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is volatility the same as risk | volatility is often used to describe risk but this is not necessarily always the case risk involves the chances of experiencing a loss while volatility describes how much and quickly prices move if increased price movements also increase the chance of losses then risk is likewise increased | |
is volatility a good thing | whether volatility is good or bad depends on what kind of trader you are and what your risk appetite is for long term investors volatility can spell trouble but for day traders and options traders volatility often equals trading opportunities | |
what does high volatility mean | if volatility is high it means that prices are moving both up and down quickly and steeply | |
what is the vix | the vix is the cboe volatility index a measure of the short term volatility in the broader market measured by the implied volatility of 30 day s p 500 options contracts the vix generally rises when stocks fall and declines when stocks rise also known as the fear index the vix can be a gauge of market sentiment with higher values indicating greater volatility and greater fear among investors 8the bottom linevolatility is how much and how quickly prices move over a given span of time in the stock market increased volatility is often a sign of fear and uncertainty among investors this is why the vix volatility index is sometimes called the fear index at the same time volatility can create opportunities for day traders to enter and exit positions volatility is also a key component in options pricing and trading | |
what is volatility arbitrage | volatility arbitrage is a trading strategy that attempts to profit from the difference between the forecasted future price volatility of an asset like a stock and the implied volatility of options based on that asset volatility arbitrage has several associated risks including the timing of the holding positions potential price changes of the asset and the uncertainty in the implied volatility estimate | |
how volatility arbitrage works | because options pricing is affected by the volatility of the underlying asset if the forecasted and implied volatilities differ there will be a discrepancy between the expected price of the option and its actual market price a volatility arbitrage strategy can be implemented through a delta neutral portfolio consisting of an option and its underlying asset for example suppose a trader thought a stock option was underpriced because implied volatility was too low in that case they may open a long call option combined with a short position in the underlying stock to profit from that forecast if the stock price doesn t move and the trader is correct about implied volatility rising then the cost of the option will increase alternatively if the trader believes that the implied volatility is too high and will fall they may decide to open a long position in the stock and a short position in a call option assuming the stock s price doesn t move the trader may profit as the option falls in value with a decline in implied volatility a volatility arbitrage strategy is complex and carries risk for traders but it can be implemented using a delta neutral portfolio consisting of an option and its underlying asset special considerationsthere are several assumptions a trader must make which will increase the complexity of a volatility arbitrage strategy first the investor must be right about whether implied volatility is over or under priced second the investor must be correct about the amount of time it will take for the strategy to profit or the time value erosion could outpace any potential gains finally if the underlying stock price moves more quickly than expected the strategy will have to be adjusted which may be expensive or impossible depending on market conditions investopedia does not provide tax investment or financial services and advice the information is presented without consideration of the investment objectives risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors investing involves risk including the possible loss of principal | |
what is volatility | volatility is a statistical measure of the dispersion of returns for a given security or market index it is often measured from either the standard deviation or variance between those returns in most cases the higher the volatility the riskier the security in the securities markets volatility is often associated with big price swings either up or down for example when the stock market rises and falls more than 1 over a sustained period of time it is called a volatile market an asset s volatility is a key factor when pricing options contracts understanding volatilityvolatility often refers to the amount of uncertainty or risk related to the size of changes in a security s value a higher volatility means that a security s value can potentially be spread out over a larger range of values this means that the price of the security can move dramatically over a short time period in either direction a lower volatility means that a security s value does not fluctuate dramatically and tends to be steadier one way to measure an asset s variation is to quantify the daily returns percent move on a daily basis of the asset historical volatility is based on historical prices and represents the degree of variability in the returns of an asset 1 this number is without a unit and is expressed as a percentage 2while variance captures the dispersion of returns around the mean of an asset in general volatility is a measure of that variance bounded by a specific time period thus we can report daily weekly monthly or annualized volatility it is useful to think of volatility as the annualized standard deviation | |
how to calculate volatility | volatility is often calculated using variance and standard deviation the standard deviation is the square root of the variance since volatility describes changes over a specific period of time you simply take the standard deviation and multiply that by the square root of the number of periods in question | |
where | for simplicity let s assume we have monthly stock closing prices of 1 through 10 for example month one is 1 month two is 2 and so on to calculate variance follow the five steps below next take the square root of the variance to get the standard deviation this equals 2 87 this is a measure of risk and shows how values are spread out around the average price it gives traders an idea of how far the price may deviate from the average sabrina jiang investopediaif prices are randomly sampled from a normal distribution then about 68 of all data values will fall within one standard deviation ninety five percent of data values will fall within two standard deviations 2 2 87 in our example and 99 7 of all values will fall within three standard deviations 3 2 87 in this case the values of 1 to 10 are not randomly distributed on a bell curve rather they are uniformly distributed therefore the expected 68 95 99 7 percentages do not hold despite this limitation traders frequently use standard deviation as price returns data sets often resemble more of a normal bell curve distribution than in the given example the volatility of stock prices is thought to be mean reverting meaning that periods of high volatility often moderate and periods of low volatility pick up fluctuating around some long term mean types of volatilityimplied volatility iv also known as projected volatility is one of the most important metrics for options traders as the name suggests it allows them to make a determination of just how volatile the market will be going forward this concept also gives traders a way to calculate probability one important point to note is that it isn t considered science and therefore does not forecast how the market will move in the future unlike historical volatility implied volatility comes from the price of an option itself and represents volatility expectations for the future because it is implied traders cannot use past performance as an indicator of future performance instead they have to estimate the potential of the option in the market 3implied volatility is a key feature of options trading also referred to as statistical volatility historical volatility hv gauges the fluctuations of underlying securities by measuring price changes over predetermined time periods it is the less prevalent metric compared with implied volatility because it isn t forward looking 4 | |
when there is a rise in historical volatility a security s price will also move more than normal at this time there is an expectation that something will or has changed if the historical volatility is dropping on the other hand it means any uncertainty has been eliminated so things return to the way they were | this calculation may be based on intraday changes but often measures movements based on the change from one closing price to the next depending on the intended duration of the options trade historical volatility can be measured in increments ranging anywhere from 10 to 180 trading days volatility and options pricingvolatility is a key variable in options pricing models estimating the extent to which the return of the underlying asset will fluctuate between now and the option s expiration volatility as expressed as a percentage coefficient within option pricing formulas arises from daily trading activities how volatility is measured will affect the value of the coefficient used 5volatility is also used to price options contracts using models like the black scholes or binomial tree models 6 more volatile underlying assets will translate to higher options premiums because with volatility there is a greater probability that the options will end up in the money at expiration options traders try to predict an asset s future volatility so the price of an option in the market reflects its implied volatility the greater the volatility the higher the market price of options contracts across the board other measures of volatilityone measure of the relative volatility of a particular stock to the market is its beta a beta approximates the overall volatility of a security s returns against the returns of a relevant benchmark usually the s p 500 is used for example a stock with a beta value of 1 1 has moved 110 for every 100 move in the benchmark based on price level conversely a stock with a beta of 0 9 has moved 90 for every 100 move in the underlying index 7market volatility can also be seen through the volatility index vix a numeric measure of equity market volatility the chicago board options exchange created the vix as a measure to gauge the 30 day expected volatility of the u s stock market derived from real time quote prices of s p 500 call and put options 8 it is effectively a gauge of future bets that investors and traders are making on the direction of the markets or individual securities a high reading on the vix implies a risky market traders can trade the vix using a variety of options and exchange traded products or they can use vix values to price certain derivative products tips for managing volatilityinvestors can find periods of high volatility to be distressing as prices can swing wildly or fall suddenly long term investors are best advised to ignore periods of short term volatility and stay the course this is because over the long run stock markets tend to rise meanwhile emotions like fear and greed which can become amplified in volatile markets can undermine your long term strategy some investors can use volatility as an opportunity to add to their portfolios by buying the dips when prices are relatively cheap you can also use hedging strategies to navigate volatility such as buying protective puts to limit downside losses without having to sell any shares but note that put options will also become pricier when volatility is higher example of volatilitysuppose that an investor is building a retirement portfolio since she is retiring within the next few years she s seeking stocks with low volatility and steady returns she considers two companies a more conservative investor may choose abc corp for their portfolio since it has less volatility and more predictable short term value | |
what is volatility mathematically | volatility is a statistical measure of the dispersion of data around its mean over a certain period of time it is calculated as the standard deviation multiplied by the square root of the number of time periods t in finance it represents this dispersion of market prices on an annualized basis | |
is volatility the same as risk | volatility is often used to describe risk but this is not necessarily always the case risk involves the chances of experiencing a loss while volatility describes how much and quickly prices move if increased price movements also increase the chance of losses then risk is likewise increased | |
is volatility a good thing | whether volatility is good or bad depends on what kind of trader you are and what your risk appetite is for long term investors volatility can spell trouble but for day traders and options traders volatility often equals trading opportunities | |
what does high volatility mean | if volatility is high it means that prices are moving both up and down quickly and steeply | |
what is the vix | the vix is the cboe volatility index a measure of the short term volatility in the broader market measured by the implied volatility of 30 day s p 500 options contracts the vix generally rises when stocks fall and declines when stocks rise also known as the fear index the vix can be a gauge of market sentiment with higher values indicating greater volatility and greater fear among investors 8the bottom linevolatility is how much and how quickly prices move over a given span of time in the stock market increased volatility is often a sign of fear and uncertainty among investors this is why the vix volatility index is sometimes called the fear index at the same time volatility can create opportunities for day traders to enter and exit positions volatility is also a key component in options pricing and trading | |
what is the volatility ratio | the volatility ratio is a technical measure used to identify price patterns and breakouts in technical analysis it uses true range to gain an understanding of how a security s price is moving on the current day in comparison to its past volatility there are several different versions of volatility ratios the most common being adaptations of average true range atr understanding volatility ratiosthe volatility ratio is a measure that helps investors follow the volatility of a stock s price it is one of a few technical indicators focused on volatility in general the standard deviation is typically one of the most common measures used for following volatility standard deviation forms the basis for several technical channels including bollinger bands comprehensive envelope channels of many different varieties are used by technical analysts to identify price ranges and volatility patterns that help lead to trading signals historical volatility is also another common trendline that can be used to follow volatility the volatility ratio was developed to contribute to the analysis of price volatility across the industry volatility and volatility ratio calculations may vary for technical analysis jack schwager is known for introducing the concept of a volatility ratio in his book technical analysis 1calculating the volatility ratioschwager s methodology for calculating the volatility ratio builds on the concept of true range which was developed and introduced by welles wilder but has several iterations schwager calculates the volatility ratio from the following 1other iterations of the volatility ratio may include the following volatility ratio signalsinvestors and traders will have their own mechanisms for following and detecting patterns from the volatility ratio this ratio is typically plotted as a single line on a technical chart either as an overlay or in its own display window a higher volatility ratio will signal substantial price volatility in the current trading day in general volatility can be a signal of disturbances or developments affecting the security s price therefore high volatility may lead to a new trend for the security s price in either a positive or negative direction traders follow volatility and the volatility ratio in conjunction with other trading patterns to help confirm a trading signal for investment investopedia does not provide tax investment or financial services and advice the information is presented without consideration of the investment objectives risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors investing involves risk including the possible loss of principal | |
the volatility skew is the difference in implied volatility iv between out of the money options otm at the money options atm and in the money options itm the volatility skew which is affected by sentiment and the supply and demand relationship of particular options in the market provides information on whether traders and investors prefer to write calls or puts | also known as a vertical skew traders can use relative changes in skew for an options series as a trading strategy 1 | |
why would volatility skew | volatility skew occurs due to the difference in implied volatility iv levels of options with different strike prices but the same expiration date the iv of an option is a measure of how much the market expects the price of the underlying asset to move the primary driver of volatility skew is the collective expectations and behavior of market participants if investors expect a significant price movement in one direction these investors may be willing to pay more for options that would profit from that move this increased demand can drive up the iv of those options creating a skew also investors often perceive downside risk that is the risk of prices falling as greater than upside potential particularly in equity markets this is because stock prices can only go to zero but there s theoretically no limit as to how much they can rise as a result investors are often willing to pay more for put options which increase in value when prices fall than for call options which increase in value when prices rise this can result in higher iv for otm put options creating a volatility skew additionally certain market events such as earnings announcements or economic reports can also create a volatility skew if investors expect these events to cause significant price movements they may be willing to pay more for options that would profit from those movements this can create a temporary volatility skew that disappears after the event indeed events such as major market downturns or financial crises can lead to volatility skews for example the 1987 stock market crash led to a significant volatility skew as investors rushed to buy put options to protect against further declines the shape of the volatility skew can provide valuable information about market expectations and potential future price movements however it s important for traders and investors to remember that these are just expectations and actual future price movements may be different 2implied volatility values are often computed using the black scholes option pricing model or modified versions of it the interpretation of a volatility skewinterpreting a volatility skew involves understanding the implications of the shape and slope of the skew some interpretations of the volatility skew include it should be noted that the volatility skew is based on market expectations which can change over time therefore it s important for investors and traders to continually monitor the skew and adjust their respective strategies accordingly also the skew should be used in conjunction in with other market indicators 34determining abnormal volatilitya volatility skew can be used to identify abnormal volatility in the market a significant change in the volatility skew can indicate abnormal volatility one example entails when the skew becomes more negative that is the iv of otm put options increase relative to call options it could suggest that investors are expecting a significant downward price movement which would likely be accompanied by increased volatility also by comparing the current volatility skew to its historical levels traders and investors can identify if the current market expectations reflected in the skew are abnormal if the skew is significantly different from its historical average it could suggest that the market is expecting abnormal volatility 5furthermore a volatility smile where the iv is higher for both otm and itm options compared to atm options can indicate that the market is expecting large price movements in either direction this suggests abnormal volatility another note is if the implied volatility varies significantly across different strike prices that is the skew is steep it could suggest that the market is experiencing abnormal volatility 6while volatility skew can provide valuable insights into market expectations it should not be used in isolation other factors such as market news economic indicators and even other technical analysis tools should be considered when assessing the likelihood of abnormal volatility a volatility smile means that the iv of options on a particular underlying security or market index increases as the options become further itm or otm with the lowest point generally occurring atm the pattern is often depicted as a v shaped curve a volatility smile has several important implications for options pricing and market expectations they are as follows 7the formation of a volatility smirka volatility smirk occurs when iv for options on an underlying security or index decreases as the options become more deeply itm or otm the pattern is often depicted as a curve that slopes downward resembling a smirk the implications of a volatility smirka volatility smirk has several implications for options pricing market expectations and risk management this include 8the benefits and limitations of analyzing volatilityanalyzing volatility in the financial markets can provide several benefits but as with any form of analysis or technique there are limitations the benefits of analyzing volatilityvolatility is a key measure of risk in financial markets higher volatility typically indicates higher risk as it suggests larger potential price swings this can help investors assess the riskiness of different assets or portfolios also by understanding the volatility of different assets investors can better diversify their portfolios assets with low correlation and different volatility levels can provide diversification benefits indeed volatility is a crucial input in the pricing of derivatives such as options higher volatility generally leads to higher option prices furthermore changes in volatility can provide market insights into market sentiment for example rising volatility may indicate increasing uncertainty or fear among market participants traders and investors alike use volatility to inform their investment strategies they may use strategies such as straddles or strangles in a high volatility environment 9some limitations with analyzing volatility include the calculation of volatility the stability of volatility the normal distribution assumption volatility clustering and the lack of direction in volatility analysis historical volatility calculated from past price changes may not accurately predict future volatility implied volatility derived from option prices can provide a forward looking estimate but is based on market participants expectations which may not always be accurate 1011indeed volatility itself can be volatile it can change rapidly in response to market events making it difficult to predict moreover many models that use volatility assume that price changes follow a normal distribution however in reality financial returns often exhibit skewness and kurtosis meaning that they have asymmetric and fat tailed distributions 12also financial markets often exhibit volatility clustering where periods of low volatility tend to be followed by periods of high volatility and low volatility periods are followed by high volatility this complicates the analysis 13finally volatility measures the magnitude of price changes but it does not provide any information about the direction of the change high volatility could mean large price increases large price decreases or a mixture of both | |
what is implied volatility | implied volatility is a metric that attempts to capture the market s expectations of the future volatility of a security s price | |
what are the key differences between a volatility skew and a volatility smile | while both volatility skew and volatility smile relate to the iv across different strike prices they represent different market expectations and conditions the volatility skew typically reflects a greater fear of downside risk while the smile suggests a higher probability of large price moves in either direction | |
what is the key difference between a reverse and forward skew | the key difference between a reverse and forward skew is the direction of the skew a reverse skew reflects a market expectation of a large downward move that is higher iv for lower strike prices while a forward skew reflects a market expectations of a large upward move that is higher iv for higher strike prices | |
what are the common underlying securities when analyzing volatility | volatility analysis is a crucial part of financial markets and can be applied to a wide range of securities some of these securities include equities equity indices options futures foreign exchange fx bonds exchange traded funds etfs and mutual funds | |
are there any other ways to analyze volatility | there are several ways to analyze volatility beyond skew and smile patterns some ways include using historical volatility volatility indices generalized autoregressive conditional heteroskedasticity garch models volatility term structure volatility surface and the average true range atr the bottom lineanalyzing volatility provides insights into market sentiment and potential price movements aiding in risk management and trading strategy development it can be analyzed through various methods such as historical volatility implied volatility volatility indices garch models and more however it s important to note that while these methods can provide valuable insights none of them can perfectly predict future volatility they should be used as tools to help inform decision making not as definitive predictors of future outcomes the limitations of analyzing volatility include the fact that it s based on past data and market sentiment which may not accurately predict future market conditions additionally high volatility can indicate higher risk which may not be suitable for all investors | |
what is a volatility smile | a volatility smile is a common graph shape that results from plotting the strike price and implied volatility of a group of options with the same underlying asset and expiration date the volatility smile is so named because it looks like a smiling mouth implied volatility rises when the underlying asset of an option is further out of the money otm or in the money itm compared to at the money atm the volatility smile does not apply to all options | |
what does a volatility smile tell you | volatility smiles are created by implied volatility changing as the underlying asset moves more itm or otm the more an option is itm or otm the greater its implied volatility becomes implied volatility tends to be lowest with atm options the volatility smile is not predicted by the black scholes model which is one of the main formulas used to price options and other derivatives the black scholes model predicts that the implied volatility curve is flat when plotted against varying strike prices based on the model it would be expected that the implied volatility would be the same for all options expiring on the same date with the same underlying asset regardless of the strike price yet in the real world this is not the case volatility smiles started occurring in options pricing after the 1987 stock market crash they were not present in u s markets beforehand indicating a market structure more in line with what the black scholes model predicts after 1987 traders realized that extreme events could happen and that markets have a significant skew the possibility for extreme events needed to be factored into options pricing therefore in the real world implied volatility increases or decreases as options move more itm or otm 1also the volatility smile s existence shows that itm and otm options tend to be more in demand than atm options demand drives prices which affects implied volatility this could be partially due to the reason mentioned above extreme events can occur causing significant price shifts in options the potential for large shifts is factored into implied volatility example of how to use the volatility smilevolatility smiles can be seen when comparing various options with the same underlying asset and same expiration date but different strike prices if the implied volatility is plotted for each of the different strike prices then there may be a u shape the u shape is not always as perfectly formed as depicted in the graph above for a rough estimate of whether an option has a u shape pull up an options chain that lists the implied volatility of the various strike prices if the option has a u shape then options that are itm and otm by an equal amount should have roughly the same implied volatility the further itm or otm the greater the implied volatility with the lowest implied volatilities near the atm options if this is not the case then the option does not align with a volatility smile the implied volatility of a single option also could be plotted over time relative to the price of the underlying asset as the price moves in or out of the money the implied volatility may take on some form of a u shape this can be useful if seeking an option that has lower implied volatility in this case choose an option near the money if looking for greater implied volatility choose an option that is further itm or otm remember though as the underlying asset moves closer to or farther from the strike price this will affect the implied volatility therefore maintaining a portfolio of options with a specific implied volatility will require continual reshuffling not all options align with the volatility smile before using the volatility smile to aid in making trading decisions check to make sure that the option s implied volatility actually follows the smile model the difference between a volatility smile and a volatility skew smirkwhile near term equity options and forex options lean more toward aligning with a volatility smile index options and long term equity options tend to align more with a volatility skew the skew smirk shows that implied volatility may be higher for itm or otm options limitations of using the volatility smilefirst it is important to determine if the option being traded actually aligns with a volatility smile the volatility smile is one model that an option may align with but implied volatility could align more with a reverse or forward skew smirk also due to other market factors such as supply and demand the volatility smile if applicable may not be a clean u shape or smirk it may have a basic u shape but could be choppy with certain options showing more or less implied volatility than would be expected based on the model the volatility smile highlights where traders should look if they want more or less implied volatility yet there are many other factors to consider when making an options trading decision | |
what is a volatility swap | a volatility swap is a forward contract with a payoff based on the realized volatility of the underlying asset they settle in cash based on the difference between the realized volatility and the volatility strike or pre determined fixed volatility level volatility swaps allow participants to trade an asset s volatility without directly trading the underlying asset volatility swaps are not swaps in the traditional sense with an exchange of cash flows between counterparties they are also similar to variance swaps where the payoff is based on realized variance understanding volatility swapsvolatility swaps are pure volatility instruments allowing investors to speculate solely upon the movement of an underlying asset s volatility without the influence of its price thus just like investors speculate on the prices of assets by using this instrument investors are able to speculate on how volatile the asset will be the name swap in this case is a misnomer because swaps are structured contracts consisting of cash flow exchanges typically matching a fixed rate with a variable rate volatility swaps and variance swaps are actually forward contracts with payoffs based on the observed or realized variance of the underlying asset at settlement the payoff is at inception the notional amount is not exchanged the volatility strike is a fixed number that reflects the market s expectation of volatility at the time the swap begins in a sense the volatility strike represents implied volatility although it is not the same as traditional implied volatility in options the strike itself is typically set at the beginning of the swap to make the net present value npv of the payoff zero what volatility actually ends up being at the end of the contract determines the payoff assuming it is different than the implied volatility volatility strike using volatility swapsa volatility swap is a pure play on an underlying asset s volatility options also give an investor the possibility to speculate on an asset s volatility however options carry directional risk and their prices depend on many factors including time expiration and implied volatility therefore the equivalent options strategy requires additional risk hedging to complete volatility swaps don t require this they are simply based on volatility there are three main classes of users for volatility swaps variance swaps are far more common in equity markets than volatility swaps example of how to use a volatility swapassume that an institutional trader wants a volatility swap on the s p 500 index the contract will expire in twelve months and has a notional value of 1 million currently the implied volatility is 12 this is set as the strike for the contract in twelve month s time volatility is 16 this is the realized volatility there is a 4 difference or 40 000 1 million x 4 the seller of the volatility swap pays the swap buyer 40 000 assuming the seller is holding the fixed leg and the buyer the floating leg if volatility dropped to 10 the buyer would pay the seller 20 000 1 million x 2 this is a simplified example since volatility swaps are over the counter instruments otc they can be constructed in different ways some alternatives may be to annualize the rates or calculate the difference in volatility in terms of daily changes | |
what is the volcker rule | the volcker rule is a federal regulation that generally prohibits banks from conducting certain investment activities with their own accounts and limits their dealings with hedge funds and private equity funds also called covered funds understanding the volcker rulethe volcker rule aims to protect bank customers by preventing banks from making certain types of speculative investments that contributed to the 2007 2008 financial crisis essentially it prohibits banks from using their own accounts for short term proprietary trading of securities derivatives and commodity futures as well as options on any of these instruments in august 2019 the u s office of the comptroller of the currency occ voted to amend the volcker rule in an attempt to clarify what securities trading was and was not allowed by banks 2 on june 25 2020 federal deposit insurance corp fdic officials said the agency will loosen the restrictions of the volcker rule allowing banks to more easily make large investments into venture capital and similar funds 31the volcker rule aims to protect bank customers by preventing banks from making certain types of speculative investments that contributed to the 2007 2008 financial crisis in addition banks will not have to set aside as much cash for derivatives trades among different units of the same firm that requirement had been put in place in the original rule to ensure that banks wouldn t get wiped out if speculative derivative bets went wrong loosening those requirements could free up billions of dollars in capital for the industry the volcker rule is named after economist and former federal reserve fed chair paul volcker who died on dec 8 2019 at age 92 4 the volcker rule refers to section 619 of the dodd frank wall street reform and consumer protection act of 2010 which sets forth rules for implementing section 13 of the bank holding company act of 1956 5the volcker rule also bars banks or insured depository institutions from acquiring or retaining ownership interests in hedge funds or private equity funds subject to certain exemptions 6 in other words the rule aims to discourage banks from taking too much risk by barring them from using their own funds to make these types of investments to increase profits the volcker rule relies on the premise that these speculative trading activities do not benefit banks customers the rule went into effect on april 1 2014 with banks full compliance required by july 21 2015 although the fed has since set procedures for banks to request extended time to transition into full compliance for certain activities and investments 7 on may 30 2018 fed board members led by chair jerome jay powell voted unanimously to push forward a proposal to loosen the restrictions around the volcker rule and reduce the costs for banks that need to comply with it 8 the goal according to powell was to replace overly complex and inefficient requirements with a more streamlined set of requirements 9the rule as it exists allows banks to continue market making underwriting hedging trading government securities engaging in insurance company activities offering hedge funds and private equity funds and acting as agents brokers or custodians banks may continue to offer these services to their customers to generate profits however banks cannot engage in these activities if doing so would create a material conflict of interest expose the institution to high risk assets or trading strategies or generate instability within either the bank or the overall u s financial system depending on their size banks must meet varying levels of reporting requirements to disclose details of their covered trading activities to the government larger institutions must implement a program to ensure compliance with the new rules and their programs are subject to independent testing and analysis smaller institutions are subject to lesser compliance and reporting requirements 10additional history of the volcker rulethe rule s origins date back to 2009 when volcker proposed a piece of regulation in response to the ongoing financial crisis and after the nation s largest banks accumulated large losses from their proprietary trading arms that aimed to prohibit banks from speculating in the markets volcker ultimately hoped to reestablish the divide between commercial banking and investment banking a division that once existed but was legally dissolved by a partial repeal of the glass steagall act in 1999 although not a part of then president barack obama s original proposal for financial overhaul the volcker rule was endorsed by obama and added to the proposal by congress in january 2010 11in december 2013 five federal agencies the board of governors of the fed the fdic the occ the commodity futures trading commission cftc and the securities and exchange commission sec approved the final regulations that make up the volcker rule 7a bank may be excluded from the volcker rule if it does not have more than 10 billion in total consolidated assets and does not have total trading assets and liabilities of 5 or more of total consolidated assets criticism of the volcker rulethe volcker rule has been widely criticized from various angles the u s chamber of commerce claimed in 2017 that a cost benefit analysis was never done and that the costs associated with the volcker rule outweigh its benefits 12 that same year the top risk official of the international monetary fund imf said that regulations to prevent speculative bets are hard to enforce and that the volcker rule could unintentionally diminish liquidity in the bond market 13the fed s finance and economics discussion series feds made a similar argument saying that the volcker rule will reduce liquidity due to a reduction in banks market making activities 14 furthermore in october 2017 a reuters report revealed that the european union eu had scrapped a drafted law that many characterized as europe s answer to the volcker rule citing no foreseeable agreement in sight 15 meanwhile several reports have cited a lighter than expected impact on the revenues of big banks in the years following the rule s enactment although ongoing developments in the rule s implementation could affect future operations future of the volcker rulein february 2017 then president donald trump signed an executive order directing then treasury secretary steven mnuchin to review existing financial system regulations 16 since the executive order treasury officials have released multiple reports proposing changes to dodd frank including a recommended proposal to allow banks greater exemptions under the volcker rule in one of the reports released in june 2017 the treasury said it recommends significant changes to the volcker rule while adding that it does not support its repeal and supports in principle the rule s limitations on proprietary trading the report notably recommends exempting from the volcker rule banks with less than 10 billion in assets the treasury also cited regulatory compliance burdens created by the rule and suggested simplifying and refining the definitions of proprietary trading and covered funds on top of softening the regulation to allow banks to more easily hedge their risks 17since the june 2017 assessment bloomberg reported in january 2018 that the occ has led efforts to revise the volcker rule in accordance with some of the treasury s recommendations 18 a time line for any proposed revisions to take effect remains unclear though it would certainly take months or years in june 2020 bank regulators loosened one of the volcker rule provisions to allow lenders to invest in venture capital funds and other assets 1after the election of president joseph biden in 2020 the new administration signaled its support to reverse the trump era diminutions to the financial system regulations | |
what was the goal of the volcker rule | the volcker rule s origins date back to 2009 when economist and former federal reserve fed chair paul volcker proposed a piece of regulation in response to the ongoing financial crisis and after the nation s largest banks accumulated large losses from their proprietary trading arms the aim was to protect bank customers by preventing banks from making certain types of speculative investments that contributed to the crisis essentially it prohibits banks from using their own accounts customer funds for short term proprietary trading of securities derivatives and commodity futures as well as options on any of these instruments 6 volcker ultimately hoped to reestablish the divide between commercial banking and investment banking a division that once existed but was legally dissolved by a partial repeal of the glass steagall act in 1999 | |
what are the main criticisms of the volcker rule | the volcker rule has been widely criticized from various angles the u s chamber of commerce claimed in 2017 that a cost benefit analysis was never done and that the costs associated with the volcker rule outweigh its benefits 12 the fed s finance and economics discussion series feds argued that the volcker rule will reduce liquidity due to a reduction in banks market making activities 14 additionally international monetary fund imf analysts have argued that regulations to prevent speculative bets are hard to enforce 19 | |
what was the glass steagall act | spurred by the failure of almost 5 000 banks during the great depression the glass steagall act was passed by the u s congress as part of the banking act of 1933 sponsored by sen carter glass a former treasury secretary and rep henry steagall chair of the house banking and currency committee it prohibited commercial banks from participating in the investment banking business and vice versa 20the rationale was the conflict of interest that arose when banks invested in securities with their own assets which of course were actually their account holders assets simply put the bill s proponents argued that banks had a fiduciary duty to protect these assets and not to engage in excessively speculative activity the bottom linethe volcker rule is intended to restrict high risk speculative trading activity by banks such as proprietary trading or investing in or sponsoring hedge funds or private equity funds it maintains banks abilities to offer important customer oriented financial services such as underwriting market making and asset management services the regulations have been developed by five federal financial regulatory agencies all described above the federal reserve board the cftc the fdic the occ and the sec | |
what is volume | volume is the amount of an asset or security that changes hands over some period of time often over the course of a trading day for instance a stock s trading volume refers to the number of shares traded between its daily open and close trading volume and changes in volume over the course of time are important inputs for technical traders investopedia michela buttignolunderstanding volumeall of the shares of every transaction that takes place between a buyer and seller of a security contributes to the total volume count of that security on that day each transaction or trade occurs whenever a buyer and a seller agree to exchange shares for cash volume includes all the share involved in the transactions for example if five transactions occurred in one day and each transaction involved 100 shares the trading volume for that day would be 500 each exchange tracks its trading volume s and provides data to traders and investors for free or a subscription fee trade volume numbers are reported as often as once an hour throughout the current trading day but reported daily and hourly trade volumes are estimates final trading volume figures are reported the following day investors may also follow a security s tick volume or the number of changes in a contract s price as a surrogate for trade volume since prices tend to change more frequently with a higher trade volume volume tells traders about a market s activity and liquidity higher trade volumes for a specific security means higher liquidity better order execution and a more active market for connecting buyers and sellers when investors feel hesitant about the stock market s direction futures trading volume tends to increase which often causes options and futures on specified securities to trade more actively volume overall tends to be higher near the market s opening and closing times and on mondays and fridays it tends to be lower at lunchtime and before a holiday volume in technical analysissome investors use technical analysis a strategy that uses changes in stock price to make decisions about buying or selling a stock technical analysts are primarily looking for entry and exit price points volume levels are important because they provide clues to where the best entry and exit points might be volume is an important indicator in technical analysis because it measures the relative significance of any market move if the market moves a large amount during a given period then the strength of that movement either gains credibility or is viewed with skepticism based on the volume observed the higher the volume during the price move the more significant the move is considered in this form of analysis conversely if the volume is low then the move is viewed with less significance volume is one of the most important measures of the strength of a security for traders and technical analysts from an auction perspective when buyers and sellers become particularly active at a specific price it means there is a high volume analysts use bar charts to quickly determine trading volume bar charts also make it easier to identify trends in volume when the bars on a bar chart are higher than average it s a sign of high volume or strength at a particular market price by examining bar charts analysts can use volume as a way to confirm a price movement if volume increases when the price moves up or down it is considered a price movement with strength if traders want to confirm a reversal on a level of support or floor they look for high buying volume conversely if traders want to confirm a break in the level of support they look for low volume from buyers to confirm a reversal on a level of resistance or ceiling traders look for high selling volume conversely to confirm a break in the level of resistance they look for high volume from buyers other considerationsrecently high frequency traders hft and index funds have become major contributors to trading volume statistics in u s markets many trades are conducted by high frequency algorithmic traders which are automated trading platforms programmed to make trades by 2030 algorithmic trading is expected to gain a market size of 41 9 billion 1volume may or may not be as significant if automated trading takes over the market according to various reports between 60 and 80 of daily trading volume is conducted by automation if this is true it could change the way traders view volume 23 | |
what does volume mean in stock | volume in the stock market is the amount of stocks traded per period | |
what is a good volume for a stock | traders usually have their own definitions of good trading volume it s best to do your research to determine your preferred volume or consult a trading or investing professional | |
how much is 1 volume in stocks | if a stock has a trading volume of one it means only one share was traded during the measured period the bottom linea stock s volume is the number of shares traded in a given period traders and investors use the metric to gauge the interest in a security to help them make trading decisions when trading volume is up whether it s buying or selling volume it means the security is gaining attention and trading activity is increasing determining whether high or low buying and selling volume is good for you depends on your strategy and outlook the combination of these four elements makes for a market in which you can profit from any price moves if you ve done your homework created a strategy and disciplined yourself to stick to your trading plan | |
what is volume analysis | volume analysis is the examination of the number of shares or contracts of a security that have been traded in a given period volume analysis is used by technical analysts as one of many factors that inform their trading decisions by analyzing trends in volume in conjunction with price movements investors can determine the significance of changes in a security s price understanding volume analysisvolume analysis is done by all types of analysts following specific securities in the financial markets generally volume refers to the number of shares transacted per day having an understanding of the entire market s trading volume versus the volume of a single holding can be one important comparison that helps analysts to discern volume trends oftentimes high volumes of trading can infer a lot about investors outlook on a market or security a significant price increase along with a significant volume increase for example could be a credible sign of a continued bullish trend or a bullish reversal adversely a significant price decrease with a significant volume increase can point to a continued bearish trend or a bearish trend reversal in general it can be important for technical analysts to include volume charts in daily charting diagrams volume charts are usually available below a standard candlestick graph these charts will also usually display moving average trendlines incorporating volume into a trading decision can help an investor to have a more balanced view of all the broad market factors that could be influencing a security s price which helps an investor to make a more informed decision volume indicatorsin technical analysis there are two popular indicators designed specifically to support investors that incorporate volume into their trading decisions the positive volume index pvi and negative volume index nvi were developed by paul dysart in the 1930s these indexes increased in popularity in 1975 when they were discussed in a 1976 book titled stock market logic by norman fosback the pvi and nvi are both based on the previous day s trading volume and a security s market price when trading volume increases from the previous day the pvi is adjusted when trading volume decreases from the previous day the nvi is adjusted these basic index calculations show how volume is affecting price | |
when pvi increases or decreases it means that price changes are being driven by high volumes conversely when nvi increases or decreases it means that prices are fluctuating with little effect from volume | calculating the positive volume indexif current volume is greater than the previous day s volume if current volume is lower than the previous day s volume pvi is unchanged if the current volume is less than the previous day s volume if the current volume is higher than the previous day s volume nvi is unchanged many investors believe that noise trading is a significant factor in the positive volume index therefore the negative volume index is often followed for its insight into professional traders market activity investopedia does not provide tax investment or financial services and advice the information is presented without consideration of the investment objectives risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors investing involves risk including the possible loss of principal | |
what is a volume discount | a volume discount is an economic incentive to encourage individuals or businesses to purchase goods in multiple units or in large quantities the seller or manufacturer rewards those buying in bulk by providing a reduced price for each good or group of goods volume discounts allow businesses to purchase additional inventory at reduced cost and allow sellers or manufacturers to reduce inventories by selling more units to bulk buyers who are incentivized by the lower price understanding volume discountsvolume discounts allow buyers to purchase goods at a discounted rate these savings are often passed on to consumers for example walmart is able to purchase such large quantities of each particular good that it routinely receives volume discounts from its vendors walmart s customers in turn are able to purchase these goods for less money than if they went to a store that did not buy in such great volume in financial markets some brokerage firms offer volume discounts on commissions charged depending on the level of investment or trading activity or for large block order trades | |
how volume discounts work | the discounts can take on a variety of structures volume discounts are often tiered that is a specific discount is applied to x number of units within that tier the discount increases as for tiers that include larger and larger numbers of units for instance a discount could be applied to 50 to 100 units sold with a greater discount for 101 to 200 units sold and an even larger discount could apply to 201 to 300 units sold and so on another method of offering volume discounts is to apply a lower rate only when a certain threshold is reached for example the discount might go into effect after 100 units are purchased and only apply to the units beyond that threshold the buyer would still pay full price for the first 100 units they procured yet another discount structure is to offer reduced prices on packages of units a discount price could be offered for every 10 units sold with the same rate applied equally another deeper discount rate might then be applied for every 25 units sold in order to reap the benefits of the lower prices the buyer must purchase units in the stated increments in the previous example if the buyer purchased 15 units they would pay the lower rate only for 10 units and full price for the remaining five units the same would be true if 27 units were purchased two units would cost full price while 25 units get the lower rate the volume discount would not apply to the entire order | |
what is volume of trade | volume of trade is the total quantity of shares or contracts traded for a specified security it can be measured on any type of security traded during a trading day volume of trade or trade volume is measured on stocks bonds options contracts futures contracts and all types of commodities understanding volume of tradevolume of trade measures the total number of shares or contracts transacted for a specified security during a specified time period it includes the total number of shares transacted between a buyer and seller during a transaction when securities are more actively traded their trade volume is high and when securities are less actively traded their trade volume is low volume tends to be highest near the market open and close and the start of the week and last day of the week | |
how volume of trade works | each market exchange tracks its trading volume and provides volume data the volumes of trade numbers are reported as often as once an hour throughout the current trading day these hourly reported trade volumes are estimates a trade volume reported at the end of the day is also an estimate final actual figures are reported the following day investors may also follow a security s tick volume or the number of changes in a contract s price as a surrogate for trade volume since prices tend to change more frequently with a higher volume of trade volume tells investors about the market s activity and liquidity higher trade volumes for specified security mean higher liquidity better order execution and a more active market for connecting a buyer and seller when investors feel hesitant about the direction of the stock market futures trading volume tends to increase which often causes options and futures on specified securities to trade more actively volume overall tends to be higher near the market s opening and closing times and on mondays and fridays it tends to be lower at lunchtime and before a holiday special considerationsin recent times high frequency traders and index funds have become a major contributor to trading volume statistics in u s markets according to a 2017 jpmorgan study passive investors like etfs and quantitative investment accounts which utilize high frequency algorithmic trading were responsible for 60 of overall trading volumes while fundamental discretionary traders or traders who evaluate the fundamental factors affecting a stock before making an investment comprised only 10 of the overall figures traders and volume of tradetraders use various trading factors in technical analysis trade volume is one of the simplest technical factors analyzed by traders when considering market trades the trade volume during a large price increase or decrease is often important for traders as high volumes with price changes can indicate specific trading catalysts high volumes associated with directional changes in price can also help to reinforce support for the value of a security volume levels can also help traders decide on specified times for a transaction traders follow the average daily trading volume of a security over short term and longer term periods when making decisions on trade timing traders can also use several technical analysis indicators that incorporate volume the securities and exchange commission sec regulates the sale of securities by traders according to rule 144 sellers cannot make security sales exceeding 1 of outstanding shares of the same class being sold example of volume of tradesuppose a market consists of two traders trader 1 and trader 2 the first trader buys 500 shares of stock abc and sells 250 shares of xyz the other trader sells those 500 shares and buys the 250 shares of stock xyz to the first trader the total volume of trade in the market is 750 500 shares of abc 250 xyz shares this is because we do not double count the volume when trader 1 buys 500 abc shares from trader 2 only 500 shares are counted likewise only 250 shares of xyz would be recorded on the volume tally investopedia does not provide tax investment or financial services and advice the information is presented without consideration of the investment objectives risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors investing involves risk including the possible loss of principal | |
what is a volume price trend indicator vpt | the volume price trend vpt indicator helps determine a security s price direction and strength of price change the indicator consists of a cumulative volume line that adds or subtracts a multiple of the percentage change in a share price s trend and current volume depending upon the security s upward or downward movements example of the volume price trend indicatorunderstanding the volume price trend indicator vpt the volume price trend indicator is used to determine the balance between a security s demand and supply the percentage change in the share price trend shows the relative supply or demand of a particular security while volume indicates the force behind the trend the vpt indicator is similar to the on balance volume obv indicator in that it measures cumulative volume and provides traders with information about a security s money flow 1 most charting software packages have the vpt indicator included trading with the volume price trend indicatoras a technical momentum indicator vpt allows traders and analysts to identify the supply and demand parity of a stock the following are some of the trading signals they look for a signal line which is just a moving average of the indicator can be applied and used to generate trading signals for example a trader may buy a stock when the vpt line crosses above its signal line and sell when the vpt line passes below its signal line the vpt indicator can be used in conjunction with moving averages and the average directional index adx to confirm trending markets for instance a trader could buy a stock if the 20 day moving average is above the 50 day moving average and accompanied by rising vpt indicator values conversely the trader may decide to sell if the 20 day moving average is below the 50 day moving average and the indicator s values are falling the adx also measures trends and momentum and can be used with the vpt indicator to confirm that a market is trending adx readings above 25 indicate that a security is trending while readings below 25 indicate sideways price action therefore a trader could buy when the adx is above 25 and the vpt line is above its signal line they could sell when the adx has a value below 25 and the vpt line is below its signal line 2traders can use the vpt indicator to spot technical divergence divergence occurs when the indicator makes a higher high or a lower low but the security s price makes a lower high or a higher low traders should place a stop loss order above the most recent swing high or below the most recent swing low to minimize risk | |
what is the volume weighted average price vwap | the volume weighted average price vwap is a technical analysis indicator used on intraday charts that resets at the start of every new trading session it s the average price a security has traded at throughout the day based on both volume and price vwap is important because it provides traders with insight into both the price trend and value of a security investopedia jiaqi zhouunderstanding the volume weighted average price vwap vwap is calculated by totaling the dollars traded for every transaction price multiplied by the volume and then dividing by the total shares traded the formula for vwap is vwap cumulative typical price volumecumulative volumewhere typical price high price low price closing price 3cumulative total trades since the trading session opened begin aligned textbf vwap mathbf frac textbf cumulative typical price mathbf times textbf volume textbf cumulative volume textbf where text typical price text high price text low price text closing price 3 text cumulative text total trades since the trading session opened end aligned vwap cumulative volumecumulative typical price volume where typical price high price low price closing price 3cumulative total trades since the trading session opened by adding the vwap indicator to a streaming chart the calculation will be made automatically however to calculate the vwap yourself follow the steps below assume a five minute chart the calculation is the same regardless of what intraday time frame is used to make step 3 easier in a spreadsheet create columns for cumulative pv and cumulative volume and apply the formula to these figures | |
how is vwap used | vwap is used in different ways by traders traders may use it as a trend confirmation tool and build trading rules around it for instance they may consider stocks with prices below vwap as undervalued and those with prices above it as overvalued if prices below vwap move above it traders may go long on the stock if prices above vwap move below it they may sell their positions or initiate short positions institutional buyers including mutual funds use vwap to help move into or out of stocks with as small of a market impact as possible therefore when they can institutions will try to buy below the vwap or sell above it this way their actions push the price back toward the average instead of away from it vwap s incorporation of volume is valuable to traders for what it can indicate about the degree of trading activity during short periods of time whether the competition is taking or exiting positions vwap vs simple moving averageon a chart vwap and a simple moving average sma may look similar however these two indicators are calculated differently and represent different results vwap is calculated by multiplying the typical price by volume and then dividing by total volume a simple moving average incorporates price but not volume the sma is calculated by totaling closing prices over a certain period say 10 days and then dividing the total by the number of periods e g 10 limitations of vwap1 vwap is a single day indicator and restarts at the opening of each new trading day attempting to create an average vwap over many days could distort it and result in an incorrect indicator 2 while some institutions may prefer to buy when the price of a security is below the vwap or sell when it is above vwap is not the only factor to consider in strong uptrends the price may continue to move higher for many days without dropping below the vwap at all or only occasionally therefore waiting for the price to fall below vwap could mean a missed opportunity if prices are rising quickly 3 vwap is based on historical values and does not inherently have predictive qualities or calculations vwap is anchored to the opening price range of the day therefore the indicator increases its lag as the day goes on this can be seen in the way a one minute period vwap calculation after 330 minutes the length of a typical trading session will often resemble a 390 minute moving average at the end of the trading day | |
what does the vwap tell you | the vwap can inform traders about a stock s liquidity and indicate at what price buyers and sellers agree traders can use it to monitor a stock s price movement throughout the day | |
why is the volume weighted average price important | vwap gives traders a smoothed out indication of a security s price adjusted for volume over time in addition it is used by institutional traders to ensure that their trades do not move the price of the security they are trying to buy or sell too extremely for example a hedge fund might refrain from submitting a buy order for a price above the security s vwap in order to avoid artificially inflating the price of that security likewise it might avoid submitting orders too far below the vwap so that the price is not dragged down by its sale | |
is vwap a leading indicator | no vwap is not a leading indicator it is a lagging indicator because it uses historical data no real time data is used to calculate vwap therefore it only has specific uses and does not help traders who need up to the minute data the bottom linevwap is a technical analysis indicator used by traders during single trading sessions to determine the average price of a security which is based on price and volume it can provide traders with insight about liquidity and price movement during the day | |
what is volumetric production payment | a volumetric production payment vpp is a type of structured investment that involves the owner of an oil or gas interest selling or borrowing money against a specific volume of production associated with that field or property the investor or lender receives a stated monthly quota often in raw output which is then marketed by the vpp buyer or a specified percentage of the monthly production achieved at the given property buyers could include investment banks hedge funds energy companies and insurance companies understanding volumetric production paymenta vpp structure is sometimes constructed as part of a pre export financing pfx package pfx takes place when a financial institution advances funds to a borrower based on proven volume of orders from buyers the borrower in this case the oil producer usually requires the funding in order to produce and supply the oil and gas the vpp is then used to repay the borrowing under the pfx arrangement the credit quality of pfx tends to be better than other lending because the cash flow generated from the vpp is used to repay the pfx ahead of other creditors the vpp buyer does not have to contribute any time or capital to the actual production of the end product however many investors in these types of interests will hedge their expected receivables the volumes laid out in the contract via the derivatives market to protect against commodity risk or otherwise lock in the expected profits a vpp deal allows the seller to retain full ownership of the property while monetizing some of their capital investment this ability to cash out some of the value of an oil field for example allows the producer to invest in capital upgrades or repurchase shares in the case where the owner of an oil and gas interest sells a specific volume production instead of borrowing against it this money can be used to repay other debt vpp deal detailsa vpp deal is typically set to expire after a certain length of time or after a specified aggregate total volume of the commodity has been delivered a vpp interest is considered a non operating asset akin to a royalty payment or loan repayment system under the royalty payment structure if the producer can t meet the supply quota for a given month or whatever schedule is used the unmet portion will be made up for in the next cycle and so on until the buyer is made financially whole under the loan repayment structure failure to make a payment would be considered default | |
what is voluntary accidental death and dismemberment insurance vad d | voluntary accidental death and dismemberment insurance vad d is a financial protection plan that provides a beneficiary with cash in the event that the policyholder is accidentally killed or loses a specific body part vad d is a limited form of life insurance and is generally less expensive than a full life insurance policy understanding voluntary accidental death and dismemberment insurance vad d voluntary accidental death and dismemberment insurance vad d is an optional benefit offered by some employers premiums are based on the amount of coverage purchased and this type of insurance can make sense for workers in occupations that place them at high risk of physical injury most policies are renewed periodically with revised terms although the client s consent with renewal is often implicitly assumed | |
how much the policy will pay in the event of a claim depends not only on the amount of coverage purchased but on the type of claim filed for example the life insurance policy might pay 100 percent if the policyholder is killed or becomes quadriplegic but it might only pay 50 percent for the loss of a hand or the permanent loss of sight in one eye | types of ad d and exemptionsthere are four common types of group ad d plans offered certain death circumstances are excluded from many ad d policies including death by illness suicide non commercial radiation and natural causes death while under the influence of any non prescribed drugs or alcohol is also most likely exempt from coverage overdose with toxic or poisonous substances and injury of an athlete during a professional sporting event may also void the right to a claim some insurance carriers are willing to alter their clients coverage to include some of these risks but every such extension will typically result in higher premiums for the client advantages and disadvantages of vad d insurancethe low costs of ad d insurance could make an attractive addition to conventional life insurance and many employers offer discounted policies however those low premiums also mean low payouts while it may provide peace of mind ad d is no replacement for regular life insurance in addition the terms for claiming ad d benefits are typically much more restrictive than life insurance coverage many policies will not pay out for deaths resulting from illnesses infection suicide scuba diving or other risky accidents and you ll have to read the fine print to know when you re covered the process of claiming an ad d benefit can be lengthy and the deceased may undergo an autopsy before benefits are paid out by the insurance company in addition the terms of death are often officially investigated before an insurer approves a claim cheaper than life insurance with premiums as low as 60 per yearcovers non fatal injuries such as blindness deafness and lost limbsmay be available at a lower cost through your employerno medical requirements | |
does not cover suicide self inflicted injuries overdoses or injuries due to certain risky behaviors | offers comparatively lower payouts than life insurancemay require extensive paperwork and investigation before receiving a payoutexamples of vad d insuranceaccidental death insurance varies widely by policy and jurisdiction some plans will also offer more complex benefits depending on the nature of the insured s death or partial benefits in the case of disabling injuries for example a death in an auto accident may be eligible for a higher payout here are some sample policies for a 21 year old nonsmoking male in pennsylvania mutual of omaha offers an accidental death policy of 250 000 for a monthly payment of 5 85 farmers insurance has a similar policy with a payout of 200 000 for a monthly payment of 10 this payout is increased to as much as 1 000 000 in the event of a death in a common carrier accident however farmers insurance is available in fewer jurisdictions voluntary accidental death and dismemberment faqsyes in the event of an accidental death that meets the terms of your vad d policy the beneficiaries can collect payouts from both the deceased s life insurance policy and their vad d policy voluntary accidental death dismemberment is considered supplemental to ordinary life insurance since there are many ways to die that aren t covered by vad d it s more important to have a life insurance policy in most cases the victim of homicide would be covered by accidental death and dismemberment insurance unless the death resulted from poisoning drug overdose or criminal activity by the deceased it is important to read the fine print of your policy to know which activities may be excluded the bottom linevoluntary accidental death and dismemberment vad d is an affordable limited form of life insurance that provides a cash benefit in the event of a fatal or disabling accident due to the low premiums vad d is sometimes attractive to younger people who may not have the income to support a full life insurance policy however vad d only pays out in very specific circumstances while it may be worth getting if your employer provides it vad d is no substitute for a full life insurance policy | |
what is a voluntary accumulation plan | a voluntary accumulation plan offers a mutual fund investor a way to accumulate a large number of shares over time by investing a manageable fixed dollar amount on a regular schedule usually monthly the small investor gets the opportunity to take advantage of the dollar cost averaging strategy many mutual funds offer their customers the ability to do this understanding the voluntary accumulation plana voluntary accumulation plan as the name suggests is executed at the discretion of the investor the company that offers the mutual fund may set a minimum dollar amount for these additional regular purchases it works like an automatic savings program the investor approves a regular monthly payment into the fund which is automatically used to purchase additional shares of the fund the investor gets the ease of automatic savings and the benefits of dollar cost averaging this investing strategy requires regular purchases of the same stock or fund month after month no matter what its price is at that time using dollar cost averaging investors get more shares of the mutual fund when the price is low and fewer shares when the price is high over time shares purchased at the right time tend to outnumber shares purchased at the wrong time the investor should end up with a substantial number of shares at a reasonable price if you have a lot of cash on hand invest it all at once if not a voluntary accumulation plan is a good option a voluntary accumulation plan is particularly appropriate for investors who want to build a solid portfolio but have little spare cash on hand they can take time to build their stake using a voluntary accumulation plan to mitigate the effects of a volatile market through dollar cost averaging has a lot of appeals but it s not the best decision for all investors an investor who has a large sum of cash on hand to invest in a mutual fund may be better off investing it all at once this is primarily because cash is better off being invested than sitting around losing value due to inflation some investors even avoid buying into mutual funds that hold too much cash it can create a drag on returns particularly during a rising market the investor who puts a lump sum into a mutual fund rather than spreading it out through a voluntary accumulation plan runs the risk of buying just before a dramatic market correction but it s usually a better strategy statistically speaking voluntary accumulation plans are a convenient and powerful tool for investors who want to build a position paycheck by paycheck they should not be used as a reason to sit on cash | |
what is voluntary bankruptcy | voluntary bankruptcy is a type of bankruptcy where an insolvent debtor brings the petition to a court to declare bankruptcy because they are unable to pay off their debts both individuals and businesses are able to use this approach a simple definition of voluntary bankruptcy is simply when a debtor chooses to go to court over bankruptcy versus being forced to do so a voluntary bankruptcy is intended to create an orderly and equitable settlement of the debtor s obligations | |
how voluntary bankruptcy works | voluntary bankruptcy is a bankruptcy proceeding that a debtor who knows that they cannot satisfy the debt requirements of its creditors initiates with a court voluntary bankruptcy typically commences when and if a debtor finds no other solution to their dire financial situation filing for voluntary bankruptcy differs from filing for involuntary bankruptcy which occurs when one or more creditors petitions a court to judge the debtor as insolvent unable to pay voluntary bankruptcy and other forms of bankruptcyin addition to voluntary bankruptcy other forms of bankruptcy exist including involuntary bankruptcy and technical bankruptcy bankruptcy filings vary among states which can lead to higher or lower filing fees depending on the location of the filing creditors request involuntary bankruptcy of debtors when they will not be paid without bankruptcy proceedings and need a legal requirement in order to force the debtor to pay a debtor must have attained a certain level of debt for a creditor to request an involuntary bankruptcy this level will vary depending on if the debtor is an individual or corporation in a technical bankruptcy an individual or company has defaulted on their financial obligations yet this has not been declared in court voluntary bankruptcy and corporations | |
when a corporation goes bankrupt either voluntarily or involuntarily there is a specific series of events that occur for all stakeholders to receive due payments this begins with distributing assets to secured creditors who have collateral on loan to the business | if they cannot fetch a market price for the collateral which has likely depreciated over time secured creditors can recoup some of the balance from the company s remaining liquid assets secured creditors are followed by unsecured creditors those who have loaned funds to the company i e bondholders employees who are owed unpaid wages and the government if taxes are owed preferred and common shareholders in that order receive any outstanding assets if any remain various types of bankruptcy that a corporation can declare include chapter 7 bankruptcy which involves liquidation of assets chapter 11 which deals with corporate reorganizations and chapter 13 which is debt repayment with lowered debt covenants or payment terms 1 of all the types of bankruptcy voluntary bankruptcy is the most common | |
what is voluntary bankruptcy | voluntary bankruptcy is a type of bankruptcy where an insolvent debtor brings the petition to a court to declare bankruptcy because they are unable to pay off their debts both individuals and businesses are able to use this approach a simple definition of voluntary bankruptcy is simply when a debtor chooses to go to court over bankruptcy versus being forced to do so a voluntary bankruptcy is intended to create an orderly and equitable settlement of the debtor s obligations | |
how voluntary bankruptcy works | voluntary bankruptcy is a bankruptcy proceeding that a debtor who knows that they cannot satisfy the debt requirements of its creditors initiates with a court voluntary bankruptcy typically commences when and if a debtor finds no other solution to their dire financial situation filing for voluntary bankruptcy differs from filing for involuntary bankruptcy which occurs when one or more creditors petitions a court to judge the debtor as insolvent unable to pay voluntary bankruptcy and other forms of bankruptcyin addition to voluntary bankruptcy other forms of bankruptcy exist including involuntary bankruptcy and technical bankruptcy bankruptcy filings vary among states which can lead to higher or lower filing fees depending on the location of the filing creditors request involuntary bankruptcy of debtors when they will not be paid without bankruptcy proceedings and need a legal requirement in order to force the debtor to pay a debtor must have attained a certain level of debt for a creditor to request an involuntary bankruptcy this level will vary depending on if the debtor is an individual or corporation in a technical bankruptcy an individual or company has defaulted on their financial obligations yet this has not been declared in court voluntary bankruptcy and corporations | |
when a corporation goes bankrupt either voluntarily or involuntarily there is a specific series of events that occur for all stakeholders to receive due payments this begins with distributing assets to secured creditors who have collateral on loan to the business | if they cannot fetch a market price for the collateral which has likely depreciated over time secured creditors can recoup some of the balance from the company s remaining liquid assets secured creditors are followed by unsecured creditors those who have loaned funds to the company i e bondholders employees who are owed unpaid wages and the government if taxes are owed preferred and common shareholders in that order receive any outstanding assets if any remain various types of bankruptcy that a corporation can declare include chapter 7 bankruptcy which involves liquidation of assets chapter 11 which deals with corporate reorganizations and chapter 13 which is debt repayment with lowered debt covenants or payment terms 1 of all the types of bankruptcy voluntary bankruptcy is the most common | |
what is voluntary conveyance | voluntary conveyance refers to an elective transfer of title from one individual to another without adequate consideration consideration refers to compensation which is expected in return for the property without it the conveyor should be prepared to offer a legal explanation for the transfer understanding voluntary conveyancevoluntary conveyance like any sale of real estate is a form of voluntary property transfer voluntary conveyance is distinguished however by the lack of adequate consideration given to the seller consideration is a legal term that refers to the compensation given in exchange for the property in question following are some common scenarios for voluntary conveyance voluntary conveyance to avoid defaultsome delinquent borrowers will voluntarily convey the property to the lender in order to avoid default and the effects it has on the borrower s credit history the lender can accept conveyance of title then sell the property the lender may then have the right to file an insurance claim to recover any remaining deficiency depending on local laws in making such a conveyance the borrower avoids the stigma of default fraudulent voluntary conveyance to avoid creditorsin most states it is illegal to transfer property to a third party in order to avoid creditors claims on that property this is known as a fraudulent conveyance and creditors can pursue their claim on the property via civil legal action penalties depend on whether the court rules that the fraud is actual that is intentional or constructive which describes a de facto fraudulent transaction voluntary conveyance for charitable purposesdonors wishing to convey real property to a charitable organization must carefully manage the issue of consideration to ensure the desired tax deduction the receiving organization must have an irs tax exemption in good standing and the transaction should be properly vetted by independent appraisers and tax attorneys with these safeguards in place consideration comes in the form of a tax deduction 1 voluntary conveyance to descendantsa property owner can convey real estate to a descendent as a gift or via a last will and testament many states allow for a gift deed to change hands listing a nominal consideration which could be a small monetary amount or simply love and affection such a gift can be considered suspicious when creditors seek possession of the property to fulfill claims on the property involuntary conveyance is the transfer of real property without the owner s consent this can take place in cases of condemnation due to neglect or natural disaster failure to pay taxes or the death of a property owner with no direct heirs in such cases the state will take custody of the property | |
what is a voluntary employees beneficiary association | voluntary employees beneficiary association veba is a type of mutual organization that provides life illness accident medical and similar benefits to members their dependents or their beneficiaries understanding vebaa voluntary employees beneficiary association veba can be established by employees or by an employer and must consist of employees of the same company or the same labor union veba benefits normally end when the employee leaves the company or labor union with which the veba is associated either employees or their employer can contribute funds to a veba employer contributions are often tax deductible to the employer vebas themselves are authorized by internal revenue code section 501 c 9 as tax exempt organizations as long as their earnings are only used for providing benefits however benefits paid out to employees are not necessarily tax exempt to the employee an employer making contributions to a veba would ordinarily receive a deduction under internal revenue code 162 for amounts contributed the employer could also receive a deduction if the benefits were paid directly to the employee by the employer as part of a fringe benefit package 1 for example the united auto workers formed vebas for their workers at the big three automobile manufacturers in 2007 and therefore relieved the companies from carrying liability for their health plans on their accounting books 2 conditions of a vebaa veba must meet several requirements including that it be a voluntary association of employees for the purpose of providing benefits a veba s earnings cannot benefit any private individual organization or shareholder other than through the payment of benefits the association must also be controlled by its members in whole or part by their trustees or an independent trustee and a veba can not discriminate in the payment of its benefits unless it was established as part of a collective bargaining agreement health benefits may be paid out of the employer s general assets from a trust created by the employer or by a combination of these funding mechanisms 3 any group of employees sharing an employment related common bond may establish a veba this common bond could be the same employer or the same collective bargaining agreement or union if multiple employers share the same line of business and the same geographic area they are considered to share the common bond specified by the law there are generally no limitations on either the size of the veba or the number of benefits that may be provided only upon the type of benefits and the persons to whom benefits may be provided 1 | |
what is a voluntary employees beneficiary association veba plan | a voluntary employees beneficiary association veba plan is a tax exempt trust set up by employers or a group of employees to cover the eligible medical expenses of its members their dependents or designated beneficiaries these plans are typically funded by the employer and are governed under internal revenue code section 501 c 9 employee contributions may or may not be mandatory depending on the company plan although individual elections are not permitted however employees must be covered by an employer sponsored health plan to be eligible for veba membership additionally the company must observe rules established by the internal revenue service irs for creating and maintaining a veba | |
how a veba plan works | vebas allow employers to provide benefits to employees on the condition that they abide by the following requirements 1vebas can cover a wide range of benefits eligible medical expenses are determined by the irs and each plan can vary in what it covers from this list and when payouts are made vebas are subject to some aspects of the employee retirement income security act erisa however they are not considered to be qualified retirement plans 1 as mentioned above beneficiaries must be employees their dependents or their designated beneficiaries 3 also veba benefits normally end when the employee leaves the company or labor union with which the veba is associated not every veba plan is the same some may be available for current eligible expenses others meanwhile may only reimburse vision and dental costs or just cover medical costs incurred after you leave the job or retire taxation of veba plansveba rules state that employers must first obtain a letter of determination from the irs for their plan to be considered a veba for federal income tax purposes 4 these plans are considered to be welfare benefit plans under federal tax law and are tax exempt under section 501 c 9 of the internal revenue code 5employer contributions made to a veba plan are tax deductible and have no limit however benefits paid out to employees may or may not be taxable depending on the type of benefit 5unlike in 401 k or 403 b plans for example participant withdrawals from a veba are not taxable if made before age 59 withdrawals from a veba are not required to begin at age 72 cashing out of a vebafunds in a veba grow tax free and there are no tax penalties levied upon employees or veba members who take distributions from a veba for qualified medical expenses which often include co pays co insurance and deductibles as well as dental and vision payments these expenses are defined in section 213 d of the internal revenue code 6 members can also use veba plans to fund post retirement health insurance premiums even though these accounts are usually used as savings vehicles to fund healthcare expenses in retirement employees can use money from their vebas to pay for qualified medical expenses while working if account holders don t use money in their veba plans for a given year then that amount rolls over to the next year s balance this means that a veba is not a use it or lose it plan unlike a flexible spending account fsa a veba is not a use it or lose it plan if account holders don t use money in their plans for a given year then that amount rolls over to the next year s balance types of veba plansa veba plan can also act as a type of health reimbursement arrangement hra a post deductible veba plan for example is designed to reimburse vision and dental expenses until a member meets their health plan deductible after the deductible is met members can be reimbursed for non health plan related medical expenses a limited veba plan however can reimburse only medical and vision expenses meanwhile money in a post employment veba plan can be used only after an individual has retired or left employment with the veba s sponsor | |
when a veba plan is paired with a health savings account hsa veba dollars will be limited toward eligible dental and vision expenses until individuals meet their medical health plan deductibles | who is eligible for a veba to be eligible for a veba plan your employer must offer one also you must be an active employee and be covered by your employer s health insurance plan | |
is a veba an hra | health reimbursement arrangements hras allow employers to reimburse employees for certain medical expenses employees can roll over contributions year to year while investing contributions for growth under that definition a veba can be considered a type of hra | |
what is the difference between a veba and an hsa | health savings accounts hsas allow you to save for qualified medical expenses on a tax advantaged basis these accounts are associated with high deductible health plans the main difference between a veba and an hsa is how they re funded vebas are funded only by the employer in most cases while hsas can be funded with employer and employee contributions can i have a veba and an hsa yes depending on the options offered by your employer it is possible to have both a veba and an hsa if you have both it s important to understand the rules for contributions withdrawals and taxation to ensure that you re making the most of these benefits the bottom linea veba plan is a trust fund governed under internal revenue code section 501 c 9 that helps employees cover the cost of certain medical expenses insurance premiums health insurance deductibles and so on these plans can be very advantageous offering tax benefits and security for workers and despite waning in popularity there are companies that continue to offer them | |
what is a voluntary export restraint ver | a voluntary export restraint ver is a trade restriction on the quantity of a good that an exporting country is allowed to export to another country this limit is self imposed by the exporting country vers came about in the 1930s and gained a lot of popularity in the 1980s when japan used one to limit auto exports to the u s 12 in 1994 world trade organization wto members agreed not to implement any new vers and to phase out existing ones 3 | |
how a voluntary export restraint ver works | voluntary export restraints vers fall under the broad category of non tariff barriers which are restrictive trade barriers such as quotas sanctions levies embargoes and other restrictions typically vers are a result of requests made by the importing country to provide a measure of protection for its domestic businesses that produce competing goods though these agreements can be reached at the industry level as well vers are often created because the exporting countries would prefer to impose their own restrictions than risk sustaining worse terms from tariffs or quotas they ve been in use since the 1930s applied by large developed economies to a wide range of products from textiles to footwear steel and automobiles and became a popular form of protectionism in the 1980s after the uruguay round and the updating of the general agreement on tariffs and trade gatt in 1994 wto members agreed not to implement any new vers and to phase out any existing ones within one year with some exceptions 3limitations of a voluntary export restraint ver there are ways in which a company can avoid a ver for example the exporting country s company can always build a manufacturing plant in the country to which exports would be directed by doing so the company will no longer need to export goods and should not be bound by the country s ver the option to build manufacturing facilities overseas and bypass exporting rules is one of the main reasons why vers have historically been ineffective in protecting domestic producers voluntary export restraint ver vs voluntary import expansion vie related to voluntary export restraint ver is a voluntary import expansion vie which is a change in a country s economic and trade policy to allow for more imports by lowering tariffs or dropping quotas often vies are part of trade agreements with another country or the result of international pressure advantages and disadvantages of a voluntary export restraint ver with functioning vers producers in the importing country experience an increase in well being as there is decreased competition which should result in higher prices profits and employment these benefits to producers and the labor market however come with some notable caveats vers reduce national welfare by creating negative trade effects negative consumption distortions and negative production distortions example of a voluntary export restraint ver the most notable example is when japan imposed a ver on its auto exports into the u s as a result of american pressure in the 1980s the ver subsequently gave the u s auto industry some protection against a flood of foreign competition this relief was short lived though as it ultimately resulted in a rise in exports of higher priced japanese vehicles and a proliferation of japanese assembly plants in north america 2 | |
what is voluntary foreclosure | a voluntary foreclosure is a foreclosure proceeding that is initiated by a borrower who is unable to continue making loan payments on a property in an attempt to avoid further payments and prevent involuntary foreclosure and eviction borrowers may choose this option if their mortgage is significantly underwater this is different from an involuntary foreclosure which is initiated by the lending institution in order to take possession of a property to recover the lender s losses and is typically the last option for borrowers unable to make payments on their loans borrowers can seek a voluntary foreclosure from a bank or other lending institution for both residential and commercial properties there are several similar terms that can be used for voluntary foreclosures including strategic default walking away jingle mail and friendly foreclosure understanding voluntary foreclosuresvoluntary foreclosure is extremely harmful to a borrower s credit ratings and can make it difficult to rent or buy a home and get loans approved for years afterward but it is not as financially damaging as an involuntary foreclosure it can thus be a cost effective option for some borrowers who rather than struggling to make payments each month conclude that they are unable to continue making payments many debtors plan for a voluntary foreclosure by opening new credit cards and taking out new car loans and mortgages before their credit rating drops lenders will often agree to a borrower s request for voluntary foreclosure because it can make the process of retaking property and collecting debts much faster and more cost effective than an involuntary foreclosure reasons for voluntary foreclosure include a sudden and unexpected job loss the realization that one is living beyond one s means and changes in the housing market along with variable interest rates if a borrower has an adjustable rate mortgage or arm for instance a deed in lieu of foreclosure is one of the most commonly used types of voluntary foreclosure the rules laws and penalties for voluntary foreclosures vary widely by lending institution and state pros and cons of voluntary foreclosuresif you are considering initiating a voluntary foreclosure it s important to carefully consider the advantages and disadvantages of taking such a step you need to balance it against the effect on your credit the loss of your home how much financial relief it offers you and any alternatives you may still have if you are unable to get a loan modification or do a short sale for example a deed in lieu of foreclosure may have less impact on your credit reports than an involuntary foreclosure one advantage especially if your home is significantly underwater is that you can cut your losses when you stop making payments however some states allow lenders to go after borrowers for a deficiency the difference between the amount you still owe on the loan and the foreclosure sale price via a deficiency judgment make sure you know the laws of your state on this score your credit score will take a major hit if you foreclose the repercussions it s likely to be harder to get new credit say for a car loan or a new credit card and the interest rates you ll be offered will be higher you ll need to find another place to live and landlords may refuse to rent to you or charge a higher monthly amount and if you are looking to buy you may not be able to get a mortgage for a few years fannie mae for instance applies a four year wait period before granting a new mortgage after a deed in lieu of foreclosure 1it s a faster less complicated release from debt than an involuntary foreclosure and an opportunity to cut your losses a deed in lieu of foreclosure may have less impact on your credit scores than an involuntary foreclosure there s less social stigma attached than with an involuntary foreclosure you still may be subject to a deficiency judgment your credit score will take a hit and getting new credit a car loan a credit card may be harder and come with higher interest rates although there s less stigma employers may still deem you ineligible for certain jobs voluntary foreclosures and the housing crisis of 2007 2009prior to the american housing bubble and subprime mortgage crisis of the late 2000s voluntary foreclosure was a rarely used option for borrowers struggling to afford their property loan payments however it has become much more widely used in the years since in 2007 and 2008 housing prices plunged often posting double digit declines in value at the start of 2010 the percentage of mortgages that were underwater the amount owed on the mortgage was more than the value of the home increased dramatically in california nevada and florida more than 20 of mortgages were underwater 2 | |
what happens if you foreclose your own house | if you volunteer to willingly foreclose on your home your lender will allow you to surrender your home in exchange for canceling the mortgage debt you must agree to leave the home in good condition and move by a specified date when you voluntarily foreclose your credit will take a hit but you will control the terms for leaving your home and you may even receive money from your lender to finance your move out | |
what is a deed in lien | a deed in lien is a voluntary foreclosure which is not the same thing as a foreclosure when you reach an understanding with your lender you hand over the property to avoid your lender from putting you into foreclosure | |
what is a voluntary lien | a lien is a claim that one person or other entity has over the property of another as security for the payment of a debt liens can be either voluntary or involuntary a voluntary lien is contractual or consensual meaning that the lien is created by an action taken by the debtor such as a borrower who obtains a mortgage to buy a home and agrees that the home will serve as collateral for the loan that s opposed to an involuntary lien which is imposed on the debtor by for example a court of law without their say so | |
how voluntary liens work | a lien is a legal claim to an asset under certain conditions a voluntary lien is a type of lien that exists because you agreed to it or as a result of an action taken by you in contrast an involuntary lien is one imposed by law such as a tax lien that is initiated by the government for a failure to pay taxes 1 | |
when there is a lien against your property you cannot legally sell it until you settle the amount you owe | liens apply to specific property not to you personally if you default on a debt the lien holder can take possession of the property in question for example a lender can take your home if you default on a mortgage you used to secure it or your car if you default on an auto loan | |
how voluntary liens are applied | voluntary liens are often used for mortgages to purchase real estate but they can also be used in many other types of financing such as car loans secured personal loans business loans credit agreements and even rent to own appliance transactions typically the physical property that the borrower is purchasing acts as collateral under the lien however a voluntary lien can also be placed on other property that the borrower already owns if the borrower agrees to it for instance a lien could be placed on a valuable painting if the borrower uses it as collateral for a cash advance to fund another purchase or a homeowner who has paid off their mortgage and owns their house outright might need more cash and allow a lien on it in order to obtain a home equity line of credit heloc just as with a mortgage for a home purchase the house would serve as collateral finally a business could have a voluntary lien on it if the business owner takes out a line of credit to cover operating expenses or other costs in this case the lender would not take possession of the business if the borrower defaults but instead receive a security interest in it voluntary liens vs involuntary liensan involuntary lien or a nonconsensual lien is one that is imposed on you instead of one you consent to two types of involuntary liens are statutory liens and judgement liens | |
when the law gives a creditor the right to impose a claim on your property for an unpaid debt that is a statutory lien 2 one common type of statutory lien is a tax lien in which the government has the right to seize your property if you fail to pay a tax bill 1 | a judgement lien occurs when a court rules that a lien should be placed on your property to satisfy your obligations to creditors for example if your insurance does not cover all of the damages you are responsible for in an accident a court might impose a judgement lien 3 | |
do statutory or judgement liens affect your credit | involuntary liens can negatively affect your credit liens don t appear on your credit report but they are available through public records so potential lenders can learn about them in addition if the lien resulted from your failure to pay a bank or real estate loan those missed payments will be reflected on your credit report which can cause major damage to your credit score your payment history is the single most important factor that credit scoring models such as fico use in assigning you a score 4 | |
what is a statutory lien | a statutory lien is one that is a result of the existing law and doesn t require your consent or a court judgement against you it can be used by creditors in an attempt to collect unsatisfied debts 4 | |
what is a judgement lien | a judgement lien is a type of involuntary lien imposed on your property as a result of a court order judgment liens are typically issued after a creditor sues a debtor for an unpaid debt or other obligation and wins their case the bottom linevoluntary liens are common in many financial transactions and unlike involuntary liens will have no negative impact on your credit as long as you keep up with your loan obligations however they do put your property at risk if you are unable to repay so you ll want to consider that possibility before you consent to one | |
what is voluntary life insurance | voluntary life insurance is a financial protection plan that provides a cash benefit to a beneficiary upon the death of the insured it s an optional benefit offered by employers the employee pays a monthly premium in exchange for the insurer s guarantee of payment upon the insured s death 1employer sponsorship generally makes premiums for voluntary life insurance policies less expensive than individual life insurance policies sold in the retail market understanding voluntary life insurancemany insurers provide voluntary life insurance plans with additional benefits and riders for example a plan might feature the option to purchase insurance above the guaranteed issue amount depending on the amount of the increase policyholders may be required to submit proof that they meet minimum health standards another is coverage portability which is the ability of a policyholder to continue the life policy upon termination of employment each employer has guidelines for porting a policy however it is typically between 30 and 60 days after termination and it requires the completion of paperwork a third option is the ability to accelerate benefits whereby the death benefit is paid during the life of the insured if they are declared terminally ill there is also the option to purchase life insurance for spouses domestic partners and dependents as defined by the insurance company lastly an immeasurable benefit offered by most employers is the option to deduct premiums from salary payroll deductions are convenient for the employee and allow for the effortless and timely payment of premiums special considerationsin addition to these benefits some insurers provide optional riders such as waiver of premium and accidental death and dismemberment riders riders are most often executed at issue and for an additional fee voluntary life insurance is often available to employees immediately or soon after hire 1 for employees who opt out coverage may next be available during open enrollment or after a qualifying life event such as marriage the birth or adoption of a child or divorce selecting the right type of voluntary life insurance requires examining current and anticipated needs and is dependent on each person s circumstances and goals additionally it s also worth comparing an employer s offering with the plans of other firms to ensure it s among the best life insurance policies currently available there are two basic types of voluntary life insurance voluntary whole life and voluntary term life 1types of voluntary life insurancethere are two types of voluntary life insurance policies provided by employers voluntary whole life and voluntary term life 1 the latter is also known as group term life insurance face amounts may be in multiples of an employee s salary or stated values such as 20 000 50 000 or 100 000 voluntary whole life protects the entire life of the insured if whole life coverage is elected for a spouse or dependent the policy protects that person s entire life as well typically amounts for spouses and dependents are less than amounts available for employees 2just as with permanent whole life policies cash value accumulates according to the underlying investments 1 some policies only apply a fixed rate of interest to the cash value whereas others allow for variable investing in equity funds voluntary term life insurance is a policy that offers protection for a limited period such as 10 20 or 30 years building cash value and variable investing are not characteristics of voluntary term insurance as a result premiums are less expensive than their whole life equivalents premiums are level during the policy term but can increase upon renewal 2voluntary life is often paid with pre tax dollars if it is paid with after tax dollars it may be tax deductible example of voluntary term life insurance as a supplementsome participants choose voluntary term life as a supplement to their whole life insurance for example jordan is married with children and has a 50 000 whole life insurance policy after receiving a financial needs analysis it is determined that their life insurance is insufficient the life insurance broker suggests that jordan maintain at least 300 000 in life insurance while their children are minors jordan s employer offers voluntary term life insurance with reasonable premiums and jordan elects the coverage to supplement their existing coverage until their children reach the age of majority | |
what is voluntary dependent life insurance | this employee benefit can cover a spouse children and any other eligible dependents depending upon the rules laid out in the plan in the event that a dependent dies the employee would receive the death benefit | |
is voluntary term life group insurance | yes voluntary life insurance is covered via a group policy put in place by an organization because of this most individual employees can purchase a policy under the umbrella plan without underwriting or a medical exam additionally the cost of the premiums will typically be less than for an individual policy | |
how much voluntary term life insurance do i need | while you may want or need a larger death benefit voluntary term life is usually limited by an employer to either 1x 2x the amount of your annual compensation other companies will set a cap at between 50 000 250 000 in coverage | |
what is the difference between group term and voluntary term life insurance | voluntary life insurance and group life insurance are often used interchangeably | |
what is a voluntary liquidation | a voluntary liquidation is a self imposed windup and dissolution of a company that has been approved by its shareholders such a decision will happen once an organization s leadership decides that the company has no reason to continue operating it is not a compulsory order by a court the purpose is to terminate a company s operations wrap up its financial affairs and dismantle its corporate structure in an orderly fashion while paying back creditors according to their assigned priority understanding a voluntary liquidationa voluntary liquidation resolution must be initiated by a company s board of directors or ownership the process begins after a resolution to cease operations assuming that operations are ongoing is approved by the company s shareholders the shareholder vote allows the liquidation of assets to free up funds to pay debts a voluntary liquidation stands in contrast to a forced liquidation which involves the involuntary sale of assets or securities to create liquidity due to an unforeseen or uncontrollable situation the reasons for a voluntary liquidation are numerous it may happen due to unfavorable business conditions such as operating at a loss or the market moving in another direction or business strategy considerations ownership may want to exact a degree of tax relief for shutting down or decide to reorganize and transfer assets to another company in exchange for an ownership or equity stake in the acquiring company in some cases the liquidating company was only meant to exist for a limited amount of time or for a specific purpose that has been fulfilled it can also be due to a key company member leaving which causes the shareholders to decide not to continue operations voluntary liquidation processin the united states a voluntary liquidation may begin with the occurrence of an event as specified by a company s board of directors in such cases a liquidator who answers to shareholders and creditors is appointed if the company is solvent the shareholders can supervise the voluntary liquidation if the company is not solvent creditors and shareholders may control the liquidation process by getting a court order unless the u s comptroller of the currency waives this requirement stockholders owning two thirds of the company s shares must vote in favor of the voluntary liquidation voluntary liquidations in the united kingdom are divided into two categories one is the creditors voluntary liquidation which occurs under a state of corporate insolvency the other is the members voluntary liquidation which only requires a corporate declaration of bankruptcy under the second category the firm is solvent but needs to liquidate its assets to meet its upcoming obligations stockholders owning three quarters of a company s shares must vote in favor of a voluntary liquidation resolution for the motion to pass | |
what is a voluntary liquidation | a voluntary liquidation involves the winding up of a company s affairs and the selling of its assets which funds the settling of its debts it results in the dissolution of the company who institutes a voluntary liquidation the company s ownership or board of directors must initiate the process but generally the decision must be approved by a vote of those holding either two thirds of the company s shares u s or three fourths of them u k | |
why would a company choose a voluntary liquidation | the reasons are numerous ranging from unfavorable business conditions that threaten the company s future to the loss of a key figure that the ownership does not think it can survive without the company may have been designed to be in business only for a set amount of time or for a specific purpose that has been fulfilled the company could also be seeking tax relief or looking to reorganize and transfer assets to another company the bottom linevoluntary liquidation is a process by which a company ceases doing business without a court order requiring dissolution the process is slightly different in the u s and the u k but both require that the board of directors institute the process and that a specified percentage of shareholders approve it depending on the situation a company s creditors may also be involved in instigating or carrying out the liquidation | |
what is voluntary plan termination | voluntary plan termination is the discontinuance of a defined benefit plan by an employer since an employer is not legally required to provide a retirement plan to employees it can terminate an established plan however an employer can terminate a voluntary plan only if all of the requirements for a standard termination or distress termination are followed by the plan administrator section 4041 of the u s code of federal regulations addresses voluntary plan terminations understanding voluntary plan terminationaccording to the internal revenue service irs since an employer isn t required by law to provide a retirement plan for employees it can terminate its retirement plan an employer might terminate a plan for the following reasons under a voluntary plan termination the assets must be distributed to participants in a manner described by federal law the employer has the unilateral right to modify or end the retirement plan at any time this right is set out by the employee retirement income security act of 1974 the allocation of plan assets is usually done by the plan administrator or trustee an employer must distribute assets from a terminated plan as soon as administratively feasible after the plan is terminated affected participants can usually roll over the distributed money to another qualified plan or individual retirement account ira the irs states for terminated defined benefit plans with insufficient money to pay all of the benefits the pension benefit guaranty corporation will guarantee the payment of vested pension benefits up to limits set by law for terminated defined contribution plans for example 401 k 403 b or profit sharing participants generally receive the full amount of their vested account balance upon plan termination 1in a defined benefit plan termination form 6088 reporting the distributable benefits must be submitted along with a signed and dated actuary s certification of the adjusted funding target percentage a plan may be partially terminated if more than 20 of plan participants were laid off in a particular year partial terminations may be connected with a significant corporate event such as a closed office location or as a result of adverse economic conditions the law requires all affected employees to be fully vested in their account balance as of the date of a full or partial plan termination | |
voluntary reserve an overview | a voluntary reserve is a sum of cash that is held by an insurance company over and above any minimum required by government regulators state regulations set minimum reserve requirements for insurance companies that are intended to ensure they remain solvent voluntary reserves also known as additionally held liquid assets are recorded as such in company financial statements state regulators have similar reserve requirements for financial institutions within their jurisdictions like insurance companies those institutions may have voluntary reserves | |
how a voluntary reserve works | state regulators use tools provided by the insurance regulatory information system iris which is managed by the national association of insurance commissioners naic to determine the solvency of insurance companies in their jurisdictions and the appropriate amount of cash they should have in reserve iris mines financial information filed by each insurance company in order to determine which insurance companies may face solvency issues the regulatory body determines a range of liquidity ratio values that are considered acceptable for each company outlying values indicate that an insurer should be examined more closely by regulators insurance companies have competing considerations when deciding on the size of a voluntary reserve a large amount of cash on hand is a sign of the company s stability and its ability to meet the demands of any catastrophe but it also decreases the amount available to reinvest in the business or reward shareholders there are few restrictions on the use of a voluntary reserve however the company could choose to pay any unexpected expense from it or for that matter use it to fund a shareholder dividend various tax laws and accounting practices discourage property and casualty insurers in particular from setting aside excess money even for catastrophes an insurance company s voluntary reserve is separate from its claim reserve which is an amount of money budgeted for policyholder claims that have not yet been filed standard levels of reserves in the industry range from 8 to 12 of the company s total revenues the requirements vary depending on the type of risks a company assumes reserve requirements are a shifting field for regulators in 2016 an naic report concluded that the existing formulas for reserves were excessive in some cases and inadequate in others depending on the circumstances and clientele of the company the standards it found did not reflect the growing variety and complexity of financial products that are now sold by life insurance companies the report recommended principle based reserving for life insurance companies this departure from past practice bases reserve requirements on a highly individualized mix of factors that include the demographics of the company s clients the company s financial performance and its financial strength as a result at least 46 states have moved to change their formulas determining reserve requirements | |
what is voluntary simplicity | voluntary simplicity is a lifestyle choice that minimizes the needless consumption of material goods and the pursuit of wealth for its own sake it is sometimes referred to as simple living the simple life or downshifting people embrace voluntary simplicity to create less complicated and more meaningful lives for themselves and their families and to reduce the negative impact that unnecessary consumption can have on the environment understanding voluntary simplicityadvocates of voluntary simplicity believe that today s consumer culture too often encourages people to think that they can buy happiness or boost their social status with expensive goods luxury cars and ever larger homes instead some people choose to leave the proverbial rat race and join the voluntary simplicity movement because a simpler life is less costly advocates say people can work fewer hours and have more time for themselves and their family voluntary simplicity is not just about living with less of what money can buy but about wanting less in the first place people who practice it say they don t feel deprived but liberated types of voluntary simplicityvoluntary simplicity has come in and out of vogue for decades under numerous names and in many variations one early advocate was the author and philosopher henry david thoreau he spent a little over two years living the simple life in a small house he built on the shore of walden pond near concord massachusetts and chronicled the experience in his famous 1854 book walden or life in the woods thoreau s simple advice to readers simplify simplify a century after thoreau the hippie counterculture brought a voluntary simplicity vibe to the 1960s and early 70s with its rejection of material goods and its embrace of communal living and a back to the land movement by 1971 former beatle john lennon was urging fans and followers to imagine no possessions in his song imagine toward the end of the 20th century voluntary simplicity became a key principle of the financial independence retire early fire movement advanced by authors vicki robin and joe dominguez among others it suggested that people who drastically slashed their expenses and saved the money instead could leave the workforce long before traditional retirement age and spend those years doing the things they really wanted to do more recently marie kondo s 2014 bestseller the life changing magic of tidying up the japanese art of decluttering and organizing became a new addition to the voluntary simplicity canon it urged readers to purge possessions that were merely weighing them down both physically and mentally kondo s advice keep only those things that speak to the heart and discard items that no longer spark joy thank them for their service then let them go you don t have to embrace every aspect of voluntary simplicity but can chose the ones you think will enhance your life voluntary simplicity is after all voluntary special considerationspeople can practice voluntary simplicity and enjoy some of its benefits even if they don t want to make it the focal point of their lives that might mean downsizing from a large house to a smaller one as many people do when they reach retirement age both to simplify their lives and to reduce their living costs it might mean cooking at home more and eating out less especially if cooking is an activity you enjoy it might also mean growing some vegetables in your garden instead of buying everything at the store if you are in a position to do so voluntary simplicity might involve paring back on the hours you spend at work so you can devote more time to family activities or hobbies or it might mean ratcheting up your savings now so that you can leave your job for good sooner rather than later voluntary simplicity is an individual choice and there are many ways to incorporate it into your life spending less reducing clutter and mindful consumption are three easy ways to begin | |
what is voluntary termination | voluntary termination may refer to a variety of actions but most commonly it refers to an employee s decision to leave a job on their own accord it differs from a layoff or a firing in which the decision to end employment was made by the employer or another party rather than the employee voluntary termination can also be a reference to the voluntary cancellation of personal financial contracts such as car leases or cell phone contracts or the voluntary cancellation of institutional level contracts such as credit default swaps and interest rate swaps understanding voluntary terminationemployer initiated termination includes being laid off fired for cause and being downsized termination can also be employee initiated however an employee may choose to leave a job for a wide variety of reasons for example a change in personal circumstances such as family demands a choice to go back to school dissatisfaction with working conditions such as a hostile supervisor lack of recognition of work performance and lack of autonomy challenge or work relationships among others an especially common reason for voluntary termination is leaving for a new and better job typically one that offers higher remuneration or improved career prospects this is more likely to be cited as a reason for leaving a job during periods of strong economic growth and labor market demand than during recessionary times during recessionary times or even during times when a particular firm is under duress companies going through downsizing may ask some employees to voluntarily resign in order to reduce the number of layoffs the firm must carry out in these circumstances the company may offer the employee that is leaving voluntarily an improved exit package including extra weeks of severance pay longer coverage of health insurance and any other benefits 1in most cases voluntarily leaving a job means that the employee will not be eligible to collect unemployment insurance unless the person has quit for a reason deemed to be a good cause such as unsafe working conditions 2 however eligibility for unemployment benefits can vary based on where you live 3conventional wisdom suggests that workers do not leave jobs but rather leave supervisors over conflicts in management style lack of respect or poor communication over goals objectives and practices the process involved in voluntary terminationvoluntary termination by an employee will generally start with either a verbal or written notification of resignation to their supervisor in some circumstances there may also be the perception of job abandonment when a worker fails to show up for work for three consecutive days without notifying a supervisor employees who choose to leave a job are generally expected to provide at least two weeks of notice before their final day at work this is considered to be a professional way to handle resignation it allows the company time to begin the process of finding a new employee and allows the worker time to prepare for the transition | |
when submitting their resignation notice an employee can expect their supervisor to immediately forward it to human resources along with their intended end date and reason for leaving once human resources are involved the employee can expect to be asked to return company property to finalize and submit final expense reports have their post termination benefits summarized for them and be asked to schedule an exit interview supervisors may be asked to complete a supervisory termination summary a form that is submitted to human resources | sometimes an employer facing downsizing will ask employees to voluntarily resign as this limits the number of layoffs that will be necessary employees that accept might be given a better exit package than those that are ultimately downsized special considerationsvoluntary termination can also be a reference to an individual s choice to cancel a financial contract such as a cell phone plan the voluntary cancellation of a financial contract in this circumstance may or may not incur penalties in case a penalty will be incurred the party who wishes to terminate the contract may be able to rationalize the termination decision if the net benefit from terminating the contract is substantially larger than the penalty | |
what is a voluntary trust | a voluntary trust is a type of living trust that is created during the lifetime of the trustor and is also known as an inter vivos trust in a voluntary trust the trustor retains the legal title of the gift transferred to the beneficiary even though the beneficiary has actual title and possession and ability to carry out actions of the trust a voluntary trust is also defined as an obligation arising out of a personal confidence reposed in and voluntarily accepted by one individual for the benefit of another this is in contrast to an involuntary trust which is created by law understanding voluntary trustsvoluntary trusts are often used in estate planning in the situations of real estate the person who controls the real estate property is known as the trustee while the individual who will receive the property after it is being held is known as the trustor the property itself is referred to as the res in a voluntary trust no consideration is made in a voluntary trust the recipient of the trust gives nothing in exchange for the trust but receives it as a pure gift by avoiding receiving something in return voluntary trusts are distinguished from trusts for value which are trusts made in favor of purchasers and mortgagees the opposite of a voluntary trust is an involuntary trust which can be further broken down into constructive or resulting trusts in some cases a voluntary trust can also simply refer to the interpersonal confidence between two individuals regarding an obligation for the benefit of each other or one individual in the relationship however in legal terms a voluntary trust is a formal structural setup that can oversee an organization s activities and in some cases its financial operations example of a voluntary trustmany types of charitable and service organizations operate voluntary funds in order to maintain operations as an example of how a voluntary trust can work one can look at the trust fund of the united nations alliance of civilizations through a special report made by the organization s high level group it was recommended the alliance establish a voluntary trust fund as the organization explains via its website the primary objectives of the trust fund are to support the projects and activities of the alliance of civilizations the activities and outreach initiatives undertaken by the high representative in his official capacity and assist with core operational and human resources needs | |
what is vomma | vomma is the rate at which the vega of an option will react to volatility in the market vomma is part of the group of measures such as delta gamma and vega known as the greeks which are used in options pricing understanding vommavomma is a second order derivative for an option s value and demonstrates the convexity of vega a positive value for vomma indicates that a percentage point increase in volatility will result in an increased option value which is demonstrated by vega s convexity vomma and vega are two factors involved in understanding and identifying profitable option trades the two work together in providing detail on an option s price and the option price s sensitivity to market changes they can influence the sensitivity and interpretation of the black scholes pricing model for option pricing vomma is a second order greek derivative which means that its value provides insight on how vega will change with the implied volatility iv of the underlying instrument if a positive vomma is calculated and volatility increases vega on the option position will increase if volatility falls a positive vomma would indicate a decrease in vega if vomma is negative the opposite occurs with volatility changes as indicated by vega s convexity generally investors with long options should look for a high positive value for vomma while investors with short options should look for a negative one the formula for calculating vomma is below vomma 2 v 2 begin aligned text vomma frac partial nu partial sigma frac partial 2v partial sigma 2 end aligned vomma 2 2v vega and vomma are measures that can be used in gauging the sensitivity of the black scholes option pricing model to variables affecting option prices they are considered along with the black scholes pricing model when making investment decisions vegavega helps a trader understand a derivative option s sensitivity to volatility occurring from the underlying instrument vega provides the amount of expected positive or negative change in an option s price per 1 change in the volatility of the underlying instrument a positive vega indicates an increase in the option price and a negative vega indicates a decrease in the option price a vega neutral position can help traders remove some of the implied volatility risks vega is measured in whole numbers with values usually ranging from 20 to 20 higher time periods result in a higher vega vega values signify multiples representing losses and gains a vega of 5 on stock a at 100 for example would indicate a loss of 5 for every point decrease in implied volatility and a gain of 5 for every point increase the formula for calculating vega is below s d 1 t with d 1 e d 1 2 2 2 and d 1 l n s k r 2 2 t t where k option strike price n standard normal cumulative distribution function r risk free interest rate volatility of the underlying s price of the underlying t time to option s expiry begin aligned nu s phi d1 sqrt t text with phi d1 frac e frac d1 2 2 sqrt 2 pi text and d1 frac ln bigg frac s k bigg bigg r frac sigma 2 2 bigg t sigma sqrt t textbf where k text option strike price n text standard normal cumulative distribution function r text risk free interest rate sigma text volatility of the underlying s text price of the underlying t text time to option s expiry end aligned s d1 t with d1 2 e 2d12 andd1 t ln ks r 2 2 t where k option strike pricen standard normal cumulative distribution functionr risk free interest rate volatility of the underlyings price of the underlyingt time to option s expiry | |
what is voodoo accounting | the term voodoo accounting refers to a creative and unethical method of accounting that artificially inflates figures found on a company s financial statements voodoo accounting employs numerous accounting gimmicks to boost the bottom line by inflating revenue concealing expenses or both the individual accounting maneuvers used in voodoo accounting may be minor and one time accounting gimmicks may be ignored by investors however repeat offenses often affect the company s market value and reputation for the worse | |
how voodoo accounting works | as noted above voodoo accounting describes the tricks a company may use to hide its losses and inflate its profits the reason behind the name is simple profits and losses seem to magically appear and disappear using accounting gimmicks this process is not only unprofessional but it s also unethical that s because companies that use this technique knowingly deceive investors and analysts into believing that they re much more profitable than they actually are accounting tricks are hard to pull off for companies subjected to higher levels of analysis it is among smaller less followed public companies that voodoo accounting can be more prevalent creative accounting techniques are not new in fact they ve existed for decades some of the voodoo accounting practices identified by former securities and exchange commission sec chair arthur levitt at the height of the dotcom bubble in the late 1990s included 1most companies take part in practices like voodoo accounting so investors don t lose confidence in them after all a profit is much better than losses especially when they re consistent and the pressure of meeting quarterly earnings expectations on wall street is also another primary motivation for using voodoo accounting but when discovered these tricks could have serious implications executive compensation and jobs are normally at stake along with a company s reputation and value in the market special considerationsas the accounting profession evolved and regulators became more serious in enforcing laws voodoo accounting came under greater scrutiny this was especially true following the enron scandal the failing energy and utility company used off the book accounting practices to fool shareholders and regulators into believing it was profitable enron used special purpose vehicles spvs to hide losses toxic assets and volumes of debt thereby deceiving both its creditors and shareholders the company filed for chapter 11 and the scandal resulted in fines and charges for a number of company executives 2 the enron scandal rocked the financial world because of the tricks that the company used to hide copious amounts of debt and toxic assets it was dealing with for years regulators took notice of enron s actions along with other cases of financial misconduct from the likes of tyco and worldcom by passing the sarbanes oxley act of 2002 3 the law required reforms to regulations and also set in stricter penalties for those who committed financial fraud 4 the sarbanes oxley act of 2002 was passed to ensure companies are truthful and transparent in their financial reporting example of voodoo accountinghere s a hypothetical example of how voodoo accounting works a company may employ voodoo accounting to prematurely recognize 5 billion of revenue while concealing 1 billion in unexpected expenses during a quarter these tactics enable it to report net income that is 6 million higher than the true figure for the quarter this may have significant implications on the stock price upon release of the quarterly earnings report however the discovery that these additional profits for the period were not real would quickly erase a positive share price reaction and call into question management credibility | |
what is voodoo economics | voodoo economics is a derogatory phrase first used during the 1980 presidential primaries by george h w bush then a candidate to describe his opponent ronald reagan s proposals to reinvigorate the u s economy reagan won that election and his economic policies came to be known as reaganomics reaganomics was a policy that combined steep tax cuts the deregulation of domestic markets lower government spending and a tightening of the money supply understanding voodoo economicsronald reagan a republican was elected the 40th u s president after a prolonged period of economic stagflation that began under republican president gerald ford in 1976 and continued into the term of president jimmy carter a democrat whose single term ended with his defeat by reagan in the 1980 election reagan s vice president was george h w bush president reagan was a proponent of supply side economics which favors reducing income and capital gains tax rates in order to encourage economic growth he believed that the savings generated by companies from corporate tax cuts would trickle down that is the savings would be invested in ways that benefited smaller businesses spurred innovation created new jobs and eventually benefited the population as a whole he also asserted that the newly invigorated companies would eventually pay more taxes anyway boosting the government s coffers as a healthier economy encouraged them to increase production in 1980 bush sr famously described these economic policies as voodoo economics arguing that supply side reforms would not be enough to rejuvenate the economy and would greatly increase the national debt bush sr changed his stance after being elected vice president first denying that he called reagan s policy proposal voodoo economics and then claiming that he was kidding when footage was dug up showing him using the phrase nevertheless the phrase caught on with reagan s critics 1criticism of voodoo economicsbush sr was criticized for characterizing the policies of his then rival as voodoo economics his comments were viewed as a spiteful attempt to discredit reagan while running against him in the republican primary a core belief of supply side economics is that motivating the rich invigorates spending and increases confidence and job security among the working population in the drooping economy of the late 1970s it was argued that these forces would bring the economy out of the stagflation it had been mired in since 1973 furthermore it was believed less government spending and reduced oversight would give the financial industry in particular a much needed boost those expectations did not all take shape exactly as planned during president reagan s two terms in office unemployment fell considerably disposable income rose and inflation was brought under control however the expectation that decreased taxes on the wealthy and businesses would result in increased spending on goods services and salaries failed to materialize moreover president reagan s relaxed regulation contributed to the savings and loan crisis by the early 1990s the u s economy had fallen back into recession president reagan s policies contributed to a near doubling of the national debt in part due to his commitment to cut taxes while increasing military spending voodoo economics has become a popular phrase used to dismiss any ambitious economic pledges made by a politician special considerationsafter two terms as vice president george h w bush was elected president in 1989 and served for a single term as president bush prioritized broader fiscal responsibility over tax cuts in 1990 he even agreed to a tax increase reneging on a promise made just two years earlier that embarrassing u turn saw him face criticism from his own party he went on to lose the 1992 presidential election to a democrat bill clinton | |
what is supply side economics | supply side economics is a theory that maintains that increasing the supply of goods and services leads to economic growth that is businesses that aim to increase production need to spend money they hire more people expand factories buy more raw materials and find more outlets for their goods government officials who subscribe to this theory advocate tax cuts for corporations and wealthy individuals they argue that this is a way to put more money in the hands of producers who will increase their spending to the benefit of consumers and workers | |
what is demand side economics | demand side economics could be seen as the opposite of supply side economics demand side economics maintains that increasing the demand for goods and services is the key to economic growth a demand side economic policy might call for large scale government spending on infrastructure projects in order to increase related production purchases and hiring demand side economics may also be called keynesian economics for john maynard keynes who developed the theory and advocated its implementation as a way out of the great depression of the 1930s was george h w bush a voodoo economist as vice president george h w bush wisely did not make any reference to voodoo economics he supported president ronald reagan s program of tax cuts on corporations and wealthy individuals as president bush might have been a more moderate proponent of voodoo economics in 1990 he raised the maximum individual income tax rate to 31 from 28 two years after promising to do no such thing that contributed to his failure to be reelected to a second term the bottom linevoodoo economics is a derogatory term for an economic policy that favors tax cuts for business and wealthy individuals as a way to spur economic growth that benefits all trickle down economics is another derogatory term for it its more formal name is supply side economics this theory argues that increasing production of goods and services leads the way to economic growth | |
what is the vortex indicator vi | a vortex indicator vi is an indicator composed of two lines an uptrend line vi and a downtrend line vi these lines are typically colored green and red respectively a vortex indicator is used to spot trend reversals and confirm current trends understanding vortex indicator vi the vortex indicator was first developed by etienne botes and douglas siepman who introduced the concept in a 2009 edition of technical analysis of stocks commodities the vortex indicator is based on two trendlines vi and vi vortex indicator calculationsthe calculation for the indicator is divided into four parts 1 true range tr is the greatest of 2 uptrend and downtrend movement 3 parameter length n 4 create the trendlines vi and vi the traditional application of using vi and vi crossovers can result in a number of false trade signals when price action is choppy increase the number of periods used in the indicator to reduce this for example using 25 periods instead of 14 inferencesthe vortex indicator is commonly used in conjunction with other reversal trend patterns to help support a reversal signal it is integrated into most technical analysis software programs vi and vi are typically graphed independently below a candlestick chart the chart below provides an example with lines that indicate changing trend signals on a candlestick chart an uptrend or buy signal occurs when vi is below vi and then crosses above vi to take the top position among the trendlines a downtrend or sell signal occurs when vi is below vi and crosses above vi to take the top position among the trendlines overall the trendline in the top position generally dictates whether the security is in an uptrend or downtrend | |
what is a vostro account | a vostro account is an account a correspondent bank holds on behalf of another bank these accounts are an essential aspect of correspondent banking in which the bank holding the funds acts as custodian for or manages the account of a foreign counterpart for example if a spanish life insurance company approaches a u s bank to manage funds on the spanish life insurer s behalf the account is deemed by the holding bank as a vostro account of the insurance company understanding vostro accountsa vostro account is established to enable a foreign correspondent bank to act as an agent or provide services as an intermediary for a domestic bank these services include executing wire transfers withdrawals and deposits for customers in countries where the domestic bank does not have a physical presence the foreign correspondent bank might also perform treasury services execute foreign exchange transactions and expedite international trade on behalf of the domestic bank the correspondent bank charges the domestic bank for the services associated with the vostro account vostro account vs nostro accountthe term vostro translated from latin means your as in your account from the foreign correspondent bank s point of view the funds held on behalf of other banks are referred to as vostro accounts and are denominated in the local currency from the perspective of domestic banks the funds deposited at correspondent banks are referred to as nostro accounts nostro translated from latin means our as in our accounts nostro accounts are denominated in the foreign currency of the correspondent bank in the context of banking and finance a vostro account is the account held by the respondent bank on behalf of the correspondent bank meanwhile a nostro account is the account held by the correspondent bank at the respondent bank these two terms reflect the perspective of each bank in the correspondent banking relationship small domestic banks that lack financial and human resources sometimes use the services of larger correspondent banks in foreign countries as an economic way to serve clients with global banking needs uses of vostro accountsthere are several situations where vostro accounts are typically used the most common situations include but are not limited to vostro accounts in an agency relationshipfor most banks the cost of building physical branches in every country their customers might need banking services is prohibitive as a solution domestic banks can initiate agency relationship agreements with correspondent banks to transact business for customers who are traveling living abroad or who own companies that do business abroad as an agent of the domestic bank the correspondent bank is authorized to perform certain agreed upon financial transactions acting as a fiduciary in the relationship in this relationship both banks perform due diligence on each other to assess their credibility financial stability compliance with regulations and suitability for the intended agency relationship the banks also negotiate terms of the agency relationship agreement document it in a formal agreement ensure compliance with relevant regulatory requirements and implement the necessary operational and technical processes to facilitate transactions and reporting related to the vostro account vostro accounts in an intermediary relationship |
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