How to Talk About Your Weaknesses in an Interview

One of the most hated, yet frequently asked, interview questions is, "What is your greatest weakness?" We all have faults, but the last place we want to talk about them is in a job interview. Next time you are up for a job, take these three steps to prepare for this dreaded question:

Prepare an answer. Yes, you need one. Make it brief, honest, trivial, and not a fault. If possible, use something out of your control. For example, "My biggest weakness is that my professional network is in Boston, but I'm looking to relocate to Los Angeles."

Get input. Run your answer by a few friends and colleagues to make sure it sounds reasonable.

Ask a question back. In the interview, deflect the attention away from you by ending your response with a question for the interviewer.

Accounts Receivable Services

Accounts receivable is the amount of money owed to an individual, company, organization for the goods / services provided to them. It is a current asset of a company and represents the amount that customers owe to a business. Accounts receivable are payable by the customers within a year from the date of sale of goods / services.

Accounts receivable service is a vast area and includes :

•Accounts receivable recognition

•Accounts receivable valuation

•Accounts receivable disposal

These processes can be cumbersome and time consuming therefore, large organizations either use accounting softwares or outsource the process to professional accounting firms. This helps to manage it in a better way.

Organizations realize that not all debts will be collected and recovered, so they make an allowance for bad debts, that are in turn subtracted from the total accounts receivable. Accounting firms collect debts on behalf of their clients through settlement offers, payment plan negotiation and sometimes legal action.

Advantages Accounts Receivable Outsourcing

Outsourcing the accounts receivable provides the following advantages:

•Ensuring internal control

•Effective expense administration

•Timely reconciliation of accounts receivable

•Saving time and man hours

•Preventing fraudulent invoices

Accounts Payable Services

Accounts payable is the amount of money that a company owes to its vendors for goods and services purchased on credit. It is a current liability of a company and has to be fulfilled within a year.

Accounts payable result in negative cash flow of a company at the time they are paid off. Every company keeps a track of its accounts payable and also the time period when it is to be paid.

Accounts payable reconciliation & management can be a time consuming process and can take a long time to resolve discrepancies. Large organizations therefore use accounting softwares or take the help of professional accounting firms for managing its accounts payable. A close check should also be made on fraudulent invoices, to prevent embezzlement.

Accounts Payable Auditing

Professional auditors insist their clients to provide approved invoices, supporting documents and expense reports at the time of making payments through checks and other methods. This helps to keep a track of all the documentation related to purchase and also keep a check on the genuineness of invoice. Inflated or duplicate invoices get eliminated at this stage.

Advantages of Accounts Payable Outsourcing

Outsourcing the accounts payable process can help the organization by:

•Providing a method of internal control

•Providing expense administration

•Providing monthly reconciliation of accounts payable

•Saving time and man hours

•Preventing fraudulent invoices

•Preventing overpayment and duplicate invoices

Bank Reconciliation Statement

A bank reconciliation statement is a statement prepared by organizations to reconcile the balance of cash at bank in a company's own records with the bank statement on a particular date.

This statement is the most common tool used by organizations for reconciling the balance as per books of company with the bank statement and is made at the end of every month. The main objective of reconciliation is to ascertain if the discrepancy is due to error rather than timing.

The difference between the two records on a given date may arise because of the following:

•Cheques drawn but not yet presented to the bank.

•Cheques received but not yet deposited in the bank.

•Interest credited and not recorded in the organization's books.

•Bank charges debited but not recorded in the organization's books.

Bank Reconciliation Statement process is being outsourced to professional accounting firms by large organizations. This helps them have an accurate view and also ensure that the company's bookkeeping is good. Accounting firms make monthly reconciliation statements for clients and help them determine any discrepancy.

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Very interesting behavioural case study

FORTY years ago Walter Mischel, an American psychologist, conducted a famous experiment.

He left a series of four-year-olds alone in a room with a marshmallow on the table. He told them that they could eat the marshmallow at once, or wait until he came back and get two marshmallows. Recreations of the experiment on YouTube show what happens next. Some eat the marshmallow immediately. Others try all kinds of strategies to leave the tempting treat alone.

Nothing surprising there. The astonishing part was the way that the four-year-olds' ability to defer gratification was reflected over time in their lives. Those who waited longest scored higher in academic tests at school, were much less likely to drop out of university and earned substantially higher incomes than those who gobbled up the sweet straight away. Those who could not wait at all were far more likely, in later life, to have problems with drugs or alcohol.

A Top-Down Approach To Investing

An area that most investors struggle with is the art of picking stocks. Should they base their decisions solely on what the company does and how well it does it? Or should investors be more concerned about larger macroeconomic trends, such as the strength of the economy, and then determine which stocks to buy? There is no right or wrong answer to these two questions. However, investors should develop systems that help them to achieve their investment goals. The second option mentioned is referred to as the top-down investing approach to the market. This method allows investors to analyze the market from the big picture all the way down to individual stocks. This differs from the bottom-up approach, which begins with individual stocks' fundamentals and eventually expands to include the global economy. This article will concentrate on the process used when investors implement the macro-to-micro style referred to as the top-down approach.

Start at the Top: The Global View

Because the top-down approach begins at the top, the first step is to determine the health of the world economy. This is done by analyzing not only the developed countries of North America and Western Europe, but also emerging countries in Latin America and Asia. A quick way to determine the health of an economy is to look at the amount of gross domestic product (GDP) growth of the past few years and the estimates going forward. Oftentimes, it is the emerging market countries that will have the best growth numbers when compared with their mature counterparts.

Unfortunately, because we live at a time in which war and geopolitical tensions are heightened, we must not forget to be mindful of what is currently affecting each region of the world. There will be a few regions and countries throughout the world that will fall off the radar immediately and will no longer be included in the remainder of the analysis simply due to the amount of financial instability that could wreak havoc on any investments.

Analyze the Trends

After determining which regions present a high reward-to-risk ratio, the next step is to use charts and technical analysis. By looking at a long-term chart of the specific countries' stock index, we can determine whether the corresponding stock market is in an uptrend and is worth taking further time to do some analysis on or is in a downtrend, which would not be an appropriate place to put our money at this time. These first two steps can help you discover the countries that would match your wants and needs for diversification. (Need more information? Read Trader's Corner: Finding The Magic Mix Of Fundamentals And Technicals and Charting Your Way To Better Returns.)

Look to the Economy

The third step is to do a more in-depth analysis of the U.S. economy along with the health of the stock market in particular. By examining the economic numbers such as interest rates, inflation and employment, we are able to determine the current strength of the market and have a better idea of what the future holds. There is often a divergence between the story the economic numbers tell and the trend of the stock market indexes.

The final step in macroanalysis would be to analyze the major U.S. stock indexes such as the S&P 500 and Nasdaq. Both fundamental and technical analysis can be used as barometers to determine the health of the indexes. The fundamentals of the market can be determined by such ratios as price-to-earnings, price-to-sales and dividend yields. By comparing the numbers to past readings, it can help determine whether the market is at a level that is historically overbought or oversold. Technical analysis will help ascertain where the market is in relation to the long-term cycle. Use charts that show the past several decades and zone down the time horizon to a daily view. For example, indicators such as the 50-day and 200-day moving averages are used to help us find the current trend of the market and whether it is appropriate for investors to be invested heavily in equities. (To read more about fundamental analysis, see Advanced Financial Statement Analysis.)

So far, our process has taken a macro approach to the market and has helped us determine our asset allocation If, after the first few steps, we find that the results are bullish, there is a good chance a majority of the investment-worthy assets will be from the equities market. On the other hand, if the outlook is bleak, the allocation will shift its focus from equities to more conservative investments such as fixed income and money markets.

Microanalysis: Is This Investment Right for You?

Deciding on an asset allocation is only half the battle. The next integral step will help investors determine which sectors to focus on when searching for specific investments such as stocks and exchange-traded funds (ETFs). Analyzing the pros and cons of specific sectors (ex. health care, technology and mining) will narrow the search even further. The process of analyzing the sectors involves tactics used in the prior approach such as fundamental and technical analysis. In addition to the mentioned tools, investors also must consider the long-term prospects of the specific sectors. For example, the emergence of an aging baby boom generation over the next decade could serve as a major catalyst for sectors such as healthcare and leisure. Conversely, the increasing demand for energy coupled with higher prices is another long-term theme that could benefit the alternative energy and oil and gas sectors. After the entire amount of information is processed, a number of sectors should rise to the top and offer investors the best opportunities. (To learn more about the different industries, see our Industry Handbook.)

The emergence of ETFs and sector-specific mutual funds has allowed the top-down approach to end at this level in certain situations. If an investor decides the biotech sector is an area that must be represented in the portfolio, he or she has the option of buying an ETF or mutual fund that is composed of a basket of biotech stocks. Instead of moving to the next step in the process and taking on the risk of an individual stock, the investor may choose to invest in the entire sector with an ETF or mutual fund.(For more insight, see How To Use ETFs In Your Portfolio and Advantages Of Exchange-Traded Funds.)

However, if an investor feels the added risk of selecting and buying an individual stock is worth the extra reward, there is an additional step in the process. This final phase of the top-down approach can often be the most intensive because it involves analysis of individual stocks from a number of perspectives.

Fundamental analysis includes a variety of measurements such as price/earnings to growth ratio, return on equity and dividend yield, to name a few. An important aspect of individual stock analysis will be the growth potential of the company over the next few years. Ideally, investors want to own a stock with a high growth potential because it will be more likely to lead to a high stock price.

Technical analysis will concentrate on the long-term weekly charts, as well as daily charts, for an entry price. At this point in time, the individual stocks are chosen and the buying process begins.

The Positives of Top-Down

The proponents of the top-down approach argue the system can help investors determine an ideal asset allocation for a portfolio in any type of market environment. Oftentimes a top-down approach will uncover a situation that may not be appropriate for large investments into equities. The ability to keep investors from over-investing in equities during a bear market is the biggest pro for the system. When a market is in a downtrend, the probability of picking winning investments drops dramatically even if the stock meets all the required conditions. When using the bottom-up system, an investor will determine which stocks to buy before taking into consideration the state of the market. This type of approach can lead to investors being overly exposed to equities and the portfolio will likely suffer. Other benefits to the top-down approach include the diversification among not only top sectors, but also the leading foreign markets. This results in a portfolio that is diversified within the top investment worthy sectors and regions. This type of investing is referred to in some small circles as "conversification", a mixture between concentration and diversification.

The Not-So-Positives of Top-Down Investing

So far, the top-down approach may sound foolproof; however, there are a few factors investors must consider. First and foremost, there is the possibility that your research will be incorrect, causing you to miss out on an opportunity. For example, if the top-down approach indicates that the market is set to continue lower in the near future, it may result in a lesser exposure to equities. However, if your analysis is wrong and the market rallies, the portfolio will be underexposed to the market and will miss out on the rally gains. Then there's the problem of being under-invested in a bull market, which can prove to be costly over the long term. Another downfall to the system occurs when sectors are eliminated from the analysis. As a result, all stocks in the sector are not included as possible investments. Oftentimes there will be a leader in the sector that is overlooked due to this process and will never make its way into the portfolio. Finally, investors could miss out on "bargain" stocks when the market is near lows.

Find What You've Been Looking For

In the end, investors must remember there is no single approach to investing and that every approach has its own pros and cons. One of the keys to becoming a successful long-term investor is finding a system that best fits your goals and objectives. Maybe the top-down approach is just what you've been looking for!

Jensen's Measure

What Does Jensen's Measure Mean?

A risk-adjusted performance measure that represents the average return on a portfolio over and above that predicted by the capital asset pricing model (CAPM), given the portfolio's beta and the average market return. This is the portfolio's alpha. In fact, the concept is sometimes referred to as "Jensen's alpha."

Jensen's Measure

If the definition above makes your head spin, don't worry: you aren't alone! This is a very technical term that has its roots in financial theory.

The basic idea is that to analyze the performance of an investment manager you must look not only at the overall return of a portfolio, but also at the risk of that portfolio. For example, if there are two mutual funds that both have a 12% return, a rational investor will want the fund that is less risky. Jensen's measure is one of the ways to help determine if a portfolio is earning the proper return for its level of risk. If the value is positive, then the portfolio is earning excess returns. In other words, a positive value for Jensen's alpha means a fund manager has "beat the market" with his or her stock picking skills.

Sharpe Ratio

What Does Sharpe Ratio Mean?

A ratio developed by Nobel laureate William F. Sharpe to measure risk-adjusted performance. The Sharpe ratio is calculated by subtracting the risk-free rate - such as that of the 10-year U.S. Treasury bond - from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. The Sharpe ratio formula is:

Sharpe Ratio

The Sharpe ratio tells us whether a portfolio's returns are due to smart investment decisions or a result of excess risk. This measurement is very useful because although one portfolio or fund can reap higher returns than its peers, it is only a good investment if those higher returns do not come with too much additional risk. The greater a portfolio's Sharpe ratio, the better its risk-adjusted performance has been. A negative Sharpe ratio indicates that a risk-less asset would perform better than the security being analyzed.

A variation of the Sharpe ratio is the Sortino ratio, which removes the effects of upward price movements on standard deviation to measure only return against downward price volatility.

12B-1 Fee

What Does 12B-1 Fee Mean?

An annual marketing or distribution fee on a mutual fund. The 12b-1 fee is considered an operational expense and, as such, is included in a fund's expense ratio. It is generally between 0.25-1% (the maximum allowed) of a fund's net assets. The fee gets its name from a section in the Investment Company Act of 1940.

12B-1 Fee

Back in the early days of the mutual fund business, the 12b-1 fee was thought to help investors. It was believed that by marketing a mutual fund, its assets would increase and management could lower expenses because of economies of scale. This has yet to be proved. With mutual fund assets passing the $10 trillion mark and growing steadily, critics of this fee, which today is mainly used to reward intermediaries for selling a fund's shares, are seriously questioning the justification for using it. As a commission paid to salespersons, it is currently believed to do nothing to enhance the performance of a fund.

Contingent Deferred Sales Charge (CDSC)

What Does Contingent Deferred Sales Charge (CDSC) Mean?

A fee (sales charge or load) that mutual fund investors pay when selling Class-B fund shares within a specified number of years of the date on which they were originally purchased.

Also known as a "back-end load" or "sales charge".

 

Contingent Deferred Sales Charge (CDSC)

For mutual funds with share classes that determine when investors pay the fund's load or sales charge, Class-B shares carry a contingent deferred sales charge during a five- to 10-year holding period calculated from the time of the initial investment.

The fee amounts to a percentage of the value of the shares being sold. It is highest in the first year of the specified period and decreases annually until the period ends, at which time it drops to zero. As a mutual fund investor, if you were to buy and hold Class-B fund shares until the end of the specified period, you could avoid paying this type of fund's sales charge, thereby enhancing your investment return. Unfortunately, fund research indicates that mutual fund investors are holding their funds, on average, for less than five years, which often triggers the application of a back-end sales charge in a Class-B share fund investment

Real Estate Investment Trust - REIT

What Does Real Estate Investment Trust - REIT Mean?

A security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages.

REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.

Equity REITs: Equity REITs invest in and own properties (thus responsible for the equity or value of their real estate assets). Their revenues come principally from their properties' rents.

Mortgage REITs: Mortgage REITs deal in investment and ownership of property mortgages. These REITs loan money for mortgages to owners of real estate, or purchase existing mortgages or mortgage-backed securities. Their revenues are generated primarily by the interest that they earn on the mortgage loans.

Hybrid REITs: Hybrid REITs combine the investment strategies of equity REITs and mortgage REITs by investing in both properties and mortgages.

 

Real Estate Investment Trust - REIT

Individuals can invest in REITs either by purchasing their shares directly on an open exchange or by investing in a mutual fund that specializes in public real estate. An additional benefit to investing in REITs is the fact that many are accompanied by dividend reinvestment plans (DRIPs). Among other things, REITs invest in shopping malls, office buildings, apartments, warehouses and hotels. Some REITs will invest specifically in one area of real estate - shopping malls, for example - or in one specific region, state or country. Investing in REITs is a liquid, dividend-paying means of participating in the real estate market.

Tracking Error

What Does Tracking Error Mean?

A divergence between the price behavior of a position or a portfolio and the price behavior of a benchmark. This is often in the context of a hedge or mutual fund that did not work as effectively as intended, creating an unexpected profit or loss instead.

 

Tracking Error

Tracking errors are reported as a "standard deviation percentage" difference. This measure reports the difference between the return an investor receives and that of the benchmark he or she was attempting to imitate.

Société d'Investissement À Capital Variable - SICAV

What Does Société d'Investissement À Capital Variable - SICAV Mean?

A type of open-ended investment fund in which the amount of capital in the fund varies according to the number of investors. Shares in the fund are bought and sold based on the fund's current net asset value. SICAV funds are some of the most common investment vehicles in Europe.

Société d'Investissement À Capital Variable - SICAV

A SICAV fund, considered a legal entity, will have a board of directors to oversee the fund. Each individual shareholder receives voting rights and has the right to attend the annual general meetings. The term Société d'investissement à Capital Variable is most well known and used in France, Luxembourg, and Italy where it's called Societa' di Investimento a Capital Variable.

Open Ended Investment Company - OEIC

What Does Open Ended Investment Company - OEIC Mean?

A type of company or fund in the UK that is structured to invest in other companies with the ability to adjust constantly its investment criteria and fund size. The company's shares are listed on the London Stock Exchange, and the price of the shares are based largely on the underlying assets of the fund. There are no bid and ask quotes on the OEIC shares; buyers and sellers receive the same price.

 

Open Ended Investment Company - OEIC

These are open ended, which means that they can adjust the amount of shares in the fund by either issuing or eliminating shares. When shares are issued, the fund receives money and invests it. When eliminating shares, the fund pays out money from the fund. These funds can mix different types of investment strategies such as income and growth, and small cap and large cap.

Hedge Fund

What Does Hedge Fund Mean?

An aggressively managed portfolio of investments that uses advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark).

Legally, hedge funds are most often set up as private investment partnerships that are open to a limited number of investors and require a very large initial minimum investment. Investments in hedge funds are illiquid as they often require investors keep their money in the fund for at least one year.
 
Hedge Fund


For the most part, hedge funds (unlike mutual funds) are unregulated because they cater to sophisticated investors. In the U.S., laws require that the majority of investors in the fund be accredited. That is, they must earn a minimum amount of money annually and have a net worth of more than $1 million, along with a significant amount of investment knowledge. You can think of hedge funds as mutual funds for the super rich. They are similar to mutual funds in that investments are pooled and professionally managed, but differ in that the fund has far more flexibility in its investment strategies.
It is important to note that hedging is actually the practice of attempting to reduce risk, but the goal of most hedge funds is to maximize return on investment. The name is mostly historical, as the first hedge funds tried to hedge against the downside risk of a bear market by shorting the market (mutual funds generally can't enter into short positions as one of their primary goals). Nowadays, hedge funds use dozens of different strategies, so it isn't accurate to say that hedge funds just "hedge risk". In fact, because hedge fund managers make speculative investments, these funds can carry more risk than the overall market

Undertakings For The Collective Investment Of Transferable Securities - UCITS

What Does Undertakings For The Collective Investment Of Transferable Securities - UCITS Mean?

A public limited company that coordinates the distribution and management of unit trusts amongst countries within the European Union.

 

Undertakings For The Collective Investment Of Transferable Securities - UCITS

These funds can be marketed within all countries that are a part of the European Union, provided that the fund and fund managers are registered within the domestic country. The regulation recognizes that each country within the European Union may differ on their specific disclosure requirements.

Passive Vs. Active Management

In almost all economic endeavors, the quality of management is generally a key component of a successful operation. Managing a mutual fund is no exception to this rule. The fund investment quality we are going to discuss in this section focuses on two important fund managerial qualities: tenure and structure. However, it is worth noting that a fund's investing style, growth, risk and return profile, trading activity, costs and performance are also all a product of management's efforts. How well management "scores" in all these areas is an important consideration for mutual fund investors.

Managed Funds Vs. Index Funds

To begin with, we need to make a distinction between mutual funds that are managed and those that are indexed. The former are actively managed by an individual manager, co-managers, or a team of managers. The index funds are passively managed, which means that their portfolios mirror the components of a market index. For example, the well-known Vanguard 500 Index fund is invested in the 500 stocks of Standard & Poor's 500 Index on a market capitalization basis.

Which is better, managed or indexed fund investing? Both have their positive aspects. Let us first look at the index variety.

Index Mutual Funds

Index mutual funds are an easily understood, relatively safe approach to investing in broad segments of the market. They are used by less experienced investors as well as sophisticated institutional investors with large portfolios. Indexing has been called investing on autopilot. The metaphor is an appropriate one as managed funds can be viewed as having a pilot at the controls. When it comes to flying an airplane, both approaches are widely used.

Here is how an index fund works. The money going into an index fund is automatically invested proportionately into individual stocks or bonds according to the percentage their market capitalizations represent in the index. For example, if IBM represents 1.7% of the S&P 500 Index, for every $100 invested in the Vanguard 500 Fund, $1.70 goes into IBM stock. (For more on index funds, see Index Investing.)

David Swensen, an investment expert, author and former chief investment officer of Yale University's highly successful endowment fund, makes a strong case for indexing. In his 2005 book, "Unconventional Success", he concludes that because "most individual investors lack the specialized knowledge necessary to succeed in today's highly competitive investment markets … passive index funds are most likely to satisfy investor aspirations."

Swensen, and a high percentage of investment professionals, find index investing compelling for the following reasons:

•Simplicity. Broad-based market index funds make asset allocation and diversification easy.

•Management quality. The passive nature of indexing eliminates any concerns about human error or management tenure.

•Low portfolio turnover. Less buying and selling of securities means lower costs and fewer tax consequences.

•Low operational expenses. Indexing is considerably less expensive than active fund management.

•Asset bloat. Portfolio size is not a concern with index funds.

•Performance. It is a matter of record that index funds have outperformed the majority of managed funds over a variety of time periods.

Managed Mutual Funds

Well-run managed funds that have long-term performance records that are above their peer and category benchmarks are also excellent investing opportunities. There are a number of top-rated fund managers that consistently deliver exceptional results. Such well-run funds will register very high on the Fund Investment-Quality Scorecard you are learning about in these pages.

It is worth remembering that despite their impressive long-term records, even top-rated fund managers can have bad years. Such an occurrence is little cause to abandon a fund run by a highly respected manager. Typically, managers will stick to their fundamental strategies and not be swayed to experiment with tactics geared to improving results over the short term. This type of posture best serves the long-term interests of fund investors.

In recent years, a number of fund management-related issues have received more public attention in the financial press than in the past. These fall under the general heading of fund stewardship and include such issues as a manager's financial stake in a fund, performance fees and the composition of a fund's board of directors.

While the discussion on these issues is important, there is no universal agreement as to what constitutes appropriate standards of conduct.

By connecting shareholder and managerial interests, having managers investing significantly in the funds they manage seems like a good idea. Likewise, compensating managers on the basis of performance rather than as a percentage of a fund's assets also seems like a good thing. However, there are reasonable arguments that take an opposite point of view on both of these issues. Less controversial is the practice of having a majority of independent directors serve on a fund's board of directors. But here too, there continues to be differences of opinion. The good news for fund investors is that the debates surrounding these issues heighten public and regulatory awareness of what constitutes proper mutual fund stewardship.

Out Of The Money - OTM

What Does Out Of The Money - OTM Mean?

1. For a call, when an option's strike price is higher than the market price of the underlying asset.

2. For a put, when the strike price is below the market price of the underlying asset.

 

A call option whose strike price is higher than the market price of the underlying security, or a put option whose strike price is lower than the market price of the underlying security.

at the money - A condition in which the strike price of an option is equal to (or nearly equal to) the market price of the underlying security.

in the money - Situation in which an option's strike price is below the current market price of the underlier (for a call option) or above the...

close to the money - An option contract for which the strike price is close to the current market price of the underlying security.

At The Money

What Does At The Money Mean?


An option is at-the-money if the strike price of the option equals the market price of the underlying security.
 
For example, if XYZ stock is trading at 75, then the XYZ 75 option is at-the-money. You can essentially think of this as the break-even point (when you don't take into account transaction costs).

In The Money

What Does In The Money Mean?

1. For a call option, when the option's strike price is below the market price of the underlying asset.

2. For a put option, when the strike price is above the market price of the underlying asset.

Being in the money does not mean you will profit, it just means the option is worth exercising. This is because the option costs money to buy.

In the money means that your stock option is worth money and you can turn around and sell or exercise it. For example, if John buys a call option on ABC stock with a strike price of $12, and the price of the stock is sitting at $15, the option is considered to be in the money. This is because the option gives John the right to buy the stock for $12 but he could immediately sell the stock for $15, a gain of $3.  If John paid $3.50 for the call, then he wouldn't actually profit from the total trade, but it is still considered in the money.

Stop-Loss Order

What Does Stop-Loss Order Mean?


An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit an investor's loss on a security position.
Also known as a "stop order" or "stop-market order".


Setting a stop-loss order for 10% below the price you paid for the stock will limit your loss to 10%. This strategy allows investors to determine their loss limit in advance, preventing emotional decision-making.


It's also a great idea to use a stop order before you leave for holidays or enter a situation in which you will be unable to watch your stocks for an extended period of time