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Investing Glossary

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.

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 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 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.

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 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 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 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 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 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 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

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.

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

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.  

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