June 22, 2007
Zero-Coupon Bond
A debt security that doesn’t pay interest (a coupon) but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value.
Also known as an “accrual bond”.
Some zero-coupon bonds are issued as such, while others are bonds that have been stripped of their coupons by a financial institution and then repackaged as zero-coupon bonds. Because they offer the entire payment at maturity, zero-coupon bonds tend to fluctuate in price much more than coupon bonds.
June 21, 2007
Zero-Sum Game
A situation in which one participant’s gains result only from another participant’s equivalent losses. The net change in total wealth among participants is zero; the wealth is just shifted from one to another.
Options and future contracts are examples of zero-sum games (excluding costs). For every person who gains on a contract, there is a counter-party who loses. Gambling is also an example of a zero-sum game.
June 20, 2007
Year -To-Date
Definition
YTD. For the period starting January 1 of the current year and ending today.
June 19, 2007
Year Over Year – YOY
A method of evaluating two or more measured events that compares the results of measurement at one time period with those from another time period (or series of time periods), on an annualized basis. Year-over-year comparisons are a popular way to evaluate the performance of investments. Any measurable events that recur annually can be compared on a year-over-year basis – from annual performance, to quarterly performance, to daily performance.
Year-over-year performance is frequently used by investors seeking to gauge whether a company’s financial performance is improving or worsening. For example, a business may report that its revenues have increased for the third quarter on a year-over-year basis for the last three years. This means that revenues at that company in the third quarter of year 3 were higher than revenues in the third quarter in year 2, which were higher than revenues in the third quarter of year 1.
As another example, a mutual fund that returned 50% last year may have a YOY return of 12%, as the year-over-year return takes into account each annual return since the fund’s inception.
June 18, 2007
yield curve
Definition
A curve that shows the relationship between yields and maturity dates for a set of similar bonds, usually Treasuries, at a given point in time.
Related Terms
flat yield curve, normal yield curve, inverted yield curve
Related Research Articles from the InvestorGuide.com University
Corporate Bonds
Thinking of buying a bond issued by a corporation? Learn the basics about corporate bonds as well as how to evaluate the yield, maturity, duration, rating, callability and convertibility.
Treasury Bonds
Learn about Treasury Bonds, Treasury Notes, CPI-Indexed Treasury Notes (TIPS) and Treasury Bills. Find out about the pros and cons of these kinds of investments.
Other Types of Bonds
Find out about bonds issued by mortgage associations, savings bonds, Brady bonds, as well as those issued by other government agencies, and what the advantages and disadvantages of each type are.
June 11, 2007
Xenocurrency
A currency that trades in markets outside of its domestic borders. “Xeno” is a prefix meaning foreign or strange.
An example of a xenocurrency is the Chinese yuan when it is traded in the United States. When currency is deposited by national governments or corporations in banks outside their home market, it is sometimes referred to as a “eurocurrency” (this applies to any currency and to banks in any country).
June 5, 2007
Whistle Blower
An employee who has inside knowledge of illegal activities occurring within his or her organization and reports these to the public.
Who Else Wants To Know How Experts Deal With Losing Trades?
Provided By Trading Secrets Revealed
At some point in your trading career you will be faced with a string of losses that will bring your confidence to an all-time low. Every trader hits this point at least once, and some will visit it several times. Here are some tips on how to deal with this situation.
First, I recommend that you take a break from trading. A one week break will allow you to relax and regroup. It is impossible to trade effectively when you are under extreme stress. When you have decompressed and returned to a more positive frame of mind you will be able to reaffirm your goals and think clearly when you come back to your trading room.
You should pay careful attention to your mindset. If you do not have a positive approach to your trading the best tools and strategies can be at your disposal, but they will not give you the results you want. There are a variety of meditation and visualization techniques that can help you achieve a positive mental outlook. Learn about them, and use the ones that work best for you. Once you can effectively see yourself an up-and-coming trader, sure to meet and exceed all your trading goals, you are more than half way there. Remember, your mind is the greatest asset you posses.
Next, consider your trading experience up to now. It makes sense to take stock of your trading, and ask yourself some important questions. The most important one is “Have I been following my trading plan?†Often failure in the market is caused by not following your plan. See where you departed from your plan, and consider what you need to do to not make the same mistakes. This kind of analysis will give you valuable insight into your trading, and help you attain much greater success in the future.
With your consideration of your trading past in hand, make whatever adjustments you need to your trading plan. Your trading plan should define your approach to trading, and should give you a course of action for any circumstance that might arise. Without a comprehensive trading plan, it is very difficult to be a successful trader.
Lastly, when you begin trading again, follow your plan flawlessly. You need to acknowledge the fact that this is hard to do. But commit to doing it, be disciplined. Ultimately, undisciplined behavior will be punished by the market, either by direct losses or by the loss of profits you could have made. However, the market can confuse this issue with random reinforcement. Random reinforcement is the market’s tendency to reward bad behaviour from time to time. This is one of the reasons why it can take so long for traders to understand the market. However, even with random reinforcement, it makes no sense to have a system if you are not going to follow it.
Given that it is so hard to follow a system, you should take some time to reward yourself for doing this difficult task. Celebrate even if you have more losses than winning trades. Remember, losses are just as important as winning trades, they are a part of any system, and a sign that you are following the market wisdom of cutting your losses short.
When you are up and trading again, you may want to consider finding yourself a coach. Even I have a coach. In fact, I have coaches in all areas of my life. I learnt the importance of mentors from Tiger Woods. Even he has a coach. Now why does best golfer in the world have a coach? It certainly isn’t because his coach plays a better round of golf than him. No, it’s because a coach can see things from a different view point. A good coach can be vital in helping you along your trading journey.
It isn’t easy to pick yourself up and start trading again after a long series of losses. But with these techniques, you should find yourself trading again, and making money. With the right approach and a well-designed trading system, it’s only a matter of time before you become a successful trader again.
This article has been extracted from David Jenyns’ Trading Secrets Revealed Course
June 1, 2007
Wrap Accounts
Wrap accounts are a recent phenomenon that have quickly gained momentum. Wrap accounts are similar to master trusts, except that they act as a custodial service with investments in assets made under an individual’s name. Wrap accounts consolidate various investments under one administrative umbrella. These investments may be in either managed funds or direct investments. The name ‘wrap’ is drawn from the fact that the administration ‘wraps around’ a portfolio of investments.
May 31, 2007
How ETFs work?
by ETFZone staff
ETFs are securities certificates that state legal right of ownership over part of a basket of individual stock certificates. Several different kinds of financial firms are needed for ETFs to come into being, trade at prices that closely match their underlying assets, and unwind when investors no longer want them. Laying all the groundwork is the fund manager. This is the main backer behind any ETF, and they must submit a detailed plan for how the ETF will operate to be given permission by the SEC to proceed.
In theory all that a fund manager needs to do is establish clear procedures and describe precisely the composition of the ETF (which changes infrequently) to the other firms involved in ETF creation and redemption. In practice, however, only the very biggest institutional money management firms with experience in indexing tend to play this role, such as The Vanguard Group and Barclays Global Investors. They direct pension funds with enormous baskets of stocks in markets all over the world to loan stocks necessary for the creation process. They also create demand by lining up customers, either institutional or retail, to buy a newly introduced ETF.
The creation of an ETF officially begins with an authorized participant, also referred to as a market maker or specialist. Highly scrutinized for their integrity and operational competence, these middlemen assemble the appropriate basket of stocks and send them to a specially designated custodial bank for safekeeping. These baskets are normally quite large, sufficient to purchase 10,000 to 50,000 shares of the ETF in question. The custodial bank doublechecks that the basket represents the requested ETF and forwards the ETF shares on to the authorized participant. This is a so-called in-kind trade of essentially equivalent items that does not trigger capital gains for investors.
The custodial bank holds the basket of stocks in the fund’s account for the fund manager to monitor. There isn’t too much activity in these accounts, but some cash comes into them for dividends and there are a variety of oversight tasks to perform. Some managers have leeway to use derivatives to track an index.
This flow of individual stocks and ETF certificates goes through the Depository Trust Clearing Corp., the same US government agency that records individual stock sales and keeps the official record of these transactions. It records ETF transfer of title just like any stock. It provides an extra layer of assurance against fraud.
Once the authorized participant obtains the ETF from the custodial bank, it is free to sell it into the open market. From then on ETF shares are sold and resold freely among investors on the open market.
Redemption is simply the reverse. An authorized participant buys a large block of ETFs on the open market and sends it to the custodial bank and in return receives back an equivalent basket of individual stocks which are then sold on the open market or typically returned to their loanees.
What motivates each player? The fund manager takes a small portion of the fund’s annual assets as their fee, clearly stated in the prospectus available to all investors. The investors who loan stocks to make up a basket make a small interest fee for the favor. The custodial bank makes a small portion of assets likewise, usually paid for by the fund manager out of management fees. The authorized participant is primarily driven by profits from the difference in price between the basket of stocks and the ETF and on part of the bid-ask spread of the ETF itself. Whenever there is an opportunity to earn a little by buying one and selling the other, the authorized participant will jump in.
The process might seem cumbersome but it does allow for transparency and liquidity at modest cost. Everyone can see what goes into an ETF, investor fees are clearly laid out, investors can be confident that they can exit at any time, and even the authorized participant’s fees are guaranteed to be modest. If one allows ETF prices to deviate from the underlying net asset value of the component stocks, another can step in and take profit on the difference, so their competition tends to keep ETF prices very close to it underlying Net Asset Value (value of component stocks).