Terms

Algorithmic Trading

In most cases, by using algorithmic trading, the need for human intervention and review of orders to buy or sell securities completely disappears. The mathematical models for computer decision making on stock markets have built-in rules for determining the best time to place orders and start transactions without producing strong effects on share prices. Algorithmic…

Buy Back

Buybacks can be used by companies to purchase shares from their shareholders, and they can also be performed in derivatives and managed funds. A buyback can be used to either boost the price of shares by reducing supply or to protect the company from shareholders who might be looking for ways to achieve controlling stakes…

Buy and Hold

The buy and hold strategy is based on the assumption that in the long run stock prices will go up, and historical data over the past five decades appears to support this assumption. The logic behind the assumption is that capitalist economies expand. Consequently, prices and profits rise and their growth is reflected in the…

Alpha

The alpha is calculated by going back to the past performance of the shares, expressed in excess returns, and its calculation is derived from the formula: Ri= a+bRm To exemplify, assume a stock has a return of 25 percent. From this return 5 percent represents the short-term interest rate, which leaves an excess return of…

Average Down

By averaging down the investor gets more share per dollar. The effect of such purchases is that they bring the average price of the purchased shares down, closer to existing low level prices, rather than the previous higher costs. Averaging down can cover for losses, by bringing the price sufficiently low to make the said…

Average Daily Volume

Average daily trading volume (or ADTV) is a helpful tool in determining the liquidity of a market and in identifying sharp changes in trading patterns. These are usually indicative of circumstances that may be of relevance to shareholders and traders. When ADTV is high it means that the respective stocks are more competitive; they can…

Brokerage

Brokers can be found operating in multiple markets – insurance, stock exchanges, real estate, etc. The services they provide are in the area of intermediation, making demand and supply meet more easily. The fees they charge can take the form of a flat payment or a percentage of the transaction.

Absolute return funds

Absolute return funds aim to deliver results in both falling and rising markets, and, compared to traditional funds, are more inclined to use exotic management techniques. Their investment techniques may include – but are not limited to – futures, short selling, options, arbitrage, derivatives, unconventional assets and leverage. The creation of the first such fund,…

Bottom-Up Investing

This investment strategy is best used when the investor is close to and familiar with the market. It is not a recommended strategy for those who make investments on a global scale. It considers factors that may affect individual companies, such as their financial situation, demand and supply, and other performance indicators over specific periods…

Annual Report

At the end of each fiscal year, companies and mutual funds issue their annual reports. These contain detailed information on the operations and financial picture for the company during the  past year, both in text and graphic form. Normally, all annual reports contain: Resumé of the financial year in question;Short presentation (text, graphics, tables);Management position/analysis/letter…