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Finance GlossaryMoving Average Convergence Divergence (MACD)
Moving Average Convergence Divergence (MACD)
Definition of Moving Average Convergence Divergence (MACD)
Moving Average Convergence Divergence (MACD) is a popular momentum indicator used to identify trend direction and strength. It is derived by taking the difference between a short-period EMA and a long-period EMA and is typically used along with a signal line to spot potential buy or sell signals.
Related Terms
Foreign Portfolio Investment
A Foreign Portfolio Investment includes stocks, bonds, ETFs, derivatives, and other financial instruments from another country. Generally, FPIs do not give an investor the right to ownership or a controlling stake in any organization.
Instead, FPIs act as a passive income vehicle. That’s why FPIs are different to Foreign Direct Investment (FDI) in which an ownership stake is acquired with the intention of controlling and influencing business decisions.
Price Discovery
Price discovery is the process of determining the market price of an asset or security. It is a continuous, dynamic process that is driven by many factors such as supply and demand, investor sentiment, macroeconomic news, company-specific information, and market liquidity. In efficient markets, the forces of buying and selling naturally converge to establish a fair and current market price.
Securities Lending
Securities Lending is a process through which investors can lend their shares to borrowers, usually for short selling. In return, they receive interest or fees. The lender continues to be the owner of the assets. The borrower needs to return the securities later. Securities lending helps in improving liquidity in the market. Long-term investors can also earn extra income on holdings that remain idle for a while.
Interest Rate Risk
Interest rate risk refers to the probable decline in the value of a fixed income security because of a fluctuation in the interest rate. Fixed income securities lose value when interest rates rise whereas a bond or other debt instruments become more valuable when interest rates fall. Equity shares and securities do not carry interest rate risk.
Reverse Stock Split
A reverse stock split is a corporate action that involves a company reducing the number of outstanding shares it has, while the stock price increases proportionately. For instance, if there is a 1:5 reverse split, five shares are combined into one. A reverse stock split does not change the value of a company. However, it is often used to meet the requirements of listing on an exchange or improve the perception in the market.
Iceberg Order
An Iceberg Order is used to slice and execute large orders into multiple “legs”. Large orders have the potential to drastically affect stock prices and subsequently investor behaviour.
That’s why institutional investors or traders with a relatively large buy or sell order place an Iceberg Order, thus masking their total transaction value and effectively going under the radar.
Brokers and trading platforms offer Iceberg Orders as a feature, which is activated after a certain quantity of scrips or contracts are selected, typically above 100.
That’s why institutional investors or traders with a relatively large buy or sell order place an Iceberg Order, thus masking their total transaction value and effectively going under the radar.
Brokers and trading platforms offer Iceberg Orders as a feature, which is activated after a certain quantity of scrips or contracts are selected, typically above 100.
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