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Corporate BasicsBasicsCorporate StructureCorporate FundamentalsCorporate DebtRisksEconomicsCorporate AccountingDividendsEarnings

What is a leading indicator?

Leading indicators are economic or price data which have some degree of correlation with a movement in the market or a stock price. Leading indicators tend to happen before the market or price movement occurs. Traders and economists use leading indicators frequently to prepare for what’s next; they are based on theory as well as empirical historical evidence but like all indicators, they do not have a 100% accuracy rate – past performance does not guarantee future results. Continue reading...

What are Common Questions about Stocks?

People tend to focus on the mystery of the ‘get-rich-quick’ stock market when they start asking questions about stocks, but there are also good questions among them. The question most people have is, “Can I get rich just buying low and selling high?” And the answer, of course, is “Yes, absolutely!” The caveat, however, is knowing when the stock price is low and when it will peak. In stock investing it is often said that hindsight is 20/20, so it is infinitely easier in retrospect to identify times when someone should have bought or sold shares and reaped the maximum possible gains from their investment. Continue reading...

What are foreign currency effects?

Companies with significant operations or sales abroad will be affected by changes in foreign currency exchange rates. If the dollar strengthens relative to a foreign currency, the price paid for the goods in the country will not be worth as much domestically when the company converts their profits back to dollars. Some foreign currencies fluctuate much more than the US dollar does, but even the dollar can behave unpredictably. This can have a tremendous effect on the bottom line of companies engaged in significant amounts of business abroad. Continue reading...

What is a Credit Crunch?

A credit crunch is when access to liquidity dries up dramatically in rapid fashion, or becomes less accessible due to a spike in borrowing rates. Central banks will often step-in to try and curb the lack of liquidity by offering the markets access to cash at lower than market rates, in the event of a crisis. Perhaps the most famous credit crunch in history occurred in late 2007 and early 2008, when bank balance sheets became highly leveraged overnight due to mark-to-market accounting rules that were applied to the mortgage backed security portfolios on their balance sheets. Continue reading...

What is a Letter of Credit?

A letter of credit is a provided by a bank or financial institution on behalf of a borrower or buyer, to ensure the seller that payments will be made on time and in full. In the event that the buyer is unable to make payment on the purchase, the bank will have to step-in to cover the full or remaining amount of the purchase. Letters of credit are often used in international transactions to guarantee that payment will be received. Continue reading...

What is Credit Debt?

Credit debt or credit card debt is a type of consumer debt that is incurred through a short-term revolving loan facility. The most common of course is a credit card company issuing a card to a client to make purchases, with the client being responsible for minimum payments plus whatever interest rate applicable. Removing credit card debt from one’s balance sheet is often an effective way of improving your financial life. Continue reading...

What are credit derivatives?

Stemming from the hedging strategy of Credit Default Swaps, an entire speculative derivatives market continues to grow, in which tranches of credit risk and indices are traded. With the ballooning of consumer credit in recent years, it is only natural that a credit derivatives market would follow it. In essence, the risk associated with a loan or bond is separated from the actual asset and is passed on to a counter-party for a premium, and then other market participants become involved, perhaps in the form of futures contracts or other derivatives. Continue reading...

What is Bank Credit?

Bank Credit is the amount of loaned capital that an individual or business is capable of getting from a bank at a given time. This amount will be based on a series of evaluative metrics such as the total amount of assets an individual has, home equity, income, liquid net worth, work history, credit rating, and so forth. An individual can only borrow so much at a time, and, using these variables, a banker can essentially estimate how much credit could be extended that a given individual at that time. Continue reading...

What is a currency symbol?

Currency symbols are characters written or typed in a specific arrangement alongside the numerical values of a currency amount, to denote the kind of currency in which the amount of money is held. An example would be the dollar sign ($), which is placed at the beginning of the numbers which describe the amount of currency in question, despite the fact that in most languages the word “dollars” follows the numbers when spoken. Many currencies have their own symbol but not necessarily all do. Continue reading...

What is a Credit Spread?

Credit Spread is an indication of the default risk perceived in corporate bonds at the current time. The credit spread is the difference between the yield on the safest bonds and the riskiest bonds. How much does it cost corporations to issue bonds, in terms of the yield expected by investors in the current market? Typically, a higher spread indicates a more unstable economy. Buyers of large quantities of bonds tend to insure their purchases, and the cost of the insurance is usually reflected in so-called CDS's (Credit Default Swaps). The more expensive the CDS's are, the more risky it is to purchase the bond. Continue reading...

What is Bad Credit?

Bad credit implies that an individual or business has a low credit score or rating. Credit histories are reported and kept in publicly accessible databases. FICO (Fair Isaac & Company) is a credit rating institution that gives individuals a credit rating score based on reported credit histories. Scores range from 300-850, generally, but they also issue ratings based on auto loans and credit cards, which are on a scale from 250-900. Continue reading...

AAA/Aaa — credit rating

AAA — S&P / Fitch Aaa — Moody’s AAA/Aaa rated bond issues have an almost nonexistent chance of defaulting, according to the major ratings institutions that issue the ratings. AAA/Aaa is the highest rating a bond issue or company can get. In the aftermath of the 2008 financial crisis and recession, many companies, and the US Government itself, were downgraded from AAA to AA+. Only two companies in the US still retain the AAA rating: Johnson & Johnson and Microsoft. Continue reading...

B+/B1 — credit rating

B+ — S&P / Fitch B1 — Moody’s B+/B1 is within the range of ratings given to High Yield Bonds, also known as Junk bonds. B+/B1 is the 14th rating rating from the top rating of AAA/Aaa in the scales used by the Big Three credit ratings institutions, which are Fitch, Moody’s and S&P. They evaluate the fundamentals of companies, municipal entities, and their bond contracts to determine how much risk of default is present. The limit for the category of Investment Grade bonds is BBB-, and there are a few categories of BB above B. Continue reading...

B/B2 — credit rating

B — S&P / Fitch B2 — Moody’s A bond issue that has a moderate chance of default but a high yield might be given a B2/B rating by the major ratings institutions. Bonds are rated based on their risk of default by the Big Three ratings institutions: Moody’s, Fitch, and S&P. The latter two use the same symbols, so if the algorithms and analysts at the two ratings institutions come to similar conclusions, a company might have the same rating from each of them, such as the “B” in this example. B2/B ratings are the 15th ratings down the scale from the top rating of AAA/Aaa. Continue reading...

B-/B3 — credit rating

B- — S&P / Fitch B3 — Moody’s In the world of junk bonds, a B3/B- rating is about as low of a rating as most investors will venture to explore. Bonds are rated by independent ratings institutions known as the Big Three: Moody’s, Fitch, and S&P. Two companies, S&P and Fitch, use the same symbols, and the B- in this example belongs to them. Moody’s has its own system, and the B3 in this example is theirs. Continue reading...

What is a Dividend Tax Credit?

In Canada, the dividend tax credit eliminates tax liability for eligible dividends. Eligible dividends can come from public companies, foreign-owned companies operating in Canada, and many privately owned companies. It allows Canadian citizens to avoid having their dividends double-taxed. Canada offers a dividend tax credit that allows investors to eliminate their taxes on dividends paid from eligible companies. Continue reading...

What is the Lifetime Learning Credit?

The Lifetime Learning Credit is a federal tax credit to offset expenses associated with higher education. There is no age limit and the credit can be applied to part-time student courses, even if it is only one class. The credit is for 20% of the related expenses up to a maximum of a $2,000 credit per household. Tax credits are a dollar-for-dollar reduction of taxes due. The Lifetime Learning Credit can be used for higher education expenses, regardless of the age of the student, but there is a household limit per year. 20% of educational expenses up to a household maximum of $2,000 can be applied as an income tax credit. The credit exists to make it easier for Americans to increase their skill-set and education. Continue reading...

BB-/Ba3 — Credit Rating

BB- — S&P / Fitch Ba3 — Moody’s The BB-/Ba3 rating is given to bonds and companies who have a moderate risk of default, and this rating appears around the middle of a scale with over 20 ratings. There are two symbols in this example which are the same rating: Fitch and S&P use BB-, and Moody’s uses Ba3. These are the Big Three of the Credit Ratings Agencies (CRAs) that the SEC has sanctioned to issue ratings which can be used for internal regulation within industry groups. Continue reading...

What is a foreign tax credit?

A foreign tax credit (or deduction) allows a citizen who earned income in another country to reduce the amount of domestic income taxes owed if the foreign government has already taxed the income abroad. Workers who earn income in a foreign country may be entitled to a credit or deduction on their domestic income taxes if they show that this income was already taxed by the foreign government where the income was earned. In the US, there are at least three types of foreign income tax exemptions, with a foreign tax credit being one of them. Continue reading...

What is a credit default swap?

A Credit Default Swap is a contract that provides a hedge against credit default risk. To guarantee against the non-payment of a loan, a Credit Default Swap can be purchased for a premium. The seller of the swap bears the risk of payment if a bond issuer defaults, or if there is a similarly threatening “credit event” which is agreed upon in the terms of the swap contract. Generally, the buyer of a credit default swap will pay quarterly premiums for the protection, and the annualized premium is called the "spread," which may be a set percentage of the notional amount. Continue reading...