There are different motives for investment. The most prominent among all is to earn a return on investment. However, selecting investments on the basis of return in not enough. The fact is that most investors invest their funds in more than one security suggest that there are other factors, besides return, and they must be considered. The investors not only like return but also dislike risk. So, what is required is: Clear understanding of what risk and return are, What creates them, and How can they be measured? Return: The return is the basic motivating force and the principal reward in the investment process. The return may be defined in terms of (i) realized return, i.e., the return which has been earned, and (ii) expected return, i.e., the return which the investor anticipates to earn over some future investment period. The expected return is a predicted or estimated return and Continue reading
Investment Terms
Futures Trading in Commodity Markets
The process of trading commodities is also known as futures trading. Futures Contracting is an important activity for any economy to meet raw material requirements, to facilitate storage as a profitable economic activity and also to manage supply and demand risk, forward contracts gives rise to price risk, so to the need of price risk management, unlike other kinds of investments, such as stocks and bonds, when investor trade futures, he/she do not actually buy anything or own anything. He/she are speculating on the future direction of the price in the commodity in which they are trading. This is like a bet on future price direction. The terms “buy” and “sell” merely indicate the direction you expect future prices will take. In other word Forward/Future trading is an activity in which a trader takes a position in an equity in advance of an action which he/she knows his/her brokerage will Continue reading
An Overview of Hedge Fund Strategies or Hedging Techniques
Hedge funds are pools of investment that invest in almost any opportunity in any market where they foresee impressive gains at reduced risk. Hedging refers to implementing strategies that manage or protect against an identified risk exposure. They take leveraged positions in publicly traded equity, debt, foreign exchange and derivatives. The primary aim of most hedge funds is to reduce volatility and risk while attempting to preserve capital and deliver positive returns under all market conditions. Derivatives provide institutions the opportunity to break financial risks into smaller components and then to buy or sell those components to manage risk. Hedge funds hold a number of assets; they use derivatives to protect against the adverse price movement of these assets. Hedge funds play more of the role of speculators than of hedgers. They use derivatives when buying and selling assets and by putting long-short positions, they seek to hedge themselves against Continue reading
Stock – Meaning and Definition
Stock is the share in the ownership of the company. Stock represents the claim on the company’s assets and earnings. In other words, it means, the more the stock, the ownership stake in the company becomes greater. The stock is represented by a stock certificate which is a document that proves the ownership in the company. Few years ago when the person wanted to buy or sell shares, he/she physically took the certificates to the brokerage firm. But now information technology has increased, because of which this stock document is stored electronically. Now trading with a click of mouse or a phone call has made transacting easier. The stock certificate is considered worthless if there is no claim on the ownership of the company’s assets and earnings. Another important feature of stock is its limited liability. It means as the owner of the stock, he/she is not responsible for the Continue reading
Market-Neutral Alternative Funds: Advantages and Disadvantages
Advantages of Market-Neutral Alternative Funds One of the vital advantages characteristic of market-neutral alternative funds is the lowest correlation rate compared to other assets. Even though the return pattern would change for the organization over time, it would still have the opportunity to mitigate risks by combining different strategies based on market-neutral alternative funds. Investment options are not being seen as the essential way of creating a fortune in this case because investors do not associate themselves with fortunes. This is usually done to reduce the impact of the broader market on the organization and create a cushion for the company that would protect the lower levels of correlation from increasing drastically. Overall, market-neutral alternative funds are advantageous for correlation rates because they broaden the list of asset classes that are eligible for improvement. A decreased level of volatility is another benefit typical of market-neutral alternative funds. Investment lineups of Continue reading
Bonus Issue of Shares – Meaning, Benefits and Motives
BONUS ISSUE OF SHARES When we invest the share capital in a business, we do so with the expectation of getting back not only our invested capital, but also a proportionate share of the surplus generated from operations, after all the other stakeholders have been paid their dues. Thus, collectively the business owes its shareholders, their invested capital as well as the surplus generated from operations. But in reality, while the business may pay us annual dividends, seldom is this surplus fully distributed away as dividends. Thus, the surplus which is retained in the business is still owed to us. This retained surplus is also reflected as retained earnings or reserves in the Balance sheet of a company. Together, share capital and reserves are known as equity or the net worth of a company. Over a period of time, the retained earnings of a firm Continue reading