What is Income Risk?
Income risk is the chance that an investment which is used for income will fluctuate in an unfavorable way if the interest rate environment or market conditions change. Some mutual funds and ETFs are branded as income funds when they use lots of corporate bonds that generate regular income payments, but they are often sensitive to interest rate changes. The Federal Reserve Board and the market can affect changes in the interest rate environment as times goes on. Continue reading...
What is Investment Banking?
Investment banking activity is different than traditional banking. Investment banks often serve as intermediaries that underwrite a new issue of stock and help to distribute it. They also trade in their own accounts, run hedge funds, and generally invest and speculate in ways that most institutions can’t. Investment banks can assist with new issues of stocks and bonds, purchasing large blocks of them to distribute at a premium. Continue reading...
What is a Mortgagor?
The mortgagor is the borrower in a mortgagor/mortgagee relationship, where the mortgagee is the lending institution that makes the mortgage loan. Mortgages are used to purchase real property, usually single family homes. The purchase of a home with a mortgage and the payments on the mortgage are one of the largest financial decisions or obligations that a mortgagor will ever make. If a mortgagor is delinquent on payments, he or she might be categorized as a home debtor, and the loan would be subject to foreclosure. If there is a foreclosure, the bank or lender will reposes the house, evict the former owner, and sell the house as quickly as possible, sometimes through an auction. Continue reading...
What is the Head-and-Shoulders Top (Bearish) Pattern?
The Head-and-Shoulders Top pattern forms when a pair is testing new highs on an uptrend, but fails to retest its highest high and break upward. Mounting selling pressure takes over each time a pair approaches its high. The pattern forms with a center peak (the Head, labeled 3) and left and right Shoulders (1, 5). Eventually the pair stops testing highs and reverses trend into a decline. Consider selling the pair short before it declines or buying a put option to benefit from the price decline. To improve success chances, wait for a confirmation move: allow the price to break below the Neckline level (2, 4), which is calculated as the average of the two lows between the Head and the Shoulders. To estimate an exit, calculate the pattern height by taking the price difference between the Head (3) and the Neckline price (4), and subtract that from the Neckline price level/breakout price level. Continue reading...
What is a Junior Security?
Junior Securities come last in the pecking order if a company gets liquidated; common stock shares are the most prevalent example. Junior securities are securities such as common stock which would be the last in order to receive any payout if the company were to go bankrupt. Examples of securities which are senior are Preferred Stock and Bonds; senior securities receive service first in the event of company insolvency. Continue reading...
What is a commodities futures contract?
Commodities Futures are one of the most highly traded securities in the world, and it is partially because nothing has to be delivered by the participants as in a spot-trading market. Futures can be purchased on margin, opening up large positions, long or short, and if a trader finds a place to exit before the settlement date of the contract, the trader will buy/sell to close his or her position, and the exchange will regard the trader’s position as flat, and nonexistent for all intents and purposes. 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 is an Unrealized Gain?
Gains and losses are only "real" when shares are sold or withdrawals are made, but up until that point the gains were more of a notional amount, and are said to be "unrealized." A more salient way to understand unrealized gains is to look at the opposite: unrealized losses. If a person makes an investment of $1,000 and the value of the shares drops sharply the next week, has the person lost any money? The answer of course is no, not unless he sells the shares and takes the lower market price for them. Continue reading...
What is a Long Position?
A long position - or to be “long a stock” - means that an investor has share ownership and will receive an economic benefit if the share price rises, and vice versa. Creating and maintaining a long position is simple: an investor just buys and owns the investment. A “long-only” strategy refers to an asset manager that only buys and sells securities in the portfolio as a management strategy - they will not use options or shorting strategies as a result. Continue reading...