A trading practice where an investor should not concentrate more than 2% of available capital on a single trade. To follow the 2% rule an investor first calculates 2% of the available trading capital, called the capital at risk. Brokerage fees for buying and selling shares are then factored into the capital at risk, and this figure is divided by the current share price. The resulting figure is the total amount of shares that can be purchased. If market conditions change and result in the trader losing the total value of that trade the downside exposure is only 2%, since the value of the original trade was limited to 2% of the total amount of trading capital available. Taobiz explains 2% Rule The 2% rule is a restriction created by investors in order to stay within the boundaries of a trading system. For example, an investor with $100,000 will purchase no more than $2,000 - or 2% of the value of the account - of a particular investment. By knowing the upper limit that can be risked, the investor can work backwards to determine the total number of shares that can be purchased. The investor can also use stop-loss orders to limit downside risk.
Any stock listed on an equity exchange after April 26, 1979. This classification allowed members of exchanges to trade these stocks off the board (not at the exchange). The classification of a 19c3 stock refers to SEC rule 19c3 (the regulation that allowed off-board transactions to be made). Taobiz explains 19c3 Stock Prior to April 26, 1979, members of the major exchanges (ie. the NYSE) were not allowed to conduct stock trades in situations that where they were not physically at an exchange. This meant that OTC trades could not have legally occured. The designation of 19c3 stock was the first step toward the creation of the National Market System.
A strategy that uses financial leverage by shorting poor performing stocks and purchasing shares that are expected to have high returns. A 130-30 ratio implies shorting stocks up to 30% of the portfolio value and then using the funds to take a long position in the stocks the investor feels will outperform the market. Often, investors will mimic an index such as the S&P 500 when choosing stocks for this strategy. Taobiz explains 130-30 Strategy To engage in a 130-30 strategy, an investment manager could rank the stocks used in the S&P 500 from best to worse on expected return, as signaled by past performance. From the best ranking stocks, the manager would invest 100% of the portfolio's value and short sell the bottom ranking stocks, up to 30% of the portfolio's value. The cash earned from the short sales would be reinvested into top-ranking stocks, allowing for greater diversification in the higher ranks.
An investment strategy for an individual portfolio or pooled funds vehicle such as a mutual fund. only equity securities are considered for investment, whether they be listed stocks, over-the-counter stocks, or private equity shares. A mutual fund or ETF will often state a "100% equities strategy" in its prospectus to inform potential investors of the fund's overall risk profile. Taobiz explains 100% Equities Strategy Equities are generally considered the riskier asset class over both bonds and cash, but historical returns have been higher as well. A well diversified portfolio of all stocks can protect against individual company risk or even sector risk, but market risks will still exist that can affect the equities asset class. All-stock portfolios will perform best when the underlying economy is growing (as measured by GDP) and inflation is low to moderate, as inflation diminishes the future cash flows of equities.
An order to buy or sell at a price set higher than the current market price of the security. Examples of above the market orders include: a limit order to sell, a stop order to buy, or a stop-limit order to buy. Taobiz explains Above The Market This is a strategy that is often used by momentum traders. For example, a stop order would be placed above the resistance level to buy. Should the security's price break through the resistance level, the investor may be able to participate in the upward trend.
A term used to describe the returns generated by a given security or portfolio over a period of time that is different from the expected rate of return. The expected rate of return is the estimated return based on an asset pricing model, using a long run historical average or multiple valuation. Taobiz explains Abnormal Return An abnormal return can be either a good or bad thing, as it is merely a summary of how the actual returns differ from the predicted return. For example, earning 30% in a mutual fund that is expected to average 10% per year would create a positive abnormal return of 20%. If, on the other hand, the actual return was 5%, this would generate a negative abnormal return of 5%.
Shares in mainland China-based companies that trade on Chinese stock exchanges such as the Shanghai Stock Exchange and the Shenzhen Stock Exchange. A-shares are generally only available for purchase by mainland citizens; foreign investment is only allowed through a tightly-regulated structure known as the Qualified Foreign Institutional Investor (QFII) system. Taobiz explains A-Shares Most companies listed on Chinese exchanges will offer two shares classes: A-shares and B-shares. B-shares are quoted in foreign currencies (such as the U.S. dollar) and are open to both domestic and foreign investment (provided that locals set up a foreign currency account), while A-shares are only quoted in Chinese renminbi. A-shares experienced explosive growth in the 2005-2007 period as restrictions preventing investment by Chinese citizens slowly began to peel away. In fact, demand was so high for A-shares that they would trade for much higher valuations than what the same stock could be purchased for on a different exchange. The Peoples’ Republic of China is working to blend the two classes of stock together, and eventually allow direct foreign investment in mainland companies. It is one of many major financial reforms that the advanced economies of the world hope will occur in the next several years; there is a tremendous amount of pent-up demand for Chinese equity, provided that regulations become uniform and reporting requirements are in-line with global standards.
A comprehensive summary report of a company's performance that must be submitted annually to the Securities and Exchange Commission. Typically, the 10-K contains much more detail than the annual report. It includes information such as company history, organizational structure, equity, holdings, earnings per share, subsidiaries, etc. Taobiz explains 10-K The 10-K must be filed within 60 days (it used to be 90 days) after the end of the fiscal year. 10-K = Yearly 10-Q = Quarterly
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