A transaction on an exchange that occurs at a price below the previous transaction. In order for a downtick to occur, a transaction price must be followed by a decreased transaction price. This is commonly used in reference to stocks, but it can also be extended to commodities and other forms of securities. Taobiz explains Downtick For example, suppose stock ABC previously traded at $10. If its next trade occurs at a price below $10, then ABC will be on a downtick.
A reduction in the overall level of economic or business activity. Downswings may be caused by fluctuations in the business cycle or a variety of macroeconomic events. Downswing may also refer to the downward movement in the value of a security following a period of stable or rising prices. Taobiz explains Downswing A downswing is one of many buzzwords related to poor performance in the market. When interest rates rise, the economy will typically experience a downswing. The new rates make it more difficult for businesses to acquire financing, which results in a lower number of new firms and less expansion. A downswing in the stock market or a single security will usually occur after the market has peaked. At this point, a bear market starts to occur as prices swing lower.
The use of an option or other hedging instrument in order to limit or reduce losses in the case of a decline in the value of the underlying security. Downside protection often involves the purchase of an option to hedge a long position. Other methods of downside protection include using stop losses or purchasing assets that are negatively correlated to the asset you are trying to hedge. Taobiz explains Downside Protection An example of downside protection would be the purchase of a put option for a particular stock. If an investor already owns shares and the price of that stock falls, the value of the option will increase and thus limit the total loss exposure.
A type of share division in which companies issue shares that have differing rights. In a dual class ownership structure, the company can issue two classes of shares, Class A and Class B. These classes may have different voting rights, but they represent the same underlying ownership in the company. Taobiz explains Dual-Class Ownership Often companies that are transitioning from being private to becoming a public companies may use a dual-class structure to maintain control over the company. For example, when Google went public, it issued Class B shares that had no voting rights to ensure that the founders and executives still had control of the company.
When a company's securities are listed on more than one exchange for the purpose of adding liquidity to the shares and allowing investors greater choice in where they can trade their shares. Taobiz explains Dual Listing Dual listing is not a widely used technique, although it is thought to improve the spread between the bid and ask prices, which helps investors obtain a better price for their securities. Hewlett-Packard (HP), for example, is listed on both the NYSE and Nasdaq.
The possible upside of the earnings that could be generated for each share outstanding of a particular stock. Earning potential reflects the largest possible profit that a corporation can make. It is often passed on to investors in the form of dividends. Greater earning potential drives up the price of a stock. Taobiz explains Earning Potential Although earning potential can cause a stock's price to rise, it will not necessarily translate into higher current dividends. A company that comes out with an innovative new product may have higher earning potential in the future, but the projected revenue may not translate into actual profit for some time.
An index created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia. This international index has been in existence for more than 30 years. Taobiz explains EAFE Index As of February 2007, equities from the Japanese stock markets made up around 25% of the index, of which Japan is the largest index component. Many investors use the S&P 500 as a benchmark to assess the performance of an investment portfolio. This is an appropriate benchmark for American stocks. The EAFE index is often used as a benchmark for the performance of an investor's international equity investments.
A slang phrase used when a broker earns commissions from both parties in a security sale. The purchaser and the seller of the security will pay a fee to the broker for facilitating the transaction. Taobiz explains Each Way Going each way on a trade is ideal for a broker. When investors purchase or sell a stock, bond or derivative, they will usually conduct the transaction through a broker. The broker will take the client's order and try to fill it. For this service, the broker will usually charge a small fee to cover the transaction costs. If the broker is able to match the clients together, they are able to earn twice the commission on a single transaction.
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