How Does Vesting Work?
Vesting is the schedule or process by which certain assets are eventually considered the property of an individual who uses them. If your employer provides some sort of matching, flat, or profit-sharing contribution to your retirement account at work, you will probably not be allowed keep the entire amount that they contributed if you change jobs or retire before a certain number of years have passed. Continue reading...
What is the Bid-Ask Spread?
The Bid-Ask Spread is the difference between an offer made on a security and the price a seller is willing to accept. The Bid-Ask Spread is the amount by which the ask price exceeds the bid. For example, if the bid price is $50 and the ask price is $51 then the "bid-ask spread" is $1. The larger the bid-ask spread, the less liquid the market for that particular security - buyers and sellers are too far apart for trades to occur easily. When trading, investors have to pay attention to the bid-ask spread, because it is ultimately an additional cost to investing in or trading stocks. Continue reading...
What is R-Squared?
R-squared is a statistical tool called a correlation coefficient. It is a percentage measurement that represents how closely correlated a security’s movement is with the movements of a benchmark index. Values range between 0 and 1 and are often expressed as percentages between 0% and 100%. A higher R-squared (between 85% and 100%) tells investors that a security moves more or less in correlation with the benchmark index. A lower R-squared (70% or less) means that the security in question moves independently from the index. Continue reading...
What is Bankruptcy?
When a person or company is no longer able to pay the amount of debt they owe, they can file bankruptcy and be given options for relief. There are different types of bankruptcy filings available (found here — debt would have to have accumulated to a point where there is no mathematically feasible way to repay it all. There may be a way to repay some of it, however. It may mean that a business is able to continue to keep its doors open, with payment plans to service some of the outstanding debt, but this is likely after some assets have been liquidated to settle some of the creditors' claims. Continue reading...
What is Book Value?
Book value is based on an accounting method that only considers certain factors, generally the more tangible or easily quantifiable ones, and excludes the more ethereal factors such as ‘goodwill.’ Book value can apply to an individual asset, a security, or a company, and tends to be pretty straightforward. Whatever value an asset is given on a balance sheet is its book value. For a tangible asset, this is calculated as the cost of the asset minus accumulated depreciation. Continue reading...
What is Fiscal Policy?
Fiscal Policy refers to the tactics used by a central government to influence the nation’s economy, whether by setting tax and/or spending policies. Fiscal policy is related to monetary policy, in that they are both aimed to either boost an economy or temper growth to avoid overheating. A fiscal policy conducive to growth would aim to have low taxes and higher level of spending. When a government invokes “austerity” measures, it means they are trying to cut spending most likely to reel-in budget deficits or overall debt levels. Continue reading...
What is Nominal GDP?
Nominal GDP is the value of all goods and services produced in a country, without adjustments for inflation. GDP is the market value of all final goods and services produced within a country in a given period of time, and is usually expressed quarterly. Nominal GDP is primarily used to compare quarters in the same year, and does not contain an inflation adjustment as with Real GDP, which is more useful for comparisons across years. Continue reading...
What is an A-note?
An A-note describes a slice of the top tranche of an asset-backed security. Asset-backed securities are categorized into tranches for quality, and an A-note is a share of the best available tranche. Asset-backed securities include Collateralized Mortgage Obligations (see — CDOs), Mortgage-Backed Securities, Credit Card Debt, and other kinds of cash flows, especially related to debt instruments that have been pooled and sold to investors. This shifts the risk from the lending institution to the underwriters and investors in the asset-backed security. 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...
How to use the Chaikin Oscillator in trading
The Chaikin Oscillator is a volume indicator that can help traders discern if price movements are verified by changes in trading volume. When there are discrepancies, it can mean that prices are exhibiting overbought or oversold conditions. Before the Chaikin Oscillator, On-Balance Volume was the most popular indicator for the job. On-Balance Volume (OBV) is a popular leading indicator introduced in the 1960s by Joe Granville. OBV is a line built using differences between daily trading volume – in Granville’s estimation, the major driver of market behavior – adding the difference on days that the market or stock moves up and subtracting the difference on days when the market or stock moves down. It looks for instances of rising volume that should correlate with price movement, but price movement has not occurred; additionally, OBV can be used to confirm lag. Continue reading...