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What is Investing

Investing is the proactive use of your money to make more money or, to say it another way, it is your money working for you.

Investing is different from saving. Saving is a passive activity, even though it uses the same principle of compounding. Saving is more focused on safety of principal (the amount you start out with) and less concerned with return.

Your focus in investing is on return and can run the spectrum from conservative to very aggressive in terms of risk. One way you measure results is by the expected return weighed against the anticipated risks.

It is easy to slip into an unnecessarily complex discussion about whether a particular financial transaction was an investment or a savings deposit. However, it is important to understand that investing has some distinctive characteristics, which separate it from pure savings.

Since we are discussing stocks, I’ll limit the characteristics to that type of investment: Ownership Upside Potential Risk Each of these characteristics sets investing in stocks apart from savings in several different ways. Ownership When you buy stock, you are buying a piece of a company – you become a part owner. This ownership gives you certain rights, including voting on important matters before the company and participating in the profits if the company distributes dividends.

Virtually no savings instruments give you ownership. You may own a bank CD, but you don’t own part of the bank. You may own a U.S. Treasury bond, but you don’t own the government. Upside Potential When you own stock, you participate in the growth of the company. As the value of the company increases, so does you investment. If profits increase, you may receive bigger dividend checks. The stock price may continue to rise for a long period. Many of the early employees of Microsoft are millionaires because their stock has gone up dramatically.

If you have a bank CD that pays 3%, it is unlikely the bank’s president is going to call you one day and say, ‘we’ve had a great year, so I’m raising your interest rate to 6%.’ Risk Along with the potential for extraordinary gain is the potential for loss. These two go hand in hand. You can lose money investing in stocks.

If the thought of losing money makes your stomach knot up, stick to savings instruments. However, you should know that even the safest savings instrument carries unseen risks. Most savings instruments trade security for return, meaning they pay very little. When you factor in inflation and taxes, many so-called safe savings instruments return almost nothing and some can actually lose ground.

What is EGold

e-gold is a digital gold currency operated by Gold & Silver Reserve Inc. under e-gold Ltd., and is a system which allows the instant transfer of gold ownership between users. e-gold Ltd. is incorporated in Nevis, West Indies. There are over three million e-gold accounts of which about one quarter active.

As of May 2006, e-gold had 3,784,689 grams of gold in storage, which is worth approximately US$86 million. There are typically 66,000 e-gold spends each day, with a total value each day of about US$10.5 million (that is, about 460 kilograms of gold).

History

e-gold was founded in 1996 by Dr. Douglas Jackson and Barry K. Downey. Transactions using e-gold have grown dramatically since 2005. The total amount of gold bars (over three tonnes) in the e-gold system is approaching the size of the national reserves of smaller countries. e-gold now generates a substantial income from spend and storage fees — it costs a few cents to make each e-gold "spend" and e-gold itself now earns well over a million USD per year from fees.

The number of e-gold accounts (as claimed by e-gold) grew from 1 million in November 2003 to 3 million on 22 April 2006. That represents a compound growth rate of approximately 55% per annum. This high growth rate has been sustained by e-gold almost since inception.

Role in global commerce

Many small businesses in the U.S., Europe and Asia, each with full-time staff now operate as "digital gold currency exchange providers," doing nothing other than buying and selling digital gold currency for "fiat currencies," as gold bugs term the euro, pound, yen and U.S. dollar.

e-gold transactions — a "spend" — are completed electronically, usually using the web interface, and they always settle by weight of the metal even if denominated in some other way. A user may send (or "spend") a tiny amount of gold (a fraction of a gram, ounce or kilogram) to another user account instantly, anywhere in the world.

Even though e-gold is careful to not advocate any particular political agenda, as the Liberty Dollar does for example, e-gold could be viewed as a libertarian form of private currency.

Asset protection

Unlike fractional-reserve banking, e-gold holds 100% of clients' funds in reserves with a store of value. Proponents of the e-gold system contend that e-gold deposits are protected against inflation, devaluation and other possible economic risks inherent in fiat currencies. These risks include the monetary policy of countries or territories, which are perceived by proponents to be harmful to the value of paper currency.

The repository of the actual bullion bars with serial numbers and other data can be seen using the live "Examiner" function on the e-gold web site. Bullion is held in allocated storage with Brink's Global Services (part of The Brink's Company), Transguard Security Services (part of The Emirates Group) or MAT Securitas Express AG (part of the VIA MAT Group). Clients hold an unallocated share of this allocated bullion.

The user may take physical delivery of the precious metal upon payment of an additional fee, and provided the user has an available balance of at least the weight of the smallest individual item displayed in the Examiner. This is currently a 32 troy ounce gold bar, which is worth approximately $20,000. However in practice, most users permit the company to store the metal for them.

e-gold is a form of commodity money, so it is subject to the price fluctuations of that commodity. If the price of gold drops versus your national currency, the value of your e-gold drops in that currency. The account balance, which is denominated in gold grams, does not change, but its purchasing power will change in relation to the gold price.

This can, of course, work both ways. Proponents of the e-gold system would argue that the risk of significant price fluctuation is small compared to the risk of value fluctuations among fiat currencies. The opposite argument is that a typical user is more affected by changes in the price of e-gold than of fiat currencies; this is because most people are paid in and spend their local currency, while the use of e-gold will typically involve a foreign exchange transaction each time. In both cases, long-term shifts in the price of a currency or e-gold affect its owner, but anyone who frequently buys and sells e-gold will be exposed to short-term fluctuations as well. The price of gold has happened to increase over the past five years, so this factor has worked out to the advantage of anyone holding e-gold over that period.

As well as digital gold, e-gold also offers e-silver, e-palladium and e-platinum. Funds can be switched between e-metals using their sister company OmniPay. Metal-to-metal (or "M2M") exchanges are completed at spot price with no bid/offer spread. e-metal provides an easy way to gain access to bullion investing, without the hassles of delivery and storage.

Exchanging fiat currency

e-gold does not sell its currency directly to clients. Instead numerous digital gold currency exchangers, such as OmniPay (a sister company of e-gold) or IceGold (an independant company), act as market makers selling e-metal in exchange for fiat currency and a transaction fee. Conversely, these exchange providers will sell fiat currency in exchange for e-metal, and a transaction fee. In this manner e-metals can be converted back and forth to a variety of national currencies. The amount of a particular fiat currency or e-metal necessary to complete a transaction is determined by the spot price of the metal in relation to the value of the fiat currency. e-gold is known as private currency as it is not issued by governments.

Compared to other systems like PayPal, the process of buying e-gold can be confusing to a person unfamiliar with the e-gold system. e-gold, unlike e-Bullion for instance, does not sell digital currency directly to the user. According to their website the reason e-gold does not provide an in-house exchange service is so there can be no debt or contingent liabilities associated with the business, making e-gold Ltd. absolutely free of any financial risk. They claim e-gold Ltd. does not possess currency of any nation or even have a bank account.

Fees

e-gold charge an account fee (or Agio Fee) of 1% per annum (deducted in monthly payments) on all e-metal stored.

Spending e-gold is free, with transaction fees (or Spend Fees) deducted from the recipient. As of 2006 these spend fees vary on a sliding scale from 55% for very small amounts (0.0004 grams of gold, worth about 1 cent) to 5% for amounts on the order of 0.1 gram (about $2) to 1% for amounts of over 1 gram (about $20), with a maximum fee of .05 grams (about $1).

e-gold spends clear instantly, in contrast to cheques or credit card transactions. Unlike other online payment systems such as PayPal, there are no distinctions between merchant and non-merchant e-gold accounts. Anyone can instantly create a "merchant account" (there is only one type of account). All e-gold accounts carry the same fees and have the same capacity to receive and transmit e-gold account holdings.

Universal currency

Proponents claim that e-gold offers the first truly global and borderless world currency system which is independent of exchange rate variations. Gold, silver, platinum and palladium each have recognised international currency codes under ISO 4217.

Incentive program

e-gold clients can place a referral link on a website to generate a few cents in referral income. If a new client sets up an e-gold account from someone else's referral link, it is harmless and does not cost the new client any money when performing future e-gold transactions.

Crime and fraud

e-gold has notoriously been the medium of choice for many online con-artists, with pyramid schemes and HYIPs ("High Yield Investment Programs") commonplace. This is presumably partly due to e-gold maintaining its policy of irreversibility of e-gold transactions. According to a website who maintains a comprehensive database of HYIP scams daily, 89% of the scams preferred e-gold as their online payment processors than others.

e-gold and OmniPay have also been accused of being a medium for money laundering, although this is questionable given that there were only 24 customer accounts holding over 10kg of gold (approximate value $200,000) by April 2006. As digital gold currency providers are not banks, they are not legally required to perform various sorts of "know your customer" background checks. However, many e-gold exchange providers require a high level of identification, sometimes more intrusive than a bank.

Opening an account takes only a few clicks of a mouse. Customers can use a false name if they like because no one checks. With a credit card or wire transfer, a user buys units of e-gold. Those units can then be transferred with a few more clicks to anyone else with an e-gold account. For the recipient, cashing out — changing e-gold back to regular money — is just as convenient and often just as anonymous.

In January 2006, BusinessWeek reported on the use of the e-gold system by ShadowCrew, an 4000-strong international crime syndicate involved in massive identity theft and fraud. However following months of investigation into this crime Gold Age, rather than e-gold, have come under the most scrutiny. Omar Dhanani of Fountain Valley, California, connected to the ShadowCrew, is an e-gold customer and is said to have moved amounts ranging from $40,000 to $100,000 a week from proceeds of crime through e-gold.

In response, Chairman and founder, Dr. Douglas Jackson published a letter which stated that "e-gold operates legally and does not condone persons attempting to use e-gold for criminal activity. e-gold has a long history of cooperation with law enforcement agencies in the US and worldwide, providing data and investigative assistance in response to lawful requests." He further noted that "Our staff has participated in hundreds of investigations supporting the FBI, FTC, IRS, DEA, SEC, USPS, and others."

In July 2006, two men, Arthur Budovsky and Vladimir Kats, were alleged to have laundered over $30 million for clients who paid them huge fees for accepting the money with limited documentation, Associated Press reports. Operating under the company name Goldage, the accused men used the millions to buy e-gold backed up by gold bullion. Clients were then able to withdraw money via wire transfers or by moving the money into offshore accounts.

In August 2006, WORLDLawDirect lawyers announced e-gold Ltd. officials and their legal counsel to be the subject of a U.S. Federal Court subpoena. They believe e-gold Ltd. is subject to U.S. Federal Court jurisdiction and may be held liable for some or all of the investors' losses (and potential triple damages) in the Solid Investment (Solidinvestment.com) large scale HYIP scam.

Non-reversible transactions

Unlike credit cards, there is no way of having transactions reversed, even in case of a legitimate error or an unauthorized spend. e-gold's Terms of Use stipulate that all spends are final and e-gold cannot be held responsible for any spend. In this respect, an e-gold spend is more akin to a cash transaction (except for the fact that there is a fee levied) while PayPal transfers, for example, could be considered more similar to credit card transactions.

Security

As with any online payment system, e-gold is vulnerable to various threats, notably phishing (for example, forged emails asking for login details) and spyware (such as keystroke logging).

In the early years of e-gold, this problem was widely reported to be rampant. The problem could have been due to the novelty of the system, combined with the irreversibility of payments, combined with the hardness of gold as money, combined with many of the early users being "gold bugs" rather than technically-oriented computer users.

Fortunately around early 2004, this problem seemed to be largely eliminated at a stroke, by e-gold adding a simple IP checking process for spends. (This has often been cited as a good example of how extremely simple solutions to security problems can often have big results.)

Some competing DGCs offer similar features to combat typical, simple, "mass" phishing attacks. e-Bullion utilizes a "two-factor", token-based authentication solution from CRYPTOCard, an alternative to RSA's "SecureID". Pecunix has an extremely secure, somewhat complicated, log-in procedure. 1mdc has a simple PIN-pad addition. GoldMoney allows user certificates to be used. Most systems include an optional "email confirmation" type of process. All of these approaches thwart simple keystroke loggers.

In 2005, the Los Angeles Times reported on a specially created trojan horse that compromised "dozens" to "the low hundreds" of e-gold accounts . While trojans usually silently record the login details of the unsuspecting user, the trojan in question (Win32.Grams) emptied the accounts themselves by transferring the contents to the attacker's accounts.

Regulatory challenges & shortcomings

e-gold Ltd. was registered in Nevis, West Indies in 1999, but was temporarily removed from the register. e-gold cleared an administrative issue and as of July 14, 2006 it is properly registered in Nevis.

In September 2004 several Australian e-gold currency exchanges ceased operation due to stricter application of Financial Services Licencing regulations Digital gold currency exchangers that were closed down by the Australian Securities and Investments Commission (ASIC) include:goldex.netsydneygoldsales.comozzigold.com e-gold is, according to their website, "100% backed by gold"

Whilst exchange providers can still operate in Australia many have found it impractical to do so due to proxy issues. Australian residents can exchange e-gold via exchangers in the U.S., Europe or other countries. There appears to be no issues about NZ citizens buying e-gold in NZ, and a number of AU citizens have opened NZ bank accounts, specifically to purchase e-gold from NZ based exchangers. (Although e-gold doesn't denominate e-gold in NZD)

Bullion storage

As of November 2005, it is unclear if e-gold has an independent auditor of the physical bars, so there is no way of knowing if e-gold Ltd. really has the reserves to back the currency in the e-gold system. e-gold does maintain an "Examiner", a web page with updated statistics on outstanding liabilities and the total amount of each precious metal in its holding. While proponents generally consider this assuring enough, some critics remain skeptical.

Limited use

Beginning January 2006, eBay has restricted buyers and sellers from using any online payment system except for PayPal. eBay specifically named e-gold as one of the online payment systems that will result in them cancelling a seller's account if used . e-gold runs a non-reversible transaction policy, meaning that there is no protection for purchasers if vendors fail to supply goods.

What is Currency Trading

Currency trading is the largest market on the planet. It is estimated that in excess of US$2 trillion is traded every day. Compare this to the New York Stock Exchange's daily transactions of approximately US$50 billion, and you can see that the magnitude of the currency trading market exceeds all other equity markets in the world combined. The practice of currency trading is also commonly referred to as foreign exchange, Forex, or FX, for short.

All currency has a value relative to other currencies on the planet. Currency trading uses the purchase and sale of large quantities of currency to leverage the shifts in relative value into profit.
There are two reasons the relative value of a currency fluctuates. The first is because of a 'real' market: as outside investors or visitors wish to buy things within a country, they are forced to convert their domestic currency into the currency of the country they are buying within. Similarly, as money leaves the country, people must sell their currency for the foreign currency they will need to spend or invest abroad.

The second force for currency fluctuation is speculation. As investors feel a given currency will act strongly or weakly, they will buy or sell accordingly. This speculation can have drastic consequences on a national currency and consequently on a country's economy. During the East Asia Crisis in 1997, for example, as nations in Asia began facing economic downturns, speculators used currency trading to realize enormous profits and in many analysts' view helped to exacerbate the problem.

Currency trading has many very real benefits over equity trading like the stock exchange. The spreads for currency trading are extremely low, making the cost to a trader very low as well. The volatility of the currency market is extremely high, which means that a trader can generate enormous return on a given exchange. The ratio of volatility to spread is approximately 500:1 for the currency trading market, as compared to 100:1 for even the most ideal of stocks.

Until recently, the currency trading market was very closed to small investors. Banking conglomerates and large multinationals were the main movers of this market place. In the past few years, however, new technologies have opened the doors to investors of all stripes. It is difficult to miss the enormous benefit of this 'new' market for the individual investor: higher returns with lower risk given the same amount of market knowledge have a very small downside.

What is Forex Trading

What is Forex Trading

Theoretically speaking, the Foreign Exchange market, also referred to as the Forex or FX market, is the largest financial market in the world, with a daily average turnover of well over US $1 trillion - 30 times larger than the combined volume of all U.S. equity markets. It is worth noting that the word FOREX is derived from the words FOReign EXchange.

Spot and Forward Foreign Exchange

If experts are to be believed, forex trading may be for spot or forward delivery. In theory, spot transactions are generally undertaken for an actual exchange of currencies - delivery or settlement - for a value date two business days later.

On the other hand forward transactions involve a delivery date further in the future, sometimes as far as a year or more ahead. Always remember that by buying or selling in the forward market, it is possible to protect the value of any anticipated flows of foreign currency, in terms of one's own domestic currency, from exchange rate volatility.

Difference Between Foreign Currency and Foreign Exchange

There is no denying that anyone who has traveled outside their country of residence would have had some exposure to both foreign currency and foreign exchange.

For instance, if you live in the New York and traveled, lets say, to Blackburn, England you may have exchanged your home currency i.e. US $ for British Pounds. In this case the British Pounds are referred to as a foreign currency and the act of exchanging your US $ for British Pounds is called foreign exchange.

The Foreign Exchange Market

As compared to some financial markets, the foreign exchange market has no single location, as it is not dealt across a trading floor. As a matter of fact trading is done via telephone and computer links between dealers in different trading centers and different countries.

It is worth mentioning in this regard that the FX market is considered an Over The Counter (OTC) or interbank market, as transactions are conducted between two counterparts over the telephone or via an electronic network. Fact remains that trading is not centralized on an exchange, as it is with the stock and futures markets.

Reasons for Buying and Selling Currencies

According to experts, through the mechanism of the foreign exchange market companies, fund managers and banks are enabled to buy and sell foreign currencies in whatever amounts they want. Theoretically speaking, the demand for foreign currency is stimulated by a number of factors such as capital flows arising from trade in goods and services, cross-border investment and loans and speculation on the future level of exchange rates. Always remember that exchange deals are typically for amounts between $3 million and $10 million, though transactions for much larger amounts are often done.

Fact remains that there are two basic reasons to buy and sell currencies. It is worth pointing that about 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency. Furthermore, the other 95% is trading for profit, or speculation.

Currency Speculation

In theory, speculators desire to trade forex for the opportunity to profit from a movement in currency exchange rates. For instance, if a trader believes that the dollar will weaken relative to the Euro, then the trader can sell the dollar against Euro in the Forex market. From a trading perspective, this is referred to as being "short Dollar against the Euro".

If experts are to be believed, for speculators the best trading opportunities are usually with the most commonly traded and therefore most liquid currencies, called the Majors. At the moment, more than 85% of all daily transactions involve trading of the Majors, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.

True 24 Hour Market

Believe it or not, Forex is a true 24-hour market and trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, then London, and then New York. As compared to any other financial market, traders can respond to currency fluctuations caused by economic, social and political events at the time they occur - day or night.
As is pretty much the case with all financial products, FX quotes include a "bid" and "offer". It is worth mentioning in this regard that the "bid" is the price at which a dealer is willing to buy - and clients can sell - the base currency for the counter currency. On the other hand, the "offer" is the price at which a dealer will sell - and clients can buy - the base currency for the counter currency.

The US Dollar is the buzzword

There is no denying that the US dollar is the centrepiece of the Forex market and is normally considered the "base" currency for quotes. It is worth noting that in the Majors, this includes USD/JPY, USD/CHF and USD/CAD. Moreover, for these currencies and many others, quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. Furthermore, the exceptions to USD-based quoting include the Euro, British pound (also called Sterling), and Australian dollar. Always remember that these currencies are quoted as dollars per foreign currency as opposed to foreign currencies per dollar.

What Affects the Currency Prices

Theoretically speaking, currency prices are affected by a variety of economic and political conditions, most significantly interest rates, inflation and political stability. In addition, governments sometimes participate in the Forex market to influence the value of their currencies, either by flooding the market with their domestic currency in an attempt to lower the price, or conversely buying in order to raise the price. In simple terms, this is known as Central Bank intervention.

Any of these parameters, as well as large market orders, can cause volatility in currency prices. Though, the size and volume of the Forex market makes it impossible for any one entity to "drive" the market for any length of time.

What is Day Trading

Perhaps you've heard all the media hype about day trading, but still don't know exactly what it is. In a nutshell, it's daily, online stock trading with very short investment horizons. The individuals who do this day in and day out are traders, not investors in the traditional sense.

Day traders scalp the spreads by dealing directly with market makers on the private trading systems called electronic communication networks (ECNs). Some work shoulder-to-shoulder in trading rooms, while others work from their homes or offices. With their eyes glued to computer screens tick-by-tick, day traders may execute over a hundred trades a day. Sometimes called SOES Bandits, they typically don't hold stocks overnight just in case there's bad news. In fact, they may holds stocks for only a few seconds to limit risk.

For example, at 10:00 AM a day trader might buy 1000 shares of stock XYZ just as the price begins to rise on good news, then sell it at 10:04 AM when it's up by 1/2 ($0.50). The day trader makes $500, minus commission. With today's cheap commissions of $29.95 or less per trade, that's a quick $440.10 or better, excluding taxes.

The broader meaning of the term day trading includes those who trade daily from their homes or offices, through Internet brokerages such as DLJDirect or Suretrade. These day traders might buy and sell stocks in minutes, but might also hold some overnight or longer. The latest buzzword for this is swing trading, with an investment horizon of 1-5 days.

Many day traders focus primarily on the NASDAQ Stock Exchange. It's typically more volatile than the NYSE or AMEX, so it offers more opportunities to play the intraday price waves and troughs. That's exactly what day traders do. But volatility also carries high risk, so one must watch prices like a hawk. In the time it takes to grab a cup of coffee, a stock may move 1/2 point or more.

To some, particularly the so-called bandits, day trading is just a numbers game. They do little research and just watch for moving stocks with good spreads. Others are more scientific about it, relying on news and technical analysis to catch intraday price fluctuations.

What is Stormpay

StormPay is an electronic money auction payment processor run by Stormpay Incorporated, a Clarksville, Tennessee, United States company founded in October 2002 by John R. McConnell, Jr. and the CEO, Steve Girsky. It allows anyone with an e-mail address to buy or sell StormPay Auction items after opening an online account.

General

Funding/Depositing

The currency used in accounts is United States dollars. A StormPay user can fund their account with an online check, money order, or by clicking on sponsored links, purchased by StormPay members themselves, in the StormClix section of the StormPay website. StormPay (and NetIBA) have also paid commissions for referring new members to the payment processor/verification system.

Fees

Opening a StormPay account is free. It is also free to send money to another e-mail address. However, a fee is incurred when receiving funds: if the recipient is NetIBA certified, this is 39 cents plus 2.9% of the amount being received; if not, it is 49 cents and 4.9%. This marks a return to the usual fee structure used by most online payment processors that was also used by StormPay before becoming an auction-only site, but the non-certified fee has been reduced from the level in March 2006, which was 69c + 6.9%. Additionally, for a brief period in April and early May 2006, there was no fee for NetIBA certified accounts and it was 2% otherwise.

Certification

Being NetIBA certified costs $19.95 a year. It is claimed to be a third-party identity verification service. It is also located in Clarksville, Tennessee and registered with the Tennessee Secretary of State by McConnell, indicating that it is not a third-party service. The NetIBA certification process purportedly includes the sending of a PIN by telephone and a PIN by mail, however, users have also reported that the phone step is occasionally skipped. After being certified, webmasters may place an image on their website to display this fact to potential customers. NetIBA accepts StormPay and PayPal as a payment method.

Withdrawing

StormPay allows users to withdraw money via a debit card, or the mailing of a personal check. There is a $2 fee for withdrawing with a check but using the debit card is free. It is unknown whether the debit card is usable outside of North America. However, the check is in United States Dollars, and costs $20 to be sent by courier, $35 internationally. These fees, and the additional cost of exchanging fees from a US check in other countries, make it not profitable to withdraw by international check unless one's account balance is very high. On 15 May 2006, StormPay added the options to withdraw money directly into US checking accounts with a $1 fee and into e-gold accounts with a StormPay fee of 5% in addition to e-gold fees.

Chargebacks

StormPay allows the account of a seller to be charged back if the buyer claims non-receipt of the auction item. However, this does not apply to services, as in the Terms of Service. The fee for a chargeback is $35, and, as documented on Money Maker Group Forum, this may cause a negative balance to appear in one's StormPay account. The balance may be restored automatically by StormPay by deducting the necessary funds from one's attached bank account. If one then attempts to charge back StormPay from the bank, StormPay will immediately freeze the account and alter the balance to -$10,000. Excessive complaints by users will also cause an account to be frozen, which prevents the owner from sending or receiving money, but does permit the refunding of money, if available, to previous payers. According to terms, the funds in frozen accounts may be released 180 days after the freezing, however as the majority of frozen accounts were suspended in Feb 06, no information on this is available yet.

History

TymGlobal

McConnell, one of the founders of StormPay, had previously used the service as the payment processor for an illegal pyramid/ponzi scheme, TymGlobal, in 2002-3. An order to cease and desist was given by the Tennessee Securities Division. All references to TymGlobal were then removed from StormPay in an attempt to clean up its image, after which it became a general online payment processor usable for any purpose within its Terms of Service. In 2004-6, StormPay was used almost exclusively by autosurf websites, Paid To Read sites, HYIPs, money randomizers and gifting clubs.

Lawsuit

On August 17, 2005, a lawsuit was filed against StormPay. It was later dropped.

Controversy with autosurfs

On January 31, 2006, StormPay formally announced on its website that it would not allow itself to be used on any site which also offered another payment processor, such as PayPal or e-gold. The justification of this move was to prevent the transfer of funds between payment processors, which would increase the likelihood and untraceability of fraudulent money. However, this move was also seen by some as the first step in establishing a monopoly over its niche market. As a result, many autosurf websites elected to remove other payment options, while others elected to remove StormPay. This occurred despite the fact that StormPay, at one time, provided members with the option to fund

their StormPay accounts via e-gold.

By February 2, 2006, StormPay had suspended or frozen numerous StormPay accounts, especially those used by the administrators of autosurf sites, seemingly regardless of whether they complied with the original request. Emails sent to StormPay questioning the issue were responded to with the following:

"Unfortunately, we are unable to process any further transactions on behalf of the merchant. StormPay Inc. certainly understands your concerns regarding this situation. However, the funds of this merchant were frozen by an outside organization pending further investigation. To protect the integrity of the investigation we are unable to release any details at this time. Once the funds are released, StormPay will release the funds to claimant(s) for disbursement."

On February 5, 2006, StormPay posted a second announcement on their website stating that they had "closed the accounts of what appear to be some major ponzi schemes", because of "results of investigations into those businesses by outside investigational organizations as well as our own internal investigations. As a result, possible victims of these businesses" had conducted distributed denial-of-service attacks against them leading to the recent downtime of their service. This is in contrast to their first announcement, only stated that other payment processors had to be removed. The now defunct autosurf 12DailyPro announced plans to send a lawsuit against StormPay. However, the autosurf was soon discovered to be a ponzi scheme and was ordered to cease and desist.

For a prolonged period spanning February 8 to 10, 2006, the StormPay website was again unavailable due to a DDOS attack.

One result of this controversy is StormPay's conversion to an auction-only site. On March 23, 2006, StormPay announced on its website that it would "no longer accept payments for sales made outside of StormPay Auctions", in order to ensure "a safer online experience for both buyers and sellers" as it would "more closely monitor the products/services sold". This means that all money transferred through StormPay must be accompanied by a product, which StormPay can monitor. As a result, StormPay is no longer usable for "investments" in autosurfs or HYIPs.

Criticisms

StormPay no longer accepts credit cards, no doubt due to the massive wave of billing disputes and subsequent chargebacks that occurred as a result of the massive account freezes previously mentioned. The only way to fund a StormPay account is via e-check, which provides none of the consumer protections against fraud and misuse that are statutorily provided to credit card holders.
To date, StormPay has not released the funds it froze back in February, despite StormPay's Terms of Service providing for such funds to be distributed 180 days after being frozen. As a result, many (former) users hold a hostile attitude towards StormPay.

StormPay claims to offer buyer protection. Hoewever, the User Agreement includes the clause "At any time you purchase a product or service StormPay is reselling, all liability is on the vendor who contracted StormPay to resell their product or service, and you understand that these purchases are done at your own risk". Because of this, buyers are not refunded if they do not receive the item purchased.

As seen in the above section, StormPay is heavily criticised for its lack of customer support. Questions asked through the online support feature are likely to get a reply that does not actually answer the question. The reply is almost invariably a template, as opposed to a reply written by a human.

StormPay is not a member of the Better Business Bureau, although it has generated more complaints to BBB than any other Middle Tennessee or Southern Kentucky business.

StormPay does not allow transactions to or from a list of "non-approved countries".

StormPay is the primary sponsor of the Clarksville Speedway race track, and has funded several of its renovations. StormPay also sponsors the Crate Racin' USA Series of races, which take place on the Clarksville Speedway. It is speculated that StormPay used its members' funds (as opposed to its profits) for these sponsorships, leading to the problems described above; the digital money balance visible in one's StormPay account may not have been (or be) backed up by money in StormPay's bank accounts.

What is Paypal

PayPal is an e-commerce business allowing payments and money transfers be made through the internet. It serves as an electronic alternative to traditional paper methods such as checks and money orders. PayPal performs payment processing for online vendors, auction sites, and other corporate users, for which it charges a fee. In October 2002, Paypal became an eBay company, a wholly owned subsidiary of eBay. Their corporate headquarters is in San Jose, California.

Account Requirements

PayPal account holders must be 18 or over with a debit/credit card or bank account and e-mail address.

History

Beginnings

PayPal was founded in December of 1998 by Peter Thiel and Max Levchin. One of its first premises was the 165 University Avenue office in Palo Alto, California, home of a number of other noted Silicon Valley startups. On the business side, many of its initial recruits were alumni of The Stanford Review, also founded by Peter Thiel. Most early engineers hailed from the University of Illinois at Urbana-Champaign, recruited by Max Levchin.

In its initial incarnation, PayPal was a service for users to send (or "beam") money via PDAs, with actor James Doohan, Star Trek's "Scotty," as its spokesman. The PDA software was later discarded in favor of a web-based system that became popular with eBay's millions of buyers and sellers. Coupled with aggressive marketing campaigns offering $10 (and later $5) for new users to sign up, the firm grew at a meteoric rate of 7–10 percent per day between January and March 2000.

The domain name X.com was associated with PayPal in early 2000 when it merged with Confinity, PayPal's then parent company. After the merger, X.com's CEO Elon Musk ran PayPal before being ousted by both companies' investors.

Though growing rapidly, PayPal was losing $10 million a month and was fraught with internal turmoil that led to three CEO changes in its first year of operations. Foreign organized crime rings found ways to steal millions from the young company by automatically registering accounts using stolen identities. To block automated systems from using this form of fraud, PayPal devised a system (see Captcha) of making the user enter numbers from a blurry picture; according to Eric M. Jackson, author of the book The PayPal Wars, PayPal invented this system now in common use; though, there is evidence AltaVista used a captcha as early as 1997, before PayPal existed.

eBay watched the rise in volume of online payments, and realized its fit with online auctions. But rather than work with PayPal, eBay purchased a competing payment service named Billpoint. eBay made Billpoint the official payment system of eBay, dubbing it "eBay Payments", but cut the functionality of Billpoint by narrowing it to only payments made for eBay auctions.

For this reason PayPal was listed in several times as many auctions as Billpoint. In February of 2000 there were approximately an average of 200,000 daily auctions advertising the PayPal service while Billpoint (in beta) had only 4,000 auctions. By April of 2000 there were more than 1,000,000 auctions promoting the PayPal service. PayPal was able to turn the corner and become the first dot-com to IPO after the September 11 attacks — an accomplishment ironically tinged later when PayPal's new high profile status helped prompt a slew of class action lawsuits and regulatory probes, including one by NY

Attorney General Eliot Spitzer.

Near the time when PayPal went public (first quarter 2002), it filed an anti-competition complaint against eBay on the grounds of using its auction venue to attempt to force PayPal off its site. However, the company eventually reconciled with its former rival.

Acquisition by eBay

In October 2002 PayPal was acquired by eBay. PayPal had previously been the payment method of choice by more than fifty percent of eBay users, and the service competed with eBay’s subsidiary Billpoint. eBay has since phased out its Billpoint service in favor of retaining the PayPal brand. Most of PayPal’s major competitors have phased out, most recently Western Union’s BidPay closed in December 2005 (update: BidPay was acquired in 2006 by CyberSource Corporation and is in direct competition to PayPal), Citibank’s c2it service closed in late 2003, and Yahoo!'s PayDirect service closed in late 2004. Some competitors for at least some of PayPal’s services, such as Moneybookers and Kagi, remain in business.

In Q1 2006, the total value of transactions through the PayPal system was $8.8 billion, up 41% year over year. The company continues to focus on international growth and growth of its Merchant Services division, providing online payments for retailers off eBay.

In 2005 the total payment value on PayPal was 27.5 billion dollars according to the corporate presentations on eBay's website.

Business Today

As of the end of Q1 2006, PayPal operates in 55 markets (including China) and it manages over 105 million accounts. Every second PayPal processes an average of $1,128 in total payment volume. PayPal supports payments in U.S. Dollars, Canadian Dollars, Australian Dollars, Euros, Pounds Sterling and Japanese Yen.

PayPal operates locally in 13 countries.

In China, PayPal offers two kinds of accounts:PayPal.com accounts, for sending and receiving money to/from other PayPal.com accounts. All non-Chinese accounts are PayPal.com accounts, so these accounts may be used to send money internationally.PayPal.com.cn accounts, for sending and receiving money to/from other PayPal.com.cn accounts.

It is impossible to send money between PayPal.com.cn accounts and PayPal.com accounts, so PayPal.com.cn accounts are effectively unable to make international payments. For PayPal.com.cn, the only supported currency is the Renminbi (RMB, ISO: CNY), whereas PayPal.com supports USD, CAD, AUD, EUR, GBP and JPY.

PayPal’s operation center is located near Omaha, Nebraska and PayPal’s international headquarters is located in Dublin, Ireland.

Legal Issues

In March 2002, two PayPal account holders separately sued the company for alleged violations of the Electronic Funds Transfer Act (EFTA) and California law. Most of the allegations concerned PayPal's dispute resolution procedures. The two lawsuits were merged into one class action lawsuit (In re PayPal litigation). An informal settlement was reached in November 2003, and a formal settlement was signed on June 11, 2004. The settlement requires that PayPal change its business practices (including changing its dispute resolution procedures to make them EFTA-compliant), as well as making a $9.25 million USD payment to members of the class. PayPal denies any wrongdoing.

In August 2002, Craig Comb and others filed a class action against Paypal in Craig Comb, et al. v. PayPal, Inc.. They sued for alleged mishandling of customer accounts and customer services, with regards to Paypal's user agreement. Allegations included the up-to 180 day restriction on deposited funds until disputes are resolved, forcing customers to arbitrate their disputes under the American Arbitration Association's guidelines (a costly procedure), and requiring users to file claims individually, restricting class action suits. The court deemed these actions unconscionable and ruled in favor of Comb.

Accolades

According to PayPal's little-updated "About Us" webpage, "PayPal has received close to 20 awards for technical excellence from the internet industry and the business community at large - most recently the 2003 Webby Award for Best Finance Site and the 2003 Webby People's Voice Award for Best Finance Site."

They have won awards since, notably the "Best Finance Services Site" and "People’s Voice Award" at the 2006 Webby Awards.

CriticismPayPal is accused for its lack of customer support. Questions asked through e-mail are likely to get a reply that doesn't actually answer the question. The reply is almost invariably a template, as opposed to a reply written by a human for each e-mail. PayPal stopped business with several gay owners after they implemented their policy of not doing business with sites that offer pornographic products or services, despite the fact that the businesses in question were not selling pornographic products or services. PayPal's Seller Protection policies do not cover intangible goods or goods that are "not as described". Many scammers have used this lack of policy to their advantage. They will buy a product and pay for it via PayPal. When the product is received, they will dispute the charge as "not as described." This freezes the seller's account until the dispute is finalized. After the freeze, PayPal is unlikely to gain back the funds, thus leaving a negative balance to the seller.PayPal is a member of the Better Business Bureau of Silicon Valley, although it has a significant number of unresolved complaints.

Bank status

In the United States, PayPal is licensed as a money transmitter on a state-by-state basis. Although PayPal is not a bank, the company is still subject to and adheres to many of the rules and regulations governing the financial industry including Regulation E consumer protections and the USA PATRIOT Act.

Safety

The PayPal Buyer Protection Policy claims that customers may file a buyer complaint if they did not receive an item or if the item they purchased was not as described. If the buyer used a credit card, they might get a refund via chargeback from their credit card company.

PayPal protects sellers in a limited fashion via the Seller Protection Policy. In general the Seller Protection Policy is intended to protect the seller from chargebacks or complaints but it is subject to various terms. PayPal states the Seller Protection Policy is "designed to protect sellers against claims by buyers of unauthorised payments and against claims of non-receipt of any merchandise". Note that this contrasts with the consumer protection they claim to offer. This policy should be read carefully before assuming protection. In particular the Seller Protection Policy includes a list of "Exclusions" which itself includes "Intangible goods", "Claims for receipt of goods 'not as described'" and "Total reversals over the annual limit". There are also other restrictions in terms of the sale itself, the payment method and the destination country the item is shipped to (simply having a tracking mechanism is not sufficient to guarantee the Seller Protection Policy is in effect).

Sandbox

Developers implementing larger PayPal projects will likely want to avoid using real money. PayPal has a "sandbox" version of its website geared towards such developers. PayPal has detailed developer information for all aspects of its API online in PDF form, as well as a developer community and a third party developer market.

Startups by former employees

Former PayPal employees have founded several high-profile companies. YouTube is a prime example of a startup which has become staggeringly popular.LinkedIn was founded by Reid Hoffman, a former VP at PayPal.Palantir Technologies was founded by Nathan Gettings, who developed PayPal's anti-fraud models. Palantir received funding from Peter Thiel.Slide was founded by Max Levchin.Yelp was founded by Jeremy Stoppelmann, former VP of Engineering at PayPal, and Russ Simmons, one of the first employees at PayPal. Yelp is funded by Max Levchin.YouTube was founded by Chad Hurley, Steve Chen, and Jawed Karim, all of whom were early employees at PayPal. YouTube is funded by Sequoia Capital. Roelof Botha, the former CFO of PayPal, is a partner of Sequoia Capital who sits on YouTube's board of directors.Room 9 Entertainment was founded by David O. Sacks, who founded PayPal's Product Group and later served as Chief of Operations (COO).SpaceX was founded by Elon Musk, who founded X.com and served as the CEO following its merger with PayPal.HourTown was founded by Ryan Donahue, an early employee at PayPal.

What is E-Gold

e-gold is a digital gold currency operated by Gold & Silver Reserve Inc. under e-gold Ltd., and is a system which allows the instant transfer of gold ownership between users. e-gold Ltd. is incorporated in Nevis, West Indies. There are over three million e-gold accounts of which about one quarter active.

As of May 2006, e-gold had 3,784,689 grams of gold in storage, which is worth approximately US$86 million. There are typically 66,000 e-gold spends each day, with a total value each day of about US$10.5 million (that is, about 460 kilograms of gold).

History

e-gold was founded in 1996 by Dr. Douglas Jackson and Barry K. Downey. Transactions using e-gold have grown dramatically since 2005. The total amount of gold bars (over three tonnes) in the e-gold system is approaching the size of the national reserves of smaller countries. e-gold now generates a substantial income from spend and storage fees — it costs a few cents to make each e-gold "spend" and e-gold itself now earns well over a million USD per year from fees.

The number of e-gold accounts (as claimed by e-gold) grew from 1 million in November 2003 to 3 million on 22 April 2006. That represents a compound growth rate of approximately 55% per annum. This high growth rate has been sustained by e-gold almost since inception.

Role in global commerce

Many small businesses in the U.S., Europe and Asia, each with full-time staff now operate as "digital gold currency exchange providers," doing nothing other than buying and selling digital gold currency for "fiat currencies," as gold bugs term the euro, pound, yen and U.S. dollar.

e-gold transactions — a "spend" — are completed electronically, usually using the web interface, and they always settle by weight of the metal even if denominated in some other way. A user may send (or "spend") a tiny amount of gold (a fraction of a gram, ounce or kilogram) to another user account instantly, anywhere in the world.

Even though e-gold is careful to not advocate any particular political agenda, as the Liberty Dollar does for example, e-gold could be viewed as a libertarian form of private currency.

Asset protection

Unlike fractional-reserve banking, e-gold holds 100% of clients' funds in reserves with a store of value. Proponents of the e-gold system contend that e-gold deposits are protected against inflation, devaluation and other possible economic risks inherent in fiat currencies. These risks include the monetary policy of countries or territories, which are perceived by proponents to be harmful to the value of paper currency.

The repository of the actual bullion bars with serial numbers and other data can be seen using the live "Examiner" function on the e-gold web site. Bullion is held in allocated storage with Brink's Global Services (part of The Brink's Company), Transguard Security Services (part of The Emirates Group) or MAT Securitas Express AG (part of the VIA MAT Group). Clients hold an unallocated share of this allocated bullion.

The user may take physical delivery of the precious metal upon payment of an additional fee, and provided the user has an available balance of at least the weight of the smallest individual item displayed in the Examiner. This is currently a 32 troy ounce gold bar, which is worth approximately $20,000. However in practice, most users permit the company to store the metal for them.

e-gold is a form of commodity money, so it is subject to the price fluctuations of that commodity. If the price of gold drops versus your national currency, the value of your e-gold drops in that currency. The account balance, which is denominated in gold grams, does not change, but its purchasing power will change in relation to the gold price.

This can, of course, work both ways. Proponents of the e-gold system would argue that the risk of significant price fluctuation is small compared to the risk of value fluctuations among fiat currencies. The opposite argument is that a typical user is more affected by changes in the price of e-gold than of fiat currencies; this is because most people are paid in and spend their local currency, while the use of e-gold will typically involve a foreign exchange transaction each time. In both cases, long-term shifts in the price of a currency or e-gold affect its owner, but anyone who frequently buys and sells e-gold will be exposed to short-term fluctuations as well. The price of gold has happened to increase over the past five years, so this factor has worked out to the advantage of anyone holding e-gold over that period.

As well as digital gold, e-gold also offers e-silver, e-palladium and e-platinum. Funds can be switched between e-metals using their sister company OmniPay. Metal-to-metal (or "M2M") exchanges are completed at spot price with no bid/offer spread. e-metal provides an easy way to gain access to bullion investing, without the hassles of delivery and storage.

Exchanging fiat currency

e-gold does not sell its currency directly to clients. Instead numerous digital gold currency exchangers, such as OmniPay (a sister company of e-gold) or IceGold (an independant company), act as market makers selling e-metal in exchange for fiat currency and a transaction fee. Conversely, these exchange providers will sell fiat currency in exchange for e-metal, and a transaction fee. In this manner e-metals can be converted back and forth to a variety of national currencies. The amount of a particular fiat currency or e-metal necessary to complete a transaction is determined by the spot price of the metal in relation to the value of the fiat currency. e-gold is known as private currency as it is not issued by governments.

Compared to other systems like PayPal, the process of buying e-gold can be confusing to a person unfamiliar with the e-gold system. e-gold, unlike e-Bullion for instance, does not sell digital currency directly to the user. According to their website the reason e-gold does not provide an in-house exchange service is so there can be no debt or contingent liabilities associated with the business, making e-gold Ltd. absolutely free of any financial risk. They claim e-gold Ltd. does not possess currency of any nation or even have a bank account.

Fees

e-gold charge an account fee (or Agio Fee) of 1% per annum (deducted in monthly payments) on all e-metal stored.

Spending e-gold is free, with transaction fees (or Spend Fees) deducted from the recipient. As of 2006 these spend fees vary on a sliding scale from 55% for very small amounts (0.0004 grams of gold, worth about 1 cent) to 5% for amounts on the order of 0.1 gram (about $2) to 1% for amounts of over 1 gram (about $20), with a maximum fee of .05 grams (about $1).

e-gold spends clear instantly, in contrast to cheques or credit card transactions. Unlike other online payment systems such as PayPal, there are no distinctions between merchant and non-merchant e-gold accounts. Anyone can instantly create a "merchant account" (there is only one type of account). All e-gold accounts carry the same fees and have the same capacity to receive and transmit e-gold account holdings.

Universal currency

Proponents claim that e-gold offers the first truly global and borderless world currency system which is independent of exchange rate variations. Gold, silver, platinum and palladium each have recognised international currency codes under ISO 4217.

Incentive program

e-gold clients can place a referral link on a website to generate a few cents in referral income. If a new client sets up an e-gold account from someone else's referral link, it is harmless and does not cost the new client any money when performing future e-gold transactions.

Crime and fraud

e-gold has notoriously been the medium of choice for many online con-artists, with pyramid schemes and HYIPs ("High Yield Investment Programs") commonplace. This is presumably partly due to e-gold maintaining its policy of irreversibility of e-gold transactions. According to a website who maintains a comprehensive database of HYIP scams daily, 89% of the scams preferred e-gold as their online payment processors than others.

e-gold and OmniPay have also been accused of being a medium for money laundering, although this is questionable given that there were only 24 customer accounts holding over 10kg of gold (approximate value $200,000) by April 2006. As digital gold currency providers are not banks, they are not legally required to perform various sorts of "know your customer" background checks. However, many e-gold exchange providers require a high level of identification, sometimes more intrusive than a bank.

Opening an account takes only a few clicks of a mouse. Customers can use a false name if they like because no one checks. With a credit card or wire transfer, a user buys units of e-gold. Those units can then be transferred with a few more clicks to anyone else with an e-gold account. For the recipient, cashing out — changing e-gold back to regular money — is just as convenient and often just as anonymous.

In January 2006, BusinessWeek reported on the use of the e-gold system by ShadowCrew, an 4000-strong international crime syndicate involved in massive identity theft and fraud. However following months of investigation into this crime Gold Age, rather than e-gold, have come under the most scrutiny. Omar Dhanani of Fountain Valley, California, connected to the ShadowCrew, is an e-gold customer and is said to have moved amounts ranging from $40,000 to $100,000 a week from proceeds of crime through e-gold.

In response, Chairman and founder, Dr. Douglas Jackson published a letter which stated that "e-gold operates legally and does not condone persons attempting to use e-gold for criminal activity. e-gold has a long history of cooperation with law enforcement agencies in the US and worldwide, providing data and investigative assistance in response to lawful requests." He further noted that "Our staff has participated in hundreds of investigations supporting the FBI, FTC, IRS, DEA, SEC, USPS, and others."

In July 2006, two men, Arthur Budovsky and Vladimir Kats, were alleged to have laundered over $30 million for clients who paid them huge fees for accepting the money with limited documentation, Associated Press reports. Operating under the company name Goldage, the accused men used the millions to buy e-gold backed up by gold bullion. Clients were then able to withdraw money via wire transfers or by moving the money into offshore accounts.

In August 2006, WORLDLawDirect lawyers announced e-gold Ltd. officials and their legal counsel to be the subject of a U.S. Federal Court subpoena. They believe e-gold Ltd. is subject to U.S. Federal Court jurisdiction and may be held liable for some or all of the investors' losses (and potential triple damages) in the Solid Investment (Solidinvestment.com) large scale HYIP scam.

Non-reversible transactions

Unlike credit cards, there is no way of having transactions reversed, even in case of a legitimate error or an unauthorized spend. e-gold's Terms of Use stipulate that all spends are final and e-gold cannot be held responsible for any spend. In this respect, an e-gold spend is more akin to a cash transaction (except for the fact that there is a fee levied) while PayPal transfers, for example, could be considered more similar to credit card transactions.

Security

As with any online payment system, e-gold is vulnerable to various threats, notably phishing (for example, forged emails asking for login details) and spyware (such as keystroke logging).

In the early years of e-gold, this problem was widely reported to be rampant. The problem could have been due to the novelty of the system, combined with the irreversibility of payments, combined with the hardness of gold as money, combined with many of the early users being "gold bugs" rather than technically-oriented computer users.

Fortunately around early 2004, this problem seemed to be largely eliminated at a stroke, by e-gold adding a simple IP checking process for spends. (This has often been cited as a good example of how extremely simple solutions to security problems can often have big results.)

Some competing DGCs offer similar features to combat typical, simple, "mass" phishing attacks. e-Bullion utilizes a "two-factor", token-based authentication solution from CRYPTOCard, an alternative to RSA's "SecureID". Pecunix has an extremely secure, somewhat complicated, log-in procedure. 1mdc has a simple PIN-pad addition. GoldMoney allows user certificates to be used. Most systems include an optional "email confirmation" type of process. All of these approaches thwart simple keystroke loggers.

In 2005, the Los Angeles Times reported on a specially created trojan horse that compromised "dozens" to "the low hundreds" of e-gold accounts . While trojans usually silently record the login details of the unsuspecting user, the trojan in question (Win32.Grams) emptied the accounts themselves by transferring the contents to the attacker's accounts.

Regulatory challenges & shortcomings

e-gold Ltd. was registered in Nevis, West Indies in 1999, but was temporarily removed from the register. e-gold cleared an administrative issue and as of July 14, 2006 it is properly registered in Nevis.

In September 2004 several Australian e-gold currency exchanges ceased operation due to stricter application of Financial Services Licencing regulations Digital gold currency exchangers that were closed down by the Australian Securities and Investments Commission (ASIC) include:goldex.netsydneygoldsales.comozzigold.com e-gold is, according to their website, "100% backed by gold"

Whilst exchange providers can still operate in Australia many have found it impractical to do so due to proxy issues. Australian residents can exchange e-gold via exchangers in the U.S., Europe or other countries. There appears to be no issues about NZ citizens buying e-gold in NZ, and a number of AU citizens have opened NZ bank accounts, specifically to purchase e-gold from NZ based exchangers. (Although e-gold doesn't denominate e-gold in NZD)

Bullion storage

As of November 2005, it is unclear if e-gold has an independent auditor of the physical bars, so there is no way of knowing if e-gold Ltd. really has the reserves to back the currency in the e-gold system. e-gold does maintain an "Examiner", a web page with updated statistics on outstanding liabilities and the total amount of each precious metal in its holding. While proponents generally consider this assuring enough, some critics remain skeptical.

Limited use

Beginning January 2006, eBay has restricted buyers and sellers from using any online payment system except for PayPal. eBay specifically named e-gold as one of the online payment systems that will result in them cancelling a seller's account if used . e-gold runs a non-reversible transaction policy, meaning that there is no protection for purchasers if vendors fail to supply goods.

What is HYIP

HYIP stands for High Yield Investment Program. While a HYIP may sound enticing, you should be careful; many HYIPs are little more than thinly disguised ponzi schemes.

A ponzi scheme is a system by which investors are lured to invest in a program by promises of very high returns on the investment. Early investors are paid using the money that later investors invest in the scheme. Things go well until new investors stop joining the system and the money runs out.

Those HYIPs that are not ponzi schemes are frequently outright scams. Investors not only are never paid any interest yield, they also never see their original investment in the HYIP again either. If the returns sound too good to be true, the HYIP is likely too good to be true. Claims of secret banking systems and alternative financial networks are simply false. In fact, the problem became common enough to cause the Federal Bureau of Investigation (FBI) to issue warnings about being taken in by the claims made in these fraudulent programs. You are probably best off if you heed their warnings.

If you are considering on making an investment in a HYIP be certain to do diligent research first. Any legitimate security that is sold to the public must be registered with the Security and Exchange Commission (SEC). If the HYIP you are considering is not registered, you should not invest. Other questions to ask yourself include, whether the claims to good to be true, and how the people running the program generate the high yield returns that you are being promised. You should be careful of the claims people make regarding some secret network or principle that allows them to make excessive returns. If the proponents of the HYIP cannot or will not explain how the returns are made then you may want to avoid investing in the program.

What is a Krugerrand

Defining a Krugerrand is fairly straightforward, but understanding its significance may require a crash course in world economics and international politics.

A Krugerrand is a gold coin minted by the Republic of South Africa, but it would never be used to buy groceries or gas. Unlike other gold coins, the Krugerrand has no actual face value apart from its precious metal content. On the front of the coin is a profile of Paul Kruger, an early president of the Republic of South Africa. The Afrikaans words Sud Africa appear, along with the English South Africa. The back of a Krugerrand features a male springbok, a national symbol of South Africa. There is also a date stamped in two sections on either side of the springbok image. A Krugerrand has serrated edges.

The original Krugerrand was designed to contain precisely one troy ounce of 22 karat gold, approximately 33 grams. The actual weight is a little over 1 troy ounce because a small amount of copper, about 1/12 of the total weight, is added to make the coin more resistant to damage. Because a Krugerrand is considered legal tender, it does not have to be melted down into an ingot upon resale. In 1980, three smaller sizes of Krugerrands were minted, weighing 1/2 ounce, 1/4 ounce and 1/10 ounce.

Here's where politics and economics enter the picture. The United States and other countries used to back their currency with equivalent deposits of gold -- an economic practice known as the gold standard. Over time the US treasury stopped using gold as a backup for currency, relying more on the control of circulation. The government still had vast reserves of gold, but private individuals had to rely on the stability of the national economy. Private ownership of gold in the form of bricks or ingots was strictly monitored or even forbidden under law.

Meanwhile, the Republic of South Africa had discovered a huge gold vein and was eager to market it to the world. Since private ownership of gold ingots was illegal, the South African government decided to produce a gold coin and give it 'legal tender' status. It was not illegal for US citizens to purchase foreign coins, no matter what metals were used. The South African Krugerrand could be sold at a mere 5% over the current price of gold. The South African government would benefit from the sales of its gold and investors would have a hedge against economic collapse. Because of its special content, a Krugerrand can be readily liquidated into currency in most countries.

The main concern with Krugerrand sales is South Africa's controversial history. The white minority, primarily of European stock, virtually kept the black majority under its control for decades through a segregation plan called apartheid. The Krugerrand was first minted at a time when black workers in the diamond and gold mines were treated like slaves. Although racial conditions in South Africa have improved in recent years, it is still considered a rogue state in some circles. Buying Krugerrands during the days of active apartheid could be seen as tacit approval of the practice.

Other gold coins have now emerged to challenge the Krugerrand, made with 24 karat gold and no copper alloy. It is much easier to purchase gold ingots as an investment today than it was in the 1960s. There have been an estimated 54 million+ Krugerrands sold worldwide since 1967, but its days as the only legitimate source of private investment gold are over.

What is a 1099 Form

In the world of income and taxation, corporations, small businesses, and other employers use a variety of forms to record the income earned by an employee or an independent contractor. Typically, employees of a business receive a W-2 form that lists the income they received during the year. This form also contains deductions taken from that income in the form of federal and state taxes, deferred compensation and social security contributions, to name a few. 1099 forms are used for a number of reasons, though, typically, they are given to independent contractors--also known as "freelancers"--as a record of the income they received from a particular business.

On a 1099 MISC Form, the income earned will be noted, but there will not be any deductions for federal and state income taxes, nor will any deferred compensation, social security, or medical deductions be taken. Since the 1099 recipient is not an employee of the business, the business is obligated only to tender the income to the contractor sans any deductions. This 1099 income is also reported to the Internal Revenue Service so it has the opportunity to track income from freelance workers. The freelancer will be obligated to make his or her own tax deductions and forward such payments to the IRS.

Those who receive 1099 income come from a wide spectrum. Actors, artists, novelists, freelance writers and similar creative artists are generally compensated on a "per job" basis, and are not treated as employees. More and more businesses are bringing in independent contractors to work on a similar "per job" basis, as this helps keep the employer costs down since the employer does not have to pay for such things as health and life insurance, as well as make contributions to retirement plans. After the job is completed, the employer can cut the cord and simply issue the independent contractor a 1099 Form.

Though the 1099 MISC Form is the most popular, 1099 forms are also issued to denote the interest (1099 INT) the government may have paid in a particular tax year, and 1099 G Form denotes any tax refund you may have received from the government.

What is a Leaseback

A leaseback is very simple really. Sometimes known as a sale/leaseback or sale and leaseback, it is a transaction wherein the owner of a property sells that property and then leases it back from the buyer. The purpose of the leaseback is to free up the original owner's capital while allowing the owner to retain possession and use of the property. The type of property involved can be anything from residential or commercial real estate to equipment or vehicles.

A leaseback can be beneficial for the buyer and seller alike. The seller attains a lump sum of cash quickly and the buyer acquires a lower than market value purchase price, along with a long-term lease at a premium rate. The lease amount provides periodic income and may even be enough to pay the buyer's mortgage, if he or she borrowed money to obtain the property. A leaseback can be a great investment tool, one that yields a high return. As with any investment, however, there are associated risks.

Some leaseback arrangements allow the seller, or current lessee, the option to buy back the property at a future date. During the life of the leaseback, however, the buyer derives tax benefits from the arrangement, such as being credited for depreciation of the property. If the seller exercises the option of buying the property back, all rights will revert to the seller upon closing the transaction, so setting the sale for the end of the tax year is a convenient way to keep things straight for the Internal Revenue Service. This is important, because if either party is audited during the leaseback, both can experience problems that range from minor inconveniences to very costly dilemmas.

If the seller files bankruptcy or is audited, and the IRS or bankruptcy court believes that the seller arranged the leaseback to hide assets, the transaction can be reclassified. Ownership of the property will be credited to the original owner, and the property may be confiscated in order to resolve tax liens or arrears to other creditors. In this case, the buyer could lose a great deal of money, so caution is advised when considering a leaseback agreement.

What is Indemnity

Indemnity is the legal philosophy upon which the concept of most insurance policies rests. Strictly speaking, indemnity is protection from loss and damage claims filed by another person. For example, the owner of an amusement park may have indemnity insurance to compensate visitors injured on his or her property. The eventual insurance payout would be enough to restore the injured person back to the financial state he or she was in before the accident, but nothing more. Only a legal lawsuit brought against the park owner could result in additional punitive damages. Indemnity insurance protects the holder from suffering financial loss due to a lawsuit.

The principle behind indemnity is a financial restoration to a level just before the accident or injury or illegal act. Most laws concerning civil court actions also use indemnity as a measuring stick for damages. If a plaintiff is entitled to compensation for the actions of the defendant, the amount awarded should only bring him or her back to a state of wholeness. Whatever actual losses were suffered would be repaid, but punitive damages would be a separate matter.

Many people encounter indemnity situations and don't even realize it. Many rental agreements contain an indemnity clause which prevents the customer from suing the rental agency for damages caused by use of the equipment. Leases for apartments may also contain indemnity clauses which limit claims against the owners in case of accidents. Whenever a ticket is purchased for a sporting event or concert, part of the condition of admission is an indemnity agreement between the ticketholder and the venue itself. If an errant baseball strikes a fan or a faulty pyrotechnic display burns a concert-goer, the indemnity agreement protects the stadium or hall from a major lawsuit.

Even if the word 'indemnity' is nowhere to be found on a document, there may be an agreement to 'indemnify' another party. This means that you agree not to hold someone else responsible for any accidents or injuries you may suffer while on his or her property. "Swim at your Own Risk" signs at an unguarded swimming pool are indicators of an implied indemnity. If you choose to swim and suffer a head injury from diving, you may not be able to sue the owner of the swimming pool for medical expenses. If you understood the sign's meaning at the time, you agreed to indemnify the owners. Sometimes an indemnity claim will hold up in court proceedings, but not always. Claiming indemnity from damages does not always mean protection from liability. A property owner may still be responsible for injuries on his property, even if the renter signed an indemnity clause as part of the lease.

What is the CBOT

The Chicago Board of Trade (CBOT) was established in 1948. There are 3,600 CBOT members who trade more than 50 different options and futures contracts though open outcry and e-trading. The CBOT is the world’s oldest futures and options exchange.

The CBOT has been operating from 141 West Jackson Boulevard, Chicago since 1930. The architects Holabird and Route designed the building. Measuring 184.4 meters (605 feet) tall, it is art deco in design and incorporates sculptural work by Alvin Meyer. On top of the building is a sculpture of Ceres, the Roman goddess of plants. This is in reference to CBOT’s heritage as an agricultural commodities market.

The sculpture of Ceres is faceless, as Meyer thought that the building would never be overtaken in height and no one would therefore see the face. The building was designated a Chicago landmark in 1977. Numerous other skyscrapers in Chicago’s loop district now surround the building.

For many years, the main method of trading was by open auction. This required the traders to meet face to face in the pit in order to buy and sell futures contracts. In 1994, CBOT launched its first electronic trading system, implemented to meet the needs of the growing global economy. The use of e-trading has become more prevalent and the exchange has upgraded its electronic systems several times.

The main aim of the CBOT is to trade futures and options on futures, either through electronic or auctions means. It provides liquid and transparent contract markets for its stockholders, members and customers, who use the CBOT for risk management, price discovery and investment purposes. The futures markets allow speculators around the world to interpret news, economic information and other data. Speculators use this information to reach decisions about price and invest if the price looks financially viable.

In its early days, the CBOT traded only in agricultural commodities such as wheat, oats, corn and soya beans. It has progressed significantly since then. In 2001, the CBOT launched a new trading category of 100% gold and silver futures contacts. The exchange's newest products include South American soybean futures and ethanol futures in a response to shifting trends in the agricultural global market.

What is Micro Cap

Market capitalization ranks stocks into a number of distinct groups. Micro cap stocks are in the bottom rank and represent companies whose total market capitalization is less than 50 million US dollars (USD). Some add an even smaller rank called nano cap stocks.

Market capitalization is the product of the stock price and the number of stock shares issued, so if XYZ company has issued one million shares and the stock price is 0.30 USD, then its market capitalization is 300 thousand USD and XYZ company is a micro cap company. Its stock shares would be considered micro cap stocks. Micro cap stocks are also sometimes referred to as penny stocks.

This micro cap ranking is important when considering an investment in a particular company. Each rank has certain stereotypical features. Micro cap stocks are very risky. Micro cap stocks are the stock shares of companies that are just getting started.

The market for micro cap stocks can be very small, and while you can purchase the stock, you may find difficulty selling it. Micro cap stocks are subject to very large swings in price since the volume is very small. Micro cap stocks are also subject to price manipulation; since the market is small, a single investor can influence the price of the micro cap stock to their own profit at the expense of the other investors.

Getting accurate information on micro caps stocks can also be very difficult. Since the market for micro cap stocks is small, the media does not pay much attention to these companies. This results in little information getting out about the micro cap company, and the information that does get published can be easily manipulated to the advantage of the person releasing the information. Many of the checks and balances that are in place with large cap stocks are simply not there for a micro cap stock.

It is doubtful that micro cap stock should be a part of your investment portfolio unless you are a very experienced investor. While the possibility of a very large return is present -- after all every company started out as a micro cap stock -- the risk of a complete loss of your investment is also very high.

What is Commerce

Commerce is the exchange of items of value between persons or companies. Any exchange of money for a product, service, or information is considered a deal of commerce.

Commerce has been a constant part of history. In early times, people traded their excess goods with others for needed goods. So, for example, when a produce farmer had excess crop, he would trade with a neighbor who raised animals. This deal enabled them both to have meat and produce to eat.

Before technological advances, people were only able to trade with their neighbors. As new methods of transportation developed, people were able to trade with people from distant places that they were previously unable to trade with.

The discovery of America resulted from an attempt to improve commerce. That is, it was a unplanned result of the Europeans attempt to find a more direct route to Asia to trade goods for Indian spices.

Historically, commerce between distant places was very expensive. Modern technology has not only greatly reduced the costs of foreign trade, but has also made foreign trade available between individuals. Both the internet and an efficient postal system have made international commerce convenient for businesses as well as individuals.

Commerce is an essential element of capitalism. In a capitalistic economy, an individual or company develops something of value for sale. Commerce allows this entity to profit from its trade and the more widespread commerce can be the more demand there is for goods and services.

Today, most trade involves a form of currency. When a needed product is developed, people trade money for that product. When a needed service is offered, people trade money for access to that service. When new ideas are secured by patent, people trade money for the rights to that idea.

Though trade for necessities is the most important part of commerce, it also promotes new ideas, technologies, and inventions through the prospect of making a profit.

What is Loan Stock

A loan stock is a type of fixed income security, a loan that is made to a company. Although the term loan stock might suggest otherwise, the holder of a fixed income security is merely the company’s creditor and does not have any say in their business. There are two types of fixed income security: loan stock and debenture.

Unsurprisingly, loan stock is stock granted in exchange for a loan. There are two basic kinds of loan stock. The first kind, unsecured loan stock, basically means that the company receiving the loan offers no collateral to guarantee that the loan will be paid. In other words, if the company defaults on the loan, the creditor has no right to the company’s property as repayment. Unsecured loan stock is therefore very much like the unsecured loans individuals can get.

The second kind of loan stock is called convertible loan stock. Convertible loan stock offers the company a low, fixed interest rate. The creditor benefits by having the ability to convert the loan stock into actual shares in the company. The loan contract sets forth specific terms and a time frame for conversion of the loan stock.

Debenture, the second type of fixed income security, is different from loan stock in that it is a secured loan. However, the way that a debenture is secured is not quite the same as when an individual or an entity offers a specific piece of property as collateral. In cases of collateral, the specific property is turned over to the creditor to sell for payment if the individual or entity defaults on the loan. In the case of a debenture, the loan is secured, but only loosely so, as there is no specific property assigned as collateral: if the company defaults on the loan, the creditor may sell any part of the company’s property that has not already been promised on other accounts as collateral, and can claim the proceeds as payment. Debentures benefit the company receiving the loan by leaving their property free to be used as collateral for other financing.

What is a SEP-IRA

A SEP-IRA, or Simplified Employee Pension plan, is a retirement plan designed to give self-employed and small business owners the option to start a retirement plan for their employees. Eligible for establishing a SEP-IRA are sole proprietors, those in partnerships, and business owners of unincorporated or incorporated businesses, including S corporations. The owner must earn self employed income by providing a service.

A SEP-IRA is, in a word, simple. Start up and administration of the plan is less expensive than with traditional pension plans. There is relatively little paperwork to fill out, and no annual reports to the IRS are required. The deadline to start up and contribute to a SEP-IRA plan is the tax filing deadline of the business, which is typically April 15th.

The benefits of a SEP-IRA plan go beyond its simplicity. As with most retirement plans, the money is tax deferred until it is withdrawn. Contributions are flexible and do not have to be made every year.

The percentage contributed by the employer can fluctuate each year as long as it is the same for every employee. Up to 25% of an employee's compensation is allowable for the tax benefit, up to 44,000 US dollars (USD) for 2006. The maximum contribution, upon which the employer's contribution is based, is 220,000 USD in the year 2006.

There are few requirements that stipulate who is an eligible employee. An eligible employee must be at least 21 years old and must have performed service for at least three of the last five years. All eligible employees must participate, including part-time and seasonal employees. Employees that do not have to be included in the plan are: those covered by a union contract, non-resident aliens, and those who have earned less than 450 USD during the year.

A SEP-IRA can be rolled over into another SEP-IRA, a traditional IRA, or another qualified retirement plan that allows rollovers. An employee cannot take a loan from a SEP-IRA, but can make withdrawals. Of course, as with other retirement plans, the withdrawal is subject to income tax for the year it was distributed, but the penalties are relatively low.

What is a Leasehold

Leasehold is a term that stems from the feudal agrarian society in the United Kingdom. In this society, peasants worked land that belonged to their lord. Modern leasehold is similar in that the property is owned by the freeholder, but the leaseholder is guaranteed possession of it for an established length of time by a lease or contract. The leaseholder is committed to paying for this possession in payments called ground rent.

Also hearkening back to feudal days, a leasehold is often for extended periods of time, such as 99 years. A leasehold term can even be several hundreds of years long. A leasehold can be sold to another person, but will be transferred with the existing terms; for example, if there are 70 years left on the leasehold, that is what the buyer purchases. Leasehold terms can be lengthened or renewed, but as they do not renew automatically, the leaseholder must negotiate them with the freeholder.

There are four basic kinds of leasehold used today. The most general kind of leasehold is also called a tenancy for years or an estate for years. This is simply a leasehold with a fixed end of tenancy.

Despite its name, a tenancy for years does not need to be for a period measured in years; in fact, it doesn’t have to be for a period measured in standard units of time at all. The contract can state that the tenancy is up when a specific event happens – such as a war ending – just as easily as it can state a predetermined length of time. Despite what the contract says, however, the freeholder and leaseholder can agree to terminate the contract early if they wish.

A periodic tenancy has no specified end date, and may be oral or written. A periodic tenancy can be terminated by the freeholder at any time, although they generally must give the tenant a reasonable amount of notice. Tenancy at will is similar, although the tenant has the same right to cancel the agreement as the freeholder. Again, a reasonable amount of notice is required.

Tenancy at sufferance is the period that the tenant stays after the end of the lease. Although the tenant has no legal right to the property, they are still responsible for rent for whatever length of time the freeholder cannot reclaim possession of the property. A leasehold is generally treated like a certain degree of ownership of a property, in that it is considered a fixed asset and can be used as such in attaining credit or a loan. The owner of a leasehold can also be expected to pay a leasehold excise tax, which takes the place of property tax.