Beginners, Glossary, N-T

Stop and Limit Orders

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Definition

A Stop (or stop loss) order and limit order are orders that try to execute (meaning become a market order) when a certain price threshold is reached. Limit and stop orders are mirrors of each other; they have the same mechanics, but have opposite triggers.

When creating a limit or stop order, you will select a ticker symbol and quantity, just like a market order, but you will also select your “Target Price” as well. The target price is the price that triggers the limit or stop. Setting a target price does not guarantee you will get that price, it just means a market order will be created at that time. If there is not enough volume in the market to fill your order, it still may not execute.

Limit

A limit order will set the maximum price I am willing to buy(cover) at or the minimum price I am wiling to sell(short) at.

Example

Let’s say Verizon (VZ) is at $50, but you think it is overpriced and want to buy it once it falls. By setting a limit order at a target price of $45 we can wait until the price reaches that without having to sit in front of a screen. As long as the price is greater than $45 it will not execute. As soon as the price drops to $44, your stop order becomes a market order, filling at $44.

Here is a chart showing how a “Limit Buy” order works, showing a sample stock’s price over the course of a day:

limit order

Stop

A stop order will set the minimum price I am willing to sell, or short a stock. It can also mean the maximum price at which I am willing to buy, or cover.

Example

 

Let’s say you own PayPal stock (PYPL) that you bought at $25. If the current price is $31, you want to keep holding the stock in case the value continues to rise, but you do want to protect the gains you made.

You can put a “Stop Sell” order with a target price of $30, so if the price of the stock falls to $30, you will be protected from any more losses. If the value continues to rise, you will continue to hold the stock.

The table below can be an easy reminder of when a stop or limit order will execute.

limitstoptable

Uses

Stop and limit orders will help you protect you from loss, or help you take advantage of a gain, as well as give you access to more advanced trading strategies.

One of the greatest advantages of stop and limit orders is that they can be set and left with Good Til Cancel (GTC) order expiration, and thus you don’t have to watch the stock price constantly to get well-timed trades. If prices change past your limits, the orders will execute automatically, giving you less to worry about.

This also means that you can build a much wider portfolio. If you do not need to constantly watch the price of every single one of your holdings and watchlist items because you have already set up limit and stop orders based on your preferences, you can have a much larger range of symbols on your “radar”.

Another important use is that you can take some of the emotion out of your trading. By setting limits and stop orders beforehand, you don’t have to “panic sell” or “panic buy” to take advantage of price swings; you already will have standing orders ready to spring into action when your pre-determined criteria are reached.

Glossary, N-T

Trailing Orders

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Definition

An order type that allows to set a moving stop or limit target price. The target price moves based on the daily high. Trailing stops can be set either in percentage or in dollars and cents terms. When in dollar terms it will activate when the price has moved by the target you have set relative to the day’s high.

Example

Let’s say we bought a stock for $30. The stock then climbs to $35. We don’t think it will go much higher but we do not want to lose our profit either. We could then set a trailing stop order for $3. This will act just like a normal stop order. Selling at your target price. Here, however, your target (moving) price is $3 and when the price is $35 it will trigger at just below $32. As we will see though, it changes based on the high:

trailing stop

We’ve set our trailing stop at the second bubble. Currently our selling point is $32. The price then goes up to $37. The new stop order will occur at 34$ (shown by the lower red dotted line). However, the price continues to go up to $39.50 making our stop target price $36.50 The price moves down and then back up to $38 but this will not affect your trailing stop since it is not higher than the previous high. Thus our stop target is still $36.50 which will be activated at which point we fall just below it.

Similarly, we could have use a percentage trailing stop. This will act just as it did previously but the target will change based on the high price. Hence if we used a 10% trailing stop in the example above. Our exit would have been at 39.50 – 10% * 39.50 = $35.55. Percentage trailing stops can be very useful to help protect you if your price has increased considerably. For example, a $1 trailing stop might be fine at $10 but wouldn’t be if your stock had increased to 100$. You would be sold out of your position far too early.

Note: There are many variations that can be made with trailing stops with advanced trading software. You can change the high’s and the duration by tick size or have different ways of calculating the target price. This is far more complex however and requires a very experienced trader.

A -G, Bonds, Bonds Trading FAQ, FAQ, Glossary, Security Types

Bond

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Bonds are essentially a much more formal I.O.U (I owe you) used to borrow money. You buy the bond in return to interest over a given period of time. When a corporation or government needs money they issue bonds that people buy. In turn, the issuer (the person who sells the bond) takes the money. However, no one would buy something if they didn’t get something in return, so the issuer will offer to not only pay the person back at a specified date but also provide some interest along the way.

There are two major types of bonds:

Government Bonds

These bonds are issued by governments who want to raise cash. It can be raised by any level of government; large cities often issue bonds to fund public projects, while national governments issue bonds to fund the government. When you hear about the National Debt of a country, it usually means the amount of bonds it has currently issued.

Government bonds can be traded by normal investors, but they can also be bought and sold between countries (if you hear a news pundit mention that the US government owes money to another country, like China, it is almost always because that country purchased a very large number of government bonds), or even between different parts of the government.

In the United States, the Federal Reserve buys and sells bonds from the US treasury bonds in order to influence the prevailing interest rates, for example.

Corporate Bonds

Corporations can also sell bonds, which is essentially borrowing money from a large pool of investors. Smaller companies can usually just take loans out from a bank, but if the company is very large (like Apple (AAPL), they use more cash than banks can usually give out in one single loan. Instead, they will issue bonds to investors, with a promise to pay back at a certain date with interest.

Bonds are one of two ways that companies frequently use to raise extra cash that they use for investment and expansion; the other is by issuing stocks. However, there are very important differences between the two:

  • If you buy a bond, you are lending money to a company and they are promising to pay you back later with interest
  • If you buy a stock, you are buying a part of that company and are entitled to part of its profits (in the form of dividends).
  • The value of the bond comes from how much you lent the company and the interest rate they will pay you back
  • The value of a stock comes from how much the company itself is worth (including all its assets and businesses)
  • Bonds expire; at the expiration date you receive back the amount you lent
  • Stocks do not expire

Details:

Bonds can be bought and sold just like stocks, or they can be bought once and held to maturity at which point they will expire and return the face value. Essentially, when you buy a bond and hold it to maturity you will receive a certain predetermined interest rate (or coupon).

Remember that while a bond represents an amount of money that you lent to a government or company, they can still be bought or sold between investors like stocks. This means that you can buy a bond from Google (GOOG), but then later sell it to another investor who will then continue to collect the interest and receive the amount you initially lent Google when you bought the bond. Similarly, you can buy bonds from other investors rather than buying them directly from the company that issued them.

Investors typically will buy bonds when they are very “Risk Averse,” meaning they would rather have the guaranteed payment of regular interest than make “riskier” investments like stocks, whose value can rise and fall a lot over time.

Test Your Knowledge

See if you can match the attributes below to either “stocks” or “bonds”. Drag each of the attributes into the correct box, and click “check” to see if you got them all!

Here a few terms that are important when looking at bonds:

Face Value

The face value, also known as par value or principal is the amount of money you will receive when the bond matures. This is almost always $1000 but there can be exceptions.

Coupon

This is the amount of interest you receive on your bond every year. It is usually stated in terms of the coupon rate (in percent). You then multiply your coupon rate by your face value, which in most cases will be $1000, to get your coupon. For example, if a bond is quoted at 4.00% you will receive $40 every year. Bonds can also be paid multiple times per year and are usually semi-annual (twice a year). In this case your coupon rate stays the same at 4.00% but you would receive two coupons of $20 instead of one coupon of $40.

Maturity

The maturity date is when the bond expires. If you are holding the bond on the maturity date then the bond Issuer will pay you the face value of the bond, which is almost always different from what you initially paid for it. In addition to the face value of the bond, if your bond had a coupon then you will also receive one final payment of whatever interest has accrued since the last payment was made. After this point the bond issuer’s debt to the bond holder is considered to be settled.

Yield

Since bonds are bought and sold between investors just like stocks, the value that they are bought and sold for on the market may not be exactly the same as the interest payments left until the bond expires and the face value. This is a very difficult concept to understand for many investors but is essentially the return you obtain when factoring the price you paid for your bond. The bond’s price is affected by the risk free rate and the bond’s own rate, as well as many other factors. The higher the Yield, the better the bond looks compared against other investments.

Accrued Interest

The interest payments on bonds are not paid daily; they are usually paid out once or twice a year (depending on the bond). However, the bond issuer owes whoever holds the bond interest for as long as they held it; if you only own a bond for a day, you are still entitled to one day of interest.

This is important for investors who buy and sell bonds a lot; if you own a bond that pays interest once per year on July 1st, but you sell it to someone else on June 15, you are entitled to most of the interest payment that they will receive from the bond issuer on July 1.

For example, lets say John bought a 5% 10 year semi-annual bond on the day it was issued and waits one year and 2 months before selling it to Kelly. This means John received two $25 coupons in the first year, and is entitled to another $8.33 from the bond issuer on top of the price he sold the bond for. This is because he held it for another two months hence 2/6 * $25 = $8.33.

Accrued Interest with Pricing

When looking at Accrued Interest, it has a huge impact on bond’s prices. Investors look at this in terms of a bonds “Dirty Price” and “Clean Price”. The Dirty Price is the price the bond trades for on the markets (if, for example, you bought a bond from another investor). This price does not subtract the accrued interest from the bond’s value. The Clean Price is the price with that accrued interest factored out.

Dirty Price = Clean Price + Accrued Interest

When you get a quote for a bond, you are almost always quoted the “Clean Price”, but when you buy it you will always pay the “Dirty Price”.

Rating

A rating is given to bonds to determine their level of riskiness. They are generally performed by third party auditing firms such as Standard and Poors, Moody’s or Fitch. Ratings system differ from company to company but it is important to know the difference between different bond ratings. The most common bond ratings are as follows:

AAA: Strongest Quality Rating, this has a very very low risk of default.
AA+ to AA-:Very high quality investment Grade.
A+ to BBB-:Medium quality investment grade.
BB+ to BB-: Low quality (non-investment grade) “junk bonds”, high risk of default.
CCC+ to C: Speculative bonds with very high risk of default.
D: Bonds in default for not paying principal and/or interest.

Portfolio

Nearly every balanced portfolio should have a place for bonds, if only for their strong safety while still beating inflation. Bonds can also be very risky, such as junk bonds (bonds issued by governments or companies that are very likely to not be able to pay back), that may pay high coupon rates but have a high risk of default. There are also many different types of bonds as well, such as convertible bonds that can be turned into stocks or inflation protected bonds that simply follow the rate of inflation.

Bond ETFs

You can also get exposure to bonds through bond ETF’s such as BND or LQD. They have some notable differences between bonds with regards to tax considerations and returns but are much easier to trade.

Trading Bonds

If they are allowed in your contest, you can use the Bonds Trading Page.

Notes for trading bonds:

  1. All bonds, corporate and treasury, that we support are in one master list. We only have US bonds (Click Here for a master list)
  2. You cannot short bonds
  3. You can only use market orders
  4. We do pay out interest and expire bonds (and pay back the coupon)
  5. There are no volume limit rules on Bonds

Pop Quiz

[qsm quiz=103]

Beginners, Glossary, N-T

Risk Level

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Definition

Your “Risk Level” is how much risk you are willing to accept to get a certain level of reward; riskier stocks are both the ones that can lose the most or gain the most over time.

Risk

Understanding the level of risk you need and want is a very important part of selecting a good strategy. For nearly any strategy, whether it is picking stocks or doing asset allocation (picking how much of each type of investment we want) the steps in determining your level of risk are generally very similar. Determining the level of risk and reward needed is a key aspect of determining an investment strategy.

Determining your risk level

    • Time horizon: Your time horizon will involve when you expect to use the money you are investing.For example, a 25 year old who is saving for retirement can go for much riskier investments since if he loses his money in a bear market, he still has a few decades to be able to make his money back. Choosing safe investments for a 25 year old would also not be a good idea since he would be losing out on the opportunity to make a lot more money. On the other hand, someone who is retiring next year will not want to risk losing his or her money if a market collapse occurs right when they retire. They would have no time to recuperate the money and could be in serious trouble, so they will want very low risk investments.Hence, the longer your time horizon, the higher risk you can afford. The shorter the time horizon the lower risk you should choose.
    • liquidity: This aspect is very similar to the time horizon. Essentially someone would not choose an illiquid asset if they had needed the money for that investment in the next month. For example, real estate is considered fairly illiquid as it can take months to years to get a good price on your investment. On the other hand, popular stocks are considered very liquid as they can usually be sold anytime during market hours.
    • Investment knowledge: The higher your investment knowledge, the riskier the investments you can take. The reason being that you are more aware of the inherit risks and therefore more likely to make informed decisions. You would not expect someone with no investment knowledge to jump right into currency trading, they would most likely start off with mutual funds or bonds.For example, a wall street trader will not consider futures to be as risky as someone who has never even traded a stock. The trader will know how to protect himself and have a better idea of the risks involved. It is essentially the old adage “That knowledge is Power” at work, but in this case, Knowledge is Reduced Risk.
    • Risk aversion: This is a measure of how comfortable you are with risk. The opposite of risk aversion is risk seeking. The level of risk aversion is usually determined by considering different scenarios and picking the one that one feels most comfortable with.

      High risk aversion: You would prefer to invest in a stock that could have gains of 20% but has only lost 5% at most at a time.      Moderate risk aversion: You would prefer to invest in a stock that could have gains of 70% but also loses 20% on a regular basis.Low risk aversion (risk seeking): You would prefer to invest in a stock that could have gains of 200% but also loses 100% on a regular basis.
    • Economic outlook: Unless you are following a very specific contrarian strategy, the worst the economic outlook is, the lower we would want our risk. On the other hand, a great economic outlook would allow us to increase our risk.

 

    • Savings and income: This can have a large bearing on the type of investments you will make. Someone with large amounts of savings but very little income will invest very differently from someone with a lot of income and very little savings. Again, this comes down to your individual goals. In general we would establish with our time horizon whether what our objective is. Whether we are trying to save or have income every year.

 

  • Tax Considerations: Tax considerations are a very complex matter given the large amount of differences in taxes between countries and even within. Tax breaks and savings should not be your main focus at the detriment of picking sound investments. However, it is very important to take advantage of tax breaks whenever possible when investing. Furthermore, there are usually differences between capital gains (for example a growth stock) and dividend gains (dividend stocks) which can make one or the other far more or less attractive than the other. Every location is different so it is important to educate yourself on the taxes associated with each asset.

To summarize, if investor XYZ wanted to know what his level of risk should be for his Investment strategy, he would go through each category and sum up his risk. For example, if XYZ needed his money in ten years, has moderate risk aversion, has very little investment knowledge and there is poor economic outlook. We could say his risk should be somewhere in between low and moderate.

The risk pyramid

Now that you’ve got a better idea of your risk level we can look at the types of investments that are right for that level of risk.

riskpyramid

Note: You can mix a high risk asset with a low risk asset to get a similar asset of moderate risk. However, this is not always the case and is often difficult to assess exactly the level of risk, especially for high risk assets. It’s therefore much better to get a moderate risk asset if you want a moderate risk. If you are looking at this in the context of a portfolio you should also look at Asset Allocation.

Creating a Diversified Asset Allocated Portfolio

Here are a few guidelines when trying to create your portfolio:

  • Cash: Keep enough cash on hand for daily purchases and small emergencies. It can be wise to keep enough money in your bank account to avoid the fees.
  • Gold: Many investors keep a small amount of physical gold and cash on hand. This can be useful in financial crises like the great depression where limits are imposed on the amount of money that can be withdrawn. Gold is also extremely safe and not tied to a countries currency.
  • Property: Your house is an investment as it has value and should be considered as such.
  • Bonds: They are generally not good investments unless you are trying to protect what you already have. This was not always true however and is dependent on the interest rates.
  • Stocks: Diversification of stocks is important and generally the cheapest way to do is with mutual funds or exchange traded funds (ETF). Growth Stocks are generally considered to be riskier than income stocks.

Examples

Here are examples of asset classes we might assign to each investor. Note: Asset allocation is not an exact science and can have big differences between one opinion and the next.

Low Risk Portfolio: Retiree with high investment knowledge, very low income and moderate risk aversion.
Moderate Risk Portfolio: Middle aged investor with low income, high investment knowledge and moderate risk aversion with large savings.
High Risk Portfolio: Young investor with good income and high investment knowledge and low risk aversion and high spending with no owned property.

assetallocation

A -G, Beginners, Glossary

Asset

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Definition:

An asset is anything that has monetary value and can be sold. Assets can be anything from a pencil (though it is not worth much) to a skyscraper to things like Stocks and ETFs.

There can also be intangible assets such as the value of a brand name or logo.

Details:

Assets generally refer to either something that you intend to sell later for a profit, or something you are actively using to make money. This means that assets generally fall into two categories, Investments and Capital. The easiest way to tell them apart is this:

  • If you are using it to build something or make something (like a computer or a factory machine) that you later sell, it would be capital
  • If the value of the asset is the asset itself (like stock, bonds, or gold), it would be an investment

There are also some things that fall in the middle: For example, your house is considered an “investment” even though you are using it to live in, because hopefully it can one day be sold for a profit, with that profit being likely used for retirement.

Examples:

Here is a short list of typical assets:

Cash: Cash, marketable securities, coins.
Precious Metals: Gold, silver, platinum.
Investments: Stocks, bonds, options, pensions, mutual funds.
Property: Land, commercial buildings, houses.
Machinery: Factory machines, cars, trucks, forklifts, washing machines.
Intangible assets: Trademarks, brand value.
Objects: Inventory, books, anything that has value.

Note: Typically when asset is mentioned in a financial context, it usually refers to real estate, precious metals, investments such as stocks and bonds, cash and other financial devices.

There are also many more types of asset than this

A -G, Advanced, Fundamental Analysis, Glossary

Asset Allocation

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Definition

“Asset Allocation” is how you have divided up your investments across different assets. You can have all your assets in one place, or you can use diversification to spread them around to reduce risk.

Details

Whenever you pick stocks, open a bank account, get paid, buy something, or do anything with any resources, you are doing some form of “Asset Allocation”. Early on, the choice is simply “Spend” or “Save”, how you are using your money. But like most things with investment, it is never that simple.

For example, once you have chosen to “spend” or “save” a dollar, you have another choice to make:

  • If I spend it, do I buy a video game or go out to the movies?
  • If I save, do I put it in a savings account or hold it as cash?

For us, we care mostly about savings. So if you save $1000, you can save it as cash, put it in a savings account, or invest it.

  • If you put it in a savings account, there are different kinds of savings accounts that may give you a higher interest rate, but limit how much you can withdraw.
  • If you invest it, you can divide your investment between stocks, bonds, mutual funds, or ETFs
    • If you invest in any stock, bond, mutual fund, or ETF, you will need to decide which specific ones to invest in

Of course, at every level you also have a choice of splitting your money and doing one thing with part, and something else with another. With your $1000, you can spend $300, hold $100 as cash, put $200 in a savings account, use $150 to buy Johnson and Johnson (JNJ) stocks, and invest the last $250 in mutual funds. That is a lot of choices to make, even with one small block of assets!

Choosing How To Allocate Your Assets

Every time you allocate your assets, you are making many choices at once

When Spending

When you spend your assets, your main decision is Opportunity Cost. If you spend your money on one thing, you cannot spend it on another, so you need to make sure you are buying whatever it is that will give you the most benefit. You are also choosing not to save or invest, which means the benefit you get from buying something today should outweigh the benefit of having that extra investment return in the future.

When Investing

When you invest, your asset allocation will be based on 4 main criteria:

  1. Risk: Sometimes taking bigger risks can give bigger rewards, but you still have the chance of losing big too. How much risk you can tolerate will dictate a lot of your asset allocation.
  2. Liquidity: How much do you want the freedom to move your money? Assets that you can quickly convert back to cash are said to be very “liquid”, while assets that are very difficult to convert to cash (like houses) are “illiquid”. How much you value being able to move your asset allocation over time will also dictate what kinds of things you invest in
  3. How much you have: You can only buy a house if you have the ability to pay for it, and that goes with most other investments as well. If you do not have the assets necessary for a minimum investment, some options may be not open to you. This is becoming less and less of an issue with stocks, bonds, mutual funds, and ETFs, however.
  4. Opportunity Cost: This is the same as with Spending; whatever you invest in one asset is money you cannot use to buy something or invest in something else.

When you balance these four criteria, you will start coming up with your asset allocation. Just because you value one more than the others does not mean all your assets will go to one place either; a person who values liquidity the most probably will not keep all their assets as cash, both because it is risky (cash can be easily lost or stolen), but also because there is only so much cash you need at one time, so you can hold lots of cash but still keep some invested.

Asset allocation is the basis for risk management, building a portfolio, and diversification

Finance Knowledge, Glossary, H-M

Investment Strategy

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An investment strategy is the set of rules and behaviors that you can adopt to reach your financial and investing goals. Choosing an investing strategy can be a daunting task when you are starting to learn about investments and finance. Here we will look at the larger overall strategies rather than very specific strategies.

Given that this is such a broad term there can be strategies that go from the top (Overall Portfolio Strategies) to the bottom (stock-picking strategies). You can decide on a strategy starting with an overall strategy and then select more specific strategies (top – down approach) or similarly you can look at a specific strategy and select the overall strategy that goes with (bottom – up approach).

What’s important to note is that a strategy can incorporate multiple strategies, practices and tools. Doing one strategy does not always mean that another strategy cannot be used in conjunction. What’s most important is finding your own strategy and familiarizing yourself with all the different strategies and financial tools that are available so that you can make a decision that is well suited for you.

Picking a Strategy

Strategies

Given the huge number of strategies and variations within strategies we are only going to review common strategies. The level of risk for most is highly dependent on the type of investments made, rather than the strategy itself. The most popular strategy that is used by most investors that would go to a bank or an investment firm, for example, is a mix of diversification and asset allocation.

  • Random picks

Picking a large amount of random stocks has been found, on average, to be more successful than the vast majority of trading strategies.

  • Follow

Involves following whatever stock is “hot” at the time.

  • Buy and hold

Involves simply buying stocks and holding them for a longer period of time.

  • Day trading

Considered to be fairly risky trading strategy of buy and selling many times in one day to take advantage of fluctuations in the market.

  • Contrarian

Involves doing the opposite of the current market sentiment. Buying when everyone is selling and selling when everyone is buying.

  • Cyclic

Involves trying to time market ups and downs and trading accordingly, usually done with technical analysis.

  • Technical

Using Technical analysis to make decisions.

  • Fundamental

Using Fundamental analysis to make decisions.

  • Income

Finding assets that give income on a regular basis (such as dividends)

  • Growth

Finding assets that will have high potential growth but little current income.

  • Diversification

Choosing a large number of stocks or assets to reduce risk.

  • Asset Allocation

More of a guideline than a strategy, that can help with determining the correct amount of investment in each asset type.

As we’ve seen, even a buy and hold strategy can be incredibly complex depending on the specific strategy you use and the level of analysis made. What’s important is to tailor your strategy with what you are trying to accomplish. Someone who needs money right away but is risk seeking and has a great deal of knowledge may consider day trading to be a very viable option. Similarly, someone who has decades to invest and moderate risk aversion may still want to try his hand at day trading.

Passive Vs Active

Overall Strategies can also be broken up into passive and active categories:

Passive strategies are just that, passive. After making the initial decision to purchase a stock, investment, etc. the passive investor will keep it for months or years without making large changes. An example of this is someone like warren buffet who generally holds stocks for long periods of times and does not make changes to his holdings very often.

The active trader, however, will trade multiple times a week or even per day and will constantly evaluate what he is doing. Day traders are the most obvious example of an active trader.

It’s important to note that passive and active trading is over a spectrum, so someone who makes a few adjustments to their portfolio a few times a week could still be considered passive depending on the size of his portfolio for example.

Advanced, Glossary, Technical Analysis, U-Z

Volume Weighted Average

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Definition

Volume-Weighted Average Price (VWAP) is often used as a trading benchmark by traders, pension funds, mutual funds and market makers. It can allow traders to get a sense of how successful they were in obtaining a good price. A buy order filled below the VWAP would be considered a good trade.

Using VWAP

A lot of people will wonder why not just use the average price, it’s a lot easier to calculate and isn’t it essentially the same thing anyway? As we can see, the difference is that it tracks volume as well. By tracking volume you also get information about liquidity as well as the amount of money that traded, not just the price.

Calculation

VWAP calculation can vary greatly depending on the time frame and time horizon you choose, as well as the price calculation. However, VWAP is typically used within one trading day and uses a one minute time frame.

The formula for VWAP is:

VWAPformula

The price can be used as the last price in a time frame or the price calculated using the high, low and close in a given time frame. Here is an example of the calculations:

VolumePricePrice * VolTimeVWAP 1 min
2010.1510.15*20 = 2039:30203/20=10.150
3010.2110.21*30 = 306.39:31(203+306.3)/(20+30)=10.186
7510.2275*10.22 = 766.59:32(203+306.3+766.5)/(20+30+75)=10.206

We can see from the calculations that the VWAP is cumulative and thus a price at the beginning with high volume will have more effect than a price at the end of the day, since it is now just a drop in all the trades placed over the day. It would take a very large volume and/or price change to change the VWAP at the end of the day (depending on the time frame you use). Another important thing to notice is the time frame, a smaller time frame (such as every trade or tick) will be more accurate, but for a stock that trades a lot this could be data for 50,000 trades. If you are doing multiple stocks, this could easily slow down or even crash your computer if you started storing and calculating enough days.

Graph

The greatest change in the results and calculation of VWAP is the time frame. If we look at the difference below between a 1 minute time frame and a two minute minute time frame we will see there is a discrepancy.

VWAPgraph1
VWAPgraph2

As we can see the two minute does not follow as closely as the 1 minute since it is only “checking” the price every two minutes.

Another ratio we can use similar to VWAP is the moving VWAP (MVWAP) that is similar to a simple moving average. This will use a different period and will sometimes be carried over from day to day depending on the period used. Essentially, instead of starting at one day, we will calculate our MVWAP using the data over the period we wish to study. For example, we can say we wish to take a period of 10 minutes and thus we will essentially have a VWAP that started it’s “day” ten minutes before.

Glossary, N-T

Open Interest

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Definition

Open Interest is the total number of options or futures contracts that are “open”, meaning currently owned by an investor and not yet expired.

Details

Think first in terms of options contracts: by owning an option, it signifies that there is interest in actually trading that stock, although at a different price. Since this represents your “interest” in owning it, the “open interest” is how many shares people may be interested in trading, even if they do not actually trade.

Open interest is not to be confused with volume; it is just the total number of options or futures that are owned and not yet expired. A second definition of Open interest is the amount of open interest before the market opens, i.e. the number of open buy orders before the market officially opens, since it shares the same idea (how many shares people are thinking about trading, even though those trades have not yet happened).

Example:

DayTradingOpen InterestSummary
1Trader A buys 1 option and Trader B sells 1 option (for options and futures if there is a buyer there must always be a seller)1There is one option bought currently. The seller does not count in this case.
2C buys 3, and D sells 34A and C now own 4 options between them.
3A sells 2, C sells 3, and D buys 52A still has 1 sold (written), B has 1 sold, C owns 0, D has 2, if we look at the bought the open interest is 2 despite the volume being 5
4C buys 5 and D sells 52Since the options have just changed hands the open interest remains the same. The volume is 5 once again.
5A sells 3, B buys 3, C buys 2, D sells 29A now has 4 sold, B has 2, C owns 7 and D has 5 sold

As you can see these transactions can get very complicated very quickly. The usefulness is undeniable, however, as it shows just how many people “interested” in the option.

Use

Since open interest indicates the number of “open” bought options this can give an indication of market sentiment and therefore the strength of the current trend. If there is very little open interest but a lot of volume it may be a good time to check why so many people are selling off their options.

On the other hand, a sudden jump in open interest can indicate that a rise in volatility is likely but gives little information on the direction of trend.

Advanced, Glossary, N-T, Technical Analysis

Pullback

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A pullback is a technical analysis term used frequently when a stock “pulls” back to a resistance and/or support line, usually after a breakout has occurred. Pullbacks can be in an uptrend or downtrend and can pull back upwards or downwards. In the example below we can see a pullback as it retraces back to the original trend. Pullbacks frequently become a new support or resistance line for the new trend as well. People have even created successful trading strategies centered around trading on pullbacks.

pullback2

We can also see that depending on what you are using as a support or resistance line we can have a better look at pullbacks. In this case, we used a simple moving average.

pullback3

From here we can see a very important aspect of pullbacks if we look at the first bubble. If we did not know any better it would simply look like it was pullback when in fact the price continued to climb and ended up breaking out. The other two bubbles are traditional downwards pullbacks.

Advanced, Charts and Patterns, Technical Analysis

Double Bottom

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Double Bottoms are reversal patterns very similar to the bottom head and shoulders pattern, and are often seen when trading currencies. Double Bottom patterns are identified by two low prices of the same depth with a medium pullback in between.

Double bottoms can be a major reversal pattern that often follow an extended downtrend. When you confirm this pattern is occurring, and there is a significant amount of volume during the uptrend, it is time to “go long”.

doublebot

Here is the general form of a double bottom pattern. As with most technical analysis patterns, they are a guideline but can differ from this graph to an extent. What is important to note is:

  1. The pattern begins with a strong down trend (the stronger the trend, the better the reversal)
  2. The bottom points should be roughly at the same height (most consider roughly 10 – 20% to be acceptable)
  3. At the second circle on the picture above, the line should be traced at the top of the pullback.
  4. Many consider the height (h in the diagram) to be the height that the trend will go above the top line and will place their limit or stop orders accordingly.

There should also be significant volume when the stock breaks upward; you can get a “False Flag” if you see something resembling this pattern, but no increase in volume near the end to signal the reversal is real.

Glossary, U-Z

Variance

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Definition

When you are looking at a sequence of related numbers (for example, the price of a single stock over time, the height of all students in a classroom, or how many breakfasts you will get out of a box of a particular cereal), the “variance” is how far away the numbers get from the average. The higher the variance, the farther away most numbers are from the group’s average.

Consider two variables:

Both of these variables have an average of 10, but variable 2 has a lot more “variance” than variable one, since it is usually a lot farther away from that average.

Technical Definition

The technical definition is as follows:

Consider the random variable X. The variance of X is defined as the estimated value of each element of X, minus the mean, squared.

Var(X) = E[(X – μ)^2]

where μ is the average of all the numbers you’re looking at.

To calculate this, imagine you have a set of 10 numbers:

5 5 5 12 12 10 13 14 8 14

First, find the average of these 10. In this case, the average is 9.8.

Next, subtract 9.8 from each number in your set:

-4.8 -4.8 -4.8 2.2 2.2 0.2 3.2 4.2 -1.8 4.2

This is how far each of these numbers are from the mean. Now you have to square each number:

23.04 23.04 23.04 4.84 4.84 0.04 10.24 17.64 3.24 17.64

and the average of this set of numbers is your variance

Var(X) = 12.76

Why Do I Take A Square, Then Average?

We already know that the average of this sample is 10, and we subtracted 10 from all the numbers. This means that as our sample size grows (if we were using the example of students in a classroom, imagine if we kept looking at bigger and bigger class sizes), if we don’t take a square, the X – μ will always be very close to 0, since we will have the same amount of numbers above and below 0.

By taking the square, we make sure that all of these “errors” are above 0, and we can compare the variance of many different kinds of samples.

What Is Variance Used For?

Looking at differences in variance is the heart of all technical analysis; it is what stochastics is based on, along with every field in statistics. If you are looking to do any kind of analysis where there is any randomness to data, looking at variance is the only way to find valid conclusions.

Equities Trading FAQ, ETFs

Leveraged ETF List

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ETFs are collections of assets into bundles you can invest in all at once, the most popular ones follow indecies (such as SPY following the S&P 500), which is one way for an investor to build a diverse portfolio without holding dozens of individual positions.

However, using financial derivatives and debt, there are also “Leveraged ETFs”, which amplify the risks, and returns, of whichever index it is following. These ETFs are different from a normal index ETF; instead of trying to mimic the annual return of the index it follows, it tries to double, or even triple, the Daily Return. This means that if the underlying index goes up by 1%, the Double Leveraged ETF would go up by 2% (although these numbers are not exact, the leveraged ETF often performs slightly below the target due to fees and other factors). However, this means that if the index goes down 1%, the leveraged ETF will go down by 2%, so what would have been a relatively small loss can grow very quickly.

There are many types of leveraged ETFs, from index trackers, to commodity trackers (leveraged oil and gold are among the most popular), and even many inverse ETFs, where when the index goes up by 1%, the ETF goes down by 2% (this is one way to “short” an ETF without actually short-selling).

Despite the risks, leveraged ETFs are very popular for day traders, since the extra volatility, the ups and downs in the price over the course of a day, make it attractive to traders who try to “buy low and sell high” on the same security many times throughout the day.

However, always remember that leveraged ETFs are one of the riskier investments you can make; they are usually designed to be bought and sold within the same day (hence amplifying “daily” returns instead of monthly or annually).

Most Popular Double-Leveraged ETF (2x)

Symbol Is It Inverse? Country Tracked ETF Name
SDS Inverse USA ProShares UltraShort S&P 500 Fund
SSO USA ProShares Ultra S&P 500 Fund
TBT Inverse USA ProShares UltraShort 20+ Year Treasury Bond ETF
QLD USA ProShares Ultra QQQ Fund
QID Inverse USA ProShares UltraShort QQQ Fund
SKF Inverse USA ProShares UltraShort Financials Fund
SRS Inverse USA ProShares UltraShort Real Estate Fund
UYG USA ProShares Ultra Financials Fund
DXD Inverse USA ProShares UltraShort Dow 30 Fund
URE USA ProShares Ultra Real Estate Fund
TWM Inverse USA ProShares UltraShort Russell 2000 Fund
DIG USA ProShares Ultra Oil & Gas Fund
DDM USA ProShares Ultra Dow 30 Fund
UYM USA ProShares Ultra Basic Materials Fund
FLGE USA Credit Suisse FI Large Cap Growth Enhanced ETN
SYTL USA Direxion Daily 7-10 Year Treasury Bull 2x Shares ETF
LLDM USA Direxion Daily FTSE Developed Markets Bull 1.25x Shares ETF
LLEM USA Direxion Daily FTSE Emerging Markets Bull 1.25x Shares ETF
DUST Inverse USA Direxion Daily Gold Miners Bear 2x Shares ETF
NUGT USA Direxion Daily Gold Miners Bull 2x Shares ETF
MDLL USA Direxion Daily Mid Cap Bull 2x Shares ETF
RETL USA Direxion Daily Retail Bull 2x Shares ETF
LLSP USA Direxion Daily S&P 500 Bull 1.25x Shares ETF
SPUU USA Direxion Daily S&P 500 Bull 2x Shares ETF
LLSC USA Direxion Daily Small Cap Bull 1.25x Shares ETF
SMLL USA Direxion Daily Small Cap Bull 2x Shares ETF
INDL USA Direxion India Bull 2X ETF
BDCL USA ETRACS 2x Wells Fargo Business Development Company Index ETN
RWXL USA ETRACS Monthly Pay 2x Dow Jones International Real Estate ETN
CEFL USA ETRACS Monthly Pay 2x Leveraged Closed-End Fund ETN
DVHL USA ETRACS Monthly Pay 2x Leveraged Diversified High Income ETN
DVYL USA ETRACS Monthly Pay 2x Leveraged Dow Jones Select Dividend Index ETN
MORL USA ETRACS Monthly Pay 2x Leveraged Mortgage REIT ETN
SDYL USA ETRACS Monthly Pay 2x Leveraged S&P Dividend ETN
HDLV USA ETRACS Monthly Pay 2x Leveraged US High Dividend Low Volatility ETN
LMLP USA ETRACS Monthly Pay 2x Leveraged Wells Fargo MLP Ex-Energy ETN
SPLX USA ETRACS Monthly Reset 2x Leveraged S&P 500 Total Return ETN
MFLA USA iPath Long Enhanced MSCI EAFE Index ETN
EMLB USA iPath Long Enhanced MSCI Emerging Markets Index ETN
EMSA Inverse USA iPath Short Enhanced MSCI Emerging Markets Index ETN
URR USA Market Vectors Double Long Euro ETN
DRR Inverse USA Market Vectors Double Short Euro ETN
DAG USA PowerShares DB Agriculture Double Long ETN
AGA Inverse USA PowerShares DB Agriculture Double Short ETN
BDD USA PowerShares DB Base Metals Double Long ETN
BOM Inverse USA PowerShares DB Base Metals Double Short ETN
DYY USA PowerShares DB Commodity Double Long ETN
DEE Inverse USA PowerShares DB Commodity Double Short ETN
DTO Inverse USA PowerShares DB Crude Oil Double Short ETN
DGP USA PowerShares DB Gold Double Long ETN
DZZ Inverse USA PowerShares DB Gold Double Short ETN
UBT USA ProShares Ultra 20+ Year Treasury ETF
UST USA ProShares Ultra 7-10 Year Treasury ETF
GDAY USA ProShares Ultra Australian Dollar ETF
BOIL USA ProShares Ultra Bloomberg Natural Gas ETF
UGE USA ProShares Ultra Consumer Goods Fund
UCC USA ProShares Ultra Consumer Services Fund
UCD USA ProShares Ultra DJ-AIG Commodity ETF
UCO USA ProShares Ultra DJ-AIG Crude Oil ETF
ULE USA ProShares Ultra Euro ETF
XPP USA ProShares Ultra FTSE/Xinhua China 25 Index Fund
UGL USA ProShares Ultra Gold ETF
RXL USA ProShares Ultra Health Care Fund
UJB USA ProShares Ultra High Yield ETF
UXI USA ProShares Ultra Industrials Fund
IGU USA ProShares Ultra Investment Grade Corporate ETF
KRU USA ProShares Ultra KBW Regional Banking ETF
MVV USA ProShares Ultra MidCap 400 Fund
UBR USA ProShares Ultra MSCI Brazil ETF
EFO USA ProShares Ultra MSCI EAFE Index Fund
EET USA ProShares Ultra MSCI Emerging Markets Index Fund
UPV USA ProShares Ultra MSCI Europe ETF
EZJ USA ProShares Ultra MSCI Japan Index Fund
UMX USA ProShares Ultra MSCI Mexico Investable Market ETF
UXJ USA ProShares Ultra MSCI Pacific ex-Japan ETF
BIB USA ProShares Ultra Nasdaq Biotechnology ETF
UWM USA ProShares Ultra Russell 2000 Fund
USD USA ProShares Ultra Semiconductors Fund
AGQ USA ProShares Ultra Silver ETF
SAA USA ProShares Ultra Small Cap 600 Fund
ROM USA ProShares Ultra Technology Fund
LTL USA ProShares Ultra Telecommunications ETF
UPW USA ProShares Ultra Utilities Fund
UVXY USA ProShares Ultra VIX Short-Term Futures ETF
YCL USA ProShares Ultra Yen ETF
TBZ Inverse USA ProShares UltraShort 3-7 Year Treasury ETF
PST Inverse USA ProShares UltraShort 7-10 Year Treasury Bond ETF
CROC Inverse USA ProShares UltraShort Australian Dollar ETF
SMN Inverse USA ProShares UltraShort Basic Materials Fund
KOLD Inverse USA ProShares UltraShort Bloomberg Natural Gas ETF
SZK Inverse USA ProShares UltraShort Consumer Goods Fund
SCC Inverse USA ProShares UltraShort Consumer Services Fund
CMD Inverse USA ProShares UltraShort DJ-AIG Commodity ETF
SCO Inverse USA ProShares UltraShort DJ-AIG Crude Oil ETF
EUO Inverse USA ProShares UltraShort Euro ETF
FXP Inverse USA ProShares UltraShort FTSE/Xinhua China 25 Fund
GLL Inverse USA ProShares UltraShort Gold ETF
RXD Inverse USA ProShares UltraShort Health Care Fund
SIJ Inverse USA ProShares UltraShort Industrials Fund
MZZ Inverse USA ProShares UltraShort MidCap 400 Fund
BZQ Inverse USA ProShares UltraShort MSCI Brazil Index Fund
EFU Inverse USA ProShares UltraShort MSCI EAFE Fund
EEV Inverse USA ProShares UltraShort MSCI Emerging Markets Fund
EPV Inverse USA ProShares UltraShort MSCI Europe Index Fund
EWV Inverse USA ProShares UltraShort MSCI Japan Fund
SMK Inverse USA ProShares UltraShort MSCI Mexico Investable Market Index Fund
JPX Inverse USA ProShares UltraShort MSCI Pacific ex-Japan Index Fund
BIS Inverse USA ProShares UltraShort Nasdaq Biotechnology ETF
DUG Inverse USA ProShares UltraShort Oil & Gas Fund
SSG Inverse USA ProShares UltraShort Semiconductors Fund
ZSL Inverse USA ProShares UltraShort Silver ETF
SDD Inverse USA ProShares UltraShort Small Cap 600 Fund
REW Inverse USA ProShares UltraShort Technology Fund
TLL Inverse USA ProShares UltraShort Telecommunications ETF
TPS Inverse USA ProShares UltraShort TIPS ETF
SDP Inverse USA ProShares UltraShort Utilities Fund
YCS Inverse USA ProShares UltraShort Yen ETF
MLPL USA UBS ETRACS Leveraged Long Alerian MLP Infrastructure ETN
FBG USA UBS Fisher Enhanced Big Cap Growth ETN
TVIZ USA VelocityShares Daily 2x VIX Medium-Term ETN
TVIX USA VelocityShares Daily 2x VIX Short-Term ETN
HBU-TSX Canada BetaPro COMEX Gold Bullion Bull+ ETF
HZU-TSX Canada BetaPro COMEX Silver Bull+ ETF
HJU-TSX Canada BetaPro MSCI Emerging Markets Bull+ ETF
HPD-TSX Canada BetaPro MSCI Japan Bear+ ETF
HPU-TSX Canada BetaPro MSCI Japan Bull+ ETF
HQU-TSX Canada BetaPro NASDAQ-100 Bull+ ETF
HOU-TSX Canada BetaPro NYMEX Crude Oil Bull+ ETF
HNU-TSX Canada BetaPro NYMEX Natural Gas Bull+ ETF
HSU-TSX Canada BetaPro S&P 500 Index Bull+ ETF
HVU-TSX Canada BetaPro S&P 500 VIX Short-Term Futures Bull+ ETF
HXU-TSX Canada BetaPro S&P/TSX 60 Bull+ ETF
HEU-TSX Canada BetaPro S&P/TSX Capped Energy Bull+ ETF
HFU-TSX Canada BetaPro S&P/TSX Capped Financials Bull+ ETF
HMU-TSX Canada BetaPro S&P/TSX Global Base Metal Bull+ ETF
HGU-TSX Canada BetaPro S&P/TSX Global Gold Bull+ ETF
HTD-TSX Canada BetaPro U.S. 30-Year Bond Bear+ ETF
HZD-TSX Canada COMEX Silver Bear Plus ETF
HBD-TSX Canada Horizons BetaPro COMEX Gold Bullion Bear Plus ETF
HOD-TSX Canada Horizons BetaPro NYMEX Crude Oil Bear Plus ETF
HND-TSX Canada Horizons BetaPro NYMEX Natural Gas Bear Plus ETF
HXD-TSX Canada Horizons BetaPro S&P/TSX 60 Bear ETF
HED-TSX Canada Horizons BetaPro S&P/TSX Capped Energy Bear Plus ETF
HFD-TSX Canada Horizons BetaPro S&P/TSX Capped Financials Bear Plus ETF
HGD-TSX Canada Horizons BetaPro S&P/TSX Global Gold Bear Plus ETF
HMD-TSX Canada Horizons BetaPro S&P/TSX Global Mining Bear Plus ETF
HJD-TSX Canada MSCI Emerging Markets Bear Plus ETF
HQD-TSX Canada NASDAQ-100 Bear Plus ETF
HSD-TSX Canada S&P 500 Bear Plus ETF
LAGR-LSE Great Britain ETFS Leveraged Agriculture ETF
LALL-LSE Great Britain ETFS Leveraged All Commodities ETF
LALU-LSE Great Britain ETFS Leveraged Aluminium ETF
LCOC-LSE Great Britain ETFS Leveraged Cocoa ETF
LCFE-LSE Great Britain ETFS Leveraged Coffee ETF
LCOP-LSE Great Britain ETFS Leveraged Copper ETF
LCOR-LSE Great Britain ETFS Leveraged Corn ETF
LCTO-LSE Great Britain ETFS Leveraged Cotton ETF
LOIL-LSE Great Britain ETFS Leveraged Crude Oil ETF
LNRG-LSE Great Britain ETFS Leveraged Energy ETF
LNEY-LSE Great Britain ETFS Leveraged Ex-Energy ETF
LGAS-LSE Great Britain ETFS Leveraged Gasoline ETF
LBUL-LSE Great Britain ETFS Leveraged Gold ETF
LGRA-LSE Great Britain ETFS Leveraged Grains ETF
LHEA-LSE Great Britain ETFS Leveraged Heating Oil ETF
LIME-LSE Great Britain ETFS Leveraged Industrial Metals ETF
LLEA-LSE Great Britain ETFS Leveraged Lead ETF
LLHO-LSE Great Britain ETFS Leveraged Lean Hogs ETF
LLCT-LSE Great Britain ETFS Leveraged Live Cattle ETF
LLST-LSE Great Britain ETFS Leveraged Livestock ETF
LNGA-LSE Great Britain ETFS Leveraged Natural Gas ETF
LNIK-LSE Great Britain ETFS Leveraged Nickel ETF
LPET-LSE Great Britain ETFS Leveraged Petroleum ETF
LPLA-LSE Great Britain ETFS Leveraged Platinum ETF
LPMT-LSE Great Britain ETFS Leveraged Precious Metals ETF
LSIL-LSE Great Britain ETFS Leveraged Silver ETF
LSFT-LSE Great Britain ETFS Leveraged Softs ETF
LSYO-LSE Great Britain ETFS Leveraged Soybean Oil ETF
LSOB-LSE Great Britain ETFS Leveraged Soybeans ETF
LSUG-LSE Great Britain ETFS Leveraged Sugar ETF
LTIM-LSE Great Britain ETFS Leveraged Tin ETF
LWEA-LSE Great Britain ETFS Leveraged Wheat ETF
LZIC-LSE Great Britain ETFS Leveraged Zinc ETF
DEL2-LSE Great Britain ETFX DAX 2X Long ETF
Sterling Great Britain ETFX DAX 2X Long ETF
DES2-LSE Great Britain ETFX DAX 2X Short ETF
Sterling Great Britain ETFX DAX 2X Short ETF
SEU2-LSE Great Britain ETFX Dow Jones EURO STOXX 50 Double Short ETF
Sterling Great Britain ETFX Dow Jones EURO STOXX 50 Double Short ETF
LEU2-LSE Great Britain ETFX Dow Jones EURO STOXX 50 Leveraged ETF
Sterling Great Britain ETFX Dow Jones EURO STOXX 50 Leveraged ETF
LUK2-LSE Great Britain ETFX FTSE 100 Leveraged ETF
SUK2-LSE Great Britain ETFX FTSE 100 Super Short Strategy ETF

Triple-Leveraged ETFs (3x)

Symbol Is It Inverse? Country Tracked ETF Name
FAZ Inverse USA Direxion Financial Bear 3X – Triple-Leveraged ETF
FAS USA Direxion Financial Bull 3X – Triple-Leveraged ETF
TZA Inverse USA Direxion Small Cap Bear 3X – Triple-Leveraged ETF
TNA USA Direxion Small Cap Bull 3X – Triple-Leveraged ETF
TYO Inverse USA Direxion 10-Year Treasury Bear 3X – Triple-Leveraged ETF
TYD USA Direxion 10-Year Treasury Bull 3X – Triple-Leveraged ETF
TMV Inverse USA Direxion 30-Year Treasury Bear 3X – Triple-Leveraged ETF
TMF USA Direxion 30-Year Treasury Bull 3X – Triple-Leveraged ETF
MATL USA Direxion Daily Basic Materials Bull 3x Shares ETF
BRZU USA Direxion Daily Brazil Bull 3X Shares ETF
YANG Inverse USA Direxion Daily FTSE China Bear 3x Shares ETF
YINN USA Direxion Daily FTSE China Bull 3X Shares ETF
EURL USA Direxion Daily FTSE Europe Bull 3x Shares ETF
BAR USA Direxion Daily Gold Bull 3x Shares ETF
CURE USA Direxion Daily Healthcare Bull 3x Shares ETF
JPNL USA Direxion Daily Japan Bull 3x Shares ETF
JDST Inverse USA Direxion Daily Junior Gold Miners Index Bear 3x Shares ETF
JNUG USA Direxion Daily Junior Gold Miners Index Bull 3x Shares ETF
MIDZ Inverse USA Direxion Daily Mid Cap Bear 3x Shares ETF
MIDU USA Direxion Daily Mid Cap Bull 3x Shares ETF
GASL USA Direxion Daily Natural Gas Related Bull 3x Shares ETF
RUSS Inverse USA Direxion Daily Russia Bear 3x Shares ETF
RUSL USA Direxion Daily Russia Bull 3x Shares ETF
SPXS Inverse USA Direxion Daily S&P 500 Bear 3x Shares ETF
SPXL USA Direxion Daily S&P 500 Bull 3x Shares ETF
KORU USA Direxion Daily South Korea Bull 3x Shares ETF
TECS Inverse USA Direxion Daily Technology Bear 3x Shares ETF
TECL USA Direxion Daily Technology Bull 3x Shares ETF
DPK Inverse USA Direxion Developed Markets Bear 3X – Triple-Leveraged ETF
DZK USA Direxion Developed Markets Bull 3X – Triple-Leveraged ETF
EDZ Inverse USA Direxion Emerging Markets Bear 3X – Triple-Leveraged ETF
EDC USA Direxion Emerging Markets Bull 3X – Triple-Leveraged ETF
ERY Inverse USA Direxion Energy Bear 3X – Triple-Leveraged ETF
ERX USA Direxion Energy Bull 3X – Triple-Leveraged ETF
LBJ USA Direxion Latin America Bull 3X – Triple-Leveraged ETF
DRV Inverse USA Direxion Real Estate Bear 3X – Triple-Leveraged ETF
DRN USA Direxion Real Estate Bull 3X – Triple-Leveraged ETF
SOXS Inverse USA Direxion Semiconductor Bear 3X – Triple-Leveraged ETF
SOXL USA Direxion Semiconductor Bull 3X – Triple-Leveraged ETF
ROLA USA iPath Long Extended Russell 1000 TR Index ETN
RTLA USA iPath Long Extended Russell 2000 TR Index ETN
SFLA USA iPath Long Extended S&P 500 TR Index ETN
BUNT USA PowerShares DB 3x German Bund Futures ETN
JGBD USA PowerShares DB 3x Inverse Japanese Govt Bond Futures ETN
ITLT USA PowerShares DB 3x Italian Treasury Bond Futures ETN
JGBT USA PowerShares DB 3x Japanese Govt Bond Futures ETN
LBND USA PowerShares DB 3x Long 25+ Year Treasury Bond ETN
UUPT USA PowerShares DB 3x Long US Dollar Index Futures ETN
SBND Inverse USA PowerShares DB 3x Short 25+ Year Treasury Bond ETN
UDNT USA PowerShares DB 3x Short US Dollar Index Futures ETN
UDOW USA ProShares UltraPro Dow 30 ETF
FINU USA ProShares UltraPro Financials ETF
UMDD USA ProShares UltraPro MidCap 400 ETF
TQQQ USA ProShares UltraPro NASDAQ 100 ETF
URTY USA ProShares UltraPro Russell 2000 ETF
UPRO USA ProShares UltraPro S&P 500 Index Fund
TTT Inverse USA ProShares UltraPro Short 20+ Year Treasury ETF
SDOW Inverse USA ProShares UltraPro Short Dow 30 ETF
FINZ Inverse USA ProShares UltraPro Short Financials ETF
SQQQ Inverse USA ProShares UltraPro Short NASDAQ 100 ETF
SRTY Inverse USA ProShares UltraPro Short Russell 2000 ETF
SPXU Inverse USA ProShares UltraPro Short S&P 500 Index Fund
SMDD Inverse USA ProShares UltraPro Short S&P MidCap 400 ETF
DWTI Inverse USA VelocityShares 3x Inverse Crude Oil ETN
DGLD Inverse USA VelocityShares 3x Inverse Gold ETN
DGAZ Inverse USA VelocityShares 3x Inverse Natural Gas ETN
DSLV Inverse USA VelocityShares 3x Inverse Silver ETN
UWTI USA VelocityShares 3x Long Crude Oil ETN
UGLD USA VelocityShares 3x Long Gold ETN
UGAZ USA VelocityShares 3x Long Natural Gas ETN
USLV USA VelocityShares 3x Long Silver ETN
Uncategorized

S&P 500

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Definition:
The S&P 500 is currently the most followed stock index in the world. It works like a model portfolio holding stocks in 500 of the biggest, and most traded, companies in the United States, diversified across all 10 major sectors of the US economy. It is usually considered the benchmark against which other investments are compared; “beating the market” usually means to have better returns than the S&P 500.

If you wanted to match the S&P 500’s returns, it would be very difficult to buy into all 500 companies; even one share of each would cost nearly a hundred thousand dollars. However, the SPY ETF can be used instead; this ETF aims to match the S&P 500 index and provide comparable returns to investors.

History:

The S&P 500 index is produced by Standard & Poor’s, a ratings agency that has been active since 1860. During the early days of Wall Street, they released their first index of stocks, the S&P 90, which was designed to compete with the Dow Jones Industrial Average, another index of 30 of the country’s biggest companies. Over time, they also began to publish weekly reports with over 400 stocks. By 1957 their “big list” became so popular that they morphed their original, smaller index to include 500 stocks, becoming the index we now all know and love.

S&P 500 from Yahoo Finance

S&P 500 from Yahoo Finance

Companies In The S&P 500

Ticker symbol Company Name Quote and Chart Trade on HTMW
MMM 3M Company Click Here For Quote! Trade Now!
ABT Abbott Laboratories Click Here For Quote! Trade Now!
ABBV AbbVie Click Here For Quote! Trade Now!
ACN Accenture plc Click Here For Quote! Trade Now!
ACE ACE Limited Click Here For Quote! Trade Now!
ADBE Adobe Systems Inc Click Here For Quote! Trade Now!
ADT ADT Corp Click Here For Quote! Trade Now!
AAP Advance Auto Parts Click Here For Quote! Trade Now!
AES AES Corp Click Here For Quote! Trade Now!
AET Aetna Inc Click Here For Quote! Trade Now!
AFL AFLAC Inc Click Here For Quote! Trade Now!
AMG Affiliated Managers Group Inc Click Here For Quote! Trade Now!
A Agilent Technologies Inc Click Here For Quote! Trade Now!
GAS AGL Resources Inc. Click Here For Quote! Trade Now!
APD Air Products & Chemicals Inc Click Here For Quote! Trade Now!
ARG Airgas Inc Click Here For Quote! Trade Now!
AKAM Akamai Technologies Inc Click Here For Quote! Trade Now!
AA Alcoa Inc Click Here For Quote! Trade Now!
AGN Allergan plc Click Here For Quote! Trade Now!
ALXN Alexion Pharmaceuticals Click Here For Quote! Trade Now!
ALLE Allegion Click Here For Quote! Trade Now!
ADS Alliance Data Systems Click Here For Quote! Trade Now!
ALL Allstate Corp Click Here For Quote! Trade Now!
ALTR Altera Corp Click Here For Quote! Trade Now!
MO Altria Group Inc Click Here For Quote! Trade Now!
AMZN Amazon.com Inc Click Here For Quote! Trade Now!
AEE Ameren Corp Click Here For Quote! Trade Now!
AAL American Airlines Group Click Here For Quote! Trade Now!
AEP American Electric Power Click Here For Quote! Trade Now!
AXP American Express Co Click Here For Quote! Trade Now!
AIG American International Group, Inc. Click Here For Quote! Trade Now!
AMT American Tower Corp A Click Here For Quote! Trade Now!
AMP Ameriprise Financial Click Here For Quote! Trade Now!
ABC AmerisourceBergen Corp Click Here For Quote! Trade Now!
AME Ametek Click Here For Quote! Trade Now!
AMGN Amgen Inc Click Here For Quote! Trade Now!
APH Amphenol Corp A Click Here For Quote! Trade Now!
APC Anadarko Petroleum Corp Click Here For Quote! Trade Now!
ADI Analog Devices, Inc. Click Here For Quote! Trade Now!
AON Aon plc Click Here For Quote! Trade Now!
APA Apache Corporation Click Here For Quote! Trade Now!
AIV Apartment Investment & Mgmt Click Here For Quote! Trade Now!
AAPL Apple Inc. Click Here For Quote! Trade Now!
AMAT Applied Materials Inc Click Here For Quote! Trade Now!
ADM Archer-Daniels-Midland Co Click Here For Quote! Trade Now!
AIZ Assurant Inc Click Here For Quote! Trade Now!
T AT&T Inc Click Here For Quote! Trade Now!
ADSK Autodesk Inc Click Here For Quote! Trade Now!
ADP Automatic Data Processing Click Here For Quote! Trade Now!
AN AutoNation Inc Click Here For Quote! Trade Now!
AZO AutoZone Inc Click Here For Quote! Trade Now!
AVGO Avago Technologies Click Here For Quote! Trade Now!
AVB AvalonBay Communities, Inc. Click Here For Quote! Trade Now!
AVY Avery Dennison Corp Click Here For Quote! Trade Now!
BHI Baker Hughes Inc Click Here For Quote! Trade Now!
BLL Ball Corp Click Here For Quote! Trade Now!
BAC Bank of America Corp Click Here For Quote! Trade Now!
BK The Bank of New York Mellon Corp. Click Here For Quote! Trade Now!
BCR Bard (C.R.) Inc. Click Here For Quote! Trade Now!
BXLT Baxalta Click Here For Quote! Trade Now!
BAX Baxter International Inc. Click Here For Quote! Trade Now!
BBT BB&T Corporation Click Here For Quote! Trade Now!
BDX Becton Dickinson Click Here For Quote! Trade Now!
BBBY Bed Bath & Beyond Click Here For Quote! Trade Now!
BRK-B Berkshire Hathaway Click Here For Quote! Trade Now!
BBY Best Buy Co. Inc. Click Here For Quote! Trade Now!
BIIB BIOGEN IDEC Inc. Click Here For Quote! Trade Now!
BLK BlackRock Click Here For Quote! Trade Now!
HRB Block H&R Click Here For Quote! Trade Now!
BA Boeing Company Click Here For Quote! Trade Now!
BWA BorgWarner Click Here For Quote! Trade Now!
BXP Boston Properties Click Here For Quote! Trade Now!
BSX Boston Scientific Click Here For Quote! Trade Now!
BMY Bristol-Myers Squibb Click Here For Quote! Trade Now!
BRCM Broadcom Corporation Click Here For Quote! Trade Now!
BF-B Brown-Forman Corporation Click Here For Quote! Trade Now!
CHRW C. H. Robinson Worldwide Click Here For Quote! Trade Now!
CA CA, Inc. Click Here For Quote! Trade Now!
CVC Cablevision Systems Corp. Click Here For Quote! Trade Now!
COG Cabot Oil & Gas Click Here For Quote! Trade Now!
CAM Cameron International Corp. Click Here For Quote! Trade Now!
CPB Campbell Soup Click Here For Quote! Trade Now!
COF Capital One Financial Click Here For Quote! Trade Now!
CAH Cardinal Health Inc. Click Here For Quote! Trade Now!
HSIC Henry Schein Click Here For Quote! Trade Now!
KMX Carmax Inc Click Here For Quote! Trade Now!
CCL Carnival Corp. Click Here For Quote! Trade Now!
CAT Caterpillar Inc. Click Here For Quote! Trade Now!
CBG CBRE Group Click Here For Quote! Trade Now!
CBS CBS Corp. Click Here For Quote! Trade Now!
CELG Celgene Corp. Click Here For Quote! Trade Now!
CNP CenterPoint Energy Click Here For Quote! Trade Now!
CTL CenturyLink Inc Click Here For Quote! Trade Now!
CERN Cerner Click Here For Quote! Trade Now!
CF CF Industries Holdings Inc Click Here For Quote! Trade Now!
SCHW Charles Schwab Corporation Click Here For Quote! Trade Now!
CHK Chesapeake Energy Click Here For Quote! Trade Now!
CVX Chevron Corp. Click Here For Quote! Trade Now!
CMG Chipotle Mexican Grill Click Here For Quote! Trade Now!
CB Chubb Corp. Click Here For Quote! Trade Now!
CI CIGNA Corp. Click Here For Quote! Trade Now!
XEC Cimarex Energy Click Here For Quote! Trade Now!
CINF Cincinnati Financial Click Here For Quote! Trade Now!
CTAS Cintas Corporation Click Here For Quote! Trade Now!
CSCO Cisco Systems Click Here For Quote! Trade Now!
C Citigroup Inc. Click Here For Quote! Trade Now!
CTXS Citrix Systems Click Here For Quote! Trade Now!
CLX The Clorox Company Click Here For Quote! Trade Now!
CME CME Group Inc. Click Here For Quote! Trade Now!
CMS CMS Energy Click Here For Quote! Trade Now!
COH Coach Inc. Click Here For Quote! Trade Now!
KO The Coca Cola Company Click Here For Quote! Trade Now!
CCE Coca-Cola Enterprises Click Here For Quote! Trade Now!
CTSH Cognizant Technology Solutions Click Here For Quote! Trade Now!
CL Colgate-Palmolive Click Here For Quote! Trade Now!
CPGX Columbia Pipeline Group Inc Click Here For Quote! Trade Now!
CMCSA Comcast Corp. Click Here For Quote! Trade Now!
CMA Comerica Inc. Click Here For Quote! Trade Now!
CSC Computer Sciences Corp. Click Here For Quote! Trade Now!
CAG ConAgra Foods Inc. Click Here For Quote! Trade Now!
COP ConocoPhillips Click Here For Quote! Trade Now!
CNX CONSOL Energy Inc. Click Here For Quote! Trade Now!
ED Consolidated Edison Click Here For Quote! Trade Now!
STZ Constellation Brands Click Here For Quote! Trade Now!
GLW Corning Inc. Click Here For Quote! Trade Now!
COST Costco Co. Click Here For Quote! Trade Now!
CCI Crown Castle International Corp. Click Here For Quote! Trade Now!
CSX CSX Corp. Click Here For Quote! Trade Now!
CMI Cummins Inc. Click Here For Quote! Trade Now!
CVS CVS Caremark Corp. Click Here For Quote! Trade Now!
DHI D. R. Horton Click Here For Quote! Trade Now!
DHR Danaher Corp. Click Here For Quote! Trade Now!
DRI Darden Restaurants Click Here For Quote! Trade Now!
DVA DaVita Inc. Click Here For Quote! Trade Now!
DE Deere & Co. Click Here For Quote! Trade Now!
DLPH Delphi Automotive Click Here For Quote! Trade Now!
DAL Delta Air Lines Click Here For Quote! Trade Now!
XRAY Dentsply International Click Here For Quote! Trade Now!
DVN Devon Energy Corp. Click Here For Quote! Trade Now!
DO Diamond Offshore Drilling Click Here For Quote! Trade Now!
DFS Discover Financial Services Click Here For Quote! Trade Now!
DISCA Discovery Communications-A Click Here For Quote! Trade Now!
DISCK Discovery Communications-C Click Here For Quote! Trade Now!
DG Dollar General Click Here For Quote! Trade Now!
DLTR Dollar Tree Click Here For Quote! Trade Now!
D Dominion Resources Click Here For Quote! Trade Now!
DOV Dover Corp. Click Here For Quote! Trade Now!
DOW Dow Chemical Click Here For Quote! Trade Now!
DPS Dr Pepper Snapple Group Click Here For Quote! Trade Now!
DTE DTE Energy Co. Click Here For Quote! Trade Now!
DD Du Pont (E.I.) Click Here For Quote! Trade Now!
DUK Duke Energy Click Here For Quote! Trade Now!
DNB Dun & Bradstreet Click Here For Quote! Trade Now!
ETFC E*Trade Click Here For Quote! Trade Now!
EMN Eastman Chemical Click Here For Quote! Trade Now!
ETN Eaton Corporation Click Here For Quote! Trade Now!
EBAY eBay Inc. Click Here For Quote! Trade Now!
ECL Ecolab Inc. Click Here For Quote! Trade Now!
EIX Edison Int’l Click Here For Quote! Trade Now!
EW Edwards Lifesciences Click Here For Quote! Trade Now!
EA Electronic Arts Click Here For Quote! Trade Now!
EMC EMC Corp. Click Here For Quote! Trade Now!
EMR Emerson Electric Company Click Here For Quote! Trade Now!
ENDP Endo International Click Here For Quote! Trade Now!
ESV Ensco plc Click Here For Quote! Trade Now!
ETR Entergy Corp. Click Here For Quote! Trade Now!
EOG EOG Resources Click Here For Quote! Trade Now!
EQT EQT Corporation Click Here For Quote! Trade Now!
EFX Equifax Inc. Click Here For Quote! Trade Now!
EQIX Equinix Click Here For Quote! Trade Now!
EQR Equity Residential Click Here For Quote! Trade Now!
ESS Essex Property Trust Inc Click Here For Quote! Trade Now!
EL Estee Lauder Cos. Click Here For Quote! Trade Now!
ES Eversource Energy Click Here For Quote! Trade Now!
EXC Exelon Corp. Click Here For Quote! Trade Now!
EXPE Expedia Inc. Click Here For Quote! Trade Now!
EXPD Expeditors Int’l Click Here For Quote! Trade Now!
ESRX Express Scripts Click Here For Quote! Trade Now!
XOM Exxon Mobil Corp. Click Here For Quote! Trade Now!
FFIV F5 Networks Click Here For Quote! Trade Now!
FB Facebook Click Here For Quote! Trade Now!
FAST Fastenal Co Click Here For Quote! Trade Now!
FDX FedEx Corporation Click Here For Quote! Trade Now!
FIS Fidelity National Information Services Click Here For Quote! Trade Now!
FITB Fifth Third Bancorp Click Here For Quote! Trade Now!
FSLR First Solar Inc Click Here For Quote! Trade Now!
FE FirstEnergy Corp Click Here For Quote! Trade Now!
FISV Fiserv Inc Click Here For Quote! Trade Now!
FLIR FLIR Systems Click Here For Quote! Trade Now!
FLS Flowserve Corporation Click Here For Quote! Trade Now!
FLR Fluor Corp. Click Here For Quote! Trade Now!
FMC FMC Corporation Click Here For Quote! Trade Now!
FTI FMC Technologies Inc. Click Here For Quote! Trade Now!
F Ford Motor Click Here For Quote! Trade Now!
FOSL Fossil, Inc. Click Here For Quote! Trade Now!
BEN Franklin Resources Click Here For Quote! Trade Now!
FCX Freeport-McMoran Cp & Gld Click Here For Quote! Trade Now!
FTR Frontier Communications Click Here For Quote! Trade Now!
GME GameStop Corp. Click Here For Quote! Trade Now!
GPS Gap (The) Click Here For Quote! Trade Now!
GRMN Garmin Ltd. Click Here For Quote! Trade Now!
GD General Dynamics Click Here For Quote! Trade Now!
GE General Electric Click Here For Quote! Trade Now!
GGP General Growth Properties Inc. Click Here For Quote! Trade Now!
GIS General Mills Click Here For Quote! Trade Now!
GM General Motors Click Here For Quote! Trade Now!
GPC Genuine Parts Click Here For Quote! Trade Now!
GNW Genworth Financial Inc. Click Here For Quote! Trade Now!
GILD Gilead Sciences Click Here For Quote! Trade Now!
GS Goldman Sachs Group Click Here For Quote! Trade Now!
GT Goodyear Tire & Rubber Click Here For Quote! Trade Now!
GOOGL Google Inc Class A Click Here For Quote! Trade Now!
GOOG Google Inc Class C Click Here For Quote! Trade Now!
GWW Grainger (W.W.) Inc. Click Here For Quote! Trade Now!
HAL Halliburton Co. Click Here For Quote! Trade Now!
HBI Hanesbrands Inc Click Here For Quote! Trade Now!
HOG Harley-Davidson Click Here For Quote! Trade Now!
HAR Harman Int’l Industries Click Here For Quote! Trade Now!
HRS Harris Corporation Click Here For Quote! Trade Now!
HIG Hartford Financial Svc.Gp. Click Here For Quote! Trade Now!
HAS Hasbro Inc. Click Here For Quote! Trade Now!
HCA HCA Holdings Click Here For Quote! Trade Now!
HCP HCP Inc. Click Here For Quote! Trade Now!
HCN Health Care REIT, Inc. Click Here For Quote! Trade Now!
HP Helmerich & Payne Click Here For Quote! Trade Now!
HES Hess Corporation Click Here For Quote! Trade Now!
HPQ Hewlett-Packard Click Here For Quote! Trade Now!
HD Home Depot Click Here For Quote! Trade Now!
HON Honeywell Int’l Inc. Click Here For Quote! Trade Now!
HRL Hormel Foods Corp. Click Here For Quote! Trade Now!
HSP Hospira Inc. Click Here For Quote! Trade Now!
HST Host Hotels & Resorts Click Here For Quote! Trade Now!
HCBK Hudson City Bancorp Click Here For Quote! Trade Now!
HUM Humana Inc. Click Here For Quote! Trade Now!
HBAN Huntington Bancshares Click Here For Quote! Trade Now!
ITW Illinois Tool Works Click Here For Quote! Trade Now!
IR Ingersoll-Rand PLC Click Here For Quote! Trade Now!
INTC Intel Corp. Click Here For Quote! Trade Now!
ICE Intercontinental Exchange Click Here For Quote! Trade Now!
IBM International Bus. Machines Click Here For Quote! Trade Now!
IP International Paper Click Here For Quote! Trade Now!
IPG Interpublic Group Click Here For Quote! Trade Now!
IFF Intl Flavors & Fragrances Click Here For Quote! Trade Now!
INTU Intuit Inc. Click Here For Quote! Trade Now!
ISRG Intuitive Surgical Inc. Click Here For Quote! Trade Now!
IVZ Invesco Ltd. Click Here For Quote! Trade Now!
IRM Iron Mountain Incorporated Click Here For Quote! Trade Now!
JEC Jacobs Engineering Group Click Here For Quote! Trade Now!
JBHT J. B. Hunt Transport Services Click Here For Quote! Trade Now!
JNJ Johnson & Johnson Click Here For Quote! Trade Now!
JCI Johnson Controls Click Here For Quote! Trade Now!
JOY Joy Global Inc. Click Here For Quote! Trade Now!
JPM JPMorgan Chase & Co. Click Here For Quote! Trade Now!
JNPR Juniper Networks Click Here For Quote! Trade Now!
KSU Kansas City Southern Click Here For Quote! Trade Now!
K Kellogg Co. Click Here For Quote! Trade Now!
KEY KeyCorp Click Here For Quote! Trade Now!
GMCR Keurig Green Mountain Click Here For Quote! Trade Now!
KMB Kimberly-Clark Click Here For Quote! Trade Now!
KIM Kimco Realty Click Here For Quote! Trade Now!
KMI Kinder Morgan Click Here For Quote! Trade Now!
KLAC KLA-Tencor Corp. Click Here For Quote! Trade Now!
KSS Kohl’s Corp. Click Here For Quote! Trade Now!
KHC Kraft Heinz Co Click Here For Quote! Trade Now!
KR Kroger Co. Click Here For Quote! Trade Now!
LB L Brands Inc. Click Here For Quote! Trade Now!
LLL L-3 Communications Holdings Click Here For Quote! Trade Now!
LH Laboratory Corp. of America Holding Click Here For Quote! Trade Now!
LRCX Lam Research Click Here For Quote! Trade Now!
LM Legg Mason Click Here For Quote! Trade Now!
LEG Leggett & Platt Click Here For Quote! Trade Now!
LEN Lennar Corp. Click Here For Quote! Trade Now!
LVLT Level 3 Communications Click Here For Quote! Trade Now!
LUK Leucadia National Corp. Click Here For Quote! Trade Now!
LLY Lilly (Eli) & Co. Click Here For Quote! Trade Now!
LNC Lincoln National Click Here For Quote! Trade Now!
LLTC Linear Technology Corp. Click Here For Quote! Trade Now!
LMT Lockheed Martin Corp. Click Here For Quote! Trade Now!
L Loews Corp. Click Here For Quote! Trade Now!
LOW Lowe’s Cos. Click Here For Quote! Trade Now!
LYB LyondellBasell Click Here For Quote! Trade Now!
MTB M&T Bank Corp. Click Here For Quote! Trade Now!
MAC Macerich Click Here For Quote! Trade Now!
M Macy’s Inc. Click Here For Quote! Trade Now!
MNK Mallinckrodt Plc Click Here For Quote! Trade Now!
MRO Marathon Oil Corp. Click Here For Quote! Trade Now!
MPC Marathon Petroleum Click Here For Quote! Trade Now!
MAR Marriott Int’l. Click Here For Quote! Trade Now!
MMC Marsh & McLennan Click Here For Quote! Trade Now!
MLM Martin Marietta Materials Click Here For Quote! Trade Now!
MAS Masco Corp. Click Here For Quote! Trade Now!
MA Mastercard Inc. Click Here For Quote! Trade Now!
MAT Mattel Inc. Click Here For Quote! Trade Now!
MKC McCormick & Co. Click Here For Quote! Trade Now!
MCD McDonald’s Corp. Click Here For Quote! Trade Now!
MHFI McGraw Hill Financial Click Here For Quote! Trade Now!
MCK McKesson Corp. Click Here For Quote! Trade Now!
MJN Mead Johnson Click Here For Quote! Trade Now!
WRK Westrock Co Click Here For Quote! Trade Now!
MDT Medtronic plc Click Here For Quote! Trade Now!
MRK Merck & Co. Click Here For Quote! Trade Now!
MET MetLife Inc. Click Here For Quote! Trade Now!
KORS Michael Kors Holdings Click Here For Quote! Trade Now!
MCHP Microchip Technology Click Here For Quote! Trade Now!
MU Micron Technology Click Here For Quote! Trade Now!
MSFT Microsoft Corp. Click Here For Quote! Trade Now!
MHK Mohawk Industries Click Here For Quote! Trade Now!
TAP Molson Coors Brewing Company Click Here For Quote! Trade Now!
MDLZ Mondelez International Click Here For Quote! Trade Now!
MON Monsanto Co. Click Here For Quote! Trade Now!
MNST Monster Beverage Click Here For Quote! Trade Now!
MCO Moody’s Corp Click Here For Quote! Trade Now!
MS Morgan Stanley Click Here For Quote! Trade Now!
MOS The Mosaic Company Click Here For Quote! Trade Now!
MSI Motorola Solutions Inc. Click Here For Quote! Trade Now!
MUR Murphy Oil Click Here For Quote! Trade Now!
MYL Mylan N.V. Click Here For Quote! Trade Now!
NDAQ NASDAQ OMX Group Click Here For Quote! Trade Now!
NOV National Oilwell Varco Inc. Click Here For Quote! Trade Now!
NAVI Navient Click Here For Quote! Trade Now!
NTAP NetApp Click Here For Quote! Trade Now!
NFLX Netflix Inc. Click Here For Quote! Trade Now!
NWL Newell Rubbermaid Co. Click Here For Quote! Trade Now!
NFX Newfield Exploration Co Click Here For Quote! Trade Now!
NEM Newmont Mining Corp. (Hldg. Co.) Click Here For Quote! Trade Now!
NWSA News Corp. Click Here For Quote! Trade Now!
NEE NextEra Energy Click Here For Quote! Trade Now!
NLSN Nielsen Holdings Click Here For Quote! Trade Now!
NKE Nike Click Here For Quote! Trade Now!
NI NiSource Inc. Click Here For Quote! Trade Now!
NBL Noble Energy Inc Click Here For Quote! Trade Now!
JWN Nordstrom Click Here For Quote! Trade Now!
NSC Norfolk Southern Corp. Click Here For Quote! Trade Now!
NTRS Northern Trust Corp. Click Here For Quote! Trade Now!
NOC Northrop Grumman Corp. Click Here For Quote! Trade Now!
NRG NRG Energy Click Here For Quote! Trade Now!
NUE Nucor Corp. Click Here For Quote! Trade Now!
NVDA Nvidia Corporation Click Here For Quote! Trade Now!
ORLY O’Reilly Automotive Click Here For Quote! Trade Now!
OXY Occidental Petroleum Click Here For Quote! Trade Now!
OMC Omnicom Group Click Here For Quote! Trade Now!
OKE ONEOK Click Here For Quote! Trade Now!
ORCL Oracle Corp. Click Here For Quote! Trade Now!
OI Owens-Illinois Inc Click Here For Quote! Trade Now!
PCAR PACCAR Inc. Click Here For Quote! Trade Now!
PLL Pall Corp. Click Here For Quote! Trade Now!
PH Parker-Hannifin Click Here For Quote! Trade Now!
PDCO Patterson Companies Click Here For Quote! Trade Now!
PAYX Paychex Inc. Click Here For Quote! Trade Now!
PYPL PayPal Click Here For Quote! Trade Now!
PNR Pentair Ltd. Click Here For Quote! Trade Now!
PBCT People’s United Financial Click Here For Quote! Trade Now!
POM Pepco Holdings Inc. Click Here For Quote! Trade Now!
PEP PepsiCo Inc. Click Here For Quote! Trade Now!
PKI PerkinElmer Click Here For Quote! Trade Now!
PRGO Perrigo Click Here For Quote! Trade Now!
PFE Pfizer Inc. Click Here For Quote! Trade Now!
PCG PG&E Corp. Click Here For Quote! Trade Now!
PM Philip Morris International Click Here For Quote! Trade Now!
PSX Phillips 66 Click Here For Quote! Trade Now!
PNW Pinnacle West Capital Click Here For Quote! Trade Now!
PXD Pioneer Natural Resources Click Here For Quote! Trade Now!
PBI Pitney-Bowes Click Here For Quote! Trade Now!
PCL Plum Creek Timber Co. Click Here For Quote! Trade Now!
PNC PNC Financial Services Click Here For Quote! Trade Now!
RL Polo Ralph Lauren Corp. Click Here For Quote! Trade Now!
PPG PPG Industries Click Here For Quote! Trade Now!
PPL PPL Corp. Click Here For Quote! Trade Now!
PX Praxair Inc. Click Here For Quote! Trade Now!
PCP Precision Castparts Click Here For Quote! Trade Now!
PCLN Priceline.com Inc Click Here For Quote! Trade Now!
PFG Principal Financial Group Click Here For Quote! Trade Now!
PG Procter & Gamble Click Here For Quote! Trade Now!
PGR Progressive Corp. Click Here For Quote! Trade Now!
PLD Prologis Click Here For Quote! Trade Now!
PRU Prudential Financial Click Here For Quote! Trade Now!
PEG Public Serv. Enterprise Inc. Click Here For Quote! Trade Now!
PSA Public Storage Click Here For Quote! Trade Now!
PHM Pulte Homes Inc. Click Here For Quote! Trade Now!
PVH PVH Corp. Click Here For Quote! Trade Now!
QRVO Qorvo Click Here For Quote! Trade Now!
PWR Quanta Services Inc. Click Here For Quote! Trade Now!
QCOM QUALCOMM Inc. Click Here For Quote! Trade Now!
DGX Quest Diagnostics Click Here For Quote! Trade Now!
RRC Range Resources Corp. Click Here For Quote! Trade Now!
RTN Raytheon Co. Click Here For Quote! Trade Now!
O Realty Income Corporation Click Here For Quote! Trade Now!
RHT Red Hat Inc. Click Here For Quote! Trade Now!
REGN Regeneron Click Here For Quote! Trade Now!
RF Regions Financial Corp. Click Here For Quote! Trade Now!
RSG Republic Services Inc Click Here For Quote! Trade Now!
RAI Reynolds American Inc. Click Here For Quote! Trade Now!
RHI Robert Half International Click Here For Quote! Trade Now!
ROK Rockwell Automation Inc. Click Here For Quote! Trade Now!
COL Rockwell Collins Click Here For Quote! Trade Now!
ROP Roper Industries Click Here For Quote! Trade Now!
ROST Ross Stores Click Here For Quote! Trade Now!
RCL Royal Caribbean Cruises Ltd Click Here For Quote! Trade Now!
R Ryder System Click Here For Quote! Trade Now!
CRM Salesforce.com Click Here For Quote! Trade Now!
SNDK SanDisk Corporation Click Here For Quote! Trade Now!
SCG SCANA Corp Click Here For Quote! Trade Now!
SLB Schlumberger Ltd. Click Here For Quote! Trade Now!
SNI Scripps Networks Interactive Inc. Click Here For Quote! Trade Now!
STX Seagate Technology Click Here For Quote! Trade Now!
SEE Sealed Air Corp.(New) Click Here For Quote! Trade Now!
SRE Sempra Energy Click Here For Quote! Trade Now!
SHW Sherwin-Williams Click Here For Quote! Trade Now!
SIAL Sigma-Aldrich Click Here For Quote! Trade Now!
SIG Signet Jewelers Click Here For Quote! Trade Now!
SPG Simon Property Group Inc Click Here For Quote! Trade Now!
SWKS Skyworks Solutions Click Here For Quote! Trade Now!
SLG SL Green Realty Click Here For Quote! Trade Now!
SJM Smucker (J.M.) Click Here For Quote! Trade Now!
SNA Snap-On Inc. Click Here For Quote! Trade Now!
SO Southern Co. Click Here For Quote! Trade Now!
LUV Southwest Airlines Click Here For Quote! Trade Now!
SWN Southwestern Energy Click Here For Quote! Trade Now!
SE Spectra Energy Corp. Click Here For Quote! Trade Now!
STJ St Jude Medical Click Here For Quote! Trade Now!
SWK Stanley Black & Decker Click Here For Quote! Trade Now!
SPLS Staples Inc. Click Here For Quote! Trade Now!
SBUX Starbucks Corp. Click Here For Quote! Trade Now!
HOT Starwood Hotels & Resorts Click Here For Quote! Trade Now!
STT State Street Corp. Click Here For Quote! Trade Now!
SRCL Stericycle Inc Click Here For Quote! Trade Now!
SYK Stryker Corp. Click Here For Quote! Trade Now!
STI SunTrust Banks Click Here For Quote! Trade Now!
SYMC Symantec Corp. Click Here For Quote! Trade Now!
SYY Sysco Corp. Click Here For Quote! Trade Now!
TROW T. Rowe Price Group Click Here For Quote! Trade Now!
TGT Target Corp. Click Here For Quote! Trade Now!
TEL TE Connectivity Ltd. Click Here For Quote! Trade Now!
TE TECO Energy Click Here For Quote! Trade Now!
TGNA Tegna Click Here For Quote! Trade Now!
THC Tenet Healthcare Corp. Click Here For Quote! Trade Now!
TDC Teradata Corp. Click Here For Quote! Trade Now!
TSO Tesoro Petroleum Co. Click Here For Quote! Trade Now!
TXN Texas Instruments Click Here For Quote! Trade Now!
TXT Textron Inc. Click Here For Quote! Trade Now!
HSY The Hershey Company Click Here For Quote! Trade Now!
TRV The Travelers Companies Inc. Click Here For Quote! Trade Now!
TMO Thermo Fisher Scientific Click Here For Quote! Trade Now!
TIF Tiffany & Co. Click Here For Quote! Trade Now!
TWX Time Warner Inc. Click Here For Quote! Trade Now!
TWC Time Warner Cable Inc. Click Here For Quote! Trade Now!
TJX TJX Companies Inc. Click Here For Quote! Trade Now!
TMK Torchmark Corp. Click Here For Quote! Trade Now!
TSS Total System Services Click Here For Quote! Trade Now!
TSCO Tractor Supply Company Click Here For Quote! Trade Now!
RIG Transocean Click Here For Quote! Trade Now!
TRIP TripAdvisor Click Here For Quote! Trade Now!
FOXA Twenty-First Century Fox Click Here For Quote! Trade Now!
TSN Tyson Foods Click Here For Quote! Trade Now!
TYC Tyco International Click Here For Quote! Trade Now!
USB U.S. Bancorp Click Here For Quote! Trade Now!
UA Under Armour Click Here For Quote! Trade Now!
UNP Union Pacific Click Here For Quote! Trade Now!
UNH United Health Group Inc. Click Here For Quote! Trade Now!
UPS United Parcel Service Click Here For Quote! Trade Now!
URI United Rentals, Inc. Click Here For Quote! Trade Now!
UTX United Technologies Click Here For Quote! Trade Now!
UHS Universal Health Services, Inc. Click Here For Quote! Trade Now!
UNM Unum Group Click Here For Quote! Trade Now!
URBN Urban Outfitters Click Here For Quote! Trade Now!
VFC V.F. Corp. Click Here For Quote! Trade Now!
VLO Valero Energy Click Here For Quote! Trade Now!
VAR Varian Medical Systems Click Here For Quote! Trade Now!
VTR Ventas Inc Click Here For Quote! Trade Now!
VRSN Verisign Inc. Click Here For Quote! Trade Now!
VZ Verizon Communications Click Here For Quote! Trade Now!
VRTX Vertex Pharmaceuticals Inc Click Here For Quote! Trade Now!
VIAB Viacom Inc. Click Here For Quote! Trade Now!
V Visa Inc. Click Here For Quote! Trade Now!
VNO Vornado Realty Trust Click Here For Quote! Trade Now!
VMC Vulcan Materials Click Here For Quote! Trade Now!
WMT Wal-Mart Stores Click Here For Quote! Trade Now!
WBA Walgreens Boots Alliance Click Here For Quote! Trade Now!
DIS The Walt Disney Company Click Here For Quote! Trade Now!
WM Waste Management Inc. Click Here For Quote! Trade Now!
WAT Waters Corporation Click Here For Quote! Trade Now!
ANTM Anthem Inc. Click Here For Quote! Trade Now!
WFC Wells Fargo Click Here For Quote! Trade Now!
WDC Western Digital Click Here For Quote! Trade Now!
WU Western Union Co Click Here For Quote! Trade Now!
WY Weyerhaeuser Corp. Click Here For Quote! Trade Now!
WHR Whirlpool Corp. Click Here For Quote! Trade Now!
WFM Whole Foods Market Click Here For Quote! Trade Now!
WMB Williams Cos. Click Here For Quote! Trade Now!
WEC Wisconsin Energy Corporation Click Here For Quote! Trade Now!
WYN Wyndham Worldwide Click Here For Quote! Trade Now!
WYNN Wynn Resorts Ltd Click Here For Quote! Trade Now!
XEL Xcel Energy Inc Click Here For Quote! Trade Now!
XRX Xerox Corp. Click Here For Quote! Trade Now!
XLNX Xilinx Inc Click Here For Quote! Trade Now!
XL XL Capital Click Here For Quote! Trade Now!
XYL Xylem Inc. Click Here For Quote! Trade Now!
YHOO Yahoo Inc. Click Here For Quote! Trade Now!
YUM Yum! Brands Inc Click Here For Quote! Trade Now!
ZBH Zimmer Biomet Holdings Click Here For Quote! Trade Now!
ZION Zions Bancorp Click Here For Quote! Trade Now!
ZTS Zoetis Click Here For Quote! Trade Now!
A -G, Beginners, Glossary

GTD Good Till Day Orders

Written by

Good Till Date Order Terms

If you have ever placed a limit or stop order, you have see the “Good Till Day” order term on the trading menu:

A “Good-Till-Day” order is simply one that will cancel at the end of the trading day if it does not fill. So, for example, if you have Apple stock, and today you know they are releasing an Earnings Release, you know their price is probably going to change quite a bit today.

If you are worried about losing value, but don’t want to stare at the ticker all day, you can put a Sell Stop order at the price you would want to dump it at if the price starts falling, and set the order to cancel at the end of today.

If the price does start falling, the order will execute as soon as it hits your price threshold. If the price doesn’t fall, the order will cancel at the end of the day.

If you place a Good Till Day order after the market has closed, it will stay open until the end of the next trading day.

Why Use It?

Many people use Good Till Cancel orders, will will stay open until either they execute, or they cancel the order manually. One disadvantage to this is that you cannot execute a Market Order on stock you have an outstanding Limit Order on; this means that if you have a Stop order placed on your Apple stock, but the price goes up and you want to sell it, you would first have to cancel your Stop order before you can make a Sell market order.

Generally, people put Good Till Day orders on many Limit Orders for stocks they are hoping have a big spike during the day, and stop orders when they fear some market news may come out that will cause a long-term decrease in a stocks price.

Beginners, Strategies for Beginners

How do I diversify a portfolio?

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How Do I Build a Diversified Portfolio?

Understanding what it means to build a diversified portfolio is one of the first concepts a new investor needs to understand. When talking about stocks, diversification means to make sure you don’t “put all of your eggs in one basket.”
what does it mean to diversify a stock portfolio

What Does It Mean To Diversify?

Simply put, to “diversify” means to make sure pick a variety of stocks in different industries. History shows that at different points in time different parts of the market outperform the others. At times the technology stocks perform well, sometimes its the banking stocks, sometimes its international stocks, sometimes its defense, sometimes its medical, etc. Since it is difficult to predict which industry is going to perform the best in the future, the best thing to do is to just own a few stocks in each industry so that you always own some of the top performing stocks. This way, over time, your portfolio returns are less volatile and, hopefully, always positive.

With real money, most advisers would recommend you have about 30 stocks in your portfolio, but with your virtual portfolio, you should try to have at least 10 stocks in your portfolio and those stocks should be from at least 5 different industries.

Why Do People Diversify?

Investors diversify because it helps to stabilize a portfolio’s return, and the more stocks you own the more likely you are to own a stock that ends up doubling or tripling in price. For example, if you own an equal dollar amount of 10 different stocks and 9 of them stayed at the same price and one of them doubled, your portfolio would be up 10%.

People invest in the stock market because they want to make more money than they could make if they just left the money in the bank. Investors especially do not want to LOSE money. “Capital Preservation” is the idea that you want to preserve the money you have invested; investors never want to be in a position where it would have been better to not have invested at all. So to make sure that investors are protected from price swings, and to help simplify managing their portfolio, investors try to maintain a fully diversified portfolio.

How Does It Work?

When you diversify your portfolio, you make sure that you never have “too many eggs in one basket.” If one of the stocks you have invested in starts to go down in price, you have limited your exposure to that stock by only having a smaller percentage of all your assets in that stock. For beginners, this can mean having no more than 20% of your portfolio in any one stock, ETF, or Mutual Fund. With real money, as you invest more money into your portfolio and as your portfolio grows in value, you should keep buying different stocks so that eventually you have less than 10% of your money in any one stock.

Diversification means that, for example, if you are investing in stocks in the Banking, Energy, Healthcare, Manufacturing, Luxury and IT industries, you would try to spread your money as evenly as possible across these industries. This way, if the Energy sector as a whole starts to have problems (for example, if the price of oil falls quickly), you don’t have to worry about your entire portfolio, and you have limited the losses you are exposed to from a single market shock.

Types of Diversification

There are 3 main types of diversification to think about as you first start investing:

1. Security Type Diversification

This means owning a variety of investments like real estate, stocks, bonds, gold/silver and cash. Yes, cash is an investment! For many years, the rule of thumb was to subtract your age from 100, and have that percentage of your overall value invested in stocks (so if you are 18 years old, you would invest 82% of your portfolio in stocks). The idea is that over time stocks have consistently outperformed other investments so therefore the younger you are, the more you should be invested in stocks. As you get older and closer to retirement when you will rely on your investments, you have less time and you should prefer the low but consistent returns of bonds and cash. Another way of putting this is that younger investors are more risk-tolerant and older investors are more risk-adverse.

This line of thinking is getting to be a little out-dated, with the rising popularity of ETFs, more choices for mutual funds, and the ability to invest in riskier bonds, but the idea of making your portfolio more risk-averse over time can still be a good idea.

2. Sector Diversification

To diversify by sector means that you would split your investments across companies based on the type of business they do; “Energy” companies would be oil producers, electricity companies, and companies that specialize in transporting materials needed for energy production. “Manufacturing” companies are firms that build everything from toys to cars to equipment to airplanes.

The idea behind sector diversification is that if there is some larger trend that negatively affects an entire industry, you would want to make sure not all of your investments are affected at once. For example, low oil prices caused a general decline in energy stocks (of course, with some companies still growing, and others hit especially hard).

3. Stock Diversification

This is the most basic type: just making sure you don’t have too much money in any one stock. For example, if you want to put 10% of your money in the banking sector, that doesn’t mean you should put 10% of your money in Bank of America. You should have a few bank stocks in case one of your bank stocks is poorly managed and it goes bankrupt. Individual stocks are more volatile than sectors, and sectors are more volatile than entire security types, so this is the core of all diversification.

 

Ways To Stay Diversified

Exchange Traded Funds (ETFs) and Mutual Funds are good places to start investing because these securities are diversified themselves. ETFs and mutual funds take money from investors and invest that money in a variety of securities that meet the stated objective of that fund. Some funds invest in large companies, some in European companies, some in utilities, some in commodities like gold and oil, etc. For example the ETF FHLC is a collection of Health Care stocks. If you are looking for an easy way to invest in a particular industry, without having to research which particular companies you want to choose, this is a quick route to take.

Warning About Over-Diversification

Diversifying is good, but don’t go too far! If you start diversifying too much, your portfolio starts to get “thin”; you might not lose much if one company starts to go down, but you also won’t gain much if another company you own starts doing very well. Beginners should usually build their first portfolio with between 8 and 10 stocks, ETFs, or Mutual Funds at a time. You can always switch the investments you have, but try to avoid having too many, or two few, investments at once.

Over-Diversification can also make it more difficult to manage your investments; if you are not able to follow up with company news and stay on top of your investments, things could start turning bad, and you could start losing one before you even know why!

 

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Glossary, N-T

Sharpe Ratio (Beginner)

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Sharpe Ratio for Beginners

Introduction

The Sharpe Ratio is an important tool for evaluating a stock, or a portfolio, based on how risky it is to get a higher return. You can use the Sharpe Ratio to determine how consistent the returns of a stock or portfolio are, so you can determine if the returns are stemming more from wise investing, or “getting lucky”.

Example

Look at the performance of these two stocks:

Sharpe-Ratio-Example

On the first day we track and the last day, these two investments have the same value. However, Stock 1 is very consistent in its returns, while Stock 2 has a very wide range of variance. In this example, if an investor holds both these stocks for 13 days, their return would be the same for both.

However, imagine if the investor sold both stocks on Day 11. The return for Stock 2 would be much higher! But if they waited just one more day, on day 12 Stock 2’s value crashed down, so Stock 1 looks like a better choice.

How To Use The Sharpe Ratio While Investing

When saving and investing, the goal should always be consistent returns and capital preservation; you do not want to make risky moves that could wipe out all the savings you put in. A wise investor would always prefer Stock A, since they do not need to worry about “timing the market”, instead they can focus on building a strong long-term portfolio, instead of focusing on when to buy and sell some “hot stocks” at the best prices.

In this example, Stock A would have a much higher Sharpe Ratio than Stock B, because it has much less variance for the same return at the end of the period we looked at.

You can expand this concept to an entire portfolio; if your portfolio value swings up and down a lot, but you end with a higher value, you will have a much lower Sharpe Ratio than someone else who may have a lower final return, but their portfolio value grew at a more consistent rate throughout the trading period.

BOTH measures are very important on determining which portfolio did the “best”. A key to investing is balancing risk and reward; a Sharpe Ratio between 1 and 2 is “good”, between 2 and 3 is “Great”, and greater than 3 is “Excellent”. However, if you are comparing two portfolios with a similar Sharpe Ratio, the standard Return will tell you more about which was  a wiser investment.

Advanced, Charts and Patterns, Glossary, H-M, Technical Analysis

Head and Shoulders

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The head-and-shoulders pattern is one of the most popular chart patterns in technical analysis. It’s popularity is mainly attributed to the fact that it easy easier to spot than other patterns. It’s name comes from what the pattern looks like: A head and two shoulders (and a neckline).

The pattern indicates a reversal is likely to happen after the pattern has been completed. The head and shoulders pattern comes in two forms, top and bottom. The bottom head and shoulders pattern is very similar to the double bottom pattern or triple bottom pattern and are similar in many ways.

If we look at a graphical representation of the Top Head and Shoulder Pattern we can see that the pattern is composed of two shoulders, a head, and a neckline:

HaS1

The pattern does not need to look exactly like this, but it does need to follow a couple guidelines:

  1. The pattern must start with an upward trend and have a head that is higher than the two shoulders.
  2. The shoulder heights should also be roughly the same height, though the troughs can be different heights (ascending troughs are more desirable, that is to say the second trough is higher than the first trough).

In this graph, H stands for height and, in general, we can set our target price (to exit the position) roughly the same height between the difference of the neckline and the top of the head. The downward trend is likely to hit the target price of the same difference H between the neckline and the target. This is a good place to put a stop loss order.

Another thing to note is that the pullback is not necessarily always part of the pattern, it only happens about half the time. It does not have to go over the neckline, (it is even preferable that it does not) and should not be there long, or pass the neckline by a large amount. Top patterns are fairly reliable and take a downward exit (past the neckline) in approximately 90% of cases.

Here is also an example of a Bottom Head and shoulder without pullback.

has2

This chart is almost identical to the Top and head shoulder and follows the same rules but inverted.

Volume:

The underlying volume is a key indicator in successfully trading this pattern. Without volume the pattern is considered weak at best and is far more risky to trade.

hsa0

Above, we can see that when the stock first crosses the line at the first bubble many would be tempted to trade the stock as it is fulfilling the pattern. That may have been very risky as it could simply have been a momentary decline without much strength. The far safer and more important time to trade is when the stock continues with it’s support and trades down with significant volume. This is a far stronger indication of trend.

To summarize, head and shoulders are one of the first patterns students learn in technical analysis. It is important to not only look at the pattern but to have a strong volume when breaking through the neckline or various supports and resistances.

Advanced, Fundamental Analysis, Glossary, H-M

MACD

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The Moving Average Convergence-Divergence (MACD) indicator is one of the easiest and most efficient momentum indicators you can get. It was developed by Gerald Appel in the late seventies. The MACD moves two trend following indicators and moving averages into a momentum oscillator by subtracting the longer moving average from the shorter moving average. The result is that the MACD gives the best of both worlds: trend following and momentum. The MACD is continually changing above and below the zero line while the moving averages come together, cross and diverge. Traders can search for signal line crossovers, centerline crossovers as well as divergences to generate signals. For that reason the MACD is unbounded, it is not necessarily useful for identifying overbought and oversold levels. Note: MACD is pronounced as either “MAC-DEE” or “M-A-C-D”. Take a look at the sample chart with the MACD indicator in the lower panel:
MACD
Calculation

MACD Line:(12-day EMA – 26-day EMA)

Signal Line:9-day EMA of MACD Line

MACD Histogram:MACD Line – Signal Line

The MACD Line is the 12-day Expotential Moving Average(EMA) minus the 26-day EMA. Closing prices are used for these moving averages. A 9-day EMA of the MACD Line is plotted with an indicator to function as a signal line and identify turns. The MACD Histogram denotes the difference linking MACD and its 9-day EMA, the Signal line. The histogram stays positive when the MACD Line is above its Signal line and negative when the MACD Line is below its Signal line. The values of 12, 26 and 9 are the typical setting used with the MACD, but other values can be exchanged depending on your trading style and goals.
Interpretation

The MACD is about the convergence and divergence of the faster and slower moving averages. Convergence occurs when the averages move towards each other. Divergence occurs when the averages move away from each other. The shorter moving average is faster and more responsive. The longer moving average is slower and less reactive to price changes. The MACD Line moves above and below the zero line – also known as the centerline. The direction, of course, depends on the direction of the moving average cross. A positive MACD is when the shorter moving average crosses above the longer moving average. As the shorter moving average moves further above the longer moving average (diverges) this means the stock price upside momentum is increasing. When the short moving average drops below the long moving average, it demonstrates that the stock shows a downward momentum.

MACD

The yellow area shows the MACD Line in negative territory as the short line is below the long line. In this chart, the crossing occurred at the end of September (see the black arrow) and the MACD moved diverged further into negative territory as the short moving average moves further away from the long moving average. The orange area highlights the period of positive MACD values, which is when the short moving average moves above the long moving average. Notice that the MACD Line stayed below during this period (red dotted line). The red line means that the distance between the slow EMA and long EMA was less than 1 point, which is not a much of a difference.
Divergences
Divergence forms when the MACD line moves away from the price line of the stock. Bullish divergence are formed when a stock’s price records a lower low and the MACD hits a higher low. The lower low for the stock confirms the downtrend, but the higher low for the MACD line shows less downward momentum. Downside momentum still outpaces the upward momentum as long as the MACD remains negative. When the downward momentum slows, it can foreshadows a trend change or a upside rally. The next chart uses a Google (GOOG) chart with a bullish divergence for Oct-Nov 2008. Notice that there were clear lower troughs as both Google’s price line and its MACD line bounced in October and late November. Notice that the MACD line formed a higher low as Google’s price line formed a lower low in November. MACD is signalling a bullish divergence as the signal line crosses over in early December. Google’s price line confirmed the reversal with a breakout.
MACD
A bearish divergence forms when a stock price records a higher high and the MACD line forms a lower high as the faster MA crosses the slower MA. The higher high for the stock price is quite normal for uptrends but when the MACD shows a lower high, this illustrates less upside momentum. Even though upside momentum may have declined, upward momentum is still out performing downside momentum as long as MACD is positive. Declining MACD upward trends can foreshadow a trend reversal or forecast a large price decline. Below we see a chart for Gamestop (GME) with a large MACD bearish divergence from Aug to Oct. The stock chart demonstrates a higher high above 28, but the MACD line falls short of the previous high and shows a lower high. The following MACD crossover is bearish. On the GME price chart, notice how the support is broken and turned into resistance on the following bounce in Nov as we see with the red dotted line. This momentary price bump provided another chance to sell or sell short.
MACD
We should be careful interpreting a MACD divergences. Bearish divergences are quite common for strong uptrends as do bullish divergences during a strong downtrend. Price uptrends quite often begin with a strong advance which will produce strong upside momentum for MACD. Even though we can see that the uptrend continues, it continues at a slower pace than started the uptrend which causes the MACD to decline. Even when upside momentum is not as strong, upside momentum still outpacing the downside momentum as long as the MACD line is above zero. We can see the opposite occuring when a strong downtrend begins. The next chart shows SPY which is the S&P 500 ETF. This chart shows four bearish divergences from Aug to Nov 2009. Despite the slower upside momentum, SPY’s price line continued higher because the uptrend was strong. Notice how SPY’s price continues a series of higher highs as well as higher lows. Remember, as long as MACD is positive the upside momentum is stronger than downside momentum.
MACD
Conclusions

MACD is a special indicator as it brings together both momentum and trend in one technical indicator. This unique combination of trend and momentum can be used with daily, weekly and monthly charts. The standard moving average lines for MACD use the difference between the 12 and 26-period EMAs. Chartists that are looking for a more responsive indicator can use a shorter short-term moving average and a longer long-term moving average. A MACD(5,35,5) is far more responsive than the more standard MACD(12,26,9) and can be a better indicator for weekly charts. Chartists looking for a less sensitivity indicator can use lengthening the moving averages. A less responsive MACD will still oscillate above/below zero but the frequency of the crossovers centerline and signal line crossovers will decline. Finally, remember that MACD is calculated using the difference between two moving averages. This means that the MACD line is dependent on the price of the stock. For example, the MACD line for a $20 stock may move from -1.5 to 1.5 while the MACD line for a more expensive $100 stock can move from -10 to +10. You cannot compare the MACD charts for several stocks with far different prices. If you want to compare the momentum of various stocks you should probably use the Percentage Price Oscillator (PPO) rather than MACD.

A -G, Bonds, Glossary

Fixed Income

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Fixed income analysis is the process of evaluating and analyzing fixed income securities for investment purposes.

Fixed Income represents a distinct asset class. Investors and analysts perform fixed-income analysis to

Evaluate the risk characteristics underlying debt securities and to assess the capacity of the borrowing entity to meet its financial obligations (credit analysis)
Identify which debt securities represent attractive investment opportunities
Determine the appropriate valuation (or value) of debt securities in the market
Compare the investment characteristics (e.g., risk and return) of debt securities with each other and with other asset classes such as stocks, derivatives, real estate, or other.

Features and Characteristics of Fixed Income

Some important features of fixed income securities include

Government versus Corporate Bonds
On a very broad level, fixed income securities can be categorized as
Government
E.g., US Treasuries
Corporate
Bonds issued by public corporations
Issuer
The party, entity, or corporation that sells the debt obligation to investors
This is the borrowing entity
Borrower or Debt Security Holder
The party that has purchased the debt obligation (i.e., the lender)
Principal or Face Value
The amount borrowed which has to be repaid in full at a future date
Interest
The interest rate that is applied to the principal borrowed amount
Periodic Payments
The periodic dates during the life of the debt for which the borrower is responsible for making regular payments of interest or principal (or both)
Maturity
The length of time from the inception of the debt to its termination
Fixed-Income Options
Options embedded within fixed income securities giving the lender or borrower the right to either redeem the obligation
Callable Bond – the issuer of the debt obligation retains he right to redeem the bond before its maturity date
Putable Bond – the holder of the debt obligation (the borrower) retains the right to redeem the bond before its maturity date
Convertibility
Convertible debt securities allow the debt security holder to convert the debt obligation into common equity

A -G, Advanced, Fundamental Analysis, Glossary

Black-Scholes

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Introduction

The Black-Scholes formula is the most popular ways to calculate the true price of an option.

It is easy to calculate the intrinsic value, but the extrinsic value can be very tricky to calculate.

Black Scholes is used for calculating two types of options.

Options on stocks
Stock Options.

Fisher Black, Robert Merton and Myron Scholes originally created the Black Sholes formula in 1973.

Black Sholes uses all the ingredients that go into option pricing:

The price variation of the stock,
The time value of money,
The option’s strike price
The time to the option’s expiry.

What does the Black-Scholes Model Calculate

Securities and options that are widely traded follow a price change known as “a Geometric Brownian motion with constant shift and velocity”. Prices for options and stocks follows a normal distribution with constant standard deviations and constant growth. If you find that the Black-Scholes calculated price is greater than the current price, the formula suggests that the option should be bought and vice-versa.

Formula

The Black-Scholes formula:

C = S N(d1) – X e-rT N(d2)

where
C = price of the call option
S = price of the underlying stock
X = option exercise price
r = risk-free interest rate
T = current time until expiration
N = area under the normal curve
d1 = [ ln(S/X) + (r + σ2/2) T ] / σ T1/2
d2 = d1 – σ T1/2

σ = Standard Deviation of normally distributed stock returns

We can calculate the price of a put option with the Put-call parity:

P = Xe-rT N(-d2) – S N(-d1)

There are a few assumptions that need to be considered when calculating the price of a stock over a period period.

The Stocks price is normally distributed and so the volatility of the stock price with respect to the market is relatively constant over time.
The stock used do not pay dividends
The options can only be cashed in on expiration.
We assume that the option does not have commissions or transaction costs.
The interest on bonds and risk free rates is constant during the period.
We cannot predict market directions and markets are efficient.

Limitations of the Black-Scholes Model

The model assumes that the risk-free rate and the stock’s price volatility are constant over time. It typically misinterprets the price of options for stocks that have high-dividends.

Conclusion

The Black-Scholes model is used to calculate the mathematical value of an option. For more information and to see the weakness of this pricing model please see this Black Scholes Option Pricing Model link.

If you are ready to open a real brokerage account to start trading options, please look at this list of the best option brokers and their current offers and promotions.

A -G, Glossary

Arbitrage

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Definition:
The simultaneous purchase of a security on one stock market and the sale of the same security on another stock market at prices which yield a profit.

In Depth Description:
In economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices. When used by academics, an arbitrage is a transaction that involves no negative cash flow at any probabilistic or temporal state and a positive cash flow in at least one state; in simple terms, it is the possibility of a risk-free profit at zero cost.

In principle and in academic use, an arbitrage is risk-free; in common use, as in statistical arbitrage, it may refer to expected profit, though losses may occur, and in practice, there are always risks in arbitrage, some minor (such as fluctuation of prices decreasing profit margins), some major (such as devaluation of a currency or derivative). In academic use, an arbitrage involves taking advantage of differences in price of a single asset or identical cash-flows; in common use, it is also used to refer to differences between similar assets (relative value or convergence trades), as in merger arbitrage.

People who engage in arbitrage are called arbitrageurs — such as a bank or brokerage firm. The term is mainly applied to trading in financial instruments, such as bonds, stocks, derivatives, commodities and currencies.

Beginners, Glossary, N-T

OTC (Over The Counter) Stocks

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Over-The-Counter (OTC) Stocks

Most investors are familiar with NASDAQ, the NYSE (New York Stock Exchange), TSX (Toronto Stock Exchange), and most other large national stock exchanges. However, there are also thousands of companies that want to sell shares to the general public, but are not able to sell on these exchanges. Stock traded on these “Over The Counter” exchanges are known as OTC stocks.

Why do companies trade OTC?

Major stock exchanges have very specific rules about being listed, along with specific costs involved to stay listed once originally posted. Some of these reasons include:

  1. Minimum Stock Price
  2. Earnings must be above a certain threshold ($11 million per year for the 3 consecutive years for NASDAQ, for example)
  3. Cash flow and Market Capitalization minimums
  4. Corporate filing requirements

If a smaller company wants to list its stock for sale to the public, they can offer their stock on OTC exchanges to avoid some of these restrictions. Medium companies that shrink, and no longer maintain the minimum requirements, can also be “de-listed” from a major exchange and have its shares continue trading on OTC exchanges as well.

What is required for a company’s stock to trade OTC?

While the minimum market capitalization, revenue, and cash flow requirements are not an issue for OTC stocks, they ARE required to make similar SEC filings to be listed. These include financial statements and information on the company management.

What is the main drawback of trading OTC stocks?

OTC stocks are often very small companies with very small market capitalization. This means that they often have extremely low, or even zero, annual revenue or assets, making them extremely risky investments. “Penny Stocks” exclusively trade on OTC markets, and are often the vehicle for stock fraud schemes, including “Pump and Dump”, where a individual for firm buys a large amount of stock, starts a marketing campaign to convince other investors that stock is set to rapidly gain value, and then dump their stock, leaving other investors with worthless stock that had its price inflated by hype.

OTC stocks also have a major drawback in that they are very, very thinly traded (often less than 100 shares per day). This means that the bid/ask spread is very high, making the “last price” hours, days, or even weeks old, since it so rarely actually trades between investors. This means once an investor purchases the stock, it can be extremely difficult to actually sell it, since there may not be anyone willing to buy it from you.

Are there any advantages to OTC stocks?

There can be very good reasons to buy OTC stocks as well. For example, some very small start-up companies will sell their first set of shares on OTC, and as they grow eventually be listed on NASDAQ or another major exchange. The investors who found and invested while it was still a micro-cap potentially could make very high rewards. For example, in 2015 InVivo Therapeutics (NVIV), a medical technologies company, was listed on OTC before it was able to be listed on NASDAQ. In April 2015, they officially transitioned to the NASDAQ, with their OTC shares becoming NASDAQ shares, and its investors seeing a large gain in value as more investors were made aware of, and became interested, investing.

There are also other advantages: foreign companies may not be willing to list a large number of shares on a large national exchange, but a small number of shares may be traded on OTC exchanges. For example, Nintendo and Heinekin, which trade on the Japanese and Dutch exchanges respectively, have a small number of shares that trade in the US on OTC markets (as NTDOFTO and HKHHF respectively). The price on the OTC markets generally matches the price on their own domestic markets, although there is often a much larger bid/ask spread due to lower volume, and price differences stemming from currency conversion.

Personal Finance Calculators

Home Budget Calculator

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The most difficult thing people think of with personal finance is building your monthly budget, and sticking to it. There are tons of different expenses and payments to consider, so we put all the big ones in one place! This tool will also help you see exactly how much you can set aside for savings every month!

If you have already used our Buy Vs Lease Calculator to see how much your home payments will be, use this value to build a budget around the expenses you know you will have!

Once you have built a monthly budget, and see how much you can save, take that to our Saving To Be A Millionaire Calculator to see how long it will take to earn $1,000,000 with that saving level!

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Personal Finance Calculators

Car Loan Calculator

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The first BIG purchase many people make is when they buy their first car. This calculator will help show the impact of many of the biggest factors people need to consider when taking out their first loan for a big purchase.

If you have used our Credit Card Payment Calculator to see how minimum payments on small loans are made, you might want to start to think what happens when you make bigger purchases, with bigger loans.

Once you have found the payments you can make on a car you can afford, check out our Buy Vs Lease Calculator to start seeing when actually buying a big purchase is REALLY cheaper than renting!

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Personal Finance Calculators

Credit Card Payment Calculator

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Credit Cards! These are usually the first “loans” a person takes out, and the first monthly payments! Tens of thousands of young people dig themselves deep into credit card debt before they even realize it, so have fun with this payments calculator to see how much these bits of plastic REALLY cost!

If you have already used our Compound Interest Calculator, try using the same interest rate you hoped to save at as the same amount your credit card company charges. Then double it to get a more realistic picture!

Once you have seen the impact that taking out loans can have at different interest rate and payment schemes, check out our Car Loan Calculator to see how you can budget a big purchase without losing your wallet!

 
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Personal Finance Calculators

Savings Growth and Compound Interest Calculator

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Compound Interest Calculator

The first thing to consider with all personal finance is the idea of compound interest! This is what separates the “Piggy Bank” savers from the Warren Buffets; making use of interest compounding is how you can really make your savings grow!

If you have already used our Investment Return Calculator, you can use this calculator to see how different types of compounding will affect your overall return!

Once you can really see the impact of interest compounding and growth, try out our Credit Card Payments Calculator to see what happens when you are paying interest, not earning it!

 

 

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Personal Finance Calculators

Advanced Investment Return Calculator

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Advanced Investment Return Calculator

Find out the difference between Simple and Compound Interest! See how big an impact your tax rates and inflation have on your savings over time!

If you have already used our Becoming A Millionaire Calculator, you can use your targeted Expected Investment Return numbers in this calculator to see how to make that return happen!

Once you see how moving the rate of return affects your profits, try checking out our Compound Interest Calculator to see how the different types of compounding can have a big impact on the final return!

Check out some of our other calculators:

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Personal Finance Calculators

Saving To Be A Millionaire Calculator

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Want to be a millionaire? Everyone does, but do you know how much you need to save and what rate of return you need to get on your investments to reach that million level? This financial calculator helps you learn how your savings grows over time and how sensitive your final savings balance is to the rate of return you are earning.

  • Did you know if you start saving $100 a month on your 18th birthday and put that money in a piggy bank, by the time you are 65, you will have $56,400 in your piggy bank (and $0 in interest).
  • But if you put that $100 a month in a savings bank account that paid 3% interest, then by the time you are 65, you will have $122,425 in your bank account. That’s the $56,400 you saved plus $66,025 interest paid by the bank to you.
  • That’s a big improvement, but if you could earn 8% return on your $100 monthly savings, then by the time you are 65 you will have $566,754 in savings! This example uses 8% because that is the historical return of the stock market.
  • Better yet, if you save twice the amount per month ($200 instead of $100) you will have exactly twice the value at age 65, or $1,133,508.
  • So how do you become a millionaire? Start saving $177 a month on your 18th birthday, earn 8%, and have a bank account worth $1,003,155 on your 65th birthday.

If you have used our Home Budget Calculator, you can use your monthly savings plan with this tool to see how long it will take to reach your savings goal!

Once you see how big of an impact the Expected Rate of Return has on your savings growth, take a look at our Advanced Investment Return Calculator to see more details on how to make those big returns happen!

Make sure you click the VIEW REPORT button below!




Take The Quiz!

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Personal Finance Calculators

Buy vs Lease Calculator

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Buy Vs Lease Calculator!

The biggest expense most people have is the place they live, one of the biggest decisions young people face is whether to buy their home, or continue to rent. Conventional wisdom says that buying will pay off in the long term, but believe it or not this is not always the case!

If you have used our Car Loan Calculator to see what kind of loan you can afford with your budget, you can use the same numbers you ended with there to get a great idea of where your personal cut-off would be between whether to Buy or Lease!

Once you know what kind of home you are getting, and how much you would have to pay a month, check out our Home Budget Calculator to build a budget around your expenses, and determine how much you are able to save every month!

Make sure you click the VIEW REPORT button below!

 





Take The Quiz!

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Personal Finance Calculators, Tools

Net Present Value Calculator

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Use this calculator to find Net Present Value, based off expected annual growth, cash flow over a variable number of years, and separations of cash flow between investments and operations.
This calculator will help you determine the attractiveness of a company by seeing how much it would be worth if you wanted to buy it today! You can start by taking an existing company and filling in the company’s costs (or Cash flow from Operations) and what the company makes (or Cash flows from Investing). You can then play around with the Weighted Average Cost of capital, expected annual growth and see what the company is worth today!

 




Pop Quiz

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Personal Finance Calculators

Internal Rate Of Return Calculator

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Use this calculator to calculate an Internal Rate of Return! Inputs include regular deposits and withdrawals, up to 20 irregular withdrawals, and whether to calculate based on deposits at the beginning or end of the period.

The Internal Rate of Return or “IRR” is an important concept in math, finance and economics. It is frequently used to find out how attractive an investment is. The IRR will give you a measure of how much, in percentage terms, the yield will be for the given investment. The IRR is calculated by setting the Net Present Value to zero.

The Calculated IRR is in yearly terms even if you use a different period for withdrawals and payments or a different start and end date. That is, it will give you the equivalent interest rate per year with the selected values.

 





Advanced, Technical Analysis

Technical Analysis Software

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Technical analysis software gives a user the ability to quickly manage information and is often provided by a brokerage for free or a small premium. You can also get the software without having a brokerage.

These software allow users to perform a variety of tasks depending on the specific tool you use.

They often have but are not limited to charting, news, fundamentals, trade automations, back testing, and many other features that are useful for trading. It is important to note that they are called technical analysis software they are not limited to just technical analysis; many can be used as stock screeners, fundamental research tools, and much more.

Anyone interested in day trading stocks should be familiar with the basics of technical analysis, and try one or two software packages to see what all the fuss is about.

Advanced, Country Specific Investing

Investing in Serbia

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Introduction

Serbia is a European country with an upper-middle income economy. It had one of the fastest growing economies of its region, in terms of GDP growth rates prior to the global recession, and attracted solid foreign direct investment.

 

Serbia’s Main Industries

Serbia is economically known for its strength in:

  1. Agriculture Sector
    1. Fruits
    2. Vegetables
    3. Live cattle
  2. Mining and Metals Sector
    1. Iron
    2. Steel
    3. Non-ferrous metals
  3. Industrial and Manufacturing Sector
    1. Metal processing
    2. Machinery
    3. Mechanical and household appliance production
    4. Consumer electronics
    5. Food Processing
    6. Textiles and Footwear
  4. Forestry Sector
    1. Timber
    2. Wood
  5. Natural Resources
    1. Oil
    2. Coal
    3. Copper
    4. Lead
    5. Zinc
    6. Bauxite
    7. Iron Ore

 

Serbia’s Main Stock Exchanges

The main stock exchange in Serbia is the Belgrade Stock Exchange (BELEX)

  • Founded in 1894
  • In 2004 became a member of the Federation of Euro-Asian Stock Exchanges
  • Trading mainly occurs in equities and debt of listed Serbian companies. Future plans are underway to include other instruments such as rights, warrants, and derivatives
  • Serbia’s Main Index is the BELEX 15 – consists of Serbia’s 15 most heavily traded listed companies

Glimpse into Serbia’s Equity Market

After experiencing significant negative impacts from the global recession, and performing quite poorly between 2008 and 2009, Serbian equities have rebounded in 2011 with a promising outlook for the near-term.
However, the Serbian stock exchange is not very liquid, which adds to its risk. As such, the good performance could be largely liquidity-driven and investors remain cautious. The Belex 15 stock index has increased around 15% since the beginning of 2011, with its energy stocks performing particularly well.

 

Serbia’s Top 10 Companies

Rank Company Profit 2009 (Euro) Revenue 2009 (Eur) Revenue Growth (YoY)

  1. Naftna Industrija Srbije AD -393,851,753 -92,165,916 -27.14%
  2. JP Elektroprivreda Srbije -144,741 -24,991,065 4.65%
  3. Telekom Srbija AD 162,153,620 62,646,388 1.63%
  4. JP Srbijagas 9,873,843 3,397,005 -4.78%
  5. Delta Maxi DOO 18,989,256 18,560,216 8.65%
  6. Termoelektrane Nikola Tesla DOO -17,739,454 -97,846,294 5.48%
  7. U.S. Steel Serbia DOO -153,051,128 4,914,422 -44.37%
  8. Mercator – S DOO 12,071,671 -4,259,543 318.49%
  9. Elektrovojvodina DOO -6,931,560 -8,322,647 2.99%
  10. YugoRosGaz AD 13,715,564 23,495,704 -32.94%

 

Ways to Invest in Serbia

There are a couple of different ways to invest in Serbian companies:

  1. Through a bank in Serbia
    1. AIK Banka
    2. Banca Intesa Beograd
    3. OTP Banka Srbija
    4. Alpha Bank Beograd
    5. Piraeus Bank
    6. Raiffeisenbank Beograd
    7. Volksbank Beograd
  2. ETFs with some exposure to Serbia
    1. ESR:NYSEArca– seeks to track the MSCI Emerging Markets Eastern European Index Fund
    2. GUR:NYSEArca – SPDR S&P Emerging Europe ETF
Advanced, Charts and Patterns, Technical Analysis

Cup With Handle

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A cup-and-handle chart pattern resembles a cup of coffee with a cup (half circle) and handle (downwards trading pattern). It is a bullish continuation pattern that marks a pause (sideways trend) in the bullish trend. The entire pattern can be anywhere between 1 month to a little more than year. The handle should generally by anywhere from a quarter to a little less than a half of the cup duration.

The cup should be well rounded, it can be fairly steep but should not be so abrupt that it looks like a V. It should also not be so flat that it could be mistaken for a straight line. The handle should be a fairly narrow downward or flat trend.

The cup and handle should always start with an upward trend. The height of the cup and the initial up trend are also important to have a successful cup and and handle pattern. The height of the cup should be approximately between one third (1/3) to two thirds (2/3 of the initial upward trend.

For example, if we have a stock that initial moved from 20 to 30$ and then started to create a cup, the height of that cup should be between about 3.3 (1/3 * 10) and 6.6 (2/3 * 10).

cupandhandle

As with most technical analysis patterns, there are guidelines to indicate the strength of the trend.

1. The closer it is to a nicely rounded cup, the stronger the trent
2. The “handle” can only convert to a breakout when there is strong volume.

Advanced, Country Specific Investing

Investing in Latvia

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Latvia is an EU member country that experienced superior GDP growth rates prior to the financial crisis in 2008. It underwent significant privatization, which resulted in large foreign direct investment inflows. Its economy was ranked first among developing countries until 2008.

Latvia’s Main Industries

Latvia is economically known for its strength in:

  • Pharmaceuticals and Chemicals Sector
    • Phytopharmaceuticals
    • Paints and varnishes
    • Chemical compounds
    • Synthetic fibres
    • Cosmetics and perfume
    • Plastic and rubber products
  • Biotechnology Sector
  • Industrial and Manufacturing Sector
    • Electronics Manufacturing and Engineering
    • Electrical Engineering
    • Textile and Clothing Sector
      • Cotton
      • Wool
      • Garments and accessories
      • Linen
      • Synthetic fibre
  • Agriculture Sector
    • Fruits and Vegetables
    • Bread and Grain
    • Fish
    • Dairy
    • Meat
    • Beverages
  • Forestry Sector
    • Timber
    • Wood
    • Pulp
    • Paper
    • Fibreboard

 Latvia’s Main Stock Exchanges

 The main stock exchange in Latvia is:

A) Riga Stock Exchange (currently NASDAQ OMX Riga)

  1. Founded in 1993 as the Riga Stock Exchange
  2. Is a self-regulating organization, owned by the NASDAQ OMX
  3. Utilizes the highly advanced trading technology (INET)
  4. Serves trading in equities, fixed income, derivatives, and depository receipts
  5. Currently has 30 members on the exchange
  6. Indices

B) OMXR/RIGSE Index

 

Latvia’s Economic and Investment Performance

After superior growth, Latvia’s economy suffered a severe contraction mainly due to a credit-induced high consumption and bubble. Prior to that, it was a hub for foreign investment and capital, after privatisation led to its economy opening up.

After ranking first among developing countries, it suffered a significant economic contraction. Nevertheless, sound economic and investment policies enabled it to stabilize in 2010 and it remains a promising country with strong potential.

 

Latvia’s 10 Most Profitable Companies in 2010

Rank Company Symbol : Ticker Profit ($millions) Revenue ($millions)
1 Latvijas Gaze GZE1R-RG 668.29 48.78
2 Grindeks GRD1R-RG 123.22 13.45
3 Latvijas Balzams BAL1R-RG 98.84 7.42
4 Olaines Kimiski-Far OLF1R-RG 47.81 6.69
5 LATVIJAS TILTI AS LTT1R-RG 42.45 3.77
6 SAF Tehnnika SAF1R-RG 18.03 2.57
7 Valmieras Stikla Skiedra VSS1R-RG 74.08 1.17
8 Ditton Pievadkelu AS DPK1R-RG 14.6 0.72
9 BRIVAIS VILNIS AS BRV1R-RG 13.49 0.66
10 LIEPAJAS AUTOBUSU PARKS AS LAP1R-RG 10.15 0.45

 

Ways to Invest in Latvia

There are a couple of different ways to invest in Latvian companies:

  • Through a Latvian Bank
    • Aizkraukles Banka
    • Danske Bank
    • Nordea Bank
    • DnB NORD Banka
    • SEB Banka
    • Swedbank
  • ETFs
    • ESR:NYSEArce – has exposure to various Eastern European countries including Latvia
Advanced, Country Specific Investing

Investing in Belgium

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Belgium is an EU member located in Western Europe. It has a strong industrialized economy, well-developed transportation infrastructure, and a highly productive work-force making it an attractive destination for foreign capital.

Belgium’s Main Industries

  Belgium is economically known for its strength in:

  • Diamonds
  • Industrial and Manufacturing Sector
    • Engineering and Metal Products
      • Minerals Processing
        • Copper
        • Zinc
        • Lead
    • Steel and Iron Production
  • Heavy machinery and industrial equipment production
  • Motor  and Vehicle Assembly and Production
    • Automobiles
    • Ships and vessels
  • Petroleum
  • Food and Beverage Processing
  • Chemicals and Pharmaceuticals
    • Sulphuric Acid
    • Nitric Acid
    • Synthetic Ammonia
    • Crude Tar
  • Textiles Processing
    • Cotton
    • Wool
    • Linens
    • Synthetic Fabrics
    • Spinning
    • Weaving

 

Belgium’s Main Stock Exchange

The main stock exchange in Belgium is:

  1. 1.      Euronext Brussels
    1. Founded in the early 19th century
    2. Merged with the ParisBourse and Amsterdam Exchanges to form Euronext
    3. Euronext provides a single, cross-border exchange for markets in equities and derivatives
    4. Main Index

i.     BEL 20 – includes twenty highly liquid Belgian equities

 

Belgium is an important trading partner with many EU members, and as such, many companies in the EU region have also listed on the Euronext Brussels.

Glimpse into Belgium’s Equity Market

Belgium listed equities have rebounded following the 2008 financial crisis yielding around 30% from recessionary bottoms, as represented the BEL 20 index.

The Euronext Brussels market capitalization rose 17% from Euro 202 billion (2009) to Euro 273 billion (2010).

Stock Index Performance: BEL 20 Index

Belgium’s 10 Most Profitable Companies in 2010

Ways to Invest in Belgium

There are a couple of different ways to invest in Belgian companies:

  • Financial or Investment firms
    • Brokerage services are provided by domestic or international firms in Belgium
    • Through a regional Belgian bank
      • Belgian banks offer securities investment services
        • AXA Bank
        • KBC Bank
        • BNP Paribas Fortis
        • Argenta
        • Belgian ETFs
          • EWK:NYSE ARCE – tracks the MSCI Belgium Investable Market Index
          • Through some international online brokers:
            • MB Trading
            • Interactive Brokers
            • TD Ameritrade
            • E-Trade
            • Questrade
            • optionsXpress
            • optionshouse
            • tradeMONSTER
            • Charles Schwab
Advanced, Country Specific Investing

Investing in Italy

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Italy is an EU member country and one of G-8 leading industrialized economies, having the seventh largest economy in the world. Its thriving small and medium enterprises play an important economic role. Italy has world-leading companies in manufacturing, automobiles, textiles, and agriculture.

 

Italy’s Main Industries

 Italy is economically known for its strength in:

  • Agriculture Sector
    • Maize corn
    • Olive Oil
    • Fruits and Vegetables
    • Flowers
    • Wine
    • Meat
    • Dairy Products
    • Services
      • Financial
        • Banking
        • Insurance
        • Asset Management
  • Tourism
  • Precious metals
    • gold
    • Industrial and Manufacturing
      • Iron and Steel
      • Chemicals
      • Machinery
      • Automotives
      • Precision Engineering
      • Textiles and CLothing

 

 

Italy’s Main Stock Exchanges

 

The main stock exchange in Italy is:

  1. 1.      Borsa Italiana
    1. Founded in 1808 and operated under state ownership until privatisation in 1997
    2. In 2007 was purchased by the London Stock Exchange
    3. Serves trading in equities, and plays an important role in Italy’s fixed income and derivatives market
    4. Some Indices

i.     FTSE/MIB Index

ii.     MIBTel

Glimpse into Italy’s Equity Market

Foreign equity investors have remained cautious, with investment inflows not being significant in 2010. Italy’s equities have been considerably impacted by the Euro-zone debt and default crisis, and amid an uncertain economic outlook, with the stock index down 12% during the 2010 year.

Market capitalization of stocks has been stable, increasing from $317 billion in 2009 to $318 billion in 2010.

 

Italy’s 10 Most Profitable Companies in 2010

Ways to Invest in Italy

There are a couple of different ways to invest in Italian companies:

  • Through Italian Banks or foreign ones located in Italy
    • Banca d’Italia
    • Banco di Roma
    • Intesa Sanpaolo
    • Banca delle Marche
    • Canadian ETFs
      • EWI: NYSEArca – tracks the MSCI Italy Index
      • Through some international online brokers:
        • MB Trading
        • Interactive Brokers
        • TD Ameritrade
        • E-Trade
        • Questrade
        • optionsXpress
        • optionshouse
        • tradeMONSTER
        • Charles Schwab
Advanced, Country Specific Investing

Investing in Ireland

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Ireland is an EU member country with a knowledge-based economy and strong industries in services and technology. With attractive corporate tax rates, Ireland has been ideal destination for multinational corporations.

 

Ireland’s Main Industries

  Ireland is economically known for its strength in:

  • Agriculture Sector
    • Cattle
    • Beef
    • Dairy
    • Services Sector
      • Financial
        • Banking
        • Asset Management
  • Tourism
  • Mining and Metals Sector
    • Zinc
    • Lead concentrates
    • Alumina
    • Coal
    • Gypsum
    • Limestone
    • Industrial and Manufacturing Sector
      • Construction Sector
        • Residential property
  • Pharmaceuticals and Chemicals
  • Technology Sector
    • Hardware
    • Software related goods and services
    • Energy Sector
      • Supply and distribution of natural gas
      • Electricity
      • Coal

Ireland’s Main Stock Exchanges

 The main stock exchange in Ireland is:

  1. 1.      Irish Stock Exchange
    1. Founded in 1793 and is Ireland’s sole independently-owned exchange
    2. Has an established and extensive debt securities trading market
    3. Operates three principal markets

i.     Securities of established domestic and global Irish companies

ii.     Growth-oriented companies

iii.     Debt market

  1. Indices

i.     ISEQ Overall Index

 

Glimpse into Ireland’s Equity Market

Irish equities experienced negative returns following the 2008 economic crisis. With the Irish banking sector have a heavily credit exposure to a deteriorating and crashing property market, the economy underwent significant problems.

The 3-year return on the ISEQ overall index was -48%. The index has somewhat recovered however, with the last 9 months yielding 4.5%

ISEQ Return

Ireland’s 10 Most Profitable Companies in 2010

Irelands 10 most profitable companies

Ways to Invest in Ireland

There are a couple of different ways to invest in Irish companies:

  • Irish Banks of foreign banks/investment companies in Ireland
    • Allied Irish Banks
    • Anglo Irish Bank
    • Bank of America
    • DePfa Bank
    • KBC Bank Ireland
    • Rabobank Ireland
    • Goldman Sachs Bank (Europe)
    • Irish ETFs
      • EIRL:NYSEArce – seeks to track the MSCI Ireland Capped Investable Market Index
      • EKH:NYSEArce aims to allow diversification through the performance of some of the largest European companies listed on the US market (has some exposure to Irish companies)
      • Through some international online brokers:
        • MB Trading
        • Interactive Brokers
        • TD Ameritrade
        • E-Trade
        • Questrade
        • optionsXpress
        • optionshouse
        • tradeMONSTER
        • Charles Schwab
Advanced, Country Specific Investing

Investing in Hungary

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Hungary Flag

Hungary is an EU member country with a medium-sized, liberal economy that is rapidly developing. It has the 5th largest economy in Central and Eastern Europe, with major exports in machinery, chemicals, textiles, and agricultural products.

 

Hungary’s Main Industries

 Hungary is economically known for its strength in:

  • Agriculture Sector
    • Wheat
    • Corn
    • Sunflower
    • Potato
    • Sugar beet
    • Canola
    • Apple
    • Pear
    • Grape
    • Wine
    • Livestock
    • Industrial and Manufacturing Sector
      • Automobile Production
        • Engine manufacturing and production
        • Vehicle Assembly
  • Heavy Industry
    • Mining and Metallurgy
      • Metalworking and processing
      • Steel Production
      • Metallurgy
      • Machine Production
        • Machine tools
        • Transport Equipment
        • Electrical Appliances

 

  • Energy Production
  • Mechanical Engineering
  • Chemicals
  • Food Processing
  • Services
    • Tourism

 Hungary’s Main Stock Exchange

The main stock exchanges in Hungary is:

  1. 1.      Budapest Stock Exchange
    1. Previously The Hungarian Stock Exchange (1864)
    2. Operates as a subsidiary of the CEESEG AG holding company, which owns around 70% of the BSE
    3. Over 40 domestic and international brokers participate in trading on the BSE
    4. Products traded include

i.     Equities

ii.     ETFs

iii.     Government and corporate debt

iv.     MBS

v.     Futures and options

vi.     Grain commodities

  1. Important indices

i.     BUX

ii.     MSCI Hungary Index

 

Glimpse into Hungary’s Equity Market

Hungary’s economy was severely impacted by the recent recession, owing partly to having one of the largest public deficits in the EU region. However, it has recovered quite well, and its equities have rebounded solidly over the past year.

The MSCI Hungary Index stock index rose 24.36% over the last year, with a year-to-date of 16.59% return.

Stock Index Performance: BUX

Hungary Stock Index Performance

Hungary’s 10 Most Profitable Companies in 2010

Hungary 10 Most Profitable Companies

 

Ways to Invest in Hungary

There are a couple of different ways to invest in Hungarian companies:

  • Through a regional Hungarian Bank or a foreign bank/investment company located in Greece
    • Erste Bank Hungary
    • Budapest Hitel
    • OTP Bank
    • Deutsche Bank
    • BNP Paribas Hungaria Bank
    • Raiffeisen Bank
    • Investors can purchase equities through a regional bank
    • Hungarian ETFs
      • ESR:NYSEArca – tracks the MSCI Emerging Markets Eastern European Index Fund
      • GUR – aims to replicate the SPDR S&P Emerging Europe index, and has over 5% exposure to Hungary
      • Through some international online brokers:
        • MB Trading
        • Interactive Brokers
        • TD Ameritrade
        • E-Trade
        • Questrade
        • optionsXpress
        • optionshouse
        • tradeMONSTER
        • Charles Schwab
Advanced, Country Specific Investing

Investing in Peru

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Peru is a Latin American country with an emerging, market-oriented economy that has been among the top performers in South America. Rich in natural resources, it is a major exporter of gold, copper, zinc, and fish.

 

Peru’s Main Industries

Peru is economically known for its strength in:

  • Agriculture Sector
    • Fishing
    • Artichokes, grapes, avocadoes, mangoes,
    • Cotton
    • Coffee
    • Sugar
    • Services Sector
      • Tourism
      • Natural Resources
        • Copper
        • Gold
        • Silver
        • Petroleum
        • Timber
        • Iron ore
        • Coal
        • Natural gas
        • Mining Sector
          • Gold
          • Coal
          • Copper
          • Zinc
          • Silver
          • Iron Ore
          • Manufacturing and Industrial Sector
            • Metal mechanics
            • Tobacco processing
            • Food processing
            • Textile

Peru’s Main Stock Exchanges

 The main stock exchange in Peru is:

  1. 1.      Bolsa de Valores y Productos de Asunción (BVPASA)
    1. Established in 1977 and is Peru’s only stock exchange
    2. Exchange provides trading services in equities and debt securities of both public and private companies
    3. Stock Index

i.     IGBVL index

 

Glimpse into Peru’s Equity Market

Prior to the global financial crisis in 2008, Peru experienced economic growth that was among the top-performers in Latin America (2007 and 2008). Political stability and liberalised economic policies have made Peru a very open investment regime, attracting significant foreign investment and capital

Equities performed exceptionally well in 2009 and 2010, with the IGBVL index rising 101% and 65%, respectively.  Between the same periods, the market capitalization of its exchange grew by 43% from $US 69.7 billion to $US 99.8 billion.

Peru’s 10 Most Profitable Companies in 2010

Peru 10 Most Profitable Companies

Ways to Invest in Peru

There are a couple of different ways to invest in Peruvian companies:

  • Through a Peruvian Bank or foreign one located in Peru
    • BBVA Banco Continental
    • Banco Financiero del Peru
    • Bank of Nova Scotia
    • JP Morgan Chase Bank
    • Banco Standard Chartered
    • Citibank
    • Peruvian ETFs
Advanced, Country Specific Investing

Investing in Portugal

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Portugal is an EU member country with a high-income and service-based economy. It enjoys vast forests, has a strong industrial base, and is an important agricultural exporter.

Portugal’s Main Industries

Portugal is economically known for its strength in:

  • Agriculture and Fishing Sector
    • Cereals
    • Olives
    • Wheat
    • Maize
    • Wine
    • Oranges
    • Fish
    • Industrial and Manufacturing Sector
      • Oil refining
      • Cement production
      • Machinery and electronics
      • Textile and footwear
      • Food processing
      • Forestry Sector
        • Pulp
        • Paper
        • Services Sector
          • Tourism
          • Transport
          • Telecommunication
          • Financial
            • Banking
            • Natural Resources Sector
              • Lithium
              • Tungsten
              • Tin
              • Uranium

 

Portugal’s Main Stock Exchanges

The two main stock exchanges in Portugal by size are:

  1. 1. Euronext Lisbon
    1. Created in 1769 as the Lisbon Stock Exchange
    2. Acquired in 2002 by Euronext NV to become Euronext Lisbon. It became part of the NYSE Euronext Group following their merger in 2007
    3. Trading occurs mainly in equities, bonds, warrants, ETFs, and derivatives
    4. Index

i. PSI-20 – composed of Portugal’s 20 largest companies by market cap and share volume

 

  1. 2. OPEX
    1. An alternative trading system (ATS) geared for trading in small and medium sized Portuguese companies
    2. Listing criteria is not very rigid and regulated
    3. Specializes in alternative investments and securities such as

i. Warrants and certificates

ii. Derivatives

  1. Investors include private equity investors, hedge funds, and pension funds

Glimpse into Portugal’s Equity Market

The performance of Portuguese equities has been heavily impacted by the Euro-zone peripheral economies’ debt crisis, as well as its own. The Market capitalization of its exchange fell by 17% in 2010 to $81.9 billion, and its equities have significantly underperformed during the last 3 years with a -30% return.

Investor capital and equity outflows have been considerable during this period, and investment should be limited with the current uncertain outlook. Portugal has recently negotiated a $110 billion bailout from the EU and IMF.

Ways to Invest in Portugal

There are a couple of different ways to invest in Portuguese companies:

  • Through a regional Portuguese Bank
    • Portuguese banks enable their clients to invest in securities listed on the exchange
      • Banco Espirito Santo
      • Banco Comercial Portugues (BCP)
      • ETFs with exposure to Portugal
        • CUT:NYSEArca – tracks the Beacon Global Timber Index
        • DFE:NYSEArca – tracks the WisdomTree Europe SmallCap Dividend Index
        • Through some international online brokers:
          • MB Trading
          • Interactive Brokers
          • TD Ameritrade
          • E-Trade
          • Questrade
          • optionsXpress
          • optionshouse
          • tradeMONSTER
          • Charles Schwab
Advanced, Country Specific Investing

Investing in Romania

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Romania is an EU member country, which has experienced positive foreign direct investment and GDP growth following privatization initiatives over the last decade. It has an upper-middle income economy strong in its industrial and agricultural sectors. 

Romania’s Main Stock Exchanges

The two main stock exchanges in Romania by size are:

1. Bucharest Stock Exchange

It was founded in 1882 and has merged with Romania’s OTC exchange (RASDAQ) in 2005.

The principle securities traded on this exchange include:

  1. Equities
  2. Government and Corporate debt
  3. Fund units
  4. Structured products

2. SIBEX

It is Romania’s second largest exchange, and is designed for trading in derivative securities such as futures and options on

  1. Stocks and indexes
  2. Currencies
  3. Interest rates
  4. Commodities such as gold

 

Glimpse into Romania’s Equity Market

Romania’s major index is the BET, which is composed of Romania’s 10 largest listed companies.

Romanian equities yielded positive returns of 16% during the last year, and have performed solidly relative to other European equities.

Ways to Invest in Romania

There are a couple of different ways to invest in Romanian companies:

1. Through a bank in Romania

  1. Banca Tanssilvania
  2. Romanian International Bank
  3. CEC Bank
  4. Alpha Bank
  5. ABN Amro
  6. Raiffeisen Bank
  7. Citibank Romania
  8. Libra Bank

2. ETFs

ESR:NYSEArce – It is an emerging markets ETF with high exposure to Eastern Europe

Advanced, Country Specific Investing

Investing in Argentina

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Argentina is a South American country that is one of the G-20 economies. It is the third largest economy in Latin America and has the highest GDP per capita in its region. It possesses plenty of natural resources, a strong agricultural sector, and a well-educated population.

Argentina’s Main Industries
 Argentina is economically known for its strength in:

  • Agriculture
    • Beef
    • Fruits and Vegetables
    • Wheat
    • Cattle
    • Natural Resources
      • Mining
        • Coal
  • Metals
    • Gold
    • Copper
    • Zinc
    • Magnesium
    • Uranium Silver
  • Energy
    • Oil and Petroleum
    • Natural Gas
    • Electricity
    • Manufacturing
      • Food Processing
      • Chemicals and Pharmaceuticals
      • Auto Parts, Iron, and Steel
      • Industrial Machinery
      • Textiles
      • Forestry Products
      • Cement
      • Tobacco

 Argentina’s Main Stock Exchanges

The two main stock exchanges in Argentina by size are:

  1. 1. Buenos Aires Stock Exchange
    1. Argentina’s largest and primary stock exchange
    2. Operates as a self-regulating, non-profit entity
    3. Main Index

i.     MERVAL – an important price-weighted index of the exchange

 

Ways to Invest in Argentina

There are a couple of different ways to invest in Argentine companies:

  • Through regional Argentine banks and financial firms or international ones operating in Argentina
    • Santander Rio
    • BBVA Banco Frances
    • BNP Paribas
    • BACS BANCO DE CREDITO Y SECURITIZACION
    • Argentina ETFs
      • ARGT: NYSEArca
      • EEV – emerging market ETF with exposure to various countries including Argentina
      • Through some international online brokers:
        • MB Trading
        • Interactive Brokers
        • TD Ameritrade
        • E-Trade
        • Questrade
        • optionsXpress
        • optionshouse
        • tradeMONSTER
        • Charles Schwab

Glimpse into Argentina’s Equity Market
Considered an emerging economy, Argentina attracts significant foreign investors and capital.

The MERVAL (stock index) reached an all-time historical high in January 2011. Although the index deteriorated significantly following the 2008 financial crisis, it has since risen by over 90% from its bottom.

Market capitalization of listed equities rose from $49 billion in 2009 to $64 billion in 2010 – an increase of 31%.

Capital and financing inflows via international markets related to bond issuance and new equity placements had fallen from 2.5% to 0.5% of GDP during the 2008-2009 periods.  However, there have been some notable IPOs in 2010/11, which indicates a positive outlook.

Advanced, Country Specific Investing

Investing in Albania

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Albania is one of south eastern European countries that have shown promising economic growth potential. It has been increasingly attracting foreign direct investment and possesses a strong agriculture and natural resources industry.

Albania’s Main Industries

Albanias Main Industries

 

Albania’s Main Stock Exchange

The main stock exchange in Albania is:

  1. 1.      Tirana Stock Exchange (TSE)
    1. Previously operated as one of Albania’s central bank departments before becoming independent
    2. Is a member of the Euro-Asian Federation of Stock Exchanges (FEAS)
    3. Principal areas of exchange trading

i.     Equities

ii.     Treasury bills

iii.     Government and municipal bonds

iv.     Corporate bonds

 

Albania’s Economic and Investment Climate

Due to a combination of low debt levels and an absence of a housing bubble, Albania has weathered the recent global recession quite well. Foreign investment in Albania grew by around 173% from 2006 to 2009 reflecting a strong investment climate and outlook.

Albania’s banking system continues to develop amid its progress towards a developed market economy, providing a stable financial system environment.

Natural resources are considerable, and include oil, gas, coal, iron, copper, chrome, and water.

Albania’s 10 Most Profitable Companies

Ways to Invest in Albania

There are a couple of different ways to invest in Albanian companies:

  • Through Albanian regional banks and financial companies
    • Raiffeisen Bank
    • National Commercial Bank
    • Triumf group
    • Alpha Bank
    • Societe Generale Albania
    • ETFs
      • Some US listed ETFs with exposure to Albanian stocks
        • WCAT: NYSEArca
        • CNDA: NYSEArca
A -G, Economics, Glossary

Gross National Product

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Gross National Product is the value of all goods and services produced by a country’s residents.

GNP

  • Is based on the market value of goods and services
  • Takes only final goods and services into consideration
  • Relies on factors of production such as the country’s labor and capital
  • Is measured on an annual basis

 

How is GNP used?

Gross National Product statistics are used to

  • Measure the economic activity of a country
  • Evaluate and analyze economic growth
  • Assess how productive a country’s factors of production are
  • Measure the value of important goods and resources
  • Analyze the income earned by a country’s residents
  • Compare the performance of different countries
  • Develop economic policies aimed at improving GNP figures

How is GNP Measured?

Two approaches can be used to measure GNP: (1) The Income Approach (2) The Expenditure Approach

(1)    Income Approach

  • Measures the income or earnings received by the country’s factors of production (Labor, Land, Capital)

 GNP = Wages + Interest Income   + Rental Income + Profit

  • GNP or National Income is the sum of
    • Wages
      • The salaries, income or earnings that residents received for their work and labor during an entire year
      • Interest Income
        • Any income earned from holding assets or funds in
          • Bank savings accounts
          • GICs
          • Treasury-Bills
          • Canada Savings Bonds
          • Interest earned on foreign investments
      • Rental Income
        • Any income earned from owning and renting property.
        • Includes income from renting
          • A house
          • Apartments
          • Rooms
          • Office space
      • Profit
        • Income earned from investments (e.g., dividends from stocks)

(2)    The Expenditure Approach

  • Measures the amount spent or paid (expended) on all goods and services during the year at market value or prices
  • Uses and sums up two main components: (1) Gross Domestic Product and (2) Net Income from Abroad
    • We need to first calculate Gross Domestic Product (GDP)
      • GDP is the value of a country’s products and services produced in year
        • 5 main components of GDP
          • Private Consumption and Expenditure (households) – C
          • Investment Expenditure –  I
          • Government Expenditures – G
          • Exports   – X
          • Imports – M

GDP = Private Consumption + Investment Expenditure + Government Expenditures + Net Exports

GDP           =                C    +     I    +    G   +   (X   –   M)

 Next, we determine Net Income from Abroad, which is composed of

  • Income from Abroad – income received by citizens from overseas business activities
  • Income to abroad – income provided to foreign citizens from their business activities in the domestic country

Using both components, we calculate GNP as

GNP = GDP + Net Income from Abroad

Conclusion

The Gross National Product (GNP) is an economic measure of the market value of all goods and services produced by a country’s residents. It is an important and widely followed statistics that indicates the strength and growth of an economy, as well as the productive use of its factors of production such as labor and capital. It can be measured using the income or expenditure approach.

A -G, Advanced, Fundamental Analysis, Glossary

Free Cash Flow

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Free Cash flow is the cash available to all the capital providers of a company

There are two types of free cash flows

  • Free Cash Flow to the Firm (FCFF)
    • Cash flow available to pay out to all capital providers such as common stock holders, debt holders, and preferred stock holders.
    • Free Cash Flow to Equity (FCFE)
      • Cash flow that is available strictly to the company’s common stock holders (equity)

The FCFF and FCFE are not reported on a company’s financial statements, therefore, the analyst or investor must perform necessary calculations to arrive at these figures.

Financial Statement Items

First, we review some of the necessary financial statement items need to compute FCF

Net Income: the Earnings of the company after operating, interest, depreciation, and tax expenses have been made

Noncash charges: include items such as depreciation which do not represent an actual outflow of cash

Capital Expenditures:  the company’s investments in fixed assets and capital. These are an important source of future growth for a company

Working Capital:  the company’s short-term capital necessary to conduct its daily business operations. These include:

  • Receivables
  • Inventory
  • Payables

Cash Flow from Operations: The net amount of cash from the company’s operating activities

Interest Expenses: the company’s costs of assuming debt

Liabilities / Borrowing: The amount that the company borrows in terms of its debt obligations

FCFF and FCFE Equations

Free Cash Flow to the Firm (FCFF)

Cash available after operating expenses, working capital, and capital expenditures have been taken into consideration.

The company can use this cash flow to:

  • Pay its common equity holders with dividends
  • Pay its debt holders back (i.e., pay down its principal)
  • Pay its preferred equity holders

Equation:

FCFF = Net Income + Noncash items + Interest Expenses (1-Tax Rate) – Capital Expenditures – Working Capital Requirements

Free Cash Flow to Equity (FCFE)

Cash available to common equity holders after payments related to debt are made and working capital and capital expenditures are taken into account.

The payment s relating to debt include:

  • Payments such as interest expenses and debt principal repayment

The company can use this available cash flow to pay its common stock holders.

Equation:

FCFE = Net Income + Noncash items – Capital Expenditures – Working Capital Requirements + Net Borrowing

Why are FCFs used?

Some uses and applications of FCFs

  • To assess the company’s ability to pay its equity and debt capital providers
  • FCFs can be used when the company does not pay dividends, and as such, does not have a track record of paying equity holders. FCFs can indicate how much the firm can pay out
  • FCF can be used by a company to repay the principle related to its long-term debt
  • FCFs are used with for firm valuation purposes, such as with Discounted Cash Flow (DCF) models to measure a company’s intrinsic value

Conclusion

Free cash flows are a company’s cash available after operating expenses, capital expenditures and working capital requirements have been accounted for. It represents the funds available for the company’s capital providers. The FCFF represents cash available to both equity and debt capital providers, while the FCFE is the cash flow that can be reserved to the company’s common equity holders. FCFs play an important role in financial modeling and discounted cash flow techniques in determining valuation for an asset or financial security

A -G, Advanced, Fundamental Analysis, Glossary

Form-8K

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The Form-8K is a SEC-mandated report filed by public companies to report unexpected events or transactions that are material in nature, and thus have an impact on the share prices of the company.

In accordance with the Securities Exchange Act (1934), specifically defined events must be reported within 4 business days. The main purposes of the Form 8-K are to:

  • Satisfy regulatory requirements
  • To provide investors and shareholders with up-to-date company information
  • Update previously released reports such as the 10-Q (quarterly report) and the 10-K (annual report) with important developments.

The criteria for reporting such material events or transactions are defined within 9 major sections or categories. These events (or transactions) are deemed to be significant for investors and shareholders towards their investment-decision making.

 

Why are Form 8-K reports important?

To make sound investing decisions, investors need information that is timely, reliable, and accurate. Material information concerning the activities, operations, and business of a corporation can have a significant impact on important aspects such as

  • Future revenues, earnings, cash flows, and other financial items
  • Strategic direction
  • Competitive positioning in the market
  • The industry it operates in

Such factors inevitably will impact its share price in the market. Therefore, it is important that investors have access to important information that is crucial in making investment decisions.

Annual reports (10-K) and quarterly reports (10-Q) contain valuable information. However, there is a time lag between the issuance dates of such reports. The Form 8-K is therefore used as a vehicle to report material events not captured by the 10-Q or 10-K.

 

What are material events?

The actual Form 8-K is available for download on the SEC’s website at:

https://personalfinancelab.com/wp-content/uploads/2013/10/form8-k.pdf

Material events fall under one of 9 main sections.

Section 1- Registrant’s Business and Operations

MATERIAL EVENTS:

  • Entry into a material definitive agreement
  • Termination of a material definitive agreement
  • Bankruptcy or receivership

Section 2- Financial Information

MATERIAL EVENTS:

  • Completion of acquisition or disposition of assets
  • Results of operations and financial condition
  • Creation of a direct financial obligation or an obligation under an off-balance sheet arrangement of a registrant
  • Triggering events that accelerate or increase a direct financial obligation or an obligation under an off-balance sheet arrangement
  • Costs associated with exit or disposal activities
  • Material impairments

Section 3- Securities and Trading Markets

MATERIAL EVENTS:

  • Notice of delisting or failure to satisfy a continued listing rule or standard; Transfer of listing
  • Unregistered sales of equity securities
  • Material modification to rights of security holders

Section 4- Matters Related to Accountants and Financial Statements

MATERIAL EVENTS:

  • Changes in registrant’s Certifying Accountant
  • Non-reliance on previously issued financial statements or a related audit report or completed interim review

Section 5- Corporate Governance and Management

MATERIAL EVENTS:

  • Changes in control of registrant
  • Departure of directors or certain officers; Election of directors; Compensatory arrangements of certain officers
  • Amendments to articles of incorporation or bylaws;
  • Change in fiscal year
  • Temporary suspension of trading under registrant’s Employee Benefit Plans
  • Amendments to the registrant’s code of ethics, or waiver of a provision of the code of ethics
  • Changes in shell company status
  • Submission of matters to a vote of security holders

Section 6- Asset-Backed Securities

MATERIAL EVENTS:

  • Change of servicer or trustee
  • Change in credit enhancement or other external support
  • Failure to make a required distribution
  • Securities act updating disclosure

Section 7- Regulation FD

MATERIAL EVENTS:

  • Regulation-required disclosures

Section 8- Other events

MATERIAL EVENTS:

  • other events deemed material or having important informational value

Section 9- Financial Statements and Exhibits

MATERIAL EVENTS:

  • financial statements of businesses acquired
  • pro-forma financial information
  • shell company transactions

Conclusion

The Form-8K report is crucial for investors and shareholders in remaining current on major or material events and transactions performed by a company.

Such events typically have the ability to affect the firm’s stock price. Therefore, investors use such information to update their investment decisions such as buying, selling, or holding the stock.

The Form 8-K report is mandated by the SEC, with the purpose of providing timely and relevant information not included in annual or quarterly reports.

Advanced, Fundamental Analysis

Fixed Income Analysis

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Fixed income analysis is the process of evaluating and analyzing fixed income securities for investment purposes.

Fixed Income represents a distinct asset class. Investors and analysts perform fixed-income analysis to

  • Evaluate the risk characteristics underlying debt securities and to assess the capacity of the borrowing entity to meet its financial obligations (credit analysis)
  • Identify which debt securities represent attractive investment opportunities
  • Determine the appropriate valuation (or value) of debt securities in the market
  • Compare the investment characteristics (e.g., risk and return) of debt securities with each other and with other asset classes such as stocks, derivatives, real estate, or other.

Features and Characteristics of Fixed Income

Some important features of fixed income securities include

  • Government versus Corporate Bonds
    • On a very broad level, fixed income securities can be categorized as
      • Government
        • E.g., US Treasuries
    • Corporate
      • Bonds issued by public corporations
      • Issuer
        • The party, entity, or corporation that sells the debt obligation to investors
        • This is the borrowing entity
        • Borrower or Debt Security Holder
          • The party that has purchased the debt obligation (i.e., the lender)
          • Principal or Face Value
            • The amount borrowed which has to be repaid in full at a future date
            • Interest
              • The interest rate that is applied to the principal borrowed amount
              • Periodic Payments
                • The periodic dates during the life of the debt for which the borrower is responsible for making regular payments of interest or principal (or both)
                • Maturity
                  • The length of time from the inception of the debt to its termination
                  • Fixed-Income Options
                    • Options embedded within fixed income securities giving the lender or borrower the right to either redeem the obligation
                      • Callable Bond – the issuer of the debt obligation retains he right to redeem the bond before its maturity date
                      • Putable Bond – the holder of the debt obligation (the borrower) retains the right to redeem the bond before its maturity date
                      • Convertibility
                        • Convertible debt securities allow the debt security holder to convert the debt obligation into common equity

                        Elements of Fixed Income Analysis

                        The following elements are typically common when analyzing the fixed-income security of a corporation

                        • Credit Analysis
                          • Analysis of the company’s financial statements
                          • Assessment of creditworthiness and capacity to pay
                          • Analysis of collateral and covenants
                          • Risk Analysis
                            • Corporate fixed-income securities are exposed to certain risks, which can include one or more of the following
                              • Interest rate risk
                              • Inflation risk
                              • Credit or default risk
                              • Liquidity risk
                              • Foreign Exchange risk
                              • Sovereign risk
                              • Fixed-Income Valuation
                                • A time-value based formula and methodology is used to value fixed income securities
                                • The bond’s interest payments and principal are discounted back to today, to arrive at a present value figure (which is the bond’s value)
                                  • The present value of each future cash flow is found and summed up
                        •  The following are needed to perform the valuation
                          • The coupon or interest rate
                          • The coupon or interest payments
                          • The Face Value or Principal amount
                          • The discount rate used to find the present value of each future cash flow
                          • Comparison with Government Debt Securities
                            • Fixed-income analysis also includes a comparison of the corporate debt-security’s return or yield with that of risk-free US government debts (Treasuries)
                              • These are highly safe, liquid, and debt obligations
                              • The return on Treasuries is seen by investors as the minimum acceptable or possible return in the market
                              • The return on corporate fixed income securities is compared to the return on US treasuries to measure the “extra” yield/return offered (also referred to as risk premium)
                                • This extra return is required by investors for assuming the risks inherent in corporate fixed income securities (see above for list of risks)

                        Conclusion

                        Fixed income analysis is the analytical framework used to evaluate and assess fixed income securities for investment purposes. This includes credit and risk analysis, as well as bond valuation. It applies to securities such as government and corporate bonds, and plays an important role in the trading and pricing of such instruments in the market.

Advanced, Finance Knowledge

Financial Modeling

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In investment valuation, financial modeling refers to the procedure and methodology performed to determine the value of an asset or financial security

Fundamentally, a business or company’s current value can be viewed as being derived from its future cash flow streams. An investor deciding whether to purchase or sell a stock, therefore, will be interested in estimating such value.

Financial modeling is the creation of a program or structure designed to incorporate a company’s financial information and projections, and subsequently come up with a valuation used for investment decision making.

 

Uses and Applications

Financial modeling has multiple uses and applications

  • Portfolio Management and Security Valuation
    • Analysts and portfolio managers use financial modeling to determine a stock’s fair or intrinsic value
    • Used as a basis for making investment decisions and recommendations such as buying, selling, or holding financial securities
  • Investment Banking and Private Equity
    • Investment bankers use financial modeling to develop valuation figures for merger and acquisition candidates
    • Private equity investors make extensive use of financial modeling when making investment decisions regarding leverage buyouts and management buyouts
  • Real Estate Investment
    • Financial modeling is used by real estate developers and investors in determining the fair value of properties
  • Corporate Finance
    • Executive management use financial modeling for capital budgeting decisions such as
      • Investing in new projects, fixed assets, or equipment
      • Determining the value-creation or destruction from replacing existing assets or equipment

Key Elements in Financial Modeling

The use of advanced computer software is typically used to conduct DCF. Microsoft Excel is commonly used for its spreadsheet capabilities.

Assume that an analyst would like to use financial modeling to determine the value of a corporation. It can be performed as follows

  • Historical financial statements are used as a starting point
    • The company’s historical financial results are tabulated. The following statements are used
      • Income Statement
      • Balance Sheet
      • Cash Flow Statement
    • Analysts typically use 2-5 years of historical results
  • Financial projections, financial forecasts, and financial estimates are made
    • The analyst will use assessment of the economy, industry, and market to make key assumptions regarding future conditions. This forms the basis of determining future projections.
    • Growth rate estimates or projected values for the company’s key financial statement elements are made, such as for
      • Revenues, expenses, depreciation, interest expenses, and net income
      • Assets
      • Liabilities
      • Capital expenditure
      • Debt projections
  • Development of Pro-forma financial statements
    • Using the forecasts developed above, the complete set of projected financial statements are developed
  • Projection of Cash Flows
    • Cash flows can be defined in several ways
    • Using the pro-forma statements, the analyst will usually determine the company’s free cash flows
      • Free Cash flows are the company’s available cash after accounting for capital expenditures and working capital requirements
    • Such FCFs form the basis of discounted cash flow valuation.
  • Determination of the Discount Rate
    • To value the projected cash flows, a discount rate is estimated.
    • This rate will be used to find the present value of each projected cash flow
  • DCF Analysis
    • The value obtained using DCF will be analyzed to determine whether it is appropriate
    • Usually, DCF is complemented with sensitivity analysis, which takes into consideration various scenarios regarding growth estimates and discount rates,
    • Investment decision is made

 

Conclusion

Financial modeling is a valuation methodology or program aimed at determining an asset or financial security’s value for investment decision-making purposes. It encompasses inputs from a company’s historical financial statements, development of assumptions and projections regarding its financial information, and using discounted cash flow techniques or models to produce a valuation figure. It is extensively used in portfolio management, security analysis, investment banking, and corporate finance.

 

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