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What is the Bond Market?
You might not know it, but the Bond Market is about twice the size of the Stock Market. It’s true; in the US and internationally, the bond market, which includes municipal bonds, corporate bonds, government bonds, v, etc, has almost twice the amount invested in it than the Stock Market. Within these categories, there are many subsets. Bonds are widely used by individual investors as well as corporations and governments. Continue reading...
What is secondary market?
The secondary markets are where most trading goes on today, where the trades are made investor-to-investor using shares that were issued sometime before, and profits are made by investors and not the underlying company who issued the shares originally. The secondary market is a term used to describe the market created by those who are selling and buying shares which were issued some time ago in what's called the primary market. 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 is Dow Theory?
Dow Theory is perhaps the longest-standing method of market analysis still used in modern finance. It suggests that markets experience primary trends (which last several years), intermediate trends (which last under a year), and minor trends (which last less than a month). Markets are in an upward trend if an average exceeds certain thresholds, followed by a similar movement from another average. Longer, larger trends are considered more predictive than smaller ones, though correctly reading the primary trend in the main goal. Continue reading...
What is a Home, Legally-Speaking?
The laws concerning a legal residence or primary residence may come into play for purposes of insurance, state taxes, and business matters. Some people have secondary residences, some people choose to remain legal residents of one state while they inhabit another. It can be quite complicated and various statutes may apply, depending on the situation. It can matter for a mortgage loan, for local voting, for healthcare and for business: what is a home? Continue reading...
What is the Negative Volume Index?
The Negative Volume Index (NVI) is a technical indicator that tracks decreases in trade volume for an index or security, as well as price changes on those days. Paul Dysart developed the original version of this indicator for market indexes, and it garnered renewed attention when it was reworked in the 1970s via Norman Fosback in his book Stock Market Logic. The price changes in a security or the percentage change in an index are only added to or subtracted from the Negative Volume Index on days when the trading volume is lower than the day before. By watching market movement on days with lower trading volume, investors can identify where institutions and fund managers are moving their money. If trading volume is down and the market continues to do well, it means that there is a strong bullish primary trend, and that trading volume is not artificially pushing prices around. Continue reading...
What is a market-maker spread?
The difference between the Bid and Ask prices on a stock or other security are known as the Spread. Designated market makers are traders whose job it is to make a market for securities, by offering to buy or sell shares, and thus creating liquidity, often at the same time. Their money is made on the spread. In highly liquid markets, the spread will shrink. So if everyone is buying and selling the same stock one day, there may be virtually no spread between the Bid and the Ask price, and this is seen as efficient. Continue reading...
What Does Mark to Market (MTM) Mean?
Mark to Market (MTM) is an accounting method meant to price an asset by its most recent market price. An example would be mutual funds, whose “NAV” price is a mark to market price of how much the mutual fund closed for at the end of a trading session. The mark to market accounting method has some pros and cons. On the pro side, if an asset is very liquid, then MTM will provide an accurate reflection of its current value. Continue reading...
What is divergence analysis?
The analysis of convergence and divergence between indexes and other data seeks to find leading indicators where there is confirmation or non-confirmation of trends. Dow Theory was one of the first examples of such thinking. Charles Dow would watch the movements of Industrials and the Rail and compare the uptrend or downtrend of each. Where trends do not line up (e.g., one is trending downward with lower troughs and the other has “higher lows”) there is “divergence”, and non-confirmation of what was thought to be a trend in one index. Continue reading...
How do I get IPO shares?
Participating in an IPO is generally limited to institutional investors. However, if you are a high net worth client at a brokerage firm that has access to the IPO, you may be able to purchase some shares. First, you need to know that investing in IPOs is considered speculative and only suitable for experienced investors will substantial assets. If you meet the criteria that your brokerage has for allowing IPO trading, which may include a minimum account balance of $250,000 or so, you may be allowed to submit an Indication of Interest (IOI), which is a document used to request shares in the IPO. Continue reading...
What is market research?
Market research is the process of evaluating a possible opportunity for entering into a market with a new product or company, or for evaluating the effectiveness of a product or company in a market that they are already invested in. Market research can also be important for decisions regarding mergers and acquisitions. It may involve surveys and market study groups. Sometimes a company will conduct its own market research, but often third-party companies are hired for the task. These companies may specialize in sampling and surveying methods for consumer groups, and/or statistical analysis of a business model or product’s chance of success in a given market. Companies may look to such analysts if they are considering a merger or acquisition, or of launching a new product. Continue reading...
What is market efficiency?
Market efficiency describes the degree to which relevant information is integrated into the price of a security. With the prevalence of information technology today, markets are considered highly efficient; most investors have access to the same information with prices and industry news, updated instantaneously. The Efficient Market Hypothesis stems from this idea. Efficient markets are said to have all relevant information priced-in to the securities almost immediately. High trading volume also makes a market more efficient, as there is a high degree of liquidity for buyers and sellers, and the spread between bid and ask prices narrows. Continue reading...
What is a market-on-open order?
Traders can enter time-specific trade orders in the form of opening or closing orders, which are only to be executed as close to the opening or closing price as possible. Market-on-open orders are looking to buy or sell immediately after the market opens, at the opening price. Market-on-open orders are instructions for a broker or floor trader (even though we don’t see those much anymore these days) to buy or sell shares at opening price of the stock being traded. Continue reading...
What is market saturation?
Market Saturation is the point at which there are few consumers that are still interested in buying a product because those who were ever likely to already have done so. Saturation can be said to exist for all similar products in a market. This may call for different strategies which could keep a company going. One is that products can be made to wear out after a certain amount of time and need replacement. Another is that the business can shift its focus to subscription or service-based income. Continue reading...
What is market share?
Market share is the percentage of the total amount of similar products sold in a marketplace that are constituted by a particular product or the products of a particular company. This sometimes used synonymously with the term Market Penetration. Most industries have many competitors offering essentially the same services and products; in fact that is a sign of a healthy capitalistic marketplace. The market share of a company is the proportion of the total sales in that industry that belong to their company. Continue reading...
What is market exposure?
Market exposure is the degree to which an investor is participating in the risks and returns of the market as a whole or a particular sector. Exposure can have a positive or negative connotation, but, as they say, “nothing ventured, nothing gained.” Market exposure allows an investor to participate in the potential upside of the market, but can also subject the investor to the inherent risks. Some people save money religiously but are not likely to retire the way they want to because they aren’t willing to let their money be risked in the market. Continue reading...
Are the markets efficient?
The concept of an efficient market is more applicable today than it was when it was conceived, a truly efficient market is nearly impossible. The Efficient Market Hypothesis states that random new information will affect the value of securities, and that new information disseminates so quickly among rational investors that it is futile to try to beat the “market portfolio.” Thirty years ago, this was more of a theory than an observable phenomenon, and plenty of inefficiencies in the dissemination of information and the pricing of securities could be pointed out. Continue reading...
What Is Market Capitalization?
Market capitalization is a measure of a company’s size, in terms of the value of its total outstanding shares. Most readers have probably heard of large-cap, mid-cap, and small-cap stocks. These classifications are based on the market capitalization of a company, which is defined as the number of a company's outstanding shares multiplied by the price of one share. For example, if company ABC issued 1,000 shares and it is trading at $10/share, then the market capitalization of company ABC is 1,000 x 10 = $10,000. The largest company by market capitalization as of the time of this writing is Apple Inc. Its market capitalization exceeds $750 billion. Continue reading...
What are futures markets?
Futures markets are the formal exchanges on which futures contracts are bought and sold for commodities, financial products, and interest rates. Futures markets constitute a large part of the financial system and are an attempt by participants to hedge against some of the volatility and risks to which they might be exposed as time passes, especially where contracts await resolution or payment. Futures contracts might be created for financial instruments, commodities, and other derivative interests. The Chicago Mercantile Exchange, the Intercontinental Exchange (ICE) and the Eurex Exchange are large parts of the international network of futures markets and clearing houses. Continue reading...
What is a bear market?
Bear markets are loosely defined as periods when markets experience declines in magnitude of 20% or more. More specifically, bear markets are a period in which a major index like the S&P 500, for example, declines by 20% or more, with this decline sustained for a period over two months or so. Consequently, many investors become “bearish” – they lose confidence in the market, sell off their securities they do not believe will recover soon, and sit on the sidelines. There have been 25 bear markets since 1929, for an average of one every 3.4 years. Continue reading...