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insight by wfx

Welcome to Wordwide FX's new enterprise!

Insight by WFX is a synthesis of our passion for languages and the financial markets. Here you will find technical and fundamental analyses from our clients, media partners and contributors in different languages, as well as discussions on languages and translation. And of course we will keep you updated on what is happening inside Wordwide FX Financial Translations. Hope you enjoy it! Greetings from the Wordwide FX team!

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07/12/2018

Gorillas, elephants, and tigers: the market jungle

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By Wordwide FX Financial Translations

The financial market vocabulary might sound serious but sometimes it is quite the opposite. Besides from the well-know bears vs. bulls and haws vs. doves, our particular financial jungle is inhabited by gorillas, tigers, both adult and cubs, lions, wolfs, elephants, sharks, alligators, dead cats, cockroaches, and killer bees. Investopedia explains all these concepts.

 “Elephants” are large institutions with funds to make high volumes trades, therefore with large influence on the price of a financial asset. “Gorillas” are the firms that dominate an industry without having a complete monopoly, and “killer bees” are firms or individuals that help a company fend off a takeover attempt. Companies use a variety of anti-takeover measures, sometimes referred to as “shark repellents”. When a company reveals as news to the public, the feeling is that more bad news will follow soon, same as when you see a cockroach you might think there are many more hidden: this is the principle of the “cockroach theory”.

Tigers, lions, and wolfs, some of the most impressive predators of the animal kingdom, are used to describe economies. A tiger economy is the economy of a country that undergoes rapid economic growth. The term was originally used for the Four Asian Tigers (South Korea, Taiwan, Hong Kong, and Singapore) as tigers are important in Asian symbolism. That inspired the Tiger Cub Economies (Indonesia, Malaysia, Thailand, and the Philippines), the Anatolian Tigers, the Gulf Tiger (Dubai), the Celtic Tiger (Ireland), the Baltic Tiger (Baltic States), and the Tatra Tiger (Slovakia). For emerging economies in Africa, we say lion economies, and in Mongolia “wolf economy” is used.

Little to say about the bulls and the bears, well-known concepts of the financial markets, but less famous is the concept “bear hug”, an offer made by one company to buy the shares of another for a much higher per-share price than what that company is worth. An alligator spread is an unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market movements, and a dead cat bounce is, as most of us know, a short-lived recovery in the price of a declining security.

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20/01/2016

Investopedia's Word of the Day: Bear Hug

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By Wordwide FX Financial Translations

Via Investopedia

One more day, Investopedia helps us increase our finance vocabulary with their unique financial dictionary, a must to all traders, investors, and market lovers. 

Today's Word of the Day is "Bear Hug'

An offer made by one company to buy the shares of another for a much higher per-share price than what that company is worth. A bear hug offer is usually made when there is doubt that the target company's management will be willing to sell.

The name "bear hug" reflects the persuasiveness of the offering company's overly generous offer to the target company. By offering a price far in excess of the target company's current value, the offering party can usually obtain an agreement. The target company's management is essentially forced to accept such a generous offer because it is legally obligated to look out for the best interests of its shareholders.


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15/01/2016

The Dead Cat Bounce: A Bear In Bull's Clothing?

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By Wordwide FX Financial Translations

Via Investopedia

There's an old saying in investing: even a dead cat will bounce if it is dropped from high enough. The dead cat bounce refers to a short-term recovery in a declining trend. In this article, we explore this phenomenon by looking at an example of a dead cat bounce and contrasting it to an actual change in sentiment that turns a market's outlook from bearish to bullish.

What Is a Dead Cat Bounce? 

Let's take a look at a period of economic turmoil.

As you can see, the markets took a serious beating during this six-week period in 2000. As gut-wrenching as this was, it was not a unique occurrence in financial history. Optimistic periods in the market have always been preceded and followed by pessimistic or bear market conditions, hence the cyclical nature of the economy.

However, a phenomenon unique to certain bear markets, including the one described above, is the occurrence of a dead cat bounce. After declining for six weeks in a row, the market showed a strong rally. The Nasdaq in particular posted gains of 7.78% after a disappointing string of losses. However, these gains were short-lived and the major indexes continued their downward march. This chart illustrates just where the cat bounced, how high it bounced and then how far it continued to fall.



What Causes A Cat To Bounce?
There comes a time in every bear market when even the most ardent bears rethink their positions. When a market finishes down for six weeks in a row, it may be a time when bears are clearing out their short positions to lock in some profits. Meanwhile, value investors may start to believe the bottom has been reached, so they nibble on the long side. The final player to enter the picture is the momentum investor, who looks at his or her indicators and finds oversold readings. All these factors contribute to an awakening of buying pressure, if only for a brief time, which sends the market up.

Dead Cat or Market Reversal? 

As we noted earlier, after a long sustained decline, the market can either undergo a bounce, which is short-lived, or enter a new phase in its cycle, in which case the general direction of the market undergoes a sustained reversal as a result of changes in market perceptions.

The foot image illustrates an example of when the overall sentiment of the market changed and the dominant outlook became bullish again

How can investors determine whether a current upward movement is a dead cat bounce or a market reversal? If we could answer this correctly all the time, we'd be able to make a lot of money. The fact is that there is no simple answer to spotting a market bottom. (Picking market bottoms takes some technical know-how. Check out Market Reversals And How To Spot Them to learn more.)

It is crucial to understand that a dead cat bounce can affect investors in very different ways, depending on their investment style.

Style and Bouncing 

A dead cat bounce is not necessarily a bad thing; it really depends on your perspective. For example, you won't hear any complaints from day traders, who look at the market from minute to minute and love volatility. Given their investment style, a dead cat bounce can be a great money-making opportunity for these traders. But this style of trading takes a great deal of dedication, skill in reacting to short-term movements and risk tolerance.

At the other end of the spectrum, long-term investors may become sick to their stomachs when they bear more losses just after they thought the worst was finally over. If you are a long-term, buy-and-hold investor, following these two principles should provide some solace:

  • A well-diversified portfolio can offer some protection against the severity of losses in any one asset class. For example, if you allocate some of your portfolio to bonds, you are ensuring that a portion of your invested assets are working independently from the movements of the stock market. This means your entire portfolio's worth won't fluctuate wildly like a torturous yo-yo with short-term ups and downs. (For more on asset allocation, check out the article Asset Allocation Strategies.)
  • A long-term time horizon should calm the fears of those invested in stocks, making the short-term bouncing cats less of a factor. Even if you see your stock portfolio lose 30% in one year, you can be comforted by the fact that over the entire 20th century the stock market has yielded a yearly average between 8-9%.

Conclusion 

Downward markets aren't fun at the best of times, and when the market toys with your emotions by teasing you with short-lived gains after huge losses, you can feel pushed to the limit. If you are a trader, the key is to figure out the difference between a dead cat bounce and a bottom. If you are a long-term investor, the key is to diversify your portfolio and think long term. Unfortunately, there are no easy answers here, but understanding what a dead cat bounce is and how it affects different participants in the market is a step in the right direction.



Read more: The Dead Cat Bounce: A Bear In Bull's Clothing? | Investopedia http://www.investopedia.com/articles/00/101700.asp#ixzz3xIz4Odvb 

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11/01/2016

Investopedia's Term of the Day: Suicide Pill

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By Wordwide FX Financial Translations

Via Investopedia

A defensive strategy by which a target company engages in an activity that might actually ruin the company rather than prevent the hostile takeover. Suicide pills are extreme actions that differ from situation to situation, some of which result in disolving the company; however, the underlying intent is to avoid the hostile takeover of the firm by any means necessary. 

The suicide pill defense can be viewed as an extreme version of the poison pill. Such a defense is most often implemented in situations where a competitor attempts a hostile takeover of a firm, and the target's management or current ownership, viewing the takeover as a forgone conclusion, would prefer the company cease to exist than see the firm taken over by the competitor. Taking on excessive amounts of debt would be one form of a suicide pill.


Read more: Suicide Pill Definition | Investopedia http://www.investopedia.com/terms/s/suicidepill.asp#ixzz3wvFQFPWp 

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28/12/2015

The Santa Claus Rally and the Christmas Club

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By Wordwide FX Financial Translations

Via Investopedia Santa Claus Rally

Christmas also has an impact on the financial markets. Santa Claus makes the price of stocks move up, and banks have their hayday by giving credits to consumers who need to buy presents for their families and friends. Let's see what Investopedia tells us on these two concepts...  

A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations for the Santa Claus Rally phenomenon, including tax considerations, happiness around Wall Street, people investing their Christmas bonuses and the fact that the pessimists are usually on vacation this week. Many consider the Santa Claus rally to be a result of people buying stocks in anticipation of the rise in stock prices during the month of January, otherwise known as the January effect.

And what is a Christmas Club in the financial industry? Well, Because of the tremendous pressure put on people to save money for Christmas spending and the debt loads that consumers incur just before the holidays, many financial institutions offer their customers Christmas club accounts. Usually, Christmas club accounts offer systematic savings through automatic withdrawal upon deposit of paychecks to a checking account.




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23/12/2015

The Christmas Tree Strategy

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By Wordwide FX Financial Translations

Via Investopedia

An options trading strategy that is generally achieved by purchasing one call option and selling two other call options at different strike prices. When drawn structurally, the strike price of the long option is located below the two successively higher written calls and loosely resembles a Christmas tree.

This strategy is used when an investor believes a stock is going to make a move higher. It is a variation of the ratio spread, so a significant upward move in the stock price will result in a very large loss due to the extra short call. The staggered strike prices for the written calls in the Christmas tree strategy reduce the amount of loss incurred when the share price rises more than expected, unlike the ratio spread, where the call options have the same strike.

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