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One of the most difficult aspects of investing is to know when to sell a stock. In fact, knowing when to sell may be a more difficult decision than deciding which stocks to buy and when. For example, if a stock you bought starts losing money, should you consider selling it? Is it a temporary setback—in which case you may consider doubling down and buying more—or an indication of even…
What Is A Derivative? Derivatives are financial instruments that derive their value from an underlying asset such as a currency, a commodity like oil, gold or wheat, stocks and bonds, or interest rates. The most common types of derivatives are options and futures, credit default swaps, interest rate swaps and collateralized debt obligations (CDOs). Pros of Derivatives Derivatives were originally developed to enable companies and producers to protect themselves against…
What Is Modern Portfolio Theory? Modern portfolio theory is an investing model designed to help investors structure a portfolio that seeks to maximise returns with a minimal level of risk, largely through diversification. Who Created Modern Portfolio Theory? The theory was devised by Harry Markowitz in an article entitled "Portfolio Selection" published in the Journal of Finance in 1952. In the article, he quantified a method for constructing such a…
What Is Seasonality? In finance, the term seasonality is used to describe periodic trends in supply/demand, business performance and asset pricing. This phenomenon occurs consistently on an annual basis, in concert with regional weather patterns, economic data releases or the celebration of assorted holidays. Seasonality is an important factor to consider when crafting investment decisions. If left unchecked, the enhanced volatility and market turbulence attributable to these trends can increase…
Whether you are trading foreign currencies, futures or stocks, securing the services of a top-notch broker is an important first step. While brokerage firms are bound by extensive regulatory guidelines and required to preserve the integrity of the markets, not all brokers are created equal. Finding the one best suited to satisfy your unique trade-related needs is the name of the game. As of year-end 2018, the Financial Industry Regulatory…
The stock market has offered investors compelling returns over the years, but those rewards are certainly not without risks. Investors can potentially benefit greatly from trading stocks, but you need to research this particular market thoroughly before getting started. No investment comes without risk, and the stock market is known for being volatile. Anyone who is not familiar with this volatility only needs to study famous market crashes, like those…
The global equities markets are opportune environments for active traders and investors alike. Whether you're building a retirement portfolio or pursuing profitability from speculative endeavours, online stock trading could be a viable way of achieving any number of financial objectives. Fortunately for aspiring stock traders, getting started in the markets isn't all too difficult. In fact, it is possible to begin your journey into the marketplace by completing five basic…
What Is Contribution Margin? Contribution margin is a business accounting term that measures the difference between sales revenue and the variable costs to produce or sell a product. It shows the amount of profitability a company would achieve once it covers its fixed costs, i.e., its breakeven point. A company's fixed costs remain basically the same whether it makes or sells one unit or thousands. The most common fixed costs…
What Is A Credit Default Swap? A credit default swap (CDS) is a financial derivatives contract that acts as an insurance policy that an investor takes out in order to protect against a bond issuer defaulting on its obligations to pay interest and repay principal. The investor "swaps" their risk with an insurance company, a bank, or a hedge fund. The institution accepts the risk against the bond, defaulting in…
What Is The Bank For International Settlements? The Bank for International Settlements (BIS), also known as "the bank for central banks," defines its mission as being an "international organisation that serves central banks and other financial authorities across the globe to build a greater collective understanding of the world economy, fosters international cooperation among them and supports them in the pursuit of global monetary and financial stability." Based in Basel,…
A "pump and dump" is an illegal scheme used to artificially boost the price of a stock by making false and misleading claims about a company's business prospects. Then, the shares are sold before the fraud becomes known, at which point the stock price usually plummets and the unsuspecting investors lose their money. Pump and dump scams have been around for a long time but are now more commonly perpetrated…
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