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What is a Secondary Offering?
A secondary offering is the sale of a large block of previously-issued, privately-held stock, which actually requires registration with the SEC, but does not raise capital for the company which issued the shares originally. A secondary offering is a non-dilutive sale of existing shares which were previously held by one, or a few, investors. The proceeds of the sale go to the sellers of the shares and not to the company which issued the shares. 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 Rights Does Owning Shares of Corporation Give You?
Shareholders of a company are part-owners of the company, and they are entitled to two things: voting for board members, and participation in earnings. Owning shares (even one single share!) of a publicly-traded corporation entitles you to the right to vote in elections for the Board of Directors, as well as the right to receive a proportional amount of all the profits of the company. These rights apply to common stock, which is generally the kind of stock traded on exchanges. Of course, you also have the right to sell your shares on the stock exchange at any time, in what is known academically as the Secondary Market. Continue reading...
What are the Basics of Stocks?
This article and the ones that follow should give you a solid foundation in the knowledge of stocks and their use as financial instruments. We have established the basic structure of a common stock share: a company issues stock to raise capital, the owner of the stock is entitled to participate in the profits of the company, and stocks are traded in the Secondary Market between buyers and sellers who assume the risk and receive any proceeds that arise from price changes. Continue reading...
What is a Stock?
Buying a stock means taking an ownership position in a publicly traded company. Once you purchase a stock, you become a shareholder. A company has two ways of acquiring capital needed for growth: borrowing it (often in the form of issuing bonds), or selling shares of their company's equity, which is known as stock. In other words, when you buy shares of a company’s stock, you are buying a claim to the company's profit margin, because you are technically a part-owner in the company. Those who hold shares of Common Stock, the most typical form of stock, have voting rights in the election of the company’s board members. Continue reading...
What is Bond Yield?
Bond yield is a measure of the return on investment for bonds, and there several kinds of yield that can be computed. Yield on a bond is the amount of interest that it pays annually, as a percentage of the amount invested — at least, this is the most common type of yield discussed, which is known as Current Yield. If a bond pays quarterly or monthly income to the investor, these payments are totaled up and divided by the amount invested. Continue reading...
What is Mortgage Fallout?
Mortgage fallout refers to the instance of proposed loans falling through before closing. This is something tracked by not only mortgage producers and their mortgage companies, but also economists who keep up with mortgages and the secondary market for mortgage derivatives. Since mortgages take two months or more to close, the fallout rate can indicate a stagnancy in the economy and trouble for the secondary mortgage market. Continue reading...
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 the FHFA?
The Federal Housing Finance Association is the Conservator of Fannie Mae and Freddie Mac since the 2008 meltdown. The FHFA was established as an independent government entity to oversee the secondary mortgage market. The FHFA is a regulatory agency which took over for the Federal Housing Finance Board and the Office of Federal Housing Enterprise Oversight (OFHEO). It was created in 2008 by the Housing and Economic Recovery Act (HERA), and it oversees the operations of Freddie Mac, Fannie Mae, and the 11 federal home loan (FHL) banks. If you’ll recall, Fannie Mae and Freddie Mac provide liquidity to banks and transfer risk from them by buying their mortgage cash flows from them. Continue reading...
What Happens to the Price of a Bond After I Buy It?
Bonds can be traded on exchanges before their maturity date, but the price might fluctuate based on the current interest rate environment. As the buyer of, say, a $1,000 bond, you should be aware that as long as the company does not go bankrupt, you will receive $1,000 back at the date of maturity. During the life of the bond, however, the price at which you can sell that bond might oscillate depending on the interest rate environment and the perceived financial health of the company. Continue reading...
What is Accrual Rate?
This term might apply to bonds or pensions and other financial instruments which build up interest value which is paid out at a later time. Accrual Rate is the rate at which a nominal interest rate is credited to an account that will be paid out at a later time. A bond sold in the secondary market, for instance, will take the accrual rate into account if the sale takes place in between coupon payments. 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 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...
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 Corporate Equity?
Corporate equity is retained earnings plus common shares outstanding. On a corporate balance sheet, the retained earnings and the outstanding common stock capitalization combined would be considered the corporate equity, also called shareholder’s equity / owner’s equity. Of the total corporate equity, the portion representing common stock equity is only the capital raised through the issuance of shares in an IPO (initial public offering), where payment for those shares was paid to the company. Subsequent trading in those shares does not affect the common stock equity on the company books. Continue reading...
What are currency warrants?
Currency warrants are relatively new to the international Forex market. They function like puts or calls, depending on whether it is a purchase warrant or a warrant to sell, but they have longer durations, usually between one and five years until they expire. They can be purchased to take a position on a currency index or on a currency pair. Warrants were originally issued by corporations, giving investors the ability to redeem the warrant like a call option to purchase a stock at a strike price. 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 are Marketable Securities?
Marketable securities is a term referring to assets / securities that can be converted to cash easily, at least within a year. Examples of marketable securities are stocks, bonds, or CDs you might buy at the bank. What makes an asset a marketable security is its ability to be redeemed for cash quickly at a known market price. What is a Broker-Dealer? What is an Illiquid Security? Continue reading...
What is Paid-Up Capital?
Paid-up capital is the money (‘capital’) collected by a company from issuing shares of their stock. In other words, its money raised from issuing and selling stock. Paid-in capital is not money borrowed, but rather money invested in the company by shareholders. A company will generally issue shares of stock with a par value and an offer price, and paid-up capital represents the difference between total dollars invested and par value of the shares. Continue reading...