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