Look-Alike Contracts

Look-alike contracts are a cash-settled financial product based on the settlement price of a similar exchange-traded, physically settled futures contract. Look-alike contracts are traded over the counter and they carry no risk of actual physical delivery regardless of the terms of the underlying futures contract.Futures look-alike contracts are regulated by the Commodity Futures Trading Commission (CFTC).

Kelly Criterion

The Kelly Criterion is a mathematical formula used to determine the optimal size of a series of bets or investments. Proposed by John Larry Kelly in 1956, the Kelly Criterion aims to optimize investment strategies by maximizing the long-term growth rate of capital. This criterion is based on probability and information theory, taking into account the probability of winning a bet and the potential payoff, helping investors make optimal decisions under uncertainty. The Kelly Criterion is widely applied in financial markets, gambling, and other areas requiring risk management. While its calculations can be complex, it is considered an effective tool for capital management.

Opening Cross

The opening cross is a method the Nasdaq uses to determine the opening price for an individual share of the stocks that trade on its exchange. This method accumulates data on the buy and sell interest among market participants for a particular security two minutes before the market opens. The Nasdaq makes this information available to all investors.According to Nasdaq, the opening and closing cross processes give all investors access to the same information, and ensures their orders get the same treatment. This brings fairness and transparency into the marketplace. It also efficiently matches buyers and sellers to ensure market liquidity (that is, the ability for investors to find ready purchasers if they need to sell their positions quickly).

Open Market

An open market is an economic system with little to no barriers to free-market activity. An open market is characterized by the absence of tariffs, taxes, licensing requirements, subsidies, unionization, and any other regulations or practices that interfere with free-market activity. Open markets may have competitive barriers to entry, but never any regulatory barriers to entry.

Mean Reversion

The concept of mean reversion is widely used in various financial time series data, including price, earnings and book value. When an asset's current market price is less than its average past price, it's considered attractive for purchase. Conversely, if the current price is above the average, it's expected to fall. Traders and investors use mean reversion for timing of their respective trading and investment strategies.

Equilibrium Quantity

Equilibrium quantity is when there is no shortage or surplus of a product in the market. Supply and demand intersect, meaning the amount of an item that consumers want to buy is equal to the amount being supplied by its producers. In other words, the market has reached a perfect state of balance as prices stabilize to suit all parties.Basic microeconomic theory provides a model to determine the optimal quantityand price of a good or service. This theory is based on the supply and demand model, which is the fundamental basis for market capitalism. It assumes that producers and consumers behave predictably and consistently and there are no other factors influencing their decisions.

Distressed Sales

A distress sale—also called a distressed sale—occurs when a property, stock, or other asset must be sold quickly. Distress sales often result in a financial loss for the seller who, for reasons of economic duress, must accept a lower price. The proceeds from these assets are most often used to pay debts or medical expenses or for other emergencies.

Absolute Advantage

Absolute advantage is the ability of an individual, company, region, or country to produce a greater quantity of a good or service with the same quantity of inputs per unit of time, or to produce the same quantity of a good or service per unit of time using a lesser quantity of inputs, than its competitors.Absolute advantage can be accomplished by creating the good or service at a lower absolute cost per unit using a smaller number of inputs, or by a more efficient process.

Absolute Return

Absolute return is the return that an asset achieves over a specified period. This measure looks at the appreciation or depreciation, expressed as a percentage, that an asset, such as a stock or a mutual fund, achieves over a given period.Absolute return differs from relative return because it is concerned with the return of a particular asset and does not compare it to any other measure or benchmark.

Coefficient Of Determination

The coefficient of determination is a statistical measurement that examines how differences in one variable can be explained by the difference in a second variable when predicting the outcome of a given event. In other words, this coefficient, more commonly known as r-squared (or r), assesses how strong the linear relationship is between two variables and is heavily relied on by investors when conducting trend analysis.This coefficient generally answers the following question: If a stock is listed on an index and experiences price movements, what percentage of its price movement is attributed to the index's price movement?

Trickle-Down Theory

Trickle-down economics and its policies employ the theory that tax breaks and benefits for corporations and the wealthy will trickle down and eventually benefit everyone.Tools like reduced income tax and capital gains tax breaks are offered to large businesses, investors, and entrepreneurs to stimulate economic growth.

Distressed Securities

Distressed securities are financial instruments issued by a company that is near to—or currently going through—bankruptcy. Distressed securities can include common and preferred shares, bank debt, trade claims, and corporate bonds.A particular security can also be considered distressed if it fails to maintain certain covenants (obligations incorporated into the debt or security, such as the ability to maintain a certain asset to liability ratio, or a particular credit rating.)As a result of the issuing company's inability to meet its financial obligations, their financial instruments suffer a substantial reduction in value. However, because of the implicit riskiness of distressed securities, they can offer high-risk investors the potential for high returns.

Auction Market

In an auction market, buyers enter competitive bids and sellers submit competitive offers at the same time. The price at which a stock trades represents the highest price that a buyer is willing to pay and the lowest price that a seller is willing to accept. Matching bids and offers are then paired together, and the orders are executed. The New York Stock Exchange (NYSE) is an example of an auction market.

Net Sales

Net sales is the sum of a company's gross sales minus its returns, allowances, and discounts. Net sales calculations are not always transparent externally. They can often be factored into the reporting of top line revenues reported on the income statement.

Net Profit Margin

The net profit margin, or simply net margin, measures how much net income or profit is generated as a percentage of revenue. It is the ratio of net profits to revenues for a company or business segment.Net profit margin is typically expressed as a percentage but can also be represented in decimal form. The net profit margin illustrates how much of each dollar in revenue collected by a company translates into profit.

Net-Net

Net-net is a value investing technique developed by the economist Benjamin Graham, in which a company's stock is valued based solely on its net current assets per share (NCAVPS). Net-net investing thus focuses on current assets, taking cash and cash equivalents at full value, then reducing accounts receivable for doubtful accounts, and reducing inventories to liquidation values. Net-net value is calculated by deducting total liabilities from the adjusted current assets. Net-net should not be confused with a double net lease, which is a commercial rental agreement where the tenant is responsible for both property taxes and premiums for insuring the property.

Operating Leverage

Operating leverage refers to the proportion of fixed costs in a company's total costs and how this proportion affects the company's profitability. High operating leverage means that a company has higher fixed costs relative to its variable costs. In this scenario, changes in sales revenue have a significant impact on the company's profits because fixed costs remain constant regardless of sales volume. Companies with high operating leverage can achieve higher profits when sales increase, but they also face greater risk of losses when sales decline. The degree of operating leverage can be measured by the ratio of fixed costs to variable costs. Understanding operating leverage is crucial for managers in making financial and operational decisions.

Brokerage Account

A brokerage account is an investment account held at a licensed brokerage firm. An investor deposits funds into their brokerage account and the brokerage firm transacts orders for investments such as stocks, bonds, mutual funds, and exchange-traded-funds (ETFs) on their behalf.The assets in investment accounts belong to the investors, who normally must report as taxable the income derived from the account.

Austerity

Austerity refers to economic policies implemented by a government to reduce budget deficits and public debt through spending cuts and tax increases. Typically adopted during economic or debt crises, austerity measures aim to restore fiscal health by balancing the budget. These measures may include reducing social welfare programs, cutting public service expenditures, freezing or reducing public sector wages, and raising taxes. The primary goal of austerity is to lower government debt levels and restore confidence in the country's fiscal situation. However, austerity policies can also lead to slower economic growth, higher unemployment, and social unrest, as spending cuts and tax hikes reduce overall demand.

BRIC

The term BRICS is an acronym for Brazil, Russia, India, China, and South Africa. The coin was initially created as BRIC (without South Africa) by Goldman Sachs economist Jim O'Neill in 2001, claiming that by 2050 the four BRIC economies would come to dominate the global economy. South Africa was added to the list in 2010. The BRICS countries operate as a loose organization that seeks to further economic cooperation amongst member nations and increase their economic and political standing in the world.

BRICS

The term BRICS is an acronym for Brazil, Russia, India, China, and South Africa. The coin was initially created as BRIC (without South Africa) by Goldman Sachs economist Jim O'Neill in 2001, claiming that by 2050 the four BRIC economies would come to dominate the global economy. South Africa was added to the list in 2010. The BRICS countries operate as a loose organization that seeks to further economic cooperation amongst member nations and increase their economic and political standing in the world.