Investing Terms

What Is A Balance Sheet? The balance sheet is one of the three most important documents—the other two are income statement and the statement of cash flow—that companies produce that enable their investors to examine and assess their financial health. Publicly traded companies are required to produce and publish these documents regularly, usually once per quarter, to shareholders as well as to tax and regulatory authorities. The balance sheet shows…

What Is A Warrant? A warrant is a security that gives the holder the right to purchase a company's stock or bond at a specific price by a certain date. Warrants are similar to options, but warrants are issued directly by a company, usually as an incentive to get investors to buy the company's stock or bonds. Options, by contrast, are a contract between two parties in which the holder…

What Is A Convertible Bond? Convertible bonds are a hybrid security that act mainly as a bond but also give the holder the right to convert the security into common shares of the issuing company at certain times and usually at the investor's option. Unlike traditional corporate bonds, convertibles offer investors a limited opportunity to participate if the stock of the issuing company rises. If the company's stock falters, investors…

What Is An Income Statement? The income statement is one of the main financial statements that companies prepare regularly to measure their financial health. The income statement—also known as a profit and loss statement (P&L)—shows the company's profitability over a given period of time. Most public companies prepare income statements quarterly, and private companies may do it more frequently, such as monthly. Investors use income statements to discern the basic…

What Are Commodity Dollars? The term "commodity dollar" is used to define a currency closely correlated with raw materials integral to a nation's export sector. Also referred to as a "commodity currency" or "comdoll," commodity dollars derive a great deal of their value from specific underlying assets. The markets of oil, gold and agricultural products often play key roles in the exchange rate valuations of these currencies. Generally speaking, the…

Uncertainty plays a key role in active trading. A breaking news item, surprise economic fundamental, or geopolitical event may send markets reeling at a moment's notice. Whether one is trading equities, futures, or forex, it is wise to be aware of how unexpected events can impact profitability. However, what happens when an unexpected event prompts a disconnect from the market? While uncommon, systemic failures can make trade execution impossible and…

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 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…

The Futures Industry Association (FIA) is a leading authority on the global derivatives industry. Headquartered in Singapore, Brussels, London and Washington D.C., the FIA is an advisory body to the world's futures and options market participants. Operating as a network of clearinghouses, exchanges and trading firms, the FIA aims to satisfy its self-stated, multifaceted mission: Support market transparency, competition and open accessibility Preserve the integrity of the financial system Promote…

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 Non-Deliverable Forward? A non-deliverable forward (NDF) is a contract to buy or sell a specific currency at a specified price in which the settlement of the contract at expiration doesn't involve the physical delivery of the currency, hence the name. In general, NDFs are used to hedge or speculate in local currencies in emerging markets where the currency has low liquidity, is not freely convertible, or where…