Category Archives: Stocks
There were many public successes in the venture capital industry as the 70s came to a close and the decade of the 80s began. During the 80s there was a huge increase in the activities and growth of VC investment firms. In the early 80s there were only a few dozen of these firms but by the end of the decade there were over 650. Each of these VC firms was all looking for the next “big deal.” However, even though the firms increased greatly numerically, the capital that was actually managed by the firms only increased by 11%. Over the entire decade, the capital managed by these firms only rose from around $28 billion to $31 billion. Read the rest of this entry
What is Macroeconomics? Macroeconomics is the study of economics on a large scale. The Economist’s Dictionary of Economics defines Macroeconomics as “The study of whole economic systems aggregating over the functioning of individual economic units. It is primarily concerned with variables which follow systematic and predictable paths of behavior and can be analyzed independently of the decisions of the many agents who determine their level. More specifically, it is a study of national economies and the determination of national income.”
Macroeconomics examines the economy as a whole. Things to think about when it comes to Macroeconomics are what causes the economy to grow over time, and what causes changes in the economy? These are questions that affect the economy as a whole. Macroeconomics can be best understood in contrast to microeconomics which considers the decisions made at an individual or firm level. Macroeconomics considers the larger picture. You must understand microeconomics to understand macroeconomics. Once we understand how one person, can affect the economy, we will then understand how it affect the larger scale of things. Read the rest of this entry
Companies need funds for many reasons such as expansions into new markets. The trouble with larger organizations and emerging companies is that they need more money than what they can obtain from a bank loan. Effi Enterprises works with companies to secure various means of financing such as venture capital, private equity financing, stocks and bonds or IPO’s. One solution that is offered to raise money for these companies is to issue bonds to the public market. Through offering bonds publically, it means that rather than looking for one huge investor, thousands of investors can lend a small portion of needed capital. A bond is essentially a loan in which the company is the lender. The company which sells a bond is called the issuer. It is sort of like an IOU given to a lender (the investor) by a borrower (the issuer).
There is a little more depth to it than a simple loan because most people do not loan out their money without expecting something in return. This means that the issuer must offer the investor something in exchange for the loan of their money. This comes from interest payments the rate of which is predetermined and they are made according to a schedule. The date which the issuer has to finish paying the borrowed amount is referred to as the maturity date. Bonds are classified as a fixed-income security because the amount that an investor will get in return is fixed as long as the bond is held until it matures.
What is the difference between stocks and bonds?
The difference in bonds and stocks is that bonds are a debt but stocks are equity. An investor can become part owner of a company by purchasing stock, or equity. But when an investor purchases debt, or bonds they become a creditor to the company. There is an advantage of becoming a creditor in that they will have a higher claim on assets than a shareholder will and if there was a failure causing a bankruptcy they would receive their money before the shareholders. The disadvantage is that a bondholder does not own shares of the company and it the company realizes large profits they will still only get their fixed amount in return. This means that owning bonds is less risky than owning stocks but there is also a much lower return.
Why purchase bonds?
It is true that stocks can offer a larger return than bonds, especially for time periods of at least 10 years. But that does not mean that investing in bonds is a bad investment. Bonds can be a good investment if you are unsure of the stock market’s short term volatility.
What types of bonds are available?
There are two basic types of bonds: municipal and corporate. Municipal bonds are also called “munis.” The returns on this type of bond will incur no federal taxes. Oftentimes local governments will also make their bonds tax free for residents which make them a completely tax free investment. These can be a great investment for many individuals. Corporations offer bonds in the say way it issues stocks. Sometimes a corporate bond is as short as a 5 year term, intermediate are 5 to 12 years and long term is anything over 12 years. These have a higher yield, but it also has higher risk involved. They are more likely to default than a government; but they can also be one of the most rewarding of all the fixed income investments. The credit quality of the company is also very important. Companies can also offer convertible bonds which can later be converted to stocks. Or they can offer callable bonds which the company can redeem before maturity.
There are many different types of trading platforms used to process trades across many financial markets. High Frequency Trading is a specific platform that is capable of performing many trade orders, or transactions, in a very short amount of time. Computers which are used on this trading platform use complex algorithms which can analyze numerous markets and carry out orders based on the changing market conditions. Usually the traders who can trade the fastest will be the most profitable. However, there has been much debate about whether high frequency trading improves the market quality; or if it is a detriment to long term investors. Whether or not it is a beneficial sector of the market is important to those who are involved in providing financial opportunities for businesses like Efraim Landa. His company, Effi Enterprises offers counsel to businesses concerning financial matters. One of their primary concerns is helping entrepreneurs learn how to create value for their growing business and the market plays a major role in this effort.
High Frequency Trading, or HFT, is a specialized trading platform which uses computer technology to make a large number of transactions in a very short amount of time. HFT uses computerized complex algorithms which analyze many markets at the same time and executes orders based on the conditions of the market. Those traders who can execute orders at the fastest speeds usually come out more profitable than other traders who have execution speeds which are slower. Recent estimates declared that close to 50 percent of all exchange volume are from high frequency trading transactions.
HFT costs are lower, deeper and more liquid than other options. The price differences across other related markets are reduced and the prices reflect the values of stocks and commodities more accurately. The trouble is that the term “high frequency trading” has become more of a catch all phrase for many of the automated trading strategies. The term tends to lump all strategies which use computers to create, tender, monitor or revise purchases and sells of orders throughout a trading day. These types of strategies are programmed to make trading decisions based on how the decision rules developed by humans along with public information. HFT is a popular form of trading with varying types of professional traders. This includes investment banks, proprietary trading firms and investment funds. This rapid growth is due to the innovations that have occurred in trading technology along with the reforms that trading regulations have undergone which have made the markets more transparent, competitive and open.
There is a large school of thought that believes that HFT improves the overall quality of the markets. As trading has emerged to become more automated it has also become more competitive. One way that HFT improves the market is by making the market more efficient for traders who are bridging the gap between natural traders who are not all working the market all at one time. The high speed of entries helps decrease the risks of the market and becomes a beneficial tool for risk management which allows traders to revise their orders quickly by responding to changing market conditions in a real time environment. This brings more liquidity to the market since traders can offer more narrow spreads, as well as larger sized quotes which ultimately reduce costs for end users. High frequency trading is a broader type of risk management tool just like the ones marketers have used for years; but just in a faster mode due to the availability of the most accurate, up to date information available.
HFT techniques have been mostly used by professional traders such as Efraim Landa. However, even average investors can benefit from this type of trading. A long term investor who traditionally buys a mutual fund and holds it can use HFT to his benefit by using them to reduce transaction costs which are typical of the mutual fund. This allows the investor to be out less money up front and in turn end up with a greater investment return. Many mutual fund companies advise regulators that HFT can result in significant savings for mutual fund investors.