Glossary of terms
Annual Return in terms of trading terminology is the return on trading funds that a trader or trading portfolio returns over a specific trading period, expressed as an annual percentage. The rate of annual return is expressed as a percentage of the total value of the fund or portfolio (the initial investment) and shows a geometric mean rather than an arithmetic mean.
A geometric mean is calculated from percentages derived at from values whereas an arithmetic mean uses the actual values themselves to calculate the final result. The geometric mean must be used for calculating annual return as it takes into account the affect of compounding where the initial investment will increase (or possibly decrease) year on year.
Annual return is the standard or preferred method of calculating a return on investment for investments with liquidity and as it is calculated using the geometric method will always take into account any increases in the portfolio value to produce a more accurate figure than just a simple return.
The formula for calculating annual return can be expressed as below:
Annual Return=((Final Value/Initial Value)1/Years)−1
Where Years=Number of holding years for the investment in the trading fund
Annual return is extremely important to investors as it determines the average yearly return of an investment over the entire lifetime of the investment and also takes into account any losses that may occur over this period. It is also one of the easiest forms of return on investment calculations and is easily understandable. In its simplest form the annual return is the geometric average of the investment over a specific time period.
- Annual return is a measurement of how an investment has performed (positively or negatively) on average each year over a specific time period.
- Annual return is calculated as a geometric average rather than an arithmetic average to take into account compounding.
- Annual return is one of the simplest methods of return assessment and is used Worldwide by investors and fund managers.
The ask price (also known as the offer) is the lowest price that a seller is willing to offer (sell) goods or services. In this definition it is related to financial instruments or products such as securities, commodities or foreign exchange to name just a few examples.
When viewing financial price quotes these will be displayed as two numbers for example EUR/USD (commonly known as fibre) may be quoted via a live broker or trading platform as 1.1230-1.1235.
Using the above example, the ask price or simply the ask would be 1.1235 which is the lowest price available in the market at which a seller is prepared to sell EUR/USD at. The lower number quoted is the bid price and is the highest price at which a buyer (the bidder) is prepared to buy EUR/USD at.
The difference between the two prices above is referred to as the bid/ask spread or more commonly just the spread. The closer or tighter the spread the more beneficial this is to traders as they are then not losing trading profit by having a large differential between the two available trading prices in the market.
Investors and traders may use the ask price to either fill market orders where they buy at the current market ask price or as a way of increasing profits they may set a limit order to sell at the ask price and when the price rises they will be selling at a higher price and therefore increasing their trading profits.
An example of the above would be if the current silver price is $17.80-$17.83 the following would apply:
Ask price is $17.83
Bid price is $17.80
Spread is £0.03
Trader A instantly fills a buy market order at $17.83
Trader B sets a sell limit order at $17.83 and must wait for price to rise to this level for the order to be filled.Key Takeaways:
- The ask price is the lowest price in the market place that a seller will sell or offer a financial instrument at.
- The difference between the ask price and bid price is known as the spread.
- The ask price is normally higher than the bid price unless in extreme circumstances.
Assets are defined as resources with an economic value which a country, company or individual possesses expecting them to produce economic benefit in a future point in time.
Assets are listed on balance sheets and are bought or created to help increase an entity’s value or in the future increase cash flow or help reduce costs or expenses.
In terms of trading, traders may look at a country’s assets to determine the current and possible future conditions of that country’s economy. Examples of such assets may be stockpiles of precious metals such as gold and silver, foreign currency reserves notably the US Dollar (Greenback), oil reserves, foreign government bonds and loans.
If a country’s assets are increasing this would be a positive outlook for the state of the economy as the Central Bank or Government of the country would have deemed that the country has enough cash on reserve for the foreseeable future and that there is no need to sell assets in order to generate additional cash reserves. The reverse would also be true in that if a country’s assets are declining then these are being sold in order to generate additional cash reserves and could be a pointer that the economy of the country is struggling.Assets can be broken down into different types as follows:
- Current Assets - Short term resources that can be converted to cash or cash equivalent relatively quickly and include cash obviously along with cash equivalents and short-term debt owed.
- Fixed Assets - Long term resources such as buildings. The value of fixed assets are adjusted to take into account ageing by the method known as depreciation.
- Intangible Assets - These are assets which are not physical such as goodwill and any patents that a country may own.
- Financial Assets-Investments in foreign government bonds or stocks.
- A country’s assets and the changes in asset holding can be looked at to help determine the strength of the country’s economy.
- Assets are resources that are expected to produce an economic benefit in the future.
- Assets can be broken down into various asset classes.