Would you like to have better overview in investment and financial terms? Understand basic financial expressions.
Forex
Trading with foreign currencies. Trading hours are 24 hours a day, 5 days in a week. The total amount of currency trading is more than 5,3 bil.USD every day. Advantage of this market is very high liquidity. Experienced investors are able to evaluate their capital above average.
Commodities
Commodities are primary products such as agriculture products a raw materials. Typical examples are wheat, corn and sugar (agriculture products), crude oil and natural gas (raw materials) or gold and silver (metals). These products are traded on commodity stock exchanges. Very typical for all commodities is very high fluctuation of prices. For experienced investors it’s a potential to evaluate their capital above average.
Bonds
Securities that provide regular income (dividends). There are two basic types of Bonds – Goverment Bonds and Private Bonds. Investor becomes the creditor of state or company. Dividents are paid on regular basis according to the contract. Initial investment amount is usualy paid at the end of emission period. Advantages of Bonds are usually lower risk than typical level of risk for Equities, Commodities or Forex and also regular divident payment. Disadvantage is limited profit potential.
High-Water Mark
A High-Water Mark is the highest peak in value that the investment account has reached. This term is often used in the context of fund manager compensation, which is Performance Fee-based. The High-Water Mark ensures the manager does not get paid large sums for poor performance. If the manager loses money over a period, he must get the fund above the High-Water Mark before receiving the Performace Fee again.
Example: Investment Amount 100 K EUR, Profit 20 K EUR, Performance Fee 20 %. Investor has to pay the Profit-Sharing Fee of 4 K EUR. The total balance of this account will be decreased to 116 K EUR. Portfolio Manager is entitled to charge an additional Profit Sharing Fee after overcoming the highest account level (120 K EUR).
Equities
Securities that prove that the holder has invested the capital to the joint-stock company. Shareholder is entitled to profit of the company by receiving the dividents. He also have influence on managing the company. In case of bankruptcy, shareholder is participating on liquidation balance.
Liquidity
It is the speed you can exchange your investments to money. Higher liquidity equals higher speed of ability to exchange investment to money.
ETF Funds
These funds are traded on word stock exchanges as well as shares of major companies. Instead of actively managing the mutual fund by expensive managers, the ETF is managed by the precise algorithm.
Risk
Risk means potencial threat or danger of damage in the future and the probability of this treat. Each of us and even those who try to avoid the risk has to take a risk. Risk on the financial market cannot be completely reduced, but it can be managed and eliminated by using appropriate financial tools.
CFD – contract for difference
It is the over-the-counter instrument for which is typical that the price exactly copies the undrelying portfolio, expample stock, commodity etc. It is specific contract that has advantages and disadvantages. The advantage is that it is for example the possibility to trade indices even if you have relatively small investment capital. The main disadvatages are fees, for example swap rollover fee that needs to be paid in case that you hold CFD contract overnight. CFD contract is the leverage trading. This means that your capital has higher power due to the leverage. This means that you are able to realize higher profits/losses than without leverage.
