What Bid and Ask Are?
Very important terms, Any-Coin brings you the ‘highlights’ of the most popular terms you should know in order to be a successful trader, and this time, ask and bid prices.
The term “bid and ask” (otherwise called “bid and offer”) refers to a two-way value quotation that shows all that expected price at which a security can be sold and purchased at a given point in time. The bid price addresses the maximum price that a purchaser will pay for a share of stock or other security. The ask price addresses the base price that a seller will take for that same security. An exchange or transaction occurs when a purchaser in the market will pay the best offer accessible—or will sell at the highest bid.
The difference among the bid and ask costs, or the spread is a critical indicator of the liquidity of the resource. As a general rule, the smaller the spread, the better the liquidity.
Understanding Bid and Ask
The average investor fights with the bid and ask spread as a suggested cost from trading. For instance, if the current value quotation for the stock of ABC Corp. is $10.50/$10.55, investor X, who is hoping to purchase A at the current market cost, would pay $10.55, while investor Y, who wishes to sell ABC shares at the current market cost, would get $10.50.
Who Benefits from the Bid-Ask Spread?
The bid-request spread works to the benefit of the market maker. Proceeding with the above example, a market maker who is providing a price of $10.50/$10.55 for ABC stock is showing a readiness to purchase A at $10.50 (the bid cost) and sell it at $10.55 (the asked cost). The spread addresses the market maker’s profit.
Bid-ask spreads can differ broadly, depending on the security and the market. Blue-chip companies that establish the Dow Jones Industrial Average might have a bid-ask spread of only a few cents, while a little cap stock that trades under 10,000 offers a day might have a bid-ask spread of 50 cents or more.
The bid-ask spread can broaden drastically during times of illiquidity or market turmoil, since traders can not be willing to pay a price beyond a specific threshold, and sellers may not acknowledge costs under a specific level.
The difference between a Bid Price and an Ask Price
Bid prices refer to the highest cost that traders will pay for a security. The ask price, then again, refers to the least value that the proprietors of that security will sell it for. In the event that, for instance, the stock is trading with an ask price of $20, then, at that point, an individual wishing to purchase that stock would have to offer at least $20 to buy it at today’s price. The gap between the bid and ask prices are regularly referred to as the bid-ask spread.
What’s the significance here When the Bid and Ask Are Close Together?
At the point when the bid and ask prices are extremely close, this commonly implies that there is ample liquidity in the security. In this situation, the security is said to have a “narrow” bid-ask spread. The situation can be useful for investors since it makes it simpler to enter or leave their positions, especially in the case of large positions.
Then again, securities with a “wide” bid-ask spread—that is, the place where the bid and ask prices are far separated—can be tedious and costly to trade.
How Are the Bid and Ask Prices Determined?
Bid and ask prices are set by the market. Specifically, they are set by the actual buying and selling choices of individuals and institutions who invest in that security. Assuming interest overwhelms supply, the bid and ask prices will steadily move upwards.
Then again, if supply overwhelms demand, bid and ask prices will float downwards. The spread between the bid and ask prices are dictated by the overall level of trading movement in the security, with higher action prompting to narrow bid-ask spreads and vice versa.
Any-Coin brings you the ‘highlights’ of the most popular financial and trading terms that you should be familiar with in order to be a successful trader, and this time, what IPO is?
An unlisted company (A company that isn’t listed on the stock exchange) declares an initial public offering (IPO) when it chooses to raise funds through the sale of securities or shares for the first time to the public. All in all, an IPO is the selling of securities to the public in the primary market. A primary market deals with new securities being given for the first time. After listing on the stock exchange, the company turns into a publicly-traded company and the shares of the firm can be freely traded in the open market.
IPO is utilized by small and medium enterprises, startups, and other new companies to expand, work on their current business. An IPO is a way for companies to secure new capital, which thus can be utilized to finance research, store capital consumption, pay off debt and explore other opportunities.
An IPO will likewise bring transparency into the affairs of the company since it will be needed to inform financial numbers and other market-related developments on time to the stock exchanges. The company’s investment in different equity and bond instruments will go under more prominent examination after it gets listed. The IPO of any company brings an incredible deal of attention and credibility. Analysts all throughout the world report on the investment choices of the customers.
Investment betting on an IPO can acquire attractive returns in case they are wise and have some expertise. The investors can form a decision by going through the plan of the companies initiating IPO. They need to go through the IPO prospectus cautiously to form an informed idea regarding the company’s business plan and its motivation for loading up stocks in the market. In any case, one should be careful and have a clear comprehension of analyzing financial metrics to distinguish opportunities.
An unlisted company (A company that isn’t listed on the stock exchange) reports an initial public offering (IPO) when it chooses to raise funds through the sale of securities or shares for the first time to the public. At the end of the day, IPO is the selling of securities to the public in the primary market. A primary market deals with new securities being issued for the first time. After the listing on the stock exchange, the company turns into a publicly-traded company and the shares of the firm can be traded freely in the open market.
What Indices Are and How to Trade Them?
You can trade indices in any part of the world. There are large indices in the USA, Europe, Asia, and Australia. The largest American indices are the following:
- The Dow Jones (DJI) – This index measures the value of the 30 largest blue-chip stocks in the US.
The NASDAQ 100 (US Tech 100) – This index reports the market value of the 100 largest non-financial companies in the US.
- The S&P 500 (US 500) – This index follows the value of 500 large-cap companies in the US.
In Europe, you can trade such indices as the DAX, the CAC, and the FTSE:
- The DAX (Germany 30) – This index tracks the performance of the 30 largest companies listed on the Frankfurt Stock Exchange.
- The CAC (France 40) – This is the French Stock Market tracking the 40 largest French stocks based on the Euronext Paris market capitalization.
- The FTSE 100 – This index measures the performance of 100 blue-chip companies listed on the London Stock Exchange.
In Asia, there are several large indices. The most popular among them are the following:
- The Hang Seng – This is a market capitalization-weighted index of the largest companies that trade on the Hong Kong Exchange.
- The Nikkei 225 – This is the leading index of Japanese stocks. It is composed of Japan’s top 225 blue-chip companies traded on the Tokyo Stock Exchange.
- The ASX 200 – This is a market-capitalization-weighted stock market index of stocks listed on the Australian Securities Exchange.
How Are Indices Calculated?
Most stock market indices are calculated using the Capitalization-Weighted Average. This method gives greater weighting to larger-cap companies. That is, it takes the size of each company into account. The more a particular company is worth, the more share’s price will affect the index as a whole. Lower cap companies will affect the index’s performance to a lesser degree.
Some popular indices are, by contrast, price-weighted. The Dow Jones and the Nikkei 225 are price-weighted indices. This method gives greater weighting to companies with higher share prices. Changes in their values will affect the current price of an index more than changes in companies with lower share prices: a stock trading at $200 will influence the value of the Dow Jones or the Nikkei more than a stock trading at $55.
Note that because indices are numbers, you cannot sell or buy them directly. To trade a certain index with Any-Coin, you need to choose either Index Funds or Exchange-traded funds, or Futures, or Options, or CFDs. All of these products track the price of the underlying index. Also note that because they are made of so many stocks, the value of indices is always shifting. Indices are more volatile than individual shares. They do provide traders with multiple trading opportunities. Yet they also increase traders’ risk.
Why Do You Need to Trade Indices?
Despite the risks involved in trading indices, any index can potentially provide you with many trading opportunities and various ways of trading. When you trade indices, you can go long or short, trade with leverage, and hedge your existing positions.
Go Long or Short
You can go long or short when trading an index with Any-Coin, provided you trade it with CFDs. When you go long, you are buying a market, because you expect the price to jump. When you go short, you are selling a market, because you predict that the price will slide. With CFDs, your profit or loss is determined by the accuracy of your prediction together with the overall size of the market movement.
Trade with Leverage
CFDs can be leveraged. That is, you need to invest only a small initial deposit, called a margin, to open a position giving you much larger market exposure. But note that when you trade with leverage, your profit or loss is calculated using the size of the entire position, not just the initial margin invested to open it.
Hedge Your Existing Position
If you trade different shares, you may short your index to prevent losses in your portfolio. When the market enters negative territory and shares’ value diminishes, the short position on the index will increase in value and will thus offset the losses from the stocks. But note that when stocks rise, the short position of the index will offset a proportion of the profits you have earned.
But suppose you have a short position on several individual stocks featuring on the index where you trade. If this is the case, you can hedge against the risk of the price’s increase with a long position on the index. When the index jumps, your index position will bring you a profit and, in so doing, will offset a proportion of the losses on your short stock positions.
More volatile than individual shares, indices can bring you lucrative trading opportunities and handsome profits. Sign up with Any-Coin now and confidently trade indices with us.
How to Calculate Return on Investment (ROI)
Any-Coin brings you the ‘highlights’ of the most popular financial and trading terms that you should be familiar with in order to be a successful trader, and this time, how to calculate your return of investment (ROI).
In the paragraphs below, we are explaining how to calculate Return on Investment or ROI. But if you are new to the world of finance, you might not know what ROI is or might have only a vague notion of this concept. Before we show how to calculate ROI, a few words on the concept itself are in order.
What Is Return on Investment (ROI)?
Return on Investment is a performance measure. It is used in businesses to estimate the profitability or efficiency of an investment. ROI is also used to compare the efficiency of several investments. What Return on Investment does is it measures return on particular investment, compared to its cost.
Simply put, to calculate ROI, you need to divide the return of your investment (your profit) by its cost or outlay. The result is expressed either as percentage or a ratio. But note that ROI does not take into account the passage of time. Hence, it can miss opportunity costs of investing in some other businesses.
Suppose your investment has a profit of $100. If its cost is $100, its ROI will be 1, or 100%.
How to Calculate Return on Investment?
There is a formula to calculate your ROI. To calculate your Return on Investment, you need to subtract the cost of your investment from the current value of your investment. Then, you need to divide the received amount by the cost of your investment.
In this formula, Current Value of Investment is the proceeds received from the sale of the investment of interest. Note that ROI is measured as a percentage. Therefore, Return on Investment can be compared with returns from other investments, which enables you to measure your different investments against one another.
Why Is ROI Popular?
People prefer to use this metric because it is simple and applicable to various spheres of your business. It can help you precisely estimate the profitability of your investments. Whichever investment you make, use the Return on Investment formula to see whether it brings you profits. For example, you can count the ROI on a stock or asset investment, the ROI you expect on growing your business, or the ROI received in a real estate deal.
The ROI formula itself is so simple that even if you are not good at math, you will be able to interpret it. Simply put, if your investment’s ROI is positive, it means your business is profitable and can be moved forward. If you are choosing between several investment options, calculating ROI will come in handy as well. If you see that you have options with higher ROIs, you can easily choose the best option on offer, weeding out those that are less profitable. If you discover that the return on your investment is negative, you will understand that your business is in trouble.
Limitations of ROI
As mentioned, ROI does not take into account the progress of time. When you compare your investments, you will keenly feel these limitations. Suppose you have made two different investments. When you compare them by using the ROI formula, you discover that, say, your first investment was thrice larger than your second investment. Yet you also discover that the time between your purchase and sale was half a year for your first investment but a year and a half for your second one. The ROI formula did not take these significant differences into consideration and disregarded the time value of money. If this is the case, you would need to adjust your year-and-a half investment, accounting for time differences between the two investments.
To refine your calculations and your business management, you are advised to use ROI together with the rate of return (RoR), which, unlike ROI, does consider your investment’s time frame.
Or you can use net present value (NPV). NPV accounts for differences in the value of money over time, due to inflation. Analysts often call the application of NPV when calculating the ROR the real rate of return. Alternatively, you can use such metrics as the internal rate of return (IRR).
What Is a Profitable ROI?
This question does not have a definite answer, because investors have to consider their risk tolerance and the time during which their investment starts generating a return to understand what ROI is good for them. If you hate taking risks, you might be ready to receive lower ROIs, provided you take lesser risks. If your investments take more time to begin earning you profits, they need to generate a higher ROI.
On average, companies listed on such large indices as the S&P 500 have the annual ROI of 10%. But ROIs differ from industry to industry. Tech companies may generate larger ROIs than energy ones, yet ROIs within one industry may also change over time, because of competition, technological innovations, and people’s preferences.
We, at Any-Coin we can help you to create the best investment plan so your ROI will always be between great to amazing.