Finance Terminologies – The Fascinating World of Finance:
The Financial markets across the world are ever-changing and full of unpleasant uncertainties.While, there are huge profits that one can make, losses are an essential truth of reckoning too.Being well versed with the basics of this dynamic marketplace is the key.
If you are a beginner, and someone new in the world of finance. And are still trying to learn the tricks of the trade, this article is for you.Here we will try to walk you through some of the most common Finance Terminologies used in the financial space.
Read through to discover and learn more about these terms.
Finance Terminologies: EBITDA
EBITDA stands for all the( E – earnings, B – before, I – Interest, T – Taxes, D – Depreciation, and A – Amortization). It is a direct measure of any company’s operating performances.
And Is the method to evaluate organizational performances without keeping in consideration any financing, accounting or taxation decisions. Simply, calculated by adding up all the above elements using the income statement.
Trading Terminology: Earnings per Share (EPS)
It is represented by deriving a ratio of the net profit earned to the outstanding shares of the company, The number that comes is used as an indicator of the company’s profitability. Higher the EPS of a company, the Higher the Profitability.
Long – Long Position
This refers to a Trade wherein an Investor buys an Asset and then, holds on it for a long period of time. Before deciding to sell it. This position is often also called “going long”.
This happens specifically when the trader finds a particular asset to be profitable and avoids selling it. Until he sees the maximum levels of profits out of it.
Finance Terminologies: Short – Short Position
This is a strategy used by investors when they anticipate that the prices of an asset or security would decrease soon, They sell the securities for the short term when they anticipate the prices would be low, buy them later. In this technique, the traders borrow the shares from an investment broker or a firm and keep them until the lowered, prices of these shares continue and just before they anticipate a hike they repurchase the shares.
Return on Equity (ROE)
It is a ratio that is expressed in percentage, It is the measure of the business profitability which is relative to the equity a shareholder holds in the firm, This is the method of measuring the financial performance of a company by dividing the net income by the equity of the shareholders. It can also be termed as a return on the net assets.
Basis Points (BPS)
This is a common unit that is used to measure the interest rates and other parameters and percentages in the financial world, It is expressed as bps and 1 bps is 1/100th of 100 percent that is 0.01%. It is also labeled as pip or bip.
Bitcoin is one of the most prominent to currencies which are used as storage of values and exchange mediums. It is a new type of digital money that is privately and instantly available and has no ban fees applicable to it.
The P/E is obtained by deriving a ratio of the company’s stock price versus the earnings made per share, It gives a clear picture of the market and gives a fair idea about what the market is willing to pay for securing the company earnings.
It refers to the use of tools by any country’s central Government or Bank to control the critical factors that impact the market such as the money supply, Bank lending rates, etc.
This policy regulates the financial institutions by allowing them to lend at rates determined by the policy.
Finance Terminologies: Mortgage-Backed Security (MBS)
These are investments that an investment can secure through mortgages. These are investments that are similar to bonds that are issued, with the difference being here the bonds are nothing but a bundle of home loans that the bank has issued which are in turn given to the investor as a security for their investment.
These are the prices calculated by the technical analysts that are displayed on the charts, These points are used as probable indicators that mobilize the market.
And This is a very popular method of technical analysis that allows the market enthusiast to analyze the markets precisely.
Security in a financial transaction would mean anything that can be used to secure an investment or a loan, These can include instruments such as bonds, stocks, and derivatives however the idea of security can be broader than the stated ones.
Return on Investment (ROI)
Often referred to as the ROI, this is simply the ratio of the profit made versus the investments. ROI is a measure of the profitability of any business or investment and is used in the broader sense to evaluate business efficiencies is generating desirable profits.
It is the measure of the risks that one must watch for while making an investment. Extremely Volatile assets or markets mean that while they may be very profitable at one time they may also lead to huge losses at other. Higher the volatility, the higher the risks.
It is an approved brokerage account that is used to lend the customer some cash for purchasing stocks and other financial instruments and products. The account holder pays interests on any loans advanced and is secured by securities and cash.
Finance Terminologies: Options Contract
This contract grants the buyers with the right on an asset without any obligation to buy or sell the asset at a specific price on a given date.
This calendar is a timetable with a quarterly schedule that lays down the release dates of various financial reports featuring the growth and performance data of publicly traded shares and assets.
Leverage involves a transaction including the sale or purchase of any asset with a share of the price being paid by the investor and the remaining being covered by the lender.
Interest Rate Swaps
These are basically a part of some private agreement between transacting parties who agree mutually to exchange the interest rate based obligations for the agreed period of time.
It is the amount a borrower needs to pay a lender in order to use the lender’s money for his own purposes. It is usually provided annually as an annual percentage rate (APR) value.
Finance Terminologies: MACD
This is the Moving Average Convergence Divergence is a famous technical indicator used to generate the buy or sell signals in the market.
It is the rate at which the prices of goods, services, and commodities rise or fall over a given period of time. The rising inflation reduces the purchasing powers of currencies and hence it is an important market-moving factor.
It is the measure of a company’s market value and shares. It is the value of the total number of outstanding shares of a company at a given point in time.
Gross Domestic Product
Often denoted simply as GDP, it is the measure of the economic performance of a country that calculates the actual monetary values of the finished products and services.
Finance Terminologies: Free Cash Flow (FCF)
It is the cash that can be paid out to the shareholders of a company after deducting all the expenses and liabilities. The availability of FCF means the company is in good financial health.
It is the value obtained by any company by subtracting all expenses from the total generated revenue. This gives the actual picture of a business’s profit or loss over a given time.
This involves the use of recognizable charts and trends with mathematical indicators that allow the traders to forecast all market activities.
This is a digital asset that is encrypted for security and that acts as a medium to store value and a medium of exchange. This is a type of internet money that anybody could use and that is free from any bank rates or regulations.
The liquidity refers to the ability of an asset to be quickly converted into other forms of assets such as cash and at fair market rates. Currencies are deemed to be the most liquid assets and the liquidity in broader terms is the ability of assets being converted into cash.
Initial Coin Offering (ICO)
This is the method that is being adopted by new cryptocurrencies in the market to gain some traction and market capitalization. These are similar to IPO’s where the company opens its shares to the public. This is a way for new Cryptocurrency firms to raise funds through the general public.
Finance Terminologies: Derivatives
This is a security that is derived out of an asset. These are usually the contracts based on an underlying asset that is used to make use of the value of the asset. These include bonds, stocks, currencies, commodities and market conditions.
Stock represents the ownership of an individual in public corporations. The holder of stocks is entitled to hold the respective shares in the assets of the company that the stock will stand for. The Stocks are issued as ownership certificates to the holders.
It represents the profitability of any company. It is calculated by subtracting all the costs and expenses incurred from the net sales of goods and services.
Gross Margins are expressed in percentages whereas the Gross Profit which is a component of Gross Margin is a numeral value.
These funds are private investment options that use funds pooled from various accredited investors which are managed by professional firms that manage these funds.
These funds have some advanced risk mitigating techniques and complicated portfolio management that is done, only by professionals.
This is basically a chain or block of records that store information about your most recent transaction which includes
all important data such as the timestamps, transaction amounts, etc. This is like a digital public ledger recording all the market transactions sequentially.
Initial Public Offering
Also called an IPO, or public offering is when a private company makes use of an investment bank or an underwriter to become a public company. They do so by offering their shares for sale to the general public.
That way they can raise funds for further business expansion and working capital while giving their investors the shareholding rights.
Finance Terminologies: Exchange-Traded Funds
ETF’s or Exchange Traded Funds are securities that are marketable and are based on indicators such as Specific Index, S&P 500, Gold, Treasuries, commodities, etc. These are funds that are usually traded in the stock exchange but have a close resemblance to index funds.
The price that a prospective buyer wants to pay for a particular security is the Bid Price.And The Ask price, on the other hand, is the price the seller can accept to release the security to the buyer.
These are contracts that are made with a prospective buyer or the seller of an asset to buy or sell the asset at a predetermined time in the future.
And These contracts enable the buyer or the seller to lock in the prices and buy or sell them at fixed predefined rates in the future even if the rates then are lower than what was decided, thereby avoiding a loss on part of the investor.
These are instruments of debt that are created by borrowers for a certain capital amount that is to be loaned for a certain time, And This means the borrower who is usually big companies or governments issue bonds in the name of the lenders for the amount the lenders have loaned for a fixed period of time. These bonds can then be surrendered in lieu of the amount they had lent.
Mutual funds are a combination of stocks, securities, and bonds that are grouped together to form portfolios which in turn are managed by a fund manager.
The idea is to pool the funding from many investors and then investing the funds into areas to make some substantial gain and thereby remit a share of that gain to all the investors.
It is also commonly known as stockholder’s equity and denoted as SE. Equity is basically any firm’s total assets minus the liabilities. As such it is the measure of a firm’s true financial health, It means a shareholder’s equity is the money that is left out to be paid to the shareholders after all debts are paid off and all assets are liquidated.
Cash Flow refers to the money that is flowing in and out of the business through a specific period of time. A company’s ability to build a Value-Driven enterprise basically depends on how easy is it able to generate a positive amount of cash flow.
The economic calendar lists all the economic events, press releases, or economic policy formulation launches, dates and everything else that is seen as a potential market mover.
It is important for traders and financial experts to keep an eye on the calendar to anticipate any big changes in the market preceding or following a big financial event or crisis.
Finance Terminologies: Commodity
In layman’s terms, a commodity is simply a primary raw material, good or product of steady quality that is available through multiple providers in the markets.
Commodity markets are slit into hard (natural resources such as gold, oil rubber) and soft type (agricultural products like corn, coffee, wheat, sugar, etc.) commodities. There are around 50 such major markets that trade in about 100 basic or primary commodities.
Trading Terminology: Forex
Forex is the short form of Foreign Exchange also denoted as FX, Foreign Exchange Market is an international market where currencies are exchanged and traded, Forex works on Forex rates which are actually the prices of one currency when pitted against the other.
It refers to The Regular Payments that the company Usually makes to its Shareholders out of the profits it is making or its reserves. Whenever, a company is in profit the company reinvests its profits into its business while paying a portion of the profits to its shareholders who had invested in the company and stood by it.
Trading Terminology: Balance Sheet
A Balance sSheet is used to capture and define the overall financial health of the Organization at any given point in time.In Simple Terms, It is a statement of the assets,
The Liabilities, capitals with details of incomes and expenditures up until the time of its preparation. It is usually prepared to report any organization’s financial standings at the end of a specific accounting period.
Finance Terminologies: Dividend Yield
The annual payout percentage that a Stakeholder receives which is relative to the market value of one share, It can also be derived as a company’s total annual dividends divided by market capitalization, with an assumption that the number of shares remains constant.
It gives you an idea of the payout percentage you will receive if you are holding its shares.
Written By : YOUSSEF J A ALMEER
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