Wash Sales

What are wash sales, also known as wash trading?

Wash sales involve entering into, or purporting to enter into, transactions to give the appearance that purchases and sales have been made, without incurring market risk or changing the trader's market position. The Commodity Exchange Act prohibits wash trading. (Source: CFTC)

When you buy and sell the same security at the same time or within a short period of time, you engage in what is known as a "wash sale." Wash sales violate the federal securities laws—Section 9(a)(1)(A) and Rule 10b-5 of the Securities Exchange Act of 1934—if they are done to create the false or misleading appearance of active trading in a security.

Under Internal Revenue Service rules, you may be prevented from recognizing a loss on your tax return if you purchased a security within 30 days before or after the date you sold the "substantially identical" security. For more information about wash sales, read IRS Publication 550, Investment Income and Expenses (Including Capital Gains and Losses). (Source: SEC)

A wash sale is a sale of a security (stock, bonds, options) at a loss and repurchase of the same or substantially identical stock 30 days before or after the sale, for which the capital loss is disallowed for tax deduction. Since the taxpayer is in the same economic position before and after the sale, the loss is not recognized for tax purposes. The disallowed loss is added to the basis of the newly acquired security.

The term "Wash Sale" is also frequently used on Wall Street as slang for anything bad. For example: "I hit a lot of traffic driving out to the Hamptons this weekend; it was a total wash sale." (Source: Wikipedia)

Financial Instruments

What is a financial instrument?

This term generally refers to any futures or option contract that is not based on an agricultural commodity or a natural resource. It includes currencies, equity securities, fixed income securities, and indexes of various kinds. (Source: CFTC)

Financial instruments is either a real or virtual document representing a legal agreement involving some sort of monetary value.

Financial instruments can be categorised by form depending on whether they are cash instruments or derivative instruments.

Cash instruments are financial instruments whose value is determined directly by markets. They can be divided into securities, which are readily transferable, and other cash instruments such as loans and deposits, where both borrower and lender have to agree on a transfer.

Derivative instruments are financial instruments which derive their value from some other financial instrument or variable. They can be divided into exchange traded derivatives and over-the-counter (OTC) derivatives.

Alternatively they can be categorised by "asset class" depending on whether they are equity based (reflecting ownership of the issuing entity) or debt based (reflecting a loan the investor has made to the issuing entity). If it is debt, it can be further categorised into short term (less than one year) or long term.

Foreign Exchange instruments and transactions are neither debt nor equity based and belong in their own category. (Source: Wikipedia)

Bulls and Bull Markets

What is a bull? What is a bull market?

A bull is one who expects a rise in prices. The opposite of bear. A news item is considered bullish if it is expected to result in higher prices.

A bull market is a market in which prices generally are rising over a period of months or years. Opposite of Bear Market. (Source: CFTC)

A bull market is a prolonged period of time when prices are rising in a financial market faster than their historical average, in contrast to a bear market which is a prolonged period of time when prices are falling.

A bull market tends to be associated with increasing investor confidence, motivating investors to buy in anticipation of further capital gains. The longest and most famous bull market was in the 1990s when the U.S. and many other global financial markets grew at their fastest pace ever.

In describing financial market behavior, the largest group of market participants is often referred to, metaphorically, as a herd. This is especially relevant to participants in bull markets since bulls are herding animals. A bull market is also described as a bull run. (Source: Wikipedia)

See also:
Bears & Bear Markets

Bears and Bear Markets

What is a bear? What is a bear market?

A bear is one who expects a decline in prices. The opposite of a bull. A news item is considered bearish if it is expected to result in lower prices.

A bear market is one in which prices generally are declining over a period of months or years. Opposite of Bull Market.

A bear market tends to be accompanied by widespread pessimism. Investors anticipating further losses are motivated to sell, with negative sentiment feeding on itself in a vicious circle. The most famous bear market in history was the Great Depression of the 1930s.

Prices fluctuate constantly on the open market; a bear market is not a simple decline, but a substantial drop in the prices of a range of issues over a defined period of time. By one common definition, a bear market is marked by a price decline of 20% or more in a key stock market index from a recent peak over at least a two-month period. However, no consensual definition of a bear market exists to clearly differentiate a primary market trend from a secondary market trend.

What is a bear market rally?

A temporary rise in prices during a bear market.

A bear market rally is sometimes defined as a rise of at least 10%, but no more than 20%.

Notable bear market rallies occurred in the Dow Jones index after the 1929 stock market crash leading up to the market bottom in 1932, as well as throughout the late 1960s and early 1970s. The Japanese Nikkei stock average has been typified by a number of bear market rallies since the late 1980s while experiencing an overall downward trend. (Source: Wikipedia)

See also:
Bulls & Bull Markets

Back Office

What is the back office?

The department in a financial institution that processes and deals and handles delivery, settlement and regulatory procedures. (Source: CFTC)

In banking the back office is the heavyweight IT processing systems that handle position keeping, clearance, and settlement. In investment firms, the back office is the administrative functions that support the trading of securities, including recordkeeping, trade confirmation, trade settlement, and regulatory compliance. If used in sales, the back office fulfills customers’ orders and may usually perform the duties involved in customer support call centers. (Source: Wikipedia)

Audit Trail

What is an audit trail?

The record of trading information identifying, for example, the brokers participating in each transaction, the firms clearing the trade, the terms and time or sequence of the trade, the order receipt and execution time and, ultimately, and when applicable, the customers involved. (Source: CFTC)

An audit trail or audit log is a chronological sequence of audit records, each of which contains evidence directly pertaining to and resulting from the execution of a business process or system function.

Audit records typically result from activities such as transactions or communications by individual people, systems, accounts or other entities.

In telecommunication, the term means a record of both completed and attempted accesses and service, or data forming a logical path linking a sequence of events, used to trace the transactions that have affected the contents of a record.

In information or communications security, information audit means a chronological record of system activities to enable the reconstruction and examination of the sequence of events and/or changes in an event.

In accounting, it refers to documentation of detailed transactions supporting summary ledger entries. This documentation may be on paper or electronic records. (Source: Wikipedia)