Glossary — D

We have completed the 'C' section, now it is time to explore the 'D' section and all its wonders! Keep going and you will be an investor in no time.

Debt

Debt, in its most basic form, is money, goods, or services owed by one party (the debtor) to another party (the creditor). It is essentially a loan that needs to be repaid, often with interest added on top. Here is a breakdown of the key aspects of debt:

• Obligation to repay: Debt creates a binding agreement.
• You are obligated to return what you borrowed, along with any additional fees or interest.
• Types of Debt: Debt can be categorised in various ways, including:
• Secured vs. Unsecured: Secured debt involves collateral, like a house for a mortgage, that the lender can seize if the borrower defaults. Unsecured debt, like credit card debt, relies solely on the borrower's promise to repay.
• Revolving vs. Instalment:
• Revolving debt, like credit cards, allows ongoing borrowing up to a credit limit. Instalment debt, like car loans, involves fixed monthly payments over a set period.
• Interest: Debt often comes with interest, a fee charged by the lender for the use of their money. This is essentially the cost of borrowing.
• Impact: Debt can be a powerful tool for achieving financial goals like buying a house or starting a business. However, uncontrolled debt can become a burden, straining your finances and impacting your credit score.

Debt: What It Is, How It Works, Types, and Ways to Pay Back DOWNTREND A downtrend refers to a prolonged price decline of a security, such as a stock or commodity, over a specific period. It is a negative trend where prices consistently move lower, forming a series of lower highs and lower lows. Here are the key points to identify a downtrend:

• Lower highs: Each high point is lower than the previous one.
• Lower lows: Each low point is lower than the previous one.

Think of it like a staircase going down - each step is lower than the previous one. In a downtrend, sellers dominate the market, leading to a decrease in price. Downtrend: Definition, Pattern, Examples, Trading Strategies DRAWDOWN A drawdown is a period of decline in the value of an investment, usually measured as a percentage of the peak value. It is a natural part of investing, and all investors will experience drawdowns at some point. For example:

• An account reaches a peak value of $10,000.
• It then declines to $8,000, a drawdown of 20% ($2,000 / $10,000).
• The account then grows to $12,000, recovering from the drawdown.

There are ways of managing drawdowns, such as:

• Risk Management: Set stop-losses, limit position sizes, and diversify.
• Diversification: Spread investments across asset classes, sectors, and geographies.
• Long-term Focus: Ride out drawdowns, as markets often recover over time.

Drawdowns are an inevitable part of investing, but by understanding and preparing for them, you can minimise their impact on your portfolio. Remember, it is not a matter of if a drawdown will occur, but when. Drawdown: What It Is, Risks, and Examples

Dividend

Dividend is a portion of the company's profit, paid to shareholders. It is essentially a thank-you payment from a company for investing in it! When you own shares of a company, you are essentially a part-owner of that company. And, just like how a business might share its profits with its owners, a company can share its profits with its shareholders in the form of a dividend! It is usually paid out regularly, like quarterly or annually, and can be in the form of cash or additional shares. By paying a dividend, the company is sharing its success with you, and it can be a great way to earn regular income from your investment! Cash Dividend: Definition, Example, Vs. Stock Dividend DERIVATIVES A derivative is like a bet on how well something else will do. Imagine you are a fan of a sports team, and you think they are going to win the championship. You can bet on them with your friends, and if they win, you get paid! A derivative is similar, but instead of betting on a sports team, you are betting on how well a stock, commodity, or currency will do. You are essentially making a prediction about its future value. For example: - You might buy a derivative that says "I think the price of gold will go up in the next month." If the price of gold does go up, you get paid! But if it goes down, you might lose money. What Does It Mean to Be Long or Short a Derivative?

Derivative Trading

Derivative trading is a way to invest in the financial markets by betting on the future value of an underlying asset, like a stock, currency, or commodity. Instead of buying or selling the actual asset, you are trading a contract that is linked to its value. So you can trade gold or crude oil, without actually purchasing a physical block of gold or a barrel of crude oil. This allows you to speculate on price movements or hedge against potential losses in another investment. Think of it like betting on a game: You are not playing the game itself, but wagering on the outcome. In derivatives, you are not buying the underlying asset, but essentially betting on its future price. This can be useful for managing risk or trying to profit from market movements, but it is important to understand the complexities and risks involved. What is derivative trading? DIVERSIFICATION [Picture yourself in a candy store] You love candy, and you want to buy a bunch to take home. But, instead of buying only one type of candy, like gummy bears, you decide to buy a few different kinds. For example:

• Gummy bears (Stocks)
• Sour candies (Index Funds)
• Chocolate bars (Bonds)
• Lollipops (Crypto Currencies)

That way, if you do not like one type of candy, you have other options to enjoy! And, if one type of candy goes bad (like, if the gummy bears get stale), you still have the other candies to enjoy! (Diversification is like buying different types of candy!) When you invest, it is like buying different types of candy. Instead of putting all your money into one investment (like, one stock or one type of investment), you spread it out across many different kinds, such as: bonds, commodities, property, etc. That way, if one investment does not do well, the others can help make up for it! What Is Diversification? Definition as Investing Strategy DAY TRADER A day trader is a person who buys and sells financial instruments, such as stocks, options, or currencies, within a single trading day. They aim to profit from the fluctuations in the market prices, without holding any positions overnight. Here is a simple example:

• A day trader buys 100 shares of
• XYZ stock at $50 in the morning.
• The price rises to $52 during the day.
• The day trader sells the shares at $52, making a profit of $2 per share, which is $200 total.
• They close out the position before the market closes, avoiding any overnight risks.

The goal is to capitalise on short-term price movements, without exposing themselves to long-term market risks. Day Trader: Definition, Techniques, Strategies, and Risks

Disposable Income

Disposable income is the amount of money you have left over after paying taxes. It is the money you have at your disposal to spend or save. You calculate this by taking all forms of income and subtracting all relevant taxes. This is different to Discretionary Income. Disposable income can be used for a variety of purposes, such as:

• Housing: Rent, Mortgage payments, utilities
• Food: Groceries, dining out
• Transportation: Car payments, fuel, public transportation
• Healthcare: Insurance premiums, medical expenses
• Debt payments: Credit card bills, loans

In short, disposable income is the money you have to use freely, without any obligations or necessities tying it up! What Is Disposable Income, and Why Is It Important?

Discretionary Income

Discretionary income is the amount of money you have left over after paying for all your essential living expenses. It is practically your "fun money" which you may spend on non-essentials or save/invest for future goals. Discretionary income provides flexibility in your financial life. Here are some common uses:

• Entertainment: Concerts, movies, hobbies
• Travel: Vacations, flights, accommodations
• Shopping: Clothes, electronics, gifts
• Savings: Building an emergency fund, investing for the future

DEFERRED SHARES Deferred shares are like a ticket that cannot be used yet.

• You buy a ticket (deferred share) that promises a benefit (like dividends or profits) in the future.
• But, you cannot get the benefit now - you have to wait until a specific time or condition is met.

It is like buying a ticket for a concert that is happening next year - you have to wait until then to use it! Deferred Share Definition and How It Works We have wrapped up `D', so let us shift our attention to `E` in our next post! Share this post: Categories STIOSTM: Terminology Sign up for blog updates! Join my email list to receive updates and information. Email address

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