP does not take into account profits earned in a nation by overseas companies that are remitted back to foreign investors. This can overstate a country's actual economic output. For example, Ireland had GDP of $210.3 billion and GNP of $164.6 billion in 2012, the difference of $45.7 billion (or 21.7% of GDP) largely being due to profit repatriation by foreign companies based in Ireland.
• It emphasizes economic output without considering economic well-being – GDP growth alone cannot measure a nation's development or its citizens' well-being. For example, a nation may be experiencing rapid GDP growth, but this may impose significant cost to society in terms of environmental impact and increase in income disparity.

Global GDP Growth Trends

Discussions about GDP growth invariably turn to the torrid pace of growth recorded by China since the late 1970s and India from the 1990s, following economic reforms that revitalized the Asian giants. Smaller nations like the Asian Tigers – Hong Kong, Singapore, South Korea and Taiwan – had already achieved rapid economic growth from the 1960s onward by becoming export dynamos and focusing on their competitive strengths. But China and India succeeded despite their massive populations, as an average 10% GDP growth rate in China since 1978 and a slower growth pace in India enabled hundreds of millions to escape the clutches of poverty.

While the emerging market and developing nations have been growing at a faster pace than the developed world since the 1990s (Table 1), the divergence in growth rates has become closing since the end of the Great Recession in early 2009. In 2011, for instance, developing countries collectively recorded GDP growth of 6.2%, while the developed nations only grew 1.7%. For 2017, the former are forecasted to grow by 3.4%, compared with 4.6% for the latter.

	1990 – 2000	2000 – 2012
China	10.6%	10.6%
India	6.0%	7.7%
U.S.	3.6%	1.6%
Germany	1.6%	1.1%
Japan	1.0%	0.7%

Table 1: Average Annual GDP Growth for Select Nations

Source: World Bank – World Development Indicators

Future GDP Shifts

The Organization for Economic Cooperation and Development (OECD), in a report released in November 2012, forecasts major shifts in global GDP by the year 2060. The report said that based on 2005 purchasing power parity (PPP) values, China would have GDP of $15.26 trillion by 2016, exceeding the United States’ GDP of $15.24 trillion for the first time and becoming the world’s largest economy. The Chinese economy is forecast to be 1.5 times larger than the U.S. by 2030 and 1.7 times bigger by 2060. India is also expected to overtake the U.S. economy to become the second-biggest in 2051. The report also forecasts that the combined GDP of China and India will exceed that of the combined G-7 nations (the world’s richest economies) by 2025, and be 1.5 times larger by 2060.

But can one extrapolate the remarkable growth rates of the Asian giants indefinitely into the future? In a report released in November 2013, former U.S. Treasury secretary Lawrence Summers and Harvard economist Lant Pritchett questioned this assumption, dubbing the tendency to think that China and India could grow rapidly for an indefinite period as “Asiaphoria.” Summers and Pritchett noted that if China and India continue to grow briskly until 2033, their combined GDP would be $56 trillion, whereas if they slow down to the world average, their combined GDP would be about $12 trillion to $15.5 trillion, which is about one-fourth that of the rapid-growth scenario.

But even if their growth rates slow down, thanks to their sheer size, China and India appear to be inexorably on track to become the world’s biggest economies in time. The largest and best-run companies in these countries will be among the biggest beneficiaries of long-term economic expansion. An investor wishing to participate in these growth prospects can easily do so through exchange traded funds like the iShares FTSE China Large-Cap ETF (NYSE:FXI), which tracks the performance of 26 of the largest Chinese companies like China Mobile, China Construction Bank, Tencent Holdings and PetroChina. Or the India Fund (NYSE:IFN), a closed-end fund that was introduced in February 1994 and holds some of the subcontinent’s best-known companies such as HDFC, Infosys, Tata Consultancy Services, ITC, ICICI Bank and Hindustan Unilever.

Using GDP Data

Most nations release GDP data every month and quarter. In the U.S., the Bureau of Economic Analysis (BEA) publishes an advance release of quarterly GDP four weeks after the quarter ends, and a final release three months after the quarter ends. The BEA releases are exhaustive and contain a wealth of detail, enabling economists and investors to obtain information and insights on various aspects of the economy.

GDP data's market impact is generally limited, since it is “backward looking,” and a substantial amount of time has already elapsed between the quarter end and GDP data release. However, GDP data can have an impact on markets if the actual numbers differ considerably from expectations. For example, the S&P 500 had its biggest decline in two months on Nov. 7, 2013, on reports that U.S. GDP increased at a 2.8% annualized rate in Q3, compared with economists’ estimate of 2%. The data fueled speculation that the stronger economy could lead the Federal Reserve to scale back its massive stimulus program that was in effect at the time.

One interesting metric that investors can use to get some sense of the valuation of an equity market is the ratio of total market capitalization to GDP, expressed as a percentage. The closest equivalent to this in terms of stock valuation is market cap to total sales (or revenues), which in per-share terms is the well-known price-to-sales ratio.

Just as stocks in different sectors trade at widely divergent price-to-sales ratios, different nations trade at market-cap-to-GDP ratios that are literally all over the map. For example, the U.S. had a market-cap-to-GDP ratio of 120% as of end-Q3 in 2013, while China had a ratio of just over 41% and Hong Kong had a ratio of over 1300% as of end-2012.

However, the utility of this ratio lies in comparing it to historical norms for a particular nation. As an example, the U.S. had a market-cap-to-GDP ratio of 130% at the end of 2006, which had dropped to 75% by the end of 2008. In retrospect, these represented zones of substantial overvaluation and undervaluation, respectively, for U.S. equities.

The Bottom Line

In terms of its ability to convey information about the economy in one number, few data points can match the GDP and its growth rate.

Read more: The GDP and its Importance | Investopedia http://www.investopedia.com/articles/investing/121213/gdp-and-its-importance.asp#ixzz4aj9446Ck
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