At its most basic, short selling involves rooting against individual companies or the market, and some investors may be opposed to that on principle. However. A short, or a short position, is created when a trader sells a security first with the intention of repurchasing it or covering it later at a lower price. Money market mutual fund - A short-term investment that seeks to protect principal and generate income by investing in Treasury bills, CDs with maturities. BUY AND SELL FOREX EARNING

A "short" position is generally the sale of a stock you do not own. Investors who sell short believe the price of the stock will decrease in value. If the price drops, you can buy the stock at the lower price and make a profit. If the price of the stock rises and you buy it back later at the higher price, you will incur a loss. Short selling is for the experienced investor. Short Sales A short sale is the sale of a stock that an investor does not own or a sale which is consummated by the delivery of a stock borrowed by, or for the account of, the investor.

Short sales are normally settled by the delivery of a security borrowed by or on behalf of the investor. Brokerages can't sell what they don't have, and so yours will either have to come up with new shares to borrow, or you'll have to cover.

This is known as being "called away. Since you don't own the stock you borrowed and then sold it , you must pay the lender of the stock any dividends or rights declared during the course of the loan. If the stock splits during the course of your short, you'll owe twice the number of shares at half the price. Why Short? There are two main motivations to short: 1. To speculate The most obvious reason to short is to profit from an overpriced stock or market.

Probably the most famous example of this was when George Soros "broke the Bank of England" in To hedge For reasons we'll discuss later, very few sophisticated money managers short as an active investing strategy unlike Soros. The majority of investors use shorts to hedge. This means they are protecting other long positions with offsetting short positions.

Restrictions There are many restrictions on the size, price and types of stocks you are able to short sell. For example, you can't short sell penny stocks and most short sales need to be done in round lots. Short selling also requires that you put up margin. As with a margin buy long transaction, the percentage required varies depending on the eligibility of individual securities.

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Equities — Company-issued shares representing ownership in the company. Exchange-Traded Funds ETFs — Funds similar to mutual funds but traded on stock exchanges during the day as if they were stocks. Expense Ratio — A number representing the annual amount shareholders pay in fund expenses and fees as a percentage of total investments.

Fund — Money put together by a group of investors to buy securities. Growth Investing — Investment practice focusing on stocks with quickly growing earnings that are anticipated to continue growing in the future. Hedge Fund — Headed by a manager typically a registered investment advisor , these funds are for eligible qualified investors to pool their money and invest.

Also known as the profit and loss statement. Index — An investment index measures the performance and price movements of many investments to determine the overall performance of a specific investment type or sector. Index Fund — A mutual fund or ETF that invests in assets in an index, generating returns that mimic those of the index itself.

These funds can be cost-efficient with low expense ratios. Inflation — An increase in the price of goods and services and a decrease in the purchasing value of money. Initial Public Offering IPO — The process of issuing shares of a private company to the public market, transitioning the company from private to public. Interest — The charged fee for borrowing money, often a percentage of the amount borrowed.

Investment Mandate — Rules and objectives used in the management of a specific portfolio or fund. Liquidity — The ability to convert assets to cash or easily accessible money. Mutual funds are a good example because shares can be redeemed on any business day for their current value on that day.

Market Capitalization — The market cap of a company is calculated by taking its current share price and multiplying it by the number of shares outstanding. Mutual Fund — A pool of money operated and managed by an investment company. Nasdaq — A computerized marketplace for the buying and selling of securities traded over the counter and even some NYSE listings. It trades stocks from both U. Par Value — The face value or price that will be repaid when a bond matures. Portfolio — A collection of investments owned by an individual or entity.

In a portfolio, all investments are managed collectively to meet specific goals and objectives. Premium — The difference when a bond is sold above its par value. Stocks can also trade at a premium based on estimated value. To calculate the ratio, take the price of the share and divide it by the EPS.

Prospectus — A legal document provided to investors who are interested in a financial security and need to make an informed decision. It contains business operations, financial statements, operations results, risk factors and management. Audited financial statements must also be included.

This information is required by the SEC. Recession — A period of decline in economic activity and often defined by a continuous decline in gross domestic product GDP for two consecutive quarters. Recessions can potentially lead to high unemployment and market crashes. Reinvestment Option — Refers to an arrangement under which a mutual fund will apply dividends or capital gains distributions for its shareholders toward the purchase of additional shares.

To see how dividend reinvestment works, check out our free dividend reinvestment calculator. Risk Tolerance — The amount of volatility you allow in your investments and portfolio. Sector — A group of similar securities in a specific industry. The stock market has 11 major sectors, each representing a key area of the economy. Some examples are healthcare, technology and finance. Securities and Exchange Commission SEC — Created by the Securities Exchange Act in , the SEC is a federal organization that governs and enforces the laws of the security industry to protect investors and maintain efficient markets.

Share — An unit of investment that represents ownership in an entity, such as a share of a stock or a mutual fund. Shares are usually issued when companies or funds want to raise capital. Short Selling — Short selling occurs when an investor borrows shares of an asset. They then sell the shares — pocketing the money — with the promise of returning the same number of shares in the future. Volatility The amount your investment goes up and down. If the price goes up and down a lot over a relatively short amount of time, it shows high volatility.

Low volatility means the price stays fairly stable. High volatility tends to deliver higher returns because the risk is higher, and vice versa. During a bear market, investors generally have low levels of trust in their investments, and there are more people selling than buying.

Bull market A bull market is the opposite of a bear market, referring to a period of prosperity for stock markets. During a bull market investors are positive, and prices rise because there is a lot of demand for stock to buy. Asset class There are lots of different types of investments — stocks, bonds, funds, ETFs, cash, and more — which can each be primarily grouped into one of three asset classes: equity e.

Other asset classes can include real estate assets, commodities, and futures. Investments are grouped into one of these asset classes because they share similar financial characteristics and structures, which means they can be traded in the same markets and governed by the same rules and regulations. Investment terms relating to stocks Thinking to invest in your first stocks?

And like any pie, it can be cut into any number of slices — or stocks. The stock price is based on supply and demand, so the more people want one, the higher the price will go. The terms stocks and shares can be used interchangeably, as they mean the same thing. These vary between companies but are always proportional to the number of shares you own. They provide an incentive for people to buy shares in a company, providing them with a regular income.

Blue chip company While there is no official list of blue chip companies, the term refers to any company that has a good history of earnings, profit and dividend payments. Generally, these companies find it easier to weather global financial downturns thanks to their steady earnings and well-respected history.

Stock exchange The infrastructure where stock brokers and traders buy and sell financial assets, such as stocks, bonds and ETFs. Index A measure of how the stock market is performing, by taking a sample of stocks. By measuring what these stocks are doing, you can get a good understanding of what all stocks are doing and the direction the market is moving.

Initial Public Offering IPO When shares first become available to buy and a company becomes listed on a stock exchange. Outstanding shares The total number of shares authorised, issued and purchased by investors. Shareholders meeting An annual meeting which all shareholders are invited to, where the annual financial report is shared.

Shareholders can also vote on company issues and select the board of directors, either in person or by proxy done online or by mail. Investment terms relating to bonds Everything you need to know about bonds: Bonds A type of fixed income investment, in the form of a loan of money from one organisation or individual to another, under set terms and for a set project or investment.

When an institution needs money, they will issue bonds which can be bought by investors. These bonds pay an agreed interest rate, also known as the coupon rate. The date at which the money must be returned is also set, and called the maturity date. Bonds can be bought, sold and traded between investors in the same way as stocks, and are considered to be lower risk with a lower return. Fixed income investment Any type of investment where the contract includes repayment of a loan along with interest payments.

The amount of interest is fixed, so there is less reward than an equity investment such as stocks, but also less risk. A bank account is an example of a fixed income investment, as are bonds, pensions and loans. Credit rating A measure of how likely a borrower is to repay a debt. Companies who have the best credit rating get cheaper interest rates for loans, and vice versa.

As an investor, loaning money to a company that is more likely to repay the money will mean a lower return, compared to a higher-risk company. Social impact bonds A loan taken out by a public company to fund a better outcome for the society of a particular area or demographic. Repayment only happens if the objective of the bond is achieved. The first ever social impact bond was taken out by a prison, to fund a pilot project to reduce reoffending.

Investors were repaid if reoffending rates were 7. Green bonds A bond taken out by a company specifically to facilitate a climate or environmental project. Unlike a regular bond, these carry a commitment that the money raised will go to support a defined environmental purpose, tracking results in relation to this.

Interest The cost of borrowing money to the borrower, normally paid to the lender as a percentage of the loan or from the other perspective, the reward to the lender for lending money to the borrower. Yield The annual interest paid on a bond to the bondholder. Coupon rate The interest paid to the investor who lends money to the lendee, in the form of a bond. The frequency of these payments depends on the individual bond. Investment terms related to other asset classes So you know it all: Cash equivalents The third type of asset classes, characterised by being low risk, low return and offering high liquidity.

Cash equivalents include certificates of deposit savings accounts with a fixed interest rate and a fixed date you can withdraw the money and corporate commercial paper. Commodities A natural resource or material that can be traded, like grain, cattle, or fossil fuel. Futures The market where commodities are traded much like stocks, where suppliers sell to purchasers based on an agreed future delivery date.

Instead, they are primarily bought and sold by direct suppliers and large organisations.

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During a bull market investors are positive, and prices rise because there is a lot of demand for stock to buy. Asset class There are lots of different types of investments — stocks, bonds, funds, ETFs, cash, and more — which can each be primarily grouped into one of three asset classes: equity e. Other asset classes can include real estate assets, commodities, and futures. Investments are grouped into one of these asset classes because they share similar financial characteristics and structures, which means they can be traded in the same markets and governed by the same rules and regulations.

Investment terms relating to stocks Thinking to invest in your first stocks? And like any pie, it can be cut into any number of slices — or stocks. The stock price is based on supply and demand, so the more people want one, the higher the price will go. The terms stocks and shares can be used interchangeably, as they mean the same thing. These vary between companies but are always proportional to the number of shares you own.

They provide an incentive for people to buy shares in a company, providing them with a regular income. Blue chip company While there is no official list of blue chip companies, the term refers to any company that has a good history of earnings, profit and dividend payments. Generally, these companies find it easier to weather global financial downturns thanks to their steady earnings and well-respected history. Stock exchange The infrastructure where stock brokers and traders buy and sell financial assets, such as stocks, bonds and ETFs.

Index A measure of how the stock market is performing, by taking a sample of stocks. By measuring what these stocks are doing, you can get a good understanding of what all stocks are doing and the direction the market is moving. Initial Public Offering IPO When shares first become available to buy and a company becomes listed on a stock exchange.

Outstanding shares The total number of shares authorised, issued and purchased by investors. Shareholders meeting An annual meeting which all shareholders are invited to, where the annual financial report is shared. Shareholders can also vote on company issues and select the board of directors, either in person or by proxy done online or by mail.

Investment terms relating to bonds Everything you need to know about bonds: Bonds A type of fixed income investment, in the form of a loan of money from one organisation or individual to another, under set terms and for a set project or investment. When an institution needs money, they will issue bonds which can be bought by investors.

These bonds pay an agreed interest rate, also known as the coupon rate. The date at which the money must be returned is also set, and called the maturity date. Bonds can be bought, sold and traded between investors in the same way as stocks, and are considered to be lower risk with a lower return.

Fixed income investment Any type of investment where the contract includes repayment of a loan along with interest payments. The amount of interest is fixed, so there is less reward than an equity investment such as stocks, but also less risk.

A bank account is an example of a fixed income investment, as are bonds, pensions and loans. Credit rating A measure of how likely a borrower is to repay a debt. Companies who have the best credit rating get cheaper interest rates for loans, and vice versa.

As an investor, loaning money to a company that is more likely to repay the money will mean a lower return, compared to a higher-risk company. Social impact bonds A loan taken out by a public company to fund a better outcome for the society of a particular area or demographic.

Repayment only happens if the objective of the bond is achieved. The first ever social impact bond was taken out by a prison, to fund a pilot project to reduce reoffending. Investors were repaid if reoffending rates were 7. Green bonds A bond taken out by a company specifically to facilitate a climate or environmental project. Unlike a regular bond, these carry a commitment that the money raised will go to support a defined environmental purpose, tracking results in relation to this.

Interest The cost of borrowing money to the borrower, normally paid to the lender as a percentage of the loan or from the other perspective, the reward to the lender for lending money to the borrower. Yield The annual interest paid on a bond to the bondholder. Coupon rate The interest paid to the investor who lends money to the lendee, in the form of a bond. The frequency of these payments depends on the individual bond.

Investment terms related to other asset classes So you know it all: Cash equivalents The third type of asset classes, characterised by being low risk, low return and offering high liquidity. Cash equivalents include certificates of deposit savings accounts with a fixed interest rate and a fixed date you can withdraw the money and corporate commercial paper. Commodities A natural resource or material that can be traded, like grain, cattle, or fossil fuel.

Futures The market where commodities are traded much like stocks, where suppliers sell to purchasers based on an agreed future delivery date. Instead, they are primarily bought and sold by direct suppliers and large organisations. Investment terms related to funds The different types of funds: Equity fund A mutual fund that invests solely in the stock market. It can also be referred to as a stock fund. Bond fund A mutual fund that invests exclusively in bonds.

This can be a more efficient way of investing in bonds than a single bond purchase, since your one bond fund investment will actually be invested in many different bonds. Typically, the bond fund manager will trade bonds in and out of the fund, rather than wait for them to mature. With a mutual fund, a company pools money from several investors and invests that money in a portfolio.

Real Estate Real estate includes both residential and commercial properties and can be one of the most lucrative investment opportunities. Short-term real estate investors may flip houses, while long-term investors rely on appreciation to profit off of real estate.

Keep in mind that real estate investing is typically more expensive upfront. Stocks Stocks are the most common investments you hear about, but what is a stock? A stock represents a small portion of a company, so owning a stock means you essentially own a portion of a company. More specifically, a bear market is a period where stock prices are falling, and investing is risky but potentially very rewarding. Common Stock Common stock is what most people think of when they think of stocks.

Dividends Dividends are payments made to shareholders of certain companies. In order to receive these payments, an investor must own stock before the ex-dividend date. This is essentially a reward for investing money in a company. Market Indexes A market index is a portfolio used to track the financial market by analyzing data from specific subsets of companies.

Preferred Stock Preferred stock is similar to common stock, except shareholders get special benefits such as higher dividend payments and claims to assets if the company is liquidated. These stocks are less volatile but less profitable. Shareholders are entitled to certain benefits, including capital gains when the company or asset increases in value and dividend payments when it makes money. Short Selling In basic investment terms, short selling is betting on a security to drop.

Short sellers borrow a security and sell it on the open market, with the hopes that it will drop in price so they can purchase it for less in the future and repay the loan. Stock Exchange A stock exchange is a place where stockbrokers and traders can buy and sell shares of stocks, bonds, and other investments. Different stock exchanges have different listing requirements and thus offer different stocks.

The stock market refers to all the exchanges where buying and selling take place, but may also be used to refer to the current condition of stock prices in general. Trying to figure out how to go about investing in your retirement? You simply contribute money on a regular basis, allowing that money to build up until you can withdraw it without penalties.

If you want to start investing for retirement right away, a Roth IRA is a simple way to get started.

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