L
Labour Market
The term “labour market”, or job market, describes the set of interactions between the supply of labour (workers) and the demand for them (employers). On the macroeconomic level, important labour market indicators are unemployment and labour productivity. On the microeconomic level, supply and demand in labour markets determine factors like wages, hours worked, and benefits.
Labour market dynamics are highly complex and can be influenced by phenomenon like immigration, population ageing, globalization, automation and the overall health of a country’s economy.
Ladder
Laddering is a financial technique that consists of buying financial instruments with different maturity dates. In investments, laddering is used for financial portfolio diversification or as an investment strategy whose objective is to obtain a constant flow of liquidity. The most common applications of laddering are the purchase of new securities and retirement planning.
The purpose of laddering is to choose different investment instruments in order to achieve certain results, e.g. constant payments or a more diversified risk.
In retirement planning, laddering refers to the purchase of bonds or government securities with different maturities in order to take advantage of a constant cash flow and reinvest the proceeds of the first maturing products into the purchase of other bonds or government securities.
Law of Demand
The law of demand is the economic principle that the higher the price, the lower the demand, and vice-versa. In reality, there are many factors that can distort this inversely proportional relationship, like income limitations or preferences.
Some goods, called “Giffen goods”, actually exhibit the opposite behaviour. But all else being equal, the law of demand holds true. This law is often represented as a graph with a line sloping downward, with the price on the Y-axis and the quantity on the X-axis (in economics, the independent variable is plotted on the Y-axis).
Lead magnet
A lead magnet is a lead generation technique for acquiring new customers for business, a strategy that relies on the distribution of free services and content to encourage users to do something (e.g. request a quote, subscribe to a newsletter, sign up for a trial subscription). Then the leads are converted into paying customers and loyal customers through special marketing techniques and sales-related activities.
A lead magnet is also used in the financial sector, e.g. when brokers offer a free trial for a trading platform, or when a provider offers a trial period for a trading signals service. Lead conversion depends on the company's ability to provide value and identify the right users, by selecting people who are genuinely interested in buying the products and services offered for a fee after the initial phase.
Leadership
In the business world, leadership is the ability of the person leading a company to achieve certain results. Investors expect a company's management to be able to meet set goals, outperform the competition and take all necessary actions to maintain expectations. The main leadership figure in companies is the CEO (Chief Executive Officer); other roles that require leadership skills are the COO (Chief Operating System), the chair and the CFO (Chief Financial Officer).
Leadership first and foremost involves setting an example for the company's staff to follow; it also requires the ability to set goals that employees share and strive to achieve. Leadership requires a strong character, but also integrity, honesty and ethics, as well as the ability to communicate effectively and motivate employees to strive together for the success of the company.
Leverage
Leverage means using borrowed funds to place bigger trades and potentially magnify profits. It takes its names from physics, where a simple input force on a lever can be amplified many times over in the output force. The analogy holds in the world of finance, where aim is to recover the cost of borrowing money many times over by leveraging the debt.
Business use leverage by financing new endeavours with debt rather than new equity. Traders can also use leverage to increase their potential returns (and risk) by engaging in forex or derivatives trading on margin. Under this arrangement, brokers lend traders money so they can place trades that are potentially worth many times the amount of capital they have in their account. If the trade goes well, they walk away with a return much higher than what they would have received without leverage. However, a trade that goes sour could saddle them outsized losses.
Leveraged ETF
A leveraged ETF is an Exchange-Traded Fund (meaning a fund that can be traded like a single stock but that tracks a basket of underlying securities) in which borrowed money is used to magnify the ETF’s gains (and losses).
Leveraged ETFs also often use derivatives, like options or futures, to further multiply returns. As a result, they usually don’t track the underlying group of securities as closely as a normal ETF.
Short–term traders use leveraged ETFs in order to amplify their profits, but they also risk losing most or all of the original investment.
Liability insurance
Liability insurance is a specific type of insurance policy that covers the insured party for damages to third parties, such as injury to others or damage to property. In the event of a claim, liability insurance compensates the injured parties, covering all payments on behalf of the insured party, including potential legal fees.
This type of insurance is different from typical policies in that the latter compensates the insured party in case of a claim, whereas liability insurance compensates third parties and not the insured party. Liability insurance covers a number of private, professional and corporate risks. Typically, this policy involves an upper limit and an excess franchise, as well as certain exclusions that aren’t covered by the insurance.
Life Insurance
Life insurance, also termed life assurance, is an agreement under which the person who purchases the insurance (called a policyholder) periodically pays a set amount (called a premium) to an insurer in exchange for the pay-out of a lump sum upon their death, which is received by the policyholder’s beneficiaries.
The two main types of life insurance are term life insurance, which expires after a set amount of time and pays out no benefit after that period, and whole life insurance, which does not expire and pays a return on the investment in addition to the lump sum death benefit.
Policyholders use life insurance to achieve two main objectives: financial protection, for example to replace income from the deceased that a family depended on, or investment, where policyholders seek to grow their capital for retirement, manage their estate, or defer taxes.
Limit Order
A limit order is a trader’s direction to a broker to automatically buy or sell a security at a certain threshold or better. When buying, this means the broker will automatically buy the security at a certain price or lower; and when selling, the security needs to meet or exceed a certain price for the order to execute.
Unlike market orders, which are directions to execute a transaction immediately at the market price, limit orders are a type of pending order and are only implemented if and when specific conditions are met.
Liquid Asset
Liquid assets are resources or property that can easily be converted into cash. The most liquid of assets is cash itself. Other highly liquid assets include stocks, bonds, accounts receivable, and money market funds. Among the least liquid assets are real estate, artwork, or machinery. An asset’s liquidity depends to some extent on how many interested buyers there are.
Companies keep track of their liquid assets (also known as current assets if they are expected to be converted to cash within a year) for cash flow purposes and to make sure they can pay their debts. Investors may also analyse a company’s liquid assets to calculate their solvency or liquidity ratios and decide how financially sound the organization is.
Liquidate
Liquidate means to turn an asset or a property into cash. Voluntary liquidation is used to sell off assets on the market in order to pay off some debts or to make new investments. Compulsory liquidation is ordered by an authority, for example, to honour a contract or impose a legal ruling.
Liquidation also refers to the process of closing a company when its assets are sold off and redistributed. The process can occur during the disposal of assets or after filing for bankruptcy.
In the financial sector, liquidation is the process of closing a position, when an investor needs cash for other investments or for non-financial activities.
Liquidity
Liquidity refers to how easily a person or entity can convert its assets into cash. It is an important measure of a company’s ability to meet its short term obligations. Different assets fall on different points of the liquidity continuum, depending on how fast they can be sold without significantly impacting their value.
Cash is the most liquid asset because it can be instantly traded without diminishing its worth at all. Stocks and other securities fall at various points along the spectrum based on how much demand there is for them. Real estate or real property such as antiques or artwork are less liquid; it will likely take more time to find the right buyer willing to pay full value for these types of assets.
In the context of investing, liquidity refers to how readily a security can be traded on the market. The de facto measure of a security’s liquidity is the bid-ask spread, which is the difference between the highest purchase price quoted by a buyer and the lowest price a seller offers for that security: the tighter this spread, the more liquid the market.
Liquidity Ratio
A liquidity ratio measures how easily a business can pay off its debts without having to seek out additional financing. The higher the ratio, the more capable it is of converting assets into cash to meet its short-term obligations. The three most common ratios are:
- The current ratio, which is calculated by dividing the current assets line by the current liabilities line on the company’s balance sheet.
- The quick ratio. This metric is stricter because it subtracts less liquid assets like inventory and prepaid expenses from current assets before dividing them by current liabilities.
- The cash ratio. This ratio is the strictest; it only allows cash and marketable securities in the numerator (and then divides by current liabilities).
Investors can use liquidity ratios to evaluate a company’s investment worthiness. A very low ratio might mean a company is struggling to meet its obligations, while a very high one could signal that a company is not fully leveraging its assets to make a profit.
Liquidity risk
A funding liquidity risk refers to a person or entity’s inability to pay their short-term debt obligations when they are due. This scenario has serious consequences for the debtor, like having to sell long-term assets at disadvantageous prices.
Many investors inform their decisions with indicators like the current ratio and quick ratio to ascertain a company’s funding liquidity risk.
Meanwhile, market liquidity risk refers to the risk of erosion of an asset’s value as a result of not being able to find a ready buyer for that asset. This risk is often encountered when dealing in thinly traded stocks, for example.
Live currency rates
Also known as live forex rates or live exchange rates, live currency rates are real-time streams of currency exchange rates, which is the value of one currency relative to another. Line graphs are a common way of visually representing live currency rates.
Forex traders follow live currency rates to make decisions about when to make trades. They are offered free on many websites.
Loan
A loan is a quantity of money or other asset that an owner (a lender) turns over to another person or entity (a borrower), under the condition that it be returned according to an agreed-upon schedule. In most cases lenders are compensated for the loan based on how long the money or asset is in the borrower’s possession. This compensation is called interest, while the value of the loan itself is called the principal.
Common types of loans include personal loans, car loans, mortgages, home equity loans, credit card transactions, and payday loans. Loans can either be secured or unsecured. In a secured loan, a borrower pledges an asset that will become the lender’s if the borrower does not repay the loan. An unsecured loan means no collateral is offered as a guarantee of repayment.
Low
The term low refers to the lowest price reached in trading. The low represents the lowest price at which a security is traded during the day. It is an important value for traders, especially day traders but also technical analysts, as it helps to detect and identify price trends in a security.
Stocks always show today's low and the low over the past 52 weeks. This is useful and important information for investors and traders, who may choose to invest when the low is approaching. This activity can entail significant risks but also offer important opportunities.