Macro traderThe longest-term trader who bases their trade decisions on fundamental analysis. A macro trade’s holding period can last anywhere from around six months to multiple years.
Mark to market
Mark to market (MTM) is an accounting method that values an asset, portfolio or account at its current market price instead of an assumed book value. An asset’s mark to market value reveals how much a company gets if it sells it at that point in time.
Mark to market is sometimes called fair value accounting or market value accounting. The alternative to mark to market is historical cost accounting, which keeps an asset’s value on the books at its original level.
Investors need to be aware if a company’s assets have declined in value. If not, the company might overvalue its net worth. Mark to market should deliver an accurate, current value of an asset.
How does mark to market accounting work?
Mark to market accounting works by valuing company’s assets at their current price according to prevailing market conditions. These valuations are typically used in financial statements at the end of each fiscal year.
Estimating market value can be easy, especially if the assets are bought and sold often. Shares or bonds, for instance, are regularly traded on the markets. So if an investment firm holds them, an accountant can quickly provide a fair market value for the assets.
Other assets might be trickier to value. Fixed assets such as property investments, for example, aren’t as liquid or easy to dispose of, particularly in falling markets.
In the US, mark to market accounting is overseen by the Financial Accounting Standards Board (FASB), which defines fair value and measures it under generally accepted accounting principles (GAAP). Assets must be valued for accounting purposes at that fair value and updated regularly.
Market contagion refers to the spread of disturbances (usually a sell-off) from one country and one market to another. Foreign exchange rates, stock market prices and sovereign bond prices can all be quickly affected by contagion.
At the same time, capital flows happen from the geographical areas affected by the contagion.
Why does contagion happen?
Financial contagion can happen internationally and domestically. At a domestic level, the failure of a bank or financial intermediary can trigger a domino effect.
For instance, if a bank defaults on its interbank counterparty liabilities and then engages in an asset fire sale, it undermines confidence in similar banks and the banking system.
This domestic contagion can then infect international banks and markets. For example, the subprime mortgage securities crisis caused the temporary collapse of the Western Hemisphere banking system. Banks failed, cash rushed into haven currencies and assets, as many global stock markets crashed.
International financial contagion can occur in advanced and developing economies, and this global financial contagion usually happens simultaneously among domestic institutions such as banks and across countries.
The contagion can last for months and is usually brought under control by a mixture of bilateral intergovernmental fiscal and central bank monetary policy stimuli.
Market-to-marketProcess of re-evaluating all open positions in light of current market prices. These new values then determine margin requirements.
MaturityThe date of settlement or expiry of a financial product.
Medley reportRefers to Medley Global Advisors, a market consultancy that maintains close contacts with central bank and government officials around the world. Their reports can frequently move the currency market as they purport to have inside information from policy makers. The accuracy of the reports has fluctuated over time, but the market still pays attention to them in the short-run.
ModelsSynonymous with black box. Systems that automatically buy and sell based on technical analysis or other quantitative algorithms.
MOMAbbreviation for month-over-month, which is the change in a data series relative to the prior month's level.
MomentumA series of technical studies (eg RSI, MACD, Stochastics, Momentum) that assesses the rate of change in prices.
Momentum playersTraders who align themselves with an intra-day trend that attempts to grab 50-100 pips.