Day Trading
Day trading is a specific form of trading which involves the purchase and sale of financial instruments on the same trading day. Formerly the exclusive domain of banks and investment companies, day trading has now become available to anybody with a computer, some basic trading knowledge, and funds to spare. All day traders are united by a single goal – to gain maximum profit; however, they use different techniques when trying to reach it.
Here are some of the more popular ones:
Scalping
When this trading technique is used, financial instruments are bought and sold within a very short period of time, typically ranging from a few seconds to several minutes. Scalping traders attempt to buy an instrument at its Bid price and sell it at its Ask price. As instruments are held only for a limited time, traders are exposed to little risk of loss; however, their profit per single instrument is also minimized.
Trend Trading
This style is common not just to day trading, but to all other types of trading. Trend traders base their activity on the assumption that a particular trend will continue to develop steadily as it has done so far, e.g. if an instrument’s price has been rising, it will continue to rise, and if it has been falling, it will continue to fall. Accordingly, traders who use this strategy tend to buy instruments with an increasing price and short-sell stocks whose value is dropping.
Counter-Trend Trading
Individuals who employ this technique act contrary to the current market conditions, expecting these to change in the opposite direction at some point in the near future. Such traders will buy instruments with price that has been decreasing and will sell instruments with value that is rising.
Range Trading
Range traders follow instruments with price that does not move in one continuous direction, but rises and falls intermittently. Traders will buy a stock when it hits a low, and will sell it at a profit once it reaches its high value.
News Trading
News trading basically means acting in accordance with the news aired about a particular instrument, e.g. buying stock when the news is good, or selling it when the news is bad. Whether a piece of news is good or bad depends not so much on its actual contents, but on the movements it causes on trade markets.
Rebate trading
With this style, the major source of revenue and profits is associated with ECN rebates. Rebate traders aim to generate profit from the rebates by trading high volume, low priced stocks. In this way, they are able to trade a larger number of shares, contributing to better liquidity with a fixed amount of capital. At the same time, they limit the risk of not exiting a position in the stock.
Other techniques used for day trading include price action (relying on technical analysis) and artificial intelligence, with stock trades being generated by high-frequency trading and automatic algorithms. The increasing reliance on quantitative techniques and algorithms has resulted in a greater competition and consequently – fewer profits.
Due to the possible quick returns and the nature of financial leverage, day trading may be very profitable or unprofitable. It can be very risky, especially if the trader does not follow any day trading rules, and strategies. Another risk is associated with poor executing of trades or incompetent money management.
Available Financial Instruments
Day traders can trade with a number of financial instruments, the most popular being stocks, options, currencies, and futures contracts. All of these have their own peculiarities, which warrant a thorough research before one decides to invest.
Debt-to-GDP Ratio
A measure of a country's federal debt in relation to its gross domestic product (GDP). By comparing what a country owes and what it produces, the debt-to-GDP ratio indicates the country's ability to pay back its debt. The ratio is a coverage ratio on a national level.
Demonetization
Governmental withdrawal of the monetary quality from particular coinage or precious metal. By demonetization former money is no longer legal tender, although in certain cases it may still be used as money of exchange, i.e., the actual metallic value may sometimes be accepted in discharge of indebtedness. However, such was not the case with regard to the demonetization (1933) of U.S. gold. The demonetization law stipulated that gold may not lawfully be used in domestic exchange, although it may be purchased for shipment abroad. Other instances of demonetization were the American conversion (1873) of silver into money of exchange and the similar British conversion (1889) of Pre-Victorian gold coins.
Depreciation
Depreciation refers to non-monetary expense which is recorded to specify the cost of a tangible asset over the length of its useful life. In brief, the term is used for cost allocation over the period during which the asset generates revenue. Depreciation also stands for reduction in the asset’s value. The process increases the free cash flows and decreases the reported earnings of the company. Depreciation stops at a certain point of time in which the asset loses its entire value. Typically, depreciation is due to the use of the asset, attrition, depletion, time passage, obsolescence, or other relevant factors.
The term usually covers assets with brief and fixed useful life. Depreciation is usually used for assets that will last for a period that is longer than one year. This category comprises of buildings, equipment, machinery, vehicles, parking lots, office equipment, furniture, and outdoor lighting, among others. Such assets are grouped under different terms such as ‘constructed assets’, ‘depreciable assets’, ‘plant assets’, and ‘property, plant, and equipment’. It is assumed that land cannot be depreciated because this asset lasts indefinitely. Moreover, the term does not cover assets with indefinite useful life. Depreciation has no bearing over the market value of the asset. It aims to specify the portion of an asset which is depleted and cannot be recovered through any form of disposal.
One needs to know the initial cost of an asset in order to calculate its annual depreciation. There are two principal ways to calculate depreciation. Firstly, deprecation expenses are recorded on the income statement of the company. The balance sheet includes the value of the asset. This method is referred to as the cost principle. Secondly, the cost of the asset may be allocated to depreciation expenses covering the useful life of the asset. This approach is known as the matching principal.
Derivatives
Derivatives have their place in the realm of advanced investing but they should not remain a mystery to the investors. The derivative derives its value from the values of other financial instruments. The stock option derives its value from a stock and therefore, it is considered a derivative. In the same way, a swap is also a derivative due to the fact that its value is derived from the interest rate indices. The underliers are values from which a derivative acquires its value.
In contrast, we may refer to the primary instruments, more commonly called cash instruments. The latter stand for instruments with values acquired directly from the markets. Examples of cash instruments are bonds, commodities, and stocks. It is not precisely shown how the cash instruments differ from the derivative instruments. However, the distinction is useful.
There are various ways to categorize the derivative instruments. One of them is to divide them into linear and non-linear. The linear derivatives have payoff diagrams that are almost linear. The opposite holds true for the non-linear derivatives. The non-linearity is due to the fact that the derivative is either an option or has one embedded into it.
Another way to classify the derivatives is by the use of the categories vanilla and exotic. The first type is simple and common, while the second refers to the more specialized and complicated derivatives. Because no rule exists distinguish among them, the difference is typically considered a matter of custom. The usage, however, varies.
Forward and future contracts, swaps, and options are the most common types of derivatives. They are contracts that may be used as an underlying asset. There are some derivatives based on weather data exist which show the number of sunny days or the amount of rain in a region.
As a way to hedge risk, the derivatives are also used as a speculative instrument.
Discount
A Discount is the difference between the sale price of a security or bond, and its par value.
Diversification
Diversification represents a technique for the identification and assessment of potential risks and combines a diverse array of investments in a portfolio. The justification is that fluctuations in the value of single security will have smaller negative impact as a part of a diversified portfolio. In this way, diversification reduces the overall risk of the investments.
There are three major strategies to enhance the quality of diversification. Firstly, the portfolio may comprise of various investment instruments such as bonds, cash, and stocks, among others. Secondly, one may employ various mutual fund strategies such as investment in balanced and index funds. This approach entails the creation of portfolio which comprises of instruments with varying levels of risk. Losses incurred by investments in some areas will be compensated by profits gained in other areas. Thirdly, one may diversify the industry type and geographic locations of the securities. This approach aims to lessen the impact of risks associated with the possible decline of particular industries. Moreover, weather conditions such as regional floods, storms, and floods may cause extensive damages on certain locally based industries. Furthermore, it is best to simultaneously invest in domestic and international securities. Even if one country is experiencing economic decline, the overall portfolio will include other countries of varying degrees of economic growth.
Asset diversification comprises of horizontal and vertical diversification. The first type occurs when the investor holds securities in various companies which engage in a certain activity at the same stage of the production process. Vertical diversification refers to investment in companies which are engaged in different phases of production: from raw materials to finished products. In general, horizontal diversification narrows the investment to companies within a single sector. Vertical diversification increases the scope of investment to the purchases of stocks in different branches. Moreover, broader diversification may entail the purchase of both, stocks and bonds within diverse array of sectors.
http://en.wikipedia.org/wiki/Diversification_(finance)
Dividend
Dividends represent payments that are made by a corporate entity to its shareholders. Corporations may approach their profits in two alternative ways: they can either reinvest the surplus or spread it among the shareholders as dividends. Usually, the corporate entities employ a combined approach to their surplus earnings. Corporations keep a portion of their profits as retained earnings while distributing the rest in the form of dividends.
The public companies either pay dividends on a fixed schedule basis or announce special dividends at any given time. The joint stock companies fix the amount of payable dividends to the number of shares held by the shareholders. The cooperatives distribute dividends in view of the amount of work completed by their members. In addition, there are several types of dividends: cash dividends, stock dividends, property dividends, and other dividends. The first kind represents a taxable investment income that is paid to the shareholders in the form of cheques. The second type of dividends represents stock shares issued by a corporation in proportion to the shares already owned. The third type, property dividends, is issued less often in comparison with the other types. This dividend is typically paid in the form of assets, products, or services. The last type of dividends covers shares of subsidiary companies, assets with identifiable market value, and warrants.
Some corporate entities have established their own dividend re-investment plans. The plans enable the existing shareholders to purchase a small number of shares at regular time intervals. Typically, the shareholders buy stock with no added commission and a small price discount. Except for some limited exceptions, they have to pay taxes on the acquired stock. In many states, a form of double taxation is applied to all distributed dividends. Firstly, the corporate entity is required to pay its income tax. Then, the shareholders are obliged to pay income tax on the received dividends.
http://en.wikipedia.org/wiki/Dividend
Dollar-Cost Averaging
When we buy on a regular schedule a fixed dollar amount of a particular investment regardless of the share price, we employ Dollar-Cost Averaging. Typically, fewer shares are bought when the prices are high.
The average cost per share of security tends to become smaller over time. The risk of investing a larger amount of money in a single investment at the wrong time is lessened by the dollar-cost Averaging. Putting a particular amount of money monthly into a stock, mutual or index fund, is what DCA is all about. An automatic monthly withdrawal service will be set up by most banks. DCA proves just perfect for those of the investors who cannot afford a big lump sum at the start. It enables them to invest small amounts on a regular basis.
The markets, though having bad days or even years, go up over time. For example during the last century, U.S. equity markets have appreciated by nearly 11% average every year. Each month, investing a set amount of money enables one, if the market is high, to buy fewer shares. He will do vice versa when the market is low. The fixer amount may buy, for example, 10 shares when the price is low and only 5 shares when it is high. Therefore, the risk of investing a larger amount at the wrong time and in a single investment is lessened by the DCA.
Some people are asking if it is not more profitable to buy as much as possible when the market is low and try to dispose of everything when it is high. They are right but a professional investor will warn that it will require extraordinary abilities to get a correct prediction. No one is able to stop the surprises and no one really knows when the tops and bottoms are going to occur.
Dow Jones
Dow Jones is an index based on the share value of the top 30 blue-chip stocks listed on NYSE (New York Stock Exchange).
Company: http://www.dowjones.com/
About: http://en.wikipedia.org/wiki/Dow_Jones
Due Diligence
Due diligence is used for confirming the material facts accompanying a sale. It is in its nature an audit or an investigation of a potential investment.
Due diligence may also be defined as the care that should be taken by the trader before entering into transaction or signing an agreement with another party. A careful and persistent effort is also required by the financial institution in order to find information in regard to the source of wealth for the customer. There are two benefits of key importance for the financial businesses that are risk-aware- the comfort that the firm is not exposed to excessive risk such as when being used by criminals, and the thorough knowledge of the customer’s financial position and sources of wealth.
To “Know Your Customer” is a requirement for the financial institutions across the world. This rule is enforced by strict legal and regulatory requirements because of money laundering and other financial crimes.
Wrong decisions are not an option for a business while searching for types of customers. This is especially true at times of unstable economic conditions. Due diligence of good quality will ensure a source of wealth for individuals while the background and the identity of the shareholders will be known.
The financial system is often used by criminals who hide the source of wealth, gained from illegal activities. Examples are bribery, drug trafficking, embezzlement, extortion, theft, and so on. These illegal gains look genuine at the hands of criminals. The term used by financial institutions is called anti-money laundering while speaking of combating this illegal activity. It describes a variety of measures used by the institutions for stopping criminals from exploiting the financial system.
The successful identification and prevention of money laundering will be determined by the quality of the customer’s due diligence.
Day trading is a specific form of trading which involves the purchase and sale of financial instruments on the same trading day. Formerly the exclusive domain of banks and investment companies, day trading has now become available to anybody with a computer, some basic trading knowledge, and funds to spare. All day traders are united by a single goal – to gain maximum profit; however, they use different techniques when trying to reach it.
Here are some of the more popular ones:
Scalping
When this trading technique is used, financial instruments are bought and sold within a very short period of time, typically ranging from a few seconds to several minutes. Scalping traders attempt to buy an instrument at its Bid price and sell it at its Ask price. As instruments are held only for a limited time, traders are exposed to little risk of loss; however, their profit per single instrument is also minimized.
Trend Trading
This style is common not just to day trading, but to all other types of trading. Trend traders base their activity on the assumption that a particular trend will continue to develop steadily as it has done so far, e.g. if an instrument’s price has been rising, it will continue to rise, and if it has been falling, it will continue to fall. Accordingly, traders who use this strategy tend to buy instruments with an increasing price and short-sell stocks whose value is dropping.
Counter-Trend Trading
Individuals who employ this technique act contrary to the current market conditions, expecting these to change in the opposite direction at some point in the near future. Such traders will buy instruments with price that has been decreasing and will sell instruments with value that is rising.
Range Trading
Range traders follow instruments with price that does not move in one continuous direction, but rises and falls intermittently. Traders will buy a stock when it hits a low, and will sell it at a profit once it reaches its high value.
News Trading
News trading basically means acting in accordance with the news aired about a particular instrument, e.g. buying stock when the news is good, or selling it when the news is bad. Whether a piece of news is good or bad depends not so much on its actual contents, but on the movements it causes on trade markets.
Rebate trading
With this style, the major source of revenue and profits is associated with ECN rebates. Rebate traders aim to generate profit from the rebates by trading high volume, low priced stocks. In this way, they are able to trade a larger number of shares, contributing to better liquidity with a fixed amount of capital. At the same time, they limit the risk of not exiting a position in the stock.
Other techniques used for day trading include price action (relying on technical analysis) and artificial intelligence, with stock trades being generated by high-frequency trading and automatic algorithms. The increasing reliance on quantitative techniques and algorithms has resulted in a greater competition and consequently – fewer profits.
Due to the possible quick returns and the nature of financial leverage, day trading may be very profitable or unprofitable. It can be very risky, especially if the trader does not follow any day trading rules, and strategies. Another risk is associated with poor executing of trades or incompetent money management.
Available Financial Instruments
Day traders can trade with a number of financial instruments, the most popular being stocks, options, currencies, and futures contracts. All of these have their own peculiarities, which warrant a thorough research before one decides to invest.
Debt-to-GDP Ratio
A measure of a country's federal debt in relation to its gross domestic product (GDP). By comparing what a country owes and what it produces, the debt-to-GDP ratio indicates the country's ability to pay back its debt. The ratio is a coverage ratio on a national level.
Demonetization
Governmental withdrawal of the monetary quality from particular coinage or precious metal. By demonetization former money is no longer legal tender, although in certain cases it may still be used as money of exchange, i.e., the actual metallic value may sometimes be accepted in discharge of indebtedness. However, such was not the case with regard to the demonetization (1933) of U.S. gold. The demonetization law stipulated that gold may not lawfully be used in domestic exchange, although it may be purchased for shipment abroad. Other instances of demonetization were the American conversion (1873) of silver into money of exchange and the similar British conversion (1889) of Pre-Victorian gold coins.
Depreciation
Depreciation refers to non-monetary expense which is recorded to specify the cost of a tangible asset over the length of its useful life. In brief, the term is used for cost allocation over the period during which the asset generates revenue. Depreciation also stands for reduction in the asset’s value. The process increases the free cash flows and decreases the reported earnings of the company. Depreciation stops at a certain point of time in which the asset loses its entire value. Typically, depreciation is due to the use of the asset, attrition, depletion, time passage, obsolescence, or other relevant factors.
The term usually covers assets with brief and fixed useful life. Depreciation is usually used for assets that will last for a period that is longer than one year. This category comprises of buildings, equipment, machinery, vehicles, parking lots, office equipment, furniture, and outdoor lighting, among others. Such assets are grouped under different terms such as ‘constructed assets’, ‘depreciable assets’, ‘plant assets’, and ‘property, plant, and equipment’. It is assumed that land cannot be depreciated because this asset lasts indefinitely. Moreover, the term does not cover assets with indefinite useful life. Depreciation has no bearing over the market value of the asset. It aims to specify the portion of an asset which is depleted and cannot be recovered through any form of disposal.
One needs to know the initial cost of an asset in order to calculate its annual depreciation. There are two principal ways to calculate depreciation. Firstly, deprecation expenses are recorded on the income statement of the company. The balance sheet includes the value of the asset. This method is referred to as the cost principle. Secondly, the cost of the asset may be allocated to depreciation expenses covering the useful life of the asset. This approach is known as the matching principal.
Derivatives
Derivatives have their place in the realm of advanced investing but they should not remain a mystery to the investors. The derivative derives its value from the values of other financial instruments. The stock option derives its value from a stock and therefore, it is considered a derivative. In the same way, a swap is also a derivative due to the fact that its value is derived from the interest rate indices. The underliers are values from which a derivative acquires its value.
In contrast, we may refer to the primary instruments, more commonly called cash instruments. The latter stand for instruments with values acquired directly from the markets. Examples of cash instruments are bonds, commodities, and stocks. It is not precisely shown how the cash instruments differ from the derivative instruments. However, the distinction is useful.
There are various ways to categorize the derivative instruments. One of them is to divide them into linear and non-linear. The linear derivatives have payoff diagrams that are almost linear. The opposite holds true for the non-linear derivatives. The non-linearity is due to the fact that the derivative is either an option or has one embedded into it.
Another way to classify the derivatives is by the use of the categories vanilla and exotic. The first type is simple and common, while the second refers to the more specialized and complicated derivatives. Because no rule exists distinguish among them, the difference is typically considered a matter of custom. The usage, however, varies.
Forward and future contracts, swaps, and options are the most common types of derivatives. They are contracts that may be used as an underlying asset. There are some derivatives based on weather data exist which show the number of sunny days or the amount of rain in a region.
As a way to hedge risk, the derivatives are also used as a speculative instrument.
Discount
A Discount is the difference between the sale price of a security or bond, and its par value.
Diversification
Diversification represents a technique for the identification and assessment of potential risks and combines a diverse array of investments in a portfolio. The justification is that fluctuations in the value of single security will have smaller negative impact as a part of a diversified portfolio. In this way, diversification reduces the overall risk of the investments.
There are three major strategies to enhance the quality of diversification. Firstly, the portfolio may comprise of various investment instruments such as bonds, cash, and stocks, among others. Secondly, one may employ various mutual fund strategies such as investment in balanced and index funds. This approach entails the creation of portfolio which comprises of instruments with varying levels of risk. Losses incurred by investments in some areas will be compensated by profits gained in other areas. Thirdly, one may diversify the industry type and geographic locations of the securities. This approach aims to lessen the impact of risks associated with the possible decline of particular industries. Moreover, weather conditions such as regional floods, storms, and floods may cause extensive damages on certain locally based industries. Furthermore, it is best to simultaneously invest in domestic and international securities. Even if one country is experiencing economic decline, the overall portfolio will include other countries of varying degrees of economic growth.
Asset diversification comprises of horizontal and vertical diversification. The first type occurs when the investor holds securities in various companies which engage in a certain activity at the same stage of the production process. Vertical diversification refers to investment in companies which are engaged in different phases of production: from raw materials to finished products. In general, horizontal diversification narrows the investment to companies within a single sector. Vertical diversification increases the scope of investment to the purchases of stocks in different branches. Moreover, broader diversification may entail the purchase of both, stocks and bonds within diverse array of sectors.
http://en.wikipedia.org/wiki/Diversification_(finance)
Dividend
Dividends represent payments that are made by a corporate entity to its shareholders. Corporations may approach their profits in two alternative ways: they can either reinvest the surplus or spread it among the shareholders as dividends. Usually, the corporate entities employ a combined approach to their surplus earnings. Corporations keep a portion of their profits as retained earnings while distributing the rest in the form of dividends.
The public companies either pay dividends on a fixed schedule basis or announce special dividends at any given time. The joint stock companies fix the amount of payable dividends to the number of shares held by the shareholders. The cooperatives distribute dividends in view of the amount of work completed by their members. In addition, there are several types of dividends: cash dividends, stock dividends, property dividends, and other dividends. The first kind represents a taxable investment income that is paid to the shareholders in the form of cheques. The second type of dividends represents stock shares issued by a corporation in proportion to the shares already owned. The third type, property dividends, is issued less often in comparison with the other types. This dividend is typically paid in the form of assets, products, or services. The last type of dividends covers shares of subsidiary companies, assets with identifiable market value, and warrants.
Some corporate entities have established their own dividend re-investment plans. The plans enable the existing shareholders to purchase a small number of shares at regular time intervals. Typically, the shareholders buy stock with no added commission and a small price discount. Except for some limited exceptions, they have to pay taxes on the acquired stock. In many states, a form of double taxation is applied to all distributed dividends. Firstly, the corporate entity is required to pay its income tax. Then, the shareholders are obliged to pay income tax on the received dividends.
http://en.wikipedia.org/wiki/Dividend
Dollar-Cost Averaging
When we buy on a regular schedule a fixed dollar amount of a particular investment regardless of the share price, we employ Dollar-Cost Averaging. Typically, fewer shares are bought when the prices are high.
The average cost per share of security tends to become smaller over time. The risk of investing a larger amount of money in a single investment at the wrong time is lessened by the dollar-cost Averaging. Putting a particular amount of money monthly into a stock, mutual or index fund, is what DCA is all about. An automatic monthly withdrawal service will be set up by most banks. DCA proves just perfect for those of the investors who cannot afford a big lump sum at the start. It enables them to invest small amounts on a regular basis.
The markets, though having bad days or even years, go up over time. For example during the last century, U.S. equity markets have appreciated by nearly 11% average every year. Each month, investing a set amount of money enables one, if the market is high, to buy fewer shares. He will do vice versa when the market is low. The fixer amount may buy, for example, 10 shares when the price is low and only 5 shares when it is high. Therefore, the risk of investing a larger amount at the wrong time and in a single investment is lessened by the DCA.
Some people are asking if it is not more profitable to buy as much as possible when the market is low and try to dispose of everything when it is high. They are right but a professional investor will warn that it will require extraordinary abilities to get a correct prediction. No one is able to stop the surprises and no one really knows when the tops and bottoms are going to occur.
Dow Jones
Dow Jones is an index based on the share value of the top 30 blue-chip stocks listed on NYSE (New York Stock Exchange).
Company: http://www.dowjones.com/
About: http://en.wikipedia.org/wiki/Dow_Jones
Due Diligence
Due diligence is used for confirming the material facts accompanying a sale. It is in its nature an audit or an investigation of a potential investment.
Due diligence may also be defined as the care that should be taken by the trader before entering into transaction or signing an agreement with another party. A careful and persistent effort is also required by the financial institution in order to find information in regard to the source of wealth for the customer. There are two benefits of key importance for the financial businesses that are risk-aware- the comfort that the firm is not exposed to excessive risk such as when being used by criminals, and the thorough knowledge of the customer’s financial position and sources of wealth.
To “Know Your Customer” is a requirement for the financial institutions across the world. This rule is enforced by strict legal and regulatory requirements because of money laundering and other financial crimes.
Wrong decisions are not an option for a business while searching for types of customers. This is especially true at times of unstable economic conditions. Due diligence of good quality will ensure a source of wealth for individuals while the background and the identity of the shareholders will be known.
The financial system is often used by criminals who hide the source of wealth, gained from illegal activities. Examples are bribery, drug trafficking, embezzlement, extortion, theft, and so on. These illegal gains look genuine at the hands of criminals. The term used by financial institutions is called anti-money laundering while speaking of combating this illegal activity. It describes a variety of measures used by the institutions for stopping criminals from exploiting the financial system.
The successful identification and prevention of money laundering will be determined by the quality of the customer’s due diligence.