Finance, markets types, basic definitions

Definitions

• Bear market : investors overall pessimism is expressed on a clear willingness to sell. Prices suffer a consistent long (a few months) decline.

• Bull market : contrary to the bear, a bulls charges blindly forward. Investors confidence is manifested by a higher demand.

• Derivative - financial contract priced over the evolution of an underlying good.
  Ex: future on the price of oil
• Future/Forward - type of derivative that guarantees the contract holder a fixed price for a commodity at a certain date

• Hedge - reduce risk by investing in derivatives to guard against unfavorable price evolution.
  Ex: purchase a future on the price of raw materials

• Security - in the US any kind of trading good. Different categories : debt (bonds), equity (shares/stock) and derivatives
• Short sell - sell securities that are not currently owned (borrowed from a third-party). Securities will be returned to the lender at a later time. Profit is made if the security price goes down between the sell and the return
• Ticker - unique security and market place code used to trade it
• Stock - represents a part of a company equity. The part of the company assets after debt. It does not guarantee its holder a yearly dividend.
• Equity - speaking of an asset, the difference between the price of the asset and its liabilities (ex: debt)
  => measures how much of the asset is really owned by the company
• Goodwill - for a company acquisition, the difference between the amount paid for the company and the “real” price of all of its assets
  => you pay more because you expect a profit from it in the long term
• IPO : initial public offering

• Underwrite : insurance for the equity seller. The underwritter guarantees a minimum price for stocks. It will buy at the given price if no investors.

• Dark pool : exchange where trades are not made public
• Shadow banking : agents that provide banking services but are not regulated to guarantee robustness and accountability.

Accounting

• Liability - obligation towards another party to settle some debt in the future
• Revenue - all the incoming cash generated from a company operations and investments
• Income/profit/earnings - the difference between revenue and the total expenses
• Cash Flow - incoming/outgoing cash for different accounting aspects (ex: operational cash flow)
• EBITDA - earnings before interests, taxes, depreciation and amortization. Measure the effectiveness of the company to generate profit without taking into account some liabilities
• D&A - depreciation and amortization, the loss of value of an asset through its life and the acquisition cost of the asset spread across its life
• (Non)-Current - about liabilities, current obligations that must be settled in the current year, contrary to non-current or long term

Diagrams

• A taxonomy of the different types of financial markets
• The different ways assets are exchanged