Stocks, bonds, real estate or cryptocurrencies — picking an asset to invest in can be hard. Learn how these assets work, compare their risks and understand the markets they trade in.
Standard trading hours for major U.S. stock exchanges like the NYSE, Nasdaq and Cboe are 9:30 a.m. to 4:00 p.m. Eastern time Monday through Friday. They also offer pre- and post-market trading. The forex market is open for trading five days a week, at least eight hours per day. Due to the different time zones major global markets are in, you can trade 24-hours a day.
Emerging markets (EM) are the markets of developing countries that are rapidly growing and industrializing. Compared to developed economies, they are low- or middle-income economies and are still moving away from traditional economic sectors like agriculture. EM examples include some countries in Asia, Latin America and Africa. EM investors could benefit from rapid growth but also face high risk and volatility.
Stock markets or stock indexes comprise of publicly traded companies. Share price of these companies is determined by supply and demand. Company, sector or economic news could impact share prices. For example, Amazon’s acquisition of Whole Foods saw shares of other retailers fall. That also reflects in the value of the index depending on the company or sector weight in the index. General economic weakness could also impact stock markets.
Return on assets (ROA) is calculated dividing a company’s net profits by its total assets. ROA allows you to see how much after-expense profit a company produces for each dollar in assets. It can be a good metric in evaluating a company’s financials. Be wary about comparing ROAs for different industries and sometimes companies in the same industry as different business models utilize assets differently.
According to the SEC, a bear market is a 20% or more decline in a broad market index over at least a two-month period. Bear markets can occur in any asset class and are caused by loss in demand and investor confidence. They may or may not be accompanied by a recession. Invesco suggests that on average bear markets in U.S. stocks last 349 days, while according to Fidelity they typically occur every six years.
The over-the-counter or OTC market is where securities are traded outside of a major exchange and through a broker-dealer network. You can trade a variety of instruments such as stocks, bonds, derivatives and commodities on the OTC markets. Companies with securities trading on the OTC markets often do not meet the listing requirements of major exchanges. Investing in OTC markets can be volatile and risky.
Fixed income, as its name suggests, is an investment that generates a steady income stream. While not risk-free, fixed income instruments are considered more stable and less risky than other investments such as stocks. Short-term fixed income investments include savings accounts and short-term CDs and are impacted by the fed funds rate. Long-term investments like bonds face credit risk and duration risk.
A mutual fund is a pooled investment that invests in a basket of securities called a portfolio. Each share of the fund represents an investor’s proportionate ownership of the portfolio and its returns. There are different types of mutual funds based on their investing strategy. Factors to keep in mind while selecting a fund include its investment objective, performance and expenses.
Market cap is the total value of a company's shares of stock. Its calculated by multiplying the share price with the total outstanding shares. This means it changes frequently as those variables change. Companies can be classified as large, mid or small caps based on market cap. Market cap shouldn’t be the sole indicator in investment decisions as it reveals little about a company’s financials.
A bullish market is a one that is expected to rise in value. An investor or trader can be bullish on the broader markets or specific assets when they expect an increase in value. Typically, bullish traders bet on or “go long” on the asset while bearish traders bet against or “short” the asset. Different markets such as those for stocks, commodities or forex are impacted by different economic and other factors.
Symbolically, Wall Street refers to all the banks, hedge funds, and securities traders that drive the stock market and the whole American financial system. Geographically, Wall Street is the center of Manhattan's Financial District. It runs east/west for eight blocks from Broadway to South Street.
Shares of stock represent a fractional ownership interest of the company that issued them. By owning a share or multiple shares, investors may receive returns through capital appreciation if the stock’s price rises or from dividend payouts.
An IPO, or initial public offering, refers to the process a private company participates in as it offers shares of stock to investors for the first time. When a company goes through an IPO, we often say it is “going public.”
An exchange-traded fund (ETF) is a type of investment security that groups assets together and passively tracks an underlying benchmark index, such as the S&P 500.
An option is a derivative contract that gives its owner the right to buy or sell securities at an agreed-upon price within a certain time period.
A stock index is a compilation of stocks constructed in such a manner to replicate a particular market, sector, commodity, or anything else an investor might want to track.
The foreign exchange market is a global online network where traders buy and sell currencies. It has no physical location and operates 24 hours a day from 5 p.m. EST on Sunday until 4 p.m. EST on Friday because currencies are in high demand. It sets the exchange rates for currencies with floating rates.
The bid price represents the highest-priced buy order that's currently available in the market. The ask price is the lowest-priced sell order that's currently available or the lowest price that someone is willing to sell at. The difference in price between the bid and ask prices is called the "bid-ask spread."
The S&P 500 is a stock market index that tracks the stocks of 500 large-cap U.S. companies. It represents the stock market's performance by reporting the risks and returns of the biggest companies. Investors use it as the benchmark of the overall market, to which all other investments are compared.
Buy and hold is an investment strategy in which the investor buys stocks and holds them for the long term. In other words, this method is about riding out any ups and downs in stock you own, rather than trying to swing trade the price movement.
An asset bubble is when assets such as housing, stocks, or gold dramatically rise in price over a short period that is not supported by the value of the product.
Cryptocurrency is a digital, or virtual, electronic currency system. It uses encryption and cryptography techniques, similar to solving extremely complicated math problems, to authenticate and secure transactions on a distributed ledger such as a blockchain
REITs are firms whose sole purpose is to own and operate real estate properties. Some invest in commercial property such as parking lots or office buildings. Others invest in residential property like apartment buildings or houses. By law, REITs must pass on 90% of their profits in the form of dividends.
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