Securities such as stock options, warrants, preferred bonds, two-class common stock and contingent shares that can be converted into common stock. Sometimes preferred stock can also be converted to common stock. Watch: What Are Stocks? Taobiz explains Common Stock Equivalent Also called common shares or ordinary shares, common stock is what most people buy when they invest in a stock. It typically gives them the right to vote on corporate issues in proportion to their ownership in the company and the right to receive dividend payments. Common stock may be subdivided into class A shares and class B shares, which can have different voting and dividend rights. The other type of stock is called preferred stock, and its holders receive priority over common stock holders when dividends are paid and in the event the company liquidates.
1. A market situation whereby the demand of contract holders wishing to exit their existing positions exceeds the supply of willing participants wishing to enter into the offsetting position. 2. A period of time when a stock trades either below resistance or above support, or both. Taobiz explains Congestion 1. During times of congestion, contract holders, since their positions are unattractive to new investors and in order to offset their positions, will be required either to pay a high premium or sell at a low discount.
A type of order that will be submitted or canceled if set criteria are met, which are defined by the trader/investor entering the order. This allows for a greater customization of the order to meet the specific needs of the investor. Taobiz explains Conditional Order For example, say an investor enters a limit order to buy shares at $45, but only once the shares have first reached $50 (confirming a breakout). The limit order at $45 will be submitted to the brokerage firm only once the shares have reached the $50 price. Conditional orders allow traders to enter into a trade without having to constantly monitor the market, allowing them to be as fast as the market.
A move against the direction or trend of the broad market. Contra market securities and sectors tend to have a negative correlation with the broader market index and general economy; when the economy suffers, these segments thrive and vice versa. Taobiz explains Contra Market A contra market stock or sector is one that does well in bear markets and underperforms in bull markets. For example, defensive stocks - so called because of their relative immunity to economic cycles - such as large pharmaceuticals and utilities may outperform during bear markets because of their stable revenues and cash flows. However, they may fare less well during strong markets when investors favor riskier stocks. "Safe haven" securities such as U.S. Treasuries and gold, which have the greatest appeal during economic turmoil, are also classic examples of contra market plays.
An account on the balance sheet of a corporation or entity that offsets the balance of a related and corresponding account. Taobiz explains Contra Account An example of a contra account would be accumulated amortization. This contra asset account credits the amortization account, offseting the debit position.
A provision granting voting rights to preferred shareholders when the company cannot uphold the obligations outlined in the preferred shareholder arrangement. Contingent voting powers offer the shareholders additional security for holding preferred instruments. Taobiz explains Contingent Voting Power With preferred stock, the primary source of income is generated from dividends because capital appreciation is minimal. Contingent voting powers may come into effect when the firm fails to make the dividend, eliminating the revenue of the preferred group. Armed with the power to vote, preferred shareholders may seek to remedy the financial difficulties that are restricting dividends by voting in new directors.
Shares of company stock that are issued only if certain conditions are met. Contingent shares are similar to stock options, warrants and other convertible instruments in that there is a level of uncertainty associated with their issue. For example, for contingent shares to be issued, the corporation must generate earnings that exceed a certain threshold. Contingent shares are also important for common stock holders since the contingent shares can dilute the ownership of existing shareholders. Taobiz explains Contingent Shares In the TARP bailout, the U.S. Treasury was granted contingent shares in certain companies. These shares were meant to offset the risk of loss for taxpayers. Under the terms of the agreement, the contingent shares vest automatically if the U.S. Treasury loses money as a result of purchasing the troubled assets.
A category of stocks that rely heavily on the business cycle and economic conditions. Consumer cyclicals include industries such as automotive, housing, entertainment and retail. The category can be further divided into durable and non-durable sections. Durable cyclicals include physical goods such as hardware or vehicles, while non-durables represent items like movies or hotel services. Taobiz explains Consumer Cyclicals The performance of consumer cyclicals is highly related to the state of the economy. They represent goods and services that are not considered necessities, but luxurious purchases. During contractions or recessions, people have less disposable income to spend on consumer cyclicals. When the economy is expanding or booming, the sales of these goods rise as retail and leisure spending increase.
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