Drawing Account

A drawing account is an accounting record maintained to track money and other assets withdrawn from a business by its owners. A drawing account is used primarily for businesses that are taxed as sole proprietorships or partnerships. Owner withdrawals from businesses that are taxed as separate entities must be accounted for generally as either compensation or dividends.

Ratchet Effect

The ratchet effect is an economic process that is difficult to reverse once it is underway or has already occurred. A ratchet is an analogy to a mechanical ratchet, which spins one way but not the other, in an economic process that tends to only work one way. The results or side effects of the process may reinforce the cause by creating or altering incentives and expectations among participants.A ratchet effect is closely related to the idea of a positive feedback loop. In addition, like releasing a mechanical ratchet used to compress a spring, the reversal of an economic process that involves a ratchet effect may be rapid, forceful, and difficult to control.

Idiosyncratic Risk

Idiosyncratic risk is a type of investment risk that is endemic to an individual asset (like a particular company's stock), a group of assets (like a particular sector), or in some cases a very specific asset class (like collateralized mortgage obligations). Idiosyncratic risk is also referred to as a specific risk or unsystematic risk.Therefore, the opposite of idiosyncratic risk is a systematic risk, which is the overall risk that affects all assets, such as fluctuations in the stock market, interest rates, or the entire financial system.

Franchise

A franchise is a type of license that grants a franchisee access to a franchisor's proprietary business knowledge, processes, and trademarks, thus allowing the franchisee to sell a product or service under the franchisor's business name. In exchange for acquiring a franchise, the franchisee usually pays the franchisor an initial start-up fee and annual licensing fees.

Haggle

To haggle is when two parties involved in a transaction such as the purchase of a good and service negotiate the price until both parties can mutually agree on a fair price. The process of haggling involves two parties making sequential offers and counteroffers to each other until a price is agreed upon. The individual trying to buy the good and service is trying to pay the least amount possible, while the seller's primary objective is to maximize the selling price. Haggling also may go by the names bargaining, quibbling, dickering, or informal negotiating.The act of haggling has been around since ancient times and continues to this day. It is a common practice in real estate negotiations, car purchases, and at informal flea markets—while it is rarely used in retail settings such as at supermarkets, pharmacies, or brand-name clothing stores.

Carbon Credit

Carbon credits, also known as carbon offsets, are permits that allow the owner to emit a certain amount of carbon dioxide or other greenhouse gases. One credit permits the emission of one ton of carbon dioxide or the equivalent in other greenhouse gases.The carbon credit is half of a so-called cap-and-trade program. Companies that pollute are awarded credits that allow them to continue to pollute up to a certain limit, which is reduced periodically. Meanwhile, the company may sell any unneeded credits to another company that needs them. Private companies are thus doubly incentivized to reduce greenhouse emissions. First, they must spend money on extra credits if their emissions exceed the cap. Second, they can make money by reducing their emissions and selling their excess allowances.Proponents of the carbon credit system say that it leads to measurable, verifiable emission reductions from certified climate action projects, and that these projects reduce, remove, or avoid greenhouse gas (GHG) emissions.

Amortized Loan

An amortized loan is a type of loan with scheduled, periodic payments that are applied to both the loan's principal amount and the interest accrued. An amortized loan payment first pays off the relevant interest expense for the period, after which the remainder of the payment is put toward reducing the principal amount. Common amortized loans include auto loans, home loans, and personal loans from a bank for small projects or debt consolidation.

Lockbox Banking

Lockbox banking is a service provided by banks to companies for the receipt of payment from customers. Under the service, the payments made by customers are directed to a special post office box instead of going to the company. The bank goes to the box, retrieves the payments, processes them and deposits the funds directly into the company's bank account.

Lock In Profits

Locking in profits refers to the realization of previously unrealized gains accrued in a security by closing all or a portion of the holdings. When an investor holds an open position, they may accrue or paper gains or losses that aren't realized until the position is closed. An example is when an investor that's long on a security can lock in profitsby selling their stake for a gain. By doing this they are no longer subject to changes in the underlying.Also known as "realization" or "taking money off the table."

Stochastic Modeling

Stochastic modeling is a form of financial model that is used to help make investment decisions. This type of modeling forecasts the probability of various outcomes under different conditions, using random variables.Stochastic modeling presents data and predicts outcomes that account for certain levels of unpredictability or randomness. Companies in many industries can employ stochastic modeling to improve their business practices and increase profitability. In the financial services sector, planners, analysts, and portfolio managers use stochastic modeling to manage their assets and liabilities and optimize their portfolios.

Random Variables

A random variable is a variable whose value is unknown or a function that assigns values to each of an experiment's outcomes. Random variables are often designated by letters and can be classified as discrete, which are variables that have specific values, or continuous, which are variables that can have any values within a continuous range.Random variables are often used in econometric or regression analysis to determine statistical relationships among one another.

Algorithmic Trading

Algorithmic trading is a process for executing orders utilizing automated and pre-programmed trading instructions to account for variables such as price, timing, and volume. An algorithm is a set of directions for solving a problem. Computer algorithms send small portions of the full order to the market over time.Algorithmic trading makes use of complex formulas, combined with mathematical models and human oversight, to make decisions to buy or sell financial securities on an exchange. Algorithmic traders often make use of high-frequency trading technology, which can enable a firm to make tens of thousands of trades per second. Algorithmic trading can be used in a wide variety of situations including order execution, arbitrage, and trend trading strategies.

Quick Ratio

The quick ratio is an indicator of a company’s short-term liquidity position and measures a company’s ability to meet its short-term obligations with its most liquid assets.Since it indicates the company’s ability to instantly use its near-cash assets (assets that can be converted quickly to cash) to pay down its current liabilities, it is also called the acid test ratio. An "acid test" is a slang term for a quick test designed to produce instant results.

Feeder Fund

A feeder fund is one of several sub-funds that put all of their investment capital into an overarching umbrella fund, known as a master fund, for which a single investment advisor handles all portfolio investments and trading. This two-tiered investment structure of a feeder fund and a master fund is commonly used by hedge funds as a means of assembling a larger portfolio account by pooling investment capital.Profits from the master fund are then split, or distributed, proportionately to the feeder funds based on the percentage of investment capital they have contributed to the master fund.

Four Ps

The four Ps are the key considerations that must be thoughtfully reviewed and wisely implemented in order to successfully market a product or service. They are product, price, place, and promotion.The four Ps are often referred to as the marketing mix. They encompass a range of factors that are considered when marketing a product, including what consumers want, how the product or service meets or fails to meet those wants, how the product or service is perceived in the world, how it stands out from the competition, and how the company that produces it interacts with its customers.Since the four Ps were introduced in the 1950s, more Ps have been identified, including people, process, and physical evidence.

Death Cross

The "death cross" is a market chart pattern reflecting recent price weakness. It refers to the drop of a short-term moving average—meaning the average of recent closing prices for a stock, stock index, commodity or cryptocurrency over a set period of time—below a longer-term moving average. The most closely watched stock-market moving averages are the 50-day and the 200-day.Despite its ominous name, the death cross is not a market milestone worth dreading. Market history suggests it tends to precede a near-term rebound with above-average returns.

Dead Cat Bounce

A dead cat bounce is a temporary, short-lived recovery of asset prices from a prolonged decline or a bear market that is followed by the continuation of the downtrend. Frequently, downtrends are interrupted by brief periods of recovery—or small rallies—during which prices temporarily rise.The name "dead cat bounce" is based on the notion that even a dead cat will bounce if it falls far enough and fast enough. It is an example of a sucker's rally.

After-Tax Contribution

An after-tax contribution is money paid into a retirement or investment account after income taxes on those earnings have already been deducted. When opening a tax-advantaged retirement account, an individual may choose to defer the income taxes owed until after retiring, if it is a traditional retirement account, or pay the income taxes in the year in which the payment is made, if it is a Roth retirement account.Some savers, mostly those with higher incomes, may contribute after-tax income to a traditional account in addition to the maximum allowable pre-tax amount. They don't get any immediate tax benefit. This commingling of pre-tax and post-tax money takes some careful accounting for tax purposes.

Double-Spending

Double-spending is the risk that a cryptocurrency can be used twice or more. Transaction information within a blockchain can be altered if specific conditions are met. The conditions allow modified blocks to enter the blockchain; if this happens, the person that initiated the alteration can reclaim spent coins.

Dual Listing

A dual listing refers to a listing of any security on two or more different exchanges. Companies use dual listings because of their benefits, which include additional liquidity, increased access to capital, and the ability for their shares to trade for longer periods if the exchanges on which their shares are listed are in different time zones.Some exchanges have a number of listing categories for companies that seek a dual listing, each with different requirements and benefits.

Dual Class Stock

A dual class stock is when a company issues two share classes. A dual class stock structure can consist of Class A and Class B shares, for example. These shares can differ in terms of voting rights and dividend payments.When multiple share classes of stock are issued, typically one class is offered to the general public, while the other is offered to company founders, executives, and family. The class offered to the general public often has limited or no voting rights, while the class available to founders and executives has more voting power and often provides for majority control of the company.