Delisting is the process of removing a security that is traded on a market (e.g., NYSE) from that market. This usually occurs because the security in no longer eligible for being listed according to the rules of that market.
Category: Terminology
Definitions and explanations of various finance-related terms and concepts!
A margin call occurs when an investor borrows money to invest in securities such as stock, and the value of those securities declines. A Margin Call is a request from the broker that the investor deposit more securities or funds in to their account, to ensure that there are sufficient assets to repay the borrowed money.
Averaging down is a strategy used by investors to show a larger profit. By buying more shares of a stock that is already owned as the price falls, the average cost paid by the investor falls. Thus, when the price rises again, it does not have to rise as far to realize the same gains. For example, let us say you purchase 100 shares of stock $XYZ at $30 per share. Your average cost is therefore $30. In order to achieve a profit of $1000 on your 100 shares, the value of $XYZ must rise by $10 to $40 per share. Now, let us say you average down when the price of $XYZ falls to $10, by buying an additional 100 shares. Now, your average cost is [$30 per share x 100 shares + $10 per share x 100 shares]/(100 shares + 100 shares) = $20 per share. Now, the price of $XYZ only has to rise by $5 to $25 per share on your 200 shares in order to make $1000 of profit. So, by averaging down, you can achieve a greater profit even when the value of the share is lower than what it was originally! Note: it is important to research the company so that you can be confident that the price will rise eventually, so that you can make that profit. A sharp price fall could be a warning signal that the company is in turmoil.
A bear market describes when investors are pessimistic about the state of the market. It is usually characterized by falling stock prices. Investors can also be described as bearish about a specific stock or industry, if they predict a general downward trend associated with it. In the stock market, bears are the opposite of bulls.
A bull market describes when investors are optimistic about the state of the market. It is usually characterized by rising stock prices. Investors can also be described as bullish about a specific stock or industry, if they predict a general upward trend associated with it. In the stock market, bulls are the opposite of bears.
EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization, is a measure of financial the health of a business. It is important because is ignores the effect of some accounting and tax management strategies which vary across businesses.
Yield is a measure of the return on investment (appreciation, dividends, interest, etc.). Yield is normally expressed as a percentage rate. For example, yield on a savings account might be 0.2% per year
Bootstrapping is the process of funding and building a company using only a personal investment and profits from sales, as opposed to using a loan and/or venture capital investment.
A leveraged buyout or LBO is a strategy used by firms to acquire other companies. An LBO finances the acquisition of the company by borrowing money (therefore leveraging the firm making the acquisition) to cover the acquisition cost.
Arbitrage is the purchase and resale of some good in different markets at a premium without adding any value. For example, let us say that the price of a bushel of blue crabs is $300 in Baltimore, Maryland, but a bushel of the same blue crabs would go for $325 in Washington, DC. Then, it would be wise for me to buy blue crabs in Baltimore and immediately sell them in Washington, at a profit of $25 per bushel (ignoring the cost of transportation). Note that arbitrage only applies to goods, and not services. Although arbitrage could occur in any context, when we say arbitrage we are usually referring to the stock market, where some security can be bought on one market and resold on another at a higher price. In an efficient market, this should not be possible. But since people take time to make decisions and there are transaction costs are present, arbitrage is possible.
