Glossary

ANNUALIZED RETURN:
An annualized return is the geometric average amount of money earned by an investment each year over a given time period. The annualized return formula is calculated as a geometric average to show what an investor would earn over a period of time if the annual return was compounded. An annualized return provides only a snapshot of an investment’s performance and does not give investors any indication of its volatility or price fluctuations.

CAGR:
Compound annual growth rate (CAGR) is the rate of return that would be required for an investment to grow from its beginning balance to its ending balance, assuming the profits were reinvested at the end of each year of the investment’s lifespan. CAGR is one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time. Investors can compare the CAGR of two alternatives in order to evaluate how well one investment performed against the other. CAGR does not reflect investment risk.

CALMAR RATIO:
The Calmar ratio is a comparison of the average annual compounded rate of return and the maximum drawdown risk. The lower the Calmar ratio, the worse the investment performed on a risk-adjusted basis over the specified time period; the higher the Calmar ratio, the better it performed. Generally speaking, the time period used is three years, but this can be higher or lower based on the investment in question.

CFD:
In finance, a contract for difference (CFD) is a contract between two parties, typically described as “buyer” and “seller” to exchange the difference in value of a financial instrument between the time at which the contract is opened and the time it is closed. In effect CFDs are financial derivatives that allow traders to take advantage of prices moving up or prices moving down on underlying financial instruments and are often used to speculate on those markets. The difference in the settlement between the open and closing trade prices are settled in cash. There is no delivery of physical goods or securities with CFDs.

COMMODITIES:
A physical substance traded on an exchange. Typical commodities include “energy” (such as crude oil), “metals” (such as gold and silver) and “soft” commodities (foodstuffs such as sugar, wheat and coffee). Some of our strategies include trading commodities such as gold and silver.

CORRELATION:
Correlation, in the finance and investment industries, is a statistic that measures the degree to which two securities move in relation to each other. Correlations are used in advanced portfolio management, computed as the correlation coefficient, which has a value that must fall between -1.0 and +1.0. A perfect positive correlation means that the correlation coefficient is exactly 1. This implies that as one security moves, either up or down, the other security moves in the same direction. A perfect negative correlation means that two assets move in opposite directions, while a zero correlation implies no relationship at all.

CURRENCIES:
Currency is a medium of exchange for goods and services in the form of paper or coins, usually issued by a government and generally accepted at its face value as a method of payment.

DRAWDOWN (DD):
A drawdown is a peak-to-trough decline during a specific period for an investment, trading account, or fund. A drawdown is usually quoted as the percentage between the peak and the subsequent trough. If a trading account has $10,000 in it, and the funds drop to $9,000 before moving back above $10,000, then the trading account witnessed a 10% drawdown. Drawdowns are important for measuring the historical risk of different investments, comparing fund performance, or monitoring personal trading performance.

FOREX/FX:
Foreign exchange (Forex/FX) is the marketplace where various national currencies are traded. The FX market is the largest, most liquid market in the world. There is no centralized location, rather the FX market is an electronic network of banks, brokers, institutions, and individual traders. Many entities, from financial institutions to individual investors, have currency needs, and may also speculate on the direction of a particular pair of currencies movement. They post their orders to buy and sell currencies on the network so they can interact with other currency orders from other parties. The FX market is open 24/5, except for holidays.

HWM:
A high-water mark (HWM) is the highest peak in value that an investment fund or account has reached. This term is often used in the context of fund manager compensation, which is performance-based. The high-water mark ensures the manager does not get paid large sums for poor performance. If the manager loses money over a period, they must get the fund above the high-water mark before receiving a performance bonus from the assets under management.

INDEX:
An index measures the performance of a basket of securities intended to replicate a certain area of the market, such as the Standard & Poor’s 500. In the financial world, indexes are created to track items such as publicly traded stocks, bonds, and consumer prices for common goods and services. It is an indicator or measure of something, and in finance, it typically refers to a statistical measure of change in a securities market.

LEVERAGE:
Leverage is the use of debt (borrowed capital) in order to undertake an investment. The result is to multiply the potential returns from an investment. At the same time, leverage will also multiply the potential downside risk in case the investment does not pan out. Investors use leverage to significantly increase the returns that can be provided on an investment. They lever their investments by using various instruments that include options, futures and margin accounts.

LONG POSITION:
A long position is the buying of a stock, commodity, or currency with the expectation that it will rise in value.

MANAGEMENT FEE:
A management fee is a charge levied by an investment manager for managing an investment fund. The management fee is intended to compensate the managers for their time and expertise for selecting investments and managing the portfolio. It can also include other items such as investor relations expenses and the administration costs of the fund. Blue Capital Trading does not charge a management fee.

MAR RATIO:
MAR ratio is a measurement of returns adjusted for risk that can be used to compare the performance of commodity trading advisors, hedge funds, and trading strategies. The MAR ratio is calculated by dividing the compound annual growth rate (CAGR) of a fund or strategy since its inception by its most significant drawdown. The higher the ratio, the better the risk-adjusted returns.

MARKET ORDERS:
A market order is a request by an investor – usually made through a broker or brokerage service – to buy or sell a security at the best available price in the current market. It is widely considered the fastest and most reliable way to enter or exit a trade and provides the most likely method of getting in or out of a trade quickly.

MAXIMUM DRAWDOWN:
A maximum drawdown is the maximum observed loss from a peak to a trough of a portfolio, before a new peak is attained. Maximum drawdown is an indicator of downside risk over a specified time period. It can be used both as a stand-alone measure or as an input into other metrics such as “Return over Maximum Drawdown” and the Calmar Ratio. Maximum Drawdown is expressed in percentage terms.

PERFORMANCE FEE:
A performance fee is a payment made to an investment manager for generating positive returns. This is as opposed to a management fee, which is charged without regard to returns. A performance fee can be calculated many ways. Most common is as a percentage of investment profits, often both realized and unrealized. We use a HWM to calculate our performance fee.

SHORT POSITION:
A short position, is created when a trader sells a security first with the intention of repurchasing it or covering it later at a lower price. A trader may decide to short a security when they believe that the price of that security is likely to decrease in the near future.

VOLATILITY:
Volatility is a statistical measure of the dispersion of returns for a given security or market index. In most cases, the higher the volatility, the riskier the security. In the securities markets, volatility is often associated with big swings in either direction. For example, when the stock market rises and falls more than one percent over a sustained period of time, it is called a “volatile” market.

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