What is illiquidity?
In the investment world, illiquidity refers to assets which can’t be exchanged for cash easily. This might be because there aren’t enough investors willing to buy them. In business, the term can describe a company that doesn’t have enough cash to meet its debt obligations. Where have you heard about illiquidity? Assets might lose some of […]
Where have you heard about monetary policy?
Monetary policy is the policy or actions taken by a country’s central bank to promote economic growth and support economic goals laid out by the government, such as low unemployment. It is by means of monetary policy that central banks control the money flowing through the economy. They use interest rates and bond purchases to adjust liquidity in the […]
What is the FTSE 100?
The FTSE 100 definition is the same as the definition of the Financial Times Stock Exchange 100 Index, with the FTSE 100, or Footsie, being shortened names (or slang names) for the stock market index. The index comprises the top 100 companies listed on the London Stock Exchange in terms of market capitalisation. Companies listed on the FTSE today […]
What is a secondary market?
A secondary market is one where investors can trade financial products with other investors. It works like a second-hand market, in that investors buy and sell used – rather than new – stock, bonds, options or futures. Where have you heard about quotes? The New York Stock Exchange and NASDAQ are secondary markets. The London Stock Exchange offers a secondary as well as a primary market. […]
Margin call
A margin call is not good news. It happens when the amount of equity you hold in your margin account becomes too low to support your trades and other borrowing rights. When that happens you need to bolster your account with new funds to offset possible losses. You can put in safeguards to prevent a […]
Benefits and risks of margin trading
The benefits of trading on margin can be akin to turbo-charging a car. Your ‘engine’ (or buying) power is dramatically boosted for comparatively little initial cost – magnifying and intensifying performance. In a bull market, the compounded gains can be spectacular. But, in a bear market margin accounts for CFD trading also enable you to […]
Using margin for different asset classes
You can use margin to trade in most asset classes. You can, for example, invest directly in equities, buy your preferred shares and hold on to them until you are ready to sell. You would need the share price gain to be enough to repay the broker, including interest, and still make a profit. Assuming the shares […]
Getting started with margin trading
Margin trading means you don’t pay the full price of the asset. Instead, you only pay a percentage of the underlying value. The broker lends you the rest of the money for your trade. Trading on margin allows you to leverage gains when the price of an asset moves the way you predicted – or lose […]
What are leverage and margin?
Let’s start with leverage. Leverage is a catch-all term for when you use borrowed money to invest. You hope the profits will be greater than the interest payable on your borrowing. A business might borrow several times its profits to enable it to expand. Homebuyers take out mortgages of several times their earnings. The downside is that if […]
Risk and reward?
Chapter 1: Intro The biggest risk in any financial transaction is that you get it wrong. Do your research, look at charts of past performance, read the financial press on risk management – in short, know the risks that you’re taking. It’s vital to minimise these, because there are many other risks that can also trip you up and […]
