A dollar Trailing Stop is a Stop Loss order which is placed as a dollar value. The order will only execute if the price of the security falls by that dollar amount. The trailing stop adjusts automatically as the price of the security rises and bases itself on the new appreciated value. This type of Read More…
A zero coupon bond is a bond sold without interest-paying coupons. Instead of paying periodic interest, the bond is sold at a discount and pays its entire face amount upon maturity, which is usually a one year period or longer. A Treasury Bond is a good example.
Yield To Maturity is the interest rate that will make the present value of a bond’s remaining cash flows (if held to maturity) equal to the price (plus accrued interest, if any). It is basically what you will earn if you buy and hold the bond till maturity. On of the major assumptions is that all the Read More…
Yield is the return investors can expect on a security based on all the outflows and inflows they incur related to that security.
Volume is the quantity of shares/contracts of a security that is traded within a specific time period.
Unsystematic Risk is also called diversifiable risk, residual risk, or company-specific risk. It is the risk that is unique to a company such as a strike, the outcome of unfavorable litigation, or a catastrophe that affects its production. This risk can be mitigated away by diversification.
Treasury bills, often referred to as T-bills, are short-term securities (maturities of less than one year) offered and guaranteed by the federal government. They are issued at a discount and pay their full face value at maturity.
A percentage Trailing Stop is a Stop Loss order which is placed as a percentage value as opposed to an absolute dollar value. The order will only execute if the price of the security falls by a certain percentage. The trailing stop adjusts automatically as the price of the security rises and bases itself on Read More…
Tick refers to a change in price, either up or down.
Strike Price is the price at which an option can be exercised to buy or sell the underlying stock or futures contract.
S&P 500 Index (Standard and Poor’s 500 Index) is a composite of the 500 most actively traded public companies in all ten economic sectors of the U.S. It is maintained by Standard and Poor’s, a division of the Parent company McGraw-Hill.
Selling Short is a trade in which the investor borrows a security and sells it to another investor in the market. To close the short position an investor has to cover (purchase the same security from the market) and return it to the person they borrowed it from.
Security is any financial instrument that represents a financial value
Recession is generally described as a slowdown of economic growth over a sustained period of time.
Quick Ratio is the ratio that measures the ability of a firm to cover its current liabilities with their most liquid current assets. Quick Ratio = (Current Assets – Inventory) / Current Liabilities
A Put Option gives the holder the right to sell the underlying stock or futures contract at a specified strike price.
Pink Sheets refer to the trading of stocks that are not listed on a major exchange or the OTCBB due to a lack of minimum listing requirements or filing financial statements with the SEC (Securities Exchange Commission)
Par Value is the amount that the issuer of a bond agrees to pay at the date of maturity.
Out-Of-The-Money refers to an option that is unfavourable to exercise. An example is a put option with a strike price lower than the underlying stock price, or a call option with a strike price higher than the underlying stock price.
An Options Contract is a contract which specifies how much of the underlying asset can be bought or sold at a specific price. An option contract to buy the underlying is a call option, and to sell the underlying is a put option. Most stock options contracts represent 100 underlying shares.
Market Risk is the general risk for investing in the any security. Every industry in the market is affected by this risk. Examples of market risk: depression, war, inflation etc.
Initial Public Offering, or IPO for short, represents the first opportunity for the public to purchase shares of a company. It is also referred to as a private company “going public”.
In-The-Money refers to an option whose underlying’ asset’s price changes in such a way that it becomes profitable to exercise the option at the given strike price. For example: Stock price is lower than the strike price specified in a put option contract.
Futures Contracts are a standardized, transferable legal agreement to make or take delivery of a specified amount of a certain commodity, currency, or an asset at the end of specified time frame. The price is determined when the agreement is made. Future contracts are always marked to market.
Expiration Date is the last day upon which an option or futures contract can be exercised or traded.
Excess Return is the return in excess of that required by shareholders based on the beta of the company.
Equity is the residual interest of an owner in an asset after all debt and tax payments have been taken care of.
An ECN or Electronic Communication Network is a computer network that facilitates the trading of stocks outside of the regular market hours.
Discount refers to the price of a bond when it is below its par value. An example is if the par value of the bond is $1,000 and the bond is selling for $980, the bond is selling at a discount of ($1,000 – $980) =$20.
Derivative is a type of security whose value is “derived” from an underlying asset. (Eg; Futures and Options). Futures and options are both derivatives – meaning a security whose value solely depends on the value of the underlying asset. A future derives its value from the commodities or currencies which it represents An option derives Read More…
A depression is a recessionary decline in real GDP (taking inflation into account) greater than 10% lasting at least 3 years.
Delta is also called the hedge ratio, which is the ratio of the change in price of an option to the change in price of the underlying stock.
Currency Risk is the risk an investor is exposed to when investing in international markets. Currency risk is mainly associated with the fluctuations in exchange rates of the various world currencies.
Coupon Rate is the rate of interest paid on a bond, expressed as a percentage of the bond’s face value.
A Coupon is the periodic interest payment made to a bondholder during the life of the bond. (Usually semi-annual)
Convertible Preferred Stock are Preferred stock that can be converted into common stock at a particular time frame.
Convertible Bonds are bonds that can be converted into Common Stock usually at the maturity of the bond.
A Contract is term that describes the unit of trading for a stock option, future option or future. It lists all the obligations and particulars related to the security.
Buy-Sell Agreement is an agreement between shareholders or business partners where both parties agree to purchase or sell a stock.
Book Value is the price at which the buyer purchases the asset for.
What are they doing with your money? Have you ever wondered how well your money is really being managed by the corporations you hand it over to? After all, the media is full of stories about CEO compensation reaching new heights, buy-outs of non-profitable holdings, million dollar birthday parties and other horror stories. Formula for Read More…
A Cash Flow Statement is a financial statement that shows the flow of cash in and out of the business. The Cash Flow Statement is particularly useful for investors and lenders to determine the short-term viability of a company with respect to its ability to pay its debts. In the statement, money coming in to Read More…
Learning different methods to do your own stock market research will enable you to make a better decision whether to, or not to enter into specific trading and investing positions. Keep the brokers in check In the past, many people relied on investment brokers to provide recommendations and whatever they said, was the way to go, or Read More…
Investors that would never think of taking a gamble on a “hot stock tip” overheard on a discussion forum or elevator routinely fall victim to another common fallacy: Believing everything they read as long as it is cloaked in the shroud of an “analyst report”. What is this Analyst Report? Analyst report stock recommendations based Read More…
EPS (Earnings-Per-Share) measures how much of a company’s net income actually trickles down to each outstanding share. Any preferred dividends are first taken out of the net income before calculating EPS. Interpreting EPS Earnings Per Share can be used to compare the earnings of two or more companies in a similar industry. Just because one Read More…
PE Ratio (Price-to-Earnings) is a valuation ratio that compares the price per share of a company’s stock to its earnings per share. It basically shows how much investors are willing to pay for a share given the earnings currently generated. It is also used to analyze whether a stock is overvalued or undervalued. Formula How Read More…
A Sharpe Ratio calculates the extra return of an investment in return for the extra risk taken on. It is used to compare different investments to see which one did better given the different risk of each. It is measured as taking the difference between a risk-free and a risky asset, and then dividing the difference by the Standard Deviation (which Read More…
“Learning is not attained by chance; it must be sought for with ardor and attended to with diligence.” – Abigail Adams (1744-1818) Google (NASDAQ: ) You may have heard of technical analysis before or maybe you’re wondering what all the squiggly lines on ’s chart above represent. Those lines are a result of technical analysis. Technical analysis Read More…
Fundamental analysis is the process of looking at the basic or fundamental financial level of a business, especially: sales earnings growth potential assets debt management products competition This type of analysis examines key ratios of a business to determine its financial health and gives you an idea of the value its stock. Many investors use Read More…
Most investors don’t know the significance of a stock’s daily volume. Learn the four wonders of high volume and the four dangers of low volume. Volume plays a very important role in stock trading especially, when day trading. For those of you who don’t know what volume is, it’s the total amount of shares traded of Read More…
Options can be extremely lucrative, but also very dangerous if not properly understood. One of the first steps in learning how to trade options is to understand how to read an options table. Below is an example of a basic options table of Google (GOOG) expiring in October 2011: Calls and Puts: There are two types of Read More…
Is Technical Analysis voodoo? Contrary to what some people think, Technical Analysis is not a kind of black magic or sorcery. Also, the use of technical analysis does not increase as we get closer to Halloween. It is important to keep an open mind and realize that things such as trend lines, triangles, and other Read More…
Class B Shares are a form of common stock that may have more or less voting rights that Class A shares. Generally Class B shares have lesser voting rights, but be vary of some companies that trick investors by using the perception of Class “B” (compared to “A”) shares to attach more voting rights to them Read More…
When would I use this strategy? A Covered Call Strategy is for investors who feel that the stock price will either remain stable or will grow. This strategy is NOT for investors who think the price of the stock will go down. How do I execute this strategy? The strategy entails two steps: Write a Read More…
Class A Shares are a form of common stock that may have more or less voting rights that Class B shares. Generally Class A shares have more voting rights, but companies sometimes trick investors by using the perception of “Class A” shares to attach fewer voting rights to them than Class B shares.
Balanced Fund is a type of Mutual Fund whose main objective is to diversify risk by holding a defined percentage of different security types including stocks, bonds, and money market instruments
An Aggressive Growth Fund is a form of Mutual Fund whose main investment objective is to achieve capital gains. These funds are perceived to generate high returns, and are catered to investors who have a high tolerance for risk.
For each model stock portfolio that is created by Lady Luck, there are thousands that are designed using a valid and well thought-out investment strategy. What is taught about the Model Stock Portfolio? Financial Portfolio Management training all over the world stresses adopting a market game strategy that fits the investor’s: Personality (Who are you? Read More…
If you have never traded options before, don’t worry; it’s easier than you might think. But before you can even begin trading options, you need to understand what an option is. Definition of an Option An option is the right to buy or sell an asset, not an obligation. In other words, the option does not force you Read More…