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when a stock dividend is issued the total value of equity remains the same from the investor s and the company s perspectives | all stock dividends require an accounting journal entry for the company issuing the dividend this entry transfers the value of the issued stock from the retained earnings account to the paid in capital account a stock dividend is considered small if the shares issued are less than 25 of the total value of shares outstanding before the dividend a journal entry for a small stock dividend transfers the market value of the issued shares from retained earnings to paid in capital suppose company x declares a 10 stock dividend on its 500 000 shares of common stock its common stock has a par value of 1 per share and a market price of 5 per share | |
when the small stock dividend is declared the market price of 5 per share is used to assign the value to the dividend as 250 000 calculated by multiplying 500 000 x 10 x 5 | the common stock dividend distributable is 50 000 calculated by multiplying 500 000 x 10 x 1 since the common stock has a par value of 1 per share | |
when the company distributes the stock dividend it can make the journal entry | large stock dividends occur when the new shares issued are more than 25 of the value of the total shares outstanding before the dividend in this case the journal entry transfers the par value of the issued shares from retained earnings to paid in capital if company x declares a 30 stock dividend instead of 10 the value assigned to the dividend would be the par value of 1 per share as it is considered a large stock dividend this would make the following journal entry 150 000 calculated by multiplying 500 000 x 30 x 1 using the par value instead of the market price | |
what is an example of a stock dividend | if a company issues a 5 stock dividend it would increase its number of outstanding shares by 5 or one share for every 20 shares owned if a company has one million shares outstanding this would translate into an additional 50 000 shares a shareholder with 100 shares in the company would receive five additional shares | |
why do companies issue stock dividends | dividends whether in cash or in stock are the shareholders cut of the company s profit they also are a reward for holding the stock rather than selling it a company may issue a stock dividend rather than cash if it doesn t want to deplete its cash reserves | |
what is the difference between a stock dividend and a cash dividend | a stock dividend is paid out in the form of company shares the stock dividend is not taxable until the shares are sold a cash dividend is paid out as cash and is taxable for that year the company will send you a 1099 div form at the end of the year | |
is a stock dividend a good or bad thing | dividends are always good whether they re in shares or cash however if you re buying dividend paying stocks to create a regular source of income you might prefer cash | |
what is a good dividend yield | a dividend paying stock generally pays 2 to 5 annually whether in cash or shares when you look at a stock listing online check the dividend yield line to determine what the company has been paying out the bottom linea stock dividend is a reward for shareholders made in additional shares instead of cash the stock dividend rewards shareholders without reducing the company s cash balance it has the adverse effect of diluting earnings per share at least temporarily stock dividends may signal financial instability or at least limited cash reserves for the investor stock dividends offer no immediate payoff but may increase in value over time of course the investor can simply sell the extra shares and collect the cash | |
what is the stock exchange daily official list sedol | the stock exchange daily official list sedol is a seven character identification code assigned to securities that trade on the london stock exchange and various smaller exchanges in the united kingdom sedol codes are used for unit trusts investment trusts insurance linked securities and domestic and foreign stocks sedol codes are comparable to cusip numbers which are codes issued by the committee on uniform securities identification procedures for stocks traded in the united states understanding the stock exchange daily official list sedol new sedol codes may be issued for a number of reasons including changes in corporate headquarters corporate mergers the issuance of a new isin takeovers company name changes and when share reclassifications occur the makeup of sedol classification codesall sedol codes have seven characters split into two parts the first six characters are an alphanumeric code and the seventh character is a trailing check digit within the alphanumeric part letters from b to z are allowed while numbers from 0 to 9 are allowed as numerals sedol codes that were issued before january 2004 were strictly composed of numeric characters since january 26 2004 sedol codes have been issued sequentially with both numbers and letters starting with b000009 for each character position numbers always go before letters and vowels are never used therefore sedol codes issued after january 2004 begin with a letter the check digit for the sedol code is selected in order to make the weighted sum of all seven characters a multiple of 10 this digit is calculated using the weighted sum of the first six characters letters are assigned numbers for this process each letter equals nine plus the number that correlates to its position in the alphabet for example c would equal 12 9 3 the significance of sedol classification codesthe london stock exchange credits the sedol as an important and unique market level security identifier that is recognized globally decreases costs incurred by trade failure across borders and increases the efficiency of trade and securities transactions sedol codes help the united kingdom s exchanges provide a higher caliber of service by reducing such failures and streamlining the trading process several characteristics of sedol codes make them vital and significant unique assigned country level numbers make for easy identification with one assigned to each country sedol codes are also prompt with reduced issuance processing time frames one last characteristic that makes sedol codes significant is commonality codes are allocated to every country for listed and unlisted securities and they cover every asset class ultimately sedol codes are apropos in today s worldwide marketplace as exchanges need a secure and identifiable method of tracking assets being traded london and the united kingdom rely on sedol codes for their uniqueness and efficiency in tracking assets and for their ability to ensure that investors buy the correct stocks example of sedol classification codesbanking giant hsbc was listed on the london stock exchange lse in 1991 and has a sedol code of 0540528 1 to check whether the reported sedol number is correct traders must multiply digits with their assigned weight and add them if the resulting number is a multiple of ten then the code is correct in hsbc s case the calculation would be as follows 0 5x3 4x1 0 5x3 2x9 1x8 60 which is a multiple of 10 | |
what is a stock exchange traded fund etf | the term stock exchange traded fund etf refers to a security that tracks a particular set of equities these etfs trade on exchanges the same way normal stocks do and track equities just like an index they can track stocks in a single industry or an entire index of equities investors who purchase shares of stock exchange etf can gain exposure to a basket of equities and limited company specific risk associated with single stocks providing them with a cost effective way to diversify their portfolios understanding stock exchange traded funds etfs an exchange traded fund is an asset that allows investors to track any number of things such as indexes commodities sectors or even stocks investors can purchase shares in these securities which trade on stock exchanges prices change regularly through the course of a trading day just like stocks they are generally considered a more cost effective and more liquid investment compared to mutual funds 1as mentioned above etfs can also track stocks these are called stock exchange traded funds these securities allow investors to gain exposure to a basket of equities in a specific sector or index without purchasing individual stocks 23 for instance these etfs can track stocks in the energy sector or an entire index of equities like the s p 500 other tracking methods include the stochastic oscillator and the stochastic momentum index there is also a group of etfs that bet against the success of an index or sector meaning the asset performs well when the underlying asset struggles 4 unlike a mutual fund a stock etf charges minimal management fees and carries low expense ratios 1 this makes it an ideal tool for investors of any skill level looking to maintain low costs and generate consistent returns the original purpose of investing in etfs was to meet long term goals but they can be traded like any other stock in that investors can short or buy on margin since they give investors access to a broad range of equities or indexes makes these and others stock etfs are generally considered very diversified assets this instant diversification limits some of the unsystematic risk associated with company stocks and comes in a simple low cost and tax efficient tool that can be accessed through most online brokerages the number of stock etfs that are trading in the united states as of 2024 giving investors a huge number of potential funds to choose from 5benefits of stock exchange traded funds etfs stock etfs offer investors a wealth of benefits so it makes sense that fund inflows have increased in fact as of january 2024 the etf market in the united states holds 6 254 trillion in assets under management 5the broad advantages cannot go understated they are an excellent option for investors who want to diversify their portfolio in a flexible low cost and tax efficient manner in fact a growing body of research suggests passive investments like stock etfs tend to outperform actively managed funds over a long time frame 6types of stock exchange traded funds etfs the more popular stock etfs track benchmark indexes like the s p 500 or dow 30 for instance the spdr s p 500 spy is consistently the most active asset with an average daily volume exceeding 80 million shares in the 30 days preceding january 12 2024 7other styles of stock etfs adopt a factor based strategy that accounts for specific attributes like market capitalization momentum and value this subset is a popular strategy known as smart beta which attempts to deliver better risk adjusted returns than a conventional market capitalization weighted index sector funds are another popular etf category that tracks the stocks of a specific industry like energy financials and technology here s a breakdown of the various types of etfs | |
are etfs a good investment | exchange traded funds are often recommended for retail investors because they offer exposure to a broad sector of the market without requiring the investor to actively manage a portfolio but like other securities they do require some research and they may lose money in a market downturn | |
what is the difference between an index fund and an etf | an index fund is a fund that invests in a basket of securities that tracks the performance of a market index such as the s p 500 most exchange traded funds are also index funds the main difference is that etfs can be bought and sold throughout the trading day while trades in other funds are only executed at the end of a trading day | |
how do you choose the best etfs | you can research the different kinds of etfs through the website of any major brokerage such as fidelity or charles schwab simply look for a section titled etf screener and select the characteristics that you are looking for in an etf the bottom lineexchange traded funds are similar to mutual funds in that they represent a basket of securities with exposure to a cross section of the market unlike other types of funds etfs can be traded throughout the trading day providing additional flexibility | |
what is a stock keeping unit sku | a stock keeping unit sku allows vendors to track inventory it consists of alphanumeric digits and a scannable bar code printed on a product label the characters define a code that tracks the price product details manufacturer and point of sale skus may also be applied to intangible but billable products such as units of repair time in an auto body shop or warranties tracking inventoryskus are used by stores catalogs e commerce vendors service providers warehouses and product fulfillment centers to track inventory levels scannable skus and a pos system make it easy for managers to determine which products need to be restocked | |
when a customer buys an item at the point of sale pos the sku is scanned and the pos system automatically removes the item from the inventory and records other data such as the sale price | skus should not be confused with model numbers although businesses may embed model numbers within skus businesses create unique skus for their goods and services vendor benefitsskus vs upcsbecause companies internally create skus to track inventory the skus for identical products vary among businesses different skus help retailers design advertising campaigns without interference from other vendors for example if a company provides the sku to advertise a certain discounted refrigerator shoppers cannot easily view the same refrigerator at other sellers using the sku this stops competitors from matching advertised prices and poaching customers in contrast universal product codes upcs are identical regardless of which business sells the items | |
is a barcode a sku | while skus are often depicted as barcodes they are not always used for the same purposes barcodes are meant to identify products of the same type regardless of where they are sold skus identify the seller or vendor in addition upc barcodes typically feature only numbers while skus are alpha numeric and vary in length | |
how are skus used in e commerce | individuals who sell products through e commerce sites can create unique skus for their products to help track sales and inventory amazon allows sellers to create skus for products they sell on the site in 2023 600 million products were listed on the amazon marketplace 1 | |
what does economic order quantity mean for vendors | the ideal quantity of units a company should purchase to meet demand and minimize inventory costs is called the economic order quantity eoq the bottom linebusinesses need to track inventory to know how much they re selling how often to restock and how fast items sell using an sku simplifies the inventory process allowing inventory management automation | |
the stock market is not a place you can visit but refers to the trading some physical most online of shares representing the partial owning of companies it s not only where businesses raise capital but is used as a sign of the economy s health | the price of stocks changes based on supply and demand the company s performance economic conditions and other factors that might not seem rational like investor sentiment but all of which must be considered if you re buying or selling shares people purchase stocks for a lot of reasons some hold onto stocks looking for income from dividends others might think a stock will rise so they snap it up trying to buy low and sell high still others might be interested in having a say in how particular companies are run that s because you can vote at shareholder meetings based on the number of shares you own both stock market and stock exchange are often used interchangeably but they re not the same traders in the stock market buy or sell shares on one or more stock exchanges which are only part of the overall stock market the major u s stock exchanges include the new york stock exchange nyse and nasdaq ellen lindner investopedia | |
how does the stock market work | the stock market is a vast complex network of trading activities where shares of companies are bought and sold protected by laws against fraud and other unfair trading practices it plays a crucial role in modern economies by enabling money to move between investors and companies sometimes the best way to see how something works is to look at its parts in that light let s review the major elements of the stock market from the companies selling shares to stocks to exchanges to the indexes that give us a snapshot of the stock market s health not all companies can offer stock to the public only public companies that have offered their shares for the first time in an initial public offering ipo can have their stock bought and sold on exchanges like the nyse or nasdaq from when a company starts planning its ipo through all the time its shares are sold to the public it must meet stringent regulations and financial disclosure laws the primary market could involve raising money and giving parts of a business to friends family and others in direct trades making it the oldest way of dividing shares in a company since the primary market is where a company sells its securities directly today it includes ipos follow on public offerings private placements debt offerings and other times when a company sells part of itself to raise funds from then on stocks are traded in the secondary market on exchanges or over the counter more than 58 000 companies worldwide are publicly traded today 3 | |
when you buy a stock or a share you re getting a piece of that company how much of the company you own depends on the number of shares the company has issued and the number of shares you own if it s a small private company a single share could represent a large part of the company major public companies often have millions even billions of shares for example apple inc aapl has billions of shares in circulation so a single share is just a tiny fraction of the company | owning shares gives you the right to part of the company s profits often paid as dividends and sometimes the right to vote on company matters once a company goes public its stocks can be traded freely on the stock market this means that investors can buy and sell shares among themselves this is the secondary market for stocks and most trading is done through stock exchanges this part of the larger stock market dates to at least 1602 in amsterdam evolving since into some of the world s most complex institutions stock exchanges are organized and regulated places much trading today is virtual where stocks and other types of securities are bought and sold they play a crucial role in the financial system by providing a platform for companies to raise money by selling their stocks and bonds to the public the nyse and nasdaq are prime examples serving as central locations for the buying and selling of stocks there are major exchanges worldwide such as the london stock exchange the tokyo stock exchange and the shanghai stock exchange each has its own internal rules and investors follow different national and local laws these are meant to ensure fair trading practices and to keep investors confident in dealing there they also provide transparency in the trading process giving real time information on securities prices which is why it s so easy to find up to date stock prices on just about any financial news site stock exchanges wouldn t live up to their name though if they didn t offer liquidity the ability to buy or sell stocks relatively easily this means that during trading hours you can buy a stock quickly or just as rapidly sell it to raise cash many stock exchanges also cross list company shares offering securities primarily listed on other exchanges this way companies can reach more investors when raising capital and those trading with certain exchanges have far more options though it is called a stock market other securities such as exchange traded funds etfs are also traded there stocks and other securities are also traded over the counter otc these otc markets are where you buy or sell stocks directly with another investor typically without the same level of regulation or public scrutiny otc trading involves a network of brokers and dealers who negotiate directly over computer networks and by phone this type of trading is commonly used for smaller less liquid companies that may not meet the stringent listing requirements of the stock exchanges this can make it more challenging for investors to get reliable information about the companies they are investing in in addition to common stocks many other assets are traded through stock exchanges and otc these count as part of the stock market more loosely while independent markets people often talk about these as part of the stock market those involved in the stock market include institutional investors such as pension funds mutual funds insurance companies and hedge funds that manage large amounts of money and often have a significant influence over the market since they are trading in large volumes retail investors buy and sell securities for their personal accounts not for an organization they can range from beginners to experienced traders and today most use online platforms another key group is accredited investors high net worth individuals with the money and investing experience so the sec allows them access to more complex investments like venture capital and private equity generally speaking investors approach the market from a long term perspective they put money in stocks etfs mutual funds and other securities expecting their value to grow over time these are not the quick trades you see in movies to get in and out fast these investors are often more concerned with the fundamental strength of the companies or assets they invest in such as their financial performance market position and potential for growth they decide on investments after research and analysis or after getting recommendations from financial advisors while trying to build wealth steadily through a portfolio that increases in value over time traders for their part take a more short term approach to the stock market they aim to capitalize on the market s volatility trading stocks options futures and other financial instruments within shorter time frames from seconds and minutes to days and months traders often rely on technical analysis which involves studying market trends charts and other statistical measures to predict future price movements while trading can offer the potential for quick profits it also comes with higher risks than long term investing quickly buying and selling securities requires a sharp understanding of the market and a more active hands on strategy to trading brokers in the stock market play the same role as in insurance and elsewhere acting as a go between for investors and the securities markets they are licensed organizations that buy and sell stocks and other securities for individual and institutional clients brokerage firms can be small boutique shops or multinationals offering investment advice research and wealth management services while executing trades for customers full service brokers provide detailed financial advice portfolio management and personalized services making them better for investors who prefer a thorough approach to managing their investments further down in cost discount brokers provide a more hands off experience and are typically preferred by investors who make their own trading decisions online brokerage firms have become increasingly popular with user friendly platforms that allow investors to trade securities electronically at lower costs and more convenience these platforms often have educational resources analytical tools and real time market data there has also been a rise in robo advisors automated financial planning services offered at a very low price whatever type of broker they are all regulated by the sec and financial industry regulatory authority finra in the u s a significant aspect of the stock market dictating what s traded and how is the regulations and regulators involved in the u s the latter is the sec an independent federal agency set up in 1934 on the heels of the 1929 market crash and the travails of the great depression the mission of the sec is protecting investors maintaining fair orderly and efficient markets and facilitating capital formation 5the sec enforces laws against market manipulation insider trading and other forms of fraud while verifying that public companies reveal any significant financial information investors should know when trusting a firm with their money by buying its stock the sec also oversees stock exchanges broker dealers investment advisors mutual funds and public utility holding companies in addition the exchanges have their own requirements such as filing timely usually quarterly updates to company financial reports and instant reporting of relevant corporate developments to ensure that everyone looking to trade has the same information finra oversees brokerage firms and their registered securities representatives and is more focused than the sec on protecting retail investors similar agencies exist worldwide which is crucial given how the stock market is global and a calamity in one corner of the world soon reaches the other it s not just something that happens from a few buildings on wall street while many countries regulations differ significantly they answer to diverse populations and cultural expectations general rules are enforced to ensure fair practices protect investors and promote confidence in the broader stock market textbook descriptions of stock prices tend to start off talking about investors and dealers coming together and for there to be a stock trade the buyer and seller must agree on a figure but most investors find prices as they are listed in online brokerage accounts or online graphs of stock prices over time not as coming from tough negotiations that said you do have to agree to buy stocks and each investor or trader making this decision collectively shapes the demand for stocks which taken against the supply on hand in the market produces the prices on our screens the factors that influence these prices fall into two main types fundamental and technical fundamental factors are rooted in a company s earnings profitability from its operations and the goods or services it offers meanwhile technical factors relate to market sentiment and statistical analyses of historical market activity and stock price trends high stock prices can indicate a company s success or at least the feeling of buyers that they are doing well but they can also result from stock splits dividends and share repurchases when a stock price drops this doesn t mean that money is lost from the market as a whole instead it signifies a decrease in the market value of the specific stock for instance if a company reports higher profits than expected its stock price might increase as more investors want to buy shares hoping for future growth similarly economic events like interest rate changes or geopolitical issues can affect investor confidence and stock prices most americans first learn about the stock market through indexes since reporting on the ups and downs of the dow jones industrial average djia or s p 500 has long been a staple for news programs to quickly get across the news about wall street indexes like the djia which includes 30 large publicly owned companies give a picture of the wider stock market indexes can be used to take a very wide shot of the market such as with the s p 500 representing the 500 largest u s public companies there are currently 11 sectors for specific groups like technology healthcare or consumer discretionary companies etc indexes are important since they are used as benchmarks for stocks and portfolios for example if you re invested in technology stocks you ll want to see how your stocks are doing against a tech index you ll then have a better way to rate your returns | |
what does the stock market do | the stock market fills several different roles worth highlighting corporate governance publicly traded companies follow stringent reporting regulations which makes them far more transparent and accountable this information allows investors to make informed decisions and helps maintain investor confidence in the market it s also a boon for everyday americans to gain a view inside major u s corporations since without these transparency requirements they could close down much of what we know about them economic indicator the stock market s performance is often considered a gauge of an economy s health rising stock prices are associated with corporate profitability and economic growth while declining prices signal problems ahead investment opportunities the stock market offers the chance to invest in companies and potentially grow a portfolio over time the stock market has historically delivered returns outpacing inflation making it a vital tool for retirement planning wealth building and financial security 6liquidity the stock market enables investors to buy and sell shares of companies and other securities quickly when needed raising capital most importantly the stock market offers a platform where companies raise funds by issuing stocks this capital is essential for business expansion research and development and other corporate initiatives by selling shares to the public companies gain access to these funds without incurring debt resource allocation by reflecting the collective judgment of traders and investors through the price of different companies the stock market is said to help efficiently distribute capital to companies more likely to succeed and away from those that are not | |
why is the stock market so important | now that we know the different parts of the stock market who what where and how it works we can better understand why it s such a large part of our economy today | |
when the earliest stock markets formed the global economy was vastly different these were eras when trade and commerce were primarily driven by physical goods with industries like agriculture textiles and early manufacturing dominating the economic landscape stock markets at the time were fledgling institutions primarily helping to finance expeditions and trade ventures which is to say the colonial enterprises taking goods and peoples from south asia the americas and africa these stock exchanges were already global investment operations 7 yet they played a relatively minor role in everyday economic life | fast forward to today and the stock market is considered central to the global economy a change underscored by financialization and the increasing dominance of financial markets and institutions this isn t just because over a million americans work in finance 8 modern economies are characterized by a complex web of financial transactions and instruments with the stock market not just a barometer for economic health but also seen as critical for distributing and creating wealth financialization has also mirrored broader socioeconomic changes today s stock markets are not just platforms for raising capital but have been tied into millions of americans retirement and investment strategies this is why at perilous times 2007 to 2008 and the pandemic being two major examples the u s government and federal reserve felt far more obligated than in previous eras to step in this was not just to protect the wealth of a select few but because the savings of a vast swath of americans were at risk not long ago americans hearing stock market news might be listening for indirect effects on their jobs say to see how their firm is doing but now they are doing so more often for the direct impact on their own portfolios including 401 k s of course many are paying off college mortgages and other debts or are otherwise too fragile financially to have a portfolio of stocks or other assets still they too feel the reach of the stock market and its effects first the market drives funding for technological advances like the smartphones in our pockets or the medications we take which require many billions of dollars for research and development this access to capital has been crucial for companies pushing into areas like artificial intelligence or new medical devices costing many times what a company could otherwise borrow moves in the stock market also affect the broader economy and by extension employment its performance can influence corporate decisions influencing job creation and the opposite as layoffs can boost a stock price expansion and overall economic growth a healthy stock market generally correlates with a more robust economy but it could also mean more capital in the hands of a wealthy few increasing the property values of once middle class areas in almost every major american city the stock market also indirectly influences public services and infrastructure pension funds a major part of government spending for employees at the local state and federal levels are significantly invested in the stock market the returns generated from these investments can influence the financial health of pension funds affecting the retirement security of millions of people beyond the many more individuals who don t have pensions and are invested in the market directly through 401 k s mutual funds and individual retirement accounts | |
what s the difference between the bond market and the stock market | worldwide the bond market is larger than the stock market with about 130 trillion in bonds outstanding and about 101 trillion in stock market capitalization according to the last data available 8 the bond and stock markets serve different purposes and offer different risk reward profiles for investors in the bond market investors buy and sell debt securities typically issued by governments local state and federal or corporations when you invest in bonds you re essentially lending money for regular interest payments and the return on the bond s face value at maturity the stock market involves buying and selling shares and derivatives instruments whose value correlates in some way to particular stocks of publicly traded companies investing in stocks means buying a piece of ownership in a company stocks offer the potential for higher returns than bonds since investors can get both dividends when the company is profitable and returns when the stock price goes up they also have a higher risk as stock prices can be more volatile | |
what is an alternate trading system | alternative trading systems are platforms for matching large buy and sell transactions and are not regulated like exchanges dark pools and many cryptocurrency exchanges are private exchanges or forums for securities and currency trading and run within private groups | |
what is a stock market crash | a stock market crash is a rapid and often unanticipated drop in stock prices a stock market crash can be a side effect of a major catastrophic event economic crisis or the collapse of a long term speculative bubble reactionary public panic about a stock market crash can also be a major contributor to it inducing panic selling that depresses prices even further famous stock market crashes include those during the 1929 great depression black monday of 1987 the 2001 dotcom bubble burst the 2008 financial crisis and during the 2020 covid 19 pandemic understanding stock market crashesalthough there is no specific threshold for stock market crashes they are generally considered as abrupt double digit percentage drop in a stock index over the course of a few days stock market crashes often make a significant impact on the economy selling shares after a sudden drop in prices and buying too many stocks on margin prior to one are two of the most common ways investors can to lose money when the market crashes well known u s stock market crashes include the market crash of 1929 which resulted from economic decline and panic selling and sparked the great depression and black monday 1987 which was also largely caused by investor panic another major crash occurred in 2008 in the housing and real estate market and resulted in what we now refer to as the great recession high frequency trading was determined to be a cause of the flash crash that occurred in may 2010 and wiped off trillions of dollars from stock prices in march 2020 stock markets around the world declined into bear market territory because of the emergence of a pandemic of the covid 19 coronavirus image by sabrina jiang investopedia 2021preventing a stock market crashsince the crashes of 1929 and 1987 safeguards have been put in place to prevent crashes due to panicked stockholders selling their assets such safeguards include trading curbs or circuit breakers which prevent any trade activity whatsoever for a certain period of time following a sharp decline in stock prices in hopes of stabilizing the market and preventing it from falling further for example the new york stock exchange nyse has a set of thresholds in place to guard against crashes they provide for trading halts in all equities and options markets during a severe market decline as measured by a single day decline in the s p 500 index according to the nyse 1 stock market crashes wipe out equity investment values and are most harmful to those who rely on investment returns for retirement although the collapse of equity prices can occur over a day or a year crashes are often followed by a recession or depression markets can also be stabilized by large entities purchasing massive quantities of stocks essentially setting an example for individual traders and curbing panic selling in one famous example the panic of 1907 a 50 drop in stocks in new york set off a financial panic that threatened to bring down the financial system j p morgan the famous financier and investor convinced new york bankers to step in and use their personal and institutional capital to shore up markets 2 however these methods are not always effective and are unproven | |
what is a stock market crash | a stock market crash is a rapid and often unanticipated drop in stock prices a stock market crash can be a side effect of a major catastrophic event economic crisis or the collapse of a long term speculative bubble reactionary public panic about a stock market crash can also be a major contributor to it inducing panic selling that depresses prices even further famous stock market crashes include those during the 1929 great depression black monday of 1987 the 2001 dotcom bubble burst the 2008 financial crisis and during the 2020 covid 19 pandemic understanding stock market crashesalthough there is no specific threshold for stock market crashes they are generally considered as abrupt double digit percentage drop in a stock index over the course of a few days stock market crashes often make a significant impact on the economy selling shares after a sudden drop in prices and buying too many stocks on margin prior to one are two of the most common ways investors can to lose money when the market crashes well known u s stock market crashes include the market crash of 1929 which resulted from economic decline and panic selling and sparked the great depression and black monday 1987 which was also largely caused by investor panic another major crash occurred in 2008 in the housing and real estate market and resulted in what we now refer to as the great recession high frequency trading was determined to be a cause of the flash crash that occurred in may 2010 and wiped off trillions of dollars from stock prices in march 2020 stock markets around the world declined into bear market territory because of the emergence of a pandemic of the covid 19 coronavirus image by sabrina jiang investopedia 2021preventing a stock market crashsince the crashes of 1929 and 1987 safeguards have been put in place to prevent crashes due to panicked stockholders selling their assets such safeguards include trading curbs or circuit breakers which prevent any trade activity whatsoever for a certain period of time following a sharp decline in stock prices in hopes of stabilizing the market and preventing it from falling further for example the new york stock exchange nyse has a set of thresholds in place to guard against crashes they provide for trading halts in all equities and options markets during a severe market decline as measured by a single day decline in the s p 500 index according to the nyse 1 stock market crashes wipe out equity investment values and are most harmful to those who rely on investment returns for retirement although the collapse of equity prices can occur over a day or a year crashes are often followed by a recession or depression markets can also be stabilized by large entities purchasing massive quantities of stocks essentially setting an example for individual traders and curbing panic selling in one famous example the panic of 1907 a 50 drop in stocks in new york set off a financial panic that threatened to bring down the financial system j p morgan the famous financier and investor convinced new york bankers to step in and use their personal and institutional capital to shore up markets 2 however these methods are not always effective and are unproven | |
what is a stock quote | a stock quote is the price of a stock as quoted on an exchange a basic quote for a specific stock provides information such as its bid and ask price last traded price and volume traded understanding stock quotesall stocks in the u s have been quoted in decimals rather than fractions since april 9 2001 as a result bid ask spreads have contracted dramatically with spreads for the most widely traded stocks now as small as a penny compared with 1 16th of a dollar or 0 0625 earlier decimal pricing has resulted in substantial savings on transaction costs to u s investors because of tighter bid ask spreads 1investors increasingly access stock quotes online or on mobile devices such as smartphones rather than through print media such as newspapers and magazines a large number of internet portals and websites offer delayed stock quotes at no charge with real time stock quotes generally restricted to paying subscribers stock quotes can be presented with supplemental information and data such as the high and low prices for given security that have been recorded over the course of the trading day it may also show the change in the value of the security compared against the prior day s closing price or the opening price of the current trading day this difference in price might be shown as a percentage revealing how much security has increased or declined in value analyst recommendations for a given security might also be presented with a stock quote such recommendations could be shown for hourly daily weekly and monthly intervals consider the stock quote for the social media behemoth meta formerly facebook it is displayed along with supplemental information the company s ticker symbol meta change in price expressed in terms of percentage and last quoted price at closing time depending on the service and platform providing stock quotes the information might strictly revolve around the current latest pricing or there can be expanded details such as metrics on the daily weekly monthly and annual performance of the security a stock quote can also include performance metrics on share prices for a multi year period the pricing displayed with a stock quote reflects the buying and selling activity that influences the value of a given security as each trading day unfolds news and industry trends related to a security can affect the way investors choose to handle the shares when beneficial updates are revealed such as strong revenue and earnings reported by the company or positive test results for a product the value of the shares can increase as more investors buy into the company these shifts are reflected in the stock quotes that shareholders and other watchers of the company will use to make investment decisions | |
what is a stock screener | a stock screener is a set of tools that allow investors to quickly sort through the myriad of available stocks and exchange traded funds according to the investor s own criteria the best stock screeners are typically available on brokerage trading platforms for free but there are also some independent subscription based stock screeners available stock screeners allow investors to employ their own methodology about what makes a stock or etf valuable longer term traders or spot a potential trading opportunity shorter term traders | |
how stock screeners work | stock screeners allow investors to weed through the extensive field of potential financial investments using their own criteria users begin the process by selecting certain investing parameters based on their personal requirements for example a fundamental investor may be most interested in market capitalization analyst recommendations earning per share eps operating cash flow multi year return on investment roi dividend yield and the like the more criteria the user adds the smaller the pool of potential securities to invest in becomes the bottom line is that stock screeners typically have something for every investor and should be used to see what type of information is available before entering a trade or investment stock screeners and technical analysiswithin some stock screeners you can integrate technical analysis tools to elevate the precision of your stock selection methodologies this makes the stock screener feel more like a technical analysis tool rather than a filter to find potential securities these analytic tools serve as quantitative measures allowing investors to delve into the intricacies of price movements and market dynamics stock screeners may incorporate a bunch of different technical indicators including different stock screening websites may look dramatically different they may use different filtering techniques and they may display the results in different graphics or lists tips when using stock screenersif you re not entirely sure how to get started consider some of the following advice when setting up your filters or queries example of a stock screener | |
when you first encounter a stock screener you re likely to be overwhelmed there will be dozens of categories to view both on the technical side and the fundamental side so before you dive in decide which side of the valley you re on technical or fundamental consider what you re looking for what your priorities are and what types of financial instruments might be of interest then you can begin to explore what the screener has to offer | if your focus is on the short term you are likely to be drawn to the multiple technical tools available charting alerts momentum studies rsi and more technical studies if you re focused on a particular stock or etf you can set alerts for when that particular stock crosses a set price level or for when its rsi hits overbought sold for example if you re a longer term investor you ll find plenty of fundamental data sometimes referred to as technical data such as eps average daily volume market capitalization and the like such data can help you construct a portfolio keeping in mind that you have a longer term interest in the company beyond just the latest headlines popular stock screenersthere s many stock screeners to choose from below are three of the more widely used stock screeners that have become go to tools for both novice and seasoned investors finviz stands out for its user friendly interface and comprehensive set of features investors can quickly screen stocks based on various criteria visualize data through charts and stay updated with real time market information finviz s heat maps and performance charts add an extra layer of depth to the screening process 1yahoo finance is a household name in financial news but it also offers a robust stock screening tool integrated seamlessly with its extensive financial news and analysis platform yahoo finance s screener allows users to filter stocks based on a wide range of fundamental and technical parameters it also includes analyst recommendations and financial statements 2stockfetcher caters to traders and investors who appreciate the flexibility of creating custom filters with a powerful scripting language stockfetcher enables users to define intricate conditions for screening that may be a little more technical than the options above it s a great choice for those who want to fine tune their strategies and identify stocks that align with specific technical patterns or criteria 3 | |
are there mobile apps for accessing stock screeners on the go | many stock screeners offer mobile apps allowing users to access screening tools on the go | |
what are the pros and cons of free vs premium stock screeners | free stock screeners often offer basic functionalities making them suitable for casual investors premium stock screeners on the other hand provide advanced features additional screening criteria and enhanced data analysis capabilities many free versions offer a profile where you can save screening criteria though the full functionality here may be limited | |
how do i use api integration for automated stock screening | api integration in stock screeners allows users to connect with external data sources and automate certain tasks by leveraging apis investors can set predefined rules receive real time updates and automate actions such as trade executions or alert notifications can stock screeners be used for international market analysis yes stock screeners can be used for international market analysis many platforms offer the capability to filter stocks based on global exchanges the bottom linestock screeners are powerful tools that allow investors to filter and analyze stocks based on specific criteria streamlining the process of identifying investment opportunities these platforms provide users with the ability to customize searches leverage technical analysis tools and access real time data | |
what is a stock split | a stock split happens when a company increases the number of its shares to boost the stock s liquidity although the number of shares outstanding increases by a specific multiple the total dollar value of all shares outstanding remains the same because a split does not fundamentally change the company s value the most common split ratios are 2 for 1 or 3 for 1 sometimes denoted as 2 1 or 3 1 this means for every share held before the split each stockholder will have two or three shares respectively after the split | |
how a stock split works | a stock split is a corporate action in which a company issues additional shares to shareholders increasing the total by the specified ratio based on the shares they held previously companies often choose to split their stock to lower its trading price to a more comfortable range for most investors and to increase the liquidity of trading in its shares most investors are more comfortable purchasing say 100 shares of a 10 stock as opposed to 1 share of a 1 000 stock so when the share price has risen substantially many public companies end up declaring a stock split to reduce it although the number of shares outstanding increases in a stock split the total dollar value of the shares remains the same compared with pre split amounts because the split does not make the company more valuable a company s board of directors can choose to split the stock by any ratio for example a stock split may be 2 for 1 3 for 1 5 for 1 10 for 1 100 for 1 etc a 3 for 1 stock split means that for every one share held by an investor there will now be three in other words the number of outstanding shares in the market will triple on the other hand the price per share after the 3 for 1 stock split will be reduced by dividing the old share price by 3 that s because a stock split does not alter the company s value as measured by market capitalization calculating market capitalizationmarket capitalization is calculated by multiplying the total number of shares outstanding by the price per share for example assume xyz corp has 20 million shares outstanding and the shares are trading at 100 its market cap will be 20 million shares x 100 2 billion let s say the company s board of directors decides to split the stock 2 for 1 right after the split takes effect the number of shares outstanding would double to 40 million while the share price would be halved to 50 although both the number of shares outstanding and the market price have changed the company s market cap remains unchanged at 40 million shares x 50 2 billion on may 22 2024 nvidia nvda announced a 10 for 1 forward stock split of the company s issued common stock as of the close of the market on thursday june 6 2024 record holders of common stock will receive nine additional shares for each nvda share they already own | |
why do companies go through the hassle and expense of a stock split first a company often decides on a split when the stock price is quite high making it expensive for investors to acquire a standard board lot of 100 shares | second the higher number of shares outstanding can result in greater liquidity for the stock which facilitates trading and may narrow the bid ask spread increasing the liquidity of a stock makes trading in the stock easier for buyers and sellers this can help companies repurchase their shares at a lower cost since their orders will have less of an impact on a more liquid security while a split in theory should have no effect on a stock s price it often results in renewed investor interest which can have a positive effect on the stock price while this effect may wane over time stock splits by blue chip companies are a bullish signal for investors a stock split may be viewed by some as a company wanting a bigger future runway for growth for this reason a stock split generally indicates executive level confidence in the prospect of a company many of the best companies routinely see their share price return to levels at which they previously split the stock leading to another stock split walmart for instance split its stock 11 times on a 2 for 1 basis between the retailer s stock market debut in october 1970 and march 1999 an investor who bought 100 shares in walmart s initial public offering ipo would have seen that stake grow to 204 800 shares over the next 30 years without any additional purchases 1in the u k a stock split is referred to as a scrip issue bonus issue capitalization issue or free issue not all facets of a stock split benefit a company the process of a stock split is expensive requires legal oversight and must be performed in accordance with regulatory laws the company wanting to split their stock must pay a great deal to have no movement in its over market capitalization value a stock split isn t worthless and it doesn t impact a company s fundamental position it will therefore not create additional value some compare a stock split to cutting a piece of cake if the dessert tastes horrible it doesn t matter whether it has been cut into 10 pieces or 20 pieces there are also other implications for intentionally reducing the company s share price public exchanges such as the nasdaq require the stock to trade at or above 1 should a share price drop below 1 for thirty consecutive days the company will be issued a compliance warning and will have 180 days to regain compliance should the company s stock price still not meet minimum pricing requirements the company risks being delisted 2example of a stock splitin august 2020 apple aapl split its shares 4 for 1 3 right before the split each share was trading at around 540 after the split the price per share at the market open was 135 approximately 540 4 an investor who owned 1 000 shares of the stock pre split would have owned 4 000 shares post split apple s outstanding shares increased from 3 4 billion to approximately 13 6 billion while the market capitalization remained largely unchanged at 2 trillion a company may choose to split its stock as many times as it would like for instance apple also split its stock 7 for 1 in 2014 2 for 1 in 2005 2 for 1 in 2000 and 2 for 1 in 1987 to convert a quantity of pre split shares to post split shares across multiple splits multiple the ratio value of each split together for example a single pre split share in 1987 would have eventually been split into 224 shares after the 2020 split this is determined by multiplying 4 7 2 2 and 2 stock splits vs reverse stock splitsa traditional stock split is also known as a forward stock split a reverse stock split is the opposite of a forward stock split a company carrying out a reverse stock split decreases the number of its outstanding shares and increases the share price proportionately as with a forward stock split the market value of the company after a reverse stock split remains the same a company that takes this corporate action might do so if its share price had decreased to a level at which it runs the risk of being delisted from an exchange for not meeting the minimum price required for a listing certain mutual funds may not invest in stocks priced below a preset minimum per share a company might also opt for a reverse split to make its stock more appealing to investors who may perceive higher priced shares as more valuable a reverse forward stock split is a special stock split strategy used by companies to eliminate shareholders holding less than a certain number of shares a reverse forward stock split consists of a reverse stock split followed by a forward stock split the reverse split reduces the overall number of shares a shareholder owns causing some shareholders who hold less than the minimum required by the split to be cashed out the forward stock split then increases the number of shares owned by the remaining shareholders | |
when a stock splits it credits shareholders of record with additional shares which are reduced in price in a comparable manner for instance in a typical 2 1 stock split if you owned 100 shares that were trading at 50 just before the split you would then own 200 shares at 25 each your broker would handle this automatically so there is nothing you need to do | will a stock split affect my taxes no the receipt of the additional shares will not result in taxable income under existing u s law the tax basis of each share owned after the stock split will be half of what it was before the split 4 | |
are stock splits good or bad | stock splits are generally done when the stock price of a company has risen so high that it might become an impediment to new investors therefore a split is often the result of growth or the prospects of future growth and it s a positive signal moreover the price of a stock that has just split may see an uptick if the lower nominal share price attracts new investors | |
does the stock split make the company more or less valuable | stock splits neither add nor subtract fundamental value the split increases the number of shares outstanding but the company s overall value does not change immediately following the split the share price will proportionately adjust downward to reflect the company s market capitalization if a company pays dividends the dividend per share will be adjusted accordingly keeping overall dividend payments the same splits are also non dilutive meaning that shareholders will retain the same voting rights they had beforehand the bottom linea forward stock split increases the number of a company s shares but doesn t automatically mean that the holders of the stock will see an increased value in their holdings it is often done because the price of the individual shares has risen to such an amount that the costs of purchasing individual shares have become prohibitive for ordinary investors nvidia for example gave a reason for its forward stock split announced on may 22 2024 the wish to make stock ownership more accessible to employees and investors 5 | |
what is a stock ticker symbol | a stock symbol or ticker is a unique series of letters assigned to a security for trading purposes stocks listed on the new york stock exchange nyse can have four or fewer letters nasdaq listed securities can have up to five characters symbols are just a shorthand way of describing a company s stock so there is no significant difference between those that have three letters and those that have four or five stock symbols are also known as ticker symbols understanding ticker symbolsin the 1800s when modern stock exchanges came into being floor traders had to communicate the stock price of a traded company by writing or shouting out the name of the company in full as the number of publicly traded companies increased from the dozens to the hundreds they soon realized that this process was time consuming and held up the information queue unable to keep up with frequently changing prices especially after the advent of the stock quoting ticker tape machine in 1867 to be more efficient in relaying price changes on company stock to investors company names were shortened to one to five alpha symbols today stock tickers still exist but digital displays have replaced paper ticker tape in addition to saving time and capturing a specific stock price at the right time stock symbols are useful when two or more companies have similar monikers for example citigroup c and citizens financial group cfg have similar names although they are not affiliated with each other citigroup is a global bank and citizens financial group is a bank holding company for citizens bank both firms trade on the nyse with citigroup trading under the ticker c and citizens financial group under cfg there are also companies that are spin offs of the same company and have similar stock symbols in november 2015 hewlett packard split into two separate companies hewlett packard enterprise hpe and hp inc hpq 1hewlett packard enterprise serves as the business service and hardware division and focuses on servers storage networking and security hp inc is the consumer facing computer and printer division and has a smaller market for its products than hpe some companies that trade on the nasdaq with fewer than four letters include meta meta formerly facebook and moneygram international mgi however companies moving from the nyse to nasdaq can retain their stock symbols 2types of ticker symbolsif the company has more than one class of shares trading in the market then it will have the class added to its suffix if it is a preferred stock the letters pr and the letter denoting the class will typically be added for example a fictional preferred stock called cory s tequila corporate preferred a shares would have a symbol such as ctc pr a different sources quote preferred shares in slightly different ways some stock symbols indicate whether the shares of a company have voting rights especially if the company has more than one class of shares trading in the market for example alphabet inc formerly google has two classes of shares trading on the nasdaq with stock symbols goog and googl common shareholders of goog have no voting rights since goog shares are class c shares while googl shares are class a shares and have one vote each for example berkshire hathaway has two classes of shares trading on the nyse class a and class b class a shares are listed with stock symbol brk a and class b shares which have lower voting rights than class a trade with the symbol brk b other types of ticker sumbols include those designated for mutual funds or options listed on stocks stock symbols are also used to convey information to investors about the trading status of a company or its shares this information is usually represented on the nyse by one letter following a dot after the stock s standard company symbol on the nasdaq a fifth letter is added to stocks that are delinquent in certain exchange requirements for example with acerw the first four letters comprised the stock symbol for acer therapeutics inc acer and the last letter w indicated that the shares had warrants attached a company that is in bankruptcy proceedings will have the q after its symbol and a non u s company trading in the u s financial markets will have the letter y following its ticker symbol the meaning of the letters from a to z are some trading platforms news and market data services may also use ticker modifiers unique to their service an example is a broker who uses an xd footnote or suffix to indicate a stock is trading ex dividend companies trading on the nyse typically have three or fewer letters although they can have four representing their stock symbols nasdaq firms generally have four or five letter symbols e g adobe inc adbe apple inc aapl and groupon inc grpn history of ticker symbolsthe ticker symbol was invented by edward calahan a telegraph operator who worked for the new york stock exchange nyse calahan developed the ticker symbol in 1867 as a way to quickly and accurately transmit stock prices over telegraph lines 3 calahan s ticker symbol consisted of two letters representing the company s name followed by a number representing the number of shares being traded the ticker symbol was transmitted via telegraph and displayed on tickertape machines which were used to keep track of stock prices in near real time calahan s invention revolutionized the way stock prices were reported and helped to make the stock market more efficient and transparent today ticker symbols are used by most major stock exchanges around the world and are an important part of the financial industry the first ticker symbol was used by the new york stock exchange nyse on november 15 1867 to identify the shares of the union pacific railroad company 3 the ticker symbol consisted of two letters up followed by a number representing the number of shares being traded as the number of publicly traded companies and securities increased the nyse expanded the use of ticker symbols to include three letters in the 1920s and four letters in the 1950s today ticker symbols are used by most major stock exchanges around the world and consist of up to five letters in addition to identifying specific securities ticker symbols have also become an important part of financial branding and marketing many companies choose ticker symbols that are easy to remember or have some connection to their business or brand | |
how to use a ticker symbol | ticker symbols are used to identify specific publicly traded companies and the securities they issue they are typically made up of one to five letters and are used to identify a specific stock or bond on a stock exchange or financial platform here are some ways to use a ticker symbol to use a ticker symbol you will typically need to enter it into a financial platform or stock exchange s search function or use it in a trading order ticker symbols are typically displayed alongside a company s name and stock price on financial news websites stock ticker boards and other financial platforms | |
how do i find a company s stock ticker symbol | to find a company s ticker symbol you can search online financial databases check the company s website check the stock exchange s website or ask a financial advisor or broker if you are having trouble finding a company s ticker symbol it is possible that the company is not publicly traded or is listed on an exchange outside of the united states in these cases it may be more difficult to find the ticker symbol | |
why is it called a ticker symbol | stock symbols are called tickers because they first appeared as imprints on tickertape transmitted by telegraph from stock exchanges to investors around the country this name persisted even after physical tickertape was replaced by more modern technologies | |
what are some examples of stock tickers | here are some examples of popular ticker symbols the bottom linestock ticker symbols are unique alphabetic codes that are used to identify publicly traded companies and the securities they issue they are typically made up of one to five letters and are used to identify a specific stock or bond on a stock exchange or financial platform for example the stock ticker symbol for apple inc is aapl while the ticker symbol for the s p 500 index is spx ticker symbols are typically displayed alongside a company s name and stock price on financial news websites stock ticker boards and other financial platforms they are also used in stock trading orders to identify the specific security being purchased or sold | |
what is a stockbroker | a stockbroker is a financial professional who executes orders in the market on behalf of clients a stockbroker may also be known as a registered representative rr or an investment advisor most stockbrokers work for a brokerage firm and handle transactions for several individual and institutional customers stockbrokers are often paid on commission although compensation methods vary by employer understanding the role of a stockbrokerbuying or selling stocks requires access to one of the major exchanges such as the new york stock exchange nyse or the nasdaq to trade on these exchanges you must be a member of the exchange or belong to a member firm member firms and many individuals who work for them are licensed as brokers or broker dealers by the financial industry regulatory authority finra 1until recent years getting access to the stock markets was prohibitively expensive it was cost effective only for high net worth investors or large institutional investors such as the managers of pension funds they used full service brokers and could pay hundreds of dollars for executing a trade while an individual investor can buy stock shares directly from the company that issues them it is much simpler to work with a stockbroker however the rise of the internet and related technological advances paved the way for discount brokers to provide online services with cheap fast and automated access to the markets more recently apps like robinhood and sofi have catered to micro investors allowing even fractional share purchases most accounts in the markets today are managed by the account owners and held by discount brokers brokerage firms and broker dealer companies are also sometimes referred to generically as stockbrokers these include full service and discount brokers who execute trades but do not offer individualized investing advice most online brokers are discount brokers at least at their basic service levels in which trades are executed for free or for a small set price commission many online brokers offer robo advisors that automate the buying and selling process stockbrokers in the 21st centurybrokers who are employed by discount broker firms may work as over the phone agents known as voice brokers available to answer brief questions or as branch officers in a physical location they also may consult with clients subscribing to premium tiers of the online broker a comparatively smaller number of stockbrokers work for investment banks or specialized brokerage firms these companies handle large and specialized orders for institutional clients and high net worth individuals hnwi another recent development in broker services is the introduction of roboadvisers programs that use algorithmic investing techniques carried out via web or mobile app interfaces there is minimal individual interaction keeping fees low mobile phone apps like robinhood and sofi cater to micro investors allowing even fractional share purchases educational requirements for stockbrokersa bachelor s degree in finance or business administration is typically required for stockbrokers a strong understanding of financial laws and regulations accounting methods principles of economics and currency financial planning and financial forecasting are all useful for working in the field 2global credentials are also becoming increasingly sought after as signals of legitimacy and financial acumen examples include the certified financial planner cfp and chartered financial analyst cfa designations most successful stockbrokers have exceptional interpersonal skills and can maintain strong sales relationships market knowledge and investing skills licensing requirements for stockbrokersin the u s registered brokers must hold the finra series 7 and series 63 or 66 licenses and be sponsored by a registered investment firm 345 floor brokers in the u s must also be members of the stock exchange where they work in canada would be stockbrokers should be currently employed by a brokerage firm and are required to complete the canadian securities course csc conduct and practices handbook cph and the 90 day investment advisor training program iatp 67in hong kong applicants must work for a licensed brokerage firm and pass three exams from the hong kong securities institute hksi those who pass the exam must still be approved by the financial regulatory body to receive a license 8in singapore the institute of banking and finance administers nine different modules while the singapore college of insurance administers five modules the monetary authority of singapore mas and the singapore exchange sgx have licensing authority 9in the united kingdom stockbroking is heavily regulated and brokers must achieve qualifications from the financial conduct authority fca precise qualifications depend on the specific duties required of the broker and the employer 10stockbroker salariesbefore we touch on actual numbers let s talk about the types of pay a stockbroker may receive one of the primary ways stockbrokers earn money is through commissions whenever a broker buys or sells securities on behalf of their clients they receive a commission which is usually a percentage of the transaction value in addition to commissions stockbrokers may charge various fees for their services these can include account maintenance fees advisory fees and fees for specific services such as financial planning or investment research stockbrokers employed by larger financial institutions or brokerage firms often receive a base salary along with performance based bonuses the salary provides a steady income while bonuses are typically tied to the broker s success in meeting sales targets acquiring new clients or achieving certain performance metrics according to salary com the average stockbroker salary in the united states as of june 2024 was 161 090 the average salary range is between about 122k year to 188k year the top 10 of stockbrokers made over 213 000 annually 11stockbroker vs financial advisora stockbroker is primarily focused on the buying and selling of securities such as stocks and bonds on behalf of their clients on the other hand a financial advisor offers a much broader range of financial planning services financial advisors assist clients with comprehensive financial planning which includes retirement planning tax advice estate planning insurance needs and budgeting financial advisors take a more holistic approach to managing a client s financial well being a financial advisor is generally more likely to help clients achieve long term financial goals while a stockbroker is more useful in executing short term investment strategies financial advisors typically charge fees based on the assets they manage or hourly rates for their advice while the compensation structure of a stockbroker discussed above is slightly different the key difference between a stockbroker and a financial advisor lies in the scope and nature of the services they provide while stockbrokers focus on specific transactions within the market financial advisors engage in overall financial strategy and planning note that a stockbroker can be a financial advisor with the qualifications and a financial advisor can also be a stockbroker again with the right qualifications | |
what do stockbrokers do | stockbrokers serve as intermediaries between markets e g exchanges and the investing public brokers take customer orders and try to fill them at the best price possible in return they earn a fee known as a commission today many stockbrokers have transitioned to financial advisors or planners as online brokerage platforms allow users to enter their own orders via the web or mobile app | |
what s the difference between a discount and full service broker | traditionally a discount broker would only buy and sell on customers behalf in contrast a full service broker would provide a broader breadth of financial services such as research advice portfolio management and more today as online brokerages have forced commissions down to zero discount brokers have distinguished themselves by providing research and other services in addition to pure execution | |
how do stockbrokers execute trades | stockbrokers execute trades by placing orders on behalf of clients through stock exchanges or electronic trading platforms these orders can be market orders executed immediately at current prices or limit orders executed at specified prices the client may choose what level they wish these orders to be placed at or may elect to have the stockbroker decide on their behalf | |
do stockbrokers have access to insider information | no stockbrokers are prohibited from using insider information for trading as it is illegal and considered securities fraud they rely on publicly available information and research keep in mind that stockbrokers may have access to insider information but are precluded from profiting from the information the bottom linestock brokers are the intermediaries that conduct transactions between investors and exchanges they are required to be licensed by the financial industry regulatory authority and usually have a college degree in finance or business administration they also act as advisors and become securities experts so they can offer personalized investment strategies to clients | |
what is stockholders equity | stockholders equity is the remaining assets available to shareholders after all liabilities are paid it is calculated either as a firm s total assets less its total liabilities or alternatively as the sum of share capital and retained earnings less treasury shares stockholders equity might include common stock paid in capital retained earnings and treasury stock conceptually stockholders equity is useful as a means of judging the funds retained within a business if this figure is negative it may indicate an oncoming bankruptcy for that business particularly if there exists a large debt liability as well investopedia michela buttignol | |
how to calculate stockholders equity | you can determine shareholders equity by calculating the total assets and liabilities using the following formula stockholder s equity total assets total liabilities text stockholder s equity text total assets text total liabilities stockholder s equity total assets total liabilitiesall the information required to compute shareholders equity is available on a company s balance sheet including total assets total liabilities consist of current and long term liabilities current liabilities are debts typically due for repayment within one year including accounts payable and taxes payable long term liabilities are obligations that are due for repayment in periods longer than one year such as bonds payable leases and pension obligations | |
how stockholders equity works | stockholders equity is often referred to as the book value of the company and it comes from two primary sources in most cases retained earnings are the largest component of stockholders equity this is especially true when dealing with companies that have been in business for many years shareholder equity can be either negative or positive if positive the company has enough assets to cover its liabilities if negative the company s liabilities exceed its assets if prolonged this is considered balance sheet insolvency for this reason many investors view companies with negative shareholder equity as risky or unsafe investments shareholder equity alone is not a definitive indicator of a company s financial health if used in conjunction with other tools and metrics the investor can accurately analyze the health of an organization stockholders equity is also referred to as shareholders or owners equity stockholders equity and retained earnings re retained earnings are a company s net income from operations and other business activities retained by the company as additional equity capital retained earnings are thus a part of stockholders equity they represent returns on total stockholders equity reinvested back into the company these earnings reported as part of the income statement accumulate and grow larger over time at some point accumulated retained earnings may exceed the amount of contributed equity capital and can eventually grow to be the main source of stockholders equity stockholders equity and paid in capitalcompanies fund their capital purchases with equity and borrowed capital the equity capital stockholders equity can also be viewed as a company s net assets you can calculate this by subtracting the total assets from the total liabilities investors contribute their share of paid in capital as stockholders which is the basic source of total stockholders equity the amount of paid in capital from an investor is a factor in determining his her ownership percentage stockholders equity and the impact of treasury sharescompanies may return a portion of stockholders equity back to stockholders when unable to adequately allocate equity capital in ways that produce desired profits this reverse capital exchange between a company and its stockholders is known as share buybacks shares bought back by companies become treasury shares and their dollar value is noted in the treasury stock contra account treasury shares continue to count as issued shares but they are not considered to be outstanding and are thus not included in dividends or the calculation of earnings per share eps treasury shares can always be reissued back to stockholders for purchase when companies need to raise more capital if a company doesn t wish to hang on to the shares for future financing it can choose to retire the shares equity is the corporation s owners residual claim on assets after debts have been paid example of stockholders equitybelow is the balance sheet for apple aapl as of july 1 2023 for that period stockholders equity was therefore 60 2 billion 335 274 8 looking at the same period one year earlier we can see that the year over year yoy change in equity was an increase of 9 5 billion the balance sheet shows this increase is due to a decrease in liabilities larger than the decrease in assets the value of 60 2 billion in shareholders equity represents the amount left for stockholders if apple liquidated all of its assets and paid off all of its liabilities an alternative calculation of company equity is the value of share capital and retained earnings less the value of treasury shares stockholders equity is an effective metric for determining the net worth of a company but it should be used in tandem with the analysis of all financial statements including the balance sheet income statement and cash flow statement | |
what is included in stockholders equity | total equity effectively represents how much a company would have left over in assets if the company went out of business immediately | |
what are some examples of stockholders equity | every company has an equity position based on the difference between the value of its assets and its liabilities positive equity indicates the company has a positive worth a company s share price is often considered to be a representation of a firm s equity position | |
how do you calculate equity | stockholders equity is equal to a firm s total assets minus its total liabilities these figures can all be found on a company s balance sheet | |
is stockholders equity equal to cash on hand | no since equity accounts for total assets and total liabilities cash and cash equivalents would only represent a small piece of a company s financial picture the bottom lineinvestors and analysts look to several different ratios to determine the financial company one of these is a company s return on equity this shows how well management uses the equity from company investors to earn a profit part of the roe ratio is the stockholders equity which is the total amount of a company s total assets and liabilities that appear on its balance sheet | |
what is a stop limit order | a stop limit order is a conditional trade over a set time frame that combines the features of stop with those of a limit order and is used to mitigate risk it is related to other order types including limit orders an order to either buy or sell a specified number of shares at a given price or better and stop on quote orders an order to either buy or sell a security after its price has surpassed a specified point investopedia julie bang | |
how stop limit orders work | the primary benefit of a stop limit order is that the trader has precise control over when the order should be filled the downside as with all limit orders is that the trade is not guaranteed to be executed if the stock commodity does not reach the stop price during the specified time period a stop limit order requires the setting of two price points the stop price and the limit price first set the stop price which is the price at which you want the trade to be triggered if the price of the security reaches or falls below the stop price the trade will be triggered once these have been setthen set the limit price the limit price is the price at which you want to buy or sell the security this price is used to limit the maximum price you will pay or the minimum price you will receive for the trade a time frame must also be set during which the stop limit order is considered executable the stop limit order will be executed at a specified price or better after a given stop price has been reached once the stop price is reached the stop limit order becomes a limit order to buy or sell at the limit price or better this type of order is an available option with nearly every online broker it s important to note that stop limit orders do not guarantee that your trade will be executed if the price of the security drops quickly or there is a gap in trading the order may not be filled at the desired limit price or at all 1 this may result in missed opportunities for profit should the appropriate prices not be targeted features of stop and limit ordersa stop order is an order that becomes executable once a set price has been reached and is then filled at the current market price a traditional stop order will be filled in its entirety regardless of any changes in the current market price as the trades are completed a limit order is one that is set at a certain price it is only executable at times when the trade can be performed at the limit price or at a price that is considered more favorable than the limit price if trading activity causes the price to become unfavorable regarding the limit price then the activity related to the order will be ceased by combining the two orders the investor has much greater precision in executing the trade a stop order is filled at the market price after the stop price has been hit regardless of whether the price changes to an unfavorable position this can lead to trades being completed at less than desirable prices should the market adjust quickly combining the stop order with the features of a limit order ensures that the order will not get filled once the pricing becomes unfavorable based on the investor s limit thus in a stop limit order after the stop price is triggered the limit order takes effect to ensure that the order is not completed unless the price is at or better than the limit price that the investor has specified 1stop limit orders are commonly free to enter into ensure you understand your broker s fee structure before setting orders and unexpectedly being assessed order fees advantages and disadvantages of stop limit ordersthere are several reasons why traders may rely heavily on stop limit orders as there are a handful of strong benefits of the order though stop limit orders have a suite of strong uses there are also drawbacks to the product allows investors to largely control the price in which they enter or exit a tradeallows investors to ensure an order doesn t get filled at too high or low of a price mitigating some trading riskmay allows for a more passive automated style of tradingmay be used in a variety of trading situationsmay not execute if the price never meets the limit price | |
does not offer protection against price gaps potentially resulting in worse order fills than expected | may create pressure to hold onto positions | |
are more complex to set up compared to other types of orders | stop limit order vs stop loss orderboth a stop limit order and a stop loss order are useful for traders trying to manage risk there are key difference between the two that change the situation where each may be best first a stop loss order becomes a market order when the price of the security hits or falls below the stop price this means that the order will be executed at the best available market price which may be different from the stop price in contrast a stop limit order becomes a limit order when the stop price is reached and will only be executed at the limit price or better therefore the two have different execution points there is also pricing protection differences a stop loss order does not offer any price protection beyond the stop price this means that if the market is experiencing rapid price movements or gaps the trade may be executed at a price below the stop price on the other hand a stop limit order offers price protection as it specifies a limit price at which the trader is willing to buy or sell this allows a trader to have greater control over the execution price in addition a stop loss order is guaranteed to be executed once the stop price is triggered but the execution price may not be guaranteed in contrast a stop limit order is not guaranteed to be executed as the order will only be filled if the limit price is met therefore a stop loss order is better should a trader want to ensure a trade is executed regardless of price 1example of a stop limit orderfor example assume that apple inc aapl is trading at 155 and that an investor wants to buy the stock once it begins to show some serious upward momentum the investor has put in a stop limit order to buy with the stop price at 160 and the limit price at 165 if the price of aapl moves above the 160 stop price then the order is activated and turns into a limit order as long as the order can be filled under 165 which is the limit price the trade will be filled if the stock gaps above 165 then the order will not be filled buy stop limit orders are placed above the market price at the time of the order while sell stop limit orders are placed below the market price | |
what is the difference between a stop loss order and a stop limit order | a stop loss order assures execution while a stop limit order ensures a fill at the desired price the decision regarding which type of order to use depends on a number of factors a stop loss order will get triggered at the market price once the stop loss level has been breached an investor with a long position in a security whose price is plunging swiftly may find that the price at which the stop loss order got filled is well below the level at which the stop loss was set this can be a major risk when a stock gaps down say after an earnings report for a long position conversely a gap up can be a risk for a short position a stop limit order combines the features of a stop loss order and a limit order the investor specifies the limit price thus ensuring that the stop limit order will only be filled at the limit price or better however as with any limit order the risk here is that the order may not get filled at all leaving the investor stuck with a money losing position | |
do stop limit orders work after hours | stop loss orders will only be triggered during standard market hours which is generally 9 30 a m to 4 p m est they will not get executed during extended hours sessions or when the market is closed for weekends and holidays 345 | |
what is an example of a stop limit order used for a short position | a short position would necessitate a buy stop limit order to cap losses for example if a trader has a short position in stock abc at 50 and would like to cap losses at 20 to 25 they can enter a stop limit order to buy at a price of 60 and a limit price of 62 50 if the stock trades at a price of 60 to 62 50 then the stop limit order will be executed capping the trader s loss on the short position in the desired 20 25 range however if the stock gaps up say to 65 then the stop limit order will not be executed and the short position will remain open | |
how long do stop limit orders last | stop limit orders can be set as either day orders in which case they would expire at the end of the current market session or good til canceled gtc orders which carry over to future trading sessions different trading platforms and brokerages have varying expiries for gtc orders so check the time period when your gtc order will be valid 1the bottom linea stop limit order refers to a conditional order type used by investors and traders to mitigate risk the order which combines the features of both a stop and limit order provides more precision over the desired execution price helping to lock in profits and limit losses investors set a stop limit order by placing the stop price where they want the order to trigger and a limit price where they would like a trade execution if the security reaches the specified trigger price the limit order activates and executes if the price is at or better than the price specified by the investor most online brokers offer stop limit orders with a day only or gtc expiry | |
what is a stop loss order | a stop loss order is a type of order used by traders to limit their loss or lock in a profit on an existing position traders can control their exposure to risk by placing a stop loss order stop loss orders are orders with instructions to close out a position by buying or selling a security at the market when it reaches a certain price known as the stop price they are different from stop limit orders which are orders to buy or sell at a specific price once the security s price reaches a certain stop price stop limit orders may not get executed whereas a stop loss order will always be executed assuming there are buyers and sellers for the security 1for example a trader may buy a stock and place a stop loss order with a stop 10 below the stock s purchase price should the stock price drop to that 10 level the stop loss order is triggered and the stock would be sold at the best available price although most investors associate a stop loss order with a long position it can also protect a short position in such a case the position gets closed out through an offsetting purchase if the security trades at or above a specific price investopedia zoe hansen | |
how stop loss orders work | traders or investors may choose to use a stop loss order to limit their losses and protect their profits by placing a stop loss order they can manage risk by exiting a position if the price for their security starts moving in the direction opposite to the position that they ve taken a stop loss order to sell is a customer order that instructs a broker to sell a security if the market price for it drops to or below a specified stop price a stop loss order to buy sets the stop price above the current market price 1a stop loss order becomes a market order to be executed at the best available price if the price of a security reaches the stop price a stop limit order also triggers at the stop price however the limit order might not be executed because it is an order to execute at a specific limit price thus the stop loss order removes the risk that a position won t be closed out as the stock price continues to fall 1one disadvantage of the stop loss order concerns price gaps if a stock price suddenly gaps below or above the stop price the order would trigger the stock would be sold or bought at the next available price even if the stock is trading sharply away from your stop loss level another disadvantage concerns getting stopped out in a choppy market that quickly reverses itself and resumes in the direction that was beneficial to your position investors can create a more flexible stop loss order by combining it with a trailing stop a trailing stop is an order whose stop price rather than being a fixed price is instead set at a certain percentage or dollar amount below or above the current market price so for instance as the price of a security that you own moves up the stop price moves up with it allowing you to lock in some profit as you continue to be protected from downside risk 1some traders and investors may also use option contracts in place of stop orders to allow them to control their exit price points better benefits of stop loss ordersexamples of stop loss ordersa trader buys 100 shares of xyz company for 100 and sets a stop loss order at 90 the stock declines over the next few weeks and falls below 90 the trader s stop loss order gets triggered and the position is sold at 89 95 for a minor loss the market continues trending downward a trader buys 500 shares of abc corporation for 100 and sets a stop loss order for 90 after the market closes the business reports unfavorable earnings results when the market opens the next day abc s stock price gaps down the trader s stop loss order is triggered the order gets executed at a price of 70 00 for a substantial loss however the market continues dropping and closes at 49 50 while the stop loss order couldn t protect the trader as originally intended it still limited the loss to much less than it could have been | |
what s a stop loss order | it s an order placed once you ve taken a position in a security on the buy side or sell side with instructions to close out your position by selling or buying the security at the market if the price of the security reaches a specific level | |
how does a stop loss order limit loss | a stop loss order limits your exposure to less of a loss than you might otherwise experience by automatically closing out your position if your stock trades to an unfavorable market price level that you designate if you use a trailing stop with your stop loss order that protection can move with your position even as it increases in value so a loss could translate to less profit rather than a complete loss | |
do long term investors need stop loss orders | probably not long term investors shouldn t be overly concerned with market fluctuations because they re in the market for the long haul and can wait for it to recover from downturns however they can and should evaluate market drops to determine if some action is called for for example a downturn could provide the opportunity to add to their positions rather than to exit them | |
what is a stop order | a stop order is one of the three main order types you will encounter in the market stop market and limit a stop order is always executed in the direction that the price is moving for instance if the market is moving lower the stop order is set to sell at a pre set price below the current market price alternatively if the price is moving higher the stop order will be to buy once the security reaches a pre set price above the current market price there are several types of stop orders that can be employed depending on your position and your overall market strategy here s a review of the various types of stop orders and how they function relative to your trading position in the market types of stop ordersthere are three types of stop orders you can use when trading stop loss stop entry and trailing stop loss a regular stop loss order is recommended for any live position a stop loss order is just what it means it stops losses the stop loss order will remove you from your position at a pre set level if the market moves against you stop loss orders are critical when you can t actively keep an eye on the market and it s recommended to always have a stop loss order in place for any existing position for protection from sudden market news data releases and the like for example let s say you re long you own it stock xyz at 27 and believe that it has the potential to reach 35 however at price levels below 25 your strategy is invalidated and you want to get out you would then place a stop order to sell xyz at around 25 or slightly lower to account for a margin of error a stop entry order is used to get into the market in the direction that it s currently moving for example let s say you have no position but you observe that stock xyz has been moving in a sideways range between 27 and 32 and you believe it will ultimately move higher in this case you could place a stop entry order above the current range high of 32 say at 32 25 to allow for a margin of error to get you into the market once the sideways range is broken to the upside now that you re long and if you re a disciplined trader you ll want to immediately establish a regular stop loss sell order to limit your losses in case the break higher is a false one continuing from the scenario above xyz has broken above the range top at 32 and your stop has been triggered at 32 28 stop orders use the best available market price making you long in a rising market the price keeps increasing and hits your first price objective at 35 you may now want to protect your profits in case the market reverses lower you can accomplish this with a regular stop loss placed at say 34 that means you will lock in around 1 72 on the trade 34 00 32 28 1 72 if the market turns around in this case you used a stop loss order to protect your profit instead of limiting your loss some online brokers offer a trailing stop loss order functionality on their trading platforms these orders follow the market and automatically change the stop price level according to market movements you can set a particular price distance the market must reverse for you to be stopped out to preserve your profits you can specify 0 50 for the stock trade meaning that the market price currently at 35 must touch 34 50 for your stop loss order to be triggered however if the price continues to move higher the trailing stop will rise with it always remaining 0 50 from the highest high the price has reached so let s say the price continues to move higher from 35 and reaches 36 75 your trailing stop will have followed the price increase and will now be 36 25 36 75 0 50 36 25 trailing stops are a great way to protect profits and stay in a position until the market has shown that it has actually reversed advantages and disadvantages of stop ordersexecution guaranteeadditional controllosses can be limitedshort term fluctuation riskslippagethere are more advantages to using stop orders than disadvantages because they can help you avoid or minimize your losses if the market doesn t act in your favor this is because you have an execution guarantee where the order you placed will execute whether you re monitoring prices or not this gives you an additional measure of control over when you buy or sell a security without it one phone call could distract you for long enough that you could suffer a substantial loss depending on the market you re trading in because you ve placed a stop order you ve taken a precautionary measure that can limit your losses or prevent them entirely one of the most significant downfalls to stop orders is that short term price fluctuations can cause you to lose a position for instance if you placed a stop expecting prices to continue rising but they suddenly began trending down your position is on the wrong side of the trend a stop loss order s execution may not be at the exact price you specified for example say you had a stop loss entry price of 32 25 but it was executed at 32 28 or 0 03 higher than you specified that difference of 0 03 is called slippage which is caused by many factors such as lack of liquidity volatility and price gaps in news or data slippage can also occur when a regular stop loss is executed therefore some slippage should be expected in fast moving and consolidating markets some traders will use options as an alternative to stop loss orders to allow better control over their exit points make sure your brokerage supports all of the stop orders you want to use not all brokerage firms allow all of them and some have different policies about using them 1stop order vs limit orderone of the key differences between a stop and limit order is that a stop order uses the best available market price rather than the specific price you might have placed in the order because the best available price is used a stop order turns into a market order when the stop price is reached a market order is an order to buy or sell at the best available price like when you tell your broker to purchase a stock not when you re trading just if you re buying a stock they buy it at the best price as soon as they can a limit order is executed at the price you specified or better which can slightly reduce the chances of the order executing compared to a stop order if the stock price never hits your limit your trade won t execute a stop order would execute because it uses the best available price example of a stop ordera common question that traders and investors pose is where they should place their stop loss order there are too many variables to give a one size fits all answer but a rational method falls into two categories financial and technical a financial stop loss is placed at a point where you are no longer willing to accept further financial loss for example let s say you re only willing to risk 5 on a stock that s currently trading at 75 that means you ve chosen a financial stop of 5 per share or 70 as the stop price regardless of whatever else may be happening in the market a technical stop loss is placed at a significant technical price point such as the recent range high or low a fibonacci retracement level or a specific moving average just to name a few the key factor here is that if you have a market position you need to have a live stop loss order to protect your investment position | |
why do i always need a stop loss order when i have an open position | not every trade is a winner every position has the potential to move against you an lose money a stop loss order will limit your losses to about the specified level you define it s important to note that you should create a complete strategy entry stop loss and take profit to manage your position before you enter that position that way you avoid the emotional uncertainty that comes with having an open position | |
what should i do if my stop entry order is filled | you now have a position in the market and you need to establish at the minimum a stop loss s l order for that position you can also add a take profit t p order coupled together you now have orders bracketing your position such orders are typically linked and known as a one cancels the other oco order meaning if the t p order is filled the s l order will be automatically canceled and vice versa | |
where should i place my stop loss order | you can use a financial stop how much money am i prepared to lose on this position or a technical s l what significant technical level will need to be breached for your trade scenario to be invalidated not every trade is a winner so you need to have a strategy in place before you enter a position knowing where you ll limit your losses and take your profits | |
should i ever move my stop loss order | you should move your stop loss order only if it s in the direction of your position for example imagine you re long xyz stock with a stop loss order 2 below your entry price if the market cooperates and moves higher you can raise your s l to further limit your loss potential or lock in profits the bottom linestop orders are a critical tool in a trader s toolbox traders and investors should always have a stop loss in place if they have any open positions otherwise they re trading without any protection which could be dangerous and costly stop orders can be adjusted in the direction of the trade if the market moves in your favor but you should never move a stop away from the direction the market is moving for example if you re long and the market is moving lower you should never lower your stop from where you originally placed it hopefully you have compiled a complete trade strategy entry stop loss and take profit before entering the market this way your mind and emotions are not in play just your strategy | |
what is a stop payment on a check | a stop payment is a formal request made to a financial institution to cancel a check or payment that has not yet been processed a stop payment order is issued by the account holder and can only be enacted if the check or payment has not already been processed by the recipient issuing a stop payment order on a check often costs the bank account holder a fee generally 30 although bank policies differ which is levied by the institution there are several reasons that a stop payment order on a check may be requested for example the account holder may have sent a check for the wrong amount or may have canceled a purchase after having put the check in the mail occasionally if the stop payment is not requested in time and or incorrectly the financial institution will not be able to halt the process to stop payment on a check go to a bank branch or contact the bank by phone and speak to a human being not a recording request a stop payment order make sure to report the check number the amount the recipient s name and the date on the check follow up in writing this will only work if the check has not yet been cleared by the bank if it has cleared you ll need to contact the recipient of the check to seek a resolution | |
how a stop payment on a check works | to request a stop payment an account holder generally provides specific information about a check that is in progress to the bank e g check 607 for 250 written to john s cleaning agency in an ideal scenario the bank would then flag the check and prevent it from clearing the account if a bank is unable to locate the check it will often continue to look for the check for six months although policies differ among banks some banks offer the opportunity to extend or refresh the stop payment via a verbal or written request if the check is never found the request for stop payment usually expires and the check could potentially be paid special considerationsin addition to issuing individual stop payments additional measures for securing checks and personal finance information more generally are becoming mainstream this protection is important if an account holder is concerned about error or fraud one method that has been updated over time is the addition of a padlock feature on personal checks the washington d c based check payment systems association formerly financial stationers association created the padlock feature as check fraud grew pre 2000 1 the padlock feature completed a triumvirate of features incorporated into a check to add complexity and make it more challenging for fraudsters to reproduce it online banking which is now used by all major banks like bank of america td bank citibank chase bank is designed to improve the efficiency of depositing transferring and withdrawing funds along with balance checking and other relatively simple personal finance tasks with individual financial information now stored online the potential for secure encryption is high along with the ability of cyber criminals to steal data despite such threats many have chosen to bank fully online in this way issuing stop payments among other tasks become more efficient | |
what is a store of value | a store of value is an asset commodity or currency that maintains its value without depreciating understanding a store of valuea store of value is essentially an asset commodity or currency that can be saved retrieved and exchanged in the future without deteriorating in value in other words to enter this category the item acquired should over time either be worth the same or more gold and other metals are stores of value as their shelf lives are essentially perpetual for investors interest bearing assets such as u s treasury bonds t bonds qualify too because they retain their value while generating income milk on the other hand is a poor store of value because it will decay and become worthless store of value examplesa reasonably stable currency is essential to a healthy economy a nation s money must be a credible store of value in order for its citizens to engage in labor and trade save money and spend it a monetary unit that serves poorly as a store of value destroys all incentive to save or even earn and reduces the ability to trade many economies throughout history have used gold silver and other precious metals as currencies because of their ability to store value their relative ease of transport and the ease of exchanging them for different denominations in fact the united states was on a gold standard meaning that dollars were redeemable for a specific weight of gold up until 1971 president richard nixon ended dollar convertibility to give the federal reserve fed greater power to influence the rates of employment and inflation among other factors since then the u s has used a fiat currency which a government declares as legal tender but is not tied to a commodity of value any physical asset may be considered a store of value under the right circumstances or when a base level of demand is believed to exist special considerations | |
what comprises a store of value can be markedly different among countries and cultures in most of the world s advanced economies the local currency can be counted on as a store of value in all but the worst case scenarios | stable currencies such as the u s dollar the japanese yen the swiss franc and the singaporean dollar enhance their home economies greatly they are resistant although not immune to hyperinflation in those instances other stores of value such as gold silver real estate and fine art have proved their worth over time the price of gold in particular will often skyrocket during times of national peril or when a financial shock hits the broad markets earning it a reputation as the ultimate safe haven while the relative value of such stores of value will fluctuate over time they can be counted on to retain some value in almost any scenario this is especially true if there is a finite supply of the store of value | |
what is a straddle | a straddle is a neutral options strategy that involves simultaneously buying long position both a put option leg one and a call option leg two for the underlying security with the same strike price and the same expiration date a trader will profit from a long straddle when the price of the security rises or falls from the strike price by an amount more than the total cost of the premium paid the profit potential is virtually unlimited on the call leg as long as the price of the underlying security moves very sharply the profit on the put leg is capped at the difference between the strike price and zero less the premium paid zoe hansen investopediaunderstanding straddlesstraddle strategies in finance refer to two separate transactions that both involve the same underlying security with the two corresponding transactions offsetting each other investors tend to employ a straddle when they anticipate a significant move in a stock s price but they re unsure about whether the price will move up or down julie bang investopediaa straddle can give a trader two significant clues about what the options market thinks of a stock first is the volatility that the market is expecting from the security second is the expected trading range of the stock by the expiration date | |
how to create a straddle | a trader must add the price of the put and the call together to determine the cost of creating a straddle they could create a straddle if they believe that a stock may rise or fall from its current price of 55 following the release of its latest earnings report on march 1 the trader would look to purchase one put and one call at the 55 strike with an expiration date of march 15 the trader would add the price of one march 15 55 call and one march 15 55 put to determine the cost of creating the straddle the total outlay or premium paid would be 5 00 for the two contracts x 100 500 one contract consists of 100 shares if both the calls and the puts trade for 2 50 each the premium paid suggests that the stock would have to rise or fall by 9 from the 55 strike price to earn a profit by march 15 the amount that the stock is expected to rise or fall is a measure of its future expected volatility divide the premium paid by the strike price 5 divided by 55 or 9 to determine how much the stock has to rise or fall options prices imply a predicted trading range a trader can add or subtract the price of the straddle to or from the price of the stock to determine its expected trading range the 5 premium could be added to 55 to predict a trading range of 50 to 60 in this case the trader would lose some of their money but not necessarily all of it if the stock traded within the zone of 50 to 60 it s only possible to earn a profit if the stock rises or falls outside of the 50 to 60 zone at the time of expiration the calls would be worth 0 and the puts would be worth 7 at expiration if the stock fell to 48 this would deliver a profit of 2 to the trader but the calls would be worth 2 if the stock went to 57 and the puts would be worth zero giving the trader a loss of 3 the worst case scenario is when the stock price stays at or near the strike price advantages and disadvantages of straddle positionsstraddle options are entered into for the potential income to the upside or downside consider a stock that s trading at 300 you pay 10 premiums for call and put options at a strike price of 300 you may capitalize on the call if the equity swings to the upside you may capitalize on the put if the equity swings to the downside in either case the straddle option may yield a profit whether the stock price rises or falls straddle strategies are often used leading up to major company events such as quarterly reports investors may elect to opt into offsetting positions to mitigate risk when they aren t sure how the news will break this allows traders to set up positions in advance of major swings to the upside or downside the movement of the equity s price must be greater than the premium s paid for a straddle position to be profitable you paid 20 in premiums 10 for the call 10 for the put in the example above your net position yields you at a loss if the stock s price only moves from 300 to 315 straddle positions often result in profit only when there are large material swings in equity prices another downside is the guaranteed loss regarding premiums one option is guaranteed to not be used depending on which way the stock price breaks this can be especially true for equities that have little to no price movement yielding both options as unusable or unprofitable this loss is incurred in addition to potentially higher transacting costs due to opening more positions compared to a one sided trade straddle positions are most suitable for periods of heavy volatility so they can t be used during all market conditions they re not successful during stable market periods straddle positions also work better for certain investments not all investment opportunities may benefit from this position especially those with a low beta the strategy has the potential to earn income regardless of whether the underlying security increases or decreases in price the strategy may be useful when major news is anticipated but it s uncertain in which direction markets will take events investors may mitigate potential losses or downsides by hedging their investment rather than entering just a single direction trade the underlying security must be volatile straddle positions are often unprofitable without substantial price movement the investor is certain to purchase an option and pay a premium for a contract it will never execute the strategy isn t suitable in all market conditions or for all types of securities because it relies on volatility real world example of a straddleactivity in the options market on oct 18 2018 implied that the stock price for amd an american computer chip manufacturer could rise or fall 20 from the 26 strike price for expiration on nov 16 because it cost 5 10 to buy one put and call it placed the stock in a trading range of 20 90 to 31 15 the company reported results and shares plunged from 22 70 to 19 27 a week later on oct 25 1the trader would have earned a profit in this case because the stock fell outside the range exceeding the premium cost of buying the puts and calls | |
what is a long straddle | a long straddle is an options strategy that an investor makes when they anticipate that a particular stock will soon be undergoing volatility the investor believes the stock will make a significant move outside the trading range but is uncertain whether the stock price will head higher or lower the investor simultaneously buys an at the money call and an at the money put with the same expiration date and the same strike price to execute a long straddle the investor in many long straddle scenarios believes that an upcoming news event such as an earnings report or acquisition announcement will push the underlying stock from low volatility to high volatility the objective of the investor is to profit from a large move in price a small price movement will generally not be enough for an investor to make a profit from a long straddle 2 | |
how do you earn a profit in a straddle | divide the total premium cost by the strike price to determine how much an underlying security must rise or fall to earn a profit on a straddle it would be calculated as 10 divided by 100 or 10 if the total premium cost was 10 and the strike price was 100 the security must rise or fall more than 10 from the 100 strike price to make a profit | |
what is an example of a straddle | consider a trader who expects a company s shares to experience sharp price fluctuations following an interest rate announcement on jan 15 the stock s price is currently 100 the investor creates a straddle by purchasing both a 5 put option and a 5 call option at a 100 strike price that expires on jan 30 the net option premium for this straddle is 10 the trader would realize a profit if the price of the underlying security was above 110 at the time of expiration which is the strike price plus the net option premium or below 90 which is the strike price minus the net option premium can you lose money on a straddle yes a trader faces the risk of losing money if an equity s price doesn t move larger than the comparative premiums paid on the options straddle strategies are often entered into in consideration of more volatile investments for this reason the bottom linean investor has entered into a straddle position if they buy both a call and a put for the same strike price on the same expiration date this strategy allows an investor to profit from large price changes regardless of the direction of the change an investor will likely lose money regarding the premiums paid on the worthless options should the underlying security s price remain fairly stable but an investor can reap a profit on large increases or decreases in the equity price disclosure investopedia does not provide investment advice investors should consider their risk tolerance and investment objectives before making investment decisions | |
what is straight line basis | in finance a straight line basis is a method for calculating depreciation and amortization it is calculated by subtracting an asset s salvage value from its current value and dividing the result by the number of years until it reaches its salvage value if the results of calculating the basis were graphed it would appear as a straight line hence the name the straight line basis is the simplest way to determine the loss of value of an asset over time understanding straight line basisin accounting there are many different conventions that are designed to match sales and expenses to the period in which they are incurred one convention that companies embrace is referred to as depreciation and amortization accountants commonly use the straight line basis method to determine this amount the straight line method is one of the simplest ways to determine how much value an asset loses over time the challenge though is determining how much to expense in this method companies can expense an equal value of loss over each accounting period the assumption made by accountants is that the asset loses the same value over each period companies use depreciation for physical assets and amortization for intangible assets such as patents and software both conventions are used to expense an asset over its lifetime which allows the company to reduce a large expense that would decrease its income and profitability if it were to expense the entire cost of the asset in the same year it purchased it formula and calculating straight line basisuse the following formula to calculate depreciation using the straight line basis to calculate the straight line basis take the purchase price of an asset and then subtract the salvage value its estimated value when it is no longer expected to be needed then divide the resulting figure by the total number of years the asset is expected to be useful in accounting terms this is referred to as an asset s useful life an alternative to straight line depreciation is the declining balance method where the value of the asset is reduced by a percentage rather than a fixed amount 1advantages and disadvantages of straight line basisaccountants like the straight line method because it is easy to use unlike more complex methodologies such as double declining balance this method uses only three variables to calculate the amount of depreciation each accounting period the straight line basis is also an acceptable calculation method because it renders fewer errors over the life of the asset as such it expenses the same amount every accounting period the simplicity of straight line basis is one of its biggest drawbacks one of the most obvious pitfalls of using this method is that the useful life calculation is often based on guesswork for example there is always a risk that technological advancements could potentially render the asset obsolete earlier than expected moreover the straight line basis does not factor in the accelerated loss of an asset s value in the short term nor the likelihood that it will cost more to maintain as it gets older easy to use with three variablesrenders few errorsexpenses same amount for each accounting periodcalculation method may be too simplebased on guesswork | |
doesn t factor in accelerated loss of asset value | example of straight line basishere s a hypothetical example to show how the straight line basis works let s assume that company a buys a piece of equipment for 10 500 the equipment has an expected life of 10 years and a salvage value of 500 to calculate straight line depreciation the accountant divides the difference between the salvage value and the equipment cost also referred to as the depreciable base or asset cost by the expected life of the equipment using the formula from above to calculate the asset s depreciation the straight line depreciation for this piece of equipment is notice when graphed the result is a straight line the company can now expense 1 000 annually to account for the equipment s declining value this 1 000 is expensed to a contra account called accumulated depreciation until 500 is left on the books as the value of the equipment | |
how do you calculate straight line depreciation | to calculate depreciation using a straight line basis simply divide the net price purchase price less the salvage price by the number of useful years of life the asset has | |
when should one use straight line deprecation | straight line depreciation is the easiest method for calculating depreciation it is most useful when an asset s value decreases steadily over time at around the same rate | |
what are realistic assumptions in the straight line method of depreciation | while the purchase price of an asset is known one must make assumptions regarding the salvage value and useful life these numbers can be arrived at in several ways but getting them wrong could be costly also a straight line basis assumes that an asset s value declines at a steady and unchanging rate this may not be true for all assets in which case a different method should be used | |
what is straight line amortization | straight line amortization works just like its depreciation counterpart but instead of having the value of a physical asset decline amortization deals with intangible assets such as intellectual property or financial assets the bottom linecalculating the depreciating value of an asset over time can be tedious many accountants use a simple easy to use method called the straight line basis this method spreads out the depreciation equally over each accounting period to calculate using this method first subtract the salvage value from the original purchase price then divide that figure by the estimated useful life of the asset | |
what is straight through processing stp | straight through processing is an automated process done purely through electronic transfers with no manual intervention involved its popular uses are in payment processing as well as the processing of securities trades any company involved with straight through processing will need to have the necessary systems and technical networking in place to facilitate stp efficiency understanding stpgenerally straight through processing is most well known in the areas of payments and securities trading however in general it is a methodology that could be implemented in a variety of technical scenarios in all areas of stp the technology for stp is constantly evolving in payments cryptocurrencies and fintech providers have introduced much faster types of straight through processing particularly as alternatives to banks paymentsstraight through processing is an innovation that has developed alongside the integration of computers and computer programming in the early 1970s automated clearing houses ach networks began development 1 the society for worldwide interbank financial telecommunication swift was also founded around this time 2 swift and ach significantly upgraded banking payment transfers from a previous telegraphic system which involved a single operator typing telegraphic transfer orders through morse code ach was first introduced in the united states by the federal reserve bank of san francisco mostly as a solution for payroll direct deposits 3 the 1970s brought about the first efforts for stp in bank payments since the 1970s ach and swift networking has grown though these two systems form the main framework for most all domestic and global payment transfers any financial service provider who wants to be in the payment processing business will need to link up with a payment processing network for facilitating electronic stp in general most all electronic payment processing is considered stp however advanced coding within payment networks can be added to flag or stop suspicious transactions for the alerting of security specialists ach and swift were groundbreaking introductions that changed the capabilities for banks and also created a vast array of opportunities for financial technology platforms stp itself has increased the efficiency and speed of payments domestically and globally stp streamlines the use of payment and routing information so that the instructions don t need to be manually entered | |
how straight through processing differs from traditional payments | the traditional method of sending money involved multiple departments both on the initiation and receiving end of the transfer that could take days to complete payment would first be initiated via the phone or a software program the payment settlement details would have to be confirmed by a person at both companies via the phone email or fax the settlement details were then manually input into a payment system and later confirmed either by a supervisor to ensure accuracy before releasing the payment before ach and swift payment transactions were then sent via telegraphic message using a special code the process could take anywhere between several hours to a few days to even initiate depending on the details involved international payments to emerging economies for example must often meet stringent criteria with supporting documents that meet local regulatory requirements and laws before a transfer can be completed as a result several people may have been involved both on the initiating and receiving end of the payment as well as employees from any intermediary banks involved telegraphic transfers had a higher propensity for errors delays and increased costs also the lack of automation caused instability as well as lack of exact processing expectations which created problems for suppliers and customers trying to make timely business payments as you can imagine stp was a big help for businesses it could streamline the accounting process for companies particularly in accounts payable and accounts receivable it helped in the tracking and collection efficiency of money to and from business partners and customers it reduced the number of errors involved with accounting functions and improved working capital cash flow efficiency it also aided in improved business analytics since companies can track client behaviors and spending patterns as well as costly delays or errors by the customers or the system e commercestp allows businesses to authenticate their customers on the web sell them a product initiate a payment and set delivery of the product all with just a few clicks e commerce sellers must have a transaction solution which may be multi faceted e commerce platforms can partner with brand providers like visa mastercard american express or discover they may also partner with a fintech like paypal the offering of payment plans and installment credit is also becoming more popular through fintechs like affirm sales efforts can be enhanced since online systems have the potential to offer products and services to a customer automatically through a single point of sale with a multitude of payment choices all done online one example of a leading company that has implemented straight through processing is amazon com the online retailer has remained focused throughout its existence on removing any obstacles to customers purchasing products on its website amazon has excelled in making use of automation technology and sophisticated algorithms to serve its customers and drive revenue cryptocurrenciescryptocurrencies are also an up and coming form of stp for transactions cryptocurrencies are electronic transfers that don t require manual intervention the greatest benefit of cryptocurrencies is that they remove the need for a holding company intermediary crypto funds can be transferred from one person to another directly on a unique network example of how straight through processing saves moneylet s say bank abc processes around 200 funds transfers per day and currently does not have a straight through processing system in place through analysis the bank has calculated that for every 200 payments processed 20 payments are processed incorrectly or 10 of the payments the bank is charged 20 for each payment that is not processed properly the fee is assessed by the receiving bank or correspondent bank since they have to correct the payment instructions or perform manual entries to fix the error here are the numbers after implementing a stp system the payment errors decreased to 1 per 200 paymentswith a stp system accurate settlement and routing information can be saved in the system avoiding manual entry of payment details and costly errors for the bank and customers stp in securities tradingin the modern day nearly all secondary market securities trading involves electronic processing there can be some human intervention on the front end in placing trades but for the most part electronic systems do all the work this is where stp comes in any transaction in the secondary market requires a trade settlement process which is associated with stp this means millions of stp transactions per day for stocks bonds mutual funds exchange traded funds pink sheet trades etc all financial service companies have some form of back office staffing responsible for the management of trade settlements done through stp the nasdaq was launched as the first electronic stock exchange like at a bank electronic trade transactions are monitored by back office employees trades may be flagged or stopped due to coded security measures which then may require the intervention of a human for the most part securities trades are completed including the exchange of an actual certificate within two days in 2017 the securities and exchange commission mandated a t 2 settlement for securities trades 4 in securities trading the stp process refers to the full t 2 cycle with stp the entire process from start to finish can be done electronically without human intervention stp for securities trading requires the need for securities codes as well as the use of brokerage accounting codes similar to the coding needed for bank and routing numbers electronic systems operate through code identifiers which facilitate a full electronic processing cycle other innovationscomputers mainframes electronic exchanges and the internet are all improving the opportunities for stp processing and innovation technology is also helping to improve the actual processing time of a full stp cycle some areas that are benefiting from improved technological advances for stp include underwriting and payrolls creditors have the opportunity to fully automate underwriting using stp to do this coding is used to set lending parameters authentications and approvals this can make credit extension nearly instantaneous upon submission of an online application payroll systems also benefit from stp electronic time tracking logs allow for an easy flow through of authorization and approval which can then be followed by direct deposit in the payrolls business many fintechs are partnering with businesses to provide workers with options for daily direct deposit payments which helps solve cash flow challenges | |
what is a strangle | a strangle is an options strategy in which the investor holds a position in both a call and a put option with different strike prices but with the same expiration date and underlying asset a strangle is a good strategy if you think the underlying security will experience a large price movement in the near future but are unsure of the direction however it is profitable mainly if the asset does swing sharply in price a strangle is similar to a straddle but uses options at different strike prices while a straddle uses a call and put at the same strike price investopedia theresa chiechi | |
how does a strangle work | strangles come in two directions strangle vs straddlestrangles and straddles are similar options strategies that allow investors to profit from large moves to the upside or downside however a long straddle involves simultaneously buying at the money call and put options where the strike price is identical to the underlying asset s market price rather than out of the money options a short straddle is similar to a short strangle with limited profit potential that is equivalent to the premium collected from writing the at the money call and put options with the straddle the investor profits when the price of the security rises or falls from the strike price just by an amount more than the total cost of the premium so it doesn t require as large a price jump buying a strangle is generally less expensive than a straddle but it carries greater risk because the underlying asset needs to make a bigger move to generate a profit 34benefits from asset s price move in either directioncheaper than other options strategies like straddlesunlimited profit potentialrequires big change in asset s pricemay carry more risk than other strategiesreal world example of a strangleto illustrate let s say that starbucks sbux is currently trading at us 50 per share to employ the strangle option strategy a trader enters into two long option positions one call and one put the call has a strike of 52 and the premium is 3 for a total cost of 300 3 x 100 shares the put option has a strike price of 48 and the premium is 2 85 for a total cost of 285 2 85 x 100 shares both options have the same expiration date if the price of the stock stays between 48 and 52 over the life of the option the loss to the trader will be 585 which is the total cost of the two option contracts 300 285 however let s say starbucks stock experiences some volatility if the price of the shares ends up at 38 the call option will expire worthlessly with the 300 premium paid for that option lost however the put option has gained value expiring at 1 000 and producing a net profit of 715 1 000 less the initial option cost of 285 for that option therefore the total gain to the trader is 415 715 profit 300 loss if the price rises to 57 the put option expires worthless and loses the premium paid for it of 285 the call option brings in a profit of 200 500 value 300 cost when the loss from the put option is factored in the trade incurs a loss of 85 200 profit 285 because the price move wasn t large enough to compensate for the cost of the options the operative concept is the move being big enough if starbucks had risen 12 in price to 62 per share the total gain would have again been 415 1000 value 300 for call option premium 285 for an expired put option | |
how do you calculate the breakeven of a strangle | a long strangle can profit from the underlying moving either up or down there are therefore two breakeven points these are calculated as the cost of the strangle plus the call strike and the cost of the strangle minus the put strike | |
how can you lose money on a long strangle | if you are long a strangle and the underlying does not move past the strikes involved both options will expire worthless and you will lose what you paid for the strategy | |
which is riskier a straddle or a strangle | straddles and strangles are similar except that a straddle involves a call and put at the same strike price and strangle at different strike prices because of this there is greater risk reward associated with a straddle while a strangle is a less risky strategy the risk reward for a strangle decreases as the distance between the two strikes grows larger | |
what is a strategic alliance | a strategic alliance is an arrangement between two companies to undertake a mutually beneficial project while each retains its independence the agreement is less complex and less binding than a joint venture in which two businesses pool resources to create a separate business entity a company may enter into a strategic alliance to expand into a new market improve its product line or develop an edge over a competitor the arrangement allows two businesses to work toward a common goal that will benefit both the relationship may be short term or long term investopedia crea taylorunderstanding strategic alliancesat the heart of strategic alliances lies companies striving to be better but may not have the resources to embark on certain endeavors instead of single handedly attempting to build out market opportunities companies can seek out existing resources to leverage personal growth consider the massive clientele base of uber while uber may have an interest in making the ridership experience as strong as possible it may not be feasible for the company to single handedly build out their own repository of music with technological capabilities to be played on demand for this reason uber turned to spotify to enter into a strategic alliance 1on the other hand spotify can boast of a strong technological product however it may seek opportunities to get in front of a wider consumer audience exactly what uber has to offer by forming a strategic alliance in where uber provides the consumers and spotify offers the technology the two companies came together to create a market opportunity that neither entity could have achieved on their own though less formal than other types of agreements a strategic alliance is often still bound with a contractual obligation that legally binds the actions of each alliance member types of strategic alliancesthere are three primary forms of strategic alliances these three types of strategic alliances vary in the degree of financial investment each company makes into the agreed upon joint effort a joint venture occurs when two companies agree to come together to create an entirely new separate company that each of the existing companies become a parent to in 2012 microsoft and general electric healthcare signed a joint agreement to create a new third company called caradigm 2 caradigm was created to develop and market an open healthcare intelligence platform the idea behind the joint venture was microsoft had the technical capability of making such a platform work while ge s healthcare it division had the expertise on the healthcare side an equity strategic alliance may have similar outcome goals as a joint venture however it is funded differently in that one company makes an equity investment into another in 2010 panasonic invested 30 million into tesla 3 the investment was intended to help build a stronger alliance between the two companies and to rapidly advance the electric vehicle market expansion as one of the world s leading battery cell manufacturers panasonic s skillset blended strongly with tesla s ambition of incorporating proprietary packing using cells from multiple battery suppliers a non equity strategic alliance forms when two entities realize mutual benefit exists and no equity transfusion is necessary as discussed below regarding barnes noble and starbucks each member of the alliance simply brings their resources to the alliance for the other party to capitalize upon a more simple contractual obligation is agreed upon for the two entities to pool resources and capabilities together | |
how do strategic alliances create value | there s many reasons why a company may choose to enter into a strategic alliance these reasons may include but are not limited to strategic alliances often form between companies with varying business or product cycles for example companies with short cycles may seek companies that have made long term investments to aid in the rapid development of a product that would otherwise require more time |
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