Activist Investor – An individual or group that purchases large numbers of a public company’s shares and/or tries to obtain seats on the company’s board with the goal of effecting a major change in the company. A company can become a target for activist investors if it is mismanaged, has excessive costs.
Arbitrage – is the purchase and sale of an asset in order to profit from a difference in the asset’s price between markets. It is a trade that profits by exploiting the price differences of identical or similar financial instruments in different markets or in different forms. Arbitrage exists as a result of market inefficiencies and would therefore not exist if all markets were perfectly efficient. The purpose of arbitrage is to take advantage of the difference in prices available for the same financial instrument being offered on different exchanges.
Ask Price – Represents the price a seller is willing to accept for a stock / share, which is often referred to as the offer price. Along with the price, the ask quote might also stipulate the amount of the stock / share available to be sold at the stated price. The bid is the price a buyer is willing to pay for a stock / share, and the ask price will always be higher than the bid price.
Bear Market – One indicator of a bear market is when 80% of stocks are down for an extended period ( 3 months ), another indicator of a bear market is when stocks fall 20% from their recent highs.
Bid Price – Represents the maximum price that a buyer or buyers are willing to pay for a stock / share.
Black Swan Event – A black swan is an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. Black swan events are characterized by their extreme rarity, severe impact, and the widespread insistence they were obvious in hindsight.
Blockchain – A digital record of transactions. The name comes from its structure, in which individual records, called blocks, are linked together in single list, called a chain. Blockchains are used for recording transactions made with cryptocurrencies, such as Bitcoin, and have many other applications.
Bull market – Generally takes place when the economy is strengthening or when it is already strong. It happens in line with a strong gross domestic product GDP, and a drop in unemployment and will often coincide with a rise in corporate profits. Investor confidence will also be on the rise. The overall demand for stocks will be positive, along with the overall tone of the market. In addition, there will be a general increase in the amount of IPO activity during bull markets, also a rise in the stock market of 20% over 3 months indicates a bull market.
Circuit-breakers – Aim to restrict trading in order to avert market crashes or spikes. The restrictions are called ‘up limits’ or ‘down limits’, depending on the direction that the market has moved.
Cryptocurrency – A digital currency in which transactions are verified and records maintained by a decentralized system using cryptography, rather than by a centralized authority.
Day Trader – An individual who attempts to profit by making rapid trades intraday. A day trader often closes out all trades before the market close and does not hold any open positions overnight. Some day traders use leverage to magnify the returns generated from small stock price movements.
Dividends – A dividend is the distribution of some of a company’s earnings to a class of its shareholders, as determined by the company’s board of directors. Common shareholders of dividend-paying companies are typically eligible as long as they own the stock before the ex-dividend date. Dividends may be paid out as cash or in the form of additional shares.
Dividend stocks – Companies that pay out regular dividends. Dividend stocks are usually well-established companies with a track record of distributing earnings back to shareholders.
EBITA -Earnings before interest, taxes, and amortization (EBITA) is a measure of company profitability used by investors. It is helpful for comparison of one company to another in the same line of business. In some cases, it also can provide a more accurate view of the company’s real performance over time.
EBITDA – Is essentially net income (or earnings) with interest, taxes, depreciation, and amortization added back. EBITDA can be used to analyze and compare profitability among companies and industries, as it eliminates the effects of financing and capital expenditures. EBITDA is often used in valuation ratios and can be compared to enterprise value and revenue.
Environmental, social, and governance (ESG) – are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
Down Limit – Is the opposite to an up limit – it sets the maximum amount that the price of a stock index or commodity futures contract will be allowed to decrease in a single trading session. If breached, it means that selling will be suspended in the underlying market.
Growth Stocks – Companies that are considered to have the potential to outperform the overall market over time because of their future potential.
Hedging – Hedging against investment risk means strategically using financial instruments or market strategies to offset the risk of any adverse price movements. Put another way, investors hedge one investment by making a trade in another. … A reduction in risk, therefore, always means a reduction in potential profits.
Hedge Fund – Hedge funds are alternative investments using pooled funds that employ different strategies to earn active returns, or alpha, for their investors. Hedge funds may be aggressively managed or make use of derivatives and leverage in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark). It is important to note that hedge funds are generally only accessible to accredited investors as they require less SEC regulations than other funds. One aspect that has set the hedge fund industry apart is the fact that hedge funds face less regulation than mutual funds and other investment vehicles.
Institutional Investor – An institutional investor is a nonbank person or organization trading stock / shares in quantities large enough to qualify for preferential treatment.
Investor ( General public ) – Any person who commits capital with the expectation of financial returns. Investors utilize investments in order to grow their money and/or provide an income during retirement, such as with an annuity. A wide variety of investment vehicles exist including (but not limited to) stocks, bonds, commodities.
K-Shaped Recovery – Occurs when, following a recession, different parts of the economy recover at different rates, times, or magnitudes. This is in contrast to an even, uniform recovery across sectors, industries, or groups of people. A K-shaped recovery leads to changes in the structure of the economy or the broader society as economic outcomes and relations are fundamentally changed before and after the recession. This type of recovery is called K-shaped because the path of different parts of the economy when charted together may diverge, resembling the two arms of the Roman letter “K.”
Leverage – Results from using borrowed capital as a funding source when investing to expand the firm’s asset base and generate returns on risk capital. Leverage is an investment strategy of using borrowed money — specifically, the use of various financial instruments or borrowed capital — to increase the potential return of an investment.
Margin – Buying on margin is borrowing money from a broker to purchase stock. You can think of it as a loan from your brokerage.
Offer Price – Represents the minimum price that a seller or sellers are willing to receive for the stock / share. A trade or transaction occurs when the buyer and seller agree on a price for the stock / share.
Program Trading – Use of computer-generated algorithms to trade a basket of stocks in large volumes and sometimes with great frequency. The algorithms are programmed to run and are monitored by humans, although once running the programs generate the trades, not humans. Humans can activate or deactivate the program as needed.
Retail Investor – Represents a nonprofessional investor who buy and sell securities, mutual funds or ETFs through a brokerage firm or savings account.
Tapering– refers to policies that modify traditional central bank activities. Tapering efforts are primarily aimed at interest rates and at controlling investor perceptions of the future direction of interest rates. Tapering efforts may include changing the discount rate or reserve requirements. Tapering may also involve the slowing of asset purchases, which, theoretically, leads to the reversal of quantitative easing (QE) policies implemented by a central bank. Tapering is instituted after QE policies have accomplished the desired effect of stimulating and stabilizing the economy.
Trader – A trader is an individual who engages in the transfer of financial assets in any financial market, either for themselves, or on behalf of a someone else.
Short Selling – Short selling is an investment or trading strategy that speculates on the decline in a stock or other security’s price. It is an advanced strategy that should only be undertaken by experienced traders and investors. In short selling, a position is opened by borrowing shares of a stock or other asset that the investor believes will decrease in value by a set future date—the expiration date. The investor then sells these borrowed shares to buyers willing to pay the market price. Before the borrowed shares must be returned, the trader is betting that the price will continue to decline and they can purchase them at a lower cost. The risk of loss on a short sale is theoretically unlimited since the price of any asset can climb to infinity.
Sophisticated Investor – A type of investor who is deemed to have sufficient investing experience and knowledge to weigh the risks and merits of an investment opportunity. For certain purposes, net worth and income restrictions must be met before a person can be classified a sophisticated investor.
Spread – The difference between the bid and the ask price of a stock / share or asset.
Spot Price – The spot price is the current price in the marketplace of the stock or asset, this is the price the buyer would have to pay per share.
Stock Split – A stock split tends to be caused by a company feeling that their stock price is too high. Apple split their stock on August 31, 2020 with a 4 for 1 offer, this reduces the price of the stock enabling more retail investors to buy the stock, in many cases a stock will rally after a stock split so investors should consider holding onto stocks that have recently split. an investor holding stock before the split will receive additional shares and the price will be adjusted to reflect this change, the investor will not lose any money but will have more shares depending on the stock split offering.
Stagflation – is characterized by slow economic growth and relatively high unemployment—or economic stagnation—which is at the same time accompanied by rising prices (i.e. inflation). Stagflation can be alternatively defined as a period of inflation combined with a decline in the gross domestic product (GDP).
Stagnation – is a prolonged period of little or no growth in an economy. Real economic growth of less than 2% annually is considered stagnation, and it is highlighted by periods of high unemployment and involuntary part-time employment. Stagnation can occur on a macroeconomic scale or a smaller scale in specific industries or companies. Stagnation can occur as a temporary condition, such as a growth recession or temporary economic shock, or as part of a long-term structural condition of the economy.
Up Limit – Is the maximum amount that the price of a stock index or commodity futures contract will be allowed to increase in a single trading session. If hit, it means that buying will be suspended in the underlying market.
U-Shaped Recovery – is a type of economic recession and recovery that resembles a U shape when charted. A U-shaped recovery represents the shape of the chart of certain economic measures, such as employment, GDP, and industrial output. This shape occurs when the economy experiences a sharp decline in these metrics without a clearly defined trough but instead a period of stagnation followed by a relatively healthy rise back to its previous peak. A U-shaped recovery is similar to a V-shaped recovery except that the economy spends a longer time slogging along the bottom of the recession rather than immediately rebounding.
Value Stocks – Companies that are currently trading below what they are really worth and will thus provide a superior return.
V-Shaped Recovery – Is a type of economic recession and recovery that resembles a “V” shape in charting. Specifically, a V-shaped recovery represents the shape of a chart of economic measures economists create when examining recessions and recoveries. A V-shaped recovery involves a sharp rise back to a previous peak after a sharp decline in these metrics.