What is Proprietary Trading? Proprietary Trading (Prop Trading) occurs when a bank or firm trades stocks, derivatives, bonds, commodities, or other financial instruments in its own account, using its own money instead of using clients’ money. This enables the firm to earn full profits from a trade rather than just the commission it receives from processing…
What are Junk Bonds? Junk bonds, also known as high-yield bonds, are bonds that are rated below investment grade by the big three rating agencies (see image below). Junk bonds carry a higher risk of default than other bonds, but they pay higher returns to make them attractive to investors. The main issuers of such…
What is a Mortgage-Backed Security (MBS)? A Mortgage-backed Security (MBS) is a debt security that is collateralized by a mortgage or a collection of mortgages. An MBS is an asset-backed security that is traded on the secondary market, and that enables investors to profit from the mortgage business without the need to directly buy or…
What is the New York Mercantile Exchange (NYMEX)? The New York Mercantile Exchange (NYMEX) is a commodity futures exchange located in Manhattan, New York City. It is owned by CME Group, one of the largest futures exchanges in the world. CME Group also runs the Chicago Mercantile Exchange and Chicago Board of Trade. The NYMEX…
What is the Primary Market? The primary market is the financial market where new securities are issued and become available for trading by individuals and institutions. The trading activities of the capital markets are separated into the primary market and the secondary market. Image from CFI’s Corporate Finance Fundamentals Course. The primary market is where companies…
Fixed Income Glossary This fixed income glossary covers the most important bond terms and definitions required for financial analysts. These terms are covered in detail in CFI’s Fixed Income Fundamentals Course. Annuity An annuity is a series of payments in equal time periods, guaranteed for a fixed number of years. Arithmetic Mean An average calculated…
What are American Depositary Receipts (ADR)? American Depositary Receipts (ADR) are negotiable security instruments that are issued by a US bank that represent a specific number of shares in a foreign company that is traded in US financial markets. ADRs pay dividends in US dollars and trade like regular shares of stock. Companies can now purchase…
What are Treasury Bills (T-Bills)? Treasury Bills (or T-Bills for short) are a short-term financial instrument that is issued by the US Government’s Department of the Treasury. T-Bills have maturity periods ranging from a few days up to 52 weeks (one year) and are issued regularly by the US Treasury. They make up a large…
What is the 10-Year US Treasury Note? The 10-year US Treasury Note is a debt obligation that is issued by the Treasury Department of the United States Government and comes with a maturity of 10 years. It pays interest to the holder every six months at a fixed interest rate that is determined at the…
