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What is an Earnings Surprise?
Earnings surprises occur when the reported quarterly or annual earnings of a company are different than they were projected to be. This could be a good surprise or a bad surprise. The price of a stock will change quickly with this new information. Positive or negative earnings surprises occur when the earnings estimates for a company in a given quarter or year turn out to be better or worse than expected. Positive surprises will naturally cause the stock price to jump up, while negative surprises will cause the price to fall. Continue reading...
What is a Run Rate?
Run rate is a term that can be applied to a certain type of accounting and management estimation or to the depletion of equity options. The first kind is when a current metric (such as sales revenue for a quarter) is assumed to extend out to the end of the year or accounting period for estimation or valuation purposes. The second kind uses the average dilution from the past three years, generally, to show the effect that convertible securities are having on the share price of a company. Continue reading...
What are No-Load Mutual Funds?
Mutual funds that do not charge a front-end or back-end sales load are known as no-load funds. What are Load Mutual Funds? While no-load mutual funds do not require the investor to pay sales charges (i.e., commissions) when buying or selling that fund, it’s important to remember that nothing is free, especially in the world of financial services. The portfolio manager of the fund and his team of analysts still have their salaries, bonuses, retirement benefits, and so on, and fees are needed to pay for it. Continue reading...
What are Load Mutual Funds?
“Load” mutual funds are those which have a fee structure that includes a front-end or back-end sales charge. All funds have expenses, but not all funds have loads. Loads are sales charges that are part of the fee structure of a mutual fund. Each mutual fund will typically offer a few types of shares classes to its investors, and the main difference between the share classes are their fee structures. There are front-end loads, which come out of your initial investment and can be up to 5%. Continue reading...
What is a Calendar Spread?
A calendar spread is a strategy also known as a horizontal spread or time spread, in which the investor uses two options contracts, with the same strike price, on the same underlying security, but with different expiration dates. The trader will “write” (sell) the near-term one (front month) and hold the one with the more distant expiration date (back month) long. This is a debit spread, since the investor will pay more to establish this position than is received from the short sale of the near-term option: longer-term options have a greater time value than short-term options. Continue reading...
What is a Bear Squeeze?
Investors who were bearish on a stock may have chosen to short-sell shares in the hopes that they could cover at a lower price. Short selling is when a broker facilitates the actions of an investor who wishes to take on the risk of replacing sold shares of a particular stock because he or she believes the price will be lower when he or she replaces the inventory. The broker passes the proceeds of the sale (minus a fee) along to the investor who is taking the risk of replacing the shares, and charges the investor interest or fees as long as the shares are outstanding. Investors need to cover the short before prices go up and it results in a loss for them. Continue reading...
What is the definition of a bank run?
Unraveling the mystery of bank runs: When panic strikes, depositors race to retrieve their money, potentially leading banks to collapse. Dive into the causes, historic instances, and safeguards like the FDIC. Can trust prevent financial catastrophe? 🏦💸 #BankRunExplained Continue reading...
What are the Expenses Associated with Buying and Owning Mutual Funds?
Several forms of fees and expenses may be charged to those who own, buy, or even sell mutual funds. With mutual funds, there two types of charges that might be paid by the investor: expenses and fees. Different types of share classes may have different types structures to their fees and expenses. Expenses are the operating costs of the fund company, essentially, and these show up in all mutual funds, usually labeled as expense ratios. The returns reported by the fund will be after expenses. 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 Mortgage Par Rate?
Lenders have a different par rate for different types of borrowers, which is the base around which they have the ability to negotiate deals. The par rate will be based on the prevailing interest rate environment, with factors changing it slightly for different potential borrowers and the risk associated with them based on creditworthiness. Par rate is the fair market value of a loan for a person with certain risk characteristics, from a lending institution of certain size and qualities. The par rate is the reference point around which a borrower and a lender will strike a deal, even though this is often unknown to the borrower. If the lender, which might be a bank loan officer or a mortgage broker, gives the borrower a break on the front-end cost of the loan, the borrower might have some interest tacked on to the par rate to make up for it. Continue reading...
What is Algorithmic Trading and How Does It Work?
Algorithmic trading, the fusion of technology and finance, has revolutionized the trading landscape. By automating trading decisions based on predefined algorithms, it offers precision, speed, and efficiency that human traders can't match. But what lies beneath these algorithms? How do they work, and what strategies power them? This guide delves deep into the world of algorithmic trading, shedding light on its intricacies, advantages, and challenges. Whether you're a novice trader or a seasoned professional, this exploration will equip you with insights and knowledge to navigate the dynamic realm of automated trading. Dive in and unlock the secrets of algorithmic trading. Continue reading...
What is a Market Maker?
A market maker is a broker-dealer firm or a registered individual that will hold a certain number of shares of a security in order to facilitate trading. There could be as many as 50 market makers for one particular security, and they compete for customer order flows by displaying buy and sell quotations for a guaranteed number of shares. The market maker spread refers to the difference between the amount a market maker is willing to pay for a security and the amount that the other party is willing to sell it. Continue reading...
What does the term "Environmental, Social, and Governance (ESG) Investing" encompass?
Unlock the potential of ESG Investing! Discover how to align your financial goals with your values for a sustainable future. Learn to navigate the triple pillars of ESG - Environmental, Social, and Governance factors, and understand their impact on your investments. Beware of 'greenwashing' and make informed decisions. Start your responsible investment journey today! Continue reading...
What is Lifetime Cost?
Lifetime cost is the total amount of money that a good will cost a consumer over the entire course of ownership. This included related, add-on costs such as maintenance, fuel, insurance and so on. These costs can dwarf the actual purchase price of the item. Lifetime cost is also known as total cost of ownership (TCO), and it is a budgetary way to look at the expenses that go along with the purchase of an item. Continue reading...
What is a No-Cost Mortgage?
No-Cost Mortgages waive the initial closing costs by making a repayment structure for those costs into the interest payments on a mortgage loan. Closing costs can range from 2%-5% of the total cost of the home, and include attorney fees, underwriting fees, application fees, and so on. These costs are deferred and are paid in the form of additional interest on the loan. Closing costs are separate from down-payments of equity, and are a miscellaneous hodgepodge of a wide range of fees associated with closing a mortgage deal. These costs are sometimes covered by the seller, but most often they are paid by the buyer. Continue reading...
What is Chapter 15?
Chapter 15 bankruptcy is a newer type of bankruptcy filing that has only been around since 2005. It allows foreign companies access to the US bankruptcy court system in certain circumstances. This is part of the US’s compliance with international trade laws. Part of the aim of bankruptcy law is to preserve employment and protect investment. In an increasingly globalized economy it is understandable that the US could offer hearings to corporations which straddle national borders but are not based in the US. Continue reading...
What is foreign aid?
Wealthy countries and non-government organizations frequently donate or lend resources to help the population of a country in dire economic need. This can come in the form of educational assistance, funds, materials, construction, food, medicine, and so on. On a macroeconomic scale, foreign aid constitutes one of the major forms of asset transfer between different parts of the world. Governments, charitable organizations, and NGOs donate or lend resources to countries that cannot supply their own needs effectively. Aid can be given altruistically, that is, just for the sake of doing good deeds, or it can be used as a tool for influence or personal gain, which is common. Continue reading...
What Is Business Process Outsourcing (BPO)?
Business process outsourcing (BPO) has emerged as a pivotal strategy for modern businesses looking to streamline operations, reduce costs, and gain a competitive edge in today's fast-paced global economy. This article delves into the essence of BPO, exploring its various facets, benefits, and potential drawbacks. Continue reading...
What is Housing Expense Ratio?
When deciding whether to issue a mortgage loan to a customer, a bank or lender will look at the housing expense ratio, which is the annual cost of the mortgage payments, including all insurance and expenses related to owning the property, divided by the gross income of the individual. Gross income is used because tax deductions can be taken for mortgage payments. If a proposed mortgage leaves the borrower with a housing expense ratio (HER) over 28%, they will usually not be approved for this mortgage loan. The HER is found by dividing all annual costs associated with the new home with the gross annual income of the (proposed) borrower. Continue reading...
What is “contango?”
Contango is when the price of a futures contract is higher than the current spot price of a commodity, and the expected future spot price. Some contango falls within the normal range, but too much is generally unfavorable. Contango means that the price of a futures contract has become inflated beyond the expected price range of a commodity. Backwardation is the word for the opposite of contango, in which futures contracts are being sold for less than the current spot price and below the probable future spot price. Some backwardation and contango is part of life and considered normal, but contango markets can have a particularly negative impact on some ETFs. Continue reading...