Sharpen your knowledge of common investing terms.
Any particular cryptocurrency that can no longer be spent or traded can be described as “burned.”
1 x 2 Call Spread
Buy 1 call at a lower strike and sell 2 calls at higher strike using the same expiration. The strategy is a cheaper alternative to buying a call spread but with a similar upside risk profile to a short call strategy. This strategy should be implemented if the investor forecasts the stock to rise above the lower strike but not above higher strike. Risk Level: High
Form 1099-DIV is a financial form that financial institutions use to report payments made to taxpayers to the IRS. If you received interest payments, dividends or capital gains distributions in a year, you’ll receive a 1099-DIV the following February. You’ll need this information to complete your annual tax return. (Note: You may receive multiple 1099-DIVs in a year, one from each financial institution. However, you may not receive one if your payments totaled under $10.)
A Public and Private Key
A public key is a unique wallet identifier that uses a string of letter and numbers as an address. It is viewable to the public and is used to receive cryptocurrencies. A private key is an investor's individual password for accessing their cryptocurrency wallet. This is not viewable to the public and should be protected.
Multi-asset ETFs that fall under the Absolute Returns category do not adhere to a specific investment strategy to achieve returns. Instead, multi-asset ETFs that are classified under the Absolute Return category take an opportunistic investing approach based on current market conditions and trends in order to achieve the highest level of returns possible, within the ETF’s risk parameters. The most common type of multi-asset ETFs that are classified under the Absolute Returns category include unconstrained ETFs and long/short ETFs.
An account closure occurs when an institution closes an account. Once an account closes, no money can move in or out of the account. Banks and brokerages may force account closures in certain circumstances, such as extended periods of inactivity, $0 or negative balances or when fraud is suspected. Customers may also initiate an account closure by liquidating their assets, transferring institutions or switching account types within the same institution. (Such as moving from an individual to joint brokerage accounts.)
Your account value, or total equity, is the dollar value of your account’s total holdings. You calculate your account value by adding your cash amount to the cumulative market value of your securities. Then, you subtract the market value of any short positions. (In other words, account value is the value of your cash plus invested positions if you liquidated your holdings immediately.)
An acquisition occurs when one company purchases enough of another company’s stock to gain control. Owning at least 50% of a firm’s shares effectively grants control over the target firm’s operations. Acquisitions may be voluntary or involuntary on the targeted firm’s side. Due to their legal and tax implications, an investment bank may assist the process. Companies may initiate acquisitions to reduce costs or competition, expand into new markets, diversify their holdings or acquire new technologies or revenues. Potential downsides include culture clashes, layoffs, supplier pressures and brand damage.
Active management return
A fund’s active management return is the mathematical difference between the fund’s return and a selected benchmark’s return in an actively managed fund. (Like the S&P 500 or Nasdaq Composite.) Depending on both the fund and reference benchmark’s respective performance, the return may be positive or negative. The metric aims to measure any returns resulting from the fund’s active trading strategy, rather than regular market events. (Active management means the fund makes active buy, hold and sell decisions, rather than passively following a benchmark index.)
ADP National Employment Report
The ADP National Employment Report tracks U.S. nonfarm employment trends in the private sector. Data is gathered by ADP (Automatic Data Processing), which handles payroll for ~20% of all privately-employed U.S. workers across 400,000 companies. The report is released in a partnership with Moody’s Analytics and is divided into four segments: 1. A national overview that analyzes changes by business size and sector 2. A small business breakdown by size and sector 3. A franchise breakdown by industry that includes fast food, hotels and real estate 4. A regional assessment that highlights changes in six key states by sector and industry The report also includes data on changes in annual pay rates. It’s released two days prior to the Bureau of Labor Statistics’ employment situation report each month.
After-hours trading occurs on major U.S. stock exchanges (like the NYSE) between 4 p.m. and 8 p.m. Eastern Time, Monday-Friday. During this time, investors place bids through their brokerages, which relay the details through electronic communication networks (ECNs). If an ECN can match buyers and sellers near the same price points, the trade goes through. Some investors use after-hours trading to capitalize on late news. However, it’s riskier due to lower trading volumes, stunted liquidity and higher volatility.
Agencies Bond ETFs
Agencies bond ETFs generally invest in two different types of agency debt instruments: federal government agency bonds, which are issued by federal government agencies like the Federal Housing Administration or the National Mortage Association; or government-sponsored enterprise bonds, which are issued by agencies like the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage (Freddie Mac).
Agency MBS ETFs
Agency MBS ETFs purchase mortage-backed securities that are sponsored by government agencies like the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage (Freddie Mac). Agency MBS ETFs often purchase mortage-backed securities from banks, who sell a large percentage of their active mortgages on the secondary mortage market. Mortage-backed securities are often grouped into pools based on common features, a process known as securitization. Agency MBS ETFs make either semi-annual or monthly interest payments to investors.
Alpha-seeking ETFs seek to outperform the broader equity market by employing some sort of investment strategy to give the ETF an “edge.” Alpha, also known as excess return, is the amount of which an investment outperforms or underperforms its benchmark. Alpha-seeking ETFs often maintain diversified portfolio allocations to manage the level of unsystematic risk, or risk specific to an individual security in a portfolio. Alpha-seeking ETFs may also employ Modern Portfolio Theory (MPT), which uses measures risk return metrics like a sharpe ratio to optimize a portfolio's holdings.
An altcoin is simply any cryptocurrency that is not Bitcoin. Since Bitcoin was the first cryptocurrency, the consensus is that an altcoin describes coins that are alternatives to Bitcoin.
Alternative investments (also called alternative assets) don’t fit the “traditional” categories of stocks, fixed-income (bonds) and cash investments. Examples include real estate, commodities, cryptocurrencies and hedge funds. Alternative assets tend to have higher or different risk and return profiles than traditional securities. Many are also more complex and relatively illiquid, meaning it takes more time and effort to turn them into cash.
American Call Option
An American Call Option is a contract that gives the buyer the right to buy 100 shares of an underlying equity at a predetermined price (the strike price) for a specific time period defined by the expiration date. The seller of a Call Option is obligated to sell the underlying security if the Call buyer exercises his or her right to buy on or before the option expiration date. For example, one contract of the XYZ May 21 60 Calls entitles the buyer to purchase 100 shares of XYZ common stock at $60 per share at any time prior to the option's expiration date of May 21.
American options can be exercised or assigned at any time prior to the expiration date.
American Put Option
An American put option is a contract that gives the buyer the right to sell 100 shares of an underlying stock at a predetermined price (the strike price) for a specific time period defined by the expiration date. The seller of a Put option is obligated to buy the underlying security if the Put buyer exercises his or her right to sell on or before the option expiration date. For example, 1 contract of the XYZ May 21 60 Puts entitles the buyer to sell 100 shares of XYZ common stock at $60 per share at any time prior to the option's expiration date of May 21st.
Annualizing a number involves converting a short-term data point (such as a quarterly interest rate) into an annual rate. The resulting number is said to be “annualized.” Annualization commonly pops up in loan annual percentage rates (APRs) and individual and corporate income projections. Investors also use annualized investment outcomes to compare securities or determine if an asset’s projected returns meets their goals.
Asia-Pacific ETFs invest in securities from countries like China, Japan, Australia, and other notable Asia-Pacific countries. There are a variety of sub-categories that fall under Asia-Pacific ETFs, the most prominent being China-specific ETFs. China-specific ETFs are strong options for investors who believe that China will continue its rapid economic expansion and that Chinese companies will benefit from this expansion. General Asia-Pacific ETFs, meanwhile, are viable options for investors looking for exposure to a variety of emerging markets, like China and India, while remaining exposed to established and developed markets, like that of Japan.
Asian ETFs invest in the stocks of micro-cap, small-cap, mid-cap, and large-cap companies from countries like China, Japan, India, and other notable Asian countries. There are a variety of sub-categories that fall under Asian ETFs, the most prominent being China-specific ETFs. China-specific ETFs are strong options for investors who believe that China will continue its rapid economic expansion and that Chinese companies will benefit from this expansion. General Asia ETFs, meanwhile, are viable options for investors looking for exposure to a variety of emerging markets, like China and India, while remaining exposed to established and developed markets, like that of Japan.
Multi-asset ETFs classified under the Asset Allocation category adhere to an investment strategy that diversifies holdings across multiple asset classes. Asset Allocation ETFs hold equities, fixed income, real estate, and other asset classes in their portfolio. Because multi-asset ETFs that fall under the Asset Allocation category are diversified across multiple asset classes, they are typically more stable and less risky than asset-specific ETFs.
An asset class is a group of investment vehicles that share similar characteristics and market behaviors. Common asset classes include stocks, bonds, cash, real estate, commodities, derivatives and currencies. Each class has unique risks, liquidity, volatility, revenue, taxation and regulations, though assets within the same class may share similarities. Since different classes may have little or negative correlation to each other, diversifying asset classes may reduce risk and boost long-term returns.
Asset-backed ETFs invest in asset-backed securities, which are financial securities collateralized by a pool of assets like loans, leases, royalties, or receivables. Asset-backed ETFs purchase securities whose underlying assets are often illiquid. Asset-backed securities are often grouped into pools based on common features, a process known as securitization. Asset-backed securities are also separated into different tranches based on their default risk.
An assignment means that the seller has the obligation to either purchase or sell stocks at the strike price.
At the Market
This is a term that simply means that you are willing to sell a stock at the market price. Please keep in mind, that is NOT the last price. The market price to buy a stock is the offer price. The market price to sell a stock is the bid price.
Bankruptcy is a legal proceeding that helps individuals and businesses shed debts they can’t pay while offering creditors (partial) repayment. During bankruptcy proceedings, a court evaluates the debtor’s assets to determine what can be liquidated to pay the outstanding debt. You can file different types of bankruptcy, named after their chapter in the U.S. Bankruptcy Code, based on your situation. (For instance, businesses may file Chapter 11, while individuals file Chapter 7 or 13.)
Bankruptcy is a legal proceeding that a person or business can take if they can’t pay their debts. Bankruptcy proceedings benefit the economy by providing second chances while ensuring at least partial debt repayment. Several types of bankruptcies exist like Chapter 11 (business reorganization) or Chapters 7 and 13 (individual bankruptcies). The process begins when a debtor or credit files a petition with a federal bankruptcy court. The court then evaluates the debtor’s assets to determine what can be sold to cover their outstanding debt. Completing proceedings frees the debtor from debts incurred prior to filing. But not all debts qualify for discharge, including child support, alimony payments and tax debts. Additionally, bankruptcy greatly impacts your credit for several years and can complicate future borrowing.
Basic materials ETFs
Basic materials ETFs invest in stocks of companies that discover, extract, develop, and process raw materials. Major sub-industries that basic materials ETFs invest in include chemicals, construction materials, mining, containers and packaging, and forestry production. Basic materials ETFs rely on industrial and commercial customers to drive the performance of its holdings, making demand for the ETF strategy volatile and susceptible to economic cycles.
A benchmark is a point of reference used as a baseline measure of comparison. In investing, benchmarks typically refer to asset indexes. Each index tracks the performance of a representative asset sample like stocks, bonds, commodities or cryptocurrencies. Many focus on particular niches – think the S&P 500 for large-cap stocks or Bloomberg Barclays US Treasury Index for US Treasuries. Investors can [use these indexes](https://learn.tryq.ai/articles/benchmarks) to compare how their own comparable securities perform. (E.g., measuring large-cap stock holdings against the S&P 500, etc.)
A benchmark index is a group of securities within a specific asset class, market sector, market cap or geographic location. The purpose of an index is to track a representative sample of a niche’s average performance. They serve as standards by which investors can measure other assets, securities, sectors, etc. Benchmark indexes exist for every asset, including stocks, bonds, commodities, cryptos, derivatives and precious metals. Some benchmarks focus on tangible metrics like market cap, while others track trends or themes. (ESG investments, growth or value funds, etc.)
Benefit security ratio (funded ratio)
A fund’s benefit security ratio, or funded ratio, measures the value of a pension fund’s assets against its liabilities. In other words, it’s the ratio of a plan’s current market value to its projected benefit payout. (Mathematically, its current assets are divided by future liabilities.) It represents progress toward a goal – in this case, retirement.
The bid-ask spread refers to the difference between where you can buy or sell a security at a market price. A wide bid-ask spread would imply that a security is not very liquid. Investors/traders should be very careful about putting in market orders for stocks, etc that have wide bid-ask spreads: you may not get the price you expect.
ETFs classified under the Blended Development class invest in a blend of securities from developed economies, emerging markets, and frontier markets. ETFs with a Blended Development classification are diversified across different economies and can offer a variety of risk/reward profiles. Although the diversification across countries or regions with different development types eliminate certain risks associated with global investing, Blended Development ETFs remain exposed to currency conversion risks.
A blockchain is a cryptographically created digital ledger that chronologically and publicly records all the transactions in a particular cryptocurrency ever made. When applied to cryptocurrencies, the blockchain becomes a confirmed public database that is not stored in any single location. It comprises individual blocks that are chained to each other with a unique cryptographic identifier. All blocks are linked from the genesis block to the current block. Each cryptocurrency has its own blockchain.
Blocks are digital files in which cryptocurrency transactions are permanently recorded. A block contains recent transactions that have not been recorded in any prior blocks. When a block is completed, it is entered into the blockchain by the miner. Once completed, any new transactions must be recorded in a new block.
Bollinger bands are the plotted lines 2 standard deviations away from a given moving average. Many believe the closer the price is to the upper band, the more overbought the market. In contrast the closer the price is to the lower band, the more oversold the market.
Bond ETFs invest in the bonds, or debt, of companies, governments, central banks, or a combination of the three. Bond ETFs can add stability and reduce volatility of a portfolio. Additionally, bond ETFs often pay steady and predictable coupon payments. To decide their holdings, bond ETFs can employ a variety of different strategies that focus on different traits of bonds, including maturity, duration, and coupon payments. Bond ETFs trade throughout the day on a centralized exchange, making them more liquid than individual bonds or bond mutual funds. Individual bonds are sold over-the-counter by brokers, while bond mutual funds are only priced at the end of each trading day.
Bond Spread ETFs
Bond spread ETFs employ strategies based on bond yield spread(s), or the difference between yields of two debt instruments with varying maturities or credit ratings. Bond yield spreads can be used to measure the risk a certain characteristic adds to a bond. For example, the yield spread between a 2-Year Treasury Bond and a 10-Year Treasury Bond measures the risk added by maturity length.
Broad Debt ETFs
Broad debt ETFs invest in the bonds of companies, sovereign entities, central banks, or a combination of the three. Broad debt ETFs can add stability and reduce volatility of a portfolio. Additionally, broad debt ETFs often pay steady and predictable coupon payments. Broad debt ETFs trade throughout the day on a centralized exchange, making them more liquid than individual bonds or bond mutual funds—individual bonds are sold over-the-counter by brokers while bond mutual funds are only priced at the end of each trading day.
Broad Debt Fixed Income ETFs
Fixed income ETFs that fall under the broad debt category diversify their investments across various types of fixed income assets. Fixed income assets in which broad debt ETFs could invest include corporate bonds, municipal bonds, sovereign debt, supranational debt, and inflation-protected securities. Because ETFs that fall under the broad debt category are highly diversified, they are typically very stable and safe investments. Broad debt ETFs may also track some sort of fixed income index or benchmark.
Broad Equity ETFs
Broad equity ETFs can invest in stocks without being limited to a sector, size, geographic region, or other specific theme. Broad equity ETFs often track a specific equity index or benchmark, for example, the S&P 500 Index or the Dow Jones Industrial Average. Broad equity ETFs, especially ones that track an index or benchmark, tend to maintain lower expense ratios and fees relative to other ETFs. Additionally, broad equity ETFs maintain narrow bid-ask spreads and high liquidity.
Broad Market Bond ETFs
Broad market bond ETFs are diversified across sub-sectors of fixed income, investing in a range of corporate bonds, sovereign bonds, and municipal bonds. Broad market bond ETFs offer a way for investors to gain exposure to the fixed income asset class. Broad market ETFs typically add stability to an investor’s portfolio.
Broad Municipal Bond ETFs
Broad municipal bond ETFs invest in municipal debt instruments, which are debt obligations issued by municipal or state entities. Interest and income generated from broad municipal bond ETFs are, under specific conditions, tax-free, increasing their after-tax return relative to other bonds with similar yields. There are two types of municipal bonds: general obligation bonds, which seek to raise immediate capital with the prospect of returns coming from the taxing power of the issuer; and revenue bonds, which seek to fund infrastructure projects with the prospect of returns coming from the project’s expected generated income.
Broad Sovereign Bond ETFs
Broad sovereign bond ETFs invest in sovereign debt instruments, or debt instruments issued by national governments. Sovereign debt can either be issued in the government’s own domestic currency or a foreign currency—the less stable a currency denomination, the greater the risk to the debt-holder. The US dollar, British pound, Euro, Swiss franc, and Japanese yen currencies account for 97% of all global sovereign debt issuances while only 83% of global debt was issued by these countries. Sovereign bonds can be impacted by macroeconomic factors such as interest rates, inflation, and output.
The U.S. budget deficit describes when government spending exceeds annual revenues from taxes, fees and investments. The government may pay for a budget deficit through selling Treasury bonds or bills, which increases the national debt. Deficits may occur when expenditures or industry subsidies increases, tax revenues decrease or unexpected events or disasters prompt increased spending. (Notably, Social Security does _not_ contribute to the national deficit.) Generally, the U.S. budget deficit is measured by gross domestic product (GDP), though it can also be calculated in dollars. The government may leverage its deficit to spur economic growth and increase incomes and investment profits. However, over-leveraging the deficit can provide too much stimulus and overheat the economy.
Build America Bond ETFs
Build America bond ETFs invest in Build America bonds, which are taxable municipal bonds that offer tax credits and/or subsidiaries for both bondholders and state/local government bond issuers. Build America bonds were first introduced as a part of US President Obama’s American Recovery and Reinvestment Act in 2009 to create jobs and add stimulation to the domestic economy. Build America bonds were introduced to combat Americans who, after the economic recession in 2009, were wary of investments.
Business Annual Report
Business annual reports, also called statements of information or yearly statements, are documents that report a business’ annual financial performance and activities. Most states require corporations and businesses with shareholders to prepare and file an annual report with the Secretary of State. Others prepare reports to keep investors and the public informed about their financial status. The information required varies by state, jurisdiction and entity type. (Depending on a company’s size, profit and trading status, it may also be required to file separately with the SEC.)
A business model is a high-level plan that defines a company’s core profit strategy. Business models should identify a company’s target market, products and services, marketing strategy and predicted revenue and expenses. New enterprises may also review their competition and define potential partnerships. Types of business models include retailers, direct sales, franchises, advertising, brokerages and marketplaces. Hybrid models may combine elements of internet and brick-and-mortar retail or other operations. Defining its business model can help a company attract financing and new talent. Investors may also examine a company’s business model when seeking new investment opportunities. Companies should update their business models over time to reflect changing economic and market demands
Buy Write (Covered Call)
Long stock and sell 1 out-of-the money call. This strategy is used by investors when they achieve gains in the stock and are willing to sell at a certain strike price. The strategy is also used to gain income from the premium from the sale of the call. The strategy should be implemented when investors forecast the upside gain in the stock is limited and volatility is high. Risk Level: Medium
Buy-write ETFs invest by employing a buy-write strategy, which is an options strategy that involves buying a stock or a basket of stocks while simultaneously selling call options on those same stock(s). By using this strategy, buy-write ETFs attempt to generate additional income by collecting premiums from the call option. If the stock or the basket of stocks in question stay flat or decline, the buy-write ETF keeps both the collected premium and the asset(s). If the stock or the basket of stocks in question appreciate, however, buy-write ETFs receive only the premium while selling the stock(s) at the pre-determined price to cover the call.
Buy 1 Call/Puts of a longer-term expiration and sell 1 Call/Put of a near-term expiration. There's limited profit potential but also limited risk.
Call Spread Collar
Buy 1 call at a lower strike and sell 1 call at a higher strike, and sell 1 put at a lower strike with the same expiration. The risk profile is the same as being long a stock when it trades below the put strike. The spread is profitable when the stock trades above the long call strike plus or minus the premium paid or collected. Investors should implement this strategy if they are bullish. Risk Level: High
Can I Buy Fractional Shares of a Stocks?
Yes, you can. Some broker dealers offer clients the option of buying fractional shares of a set of stocks. This is normally offered for stocks that have large prices per share.
Capital gains refer to any profits earned when you sell a capital asset for more than you paid. (Most assets qualify as capital assets, including stocks, bonds, real estate and vehicles.) Capital gains are only realized and taxed when you actually sell an item. The IRS taxes short-term capital gains – assets you’ve owned less than a year – at your regular income bracket. Long-term capital gains, or assets you’ve owned for more than a year, generally have more favorable tax rates.
Commissions are service charges assessed by brokers or investment advisors as compensation for handling securities trades and providing investment advice. Commission-based advisors earn commissions when they sell products or conduct transactions. (By comparison, fee-based advisors generally charge a flat rate.) Today, many online brokers forgo commission on trades, while full-service brokers rely on commission to generate profits.
Commodity ETFs invest in commodities, which are economic goods that are seen as equivalents regardless of who produces them, such as agricultural products, natural resources, or precious metals. Commodity ETFs typically invest in a single commodity that is held in physical storage or a single commodity through futures contracts -- there commodity ETFs, however, that invest in a basket of commodities. Commodity ETFs add simplicity to investing in commodities because they do not require investors to purchase futures contracts or other derivative products.
Communication Services ETFs
Communication services ETFs invest in stocks classified under the communications services sector, including telecommunication services companies, media companies, and select consumer-focused companies. The communication services sector is the newest sector in the S&P 500 Index, introduced on September 28th, 2018. The holdings of communication services ETFs are a mix of non-cyclical and cyclical stocks that are impacted by changing interest rates, economic cycles, and geopolitical events in different ways. While some communication services ETF holdings have high growth prospects and trade at expensive multiples, others are the opposite with low growth prospects and cheap trading multiples.
Communication Services Stocks
Stocks classified under the communications services sector include telecommunication services companies, media companies, and select consumer-focused companies. The communication services sector is the youngest sector in the S&P 500 Index, introduced on September 28th, 2018. Companies classified under the communication services sector are a mix of non-cyclical and cyclical stocks that are impacted by changing interest rates, economic cycles and geopolitical events in different ways. Additionally, while some stocks in the communication services sector have high growth prospects and trade at expensive multiples, others are the opposite with low growth prospects and cheap trading multiples.
Conflict of interest
Conflicts of interest arise when an individual or entity’s judgment is or could be compromised due to clashing personal and professional responsibilities or interests. Compromising situations may spawn from personal relationships, financial holdings or obligations or social factors. Potential conflicts of interest arise often in business and finance. Self-dealing (accepting gifts or transactions at personal benefit but company/client detriment), [insider trading](https://learn.tryq.ai/articles/insider-trading) and “nepotism hires” are all common examples. Investors should watch for conflicts of interest with financial advisors and investment firms. Many such entities must act in their clients’ best interests – even when that results in smaller profits for the advisor.
Consumer Discretionary ETFs
Consumer discretionary ETFs invest in companies with business operations related to automobiles, household durables, textiles, leisure equipment, hotels, restaurants, media production, or consumer retailing. Consumer discretionary ETFs are traditionally cyclical, relying heavily on strong macro-economic conditions to encourage consumer spending. In poor economic conditions, consumer discretionary ETFs may underperform other sectors.
Consumer Discretionary Stocks
Consumer discretionary stocks include companies with business operations related to automobiles, household durables, textiles, leisure equipment, hotels, restaurants, media production, or consumer retailing. Consumer discretionary stocks are traditionally cyclical, relying heavily on strong macro-economic conditions to encourage consumer spending. In poor economic conditions, consumer discretionary stocks will most likely underperform other sectors.
Consumer Staple Stocks
Stocks classified under the consumer staples sector provide services or offer products that are considered essential, like food, beverages, tobacco, and household items. Consumer staples stocks are historically non-cyclical because their products or services experience lower volatility in demand as economic conditions fluctuate. Additionally, consumer staples typically are low volatility investments that offer strong dividend yields to compensate for generally low growth prospects.
Consumer staples ETFs
Consumer staples ETFs invest in companies that provide services or offer products that are considered essential, like food, beverages, tobacco, and household items. Consumer staples ETFs are historically non-cyclical because their investments’ products or services experience lower volatility in demand as economic conditions fluctuate. Additionally, consumer staples ETFs are typically low volatility investments that offer strong dividend yields to compensate for generally low growth prospects.
Convertible Bond ETFs
Convertible bond ETFs invest in convertible bonds, which are a type of debt instrument that can be converted into a predetermined amount of equity in the underlying company at certain points in its maturity. Convertible bonds are often used by companies with a high risk/reward ratio to generate flexible financing. Because convertible bonds effectively have a convertible equity option, convertible bonds maintain lower yields compared to an underlying company’s normal bonds.
Copy trading is a strategy that allows investors to automatically copy investments made by other individuals. You can copy investments on your own or use a copy trading platform and emulate investments either exactly or proportionally. (Either matching trades share-for-share or buying the same securities in smaller amounts.) Copy trading is largely passive and lets you rely on someone else’s expertise for diversification and risk management. However, copy trading platforms may come with additional fees, and your success hinges on your copied investor making smart choices.
Core inflation measures the price change in a basket of goods and services minus volatile food and energy prices. Core inflation is most often calculated using the CPI (consumer price index) or core personal consumption expenditures (PCE) indexes. Food and energy prices are removed from core inflation values because their volatility can skew the accuracy of underlying inflation data. As such, the Federal Reserve prefers to use this indicator when dictating monetary policies (like interest rate hikes).
Corporate engagement describes how businesses engage with stakeholders and employees to improve corporate and community value. It’s often considered essential for long-term profitability in an increasingly competitive and complex global economy. In recent years, the field has focused on governance issues like performance-based executive pay and board structure. Increasing engagement and proactively anticipating and addressing problems are also top-of-mind concerns. In practice, corporate engagement involves offering training opportunities, enacting progressive policies and initiating engagement programs.
Corporate Fixed Income ETFs
Fixed income ETFs classified under the corporate category invest primarily in the bonds of private or public companies. ETFs that fall under the corporate category invest in three types of corporate debt: investment grade, which is corporate debt deemed by a ratings agency to have a lower risk of default; high yield, which is corporate debt deemed to have a higher chance of defaulting relative to investment grade corporate debt but offers a higher yield in return; and junk bonds, which is corporate debt deemed by a ratings agency to have a high chance of default and offers a strong yield in return.
In investing, [correlation](https://learn.tryq.ai/articles/correlation) describes how closely two or more assets’ prices move together. Correlation can be measured between similar securities (two stocks in the same industry) or across asset classes (stocks vs. cryptocurrencies). Assets whose prices typically move in opposite directions have a negative correlation. For instance, gold and equities have a historically negative correlation: when stock prices rise, gold stagnates or drops. Assets whose prices generally move in the same direction have a positive correlation. For example, stocks in similar industries or lines of business (think hotel and airline stocks) often rise and fall together. Generally, higher positive correlation in a portfolio presents greater risk, which you can mitigate through diversification strategies.
Cost of Capital
Cost of capital is a hurdle rate calculated based on a company’s cost of equity and cost of debt. The most commonly used approach is the weighted average cost of capital (WACC) which weights the cost of capital based on the amount of debt and equity a company currently holds. The cost of debt is generally calculated based on the average debt service percentage. A company who has a Return on Invested Capital above its WACC is generally viewed as creating Economic Profit for all its investors. If the return on invested capital is below its WACC, that company may have trouble sustaining its operations in the future.
Cost of equity
Cost of equity is a hurdle rate calculated based on a stock’s specific beta to a benchmark index and the yield on a risk-free asset. In the US, we typically use the S&P 500 index as the benchmark index and the yield on the US 10-year as the return you would realize by investing without taking risk. The most commonly accepted calculation of the cost of equity is the capital asset pricing model (CAPM). A stock which generates a return on equity above its cost of equity is generating economic profit for the owner of the stock.
Country or region risk
Country or region risk refers to the unique risks associated with investing in a given geographic area. Often, it references the probability that a foreign government will default on its debts or financial commitments. More broadly, it’s the risk that securities or businesses in a certain country may face volatility or uncertainty due to: * Political unrest * Economic events * Changing social conditions * And even technological advancements Investors should consider the impact of potential losses arising from these risks before investing. While it’s possible to hedge against these risks with diversification, some investors avoid securities issued in particularly volatile countries altogether.
Crypto wallets are physical devices or software programs that let you access cryptocurrencies. They take several forms, including hardware devices, paper wallets and software or online wallets. But unlike a regular wallet that stores cash, crypto wallets store keys (passwords) to _access_ your coin. Some wallets can also interface with the blockchain, trade coins or access decentralized applications.
Cryptocurrency Exchanges and Markets
Cryptocurrencies are traded across the globe and each cryptocurrency has a unique set of exchanges on which it trades on. There are currently over 70 cryptocurrency exchanges and over 1000 cryptocurrencies that investors can buy and sell. Not every cryptocurrency is available on every exchange. Each cryptocurrency has its calculated price which is derived from the supply and demand components of the individual exchanges. Its circulating coin supply multiplied by its current price allows investors to arrive at the cryptocurrency’s current market capitalization.
A cryptocurrency wallet is a digital wallet used to store, send and receive cryptocurrencies. Most cryptocurrencies have digital wallets that investors can download from their websites. There are also additional third-party hot storage wallets that cryptocurrency investors use. Additionally, investors can store cryptocurrencies in the cold-storage method away from the internet.
Cryptography is the science of encoding and decoding. It is the method of completing and confirming cryptocurrency transactions over a blockchain network by encrypting public keys via advanced mathematical principles.
Debt is any item (usually money) one person or business owes another. Debts carry the expectation of repayment, often with fees or interest. They can take several forms including loans, credit cards, margin accounts, and corporate debts like bonds. Individuals and entities can use debt to make large purchases, like a house or new manufacturing equipment. Investors and corporations also leverage debt to purchase assets in the hopes of earning outsize profits. And when you invest in stocks, you may examine the underlying companies’ debts to gauge their financial stability.
DeFi (decentralized finance) is an internet-based financial system that uses emerging technology to remove middlemen and fees from transactions. DeFi relies on blockchain components like peer-to-peer networks, stablecoins, and smart contracts to replace intermediaries, lower costs and speed up processing. DeFi applications (dApps) let consumers and companies lend, trade, borrow and buy by verifying and executing transactions in distributed financial databases like Ethereum.
A deficit occurs when an entity (like a government, business or person) spends more than it takes in. Generally, when we talk about a deficit, we mean a fiscal – or financial – deficit. Trade deficits also exist, where a country imports more than it exports. By definition, running a deficit increases existing debts or eats into current surpluses. As such, some economists argue against governments taking on fiscal deficits that divert funds from other needs toward servicing debts. Others believe that fiscal deficits allow governments to stimulate their economies, encouraging growth and innovation.
Deflation occurs when the price of goods and services in an economy decline. Deflation often pops up when an economy’s money and credit supply contracts. It can also be driven by improved technologies, decreased demand or increased product supply. Historically, high deflation accompanies recessions and higher unemployment rates. Deflation may benefit consumers as the value of a dollar stretches further. However, increased purchasing power can harm borrowers who are now locked into debts whose values have inflated. Investors may also suffer as the value of their investments falls without a corresponding decline in sticker price.
Delta refers to the change in the price of an option for a $1 change in the price of the underlying.
Demand is an economic concept that describes consumers’ desire and willingness to buy goods and services at a given price. Market demand measures the total quantity of a good required by consumers. Aggregate demand looks at an economy’s total demand for all goods and services. Demand is a key driving force behind market and economic growth. When demand increases, prices may rise. But too-high prices can decrease demand, leading to lower prices. As prices decline again, market demand may increase, continuing the loop. Demand also contributes to how companies price goods and the total volume produced. Factors that impact demand include the appeal or necessity of a product, availability and price of competing products, and consumer incomes, preferences and price expectations.
A deposit is any money put into an account, such as a bank or investment account. Deposits are exceptionally common in both personal and professional finance. You might deposit your birthday money into your bank account. Employers deposit paychecks into savings and checking accounts. You might even consider cash contributions to your investment accounts deposits. Deposits are the opposite of withdrawals, or the act of pulling money out of an account.
Developed Markets ETF
Developed Markets ETFs invest in securities from countries that are economically developed. Developed Market ETFs are considered to be safe investments relative to those that invest in emerging/frontier markets. Because countries classified as developed markets maitain established infrastructure and industrialized economies, they are less exposed to geopolitical risks. Some of the largest developed markets in the world include the United States, Japan and major European countries like the United Kingdom and Germany.
Difference Between a Mutual Fund and ETF
Both mutual funds and ETFs are similar: they are both baskets of securities. However, in the case of ETFs, you get total transparency (day to day) of the holdings and the market price you pay is the price you get and they offer better liquidity. In the case of Mutual Funds, your fund is marked to market at the end of the day to the NAV (net asset value). Typically, mutual funds only given transparency into holdings on a quarterly basis. On average, ETFs have lower fees than mutual funds.
Difference Between Cold and Hot Storage
Hot storage refers to using a cryptocurrency wallet that is connected to the internet or a software program used on a computer—typically free of charge. Cold storage refers to a cryptocurrency wallet that is not connected to the internet.
Difference Between Gross Profit and Operating Income
Gross profit refers to the difference between net revenues and the cost associated _only_ with generating those revenues. This cost line is commonly referred to as cost of goods sold and generally does not include marketing costs, personnel costs, etc. Operating Income, on the other hand, is the amount of monies left over after operating costs like marketing and personnel are deducted from gross profit. Operating income is the profit before interest and taxes are taken into consideration.
Difference Between Gross Revenues and Net Revenues
Gross revenues refer to the amount of revenues (or sales) a company realizes in a given period. Net revenues is simply the total amount of revenues (or sales) after an adjustment is made for discounts and returns. On a holistic basis, net revenues offers more insight into the revenue-generating ability of a company.
A distribution schedule describes how often a financial asset – or its returns – will be distributed. That may include additional shares, interest or dividends. Common timelines include monthly, quarterly, semiannual and annual distributions. Individual companies, ETFs, mutual funds and third-party brokers can all issue distribution schedules. Generally, they specify when payments will go out, as well as the amount of the payment. Investors may rely on distribution schedules to gain insights into an asset’s risk level and income production potential.
Dividend aristocrats are [S&P 500](https://learn.tryq.ai/articles/s-and-p-500) companies that have increased dividends annually for at least 25 consecutive years. They can be found in any sector, with several popping up in retail, healthcare and energy. Since dividend aristocrats must be S&P 500-listed, they’re all [large-cap stocks](https://learn.tryq.ai/articles/large-cap-stocks) generally beyond their [growth stage](https://learn.tryq.ai/glossary/growth). Most are well-established in their niche, and many are considered “[recession-proof](https://learn.tryq.ai/glossary/recession-proof)” for their steady earnings and history of dividend increases. Examples include 3M, AbbVie, AT&T, Caterpillar, Exxon Mobil, IBM, PepsiCo and Target.
Dividend kings are public companies that have paid and increased dividends for a minimum of 50 consecutive years. Unlike their dividend aristocrat cousins, these stocks don’t have to be members of the [S&P 500](https://learn.tryq.ai/articles/s-and-p-500). Those that are may be considered both a king and an aristocrat. But generally, there are fewer kings than aristocrats. Dividend kings commonly hail from hardy sectors known for dividend payouts like consumer goods, industrials, healthcare and utilities. Examples include 3M, AbbVie, Coca-Cola, Stanley Black & Decker, PepsiCo and Target.
Dividend reinvesting plans
Dividend reinvestment plans (DRIPs) automatically reinvest shareholders’ cash dividends back into the issuing company, fund or overall portfolio. These optional programs may be offered by individual companies, funds or brokers. They often come with no commissions and even discounted share prices as added incentive. DRIPs allow investors to boost their long-term holding and earning potential without fronting more capital. They also slot neatly into most dollar-cost averaging strategies. Bear in mind that any reinvested dividends count as taxable income (though your burden may be deferred in tax-advantaged accounts).
The dividend yield refers to the amount of income yield an investor should expect to get from owning a stock over a 12-month period. The dividend yield is calculated as the projected 12-month dividends to be paid divided by the price of the stock. There is a sub-set of investors who focus solely on income and, as a result, prefer to invest in companies with high dividend yields. The while price return of these high dividend yield stocks may not be that high, the total return, which includes the dividends paid, tends to be very attractive.
Do you have to purchase a full coin when buying one?
Investors may buy fractional amounts of cryptocurrencies when trading and investing. The smallest unit is a Satoshi.
Due diligence is a systematic analysis, audit, or review performed to determine or confirm facts. In investing, due diligence generally involves examining financial records, such as fundamentals and market performance, before purchasing new securities. Individual investors may voluntarily conduct due diligence on securities like stocks, bonds and commodities using public information. Broker-dealers are legally required to conduct due diligence before recommending or selling to investors.
Earning per Share
Earnings per share refers to amount of net income (ex dividends) per share available to stockholders.
EBITA (earnings before interest, taxes and amortization) is an accounting principle that reflects a company’s earnings before subtracting: * Interest on company debt * Taxes owed * Amortization (writing off the cost of certain expenses gradually) EBITA is often used to analyze a company’s operational efficiency over time or compare companies in the same industry. Generally, positive EBITAs reflect that a company has cash to pay dividends or reinvest in the business. Negative EBITAs may suggest that a company is struggling to produce or manage revenue. Some believe that EBITA more accurately reflects a company’s financial position by removing the impacts of taxes and debt costs. However, excluding these impacts (particularly debt) may improperly bias perception around a company’s profitability.
EBITDA stands for Earnings Before Interest, Taxes, Depreciation & Amortization. It is commonly used as a proxy for “operating” cash flow.
Economic profit is a measure of what a company generates above a pre-determined hurdle rate. While the hurdle rate may feel arbitrary, commonly called either the cost of equity or cost of capital, it measures the implied return a stock should offer based on the risk associated with it. Companies are creating value for shareholders when they generate value above their hurdle rates – companies with positive and/or accelerating economic profit are typically associated with companies that have rising share-prices. In contrast, companies with decelerating Economic Profit are usually associated with companies who experience a deceleration in the increase of their share-price or exhibit falling share-prices.
An emergency fund is a savings fund reserved specifically for unplanned expenses or emergencies. Common examples include car and home repairs, medical bills or floating your household through job loss. A well-stocked emergency fund can reduce financial shocks and prevent you from taking on debt in urgent situations. Experts generally recommend saving at least 3-6 months’ worth of household expenses in a liquid, cash-based account. (As you age closer to retirement, you may beef your account to cover a full years’ worth of expenses.) High-yield savings accounts, money market accounts and no-penalty CDs are all common savings instruments.
Emerging Market ETF
Emerging Market ETFs invest in securities from countries that are less economically developed than developed nations. Emerging Market ETFs are considered to have high growth prospects because they are growing markets beginning to establish infrastructure, financial markets, and other key traits of developed nations. Emerging Markets ETFs are risky investments because the countries they invest in are susceptible to geopolitical risks, currency fluctuations, and other risks. Some of the most notable emerging markets include Asian countries like China and India, and Latin America countries like Brazil and Mexico.
Enterprise value is an “economic” way to measure the true market value of a company. It values the total claims on a company by both creditors and shareholders, after cash.
Enterprise Value to EBITDA Ratio
The Enterprise Value to EBITDA Ratio is typically referred to as the EV/EBITDA ratio. Since EV measures the true market value of a company, we relate operating cash flow (EBITDA is a proxy) to determine how much economic value should be applied to a company’s ability to generate EBITDA (or operating cash flow).
Enterprise Value to Sales Ratio
The enterprise value-to-sales ratio is commonly referred to as the EV/Sales ratio. The valuation metric measures how much economic value should be applied to sales (also referred to as revenues). The EV/Sales ratio is a good valuation metric to use with high growth companies.
EPS, or earnings per share, is an essential metric investors use to gauge a company’s profitability. You can calculate a company’s EPS by dividing its net profit by the number of outstanding common shares. (Companies may also report adjusted EPS that consider share dilution, dividends, splits and other extraordinary items.) The resulting number tells you how much money a company makes per issued share. In general, the higher a company’s EPS, the more profitable it’s considered to be. (But _too_ high of an EPS may be a red flag.) It’s also important to note that a “good” EPS varies by industry and current economic factors.
Equity ETFs classified under the Sector category invest in stocks of companies specific to a certain sector. The most notable sectors in global markets include information technology, consumer, healthcare, financials, energy & utilities, industrials, real estate, and communication services. Sector ETFs are viable options for investors who have a specific outlook on a specific sector. Because Sector ETFs are not diversified across different sectors, they are highly exposed to risks associated with their respective sector.
Equity ETFs that fall under the broad equity sector category typically invest in stocks of companies independent of size, sector, valuations, and other factors. Broad equity ETFs track some sort of index while remaining passive.
Europe ETFs invest in the stocks of micro-cap, small-cap, mid-cap, and large-cap companies from European countries like Germany, the United Kingdom, Switzerland, and France. Europe ETFs can invest specifically in developed markets, emerging markets, or a combination of the two. Europe ETFs may invest with a sector-specific strategy or they may invest in broader Europe stocks. European stocks that Europe ETFs invest in typically possess similar qualities to those of US stocks.
An asset’s ex-dividend date is the last day that an investor can buy in and receive its next dividend payment. Shares sold on or after the ex-date are “ex-dividend,” meaning that upcoming dividend goes to the seller – not the buyer. Typically, the ex-date falls two business days before the date of record. Owning shares by the date of record means that you’re a “shareholder of record” who is eligible to receive distributions.
The world of finance is full of potential exclusions. We’ve defined a few common examples below: * **Financial exclusions** encompass those who can’t access common financial services like banking and credit. Financial exclusion often occurs due to lower socioeconomic status resulting in an inability to meet a bank’s requirements. * **Dividend exclusions** refer to an IRS provision that allows domestic corporations to exclude part of their dividends from their taxable income. Dividend exclusions intend to limit double taxation at the corporate level. * **The home sales exclusion** applies to taxpayers who sell their primary residence at a profit and incur capital gains. This exclusion allows taxpayers to exclude up to $250,000 or $500,000 (based on marital status) from their taxable income. * **Balance sheet exclusions** include a host of exclusions that companies use when calculating their balance sheets or negotiating M&A deals. For example, firms may exclude certain current assets or liabilities (debts and deferred tax) when calculating their net working capital.
Exercise means that the buyer of an option has the right to exercise the option and buy or sell stocks depending on the type of option contract.
An asset or portfolio’s expected return measures the degree of profit or loss anticipated in a given timeframe. The estimate is calculated by multiplying potential returns by their probability of occurring, then adding the results together. Expected returns are generally estimated on assets with known historical returns. Because they rely on past data, it’s important to note that they’re _expected_, not guaranteed, outcomes. Investors can use expected return estimates to determine an asset or portfolio’s potential profits, losses and risk.
Expense ratios reflect the percentage of a fund’s assets that fund various costs, including management, legal and auditing fees. Many mutual funds and ETFs deduct the cost of their expense ratios from the fund’s net asset value (NAV) daily. As an investor, an expense ratio tells you how much you’ll pay to invest as a percentage of assets under management (AUM). For example, an expense ratio of 0.5% costs $50 annually for every $10,000 you invest. Passive funds generally charge lower expense ratios than actively-managed funds that incur higher management costs. Investors should analyze and compare expense ratios across funds, as higher operating costs reduce the fund’s assets and investor returns.
Exposure is a word for how many different securities or types of securities an investor’s portfolio owns. ETFs are unique and attractive investment vehicles because they can provide exposure to a specific asset class, sector, factor, or strategy through a single investment. Before ETFs, investors had to purchase dozens, even hundreds, of different securities while constantly buying and selling new securities to rebalance their portfolio in order to maintain appropriate exposure. Now, this complex rebalancing is done by knowledgeable portfolio managers. Portfolio exposure can be used to assess risk, project returns, or forecast a portfolio’s reaction to different market-moving events.
FDIC insurance protects deposit accounts in the event that a bank declares bankruptcy or otherwise becomes insolvent. Standard FDIC insurance covers up to $250,000 per depositor, per ownership category, per insured bank. Insured accounts include checking and savings accounts, certificates of deposit (CDs), and certain retirement accounts. Note: the [FDIC](https://learn.tryq.ai/articles/fdic) doesn’t insure investment securities, even if they were purchased through or held by an FDIC-insured institution.
Fees and Expenses
Fees and expenses are important to consider when investing in ETFs. Fees and expenses represent what the manager of an ETF charges for an investor to buy and hold an ETF. ETF managers may charge a fee to buy ETF shares, to sell ETF shares, hold ETF shares, or charge a fee based on performance. ETFs traditionally maintain low Fees and Expenses because they are, for the most part, passively managed.
Fiduciary duty describes the responsibility of a person or entity (the fiduciary) to act in the best interest of another. Fiduciaries have a legal obligation to serve the needs of a principal or beneficiary while limiting conflicts of interest. Common fiduciary-beneficiary relationships include: * Investment advisors and investors * Estate executors and heirs * Lawyers and clients * Board of directors and corporations/stakeholders Failure to uphold fiduciary duties typically result in financial penalties paid to the beneficiary.
Fill or Kill Order
A fill or kill (FOK) order is a conditional securities trading order that requires a brokerage to execute (fill) a transaction immediately at the market or specified price. If the brokerage can’t quickly fill the order at the given quantity or price, it’s cancelled (killed). Active traders or those trading large quantities often use FOK orders to ensure their order executes quickly at specific prices. Without FOK designations, large orders could cause significant stock price or market disruptions.
Financial materiality is a generally accepted accounting principle (GAAP) with two (somewhat related) definitions. The first definition describes materiality as any fact or event that could reasonably impact investors’ decision-making process. Under GAAP rules, material events or information must be publicly disclosed in the appropriate financial statements. The second definition describes materiality as a measure of the relative financial importance of ESG factors. ESG-based financial materiality can help businesses put numbers to ESG-based decisions.
Financials ETFs invest in stocks classified under the financials sector, which provide banking and other related financial services to commercial and retail customers. Companies that fall broadly under the financials sector include those with operations in banking, investment management, insurance, brokerage services, and/or wealth management.
Stocks classified under the financials sector provide banking and other related financial services to commercial and retail customers. Companies that fall under the financials sector include those with operations in banking, investment management, insurance, or real estate. Financials stocks historically thrive under low interest rate environments as they are able to maintain a higher spread between the rate they charge clients to borrow funds relative to their cost to borrowing funds. Stocks in the financials sector are somewhat cyclical and historically perform best during an upswing of the business cycle or prosperous economic conditions.
Fiscal policy involves manipulating government spending and tax policies to moderate economic conditions like demand, employment and growth. Fiscal policy changes can influence the amount and type of taxes paid or government borrowing and spending. Governments use fiscal policies to promote sustainable growth or ward off undesirable conditions. Expansionary policies may lower taxes or increase spending to fuel growth. Contractionary policies may raise taxes or decrease spending to fight inflation. Fiscal policies often work alongside monetary policies, which are enacted by central banks instead of elected officials.
Forbearance is the temporary postponement of loan payments, ranging from one month to over a year, to give borrowers financial breathing room. Borrowers may receive forbearance on any kind of debt, including mortgages, student loans, auto loans and credit cards. Lenders are often willing to negotiate forbearance agreements to avoid hefty losses incurred during default and foreclosure processes. Generally, interest continues accruing during forbearance periods and borrowers must demonstrate need to qualify (such as a job loss).
Form ADV is a disclosure form that investment advisors must file with regulatory authorities. (Either the SEC, state securities regulators, or both.) Form ADV consists of two parts: * Part 1 provides identifying information about an advisor’s firm and/or key officers, clients, assets under management and other business activities. * Part 2 requires advisors to write a plain-English brochure for their clients outlining their fees, services and business practices. They must also disclose existing or potential conflicts of interest and past disciplinary action. Form ADV must be updated annually and is public record on the SEC’s Investment Adviser Public Disclosure website.
Free Cash Flow Yield
The free cash flow yield refers to the yield owners of a company should expect for paying the market rate of for its economic value. Investors prefer to see either healthy or improving free cash flow yields as it implies that a company can continue to sustain its operations. A decreasing or negative free cash flow yield should raise concerns about whether a company can continue to fund its current business strategy.
Frontier Market ETF
Frontier Market ETFs invest in securities from some of the least economically developed nations in the world. Regions that Frontier Market ETFs invest in are even less developed than those considered to be emerging markets. Lack of established infrastructure, high geopolitical risks, and absent financial markets make Frontier Market ETFs among the riskiest investments an investor can hold—the trade-off extremely high growth prospects. Notable countries considered to be frontier markets include Croatia, Tunisia, Pakistan, and Kenya.
ETFs that fall under the Frontier Markets class invest primarily in securities from countries that are considered to be among the least developed nations in the world. ETFs with holdings in frontier markets are highly risky because they are exposed to a plethora of geopolitical, currency, and other risks. Because they lack development, investments in frontier markets have extremely high growth prospects.
FUD (Fear, Uncertainty, and Doubt)
FUD (Fear, Uncertainty, and Doubt) is a term from the cryptocurrency community. When a person or entity shares negative information, misinformation or dire predictions about a particular crypto or the market, they may be accused of spreading FUD. Likewise, when people sell their coins due to price declines, rumors of scams or government regulation, or other factors, crypto adherents may claim that sellers do so out of FUD.
Fund flows refer to the net of all investor cash inflows and outflows to and from an ETF. Fund Flows can be used to measure how much interest an ETF is drawing from the investment community as a whole. Fund Flows are not in any way a measure of performance. Theoretically, an influx of funds can be interpreted as an increase in demand for that ETFs specific strategy.
FX ETFs typically track the performance of a single currency or a basket of currencies while employing analyses of macroeconomic factors to make investment decisions. FX ETFs accomplish this by investing in a variety of vehicles, including cash deposits, short-term debt in a specific currency, and future or swap contracts. FX ETFs analyze a variety of macroeconomic factors, including interest rates, inflation, output, consumer confidence, and geopolitical risks, to make their investment decisions. FX ETFs typically add stability to portfolios by offering a way to hedge against economic events that could adversely impact stock or bond holdings.
In finance, a gain is an increase in the value of, or the profit from selling, property or assets. Gains occur when the current or sales price is higher than the original purchase price. Depending on your purpose, you can classify and analyze different kinds of gains, such as net, gross, realized and unrealized gains. In investing, you often hear about capital gains, which occur when you sell a capital asset for more than you paid.
Global ETFs seek to diversify their holdings across all global geographies. Global ETFs are considered to be safe investments relative to region or country-specific ETFs because of their geographic diversification. Global ETFs offer investors exposure to investments in both developed economies and emerging/frontier markets. Global ETFs often maintain higher-than-average expense ratios because of the due diligence required to invest on a global scale. Global ETFs are susceptible to currency conversion risks.
Options Greeks allow traders to make more informed decisions by measuring the different factors affecting the price of the option (delta, gamma, theta, vega and rho).
Gross Domestic Product (GDP)
Gross domestic product measures the total value of a country’s goods and services produced in a specified timeframe. (Most countries calculate GDP annually, but some, like the U.S., also calculate quarterly GDP.) GDP counts all goods and services sold, as well as some government-provided services like education and defense. Countries use GDP to help gauge how fast an economy grows or shrinks and determine a country’s general economic health.
Growth stocks refer to stocks where the future growth is above the median or average of a predetermined peer group. Typically, investors pay a premium for these types of stocks since there is an expectation that a growth company will “grow into its valuation.” Growth stocks are typically in the earlier stages of their business lifecycle. Investors buying growth stocks will likely not receive dividend payments. Instead, investors who buy growth stocks hope to achieve profit through capital returns, or the appreciation of a stock’s price. Technology and consumer discretionary sectors are commonly some of the largest allocations in growth-focused ETFs.
Guaranteed funds are investment products typically offered by insurance companies that promise a guaranteed minimum return upon maturity. (Or client death.) These funds may invest in stocks, bonds and/or index funds to achieve their goals. Some funds only promise the return of principal with the possibility, but not guarantee, of excess returns. Others may guarantee fixed or variable returns above the principal investments. Regardless, since full repayment only occurs upon maturity, they’re recommended to investors who feel confident they can stay invested long-term.
Hardship withdrawals are special premature withdrawals permitted from some deferred elective (retirement) plans. The IRS permits hardship distributions to address “an immediate and heavy financial need” like: * Medical bills * Funeral expenses * Certain home repairs * College tuition * A down payment on a house * Mortgage or rent to prevent foreclosure or eviction While not all funds permit hardship withdrawals, those that do must specify what constitutes a “hardship.” Meanwhile, IRS rules determine whether the 10% early withdrawal penalty will be waived based on need and amount borrowed. Regardless, hardship withdrawals are still subject to standard income taxes. And because you can’t repay these funds, the size of your retirement nest egg is permanently reduced.
A hash is a cryptographic byproduct of a hash algorithm. It is the output generated when a hash algorithm takes data and converts it into a fixed alphanumeric string.
Headline inflation measures the price change of all the goods and services in a fixed basket. Measured by the Consumer Price Index, this is the raw inflation figure reported by the Bureau of Labor Statistics each month. Government entities and businesses use this metric to moderate their approach to current and future economic activities. Headline inflation compares to core inflation, which strips out volatile food and energy prices that may skew the underlying data.
Healthcare ETFs invest in stocks classified under the healthcare sector, which provide medical services, manufacture medical equipment or drugs, offer medical insurance, or facilitate the provision of healthcare for patients. Healthcare is one of the largest sectors in the US, accounting for nearly one-fifth of annual gross domestic product (GDP). Healthcare ETFs are historically non-cyclical as healthcare is a highly essential service.
Stocks classified under the healthcare sector provide medical services, manufacture medical equipment or drugs, offer medical insurance, or facilitate the provision of healthcare for patients. Healthcare is one of the largest sectors in the US, accounting for nearly one-fifth of annual gross domestic product (GDP). Stocks classified under the healthcare sector are historically non-cyclical as healthcare is an essential service.
A [hedge fund](https://learn.tryq.ai/articles/hedge-fund) pools investor capital to buy into a variety of investment assets and strategies. Though they share similarities, they’re generally considered riskier and more aggressive than traditional mutual funds. Hedge funds consist of two parties: a professional fund manager (the “general partner”) and the investors (“limited partners”). The manager invests pooled funds – often using sophisticated strategies and securities – in an attempt to beat average returns. Traditionally, hedge funds impose high net worth or investment minimums, which limits access to wealthy clients. (And then [Q.ai came along](https://learn.tryq.ai/blog/how-q-ai-is-similar-to-a-hedge-fund)…but we digress.)
Hedging is an advanced investment strategy that limits financial risk by investing in opposing securities. If one investment declines, the hedge limits or offsets losses. Hedging tactics can take several forms, including buying derivatives and futures; buying one stock while shorting a weaker competitor; or diversifying your portfolio. While hedging doesn’t completely eliminate risk, it can lessen the impact during downturns.
High Dividend Yield ETFs
High dividend yield ETFs invest in the stocks of micro-cap, small-cap, mid-cap, and large-cap companies across the globe that have established a priority of paying-out consistent dividend payments to shareholders. High dividend yield ETFs generate their returns primarily from receiving dividend payments rather than relying on capital gains from stocks they invest in. High dividend yield ETFs are viable options for risk-averse investors seeking to generate consistent and predictable passive income.
High Yield Bond ETFs
High yield bond ETFs invest in high yield bonds, which are high-paying bonds with low credit ratings relative to their investment-grade counterparts. High yield bonds offer higher yields because they face a greater chance of defaulting. Bonds are considered to be high yield bonds if they carry a credit rating below “BBB” from S&P or below “Baa” from Moody’s.
Historical (Realized) Volatility
Historical (realized) volatility is a measure of how much the stock price fluctuated during a given time period.
HODL (Hold On for Dear Life)
HODL (Hold On for Dear Life) is a slang term popular in cryptocurrency communities. The term originated in a 2013 Bitcoin forum message posted by a (reportedly drunk) user about “HODLING” their currency amid ongoing volatility. While the word is a simple misspelling of “holding,” readers interpreted it as an acronym for “hold on for dear life.” Nowadays, cryptocurrency “HODLers,” like buy-and-hold stock investors, pride themselves on “HODLing” their crypto regardless of market fluctuations.
House Price Index
The FHFA (Federal Housing Finance Agency) House Price Index tracks single-family home prices in all 50 states. This weighted, repeat-sales index measures average price changes when the same property is repeatedly sold or refinanced. Because it aggregates data at natioal, state, metro and ZIP code levels, it provides an accurate, in-depth indicator of pricing trends. The data comes from conventional and conforming mortgages that Fannie Mae and Freddie Mac buy and/or securitize. Economists use the House Price Index to track mortgage default and affordability rates by location. Investors also rely on the Index to gauge potential economic and stock market trends.
Hyperinflation goes beyond high inflation to describe rapid, out-of-control price spikes across an economy. Generally, hyperinflation hits at least 50% per month, while some economies have seen monthly hyperinflation of 30,000% or more. Historically, hyperinflation hits when a country’s central bank prints excessive funds to pay large debts or fund wars. Economic shocks, including those caused by natural events like droughts, can also play a role. Functionally, hyperinflation causes prices to soar, which can lead to product hoarding, bank closures and decreased tax revenue. Once hyperinflation hits, governments may struggle to contain it with price controls, rate hikes or reduced spending. In extreme cases, governments may replace their currencies entirely.
IAPD: Investment Adviser Public Disclosure
The Investment Adviser Public Disclosure database contains registration information and documents filed by certain investment professionals. These include investment advisor firms that register with the Investment Adviser Registration Depository, as well as state-registered advisors and representatives. (Where applicable.) You can use the IAPD to: * Confirm an advisor’s registration status * Access their updated Form ADV * View information on an advisor’s background and disciplinary events It’s wise to consult the IAPD before hiring an investment advisor to ensure they’re actively registered.
In-the Money (ITM) Option
An ITM Call option’s strike price is below the actual stock price. For example, an investor purchases a Call option with a strike price of $95 in XYZ stock which is currently trading at $100. The investor’s position is in the money by $5. The Call option gives the investor the right to buy the equity at $95. An ITM Put option’s strike price is above the actual stock price. For example, an investor purchases a Put option with a strike price of $110 in XYZ stock which is currently trading at $100. This investor’s position is In-the-money by $10. The Put option gives the investor the right to sell the equity at $110.
Stocks classified under the industrials sector include those with operations in aerospace and defense, industrial machinery manufacturing, lumber production, construction, waste management, and cement and metal fabrication. Performance of industrial stocks is heavily reliant on the supply and demand for building construction materials in residential, commercial, and industrial real estate markets. The industrials sector is somewhat cyclical; during periods of economic contraction, companies often put expansionary plans on hold and produce fewer goods, lowering the demand for industrial companies’ products and services.
Inflation-Protected Bond ETFs
Inflation-protected bond ETFs invest in inflation-protected debt instruments, which are bonds issued primarily by sovereign governments and protect the bond’s yield from inflation. Unlike normal bonds, which denominate yield in nominal terms (before adjusting return for inflation), inflation-protected bonds guarantee a real return (after adjusting return for inflation). Inflation-protected bond ETFs are viable options for investors wary of high inflation chipping away at their portfolio’s returns.
Information Technology Stocks
Stocks classified under the information technology sector have business operations that manufacture electronics, create software, computers, or computer parts, or conduct research and development relating to technologically based goods and services. Stocks in the information technology sector have historically traded at higher multiples due to prospects of high growth associated with successfully tech companies. The information technology sector is young relative to other major sectors as it only began to develop into its current form during the Dot Com Bubble in the late 1990s.
Initial Coin Offering (ICO)
Similar to an initial public stock offering, an initial coin offering allows the company/group that created the cryptocurrency to generate funding by issuing a new coin.
“Inverse OPEC” is a proposed coalition of nations and world leaders that would work to drive down global energy prices. Such an alliance would operate by promoting green energy innovation and adoption while reducing dependence on fossil fuels. At this time, no official inverse OPEC exists. Notably, plans for global cooperation have been proposed by the U.S.’s Kamala Harris and the UK’s Keir Starmer. The idea of an inverse OPEC has been proposed by the U.S.’s Kamala Harris and the UK’s Keir Starmer. The group would counteract [OPEC](https://learn.tryq.ai/glossary/opec), a coalition of oil-producing nations that regulates the production and price of much of the world’s oil supply.
An investment committee is a group of individuals tasked with managing an entity’s investments. Profit-seeking and nonprofit organizations appoint these committees to manage foundation funds, retirement plans, pension plans and endowments. While exact duties may vary, investment committees generally: * Select investment consultants and advisors * Establish an investment strategy based on an organization’s goals and liabilities * Create and enforce investment policies * Monitor investment performance and asset allocation * Report activities and results to the entity’s governing board Ultimately, these committees aim to generate the highest possible returns without exceeding the organization’s capacity for risk.
Investment consultants are financial professionals who provide clients with investment-related services and planning. They can hold many official titles like stockbroker, banker, financial planner and financial advisor. Depending on their exact role, duties may include: * Reviewing a client’s financial situation and goals * Establishing investment strategies * Monitoring investment performance and asset allocation * And helping clients meet evolving financial goals Investment consultants may work for banks, asset management or investment firms and independent practices. Their clients also run the gamut from retail and institutional investors to fund managers and trustees.
Investment-Grade Bond ETFs
Investment-grade bond ETFs invest in bonds that maintain a low risk of default. Bonds are considered to be investment-grade bonds if they carry a credit rating above “BBB-” from S&P or above “Baa3” from Moody’s. Investment-grade bonds are very likely to achieve their coupon payments and payback a bond’s principal, as indicated by their strong credit rating.
Investor sentiment, sometimes called market sentiment, represents the overall attitude of investors toward a security or the broader market. Market sentiment is revealed by a security, index or market’s price movements. Investors and analysts also rely on the VIX (“fear index”), high-low index and moving averages to “measure” sentiment. Generally, rising price trends indicate bullish investor sentiment, while falling price trends indicate bearish investor sentiment. Investors and day traders may use sentiment to speculate on the future direction or price movements or inform their trading strategy.
Sell 1 out-of-the-money call spread and sell 1 out-of-the-money put spread with the same expiration. Profit is limited to the premium collected from the sale of the call and put spreads. This strategy is a less risky alternative to selling straddles and strangles and will profit if the stock stays below the short call and above the short put. Investors should implement this strategy when volatility is high and they are neutral in the stock. This strategy has a defined risk profile. Risk Level: Medium
Jobless claims measure the number of individuals who file for unemployment insurance benefits each week. The Department of Labor releases its jobless claims report every Friday for the week prior. There are two categories of jobless claims: * Initial claims count only first-time filers * Continuing claims count the number of people who file for benefits at least two weeks in a row Economists and investors consider jobless claims to be a leading economic indicator. When claims rise, financial markets may see more volatility; when they fall, the markets may react more positively.
The jobs report, or employment report, is released by the U.S. Bureau of Labor Statistics (BLS) on the first Friday of every month. The report relies on a pair of household and payroll surveys to estimate employment and unemployment data, average hours worked and wage changes. The jobs report is a lagging indicator, meaning it measures past economic conditions. Policymakers, researchers and investors rely on the jobs report to gain economic insights and potential or past portfolio performance. The Federal Reserve also considers jobs report data when setting monetary policy.
Large-cap ETFs invest in the stocks of large companies, generally with a market capitalization greater than $10 billion. Although companies with a market capitalization greater than $100 billion are typically considered mega-cap stocks, large-cap ETFs still invest in these companies. Large-cap ETFs offer investors exposure to some the most notable companies in the world. Large-cap ETFs are generally seen as safer and highly liquid investments relative to mid-cap and small-cap ETFs.
Large-cap, or big-cap, refers to companies with market capitalizations of $10 billion-plus. (Market cap is calculated by multiplying the number of shares outstanding by the current stock price.) Large-caps tend to share several characteristics, including greater stability, more financial transparency, and a higher likelihood of paying dividends. Though they’re less prone to risk and market volatility than their smaller counterparts, they’re also less likely to see explosive growth.
Latin America ETF
Latin America ETFs invest exclusively in securities from Latin America countries like Brazil, Argentina, and Chile. Latin America is considered to be a region largely comprised of emerging markets, making Latin America ETFs risky investments relative to regions like North America and Europe. Because Latin America is comprised of emerging markets, Latin America ETFs are considered to have high growth prospects. Latin America ETFs are highly exposed to geopolitical risks and currency conversion risk.
In this case, you are simply saying that you will _not_ buy a security above a certain price or sell a security below a certain price. By using limit orders, traders/investors have more control over the execution they are receiving.
Broadly speaking, liquidation is the process of converting illiquid assets (stocks, bonds, real estate, etc.) into liquid ones – typically cash. For instance, investors may liquidate part or all of their portfolios to switch assets, avoid losses or capture gains. Liquidation may also refer to the process of dissolving a business and distributing its assets to debt-holders and shareholders. This type of liquidation usually occurs when a company declares bankruptcy or becomes insolvent (can’t pay its debts).
Liquidity is the ability of a firm, company or individual to quickly convert assets to cash or pay debts without incurring major losses. Liquidity risk occurs when said entities: * Can’t meet short-term debt obligations due to an inability to raise enough cash fast enough (AKA funding liquidity risk) * Risk major losses due to an inefficient market or lack of buyers * Can’t buy or sell assets without adversely affecting the price of the asset (such as a major investor selling out) Market liquidity risk can be defined as how easily an asset can be converted to cash in a crunch. The rise rises when, for example, a large trade occurs in an otherwise illiquid market.
Loan ETFs invest in bank loans that are offered to clients and are often denominated as floating rate, meaning the loans are protected against changing interest rates. Loan ETFs offer a way for retail investors to gain exposure to a floating-rate asset, which is typically available nearly exclusively to institutional investors. Loan ETFs are also a way for investors to potentially protect against inflation.
A long call is an alternative to buying stock and will profit if a stock rises above the call strike plus the premium paid. Risk is reduced to only the premium for the call. This strategy should be implemented in a low-volatility environment and if the investor thinks the stock will rise. Risk Level: Low
Long Call Butterfly
Combining 2 short calls at a middle strike, and 1 long call each at a lower and upper strike using the same expiration. This strategy is considered bullish if the middle strike is above the stock price. The strategy is most profitable if the stock closes at the middle strike on expiration. This strategy is implemented when volatility is high, and the investor has a bullish view on the stock. Risk Level: Low
Long Call Spread
Buy 1 call at a lower strike and sell 1 call at a higher strike, using the same expiration. The strategy is a cheap alternative to buying calls and will profit if stock rises above the lower strike plus the premium paid. The strategy reduces the premium paid versus a call purchase, but has limited upside. This strategy should be implemented if the investor thinks the stock will rise and volatility is cheap. Risk Level: Low
An alternative to being short a stock and will profit if the stock falls below the put strike plus the premium paid. Reduces the risk profile to only the premium paid for the put. This strategy should be implemented in a low volatility environment and if the investor thinks the stock will fall. Risk Level: Low
Long Put Butterfly
Combining 2 short puts at a middle strike, and 1 long put each at a lower and upper strike using the same expiration. This strategy is considered bearish if the middle strike is below the stock price. The strategy is most profitable if the stock closes at the middle strike on expiration. This strategy is implemented when volatility is high, and the investor has a bearish view on the stock. Risk Level: Low
Long Put Spread
Buy 1 put at a higher strike and sell 1 put at lower strike using the same expiration. This strategy is a cheap alternative to buying puts and will profit if the stock falls below the higher strike minus the premium. The strategy reduces the risk to only the premium paid for the spread but limits the downside profit potential. This strategy should be implemented if the investor thinks the stock will fall. Risk Level: Low
Long Risk Reversal
Buy 1 call at a higher strike and sell 1 put at a lower strike using the same expiration. This strategy has a similar risk/reward profile as a long stock position and is profitable if the stock rises above the higher strike. Investors should implement if they are bullish. Risk Level: High
Buy 1 call and buy 1 put at the same strike with the same expiration. The risk is limited to the premium paid. This strategy can be considered both bullish and bearish and investors use this strategy when volatility is cheap and they want to profit if volatility rises. Risk Level: Low
Buy 1 out-of-the-money call and buy 1 out-of-the-money put with the same expiration. The risk is limited to the premium paid. This strategy can be considered both bullish and bearish and investors may use this strategy when volatility is cheap and they want to profit if volatility rises. Risk Level: Low
Long/short ETFs employ a long/short investment strategy, which involves taking long positions in stocks expected to appreciate and taking a short position in stocks expected to depreciate. Long/short ETFs seek to minimize market exposure by profiting from both price increases and price declines of certain stocks. Some long/short ETFs maintain a market-neutral strategy, which requires the dollar value of short and long positions to be equal. Long/short ETFs may also leverage pair trading, which involves taking a long position in a stock while simultaneously taking a short position in another stock in the same sector.
In finance, a loss is a decrease in the value, or financial deficit from the sale, of property or assets. In other words, you incur a loss when you sell an asset for less than its purchase price. You can generally divide losses into three groups: realized, unrealized and recognizable. A loss is realized when you complete a sale at a deficit. Unrealized losses occur only on paper (such as when a stock’s value drops). Recognizable losses are the amount of a loss you can declare on your taxes each year.
Low volatility investing typically refers to an investing style that focuses on stocks with an average annualized volatility below the median or average of a predetermined group. In some cases, low volatility strategies focus on “beta” volatility risk and in others idiosyncratic volatility. Low volatility investors typically fear a market downturn that can hurt their portfolios. Historically, low volatility stocks and “stocks” ETFs outperform during periods of high volatility and sharp downdrafts in equity markets. While low volatility is not specific to any sector, consumer staples, aerospace and defense, energy, and utility stocks historically carry the lowest volatility.
Stocks classified under the materials sector are companies that discover, extract, develop, and process raw materials. Major sub-industries of the materials sector include chemicals, construction materials, mining, containers and packaging, and forestry production. Companies in the materials sector rely on industrial and commercial customers to drive a bulk of their business, making demand for the sector volatile and susceptible to economic cycles.
Maturity refers to the date when an investment or transaction ends. Instruments like cash deposits, [bonds](https://learn.tryq.ai/articles/bond), loans, [options](https://learn.tryq.ai/glossary/options) and swaps can all reach maturity. Depending on the instrument, maturity may result in repayment of principal and/or cash payment of interest. A few instruments, like [commodities](https://learn.tryq.ai/articles/commodities) and [forex](https://learn.tryq.ai/articles/forex-currency-trading), may also deliver a physical good (such as gold). In some cases, the investor can choose to renew the investment – think rolling a mature CD into a new one.
A merger is a voluntary agreement wherein two existing companies combine into one new, larger firm. There are five basic kinds of mergers: Congeneric (product extension), market extension, conglomerate, horizontal and vertical. Companies may merge to expand into new markets or products, grow revenues or market share or even circumvent a bankruptcy. (Generally – but not always – the two companies are roughly equal in size, customer base and operational scale.) Potential downsides include reducing competition via monopolization leading to consumer downsides, culture clashes, layoffs and preventing economies of scale.
Micro-cap ETFs invest in the stocks of extremely small companies, generally with total market capitalization below USD$150mm. While USD$150mm is the general cap for micro-cap stocks, some micro-cap ETFs will maintain their own parameters for investments—parameter examples include investing in stocks that fall within specific deciles of market capitalization or excluding a fixed quantity of larger stocks. Because the stocks held by micro-cap ETFs are so small, they generally receive little-to-no coverage by Wall Street analysts and brokerage houses, resulting in low liquidity, high volatility, and increased overall risk.
Mid-cap ETFs invest in stocks across sectors, generally with market capitalization between USD$2bn and USD$10bn. While this market capitalization parameter is what generally classifies mid-cap stocks, certain mid-cap ETFs may have their own investment parameters. Stocks held by mid-cap ETFs are interpreted to be in the middle of their growth stage and are expected to increase their profits, market share, and productivity in the short to mid-term future. Mid-cap ETFs are typically seen as more risky than large-cap ETFs, but less risky than micro-cap and small-cap ETFs.
Middle East & Africa ETF
Middle East & Africa ETFs invest in securities from regions specific to the Middle East and/or Africa. Middle East & Africa ETFs can invest in securities from several notable countries: Egypt, which is one of the region’s largest economies; Israel, which is considered to be the region’s most advanced country in terms of economic and industrial development; and Turkey, which is another relatively large economy in the region. The Middle East region is oil-rich and houses a plethora of significant global oil producers while Africa is rich with precious metals and other materials, making it a hub for global miners.
Mining is a complex cryptographical methodology of adding and confirming transactions on the blockchain. Miners are usually rewarded for verifying transactions on the blockchain by receiving coins for each block mined. Mining requires significant computer power and absorbs substantial electrical energy.
A mixed economy is an economic system that combines pieces of at least two economic models, like free market, command or socialist economies. Mixed economies attempt to balance private property and economic freedoms against a country’s economic, social or environmental goals. In practice, that means mixed economies permit individuals and businesses to own property and produce most goods. However, the government may regulate or subsidize industries or socialize some services (like the military or postal service). The U.S., Canada and U.K. are some examples of modern mixed economies.
Momentum strategies focus on stocks who have outperformed relative to a predetermined peer group. It is normally an ex post analysis but has proven to be very successful. Momentum investing is based on the premise that stocks have trended upwards in the near-term pasts will continue to trend upwards. While traditional investors would be hesitant to invest in stocks at all-time highs, momentum investors will welcome the strategy. Historically, momentum stocks carry a high degree of volatility. Unlike Value, Growth and Low Volatility strategies, Momentum funds tend have various degrees of sector allocations: no one sector dominates the allocation process.
A mortgage rate, or interest rate, represents the interest charged on a mortgage (home loan). Mortgage rates are generally presented as a percentage of the home loan’s value that the buyer pays on top of the loan. Your mortgage rate is one component of your APR, or annual percentage rate, which represents the _total_ cost of borrowing. Lenders set mortgage rates based on factors like the loan type and size, market conditions and the borrower’s financial situation and creditworthiness. Rates can be fixed (staying the same until the mortgage is repaid) or variable (fluctuating with a benchmark rate).
A mortgage refinance allows a homeowner to replace their existing mortgage with a new home loan. Homeowners often refinance their mortgage to get a lower interest rate, shorter loan term or cash out their home equity. Mortgage refinances can also be used to switch to a fixed- or adjustable-rate mortgage or eliminate mortgage insurance.
A moving average is the average price of a security over a defined number of time periods. The most common moving averages quoted are 50, 100 or 200 day moving averages.
Multi-Asset Buy-Write ETFs
Multi-asset buy-write ETFs employ a buy-write strategy, which is an options strategy that involves buying a security or basket of securities while simultaneously selling or writing call options on those same assets. By using this strategy, multi-asset buy-write ETFs attempt to generate additional income by collecting premiums from the call option. If the security or basket of securities in question stay flat or decline, the buy-write ETF keeps both the collected premium and the asset(s). If the security or basket of securities in question rise, however, buy-write ETFs receive only the premium while selling the asset(s) at the pre-determined price to cover the call. Although Multi-Asset Buy-Write ETFs usually underperform in bullish markets, they are viable options in volatile or bearish markets.
Multi-Asset Global Macro ETFs
Multi-asset global macro ETFs leverage macroeconomic and geopolitical analysis of various countries in order to make investment decisions. Multi-asset global macro ETFs often implement opportunistic investing strategies in order to capitalize on current macroeconomic or geopolitical trends. As part of an opportunistic investing strategy, Multi-asset global macro ETFs may adjust asset allocations in order to best take advantage of changing macroeconomic or geopolitical conditions. Multi-asset global macro ETFs analyze macroeconomic indicators like interest rates, inflation, output, and consumer confidence in order to make investment decisions.
Multi-Asset Long/Short ETFs
Multi-asset long/short ETFs employ a long/short investment strategy, which involves taking long positions in securities expected to appreciate and taking short positions in securities expected to depreciate. Multi-asset long/short ETFs seek to minimize market exposure by profiting from both price increases and price declines of certain securities. Some Multi-asset long/short ETFs maintain a market-neutral strategy, which requires the dollar value of short and long positions to be equal. Multi-asset long/short ETFs may also leverage pair trades, which involves taking a long position in a stock while simultaneously taking a short position in another stock in the same sector.
Multi-Asset Volatility ETFs
Multi-asset volatility ETFs hold a mixed portfolio of equities, fixed income, real estate, and potentially more asset classes in order to achieve a desired level of volatility. Typically, multi-asset volatility ETFs seek to minimize a portfolio’s level of volatility. Multi-Asset Volatility ETFs historically outperform during broad market downturns.
Municipals Fixed Income ETFs
Fixed income ETFs that fall under the municipals category invest primarily in municipal bonds, which are debt obligations issued by municipal and state agencies. In the US, municipal bonds are exempt from state and local income taxes, which increases after-tax income relative to similar rates. There are two main types of municipal obligations in which fixed income ETFs in the municipals category invest: general obligation bonds, which seek to raise immediate capital with the prospect of returns coming from the taxing power of the issuer; and revenue bonds, which seek to fund infrastructure projects with the prospect of returns coming from the project’s expected generated income.
National Debt Ceiling
The national debt ceiling limits how much money the U.S. government can borrow to satisfy its legal and financial obligations. Raising the ceiling doesn’t authorize funding new projects; it permits financing _existing_ obligations made by past elected officials. These include interest on existing debt (bondholder payments), military salaries, and Social Security and Medicare benefits. If the national debt hits the ceiling, it must be adjusted or suspended to prevent the Treasury taking “extraordinary measures.” Failure to do so would result in the U.S. government defaulting on its debt, lowering its credit rating and increasing the cost of its debts. Notably, the national debt ceiling was created during WWI to ensure fiscal responsibility. However, questions about its constitutionality remain. According to the Constitution’s 14th Amendment, “the validity of the public debt of the United States…shall not be questioned.”
Natural Gas Futures
Natural gas futures are standardized, exchange-traded contracts obligating the buyer to purchase a specific amount of natural gas at a predetermined date and price. These contracts trade on exchanges like the NYMEX (USA), ICE (UK) or MXC (India). Natural gas producers and consumers rely on futures to manage price risks. Producers can lock in guaranteed selling prices, while businesses secure future purchase prices. The market’s price swings often draw speculators seeking profits. However, the market’s innate volatility exposes portfolios to substantial loss risks.
Natural Resources ETFs
Natural resources ETFs invest in stocks with operations in mining, producing, or distributing natural resources, which include mining and minerals companies, forestry companies, and oil exploration stocks. There are two major types of natural resources stocks: majors, which are diversified natural resources companies with operations that span from extraction to processing to market sales; and juniors, which are natural resources companies with operations in just one aspect of the natural resources process. Majors are typically more stable natural resource investments while juniors can be highly sensitive to natural resource price movements. Generally, natural resources ETFs are highly non-cyclical and offer attractive dividend yields.
Net deposits represent the difference between your total deposits and total withdrawals in a financial account. Simply put, it’s the difference between money in and money out. You can calculate net deposits by subtracting the sum of all withdrawals from the sum of total deposits. Withdrawing more than you deposit generates a negative net deposit; depositing more than you withdraw generates a positive net deposit.
News Buzz Score
News buzz scores are normalized values of change in standard deviations of periodic news volume. Buzz scores reflect a sharp change in news volume thus serving as a risk alert indicator. Defined on a scale of 1-10, a high buzz score reflects higher volatility.
News Sentiment Score
News sentiment scores are a measure of bullishness and bearishness of equity prices calculated as statistical index of positivity and negativity of news corpus. Scores are defined on a scale of -5 to 5 where -5 and 5 are extremely bearish and bullish indicators, respectively.
News Volume Score
News volume is the number of news articles about a stock, published and parsed on a given day. Volume of news provides a good indicator of a trend breakout or a trend reversal.
NFTs (non-fungible tokens) are crypto assets minted and stored on blockchains like Ethereum. Each NFT carries unique identifiers that make them non-fungible, or inequivalent to each other. (By contrast, fungible tokens like ether or $USD are identical to, and can be exchanged for, one another.) The current NFT market focuses on “tokenizing” collectibles like art and music. But almost anything can be “minted” into an NFT, including tweets, passports and real estate. Adherents believe that tokenizing assets increases market efficiency while reducing fraud risk.
A noncompete is a legal contract that prevents employees, contractors or consultants from competing with an employer during or after employment. They’re common in industries like media, finance, IT and corporate management. Generally, noncompetes prohibit employees from working for competitors or in certain industries or regions for a set timeframe. They also bar individuals from revealing trade secrets and proprietary information. Companies use noncompetes to reduce competition and employee turnover. However, their scope, legality and enforceability vary by state. For instance, California refuses to enforce noncompetes, as they weaken employee rights and bargaining power.
North America ETF
North America ETFs invest in securities from the United States, Canada, and/or Mexico. North America ETFs are sound options for investors who believe that the United States, Canada, and/or Mexico have a strong future outlook and want to capitalize on the outlook. North America ETFs limit investors’ exposure to certain global risk factors, such as geopolitical risks and country-specific economic turmoil. North America ETFs lack significant geographical diversification, which increases investors’ exposure to risks associated strictly with the US.
The Organization of the Petroleum Exporting Countries (OPEC) is a cartel comprised of 13 major oil-exporting nations. It was founded in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. As of 2022, additional members include Algeria, Angola, Congo, Equatorial Guinea, Gabon, Libya, Nigeria and the United Arab Emirates (UAE). OPEC was organized to regulate global oil supply and prices to minimize fluctuations and promote stability. It also provides member states with technical and economic aid. The organization claims it collectively controls 80% of global oil reserves and accounts for 40% of worldwide production. In 2016, OPEC joined with 10 other producers to create OPEC+ to combat particularly low prices. The organization has faced criticism for using its dominant position to increase profits rather than ensure global stability.
Operating margin refers to the amount of operating income a company generates relative to the amount of net revenues it receives. Operating margin is a good measure of a company’s profitability since it is measure of how much profit, before taxes and debt service, a company realizes for every unit of revenues received.
Option At-the Money (ATM)
For both Put and Call options, an option is ATM when the strike and the stock price are the same.
Option Event Variance
Option event variance is a statistical measure that quantifies the expected event percentage move in an underlying as determined by the level of implied volatility in a given option. This metric is used to help determine if implied volatility is cheap or expensive prior to an event.
Option Out-of-the-Money (OTM)
An OTM Call option’s strike price is above the actual stock price. For example, an investor purchases an OTM Call option with a strike price of $120 on symbol ABCD which is currently trading at $105. This investor’s position is out of the money by $15. An OTM Put option’s strike price is below the actual stock price. For example, an investor purchases an OTM Put option with a strike price of $90 on symbol ABCD which is currently trading at $105. This investor’s position is out of the money by $15.
Options are contracts through which a seller gives a buyer the right, but not the obligation, to buy or sell a specified number of shares of stock at a predetermined price within a designated time period. Each standard contract represents 100 shares of stock.
The PEG ratio is simply the P/E ratio adjusted for the growth of earnings over the time period that the P/E ratio measures. The PEG ratio adjusts the valuation of a company by its growth rate: the theory is that is that what you pay for is a product of the amount of growth you expect. The PEG ratio is the core metric behind Peter Lynch’s Growth At A Reasonable Price (GARP) investment strategy.
Performance in ETFs typically refer to the track record of an ETF and its fund managers. An ETFs’ historical performance is central to assessing its viability as an investment vehicle. To best understand ETF performance, it is necessary to look at the underlying constituents that make up an ETF to see which securities have driven an ETFs positive, negative, or neutral performance. Additionally, it can be useful to look at the largest constituents that make up an ETF to understand how an ETFs largest holding have driven its success or underperformance. Performance can be measure excluding fees, which will tell investors strictly how an ETFs’ holdings have performed relative to a market benchmark, or including fees, which will tell an investor their effect on an ETFs bottom-line returns.
Personal investment strategy
Your personal investment strategy is a plan or set of rules designed to guide your investment decisions. Your strategy and asset selection are typically informed by your goals, risk tolerance, timeline, and need for capital. Strategies range from short-term to long-term and may be conservative (low-risk, low-growth), aggressive (high-risk, high-growth), or somewhere in-between. But they’re not static: ideally, you’ll review and update your strategy as your needs, desires, and life circumstances evolve.
A portfolio is a collection of financial assets like cash, stocks, ETFs, bonds, mutual funds, real estate or commodities. You can hold your assets in a variety of accounts, including 401(k)s, IRAs and brokerage accounts, that comprise your portfolio. Generally, portfolios hold a mix of assets that generate returns based on your risk tolerance and financial goals. You can build your own portfolio from scratch or pay a financial advisor or robo-advisor to manage assets for you.
Preferred Stock ETFs
Preferred stock ETFs hold preferred stocks, which are shares of a company that receive dividend payments before common shareholders, at a fixed and indefinite rate. Preferred stock shares are seen as less risky than common stock shares because, in the event of liquidation, preferred shareholders receive distributions first. Preferred stock ETFs may hold preferred stock shares of companies across sectors or geographic regions, or they may hold preferred stock shares specific to a certain strategy.
A premium is the price you pay if you buy an option or the price you receive if you sell an option.
The price-to-earnings ratio, typically referred to as the P/E Ratio, refers to how much stock investors are willing to pay for every unit of earnings per share. There are many forms of the P/E ratio (forward looking, backward looking, cyclically adjusted, etc), but the basic premise is the same: how much is one unit (share) of earnings truly worth.
Principal risks (business)
A business’ principal risks describe the primary risks it may encounter in the normal course of business. This field is broad, often including: * Market risk * Credit risk * Operational risk * Liquidity risk * Insurance risk These risks are considered “principal” because they represent major or likely risks to operations and profits.
Principal risks (financial system)
In the financial system, principal risk is the risk that one failing financial institution could set off a domino effect. In theory, if one institution fails to meet its obligations, it could cause other institutions to fail, too. This could set off a cascade of failing institutions that would threaten the payment, settlement, and/or overall financial system. Principal risk is considered one of the largest potential sources of systemic risk.
Principal risks (investing)
In investing, principal risk is the risk that an investor could lose some or all of their capital. This risk may arise from different sources, such as the potential that: An investment declines in value below the original invested amount Sells won’t receive payment for delivered assets Buyers won’t receive the assets they paid for Most assets carry some principal risk, though some (like bonds and CDs) carry far less risk than others (stocks, commodities, crypto, etc.).
Put Spread Collar
Buy 1 put at a higher strike and sell 1 put at a lower strike, and sell 1 call at a higher strike with the same expiration. The risk profile is the same as being short a stock when it trades above the call strike. The spread is profitable when the stock trades below the long put strike plus or minus the premium paid or collected. Investors should implement this strategy if they are bearish. Risk Level: High
Quantum computing is a field of computer science that uses quantum mechanics to solve complex problems classical computers can’t. Classical computers use binary electrical impulses (0s and 1s) to encode information as bits. Their power increases linearly as bits pile on, allowing them to process tasks and operate programs. However, they have limited computing power. Quantum computers rely on quantum bits, or qubits, which allow particles like electrons and photons to exist in multidimensional states. (More than one state at a time.) Groups of qubits exponentially increase a computer’s processing power, permitting it to solve more complicated problems. Quantum computers are finicky, requiring near-absolute zero temperatures and insulation from earth’s magnetic fields to run. They also only operate for limited timeframes and can experience high error rates. Still, quantum computing holds enormous potential for machine learning and AI, drug discovery, nuclear fusion, finance, etc. As such, the field has attracted prominent names like IBM, Microsoft, Google and Lockheed Martin.
Real estate ETFs
Real estate ETFs invest in securities classified under the real estate sector, including companies with business operations related to residential real estate, commercial real estate, or industrial real estate. To gain exposure to the real estate sector, Real estate ETS may also invest in real estate investment trusts (REITs), which are portfolios comprised of real estate holdings. Interest rate changes have a substantial impact on real estate ETFs as interest rate levels directly impact supply and demand for all types of real estate.
Real Estate ETFs
Real estate ETFs invest in stocks classified under the real estate sector, including those with business operations related to residential real estate, commercial real estate, or industrial real estate. To gain exposure to the real estate sector, real estate ETFs may also invest in real estate investment trusts (REITs), which are portfolios comprised of real estate holdings that trade on stock exchanges. Interest rate changes have a substantial impact on real estate ETFs as interest rate levels directly impact supply and demand for all types of real estate.
Real Estate Stocks
Stocks classified under the real estate sector include those with business operations related to residential real estate, commercial real estate, or industrial real estate. To gain exposure to the real estate sector, investors can explore real estate investment trusts (REITs), which are portfolios comprised of real estate holdings. Interest rate changes have a substantial impact on companies in the real estate sector as interest rate levels directly impact supply and demand for all types of real estate.
The term “recession-proof” describes assets, companies or industries believed to safeguard against economic declines. Such defensive assets may suffer less, or even profit from, recessionary environments. The flip side is that they may see flatter performance in times of economic growth. Recession-proof investments and businesses often crop up in niches that serve essential needs or high-priority desires. Examples include grocers, utilities, healthcare and even vices like alcohol and tobacco.
Reinvestment risk is the possibility that reinvesting an asset’s cash flows (like interest or dividends) will result in smaller returns. The term also describes the risk that an asset will generate smaller-than-expected returns due to falling interest rates. Reinvestment risk is mostly associated with fixed-income assets like bonds and Treasuries. Short-term debts carry more risk than long-term debts. Callable bonds that allow issuers to repurchase debt early (like when interest rates fall) are particularly vulnerable. Investors may reduce reinvestment risk by investing in non-callable securities, long-term bonds, or through bond laddering.
Relative Strength Index (RSI)
Relative Strength Index (RSI) compares the strength of recent gains and losses over a specified time period to gauge the speed and change of price movements of a stock.
Renewable energy, or clean energy, comes from natural sources that don’t run out, such as solar, wind and hydropower. Less common examples include geothermal energy, which pulls heat from the ground, and bioenergy, which converts organic matter (like algae or crop wastes) into energy. Generally, harnessing and using renewable energy is less polluting than extracting and burning fossil fuels and coal. In many countries, renewables are also cheaper, more scalable and create more jobs, making their adoption attractive to investors.
Return on Equity
Return on equity measures the amount of return, or value, a shareholder receives per unit of equity. It is a measure of how a company uses it assets to create positive returns for equity shareholders. It is calculated as Net Income divided by Shareholder Equity.
Return on Invested Capital
Unlike return on equity, the return on invested capital takes a more holistic approach and considers all investors, both credit and equity investors. The return on invested capital is a measure of how much value a company generates based on its total capital base (including the working capital it uses). Return on invested capital is calculated as net profit after taxes divided by total capital.
Rho refers to the change in the price of an option relative to a change in the risk-free interest rate.
Russell 2000 Index
The Russell 2000 Index is a small-cap U.S. index managed by London Stock Exchange subsidiary FTSE Russell. This market cap-weighted index follows the smallest 2,000 firms in the Russell 3000 Index. The Russell 2000 is often considered the best indicator of small-cap performance.Most stocks in the index are smaller, younger and potentially more volatile than those in indexes like the S&P 500. Many investors use the Russell 2000 as a point of comparison for their small-cap investments due to its size and diversification. The Index rebalances annually to stay representative as a comprehensive small-cap index.
A Satoshi is the smallest unit of Bitcoin and is equal to 1/100,000,000th of a Bitcoin. Bitcoin is a benchmark reference coin for larger cryptocurrencies, while Satoshis are a benchmark for smaller cryptocurrencies. Satoshis are named after Satoshi Nakamoto, the founder of Bitcoin.
SEC-Registered Investment Advisor
An SEC-registered investment advisor, or RIA, is an individual or firm paid to provide investment advice. RIAs with over $100 million in assets under management must register with the Securities and Exchange Commission. Smaller firms may register with one or more state authorities and/or with the SEC. RIAs are legally beholden to specific standards, such as: * Clearly stating their services and fee structure * Disclosing potential conflicts of interest * Informing clients of asset risks RIAs must also meet their [fiduciary duty](https://learn.tryq.ai/glossary/fiduciary-duty), which requires them to act in their clients’ best interest at all times.
Broadly speaking, a sector is a large grouping of companies that share similar business activities, products or services. In investing, sectors represent smaller, more exact groupings of companies that fit into “investment sectors.” Examples may include energy, technology, healthcare and financial services. Dividing economic activities into sectors helps analysts examine various segments’ health, such as whether a sector is expanding or contracting.
Securities and Exchange Commission (SEC)
The Securities and Exchange Commission (SEC) is an independent federal agency established under the Securities Exchange Act of 1934. The agency is headed by a 5-member Commission tasked with protecting investors and the markets. Among other duties, the SEC: * Regulates equity and fixed-income markets * Protects investors from fraud and market manipulation * Registers investable securities and financial services firms * Oversees regulatory bodies like FINRA and the [SIPC](https://learn.tryq.ai/articles/sipc) The SEC may handle violators using civil action or by partnering with the Department of Justice on criminal matters.
A shallow recession occurs when economic growth contracts relatively mildly. (As opposed to a deep recession, when economic growth contracts severely.) Shallow recessions may see stagnated or mildly declining growth compared to “normal” economic conditions. Factors like industrial production, retail sales and consumer spending may all see moderate declines. Meanwhile, economic indicators like unemployment may rise gradually, marginally or both.
The Sharpe Ratio serves as a measure of risk-adjusted relative returns. Simply put, it compares an investment’s expected or realized return against the risk taken to earn those returns. The formula starts by calculating an asset’s “excess” returns, or any returns that exceed the risk-free rate or industry benchmark. (The risk-free rate is usually a U.S. Treasury.) Then, it divides those excess returns by the asset’s standard deviation, which represents its volatility. When compared against an industry, portfolio or market, the Sharpe Ratio indicates an asset’s risk-adjusted performance. Higher ratios suggest better risk-adjusted performance, while negative suggest an asset underperformed the risk-free asset.
A short call is an alternative to short selling stock, and will profit if a stock falls below the strike price. Profit is limited to the premium collected from the sale of the call. The risk profile is identical to shorting a stock above the strike price plus the premium collected. This strategy should be implemented in a high volatility environment and if the investor thinks the stock will fall. Risk Level: High
Short Call Spread
Sell 1 call at a lower strike and buy 1 call at higher strike using the same expiration. Profit is limited to the premium collected from the sale of the call spread. This strategy is a less risky alternative to selling naked calls and will profit if the stock falls below the lower strike plus the premium collected. This strategy should be implemented if the investor thinks the stock will fall and wants a defined risk profile. Risk Level: Low
An alternative to buying stock and will profit if stock stays above the strike price. Profit is limited to the premium collected from the sale of the puts. The risk profile is identical to buying the stock below the strike price minus the premium collected. This strategy should be implemented in a high volatility environment and if the investor thinks the stock will rise. Risk Level: High
Short Put Spread
Sell 1 put at a higher strike and buy 1 put at lower strike using the same expiration. Profit is limited to the premium collected from the sale of the put spread. This strategy is a less risky alternative to selling puts and will profit if the stock stays above the higher strike minus the premium collected. This strategy should be implemented if the investor thinks the stock will rise but wants a defined risk profile. Risk Level: Low
Short Risk Reversal
Sell 1 call at a higher strike and buy 1 put at a lower strike using the same expiration. This strategy has a similar risk/reward profile as a short stock position and is profitable if the stock falls below the lower strike. Investors should implement if they are bearish. Risk Level: High
Sell 1 call and sell 1 put at the same strike with the same expiration. The profit is limited to the premium collected. The risk is similar to being short a stock when it rises above the strike price and long stock when it falls below the strike price. This strategy can be considered neutral and investors may use this strategy when volatility is expensive and want to profit if volatility falls. Risk Level: High
Sell 1 out-of-the-money call and sell 1 out-of-the-money put at the same strike with the same expiration. The profit is limited to the premium collected. The risk is similar to being short a stock when it rises above the call strike price and long a stock when it falls below the put strike. This strategy can be considered neutral and investors may use this strategy when volatility is expensive and they want to profit is volatility falls. Risk Level: High
Sinking Fund (Corporate Finance)
In corporate finance, a sinking fund is created purposely to save money for known future expenses or debt repayments. Corporations often create sinking funds to buy back bonds early or cover their obligations at maturity. Sinking funds may also be used to repurchase preferred shares. Sinking funds help companies guard against default, as they save over time to pay off their bond debts. Investors may feel more comfortable purchasing bonds issued with a sinking fund feature for this reason. Sinking funds may also lower a company’s credit risk and therefore the cost of their debt.
Sinking Fund (Personal Finance)
In personal finance, a sinking fund holds savings (often in an interest-bearing account) you intend to spend on a designated future purchase. Many individuals set up sinking funds for larger or distant expenses like: * Birthday and holiday gifts * Vacations * Home remodels * Annual insurance premium payments Sinking funds let you set aside smaller dollar amounts on a regular basis. Using this strategy means you can prepare for the future without incurring a large, chunked expense against your monthly budget. Sinking funds differ from emergency funds in that emergency funds are designed for sudden, unknown expenses. By contrast, a sinking fund is the realization of planning ahead to cover intentional, specific expenses.
SIPC insurance protects investors from insolvent or bankrupt brokerages. Customers of member SIPC brokerages are covered up to $500,000 per account type, including up to $250,000 for cash claims. [SIPC](https://learn.tryq.ai/articles/sipc) insurance covers brokerage, IRA and trust accounts (among others) from brokerage failure and liquidation, securities theft and unauthorized trading. SIPC insurance does _not_ cover a security’s loss of value, as it’s intended to replace missing assets in select circumstances.
Size and Style ETFs
Equity ETFs that fall under the size and style category invest in stocks of companies based on certain criteria, which may include market capitalization and valuations. ETFs that adhere to a size and style investment strategy may invest based solely on size, solely on valuation, or a combination of the two: Size ETFs invest only in small-cap, mid-cap, or large-cap stocks; style ETFs invest in value, growth, or a blend of value and growth stocks; size and style ETFs combine a size parameters and a valuation parameters, for example, small-cap value or large-cap growth.
Skew measures the difference in implied volatility between out of the money puts, out of the money calls and at the money options. Skew levels may be used to help identify directional sentiment when there is a supply and demand shift in out of the money options.
Small-cap ETFs invest in stocks across sectors and geographies, generally with market capitalization between USD$300mm and UDS$2bn. While this market capitalization parameter is what generally classifies small-cap stocks, certain small-cap ETFs may have their own investment parameters. Stocks held by small-cap ETFs are likely in the early stages of their business cycle and are expected to display robust growth. Because of their high levels of expected growth, small-cap ETFs typically maintain expensive trading multiples.
Small-caps are companies whose market capitalization ranges from $300 million to $2 billion. (Market cap is the number of shares outstanding times the current stock price.) While the term often describes young growth companies, the group also includes some well-established firms. Generally, small-caps offer different risks and rewards than their large-cap counterparts. For instance, while they may grow more quickly, they’re also more likely to go bankrupt. Plus, their stocks tend to be less liquid and more volatile.
Sovereign Fixed Income ETFs
Fixed income ETFs classified under the sovereign category invest primarily in sovereign debt, which are debt securities issued by a national government. Sovereign debt securities can either be issued in the government’s own domestic currency or a foreign currency.
Spreads Fixed Income ETFs
Fixed income ETFs that fall under the spreads category employ some sort of investment strategy that allocates portfolio holdings based on bond yield spreads. Bond yield spreads refer to the difference between yields of two debt instruments with varying maturities or credit ratings and risk. Bond yield spreads are used to measure the risk differential between two different debt securities.
Stagflation occurs when an economy simultaneously experiences fast-rising prices, slow growth and high unemployment. The phenomenon was first described by British politician Iain Macleod in 1965, who dubbed current conditions a “stagflation situation.” Stagflation was once thought impossible by economists, though it appears more often as modern economies grow more interconnected. Possible causes include economic shocks, over- or under-regulation and the presence of a global supply chain. Stagflation is particularly difficult to tackle, as correcting one factor, like inflation, typically worsens another, like unemployment.
Standard deviation is a measure of the dispersion of a set of data from its mean. So 68.27%, 95.45% and 99.73% of values lie within one, two and three standard deviations of the mean, respectively.
Standard deviation measure
Standard deviation is a statistical measure of how far a piece of data falls from the baseline average. In investing, standard deviation stands in as a measure of price volatility in an asset, portfolio, index or market. Assets with high standard deviations generally see larger price swings and greater volatility. By contrast, low standard deviations suggest smaller price swings and lower volatility. Investors use standard deviations to quantify an asset’s historical risk and make investment decisions. Risk-loving investors may prefer high standard deviations and more growth opportunities, while risk-avoidant investors may prefer low standard deviations and more stability.
Standard Tax Deduction
The standard tax deduction sets aside a portion of your income that the IRS does _not_ tax. Most taxpayers can claim a federal standard deduction, while some states offer their own version. (A handful of filers won’t qualify for the standard deduction due to unique filing, residential or accounting status.) Standard deduction amounts vary by filing status, dependent status, disability status and age. These amounts increase annually to account for inflation. Generally, you can claim either the standard deduction or itemize your deductions – but not both. (Itemization involves claiming each tax-deductible expense separately.)
A stimulus check is a payment made to taxpayers by their country’s government. Stimulus checks aim to spur economic activity by boosting consumer confidence and spending. Stimulus checks may be sent by mail, directly deposited or applied as tax credits. Generally, governments set eligibility requirements based on dependent status, tax filing status and income. The United States sent out three stimulus checks during the Covid-19 pandemic. Taxpayers also received stimulus checks to boost spending during the Great Recession.
A stock of a company, commonly referred to as a share of a company, represents fractional ownership of that company.
[Stock halts](https://learn.tryq.ai/articles/stock-halt) occur when an entity (usually stock exchanges or the SEC) pauses trading. Halts can impact one security, many securities or the broader market. A halted stock, therefore, is any stock currently experiencing a stock halt. Stock halts can last from 15 minutes to months, depending on the reason for the halt. The [NYSE](https://learn.tryq.ai/articles/nyse) and [Nasdaq](https://learn.tryq.ai/articles/nasdaq) initiate stock halts frequently to help regulate volatile markets or correct trading order imbalances. “Circuit breaker” halts, which automatically trigger on huge price swings, are among the most common.
A stock split occurs when a company divides existing shares by a specific number to create new shares. The split lowers the per-share price while maintaining a company’s market cap and the value of investor holdings. (For instance, a 10-for-1 stock split would reduce one share worth $1,000 into 10 shares worth $100 each.) Stock splits primarily serve to lower per-stock prices to increase affordability and [liquidity](https://learn.tryq.ai/articles/liquidity) and allow for greater future price growth. Some companies may use stock splits to maneuver into an index (like the [Dow](https://learn.tryq.ai/articles/dow)) with selective admission standards.
Equity ETFs classified under the Strategy category adhere to a certain strategy in order to make their investment decisions. Popular types of strategy ETFs include dividend ETFs, alpha-seeking ETFs, and theme ETFs. Because Strategy ETFs employ a specific strategy that is likely complex to make their investment decisions, their expense ratios are typically more expensive than other ETFs.
Structural unemployment occurs when there’s a mismatch between the skills an economy requires and those that workers possess. Alternatively, it may occur when skilled workers live too far from jobs. Unlike cyclical unemployment, structural unemployment is caused by fundamental, often permanent economic shifts. Technological and automation innovations, increased competition, globalization and government policies may all contribute to the problem. Structural unemployment can last for decades and may increase the natural or frictional unemployment rate. Fixes include incentivizing education and skills training as well as relocation subsidies.
Student debt moratorium
Congress passed student loan relief through the CARES Act in response to the Covid-19 pandemic in March 2020. This relief included the federal student debt moratorium, which temporarily suspended mandatory payments, lowered interest rates to 0%, and halted collections on defaulted loans. The student debt moratorium was extended twice under President Trump and four times under President Biden. Currently, the moratorium is set to expire on 31 December 2022.
Sub transfer agency fee (Sub T/A fee)
Sub-transfer agency fees (sub-TA fees) are charges that may appear on your workplace retirement plan statements. Plans reflect sub-TA fees when investment funds (often mutual funds) pay third-parties (plan administrators or recordkeepers) for performing tasks under the firms’ purview. These tasks include shareholder services like tracking assets and mailing prospectuses. Since the fund doesn’t have to do this work, it may pass compensation collected for these tasks to the plan administrator. This “fund compensation” is noted as a sub-transfer agency fee or sub-shareholder servicing fee.
Target Date ETFs
Target date ETFs aim to serve long-term investors seeking to grow their portfolio over a specific investment horizon. Most often, target date ETFs are geared towards investors saving for retirement. Target date ETFs are typically denominated in the year an investor wishes to begin using their assets. The asset allocation of target date ETFs usually changes as it nears its specified target date. Additionally, a target date ETFs’ risk tolerance often becomes more conservative as it nears its specified target date.
Target Date Funds
Target date funds are mutual funds or ETFs designed to simplify investing for long-term goals like retirement or paying for college. Each fund sets a time horizon (e.g. 10-30 years) and invests to grow and secure the portfolio value by the target date. Generally, target date funds start out with riskier assets to build gains early on. Then, they retain gains and curate moderate growth by shifting to more conservative allocations as time passes. Target date funds may be actively or passively managed and typically readjust their risk levels annually. However, they may increase your investing costs, since these “funds of funds” often charge fees while passing on the expense ratios of underlying assets.
Target Outcome ETFs
Target outcome ETFs, also known as Defined Outcome ETFs, leverage a multi-asset allocation investment strategy that limits the amount investors can gain while also limiting the amount investors can lose. Target outcome ETFs often track an index or benchmark. Target outcome ETFs are primarily geared towards investors who prioritize capital preservation rather than capital appreciation. Target outcome ETFs are viable options for retirees.
Target Risk ETFs
Target risk ETFs leverage a multi-asset allocation investment strategy to achieve a desired risk profile. Target risk ETFs can be labeled as conservative, moderate risk, or aggressive in reference to their risk profiles. While most target risk ETFs attempt to maintain a consistent level of risk exposure through the fund’s life, some have a type of “glide path” that adjusts target risk exposure over time.
Tax brackets refer to earned income subject to set tax rates. Think of each bracket as a “bucket” containing a certain amount of earnings. Each bucket is subject to its own tax rate. The dollar ranges within tax brackets vary by filing status (single, joint, head of household, etc.) For instance, in 2022, the IRS set seven tax brackets with tax rates ranging from 10% to 37%. A single filer earning $20,000 would pay 10% on the first $10,275, then 12% on the amount between $10,276 and $20,000. This “progressive” taxation style ensures that higher-earning brackets pay higher tax bills.
Tax brackets describe ranges of income that are charged specific tax rates. In a progressive tax system like the U.S. defined brackets (portions) of your income are subject to different tax rates. The exact dollar amount per bracket based on filing status. For instance, in 2022, a single filer earning $40,000 would fit into two tax brackets. The first tax bracket covered earnings from $0 to $10,275, taxed at 10%. The second tax bracket covered earnings from $10,276 to $41,774, taxed at 12%.
Tax credits are special credits that reduce taxpayers’ tax bills dollar-for-dollar. They’re generally more favorable than deductions, which lower your taxable income. For instance, a $1,000 tax credit lowers your tax bill by $1,000. But a $1,000 deduction reduces your taxable income, saving less money. Tax credits often incentivize behaviors like starting a business or going green. Refundable tax credits “refund” the value of the credit, even if you owe $0 in taxes. But nonrefundable tax credits can’t reduce your tax bill below $0.
Taxable accounts are financial accounts where default IRS tax rules apply. Typically, the term refers to taxable brokerage accounts, but can also include savings, CD, and money market accounts. Unlike retirement accounts, taxable accounts have no special tax rules or incentives for saving. They offer no tax breaks for contributing or staying invested, charge no penalties for early withdrawals, and set no income limits. However, investors must pay taxes on all gains (interest, dividends, and profits) earned within the account.
Technical analysis is the process of analyzing historical price and volume data to forecast potential future prices and volatility. You can use technical analysis on almost any security, including stocks, bonds, commodities and currencies. Typically, investors employ technical analysis to evaluate investments and identify trading opportunities. They often rely on visual charts to identify specific patterns and trading signals like trendlines, support and resistance lines and moving averages. Technical analysis is contrasted by fundamental analysis, which evaluates securities based on the finances of the underlying business.
Technology ETFs invest in stocks with business operations that manufacture electronics, create software, computers, or computer parts, or conduct research and development relating to technologically based goods and services. Technology ETFs have historically traded at higher multiples relative to other sector-specific ETFs due to prospects of high growth associated with successfully tech companies.
Telecommunication ETFs invest in stocks classified under the telecommunications industry, including stocks with operations in wired or wireless communication through landlines, cell phones, the Internet, airwaves, or television. The telecommunications sector has evolved rapidly in the last two decades driven by the introduction of cell phones and the mainstream adoption of the Internet. Telecommunication ETFs are considered to be relatively stable and non-cyclical equity investments that typically offer attractive dividend yields.
The Great Depression
The Great Depression was the longest and most severe economic depression in industrialized world history, lasting from 1929 to 1939-1941. It began as an ordinary recession in the summer of 1929 and was exacerbated by the stock market crash in October 1929. The crash compounded other existing problems, including declining production, a struggling agricultural sector, over-levered banks and rising unemployment. The Great Depression hit its trough in 1933. Gross domestic product dropped 30% as industrial production plunged 47%. Repossessions and foreclosures climbed as nearly half of America’s banks failed. At its worst, the unemployment rate exceeded 20%. Though it began in the U.S., global reliance on the gold standard helped spread the downturn worldwide, particularly to Europe. The severity sparked massive changes in economic theory, macroeconomic policy and financial regulation.
The Great Resignation
The Great Resignation describes the increased resignation rate the economy experienced during the Covid-19 pandemic amid low unemployment and strong labor demand. (Though research suggests the phenomenon actually began around 2009.) The reasons behind the Great Resignation are complex and myriad. Employees report leaving jobs where they felt underappreciated and overworked; seeking more financial security or a better work-life balance; or quitting for health or childcare concerns. Many employees near retirement age left the workforce entirely.
Theme ETFs are a unique category of ETF investment strategies constructed around a specific concept. Popular theme ETFs include ETFs that invest in only environmentally friendly stocks and ETFs that invest only in socially-conscious stocks. Theme ETFs typically carry higher overall fees relative to other types of ETFs because of their specialized strategies.
TIPS ETFs invest in treasury inflation protected securities, or TIPS, which are Treasury securities that are indexed to inflation and protect investors from its negative effects. TIPS ETFs are considered extremely safe investments because they are backed by the US government and their real rates of return are protected from inflation. TIPS ETFs purchase TIPS directly from the US Treasury. Additionally, TIPS ETFs are exempt from both state and local income taxes.
Treasury ETFs invest in different types of Treasury debt instruments, which are fixed-interest debt securities issued by the US government. Treasury ETFs are exempt from both state and local income taxes, although they are taxable at the federal level. Debt securities held in Treasury ETFs carry very little risk of default because they are backed by the US government. Treasury ETFs invest in four different types of US government debt; Treasury Bills, Treasury Notes, Treasury Bonds, and Treasury Inflation-Protected Securities (TIPS).
TWAP stands for volume weighted average price and refers to the average price for a period time based on solely on time.
Unconstrained Bond ETFs
Unconstrained bond ETFs do not employ a specific investment strategy and change or rotate their investments based on the current environment. Unconstrained bond ETFs invest opportunistically, taking both long and short positions in order to achieve a pre-defined return objective. Unconstrained bond ETFs claim to offer a hedge against both rising interest rates and inflation.
A nation’s unemployment rate measures the percentage of the labor force lacking a job. A “healthy” unemployment rate ranges from 3-5%, though the rate may rise during periods of recession or economy-wide job losses. In the U.S., the unemployment rate is calculated based on a survey conducted by the Bureau of Labor Statistics (BLS). The BLS defines “unemployed” individuals as those who are able to work and have sought jobs in the last four weeks. BLS unemployment data is released on the first Friday of every month. Since it measures past, rather than forward-looking, economic conditions, it’s considered a lagging indicator.
US Broad Market ETF
US Broad Market ETFs invest in the stocks of companies across the United States, independent of size, sector, valuations, and other factors. US Broad Market ETFs will traditionally track an index of some sort while remaining passive. US Broad Market ETFs are sound for investors who believe that the US has a strong future outlook and want to capitalize on the outlook. US Broad Market ETFs reduce investors’ exposure to global risk factors such as currency conversions, geopolitical risks, and country-specific economic turmoil. While US Broad Market ETFs are diversified across different sectors and size, they lack geographical diversification which increase investors’ exposure to risks associated strictly with the US.
US Consumer ETFs
US Consumer ETFs invest in the stocks of micro-cap, small-cap, mid-cap, and large-cap US companies that fall within the consumer discretionary, consumer staples, or other relevant consumer-oriented sectors. Companies that sell consumer-oriented products can possess a variety of unique qualities: consumer staple products like food, beverages, and household products typically maintain lower volatility of demand levels as economic conditions fluctuate; consumer discretionary products like clothing, recreational items, and other discretionary goods experience higher levels of volatility as economic conditions vary.
US Dividend ETFs
US Dividend ETFs invest in the stocks of micro-cap, small-cap, mid-cap, and large-cap US companies that have established a priority of paying-out consistent dividend payments to shareholders. Traditionally, US Dividend ETFs will invest primarily in the stocks of blue-chip companies that carry low volatility. US Dividend ETFs generate their returns primarily from receiving dividend payments rather than relying on capital gains of stocks they invest in. US Dividend ETFs are an ideal investment for risk-averse investors seeking to generate consistent and predictable passive income.
US Government Fixed Income ETFs
Fixed income ETFs classified under the US government category invest primarily in US Government debt obligations. Fixed Income ETFs that fall under the US government category can invest in four different types of US government debt obligations, including Treasury bills, Treasury notes, Treasury bonds, and Treasury Inflation-Protected Securities (TIPS). US government debt obligations are considered to be among the safest government debt securities.
US Growth ETFs
US Growth ETFs invest in the stocks of micro-cap, small-cap, mid-cap, and large-cap US companies with high growth expectations, as indicated by rapidly expanding top-line revenue and high price/earnings ratios. Stocks held in US Growth ETFs typically will not payout capital returns, whether in the form of dividends or share repurchases, as they typically invest excess funds back into operations in order to fuel growth. Historically, a majority of growth stocks are micro-cap, small-cap, or mid-cap companies. Growth stocks typically generate investor returns through capital gains.
US Large-Cap ETF
US Large-Cap ETFs invest in the stocks of large US companies, generally with a market capitalization greater than $10 billion. Although companies with a market capitalization greater than $100 billion are typically considered mega-cap stocks, large-cap ETFs still invest in these companies. US Large-Cap ETFs offer investors exposure to some the most notable companies based in the United States. Common traits seen in large-cap stocks include stable and impactful businesses, transparent financial statements, and consistent dividend payments. Large-Cap stocks are generally seen as safer and more liquid investments relative to mid-cap and small-cap stocks.
US Low Volatility ETFs
US Low Volatility ETFs invest in the stocks of micro-cap, small-cap, mid-cap, and large-cap US companies that maintain low levels of price fluctuations, or volatility. US Low Volatility ETFs aim to reduce risk for investors by investing in securities with a track record of stability. Not only do US Low Volatility ETFs invest in low volatility stocks, but they also diversify their holdings across different sectors in order to protect against developments that may adversely impact one or two industries. US Low Volatility ETFs are a good choice for investors who fear a turbulent market.
US Momentum ETFs
US Momentum ETFs invest in the stocks of micro-cap, small-cap, mid-cap, and large-cap US companies that are strongly trending upwards. If a US Momentum ETF also practices short selling, which is essentially betting that a stock’s price will fall, they will also short stocks that are strongly trending downwards. US Momentum ETFs are options for investors who believe that trend will continue in their respective direction because momentum is already behind them. Typically, US Momentum ETFs will carry a higher degree of volatility than other ETF strategies. While many investors are skittish to enter markets and stocks that are trading at relative or all-time highs, momentum investors will welcome the move.
US Multi-Factor SmartBeta ETF
US Multi-Factor SmartBeta ETFs invest in the stocks of micro-cap, small-cap, mid-cap, and large-cap US companies with some form of rules-based strategy that seeks to outperform traditional market-weighted index funds. US Multi-Factor SmartBeta ETFs invest in securities by analyzing how they perform within different factor categories, such as low volatility, size, value, and momentum. US Multi-Factor SmartBeta ETFs are unique because they generally track an index, however, they employ an active management approach to adjust position size based on constantly changing factor scores.
US SMID-Cap ETFs
US SMID-Cap ETFs invest in the stocks of mid-cap, small-cap, and micro-cap US companies. Mid-Cap stocks are generally considered companies with a market capitalization between $2 billion and $10 billion, small-cap stocks are generally considered companies with a market capitalization between $2 billion and $300 million, and micro-cap stocks are generally considered companies with a market capitalization less than $300 million. Although generally seen as riskier investments, medium-cap, small-cap, and micro-cap stocks traditionally offer stronger upside with higher growth potential relative to large-cap stocks.
US Tech ETFs
US Tech ETFs invest in the stocks of micro-cap, small-cap, mid-cap, and large-cap US companies that fall within the technology sector. Types of operations in the technology sector include communications equipment, software, information technology (IT) services, semiconductors, and computer hardware. Technology stocks typically trade at more expensive valuations relative to their current earnings due to the disruptive nature of technology companies and their high growth prospects. Technology stocks also typically carry more volatility than stocks in other sectors, as they maintain a higher risk-reward ratio.
Utilities ETFs invest in stocks classified under the utilities sector, including companies that provide utilities such as electric, gas, and water for residential and commercial locations. Because utilities require a large infrastructure to operate, utility companies typically carry high levels of debt, making their financials sensitive to changes in interest rates. Utilities ETFs are non-cyclical with low growth prospects. Utilities ETFs have historically generated a large portion of their returns through dividend payments.
Stocks classified under the utilities sector include companies that provide utilities such as electric, gas, and water for residential and commercial locations. Because utilities require a large infrastructure to operate, utility companies typically carry high levels of debt, making their financials sensitive to changes in interest rates. Stocks in the utilities sector are non-cyclical with low growth prospects. Utilities stocks have historically generated a large portion of their returns through dividend payments.
Valuation refers to the price of a stock relative to the earnings generated by the underlying company. Valuation is critical when investing because it highlights whether you are buying the stock for a ‘cheap’ or ‘expensive’ premium. A stock with a high valuation would have an ‘expensive’ premium on its price relative to its earnings because investors expect the company to grow at a high rate. A stock with a low valuation would have a ‘cheap’ premium on its price relative to its earnings because the investors do not expect high growth from the company.
Value measures the relative valuation of an asset versus a preset peer group. It is considered one of the core factors which explain the price behavior of a stock. A stock with an “attractive value” factor score would normally be one where the market discount for its earnings is low, or “cheap.” Value investing historically has been pursued investors who are focused on capturing excess returns from stocks that have low prices relative to their fundamental value. Consumer staples and financials have traditionally been the sectors overrepresented in value-centric ETFs.
A volatility forecast uses historical volatility data, in combination with the characteristics of volatility, to predict future realized volatility. This metric is compared to option implied volatility (premium levels) to determine value (cheap or expensive).
VRDO ETFs invest in variable rate demand obligations, which are debt instruments that represent borrowed funds payable on demand. Variable rate demand obligations accrue interest based on a money market rate, such as the prime rate. For every change in a prevailing money market rate, the interest rate on a variable rate demand obligation adjusts. Variable rate demand obligations held by VRDO ETFs can adjust on a daily, weekly, or monthly basis in order to reflect the current interest rate environment.
VWAP stands for volume weighted average price and refers to the average price for a period time based on the amount of volume that traded.
When and how often can I trade cryptocurrencies?
Cryptocurrencies can be bought and sold 24/7 throughout the whole year.
Where Do Stocks Trade?
Stocks typically trade on public exchanges. While stocks can trade “off” exchanges between private persons if both parties agree, most people trade stocks on public exchanges.
Why Should I Care About Options?
Options are financial derivatives contracts that give an investor the right, but not the obligation, to buy or sell a specified security, at a specified price, at any point in time until the contract’s expiration date. Options and similar financial derivative products can be used to determine the sentiment of investors related to a certain security. By analyzing options data, investors can learn information about how other investors are assessing a certain stock, and how and in what volume investors are hedging.
A withdrawal is simply the act of removing money from an account. Withdrawals are everywhere in finance. You might make a personal withdrawal from your banking or investment accounts, for instance. Similarly, businesses withdraw from your checking account when you authorize payment by swiping your debit card. Withdrawals are the opposite of deposits, or putting money into an account.
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