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Finanacial Definitions

Below are some financial definitions that I picked up from life, both personal and in the trading world.  These are defined in my own words.  If you want to see a definition on here or if there is a definition you are not sure of, comment below or @ me on Twitter, Linkedin or Facebook and I’ll see if I can get them added.  I’ll look to keep adding to this list periodically as well.

Cheers!

Brought To Market Risk (aka Mark-to-Market)

Risk as shown in the price difference between contracted and current market prices.  BTM risk is more apparent in volatile markets, where the prices are moving hard and fast in one direction.

(Example: You contracted to sell 1,000 units at $10 contract price, market falls to $5 = you now have a $5,000 BTM gain on the sale.  If you have not purchased the product yet, you stand to make $5k in extra profit due to market dynamics and being able to buy at a lower price point.  However, if you already bought the product and if you are selling to a counterparty that does not honor the sale, you now stand to lose $5,000 as you booked the sale at $10k, but now you will either have less profit or in the worst case, have to buy in at a higher price.)

Buyer’s Market (Housing)

Market where buying a house is more favorable than selling a house, mainly due to oversupply of housing, which leads to more availability for the Buyer.  Classic supply and demand yield curve at work.

Concentration Risk

A form of risk in which the investor has a high level of ownership in one stock or investment which leads to greater risk should that stock or investment experience a downward trend.

Diversification

Owning many different assets and assets within classes, which taken as a whole portfolio, reduces the overall risk exposure an investor has to one particular asset not performing adequately.

Mr. Market

A term used to describe the stock market participants as a whole.  “Mr. Market” is often known for his volatile and unpredictable behavior; selling a good stock on news that might otherwise not affect it.  “Mr. Market also has a very herd-like mentality; buying when everyone else is buying, selling when everyone sells.  Both of these conditions allow for an active investor to realize fantastic gains betting against “Mr. Market”.

Price-to-Earnings Ratio (PE Ratio)

PE Ratio is a valuation metric that tells us how much the market is valuing the current company's earnings.

If we see low PE Ratios, this means that the company recently earned a good amount of income, but the market is not valuing those earnings as highly.

If we see high PE Ratios, this means that the current price per share is vastly higher than current earnings.  This could signal that a stock has very high growth prospects in the eyes of the market.

PE Ratio Formula = Market Value Per Share / Earnings Per Share.

Savings and Investing Web (S.I.W.)

A collection of accounts that allows you to seamless transfer money from one source to another.

Walking on a Sale

When a counterparty to a sale reneges on already formed contract terms and leaves its customer/supplier with limited recourse (see brought to market risk).

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