Word of the DayWelcome to Investmenterms.com, a comprehensive dictionary for commodity futures traders.
Market Neutral
Denotes an approach to investment where the emphasis is on the value of securities relative to each other and the use of arbitrage techniques, rather than market direction forecasting. By emphasizing the relative value of securities and the exploitation of pricing anomalies between related securities, practitioners of market neutral approaches aim to generate profits regardless of the overall direction of broad market prices. Market neutrality is generally achieved by offsetting or hedging long and short positions or maintaining balanced exposure in the market. The term market neutral can be applied with some justification to the majority of alternative investment styles because of their ability to capitalize both on upward or downward price moves or to profit in a wide range of market environments.
Narrow-Based Security Index
In general, and subject to certain exclusions, an index that has any one of the four characteristics 1) it has nine or fewer component securities 2) any one of its component securities compromises more than 30% of its weighting 3) the top five highest weighted securities together comprise more than 60% of its weighting 4) he lowest weighted component securities comprising, in aggregate, 25% of the index's weighting have an aggregate value of daily trading volume of less than $50 Million (or in the case of an index with 15 or more securities, $30 Million). A security index that is not narrow-based is a 'broad based security index.
Unit
A generic term used to describe the 'instrument' (share, bond, unit) which is issued by a product. Investors subscribe to or invest in a product by buying units and redeem their holding by selling units at the prevailing net asset value per unit, as detailed in the relevant product prospectus.
Discretionary Account
An arrangement by which the holder of an account gives written power of attorney to someone else, often a commodity trading advisor, to buy and sell without prior approval of the holder; often referred to as a "managed account" or controlled account.
Clearing Broker
A member of the clearing organization for the contract being traded. All trades, and the daily profits or losses form those trades, must go through a clearing broker.
Average Annual Return (AAR)
A percentage figure used when reporting the historical return, such as the three-, five- and 10-year average returns of a mutual fund. The average annual return is stated net of a fund's operating expense ratio, which does not include sales charges, if applicable, or portfolio transaction brokerage commissions When you are selecting a mutual fund, the average annual return is a helpful guide for measuring a fund's long-term performance. However, investors should also look at a fund's yearly performance to fully appreciate the consistency of its annual total returns. For example, a five-year average annual return of 10% looks attractive; however, if the yearly returns (those that produced the average annual return) were +40%, +30%, -10%, +5% and -15% (50 / 5 = 10%), the fund's recent performance (past three years) is quite poor.