Here we go with a few basic terms which will help you navigate through the apparently complicated world of investment opportunities:
A
Asset
In common terms any object, intangible or tangible, that is of value to the owner. In most cases an asset is cash or can be turned into cash; exceptions are prepayments, which are payments made in advance and which represent a receivable right for the owner. Most accounting bodies throughout the word now define an asset as “a source of economic benefits obtained or controlled as a consequence of past economic events.”
CDO’s (Collateralized Debt Obligations)
Essentially CDO’s are bundles of other financial products which are repackaged and sold in a different class of risk by a specialized financial retailer. The core purpose of the CDO’s is to decrease the risk profile of certain investment vehicles by putting them together with better quality financial vehicles and getting an improved rating from the rating agencies. Because of their opacity and widespread use at the height for the financial crisis, they were called by Warren Buffet “financial weapons of mass destruction”. Investment banks sold huge amounts of CDO’s packages without disclosing the real risk behind them and this amount caused the US market crash in 2007.
Investment (definition)
In finance, the purchase of an asset (in most cases a financial product) in order to produce for the owner future revenues in excess of the cost of that asset. An investment can take many forms, such as productive assets, financial products (bonds, shares, derivatives, etc). Any investment involves a certain degree of risk, since it can also generate losses (more costs than the revenues it generates).
I
Investment (definition)
In finance, the purchase of an asset (in most cases a financial product) in order to produce for the owner future revenues in excess of the cost of that asset. An investment can take many forms, such as productive assets, financial products (bonds, shares, derivatives, etc). Any investment involves a certain degree of risk, since it can also generate losses (more costs than the revenues it generates).
Accounting definition of investments:
Properties hold by a company with the purpose of generating future revenues, as defined by the local accounting standards (GAAP – generally accepted accounting principles). For example, the UK standard (Statement od Standard Accounting Practice 19 defines investment as an asset:
– in respect to which construction work and development has been completed, and
– that is held for an investment potential, any rental income or revenue being negotiated at an arm’s length.
Intangible (asset)
An asset or an object without any physical form.
IPO (Initial Public Offering)
Definition – IPO is the process by which a company is listed on a stock exchange, without being previously listed anywhere else. IPO is synonymous with “going public”.
Mini Trading Dictionary – Some Useful Definitions
Buy stop order = a pending (waiting) order to buy a security or an investment vehicle which is triggered at a quotation above the current trading price level. In other words, the trader expects the instrument price to exceed a certain (higher) level before it will grow further. This is often associated with the traded instrument breaking a so-called resistance level, which once broken will be exceeded easily.
Buy limit order = also a pending order, to buy a security, but at a price below the current level. This type of order is more intuitive – you wait for the price to decrease to a certain level, after which you consider that it will grow back and make some profits from reversing the trend.
Sell stop order = a pending (on hold) order to sell a security which is triggered when the price decreases down to a certain level, below the current price. The thinking behind this is that the security will break the so-called support level, after which it will continue to decrease further.
FOREX – an acronym for foreign exchange, basically exchanging one currency for another. Although very simple in appearance, the forex market is huge (some traders estimate it between $3.5 and $4 billion USD a day), fast and complicated. We at doitinvest consider it being the market which is the closest to being a perfect market (see below). It has also become very popular among common investors after 2000, despite its huge volatility and relative opacity.
Perfect market – a market which exhibits the following features:
– a large number of participants with equal powers (none of them can influence the trades) (characteristic called “atomization”);
– a large number of transaction which ensure that a financial instrument can easily change hands in any moment (characteristic called liquidity);
– perfect regulations, ensuring all the trades are fair (characteristic called equilibrium) and
– opened to all the willing participants (characteristic called free participation).
Sell limit order = a pending (on hold) order to sell a security which is triggered when the price increases up to a certain level, above the current price. The thinking behind this is that the security price will reach a so called resistance level, after which it will stop growing and resume decreasing its price.
Technical analysis = a field of the financial analysis which attempts to predict the future movements of a financial instrument based purely on the past history of that instrument and on running different types of (mostly mathematical methods) on it.
Metatrader (MT) = one of the most popular trading platforms technologies used in the finance world, provided as a stand alone software by most brokers. It allows the trader to access a flux of data as provided by the broker, analyze it and place orders of sell and buy on that platform.