Vocab 1 Flashcards
Commission
DEFINITION OF ‘COMMISSION’
A service charge assessed by a broker or investment advisor in return for providing investment advice and/or handling the purchase or sale of a security. Most major, full-service brokerages derive most of their profits from charging commissions on client transactions. Commissions vary widely from brokerage to brokerage.
INVESTOPEDIA EXPLAINS ‘COMMISSION’
The brokerage with the lowest commissions is not necessarily the best one. Discount brokerages offer no advice, which can prove to be troublesome for many rookie investors. On the other hand, full-service brokerages offer a more personalized service, but commissions are much higher.
However, when commission is charged there is the potential for a conflict of interest to develop between brokerages and their clients. Because commission compensated brokers will not get paid very much if their clients do not conduct many transactions, unethical brokers may encourage clients to conduct more trades than necessary.
Wedge
DEFINITION OF ‘WEDGE’
In technical analysis, a security price pattern where trend lines drawn above and below a price chart converge into an arrow shape. Wedge shaped patterns are thought by technical analysts to be useful in analyzing a short to intermediate term reversal of what the analyst feels to be the major price trend.
INVESTOPEDIA EXPLAINS ‘WEDGE’
Once the price breaks out of the wedge, it is expected to return to the major trend. Technical analysts see a ‘breakout’ of this wedge pattern as either bullish (on a breakout above the upper line) or bearish (on a breakout below the lower line). A wedge shape pointing upwards (rising wedge) is used in analyzing an upward price trend within an overall downward price trend. A level wedge is considered a period of consolidation, which will not reverse the current major trend. Finally a wedge pointing downwards (falling wedge) is used to analyze a downward price trend within an overall upward price movement.
Forecasting
DEFINITION OF ‘FORECASTING’
The use of historic data to determine the direction of future trends. Forecasting is used by companies to determine how to allocate their budgets for an upcoming period of time. This is typically based on demand for the goods and services it offers, compared to the cost of producing them. Investors utilize forecasting to determine if events affecting a company, such as sales expectations, will increase or decrease the price of shares in that company. Forecasting also provides an important benchmark for firms which have a long-term perspective of operations.
INVESTOPEDIA EXPLAINS ‘FORECASTING’
Stock analysts use various forecasting methods to determine how a stock’s price will move in the future. They might look at revenue and compare it to economic indicators, or may look at other indicators, such as the number of new stores a company opens or the number of orders for the goods it manufactures. Economists use forecasting to extrapolate how trends, such as GDP or unemployment, will change in the coming quarter or year. The further out the forecast, the higher the chances that the estimate will be less accurate.
Trading Range
DEFINITION OF ‘TRADING RANGE’
The spread between the high and low prices traded during a period of time.
INVESTOPEDIA EXPLAINS ‘TRADING RANGE’
When a stock breaks through or falls below its trading range after several days of trading in a range, it usually means there is momentum (positive or negative) building.
Pip
DEFINITION OF ‘PIP’
The smallest price change that a given exchange rate can make. Since most major currency pairs are priced to four decimal places, the smallest change is that of the last decimal point - for most pairs this is the equivalent of 1/100 of one percent, or one basis point.
INVESTOPEDIA EXPLAINS ‘PIP’
For example, the smallest move the USD/CAD currency pair can make is $0.0001, or one basis point. The smallest move in a currency does not always need to be equal to one basis point, but this is generally the case with most currency pairs.
Journal
DEFINITION OF ‘JOURNAL’
1. In accounting, a first recording of financial transactions as they occur in time, so that they can then be used for future reconciling and transfer to other official accounting records such as the general ledger. A journal will state the date of the transaction, which account(s) were affected and the amounts, usually in a double-entry bookkeeping method.
- For an individual investor or professional manager, a detailed record of trades occurring in the investor’s own accounts, used for tax, evaluation and auditing purposes.
INVESTOPEDIA EXPLAINS ‘JOURNAL’
Journaling is an essential part of objective record-keeping and allows for concise review and records transfer later in the accounting process. Journals are often reviewed as part of a trade or audit process, along with the general ledger(s).
Drawdown
DEFINITION OF ‘DRAWDOWN’
The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted as the percentage between the peak and the trough.
INVESTOPEDIA EXPLAINS ‘DRAWDOWN’
A drawdown is measured from the time a retrenchment begins to when a new high is reached. This method is used because a valley can’t be measured until a new high occurs. Once the new high is reached, the percentage change from the old high to the smallest trough is recorded.
Drawdowns help determine an investment’s financial risk. Both the Calmar and Sterling ratios use this metric to compare a security’s possible reward to its risk.
Spread
Spread: The difference between the Bid Price and the Ask Price
*Chart Price reflects the Bid Price
Understanding Spread
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