Definitions

Market Capitalization = number of shares outstanding x stock price

Securities = debt + stocks

Preferred stocks = sort of a combination between debt and stocks, in that it receives fixed dividends but do not have voting rights. Have precedence before stocks, but after debtholders.

Penny stocks = a common stock valued at less than one dollar, therefore highly speculative.

Alternative Investments = Asset class that is not one of the common investment types, such as stocks bonds and cash. I.e. Alt investments include private equity, hedge funds, and managed futures, real estate, commodities and derivatives contracts.

Two and Twenty (Hedge/mutual funds) = Type of compensation structure. Two – 2% management fee (regardless of performance). Twenty – 20% profit earned as commission once the fund achieves a level of performance that exceeds a certain profit threshold. Typically around 8%.

But nowadays, more like 1.5% of assets and 17.7% of profits

Trading short (short selling) = sale of a security not owned by the seller. (SHOULD ONLY BE USED BY AN EXPERIENCED TRADER, SINCE IT HAS UNLIMITED LIABILITY RISK)

“Borrowing the stock first and selling them straight away, anticipate its price to drop, then “buy back” the same amount when price drop, then can earn the difference”

Short one lot of $50 stock, i.e. borrow 100 shares of $50 stock and sell straight, earning $5000 straight. But you still owe 100 shares, so must buy back. Hence the unlimited liability. If the stock goes to $40, then you earn 100 x 10, since you buy back and return the borrowed stock at $40 x 100 = $4000 (Closing the short sale).

If stock price go to $1000, then you need repay $1000 x 100 = $100 000, making a loss of 95000.

MORE ON THIS BELOW UNDER INVESTMENT.

Trading long (Long selling) = Buying of a security such as a stock, commodity or currency with the expectation that the asset will rise in value. In options, it is the buying of an options contract. An investor tend to have no plan to sell the security in the near future. A key component of long position investment is the ownership of the stock or bond.

Days to cover (Short Interest Ratio SIR) = ; it’s a measurement of a company’s issued shares that are currently shorted, expressed as the number of days required to close out all of the short positions

Buy Side Hedge Funds = Hedge funds are considered to be on the “buy side” rather than the “sell side” because they actively participate in the markets based on research, by buying and selling investments. These large investors execute trades based on research conducted by research analysts at the firm; these are the buy-side research analysts.

Buy Side = Mutual funds/pension funds/insurance firms that tend to buy large portions of securities for money-management purposes. Buy-side recommendations are not available to anyone outside the firm.

Sell Side = provides the public with recommendations for upgrades, downgrades, target prices and other opinions on the public market.

WACC = Weighted Average cost of capital. How much of a firm is financed by debt / equity respectively.

wacc

Brokerage Firm = A brokerage company’s main duty is to be a middleman that connects buyers and sellers to facilitate a transaction. Brokerage companies receive compensation by means of commission once the transaction has successfully completed. For example, when a trade order for a stock is executed, an investor pays a transaction fee for the brokerage company’s efforts to complete the trade.

Quantitative Analysis = refers to economic, business or financial analysis that aims to understand or predict behaviour or events through the use of mathematical measurements and calculations, statistical modelling and research. Quantitative Analysis is employed for numerous reasons – measurement, performance evaluation or valuation of a financial instrument, predicting real world events such as changes in a country’s GDP growth rate.

SIMPLE TERMS – quantitative analysis can best be understood as simply a way of measuring or evaluating things through the examination of mathematical values of variables.

Different type of Asset class (investment tools) – stocks, bonds, cash, private equity, hedge funds, real estate, derivatives contract, currency options, futures

 

Quantitative Easing

Quantitative easing is an unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply.

Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity.

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