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Thanks to the investment boom that began in Russia in 2021, many have learned how the market economy works, what the stock exchange is, who issues shares, and what a broker is for. The simplest definitions and terms have come into use and almost no longer raise questions.
At the same time, there are quite a few concepts that are also often used in news publications and official statements, but their meaning is not always clear.
We made a selection of terms that an attentive and financially literate investor should know. We explain who market makers are, how Fibonacci levels are used in trading, and what an insider can and cannot tell.
Privatization
Privatization is the process of transferring state property to private ownership. With privatization begins the market economy and all related processes. Privatization, like any other phenomenon, has positive and negative consequences.
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For example, thanks to privatization, enterprises receive additional investments, and at the same time new motivation for development and efficiency improvement. However, privatization can also lead to increased social inequality and an opaque division of state assets.
When privatization became especially popular in Russia and the world, and what models of privatization exist, you can find out in this article.
Offshore zone
An offshore zone is a place that is in demand among large businessmen.
This is a special territory in which there is no taxation for certain companies or low taxes are legally fixed. In such territories, there is often a simplified system for registering legal entities and, as a rule, conditions have been created for relatively anonymous business.
The main offshore centers are the former colonies of the British Empire: the word “offshore” comes from the English off-shore, which literally means “out of the coast”, that is, not in the UK.
Offshores can be used for international tax planning (essentially, to reduce the amount of taxes paid), to hide the true owners of a business, as well as to simplify transactions and to circumvent restrictions associated, for example, with the currency laws of some states.
Here you can find out which place in the world is considered the first offshore and how such a mechanism is usually treated by state governments.
Dow Jones
The Dow Jones Index (DJI) is one of the most famous and oldest international stock indices. It was first compiled in 1896 by The Wall Street Journal. The main purpose of calculating this index was to track the dynamics of the development of American industry.
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Now the Dow Jones index includes quotes of the 30 largest companies in various sectors of the US economy and is calculated as a scaled average of their quotes at the close of the exchange day. This index is considered one of the key benchmarks among stock indicators, although the latter is often criticized.
Why the index is criticized and what indicator is used on a par with DJI, you can find out here.
Insiders
An insider is a person or legal entity that has access to proprietary information that is not publicly available. Such information is received by some employees of the issuing company, who, for example, prepare the company’s financial statements, its development plans, or participate in the development of transactions with counterparties.
Insider information is accurate and specific information that has not been disclosed and the dissemination of which could have a significant impact on the prices of financial instruments, foreign currencies and commodities. Therefore, companies make lists of insider information and insiders to control its confidentiality.
In this article, you can find out who is legally considered an insider in Russia and what responsibility comes for those who violate the confidentiality of insider information.
Market maker
A market maker is a professional exchange trading participant who has entered into an agreement with the exchange to maintain the price level for certain financial instruments. Market makers are required to maintain active trading on the site, to make transactions with other market participants.
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Market makers act on the exchange as sellers and buyers of financial instruments at the same time, so that other bidders do not wait for orders to appear, but can quickly sell or purchase shares, bonds or futures, etc. Thus, market makers maintain the liquidity of instruments and trading activity.
You can read more about what law regulates the activities of market makers and what obligations they must take on here, and here you can learn more about investments.
precious metals
Precious metals are rare chemical elements that are not subject to corrosion and oxidation. In addition, they have a certain jewelry value, since they are rare in nature and their extraction is laborious.
Precious metals include: gold, silver, platinum and a number of metals of the platinoid group: ruthenium, rhodium, palladium, osmium, iridium. Historically, coins have been made from gold and silver, and sometimes platinum and palladium, and their reserves can be used to support the issuance of paper money.
How precious metals are related to inflation and for what purposes they are mainly used, read here.
Exchange glass
The Market Depth of Market is a list of limit orders for the purchase and sale of securities, derivatives, commodity or currency contracts on the exchange. Types of orders are usually divided into market and limit orders, there are also conditional ones. Only limit orders are visible in the DOM.
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The price of any exchange instrument depends on the supply and demand for it, and those, in turn, on the steps taken by active market participants. If one of them intends to sell 5 lots of an asset, you need another who agrees to buy them, then the deal will take place. Every second there are many transactions on the stock exchange.
In this article, you will learn more about how the depth of the order book works and how it affects the investment strategy.
Fibonacci levels
The Fibonacci sequence is an infinite series of numbers, each subsequent member of which is equal to the sum of the two previous ones: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, etc. In this series, the ratio of one member of the sequence to the previous tends to 1.618, or to the golden ratio, which means the most harmonious ratio of the whole to its part.
During exchange trading, a pattern was revealed that often corrections of current trends have Fibonacci sequence values, which can be represented by a percentage of price movements equal to 23.6%, 38.2%, 50%, 61.8% and 76.4% . They were called Fibonacci levels, which became part of the toolkit in technical analysis.
How Fibonacci levels are used in trading and how they can be built can be found here.
Buyback
Share repurchase (buyback, buyback) is the repurchase by a company of a part of its shares outstanding on the stock exchange. The company usually announces a buyback to support the share price and capitalization if there are free funds. Buyback of shares allows you to increase the actual shares of the largest shareholders of the company and strengthen their positions.
The best moment to start a buyback is when the prices of the company’s shares are low. At the same time, the demand for securities, which the company itself creates by repurchase, increases their quotes, and, consequently, the value of the company.
Here you can read what are the ways to buy back shares and whether to expect a buyback on the Russian market in 2023.
Divestments
Divestment is the reverse process of investment, that is, the conversion of earning assets into cash through sale. Divestments can be made through the outright sale of assets or entire subsidiaries to other companies, by spinning off a particular line of business into a separate company and selling its shares on the stock exchange, or by spinning off a certain line of business into a separate company and transferring its shares free of charge to the existing shareholders of the original company.
Divestment should be distinguished from the liquidation of an enterprise or part of it in case of bankruptcy or in case of emergency. It is understood that divestment will ultimately bring more profit to the enterprise than keeping the assets in the current state.
In this article, you can find out when companies decide to resort to divestment and in what ways this can be done.
With the help of the Banki.ru service, you can choose a deposit or a savings account, learn more about the topic of investments, choose a broker, find a suitable debit or credit card, and also find out the situation on the metal, currency and real estate markets.
Anna MILKINA, Elena RUDNEVA.
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