Glossary

Welcome to Fineco’s Glossary! It will help you better understand the financial terminology and master your financial skills.

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Fibonacci Retracement

Fibonacci retracement is a strategy used by technical traders (investors aiming to make a profit by predicting markets’ price behaviour rather than looking at the long-term fundamentals of companies and markets) to predict support and resistance levels of price movements.

It uses the famous Fibonacci sequence of numbers, which show up in many natural phenomena, to calculate when a down trend is likely to pause because of an accumulation of demand (support) or an uptrend is likely to stall due to increased interest in selling (resistance). Common Fibonacci ratios used are 23.6%, 38.2%, 50%, and 61.8% of the distance between the maximum and minimum on a price chart.

Fibonacci trading

Fibonacci trading is the use of ratios derived from a specific sequence of numbers called the Fibonacci sequence to decide when to make transactions. Among the several tools based on these ratios, Fibonacci retracement is the most popular.

The Fibonacci sequence is a series of numbers discovered by Italian mathematician Leonardo Fibonacci in the 13th century. The ratios yielded by the sequence are often found in nature and include the Golden Ratio. Fibonacci retracement holds that a portion of a price trend of a security or market will be reversed before the original trend continues, allowing traders to predict price movements. There is no guarantee that these inflection points will be followed, but they can serve as rough guidelines for traders.

Fiduciary

In its broadest sense, a fiduciary is a person or organization in which another organization places confidence or trust. The term can also be used as an adjective to describe this type of trust-based relationship.

The term is most commonly applied in the financial sphere: clients entrust assets to a fiduciary on the understanding that the fiduciary will act on their behalf and in their best interest. A banker has fiduciary duties, as does a money manager. Registered investment advisors are fiduciaries and are legally required to put their clients’ interests first, while a broker-dealer does not act in a fiduciary capacity and is not required to make decisions in its client’s best interest.

Finance

Finance is a broad discipline dealing with all aspects of the management of money. It encompasses activities such as borrowing and lending, investing, budgeting and saving, and creating and regulating financial systems. It can be divided into three main sub-disciplines: personal finance, corporate finance, and government finance.

The field of economics provides the theoretical underpinnings for finance, which is considered a more practical discipline, but the distinction between the two disciplines is increasingly blurred.

Financial Account

The financial account is a macroeconomic term for the volume of foreign assets held by the individuals, companies, and governments of a specific country, as well as the volume of domestic assets in that country held by foreigners.

It shows whether overall money is exiting the country to be invested abroad or flowing from foreign markets into the domestic one.

The financial account takes all asset classes into account. It is one of three components of the balance of payments (along with the current and capital account), which sums up all transactions between a country and the rest of the world.

Financial advisor

A financial advisor provides guidance and services related to matters like managing money and tax liability, estate planning, or investing. Unlike brokers, who are limited to buying and selling on someone’s behalf, advisors can offer advice for making informed decisions.

The term financial advisor is not standardised, and professionals that provide these services could also be referred to as a financial planner, wealth manager, or retirement planner, among others. In many countries financial advisors must hold professional credentials, such as certified financial planner status in US or the chartered financial planner qualification in the UK.

Financial Crisis

The term “financial crisis” refers to a variety of situations where there is a sudden and widespread loss in the value of assets. A financial crisis often occurs when assets like securities are overvalued, and falling prices create a snowball effect as people panic and sell off or withdraw assets to protect their value.

Notorious examples of financial crises in recent history include:

  • The Global Financial Crisis (2007-2009), triggered by a drop in the U.S. housing market. This crisis deeply stressed financial institutions worldwide, many of which had to be bailed out by governments to avoid bankruptcy.
  • The Wall Street Crash of 1929, which was followed by the decade-long Great Depression.

Fixed asset

Fixed assets are:

  • Tangible, meaning they are physical in nature, unlike intellectual property and software, which are intangible.
  • Long-term, which means they have a useful life of more than a year (unlike current assets, which are short-term).

Fixed assets are listed on a company’s balance sheet as Property, Plant, and Equipment (PP&E).

They are used as part of a company’s production infrastructure and are illiquid, meaning they cannot be easily transformed into cash to meet business obligations. Examples include vehicles, land, buildings, furniture and IT equipment.

Fixed Income

Fixed income is a category of assets structured to provide investors a steady, dependable return. Examples are bonds, certificates of deposit (CDs) and fixed annuities. Those investing for retirement often shift to a heavier emphasis on fixed income once they actually retire and need their portfolio to provide them with a reliable cash flow.

Most fixed income investments are considered lower risk than equities or other asset classes. Consequently, they usually provide a more modest return as well.

Forex

The word “forex” comes from combining “foreign currency” and “exchange.” It can refer to forex markets, or currency markets, which are platforms for buying and selling foreign currency. Alternatively, it can refer to forex trading, which is the actual activity of buying and selling currencies. Forex activity plays a key role in balancing out the global macroeconomic environment and is more voluminous than any other economic sector.

Forex brokers

Most forex trading, or the buying and selling of foreign currencies, is carried out between banks through what is known as the interbank system. However, other parties can access these trades through intermediaries called forex brokers. Forex brokers make money on the bid-ask spread, which means they offer the trade at a slightly higher price than the one they can get.

Many forex brokers offer leverage, which magnifies gains, but also multiplies any losses.

Forex indicators

Forex indicators are signs that a foreign currency trader uses to decide whether to buy or sell a currency pair.

Examples of forex indicators include average true rating, relative strength index, and moving averages. Average true rating measures the price volatility of a currency pair. Relative strength index shows whether a pair is overbought or oversold by comparing the magnitude of past gains and losses. Moving averages track the average value of a currency pair over time, giving a picture of market sentiment. All of these tools can be used over different timeframes depending on a trader’s goals.

Forex signals

Forex signals are indications of when to buy or sell a specific currency pair. They can be based on technical analyses, such as candlestick charts and evaluation of past market trends, or on current events and projections of how they will affect a pair. Signals can be provided free of charge or for a fee by a software service or through a human analyst. They are often delivered via SMS or email so that traders can take action on them immediately.

Forex trading strategies

Forex trading strategies are techniques that currency traders use in order to make money by buying and selling foreign currencies. These strategies are usually guided by forex signals. They can be based on technical analyses, such as candlestick charts and analyses of past market trends, or on fundamentals, which are projections of how current events may affect a currency pair. A good strategy will identify which currency pair to trade, as well as entry and exit points. It is best to test out a forex trading strategy in a demo environment before committing capital.

Free market

In a free market, supply and demand interact in an unrestricted manner to determine prices and other aspects of an economy. The underlying theory is that unregulated markets, on their own, will reach a point of equilibrium—a concept called the invisible hand. A contrasting model is a regulatory market, in which a central authority intervenes to control supply and demand. John Smith and John Locke were key thinkers in the development of free market theory.

Free Trade

Free trade refers to an approach to international commerce that lowers or eliminates government restrictions, such as tariffs or prohibitions, in favour of a more free flow of goods and services across borders. The opposite of free trade is protectionism. The EU’s single market is a key example of free trade.

FTSE 100

The FTSE 100 is short for the Financial Times Stock Exchange 100 Index. It is a share index that tracks the UK’s 100 largest companies, as measured by market capitalisation, and is referred to by the nickname Footsie.

The FTSE is the most widely used indicator in UK, and arguably in all of Europe. While the FTSE 100 is often used as a proxy for the strength of the UK’s economy, many of the companies included on it have a strong international focus and are thus substantially exposed to fluctuations in the Pound exchange rates rather than domestic economic fundamentals.

FTSE 250

The Financial Times Stock Exchange 250 Index (FTSE 250) is a share index that tracks the 101st to 350th largest companies in the UK by market capitalisation. The 100 largest companies are covered by the FTSE 100 index, but some consider the FTSE 250 to be a better indicator of the health and prosperity of the UK economy since the FTSE companies have less foreign currency exposure.

FTSE All-Share

The Financial Times Stock Exchange All-Share Index is a share index that tracks the value of the 100 large-cap companies on the FTSE 100, as well as the 250 mid-cap companies on the FTSE 250 and around 300 smaller companies. It aims to represent 98% of value of UK companies that qualify for listing on the exchange. Its performance tends to mirror that of the FTSE 100, which makes up a large portion of the market value of the index, but it has outperformed this index in recent years.

Fund

A fund is a pool of money set aside for a particular purpose. Funds can be established by individuals, companies, governments, or other bodies and include trust funds, pension funds, emergency funds, retirement funds, and investment funds.

Investment funds allow participants to tap into the advantages of working as a group, such as diversification and economies of scale. Their purpose is to earn money for investors. Among the many types of investment funds are mutual funds, bond funds, hedge funds, and sovereign wealth funds.

Fundamental Analysis

Under the fundamental analysis approach to investment decisions, an investor first determines a stock’s intrinsic value (or “fair market value”) and then decides whether it is overpriced or underpriced. This technique is often contrasted with technical analysis, which examines past price behaviour to predict future market trends.

Fundamental analysis is multifaceted. It examines internal, micro factors like a company’s management, creditworthiness, financial statements and performance. It also looks at external, macro factors, like competitors in the industry, the state of the company’s industry as a whole, or even a country’s overall economic or political climate.

Futures

Futures—or, more properly, futures contracts—are financial instruments for the purchase and sale of an asset at a specific price, called the forward price, on specific future date, called the delivery date. They are considered a derivative, meaning they depend on the performance of the underlying asset but are not the asset itself.

Futures have their origins in commodities trading, where they were used to reduce the uncertainty surrounding the future price of a crop or type of ore, for example. A pre-agreed future price allows more predictable income for the seller and reduces volatility for buyers’ expenses. However, a dramatic rise or fall in the price between the signing of the contract and its delivery date could mean a seller receives much less than market value or a buyer pays much more.

Futures trading

Futures trading involves the exchange of futures contracts to profit from the change in price in the underlying assets (stocks, indexes, commodities, or currencies) they are based on. Futures contracts are a financial instrument for the purchase and sale of an asset at a specific price, called the forward price, on specific future date, called the delivery date. While many use futures contracts to hedge against price risks and actually to intend to hand over or receive the underlying asset itself, speculative futures traders do not hold futures contracts to expiry and do not intend to take delivery of the actual asset.