Term of the day

ROHAN KACHALIA

ROHAN KACHALIA

Par 100 posts (V.I.P)
Hello guys, another effort from my side. Here I will be posting a term related to the markets daily. So all those who are willing to learn stock markets and various other markets can learn the meanings, terms and then can do a detail search for themselves.

P.S. Valuable contribution from other members and mods will be highly appreciated.​
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SOURCE:INVESTORWORDS.COM
 
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Term of the day​


Cross Rate

The exchange rate between two currencies that are not the official currencies of the country that the exchange was quoted in. Cross rates usually do not involve the U.S. dollar. For example, an investor in the United States could get the cross rate of the Euro to the Canadian Dollar.
 
Term of the day​

Abnormal Return

The difference between the return on a stock (or entire portfolio) and the performance of an index, such as the S&P 500. The abnormal return is equal to the market return – the normal return. For example, a stock that provided a return of 10% over the same period of time in which an index provided a 6% return would have an abnormal return of 10% – 6% = 4%. If the abnormal return is negative then it has underperformed the index.
 
Term of the day​


Market Risk

Risk which is common to an entire class of assets or liabilities. The value of investments may decline over a given time period simply because of economic changes or other events that impact large portions of the market. Asset allocation and diversification can protect against market risk because different portions of the market tend to underperform at different times. also called systematic risk.
 
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Gun Jumping

Trading on information which has not yet be revealed to the public, also called jumping the gun.
 
Term of the day​


Lookback Option

Call or put option whose strike price is not determined until the option is exercised. At the time of exercise, the holder can exercise the option at any underlying price that has occurred during the option's life. In the case of a call, the buyer will choose the lowest price, and in the case of a put, the buyer will choose the highest price. The premium on such options tends to be high since it gives the buyer great flexibility, and the writer has to take on a lot of risk.
 
TERM OF THE DAY​


Debt Equity Swap

A transaction in which a corporation exchanges existing bonds (debt) for newly issued stock (equity). For example, XYZ company can in essence cancel a portion of their debt and transfer the equivalent balance to equity. A debt-equity swap can help a company that is in financial trouble by canceling some of its outstanding debt. Other companies may take advantage of this process if the current value of their stock is high, allowing them to trade more debt for less stock.
 
TERM OF THE DAY​


Capital Structure

The permanent long-term financing of a company, including long-term debt, common stock and preferred stock, and retained earnings. It differs from financial structure, which includes short-term debt and accounts payable.
 
TERM OF THE DAY​

WACC

Weighted Average Cost of Capital. An average representing the expected return on all of a company's securities. Each source of capital, such as stocks, bonds, and other debt, is assigned a required rate of return, and then these required rates of return are weighted in proportion to the share each source of capital contributes to the company's capital structure. The resulting rate is what the firm would use as a minimum for evaluating a capital project or investment.
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TERM OF THE DAY​


Discounted Cash Flow

DCF. A method of evaluating an investment by estimating future cash flows and taking into consideration the time value of money. also called capitalization of income.
 
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UPTICK

A stock market transaction (or sometimes, a quote) at a price higher than the preceding one for the same security. also called plus tick.
 
TERM OF THE DAY​



COST OF CAPITAL

The opportunity cost of an investment; that is, the rate of return that a company would otherwise be able to earn at the same risk level as the investment that has been selected. For example, when an investor purchases stock in a company, he/she expects to see a return on that investment. Since the individual expects to get back more than his/her initial investment, the cost of capital is equal to this return that the investor receives, or the money that the company misses out on by selling its stock.
 
TERM OF THE DAY​

CIRCUIT BREAKER


Any of a number of procedures implemented by a major stock or commodity exchange when a certain index falls a predetermined amount in a session, to prevent further losses. Examples include trading halts and restrictions on program trading.
 
TERM OF THE DAY​

MARKET CAPITALIZATION


MCAP. Market capitalization represents the aggregate value of a company or stock. It is obtained by multiplying the number of shares outstanding by their current price per share. For example, if XYZ company has 15,000,000 shares outstanding and a share price of $20 per share then the market capitalization is 15,000,000 x $20 = $300,000,000. Generally, the U.S. market recognizes three market cap divisions: large cap (usually $5 billion and above), mid cap (usually $1 billion to $5 billion), and small cap (usually less than $1 billion), although the cutoffs between the categories are not precise or fixed. In our example above, XYZ would be considered a small cap company. also called market cap. ​
 
TERM OF THE DAY​


DIRECT QUOTE


A foreign exchange rate of one currency, usually the domestic currency, per unit of a different currency. In terms of U.S. dollars, a direct quote is the number of a foreign currency that one dollar could buy. For example, a direct quote for the Euro could be US$1.50 = 1 Euro.​
 
TERM OF THE DAY​

TICK

The smallest possible movement (up or down) in the price of a security. also called minimum fluctuation.
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Operating Leverage


The percentage of fixed costs in a company's cost structure. Generally, the higher the operating leverage, the more a company's income is affected by fluctuation in sales volume. The higher income vs. sales ratio results from a smaller portion of variable costs, which means the company does not have to pay as much additional money for each unit produced or sold. The more significant the volume of sales, the more beneficial the investment in fixed costs becomes.​
 
TERM OF THE DAY​


Reinvestment Risk


The risk resulting from the fact that interest or dividends earned from an investment may not be able to be reinvested in such a way that they earn the same rate of return as the invested funds that generated them. For example, falling interest rates may prevent bond coupon payments from earning the same rate of return as the original bond.
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TERM OF THE DAY​

Netting


The settlement of obligations between two parties that processes the combined value of transactions. It is designed to lower the number of transactions required. For example, if Bank A owed Bank B $100,000, and Bank B owed Bank A $25,000, the value after netting would be a $75,000 transfer from Bank A to Bank B ($100,000 - $25,000). ​
 
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