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What is Pure Play Company?

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You are a stock investor, and you just heard about interesting company shares. But, you got a warning that it is a pure-play stock. What is that? So, let us see the pure-play definition.

What is Pure Play’s business model?
The pure-play business model represents a company that specializes in a particular product or service area to increase market share and brand awareness. Pure Play companies focus on only one business line, have easy-to-understand cash flows and revenues, come with a higher degree of investment risk, and tend to do poorly in bear markets.

Pure Play company example

The best example of a pure-play stock is Starbucks company (SBUX). Starbuck’ company pure plays in coffee. Starbucks does not offer food or any other line except coffee. So, if you as an investor believes in rising prices of the caffeinated commodity, then you can buy SBUX. If caffeinated commodity rises, SBUX will rise too.

Maytag Corp. has been named a pure-play organization, as it makes home and business apparatuses. In contrast, in an examination, General Electric makes home and business machines and has other product offerings (i.e., motors) in different industry verticals (i.e., flying).

To sum up:

What is a pure-play stock?

Pure plays stock from pure-play companies that focus on only one business line and one niche market. When price rises in that niche market, stocks price rises too.

Below is a video example, how to find a pure-play stock that might be a big winner during the holiday season:

Pure play retailers (e-rears)

Pure play is additionally used to portray online business organizations that lone sell through the web and not through different channels. In its initial days, Amazon was referred to as an illustration of a pure-play web retailer, as it had no actual stores. Also, the expression “pure-play” has been utilized to depict organizations that work over the web. By this definition, some state Facebook is a pure-play organization.

Pure play and stock exchange

Pure play is also utilized in the stock exchanging and speculation world, alluding to organizations that emphasize and have some expertise in a specific item or administration territory while barring other market openings. The “pure-play technique” is utilized to assess an undertaking’s beta or the danger and affectability of a venture. For instance, a pure-play organization may use the technique to recognize publicly exchanged firms that are occupied with incidents like the one they are focusing on.

Why invest in Pure Plays?

Investors should invest in pure plays companies because their revenues and cash flows are much easier to follow and understand, easier to analyze. Pure plays companies have a niche market, and when this market rises, pure plays stocks rise too (If caffeinated commodity rises, SBUX will rise too).

Advantages and disadvantages of pure-play

There are advantages and disadvantages related to being a pure-play organization. At a pure-play business, organization pioneers can zero in on the restricted arrangement of capabilities that help their single item or support and confine their ventures to a center arrangement of requirements. This laser center can prompt an upper hand, making the business a perceived master or pioneer in that space. Notwithstanding, a pure-play organization is more touchy to the financial and market influences that sway that space versus an enhanced organization. The organization may profit lopsidedly when those powers favor development, yet that equivalent organization can endure all the more fundamentally when confronting negative economic situations.

Albeit “pure-play” is acknowledged business speech, there are a few ambiguities and differences on how extensively or barely the term ought to be applied. For instance, while some refer to Amazon as a pure-play web retailer, others state that the term does not make a difference anymore. The organization currently offers its circulation and innovation stage to other people – making it more expanded than a pure-play organization.

 

What Does Equity Mean in Forex?

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Traders usually understand the term “balance” in the account. But, what’s equity in forex?

Account equity in forex trading means the total current value of a forex trader’s account, equal to the account balance plus or minus any profit or loss from open positions. When there are no open trades in the trading account, equity is as same as the trading balance. When the trading account is in profit, equity equals the sum of balance and floating profits. When the trading account is in loss, equity equals the sum of balance and floating losses.

In simple words, equity refers to traders’ money in their trading accounts plus or minus any profit or loss from open positions.

Below you can see a video about equity in forex:

Equity formula is:
Equity = Account Balance + Floating Profits (or Losses)

Forex equity examples:

Example 1: Forex account equity without trades
Let us assume that the trader has a $1000 account.
The trader doesn’t have any open trades.

In this case: Equity = Account Balance = $1000

Example 2: Forex account equity in the profitable account:
Let us assume that the trader has a $1000 account. And trader has 1 mini lot open position 10 pips in profit:
In this case: Equity = Account Balance + Floating Profit = $1000 + $10 = $1010.

Example 3: Forex account equity in the loss account:
Let us assume that the trader has a $1000 account. And trader has 1 mini lot open position 10 pips in loss:
In this case: Equity = Account Balance + Floating Loss = $1000 – $10 = $990.

Now we can answer one more important question:

What is the difference between balance and equity in forex?
The difference between balance and equity in forex is that equity is equal to the account balance plus or minus any profit or loss from open positions. Balance and equity value are the same when there are no open positions in a forex trading account. The equity value is higher than the balance when the forex trading account is in profit. The equity value is lower than the balance when the forex trading account is in the loss.

What Does Trailing Stop Mean?

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As we define in the previous article “What is stop-loss order,” a stop-loss order is an instruction placed with a broker to buy or sell a security by setting a stop loss level, a specified amount of pips away from the entry price.

The stop-loss price level can be fixed, but it can change too. So, What is the trailing stop order?


A trailing stop or trailing stop-loss is an order that moves the stop-loss price level with each new price tick by the trial amount or trailing stop loss percentage away from an asset’s current market price. For BUY trade, if the security price rises, the stop price rises by the trail amount, but the stop-loss price doesn’t change if the security price falls. For the SELL trade, if the security price is going down, the stop price fall by the trail amount, but if the security price is going up, the stop-loss price doesn’t change.

What is a trailing stop quote? Many brokers use the term trailing stop quote to make it clear that the stop order will only be triggered once a valid quoted price level in the market has been met, without negative slippage.
In that case, if we have a BUY order and EURUSD has a 1.3 price level stop loss, the order will close exactly 1.3 or above 1.3.

Trailing stop BUY example: If we buy the asset at $100 and set a trailing stop to be $10 from the beginning price, then when the price goes to $102, my new stop loss will be $102-$10=$92. If the price goes to $150, then my stop loss will move to $150-$10=$140, etc. Instead of a fixed dollar amount, we can use the percentage.

How does a trailing stop work in forex

The reality is that several traders realize that they should accept their losses and let them go as quickly as possible. On the other hand, they also have been told that they should let their profits continue to flow for an extended period. Yet, if someone is not aware of a tool to aid in implementing this strategy, it is necessary to understand how to use trailing stop in forex. It is quite similar to the application of the usage of a stop order that is regular, but it can be placed to flow with the market.

For example, if you desire to ride along with the EUR/USD, you place an emergency stop that will undergo a phase of triggering if the market happens to not move in your favor. Following the passing of a day or a few more, when the trade is tending toward your turn, you desire to conduct a locking in some profit to find out what will occur. It is possible to place a stop in the territory of a positive gain. This could be seen as the placement of a trailing stop. If there is the continuance of the market flowing toward your favor, the profit you have locked in will increase. This will be an ongoing favorable situation until the market slides back in a downward trend and reaches your stop placement.

The trailing stop’s critical role is to engage in the augmentation of the profit lock while the market is in a moving phase. As such, there is no requirement for you to engage in interventions or make adjustments. The trailing stop’s functionality permits you to follow trends with a level of safety in your preferred comfort zone so that there is no need for constant monitoring.

Regarding the trailing stop, you can also engage in the trailing stop placement for the sake of longer-term trading. You can place your stop far removed from the market trend and permit things to undergo development. This works rather successfully for slow trading systems, which tend to engage in the locking in of profits for extended months or days. When someone participates in setting up a target that is long term, then it is truly advised to place a trailing stop as well. This will permit the person to set up the total trade at an early stage while granting it the freedom to take its route.

With the reality that the forex market is running for a time frame of twenty-four hours over six days each week, this results in the need for many hours to undergo monitoring. Instead of enduring a lack of sleep or interrupted sleep, it makes wise sense to apply the trailing stop to one’s trade in this case. The remarkable result is that the lock of your profit can increase even when you are soundly asleep. The market will continue to go on as it does, while your trade will be able to conduct any needful adjustments or stops.

Disadvantages of trailing stop loss
Some traders advise avoiding trailing stop loss because they are automatic.
Automatic trailing stops loss move stop loss always per defined number of pips or percentage without analyzing the current market situation. For example, an automatic trailing stop loss can move the stop price level for 15 pips all the time; even that market has 100 pips daily volatility (ATR) or 250 pips daily volatility.

Static stops are great for novice traders as they make them aware of this tool and help them understand risk management. Trailing stops are for those looking to maximize their profits and have already learned the other concepts. This type is about money management rather than risk management. These stops are not stationary and move as the trades move in favor of the trader.

Here’s an example of your understanding. Let’s assume that a trader has taken an extended position and is trading EUR/USD at 1.3200. The pip stop is at 1.3150, with a 100 pip limit at 1.3300. Consider a situation in which this trader decides to move up to 1.325o; he will adjust the stop up to 1.3200. This 0.050 up the original stop value. A trailing stop moves to the entry price of the trader or the breakeven price. This means that if his chosen currency pair reverses and moves against him, the trailing stop will protect the gains that he made at his original position.

Traders can remove the initial risk by using this break-even stop permit. They will feel protected and can move to other Forex trade opportunities. The trailing stop has different types; the easiest one to work with is a dynamic trailing stop. It adjusts the stop for every single pip that will move in favor of the trader. Taking the same example mentioned above, if our currency pair moves to 1.3201 (1.3200 being the starting entry), the stop will automatically adjust to 1.3151.

How the best way to use trailing stops?

If you want more control over the stops, you can always move them manually. Experienced traders who like to trade in a fast-moving market or do trend trading often move the stops manually. This is because the price action is critical in this kind of trading.

Trailing Stop after hours

So, do trailing stops work after hours? Trailing stop orders won’t execute during after hours, the extended-hours session. The trailing stop orders that traders set during extended-hours will queue for the market open of the next trading day. This trailing stop after-hours rule applies to any trading platform or trading broker.

Should you use a trailing stop loss?
Trailing stop loss can be an interesting trading strategy, but traders need to avoid a completely automated trailing stop process. The best results traders can get if they manually set trailing amount or percentage based on current market conditions.

Forex Technical Analysis for Beginners

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As a forex trader, you may have thought of various ways in which you can enter and exit a trade at the right time to gain profit, right? One of such ways is forex technical analysis. Forex technical analysis is viral among the market players and can be done using charts and trade indicators. Though you are new to this field, this article will clear all your doubts about forex technical analysis and how it can help you predict the market trends.

Forex Technical Analysis for Beginners

Technical analysis helps analyze market price movements through the historical charts and indicators so traders can get a hold of future market trends. It uses past trends to predict future trends and market performance before entering a trade. Various candlestick patterns or charts help form indicators. A forex trader uses mostly price and volume data in technical analysis.

The difference between the fundamental and technical analysis lies in the fact that while fundamental analysis considers economic changes and related aspects as the primary contributor, the technical analysis considers past trends. A trader needs to be aware of fundamental and technical analysis basics so that he/she can take advantage by combining them.

Benefits of Using Technical Analysis

Technical analysis is an excellent tool for risk management to prevent downside risk. By understanding the principles and various forex technical analysis concepts, traders can develop their own suitable strategy to trade different currencies. Unlike fundamental analysis, which helps derive the intrinsic value of the market, technical analysis helps find trends and patterns caused by the fundamentals changes.

There are three main benefits of implementing technical analysis in forex trading.

  •       It can be used as an indicator to enter and exit the market.
  •       It can be used at any market time frame.
  •       It helps in identifying the trends of the market.

Forex technical analysis Tool – Charts

Historical charts are very useful in forex technical analysis. A chart consists of two things, the past and the present price of the market, which is the starting point to decide how profitable trade can be. The market price is the most significant representation of the market and thus holds the most importance.

Technical charts can help derive the overall market trend from deciding whether the market would soar or slump over any time frame, including hourly, daily, weekly, or even monthly frames. Prices are monitored in various candlestick patterns (for example, cup and handle pattern) or charts, known as price ranges.  The commonly used charts in current times are bar charts, candlestick charts, and line charts.

A technical chart has four main points – the opening price, closing price, high point, and the low point. The relationship between the prices and the pattern can give signs to traders for entering and exiting trades. By understanding the basics of forex technical analysis, beginners can implement and combine the charts and indicators to forecast the future.

What is Forex Technical Analysis Indicators?

Forex technical analysis indicators are useful when a trader is looking to get an opportunity to trade. Most technical analysis indicators are based on volume and price, just like the charts. Though indicator aids in finding the support and resistance levels and how long a trader should hold the trade. A trader can get the current market perspective by utilizing multiple time frame analysis for price or volume-based ranges and changes.

These are some of the most used forex technical analysis indicators,

  • Relative Strength Index (RSI)
  • Moving Averages
  • Moving average convergence divergence (MACD)
  • Bollinger Bands
  • Stochastics
  • MACD

While MACD and moving averages are key for finding market trends, RSI identifies the entry and exit points.

The most important step is to read a good technical analysis book:
Technical Analysis of the Financial Markets, by John J. Murphy
This book is written in straightforward language; you should read it along with the first book to fully understand its content. This is the best book written about forex and stock trading, in my opinion. This is a University book.

Let start the basic things in technical analysis:
1) Oscillators technical indicators

2) RSI Oscillator
In this video, you can learn everything about RSI and how to use it in analysis:

3) Trend lines as an important tool in trading for each beginner trader is presented below:

4) When you learn trend lines, the next thing is to learn are Fibonacci levels, which are presented in the video below:

5) Next thing that novice traders need to learn are candlestick patterns that are presented below in the video:

These are major things in technical analysis to learn.

Conclusion

As a beginner in the forex market, you can also keep yourself updated with the latest trends, news, and events happening across the globe. It would give you a good edge over your trades as the forex market is susceptible to global events.

As a novice trader, you are advised to trade on a practice account and can try different technical analysis patterns and tools on those dummy systems to learn new things. By doing so, you would make mistakes but won’t lose your actual money. You can find such demo accounts from brokers worldwide as it has become a trend in current times.

You should also not fall in any “Get your profit doubled in a month” kind of scams (read our article about forex scams) as there is nothing in this world that gives you easy money without skills and hard work involved. In the end, it’s about how much you are passionate about trading, how much knowledge you have, and how much you are willing to learn through your mistakes.  

Net Debt-to-EBITDA ratio in Simple Words

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Most businesses do not make enough money initially to pay their business expenses like salaries, rentals, purchase equipment, and supplies for their functioning and growth. They will usually borrow the funds which they require for running their business from banks and other lenders. In other cases, established businesses will also borrow money from their lenders. Giving a loan is always risky for a lender because there is a risk that the borrower may not repay the loan, and the lender will lose the money. Though the lender is usually asking for collateral, they will also want some information about the business finances.

The net debt-to-EBITDA ratio is a debt ratio for some companies that shows how many years it would take for a company to pay back its debt if net debt and EBITDA are held constant. The goal of this ratio is to represent how well a company can cover its debts. The difference between the debt-to-EBITDA ratio (DTER) and net debt-to-EBITDA ratio (NDTER) is that net debt subtracts cash and cash equivalents while the standard ratio does not. This ratio can be negative if the company has more cash than debt.

Let we learn in practice how we can use the Debt / Equity Ratio and Enterprise Value:

EBITDA

Before approving the loan application, the lender would like to find out more about the business profit margins, whether making enough money to repay the loan according to the repayment terms specified. One of the main parameters used to measure whether a business is making enough profit is the earnings before interest, taxes, depreciation, and amortization, abbreviated as EBITDA. The interest and taxes can be substantial for a business and reduce the money available for making further investment. The depreciation and amortization expenses are non-cash expenses, and some lenders do not consider these expenses while assessing whether the business can repay the debt.

Debt

For a business, the debt is the amount which the business owes the lenders. The business may have loans that have to be paid over a longer period of time, five years or more. This is the long term debt of the business. The business may have also raised funds by issuing bonds or borrowing from others for a shorter period of time, usually a few months or years, and this is called short-term debt. The total debt of a business consists of the long term and short term debt of the business. If a business faces any financial problem, repayment of the debt is given priority. Hence it is an important parameter for calculating the credit rating of a business.

Debt/EBITDA ratio formula

One of the popular parameters for determining whether a business is likely to repay the debt is the

Formula:  Debt to EBITDA ratio = Debt / Ebitda

where debt is the total debt consisting of both the long and short term debt, and the EBITDA is calculated from the business’s earnings using the financial parameters described above. Both the debt and EBITDA are specified in the business’s financial statements, like the profit and loss statement, the balance sheet for a particular period. The ratio is also calculated periodically.

Net debt/EBITDA ratio formula

Often the business may have raised funds using short debt and has not used these funds. These funds are cash or cash equivalent for the business. If required, the cash equivalent or cash can be used to repay the loans and other debt of the business immediately. Hence it is more relevant to calculate the

Formula: Net debt to EBITDA ratio (NDTER) = Net debt/EBITDA

where net debt = debt – (cash + cash equivalent)

Most borrowers prefer to use the net debt for calculating the ratio since it is the amount that is actually owned by the business and has to be repaid.

A typical value for  Net-debt to EBITDA

The Net-debt to EBITDA ratio is an important ratio for investors and lenders to a business. It varies to a great extent depending on the business model and industry sector. This ratio is calculated periodically from the financial statements of the business. Most companies publicly declare their financial statements quarterly and annually, though the statements may be prepared internally, monthly. Usually, a low debt/Ebitda ratio is preferred for a business since it indicates that it can easily pay off the debt in a few years. Typically for a well-run business, the ratio is usually 3 or 4. If the ratio is more than 5, it could be a matter of concern. In some companies, the amount of cash and other cash equivalents is more than the company’s debt. So the net debt/EBITDA ratio may be negative in cash-rich companies.

Sector-wise variations

Though lenders usually prefer businesses with a lower debt/EBITDA ratio, they should realize that the ratio depends largely on the business model and industry sector. Some businesses do not require much capital investment, so the ratio of this business will be lower. On the other hand, other industries, especially in manufacturing, require a huge investment in equipment and machinery. Hence companies in these sectors will usually have a higher ratio. So while calculating the credit rating of a business, the industry sector should also be considered.

Getting loans

Banks and other lenders will check the credit rating before lending any money to it. They will usually not lend money to a business with a low credit rating or charge a higher interest rate for lending the money. The terms for the loan will also be more stringent. One of the most widely used parameters for determining a business’s credit rating is the debt/EBITDA ratio. The lender will usually not give a loan to a business whose ratio is more than 5 unless some other factors are considered. This may be specific industry sectors with higher capital and also startup businesses. The lender may also specify that the borrower should maintain the debt/EBITDA ratio below a particular level in the loan terms and conditions. If the borrower cannot maintain the ratio, the lender may initiate action against the borrower or demand immediate repayment of the loan.

Analysis of debt/EBITDA ratio

It is also recommended that a business, debtors, and investors monitor the net debt and debt/EBITDA ratio over time since it offers valuable insights into the business’s functioning. If the ratio is reducing over a period of time, it indicates that the business is paying off the debt, so the debt is decreasing, while the income is increasing or remaining the same. On the other hand, if the debt is increasing, it implies that the business is borrowing more for growth or expenses, and its income is not increasing in the same proportion. Business owners, investors, and debtors should analyze the variation in the ratio over a period of time and then make a decision accordingly. For example, investors may increase their business stake if the ratio is decreasing and sell their stake if the ratio is increasing.

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