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1

Bitcoin market cap back above $1 trillion as crypto rot stops

The cryptocurrency market was one of the worst performers of 2022, with prices of many of the major coins falling by over 70%. In fact, the market capitalisation of the original digital currency, Bitcoin, fell from well over $1 trillion to just a shade over $300 billion by December 2022. Hoards of miners and crypto-heavy funds were forced to file for bankruptcy. Then the infamous FTX collapse threatened to sound the death knell for the entire sector. But, as is often the case in financial markets, this moment of peak pessimism actually turned out to be precisely where the bottom formed.

That's right. Against the predictions of even the most relentlessly rabid of crypto bulls, the New Year started with a resounding bang for digital assets. In just a little over the first two weeks of January on the clock, Bitcoin managed to rise around 25%. And though there has been a slight correction since then, it is clear now that this is more than just another crypto bull trap. But what is behind this sudden change of fortunes, and is it safe to call the reversal so soon? In this article, we'll discuss the current situation in this highly volatile sector and look at the analysts' best guesses for the rest of 2023.

It's not just Bitcoin

As has often been the case with the crypto sector, Bitcoin tends to set the trend, and we then see similar movement across the wider market. Well, this time appears to be no different, with the next two biggest projects by market cap (Ethereum and BNB) similarly gaining 20-25% over this same period. However, certain coins managed to gain significantly more than the founding father of digital assets. Avalanche (AVAX), for instance, has managed to gain over 50% since 1 January, while Solana (SOL) has more than doubled in value over this same period.

While there has certainly been some fundamental news that could explain this asymmetric growth — such as AVA Labs' freshly signed collaboration deal with Amazon and its Amazon Web Services (AWS) cloud-computing arm and the launch of Solana's memecoin BONK — there is also a deeper force at play. The explosion of demand in the DeFi and dApps spaces is naturally driving up tokens and blockchains like AVAX and SOL, which are uniquely suited to these kinds of applications. In fact, many analysts, including the Motley Fool, predict that these two projects will be the biggest gainers of 2023 due precisely to these factors.

Becoming institutionalised

It was once the case, not that long ago, that the cryptocurrency market was virtually devoid of what many term "smart money". It was a disorderly, unpredictable free-for-all dominated by devil-may-care retail traders with zero accountability and no quarterly or even annual targets. Together, these features all contributed to the sector's infamous volatility and made it extremely difficult to forecast movement. But all that changed during the pandemic. After many years on the sidelines, the funds started piling into digital currencies, and by December 2020, they already had over $15 billion under management.

Then, just twelve months later, this figure had risen to over $65 billion. One undeniable advantage of this new injection of capital has been the increased predictability that institutional money brings. Thus, when their crypto investments shrunk by 95% over 2022, it was clear to analysts that a bottom must be close at hand. Finally, when the tide turned and inflows began to overtake outflows in the second week of January, the foundations were laid for sustained growth as the year progresses. It's still too early to tell whether the reversal is complete, but savvy investors will continue to watch the weekly inflows report to see if a firm uptrend emerges.

Risk on, risk off

Now that we've established that the cryptocurrency market is gradually maturing to become a bona fide asset class like equities, commodities or futures, we have to accept that it will also be increasingly susceptible to economy-wide factors influencing investor behaviour. Well, you'd have to have been living under a rock not to have noticed the rampant inflation and seemingly ever-present threat of recession that ruled 2022. Unsurprisingly, economic turmoil and uncertainty tend to wreak havoc on risk assets, and this past year was no different. It's no coincidence, then, that stocks, ETFs and crypto were some of the worst-hit instruments over the last 12 months and that the looming spectre of eurozone and US recessions have kept many of these risky asset classes flat into the New Year.

What is unusual, however, is that the historically volatile and inherently riskier crypto market was the first to rebound significantly, more than doubling gains made by even the best-performing US stocks. Could this be a sign that digital assets are now leading risk-on assets as a whole, or is it just more proof of crypto's native unpredictability? As the wider global economy continues to outperform expectations, it could well be that a V- or U-shaped recovery is on the cards, with digital assets priming themselves to lead the risk-on pack into a new bull cycle.

Trade CFDs on crypto with Libertex

Libertex offers both long and short positions, and you can trade whichever trend you like. Over 150 CFDs on different digital asset pairs are available, including Bitcoin, Ethereum, Avalanche and Solana, so you most likely will be able to find an underlying asset to pique your interest. What's more, the unique advantage of CFDs means that there's no need to physically own the coin or token you wish to trade, you can buy or sell at any time and simply collect the difference. For more information about our extensive crypto CFD offering and highly favourable commission structure, visit www.libertex.com/cryptocurrencies


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 89.1% of retail investor accounts lose money when trading CFDs with this provider. Tight spreads apply. Please check our spreads on the platform. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

2

Chinese stocks catch investors' eyes as US and EU continue to lag

Every investor knows too well how much of a disaster 2022 was for stocks. Individual equities plummeted by up to 90%, and even major indices like the S&P 500 and Nasdaq are down around 19% and 31%, respectively. Chinese stocks suffered just as severely in 2022. Between supply chain ruptures, the Chinese Communist Party's (CCP) "zero COVID" policy and government crackdowns on big tech, China's equities market seemed to be on a never-ending downward spiral. Until it wasn't anymore.

But with all the negative news coming out of Western markets of late, you could be forgiven for missing the slow-but-steady recovery that has taken place in China over the past couple of months. It all began in early November, and since then, some of the Asian giant's biggest tech firms have gained over 30%, showing a clear bullish trend emerging. But does this mean traders and investors should move their capital into Hong Kong and Shanghai, or could this positive movement be foreshadowing a wider global recovery?

Party killers

China's tech giants were making headlines for all the wrong reasons throughout 2021 and 2022 as US American Depositary Receipts (ADR) trading bans and homegrown crackdowns by the country's ruling Communist Party drove a mass exodus of investors from household names like Tencent, Baidu, Netease and, of course, Ali Baba. This latter was perhaps the worst hit as a result of its outspoken founder Jack Ma's repeated political faux pas following Chinese regulators' decision to halt Ant Group's much-hyped IPO on Hong Kong's Hang Seng exchange.

But this was just one high-profile example of a clear paradigm shift within the country. On a more general level, China's CCP had ultimately decided that it was time to reign in their own Big Tech firms, lest they become a law unto themselves. The end result of all of this was a long-drawn-out slump to ever-lower stock prices for the majority of China's tech companies. When all was said and done, Tencent, Baidu and Alibaba had lost around 70%, 60% and a whopping 80%, respectively. Meanwhile, the party's misguided "zero COVID" policy piled on the misery for Chinese business as a whole, with lockdown after lockdown stifling trade and commerce.

Watch the dark horse

With the world's focus on recession-threatened Europe and the US, analysts and market participants alike completely missed the bottom in Chinese Big Tech. But since November 2022, the stock prices of Tencent, Netease, Baidu and Ali Baba have been edging up almost unnoticed by western actors. Now, these stocks are up an average of 70% in the past three months alone, and the uptrend looks set to continue. In a global equities market that is decidedly in bear territory, these are certainly not to be sniffed at.

In fact, despite the regulatory barriers and risk involved, numerous US and Europe-based investors are being tempted back to China in search of gains that are so elusive elsewhere just now. Indeed, many of the biggest hedge funds had called the bottom back in October and November, with such funds being consistent net buyers of China equities for over eight of the past 10 weeks now. And now that less major players are starting to bolster capital inflows into Shanghai and Hong Kong, we can safely say the tide has truly turned. With the Lunar New Year also just round the corner, there are further drivers of growth on the near-term horizon.

Chinese stocks CFDs with Libertex

It's too early to tell whether this recovery in Chinese equities foreshadows a general recovery in risk assets globally or even whether this rally will continue into the Chinese New Year and beyond. But one thing's for sure: no other stock markets are showing anything like the positive movement currently being seen in China's tech sector. With Libertex, you can trade CFDs on some of Asia's largest cap firms, including Tencent, Baidu and Ali Baba. More conservative investors can also benefit from China-focused ETFs, such as the iShares China Large-Cap. For more information or to create an account today, visit www.libertex.com


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 87.8% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

3

The factors that shaped the year and what to expect in 2023

As we prepare to close the door on 2022, most traders and investors will be happy to see the back of this disappointing year for a majority of asset classes. It has seemed as though virtually everything is down, with almost no safe place for storing or growing wealth to be found. Tech stocks have been in freefall, and even major indices like the S&P 500 and Nasdaq have suffered over 20% and 30% declines, respectively. As for crypto, the carnage has been unfathomable, with Bitcoin now down 70% YTD.

This time last year, the optimism was palpable: we were finally putting the pandemic behind us, and, despite many instruments probing all-time highs, things were only going to get better…or so we thought. Sky-high inflation, a devastating energy crisis and a looming global recession have seen pretty much everything but gold and the USD's record double-digit losses over the past 12 months. But what market participants are desperate to know is whether 2023 will finally see an end to these calamities and send the bears back into hibernation.

Inflation, inflation, inflation

The headline economic news throughout the past year has been spiralling inflation, with the indicator pushing double digits throughout much of 2022 and reaching a high in the EU of 18% in September. Obviously, this has wreaked havoc on the buying power of ordinary consumers and, by proxy, the exchange rates of all European currencies. This has, in turn, meant a reversal of capital flows into risk assets like stocks and crypto. Of course, holders of USD, gold and other commodities might well have preserved their wealth or even gained slightly, but compared to the bumper profits of 2021's bull market, these were paltry at best.

The Fed has now raised rates by a total of 425 basis points since the start of this year, which has helped the US avoid the worst of it. Europe's central banks have now mobilised to bring this runaway inflation into check, with the Bank of England and ECB hiking their respective key interest rates by 340 pts and 250 pts, respectively. Now, inflation in the Old Continent is below 10%, and the ECB's latest macroeconomic predictions see it moving as low as 3.6% by the end of 2023. According to different economic analysts, in such a scenario, equities and other risk-on instruments are expected to recover in line with consumer spending power.

Keeping the lights on

If hyperinflation wasn't bad enough, Europe's residents have also had to contend with a serious fuel crisis. Natural gas prices rose almost 400% from January to August 2021. Though they have since dropped significantly to €92.50 per MWh, even now, prices are still almost 500% higher than in 2020. Meanwhile, wholesale electricity costs have more than doubled in 2022, with fuel now ten times more expensive than it was two years ago. Of course, the impact on households has not been quite severe, but still significant enough to reduce disposable income by some margin. The resultant drop in consumer spending has had knock-on effects for manufacturers, leading to a stagnation of stock prices in the sector.

As with any complex crisis, the reasons are varied and include geopolitical instability and the associated tariffs on producing countries, the unexpected decommissioning of the Nord Stream gas pipeline, and an over-emphasis on expensive and insufficient green energy at the expense of nuclear power. As an energy-heavy industry, crypto mining has understandably been hit hard by this reality. The rapidly rising cost of mining, coupled with low coin prices and increased difficulty, has created a negative feedback loop of declining prices. If prices stabilise below the cost of mining next year, however, market analysis predicts that we'll see a new bull cycle emerge.

Don't say the "Recession" word

As much as governments might try to postpone the inevitable, it looks like we will soon have to accept the reality that many of the world's economies are now in a technical recession. The combination of rampant inflation, soaring fuel and commodities costs, and supply chain ruptures linked to China's zero COVID policy has been devastating for the business community and global trade in general. A Reuters poll put the probability of a eurozone recession within one year at 78% as Brussels admitted that we could expect to enter one by the New Year. Meanwhile, the UK's GDP has already fallen (-0.2%) for a second consecutive quarter, which means Britain is already in a technical recession.

As scary as that might first sound, the outlook is not quite as bleak as we might think for Europe. Indeed, in a recent report, Goldman Sachs predicted "a shallower recession" for the EU, claiming that "the euro area economy will contract by only 0.7% from Q4 2022 to Q2 2023 (vs 1.1% before)". A recession of any kind is obviously not the best news for commodities and manufacturers, but a mild one could be good for consumer staples, the US dollar and gold as the poor tighten their belts and the rich look for safe havens for their wealth. In any case, we will have to keep an eye on PMI and GDP data throughout H1 2023 in order to try and spot the point of reversal.

Carry on with Libertex

As we bid farewell to 2022, Libertex remains hopeful for a prosperous 2023. Check out our website or app for the full list of available CFDs, spanning a variety of asset classes, such as stocks, indices, commodities, futures, forex and, of course, crypto. We wish you all a wonderful holiday season and can't wait to welcome you back for a (hopefully) profitable 2023!


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 87.8% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

4

What did 2022 bring? Summing up as we're coming close to the year's end

As the end of 2022 approaches, many of us will be happy to see the back of what has been one of the toughest years in recent memory. Not only have a majority of instrument classes seen devastating losses but the world has also been plagued by runaway inflation, energy insecurity and supply chain ruptures. Virtually all risk assets have been in freefall, with tech stocks and crypto particularly hard hit.

Gas and oil prices have risen to unsustainable levels, along with the prices of most everyday staples. The impact has been even more dramatic for Europeans, with the euro and British pound losing serious ground against the dollar. Even gold has been relatively flat considering the extent of the economic carnage experienced. So, what were the mechanics behind this maudlin market situation, and will 2023 finally bring some much-needed respite to tormented traders and investors everywhere?

Taking stock of the damage

It's no secret that equities have been on the decline since November 2021. But while many expected a short-lived correction, stocks have defied the odds to edge ever lower over the past twelve months. The premier US index, the S&P 500, has dropped 15% on average since the start of the year, while the tech-heavy Nasdaq is down almost 25% over the same period. For individual companies, the losses have been exponentially higher. Take 2021's darlings Tesla (TSLA), Netflix (NFLX) and PayPal (PYPL), for example, all of which are down over 50% YTD.

While it's easy to panic in the face of such declines, it's actually totally normal in times of economic strife such as these. We have, indeed, seen a general flight from risk during these uncertain times, and it's unsurprising that the most overvalued equities have suffered the worst. Recent upticks in both indices and individual stocks over this last quarter, coupled with ECB Vice-President Luis de Guindos' recent confirmation that inflation is slowing, could indicate a bottom has already been reached. Thus, investors who have been dollar-cost averaging over the 2022 bear market may well reap the rewards in the new year.

Crypto's big freeze

In light of the flight from risk discussed above, it's hardly shocking that cryptocurrencies have recorded the most disastrous declines of all asset classes this year. Both Bitcoin and Ethereum are now down an average of 75% from their all-time highs, and some lesser-known coins and tokens have lost over 90% of their value over this same timeframe. Not to mention some outwardly promising projects that have disappeared completely along with billions of investors' money, such as Terra and FTX. As we mentioned, it's quite normal for the most volatile and inherently risky instruments to lose the most in precarious markets. This shouldn't deter investors from holding cryptocurrency for the long term.

Perhaps the most worrying aspect of this crypto winter, however, has been the mass bankruptcies of all too many overleveraged public miners. Compute North is one high-profile name that has already gone, with Core Scientific on the brink. After selling all their coin reserves to keep the lights on, they're now being forced to sell off state-of-the-art ASICs at a fraction of their cost, to the delight of their better-capitalised colleagues. However, once the chaff has been cleared and rewards begin to rise, 2023 could certainly generate new highs in digital assets. According to Huobi Global, at least, BTC should hit a $15,000 bottom by March 2023, paving the way for a new leg up in the final three quarters of the year.

Frisky Forex

The high volatility of crypto is well documented, but traditional currencies are expected to be about as stable and predictable an asset class as they come. Well, 2022 saw that trend well and truly bucked as fiat had one of its most rollercoaster years on record. EUR/USD fell below parity for the first time in 20 years, while the dollar's value soared against a majority of the world's majors. Inflation was naturally a major factor in this unusual scenario, but its impact was then further exacerbated by increased dollar demand in the face of twin liquidity and energy crises. The greenback is still the world's reserve currency, and market participants tend to flock to it during tough times. Not to mention that the global oil trade is conducted in USD.

There has been much talk of Fed money printing devaluing the dollar, but the truth is this money never makes it into the real economy and thus has little effect on the actual USD supply. The demand for dollar-based collateral in the form of short-dated T-bills from the multi-trillion-dollar derivatives market, on the other hand, has worked to drive up the value of the US national currency significantly. With the Fed taking care of demand-pull pressures via sharp interest rate hikes and the expected shift from futures and options to physical securities in 2022, the year ahead should be characterised by a normalisation of the EUR/USD and GBP/USD cross rates going forward. Indeed, Citibank's six- to twelve-month EUR/USD forecast stands at $1.05, rising to a much more familiar $1.10 over the long term.

Has gold lost its shine?

Since as early as 2020, just after the pandemic struck, analysts everywhere have been tipping gold to outperform. It stands to reason, right? Testing times and economic pain have almost always been a boon for the yellow metal. The only thing that has proven even more profitable has been periods of hyperinflation. So, when price pressure hit 10% this year, you could forgive gold bugs for expecting massive gains in precious metals. However, despite a relatively positive first quarter, gold entered the final month of 2022 at basically the exact same level ($1800 per Troy ounce) as it was 12 months ago.

What's the reason for this paltry performance? It's all down to the dollar, of course. Because gold prices are quoted in USD, the metal appears to have traded flat all year. However, if we scratch the surface, we see that inflation means the dollar has actually appreciated by around 10% YTD. As a result, we can say that gold has also gained around the same. Confusing, we know. But if we look at the price per gram in euros, the picture becomes much clearer. Spot prices in Europe are up almost 8% from €50.49 to €54.53. As such, gold has, in fact, performed its role perfectly by preserving its holders' spending power throughout this turbulent year. In fact, analysts from Saxo have claimed gold could slice "through the double top near $2,075 as if it wasn't there and hurtle to at least $3,000" in 2023.

5

Dollar dominance drags on as Europe edges towards recession

Headlines were made when the value of one euro fell below that of one US dollar back in September of this year. That key technical and psychological level – parity, as it is commonly called – had not previously been breached in two decades. It was, and remains, a big deal. Two months on and it appears as if EURUSD could now be stuck in a sideways channel between 0.97-1.00, from which it might well struggle to break out anytime soon. This, in theory, makes European goods more attractive to US consumers, but the general economic climate and high fuel costs are actually producing bigger deficits than ever before. Does this mean Europe will fall into recession and what will be the implications for the EURUSD and risk assets if it does? What is behind this illogical crisis and how can investors protect their capital?

The gas connection

Goldman Sachs has predicted that the single currency will remain at or below parity for as long as gas prices remain at multi-year highs. At their current levels of about 300% above what is considered normal, many businesses have been forced to increase prices of finished goods significantly, negating any exchange benefits from the single currency’s relative weakness. As European countries are now paying exorbitant prices for energy, traditional business centers have deteriorated significantly. After decades of surplus, Germany, for instance, is now running a trade deficit. This means that there is now an excess of euros in international financial markets, thus weakening the currency against its major competitors. It is like an uninterrupted negative feedback loop of sorts. Higher prices make EU-manufactured goods more unpopular, which then makes euros more unpopular. A radical change beyond the power of price discovery will be required to break the cycle. Unfortunately, it doesn’t look like gas prices will fall significantly anytime soon – not until the ongoing political instability to the East is resolved, at least.

Blame the (central) bankers

To ignore the impact of central bank policy in explaining the origins of the euro’s current woes would be remiss at best. It is self-evident that sharp interest rate hikes by the US Federal Reserve have helped buoy the US dollar by boosting the attractiveness of US assets. After all, the Fed has notably raised borrowing costs by 375 basis points since March, which is significantly faster than its European counterpart. Faced with major inflation amid the aforementioned energy crisis, the ECB has been restricted to an increase of just 200 basis points over the same period. The US regulator is now predicted to raise its funds rate by a further 50 basis points (to 4.25-5%) before year end in line with its “dot plot” median projection. The European Central Bank is also tipped to increase its own rate by 50 basis points, but this will only place it at 2.0%, which is still significantly below the Federal Reserve’s. If recession does then arrive as expected, one would expect the euro to continue to crash as investors look to move more capital into high yielding government bonds.

The ”R” word

A deadly combination of higher energy costs, low consumer confidence, and reduced economic activity in general has been understandably devastating for sales across the European Union. This has been aggravated even further by global inflation-fueling factors, such as supply chain ruptures and geopolitical instability. In light of all of the above, a recession seems inevitable for many analysts. Despite this, Eurozone retail sales did manage to rebound in September. According to Eurostat, the indicator rose 0.4% from August instead of declining 0.3% as predicted. Nevertheless, most economists agree that this modest boost in September is unlikely to be the turning point. The latest statements from senior ECB officials predict a euro area recession starting in Q4 2022 and lasting through until Q1 2023. Historical data indicate that the single currency tends to perform poorly during eurozone recessions. Over the last three EU-wide recessions, the euro suffered most between Q3 2011 and Q1 2013, losing 8.9%. Its best performance came between Q4 2019 and Q2 2020, during which time it gained 2.5%. If the US is able to avoid a recession of its own, then the downward pressure on EURUSD would be amplified further. In such an eventuality, risk assets would become even less attractive and savvy investors would naturally gravitate towards a >4% yielding US treasury bond over a sub-2% European alternative.

Trade the Fibre CFDs with Libertex

Whichever way you think the currency market is headed, you can always have your say with both long and short positions from Libertex. Since Libertex offers not only EURUSD CFDs but also a wide variety of other major Forex CFDs, such as GBPUSD, AUDUSD and USDJPY, you’re sure to find something to tickle your fancy. What’s more, Libertex also offers leveraged trading of up to 30:1 for all major currency pairs, enabling you to maximise your potential gains. For more information, or to create an account of your own, visit www.libertex.com or download our handy trading app from the Apple or Google Play stores.


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 87.8% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

6

Gearing Ratio: Complete Guide with Examples

A gearing ratio is a financial measure that takes into account the proportion of a company's liabilities (creditors' funds) versus the total equity (shareholders' funds), thus representing the entity's financial risk level. It is a powerful tool that investors can use together with fundamental analysis to gauge the overall performance and financial stability of a company they want to invest in.

In this guide, we'll dive deeper into the gearing ratio, explain how to calculate and interpret it, examine its benefits and drawbacks, and provide you with examples to make it easier to apply this instrument to your analysis.

What Is a Gearing Ratio, and What Does it Tell Investors?

A gearing ratio is a calculation used to show the degree of a company's financial leverage. It is found by dividing total credit funds by shareholder's equity. This number tells how much debt the company uses compared to the money investors have put into the business. As such, a low gearing ratio implies that the company can pay its debt several times over, while high gearing represents a highly leveraged business that is likely to face more risk during times of market volatility.

High Gearing Ratio vs Low Gearing Ratio: How to Interpret Ratio

It's difficult to say whether a company has a good gearing ratio or a bad one. Everything's relative. When conducting such an analysis, it's crucial to take into account the total market situation and make a comparison between a particular business you want to invest your capital in and other companies from the same industry. However, there are some commonly used gearing ratio measures: low, middle and high. Let's have a closer look at them.

1. A low gearing ratio is below 25%. This means that a company uses less debt financing and more equity financing. Both investors and lenders would consider this ratio to be low-risk because, if the asset goes down in value, the equity will cushion the loss.
2. Mid-level or optimal gearing ratio is between 25% and 50%. Companies with this level of gearing are usually characterised as stable, well-established and with a reasonable level of risk.
3. High gearing ratio is more than 50%. A company with high gearing is said to be more leveraged. This means that investors have to deal with an increased risk of losing money. This is because the company's debt holders have the first claim on its assets and profits. If it comes to liquidation, the shareholders will only receive any proceeds after the creditors have been paid in full.

Gearing Ratio Formulas

There are several ways to calculate gearing ratio. However, the most common gearing ratio formula is:

NET Gearing Ratio= (Long-term debt + Short-term debt + Bank overdraft) / Shareholder's equity

Debt-to-Equity Ratio

Another common gearing calculation is based on the debt-to-equity ratio. All you need to do is divide the total company debt by the total amount of company equity. The formula will be as follows:

Company's gearing ratio = Total debt / Total equity

The gearing ratio can also be presented in percentages. It's necessary to multiply the result from the formula above by 100:

Company's gearing ratio = (Total debt / Total equity)*100

Debt Ratio

The debt ratio is very similar to the debt-to-equity ratio. It shows the percentage of a company's assets that are financed by debt and is calculated by dividing total liabilities by total assets.

Debt ratio = Total debt / Total assets

Equity Ratio

The equity ratio is a financial ratio that measures the extent to which the equity capital of a company is owned by its stockholders. It is calculated by dividing a company's total equity by its total assets.

Equity ratio = Total equity / Total assets

How to Calculate the Gearing Ratio of the Company You Are Researching



Once you decide to calculate the gearing ratio of a particular company, here are the steps to follow:

1. Choose the company. As a result, the gearing ratio will help you analyse if it is a potentially good investment option.
2. Choose the most suitable gearing ratio formula. There are various ways to calculate gearing ratio; one of the most commonly used is the debt-to-equity ratio.
3. Calculate the gearing ratio. If you've chosen the debt-to-equity calculation method, it's necessary to divide the total debt of the company by its total equity. If you want to receive the result in percentage, multiply the fraction by 100.
4. Analyse the results. Companies with high gearing ratios are considered risky, as they have considerable debt that must be paid back. Low gearing ratios indicate that the company is more conservative, stable and associated with lower risks.

Example of a Gearing Ratio and Its Interpretation



Here is an example of how to calculate and interpret the gearing ratio. Let's say that an imaginary company — we'll call it AAA — has a total debt of $1 million, while its total equity accounts for $4 million. To calculate its gearing ratio using the debt-to-equity formula, we need to divide total debt by total equity and, if we want to have the result in percentage, multiply the result by 100.

AAA's gearing ratio = ($1 million / $4 million)*100 = 25%

25% is a good gearing ratio, meaning that the company has a higher percentage of financing that comes from equity. This business is likely to be more financially stable and less risky, especially if the investment does not perform as well as expected.

Let's have a look at an opposite example. Company AAA has come with the following financials:

- Total debt - $4 million
- Total equity - $2 million

Then, the calculation of the gearing ratio will look like this:

AAA's gearing ratio = ($4 million / $2 million)*100 = 200%

This is an extremely high result, which means that for each $1 of equity, the company has $2 in debt. In this situation, the company AAA will be significantly riskier to invest in.

Gearing Ratio and Risk: Everything You Need to Know



Gearing ratios are often used to evaluate a company's financial health, as well as its level of risk for potential investors and lenders. Businesses with high gearing ratios are considered riskier than those with low ratios, as they have more debt that must be paid back. In addition, companies with high gearing may find it difficult to obtain new financing, as lenders will view them as being less financially stable. As a result, this can put them at risk of defaulting on their loans or going bankrupt.

However, it's important to note that not all companies with high gearing ratios are financially unstable. Some of them may have such a percentage because they are operating in industries with high levels of debt, such as the oil and gas industry. In these cases, the higher gearing ratio may actually be due to factors beyond the company's control.

The gearing ratio is a robust tool that is helpful when trading any financial assets. However, it's particularly useful for potentially riskier instruments like CFDs.

CFDs are very popular in the modern world of online trading. This is because they offer many advantages, such as low transaction costs, high leverage and the ability to trade on a wide range of assets. For CFD traders, it is important to understand the gearing ratios of the companies they are trading, as this will help them to mitigate the potential risks.

How Can Companies Reduce Their Gearing?

Gearing can be reduced if the company starts to pay off its liabilities. Several techniques can help businesses to control and improve their gearing ratio. Here are some of them:

1. Reduce reliance on debt financing. A company may need to take on new investors, sell assets, or restructure its business. This strategy can be difficult to implement, but it can ultimately help a company protect its financial stability.
2. Raise new equity capital by selling shares. This will help to generate cash that can be used to reduce debt.
3. Increase profits. By increasing profits, the company will be able to collect money to pay off its existing debts and increase the price of its stock.
4. Reduce operational costs. This can be accomplished through a variety of methods, such as reducing the number of employees, lowering salaries or cutting other expenses. While such measures may seem drastic, they can be necessary to keep the company afloat during difficult economic times.

Pros and Cons of Gearing Ratios

A gearing ratio is a handy tool for investors and lenders that helps them make more consistent decisions. However, just as with any tool, this indicator comes with its benefits and drawbacks.

Pros

The major advantage of gearing ratios is that they provide a quick and easy way to assess a company's leverage. For example, a high ratio may indicate that a company is highly leveraged and thus riskier. On the other hand, a low gearing may denote that a company has a strong financial position and is less likely to default on its debts.

Cons

When it comes to the disadvantages of using this ratio, one challenge is that different companies use different accounting methods, which can make comparisons difficult. Additionally, gearing ratios do not take into account important factors such as the interest rate on a company's debt or the maturity date of its debt obligations. Moreover, as mentioned before, it's necessary to understand that high gearing doesn't always indicate financial instability, especially for companies operating in high-risk industries.

Summing up, a gearing ratio is a powerful tool. However, it should be used in combination with other tools in an overall assessment of a company's financial health rather than as the sole indicator.

7

Digital asset bears preparing to hibernate

It's hard to characterise 2022 as anything but a total disaster for the crypto market at large. This time last year, Bitcoin was at all-time highs above $65,000 as fanboys and analysts alike were calling for prices above $100k in the months ahead. As we all now know, that couldn't have been any further from the truth. Since November 2021, Bitcoin has lost over 70% of its value and, as of 1 November 2022, sits at $20,418, paltry by comparison. For much of the year to date, the majority of other major coins and tokens had followed the same disappointing pattern, but then something totally unexpected occurred.

Crypto pack has a new top DOGE

While the original cryptocurrency was stuck trading sideways in a narrow range around its key support of $20,000, the Scrappy Doo of digital assets, Dogecoin, made an independent move against the Alpha Dog. Starting just a week ago, in late October, DOGE has managed to nearly triple in value, rising from a lowly $0.059 to a six-month high of $0.15. This huge upside momentum was also accompanied by a sizable increase in the coin's daily trading volume. According to Santiment, the exciting price action also coincided with a spike in the number of DOGE transactions exceeding $100,000. Taken together, these two indicators would suggest growing demand for Dogecoin tokens among whales. Even the Dogecoin spin-off Shiba Inu rose by 60% in a week amid the release of a gaming guide for Shiba Inu's Collectible Card Game. But what is behind this seemingly illogical moonshot by what have been derogatorily dubbed 'meme coins'?

The unmistakable musk of Elon

The established orthodoxy of the cryptocurrency market (if such a thing even exists) would tend to dictate that the Top 10 coins by market cap move more or less in lockstep with Bitcoin. At the very least, they are not expected to make 150+ percentage gains against BTC itself. It's no secret, however, that Dogecoin is a pet project of Tesla CEO Elon Musk, a man who is definitely capable of moving any market with a simple tweet. And that appears to have been precisely what sparked this latest DOGE/SHIBA rally. Following the long-awaited completion of his landmark Twitter takeover, the South African visionary pledged to introduce DOGE as a payment option for his controversial paid blue tick service. Thus, when Musk tweeted a titillating image of a Shiba Inu dog wearing a Twitter shirt beside a pumpkin with a Twitter logo carved into it, the message to the Dogecoin community was clear: Elon may soon make good on his promise.

In the Ether

This divergence in the crypto market's general trajectory isn't just limited to the unexpected rise of the two big canine coins. Ethereum is another major project that has been going against the grain to make solid gains against Bitcoin. Indeed, the market's second-largest project, Ethereum (ETH), has shocked investors' by climbing as high as $1,600 in last week's 20% rally. This outshines BTC's paltry 7% rise by nearly 300%. At its current level of $1587.27, Ether is now up around 40% from its July lows.

Meanwhile, Bitcoin has barely appreciated by 5% over this same period. Many analysts have attributed this bump in ETH to the project's migration over to a PoS model in the summer. Since making the switch, Ethereum's official net issuance has fallen from 3.6% to nearly 0%. However, data from IntoTheBlock suggest this indicator has actually dropped below zero, which would make Ethereum a deflationary coin. The cumulative reduction in the ETH supply could, therefore, drive the ETH price even higher in the future.

Release the bulls!

The question most crypto traders and investors are asking is: do these recent rallies mean that the end of the dreaded crypto winter is in sight? And while one swallow does not make a summer, the gains we've seen in several major coins of late would seem to tentatively suggest that a reversal could indeed be in the making. The missing piece of the puzzle right now does appear to be the original cryptocurrency. Whatever the community might say about utility and deflationary mechanisms, Bitcoin is still the number one digital asset and represents almost 40% of the $1.06 trillion market.

This being the case, we cannot talk about an official end to the bear market until we see some more convincing upward movement on the BTC chart. Nevertheless, it is encouraging to see other correlated projects moving independently on their own fundamentals, a defining feature of more mature asset classes. In any case, the fact remains that many digital currencies are available at relatively bargain prices, and any long-term HODLERs would do well to pick some quality coins up while they can.

Trade crypto CFDs with Libertex

Aside from CFDs on stocks, forex and commodities, Libertex also offers a wide range of cryptocurrency CFDs for traders around the world. With Libertex, you can hold long or short positions in over 100 digital currency pairs, including Bitcoin, Dogecoin and Ethereum. For more information or to create your very own trading account, visit www.libertex.com


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 87.8% of retail investor accounts lose money when trading CFDs with this provider. Tight spreads apply. Please check our spreads on the platform. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

8

Libertex joins its parent group in celebrating a quarter-century in the business

Today we join our parent group (Libertex Group) in celebrating a quarter-century of connecting ordinary people with the financial markets.

What began as a small business back in 1997, has grown into a diverse group of companies, serving millions of clients all over the world. Celebrating 25 successful years in the financial markets would not have been possible without the continued support and involvement of our loyal clients, partners and employees so THANK YOU all!

We remain focused on our commitment to always innovate and to offer nothing less than excellence! Here’s to many more years of success, more impact, more excitement, and more history!

#TradeForMore

9

Don’t take your foot off the gas

It doesn’t seem all that long ago that we were talking about an energy crisis the likes of which we’ve never seen before. As European gas prices peaked above €300 per MWh in August, the world was terrified of what carnage the heating season would wreak on already suffering consumers. But now, as the Old Continent prepares to dust off its radiators, futures in the precious fuel of natural gas are hovering around €100 per MWh, a level nobody would have predicted just a couple of months ago. And it doesn’t stop there. After at-the-pump petrol prices more than doubled, Brent oil is now down almost 30% from its annual high of $127.98. So, what factors are behind this seemingly illogical (albeit welcome) drop in fuel costs, and how can traders take advantage of this trend?

Climate change to the rescue

As serious as global warming may be, it might have just saved many Europeans’ bacon this year. The unseasonably mild autumn we’ve experienced thus far has meant that many households have not yet turned on their heating. At present, temperatures across Northwest Europe, which includes the continent’s biggest consumers Germany and France, are above the long-term average. Meanwhile, the latest forecasts call for further above-normal readings into early November. As a consequence of this, gas prices are expected to remain subdued for at least the next month. Naturally, this doesn’t mean the worst is behind us. Not by a long shot. Many experts have predicted an unusually cold winter to come. As such, when the inclement weather does arrive, there’s nothing to prevent gas prices from skyrocketing in the absence of a long-term resolution to the ongoing supply-side issues.

Full tank

Beyond the atypically warm weather, there are, of course, other factors at play. As prices were rising uncontrollably, Europe went on a buying spree to ensure it wouldn’t be left out in the cold come winter. As a result, the EU’s gas storage facilities are now at 93% capacity, which means that European governments simply have nowhere to put any additional natural gas they might wish to buy. And with the reduced consumer heating use, they aren’t even able to use up some of their existing reserves and replace them with this relatively cheap gas currently available.

All of this has meant that demand for natural gas is well below the average for this time of year, which is, in turn, pushing down open market prices. As such, we can expect the current downtrend to continue until the cold weather finally arrives. All in all, it appears as though the crisis everyone expected following the sabotage of Russia’s Nord Stream gas pipeline has been averted…at least for now. Given many European countries’ preparedness, a standard to mild winter could actually see prices avoid another spike and perhaps even fall slightly further.

What about the US?

With all this talk about Europe, it’s easy to forget that there are other key natural gas markets in the world. The US, for instance, is a major producer of the resource, and, with Russian gas likely to be a much smaller share of the energy mix this winter, prices across the pond have taken on special significance this year. US percentage price action has actually been quite similar to Europe’s, with gas now 40-50% cheaper than two months ago. The Henry Hub is currently trading at $5.17 per 1 million BTU (0.3 MWh), which is significantly cheaper than anything available in Europe right now.

Even after the recent dip, European gas is still almost 20 times the price of its US counterpart. If transporting it wasn’t so cost-prohibitive, we might have been able to resolve the energy crisis rather easily. For ordinary Americans, retail prices have increased over the past year or so, but it hasn’t been anywhere as dramatic as it has been for Europeans. US prices have been significantly higher than their current levels for almost ten out of the last twenty years, whereas the Dutch TTF is displaying prices that are around four times the average historical price per MWh. In an uncertain economic climate such as this, this reality is clearly unsustainable for the EU and will surely foster the political will for a resolution to the geopolitical conflict on its border.

Trade natural gas CFDs with Libertex

With ongoing political and economic instability around the world and a cold winter just around the corner, nobody can be certain as to where the energy markets are headed in the short-to-medium term. However, with Libertex, at least you can be sure you’ll have the possibility to trade gas-related CFDs long or short for maximum diversification. Libertex’s extensive range of CFDs includes the Henry Hub natural gas index for those who prefer to trade the underlying commodity directly. We also offer a wide variety of energy-related stock CFDs, such as Gazprom, Petrobras and Exxon Mobil. It’s completely up to you! Take advantage of tight spreads and low commission and trade at your convenience in our multi-award-winning app. For more information or to create your own account today, visit www.libertex.com


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 87.8% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

10

Pedal to the metals

The post-pandemic era has been characterised by both supply-side and demand-side deficits in a range of commodities. The prices of everything from fuel and energy resources to household goods and even industrial raw materials have been gradually driven up by inflation. One asset class has defied all logic these past two years, though: precious metals. Conventional wisdom and the historical record would dictate that gold and silver should have enjoyed huge gains during this protracted period of economic uncertainty and price pressure, but the reality is very different.

The two major precious metals are actually down over 10% from their January 2020 levels. While the whys and wherefores are certainly interesting, traders and investors are more interested in where they’re now headed. So, without further ado, let’s see what the technical analysis says about their likely future trajectory!

FED up with inflation

As we are all aware, price pressure has been worryingly high for some time now, which should translate to higher gold and silver prices. Unfortunately for gold bugs, though, central bank policy has seen things unfold very differently. The Federal Reserve has been battling inflation with a strong hawkish stance and multiple meaty rate hikes over the past year. After a succession of 0.75% increases, we are now hearing talk of a full 1% key rate hike to come before year end.

Following late September’s CPI report and Powell’s affirmations, gold dipped below its $1,700 an ounce support and has now fallen as low as $1,620. Analysts had spoken of the risk of a break below the key support between $1,680 and $1,675, with many predicting serious declines to as far as $1,500 if this level is breached. Now that this has come to pass, it could well signal the end of gold’s three-year bull market.

Dollar signs

If you’ve been following the forex market at all in recent weeks, you’ll know that the dollar has reached a historic parity with the euro. Apart from ravaging the competitiveness of US exports, this has resulted in soaring T-note yields. Bar the 10-year, every single US government bond now pays above 3%, and with a Fed firmly committed to hawkish policy, the only way is up from here.

For ease of access and liquidity, investors would much prefer to hold US dollars as opposed to gold or silver. That being the case, demand for precious metals is sure to suffer in an environment where the dollar is able to outperform most haven assets. As we await the latest euro area inflation data to see whether the ECB’s rate cuts have put a dent in inflation, we can expect a lot of volatility in the EURUSD pair. It would appear that the recently formed falling wedge pattern has fallen flat, and so a reversal in the near term is now unlikely. If the dollar does continue to strengthen against its major competitor, then gold and silver should expect the low demand for metals to persist.

The big picture

Short-term signals and technical patterns are, of course, invaluable tools for any trader or investor, but we ought to remain mindful of the “super-cyclical” nature of commodities, gold and silver in particular. They simply don’t play by the same rules as most other financial assets. Take the GFC of 2008 and the ensuing commodities bull market: stocks had hit their bottom and were almost back at pre-crisis levels a full year before gold hit its 2011-12 peak of $1,800, a level that is still within touching distance a decade later.

This goes to show that the precious metals cycle is frequently out of step with risk assets, and thus, declining stock prices can be viewed as a leading indicator of gold growth to come. Indeed, the IGCS shows that retail traders are currently distinctly long on gold, with 86% of traders currently holding long positions. The general consensus is that gold and silver prices will hold relatively steady at current levels until central bank policy or runaway inflation cause a severe break in the economy. Then, experience would suggest that we will see a precious metals bull market lasting at least 12-24 months.

Go for CFDs on gold with Libertex

Libertex offers trading in a vast array of CFD underlying assets, including precious metals like gold and silver. Libertex supports both long and short positions, and it has ultra-low spreads. For more information or to register your own trading account today, visit www.libertex.com/sign-up


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 87.8% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

11

Fade in China

Not too long ago, market analysts and economists were seemingly unanimous in their belief that this century would ultimately belong to China. The country's massive territory, population and industrial might would simply be unmatchable, they said. Surely, then, this should translate to huge stock gains for the companies driving this economic conquest. If this past year is anything to go by, it would appear not to be the case.

Chinese citizens returned from the Golden Week holidays this week to find both mainland and Hong Kong stocks down even further in what has become a relentless creep to ever-lower lows. Indeed, the Shanghai Composite (SSE) is down almost 20% YTD, while the Hang Seng has fallen a whopping 30% over the same period. But what is causing this apparent race to the bottom, and what can traders and investors do to protect or even grow their capital during these uncertain times?

Zero COVID = zero growth

We've no doubt heard all manner of stories of horror and absurdity associated with what has become perhaps China's most maligned policy. The most recent of these came just last month as overzealous lockdown enforcers prevented Chendu residents from evacuating their high-rise apartment blocks amid a 6.8 magnitude earthquake. However, nowhere has the impact of this misguided mantra been felt more than in the country's economy. Far from on target to reach its 5.5% annual growth target, Chinese GDP actually contracted 2.6% in Q3 2022.

Meanwhile, youth unemployment reached 19.3% in June of this year as many businesses put off hiring for new entry-level positions until the coronavirus uncertainty subsides. Like in the West, the tourism and leisure sectors have been completely decimated by the frequent city-wide lockdowns, and even tech and manufacturing have suffered due to the lower consumption this economic pain has entailed. Baidu (BIDU), for instance, has seen its online marketing business shrink by 6.5%, with Alibaba (BABA) experiencing the same decline. As a result, both of these big-name stocks are down 27% and 38% YTD, respectively.

Flaring geopolitical tensions

Between naval exercises and official visits to Taiwan, US-Chinese relations have become rather strained of late. Though US Secretary of State Antony Blinken reassured Chinese foreign minister Wang Yi that the US's 'One China' policy has not changed, it's easy to see how Beijing might interpret recent actions by Washington as signals to the contrary. In an escalation to the US-led trade war being waged on China, early October saw excessively draconian export controls introduced that will prevent Chinese companies from accessing the latest chip-making tools and components. The stated aim of this policy is to prevent China from developing next-generation AI technologies, and some have already dubbed it "an act of economic war". Now, the US has been restricting the sale of certain components to the likes of SMIC (down almost 20% YTD) since 2020, but these new regulations have tightened the vice even further.

Given that Biden has not ruled out providing military aid to Taiwan should it choose to declare independence, we cannot dismiss the possibility of an all-out proxy war in the future. Indeed, in a phone call with President Biden, Xi Jinping made clear that "those who play with fire will perish by it".

Where do we go from here?

While things may look bleak from here, it's far from all doom and gloom for the world's second-largest economy. The recent performance of the country's biggest consumer tech firms may look terrible now, but the good news is that the potential upside for the likes of Alibaba, Baidu and Tencent is virtually limitless. At their current prices of $75, $103 and $32, respectively, the ADRs of these Asian giants are sitting at levels visited in the early-to-mid 2010s. While there are fears of delisting to contend with, all of these companies are major players in future industries like cloud computing and AI, which one feels will have to generate positive economic results at some point down the line.

Also, as powerful as US sanctions are, they are much less effective against China. After all, China has a domestic market of over one billion people and maintains good relations with another similarly sized market in India. Chip sanctions, in particular, have actually seen SMIC's business grow, not shrink, with demand rising from within China and developing nations to plug any gap left by the US. With all of this in mind, we could well look back on these stock prices as generational buying opportunities in a decade. Only time will tell.

Trade CFDs on Chinese stocks with Libertex

Libertex is a well-known broker that offers both long and short positions on such CFDs as Alibaba, Tencent, Baidu and the iShares China Large Cap ETF, so you can have your say wherever you think the Chinese market is headed. Libertex also offers a wide range of CFDs on commodities, currencies, options and even crypto if your interest in stocks is quite low. For more information or to create an account of your own, simply visit www.libertex.com


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 87.8% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

12

What Is Equity: A Complete Guide

Equity, also referred to as shareholder equity, is one of the most common terms in the financial markets that almost every investor or trader has come across at least once. But what does it mean? In simple words, equity trading is the process of buying and selling company shares on stock exchanges or over the counter (OTC), usually through a broker.

In this guide, we'll break down what equity is, provide you with a formula for calculating it yourself, describe various forms of equity and explain everything with examples. We will also dive deeper into equity trading, covering the most common trading instruments and outlining their peculiarities. So let's get started!

What Is Equity in Trading?

Equity is a financial asset that represents ownership in a company. When investors buy company shares, they become stockholders and take total ownership over them. It also means that equity investors can have voting rights and gain extra return on their investments through dividends or capital growth.

1. Dividends are periodic payments that are made to shareholders out of the profits of the company. For example, if a business generates $100 in profits per share, and the board of directors decides to declare a dividend of $0.50 per share, each shareholder would receive $0.50 for each share that they own. Dividend payments also depend on the size and economic state of a company. Generally speaking, large and well-established entities pay out higher dividends than small businesses with a more limited budget.
2. Capital growth is the increase in the value of the share over time. For example, if you purchase a stock for $10 per share, and its price increases to $12 per share, you have made a capital gain of $2 per share. Capital gains can be realised when the asset is sold or through the payment of a stock dividend.

However, it's important to note that the stock market sentiment can be not only positive, making prices go up, but also negative, resulting in the stock value dropping. Thus, just as with trading any financial instruments, such adverse price movements can lead to losing money.

How Does Shareholder Equity Work?

Shareholder equity, also known as stockholders' equity or stockholders' funds, is the portion of a company's stock that is owned by shareholders. It represents the residual value of a company's assets after liabilities are paid. Knowing how shareholder equity works can help you make informed investment decisions. So, let's have a closer look.

There are two possible ways a company can gain capital. It can issue debt through various liabilities or issue stock, thus creating shareholder equity. For example, if a company has $100 million in assets and $50 million in liabilities, it has $50 million in equity. Shareholder equity can be used to finance operations, buy assets or expand the business in general.

It's worth mentioning that equity can influence the price of the stock. For example, if a company announces plans to issue new shares, the stock price may decrease because the value of each share will be diluted. Conversely, if a company buys back its shares, the stock price may increase because there are fewer shares outstanding.

Shareholder equity combined with fundamental analysis can also be a helpful tool for understanding a company's financial health.

- Positive equity indicates that a company's assets are worth more than its liabilities. Such entities are considered to be financially sound and stable, implying less risk.
- Negative equity means that a company's liabilities exceed its assets. Such a business would be seen by traders as a significantly riskier investment.

How to Calculate Shareholders' Equity: Formula to Use

Shareholders' equity can be calculated by subtracting the portion of the assets that are owned by creditors from the total value of the assets. The ratio formula will look as follows:

Shareholders' Equity = Total Assets - Total Liabilities

What Are the Most Common Components of Equity

Shareholders' equity can be divided into subcategories. Some of them include common stock, retained earnings and treasury stock.

- Common stock represents the portion of the equity that is held by common shareholders.
- Retained earnings represent the portion of the equity that is held by the company itself instead of being paid out to shareholders as dividends. They can be used to finance expansion and improvement projects that can make a company more valuable and increase the price of its stock. In addition, retained earnings can provide a buffer against tough economic times, allowing a business to weather downturns without having to cut dividend payments.
- Treasury stock is shares of a company's stock that are bought back by the entity and held in its treasury. They are not outstanding shares, which means they cannot be traded or sold. The main reason companies buy back their stock is to increase the value of the remaining shares by reducing the number of shares available on the market. This often happens when a company believes its stock is undervalued and wants to invest in itself. Another reason for treasury stock repurchases is to have more control over voting rights within the company. By reducing the number of shares available, the existing shareholders have more power per vote.

Example of Shareholder Equity

To find out the number of total assets and total liabilities of a company, it's necessary to open its balance sheet. Let's take the example of Amazon.com, Inc. According to the company's 2021 balance sheet, its financials are as follows:

Total assets: $420,549
Total liabilities: $282,304

Thus, the shareholder equity will be:

Shareholder equity = $420,549 - $282,304 = $138,245

Common Types of Equity Investment Trading Instruments



Equity trading comes with different options of financial instruments traders may use. Some common of them include stocks, mutual funds, and exchange-traded funds (ETFs). Each of these has its own set of benefits and risks, so it's important to understand the differences before making any decisions.

1. Stocks represent ownership in a specific company. When you buy shares of stock, you become a partial owner of that business. As such, you are entitled to a portion of the company's profits (if any) and have the ability to vote on corporate matters. However, investing stocks implies high volatility, meaning that the asset value can go up or down rapidly. This makes them a risky investment, but one that can offer high rewards if timed correctly.
2. Mutual funds are another type of equity trading. Rather than owning shares in a single company, mutual fund investors own shares in a pool of companies. This diversification can help to mitigate some of the risk associated with stocks, but it also typically leads to lower returns.
3. ETFs are similar to mutual funds since they offer diversification and can help limit risks. However, just like stocks, this financial instrument provides equity traders with more flexibility in buying and selling.

Equities vs Stocks: What Is the Difference in Simple Words?

Equity simply refers to the value of ownership in a company. This can take the form of common, preferred or any type of security representing direct ownership. In contrast, stocks refer to the actual securities themselves. In other words, they are a type of equity. So when people talk about buying stocks, they are referring to buying equity in a company. However, the terms are often used interchangeably because they both represent ownership in a company.

Explanation of Options vs Equity Trading

Options and equity trading are two very different concepts. When trading equity, an investor buys and sells shares of a company on the stock market. When trading options, an investor is buying and selling the right to buy or sell a security at a specific price within a specific timeframe.

In contrast to equity trading, trading options come with lower risk limits. This is because you are not buying or selling the security itself but only the right to do so. Options are also considered more complex instruments than equities. There are a variety of different options and strategies that can be used to gain potential returns, and it can take considerable time to learn them. Equity trading, on the other hand, is relatively simpler. You buy shares of a company when you think they will go up in value and sell them when they do.

What Are Social Trading Equities?

Social trading is a method of investing in which traders share information and strategies with each other in order to make better investment decisions. This type of trading has become increasingly popular in recent years as it allows investors to benefit from the group's collective wisdom. In addition, social trading can help to reduce the high risk of losing money by allowing traders to learn from each other's mistakes.

Trading Equities vs Forex: What Is the Difference?

Both forex and equity trading involve buying and selling assets to make a profit, but there are some key differences between the two.

Forex trading is conducted on the foreign exchange market, where currency pairs are traded. Equity trading, on the other hand, takes place on stock exchanges and involves the buying and selling of stocks. Some common equity markets include the New York Stock Exchange (NYSE), the London Stock Exchange and the Nasdaq.

Another key difference is that forex pairs can be traded on a 24-hour basis, while equity trading takes place during regular business hours. Last but not least, the forex market is often considered to be more volatile than the equity market, which means that there is more potential for profits but also more risk.

Сash Equity Trading

Cash equity trading is another popular technique used on the stock market. It involves buying and selling larger shares of stock to make more significant returns from the changes in the stock prices. This strategy is mostly implemented by institutional investors rather than retail investors since it implies more capital outlay and higher risks.

Trading Leveraged Equity

Leveraged trading implies that an equity trader uses borrowed money to buy or sell securities. The purpose of using leverage is to increase the potential return of an investment. However, it's crucial to remember that it also increases the potential risk of loss.

Leveraged equity can be either long or short. A long trade implies that an investor buys securities expecting that their price will go up. A short leveraged equity trade is when an investor sells assets that he doesn't own in the hope that their price will go down so he can buy the securities back at a lower price and make a profit. To execute a leveraged trade, an equity trader must have a margin account with a brokerage firm.

One of the possible instruments allowing for leverage when trading equities is CFDs. They allow investors to trade equity without entering into direct ownership over it. Moreover, when trading CFDs, you open a leveraged position, meaning that you don't need to outlay the total position value; your broker will provide you with some capital to enter the trade.

It's crucial to remember that leverage is a double-edged sword. It can significantly magnify your profits and lead to drastic losses in your trading account. For example, if you open a position with 5:1 leverage and the asset increases in value by 10%, your account will increase in value by 50%. However, if the asset decreases in value by 10%, your account will decrease in value by 50%.

It's important to understand that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Therefore, once you decide to start CFD trading, make sure you have sufficient knowledge and skills in this sphere.

Other Forms of Equity



Private Equity

Private equity is a type of investment that involves the purchase of shares in a privately held company. Private equity traders typically hold these shares for some time and then sell them, often through an initial public offering (IPO). This form of equity can be a riskier investment, but it can also offer higher potential returns.

Home Equity

Home equity is the portion of a property's value that is owned by the homeowner. For example, if a home is worth $300,000 and the homeowner still owes $200,000 on the mortgage, they have $100,000 in home equity. Homeowners can sell their equity or use it as collateral for a loan which can be a useful way to finance home improvements or consolidate debt. However, it also comes with some risks. If the value of the property decreases, the borrower could end up owing more than the value of their home.

Brand Equity

Brand equity stands for the value of a company gained from its name recognition. Strong brand equity can give a company a competitive advantage, while weak brand equity can lead to decreased sales and market share. This type of equity can be measured through consumer surveys, focus groups, and other research methods.

Equity vs Return on Equity

When it comes to business, there are two ways to look at profitability: return on equity (ROE) and equity. ROE measures how much profit a company generates with the money shareholders have invested. Equity, on the other hand, is a company's net worth or the difference between its assets and liabilities.

How Can Investors Use Equity?

For most investors in the financial market, the equity market is a crucial concept. For example, an investor can evaluate a company and decide if a specific purchase price is too high or not. This can be done by using the shareholders' equity as a criterion to determine the fluctuation of an asset's value.

Moreover, if a company has historically traded at a specific price-to-book value of 1.5, an investor may be hesitant to pay a larger amount than that. However, if investors believe that the company's prospects have significantly improved, that may also change their perspective on it. Conversely, an investor may feel comfortable purchasing shares in a relatively weak business if the price is sufficiently low relative to its equity.

What Factors Affect the Cost of Equities?

According to the results of economic indicators, various factors may affect the cost of equities. Such factors can either be internal or external and can play a significant role in the shares' price. Most businesses compose yearly financial tables where they provide data about the results of their yearly activities. If there is a positive outcome and it is expected that the company will continue developing, this will have an equal impact on the shares' price.

Moreover, the future performance of the general economy is also a very important factor that can affect a stock's price. As with similar assets, the cost of equities will grow if there are favourable economic conditions. Conversely, if the financial situation deteriorates, the demand for equities will drop. This can be another factor, along with the market sentiment, that can affect the stock prices.

A very popular way that is used to measure the general performance of equities is considered to be the stock market index. Depending on the country, region, and industry, the indices may vary. For example, the FTSE 100 is an indicator used in Great Britain and monitors the performance of the 100 largest and most well-established companies in the UK, depending on their market capitalisation.

What Are the Risks of Equities?

As with all financial tools, buying or selling equities comes with risks, and some of them may lead to a partial or total loss of capital. For instance, it is considered less risky if a trader chooses to deal with equities that are connected with economically strong countries rather than those that come from developing ones. This is why strong and stable economies are considered less volatile and with higher market liquidity.

In some circumstances, wealthy investors may provide small businesses with venture capital. This can either help the company push its stock price higher, leading to profitable returns, or it may cause considerable risks and lead the business to perform poorly.

Some risks may be mitigated to a specific level, while others may be unavoidable. For instance, trading CFDs on equities or even spread betting can lead traders to maximise their losses. Despite that fact, understanding the meaning of trading on equity can help you wisely diversify your trading portfolio. Thus, any decisions should be made after in-depth research of a company's fundamentals.

Last but not least, choosing to invest in shares that belong to companies from different sectors or even geographical regions is a great way to diversify your portfolio. If, for instance, equities in a region or sector start to perform poorly, the shares that come from other sectors may stay unaffected. Such an example can be a global crash that can influence the general state of the economy.

Conclusion

Equity trading is a popular way to invest in the stock market because it offers the potential for high returns. However, it is considered a rather risky type of investment. If a company's stock price decreases, you could lose money rapidly from your investor account.

Therefore, if you decide to become an equity trader, make sure you have a clear understanding of how this instrument works, develop a robust trading strategy, find a secure and feature-rich trading platform, and continuously educate yourself on market trends and various technical and fundamental analysis tools.

13

Golden days of yore


For millennia, gold has been prized as a store of value. It was made into jewellery, ornaments, bars and coins, and until the mid-20th century, many of the world's biggest economies used it to back their national currencies. But why did and do we hold this yellow metal in such high esteem? Apart from being malleable and pretty to look at, the practical uses of gold and silver were only discovered well after the Industrial Revolution. Nonetheless, culture after culture has mined, hoarded and gone to war over it.

Nobody really knows exactly why gold and silver are considered so precious. They might well have little inherent value, but they have been able to match inflation throughout much of recorded human history, which is quite a feat in itself. This makes them a wise consideration for anyone looking to put together a balanced investment portfolio, particularly during times of economic uncertainty and high inflation, such as we are currently experiencing. The tricky bit is how to decide on a sound weighting for the specific financial environment and how to spot a trend reversal in time.

A short trip down memory lane

For many traders and investors at their peak today, the pain of the 2007-08 global financial crisis (GFC) is just as vivid now as it was at the time. We will all have seen how apparently safe-bet investments were wiped out over a very short period of time, causing unspeakable economic hardship for countless people.

However, there was one asset class that absolutely exploded in the wake of the GFC, and that was gold. As stocks and bonds burned, the yellow metal rose from $500 an ounce in early 2007 to a peak of $1800 in late 2011. Steady gains of 100% per year are thought of as unusual, even in revolutionary growth stocks, but it's a total anomaly for commodities. Having seen how well XAU/USD did in these recent crisis times, most investors and even some traders are convinced that their allocations should be increased during Black Swan events and periods of hyperinflation.

No time like the present

The pandemic and subsequent financial insecurity have now given us a more recent crisis against which to measure precious metals' performance, and the results of this analysis show the vital importance of wider context. Gold started 2020 at around $1550, while silver began the same year at just $18 an ounce. Both managed to make strong gains above 30% over the initial pandemic period but have now settled down to somewhere around 10% higher than their January 2020 levels.

Given the complete novelty of the coronavirus crisis, these sub-inflation increases appear extremely underwhelming. When we look a little closer, though, we see just how many factors are at play. In this crisis, the entire world stopped functioning, which inevitably meant less industrial demand for these metals. Second, ultra-low interest rates and active quantitative easing by central banks meant that stocks and crypto were much more attractive to a new breed of investors. Now, as interest rates rise, other 'safe havens' like US Treasury bonds and the US dollar itself are taking increasingly more capital away from 'unfashionable' precious metals.

Back to the future

As we have already touched upon, gold has traditionally performed exceptionally well during times of high inflation and economic uncertainty. However, the past year or two have been less than impressive, given the circumstances. Though the causes are multiple, interest rates have certainly played a role. The ultra-dovish climate leading into this crisis meant that, as the US Federal Reserve began sharply increasing interest rates, the dollar strengthened rapidly against virtually all the majors. Naturally, the US dollar is a safe harbour in itself and one that is much more liquid than gold or silver.

The view many investors took was that it is better to have USD on hand to buy more assets when prices crash than to park it all in precious metals, particularly when the greenback is more or less outperforming inflation for anyone outside the US. Yet, if inflation proves much less transitory than first believed, we could well see demand for gold increase steadily. Numerous pundits had predicted that the latest inflation data would show a significant retreat in price pressure. But now that this dream has been well and truly dashed, we could soon see stable inflows into gold and silver.

Trade CFDs on precious metals with Libertex

With many years of experience, Libertex is a broker with a historical pedigree. We offer a wide range of underlying CFD assets, including gold, silver and even several mining stocks. Because Libertex offers both short and long positions, you can have your choice, no matter which direction you think the market is headed. For more information or to register an account of your own, visit www.libertex.com/sign-up


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 62.2% of retail investor accounts lose money when trading CFDs with this provider. Tight spreads apply. Please check our spreads on the platform. Available for retail clients on the Libertex Trading Platform. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

14

Top 5 undervalued stocks CFDs right now

During the pandemic, we saw some of the most vigorous equities growth since the 1920s. A great number of companies had their valuation treble, quadruple or increase even more over a period of mere weeks. The last 10 months, on the other hand, have been a bloodbath on the tech indices. Now, many of the darlings of 2021, having been brought back down to Earth with a bang, have lost up to and beyond 90% of their value since November 2021.

But wherever there is panic and confusion, there is also potential opportunity. As Baron Rothschild put it: "the time to buy is when there's blood in the streets". So, which quality assets are currently on sale, and where can we find them? Let's take a look at Libertex's Top 5 CFD Bargains of 2022 and see!

5. Salesforce

Our first nomination is a stock that made more than a few headlines during the pandemic boom. This cloud-based software company is known for providing customer relationship management software and applications focused on sales, customer service, marketing automation, analytics and app development. Of course, these areas were of special import during the lockdowns and the Work From Home revolution and that 'new normal' definitely contributed to the overexuberance that saw the company's share price double to over $300 in the space of a year. But now that it has crashed back by almost exactly 50% to $156.90, many people question whether this might be a bit too large of a correction for a firm at the forefront of their segment and with visibly strong macro tailwinds, such as the projected growth of distance working as a way of life and the trend towards automation of many sales roles in the future.

4. Netflix

This household name has successfully managed to cement its position as the world's go-to streaming service, which takes some serious doing. VOD was naturally another industry that benefited massively from the coronavirus pandemic, and perhaps the unbridled optimism of many buyers helped create a bubble that inevitably burst once reality set in. NFLX is currently down about 65% from its November 2021 all-time high and is trading at around $227 at the time of writing on September 9. Amid hot competition from the likes of Amazon Prime and Disney squeezing subscriptions, the original streaming service has invested huge capital into developing its own studio arm. With the associated influx of top-tier original content, Netflix will be able to reduce its royalties costs over the long-term while also being able to offer consumers exclusive movies and series that will likely boost membership figures over time. Gains are unlikely to be as spectacular as they were in 2020-21, but stable growth rarely is.

3. Tencent Holdings

Any list of knockdown stocks wouldn't be complete without at least one entrant from China. The world's second-biggest economy has suffered greatly both as a result of the zero-COVID policies of the country's leadership as well as from the knock-on effects of reduced global durable goods demand and rising raw materials costs. Tencent Holdings is generally referred to as 'The Chinese Google', but the 25-year-old tech giant is much more than just a copycat. Apart from its core QQ and WeChat social media apps, the company is involved in music streaming, web portals, e-commerce, technology, internet services, payment systems, smartphones and even gaming. This Hong Kong-based stock is now trading at HK$ 307, down from an all-time high of HK$757 in February 2021. That represents an almost 60% discount on this recent peak. In fact, Tencent is currently trading at a lower price than it was 5 years ago in September 2017. Considering how much growth it has experienced since then and how much room it has to expand in both China and the rest of Southeast Asia, many feel as though this current level is more than fair value for such a prolific and future-proof business.

2. Robinhood

Outside of the tech sector, there weren't many sectors that experienced a comparable level of growth over the pandemic period as trading and investing. Young people all over the world took their government stimulus checks and furlough payments and decided to put them to work for them. And where did most of them turn? Robinhood. So, when the online trading and investing platform finally went public in 2021, interest and hubris were so high that the quite high IPO price of $35 was quickly driven up to nearer $60. Over the ensuing months, however, the hype surrounding the company quickly faded, and many investors realised that the initial multi-billion-dollar valuation was probably a bit too ambitious. Then, tech stocks began to crash hard, and this saw millions of capital flow out of the platform over a short period. At its current price of $10.35 (over 80% down from its all-time high), Robinhood looks like a solid investment for the years ahead. After all, it remains the front-of-mind option for US-based retail investors, and that has to count for something.

1. Marathon Digital Holdings Inc.

It's unsurprising to see a crypto-themed instrument topping the list, given the huge declines in digital assets this year. But Marathon Digital Holdings is not any old cryptocurrency miner. With a market cap of $4.2 billion, the company accounts for over a quarter of the value of the entire crypto-mining industry. Marathon has pledged to have 23.3 EH/s hashrate capacity installed by early 2023, which would dwarf the planned 8.6 EH/s upgrade of its closest competitor, RIOT Blockchain. If we accept that cryptocurrencies and the blockchain are here to stay, then it's clear that Marathon Digital Holdings is a strong and stable miner play over the long term. As is the case with any market crash, the crypto bust has dragged down not only the chaff but also the wheat. After plummeting nearly 90% from its all-time highs, MARA currently sits at $13.26 but enjoyed two consecutive double-digit growth days last week. Some are calling this a sign that the reversal is already underway.


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 62.2% of retail investor accounts lose money when trading CFDs with this provider. Tight spreads apply. Please check our spreads on the platform. Available for retail clients on the Libertex Trading Platform. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

15

Introduction to the valuation of stocks: how to choose the best valuation method

Investors often erroneously assume that a large company means it deserves a large investment. Finding solid companies is crucial in the investment process, but it's equally important to determine the value of these stocks.
Your goal as an investor should be to find wonderful businesses and invest in them at reasonable prices. If you avoid confusing a large company with being automatically worthy of a large investment, you'll already be ahead of many fellow investors. And that's where the valuation of stocks comes into play.

Valuation is the first step toward smart investing. When an investor tries to determine the value of stocks based on fundamental factors, it helps them make informed decisions about which stocks to buy or sell. Conversely, if a stock doesn't have fundamental value, investors find themselves adrift in a sea of random short-term price movements and visceral sensations.

For years, the financial establishment has promoted the misleading notion that the valuation process should be reserved for experts. But it's not an arcane science that only MBAs and CFAs can practise. With only basic maths skills and some diligence, any investor can determine the values of the best stocks.

Before you can assess a stock, you have to know what a share is. This part of the stock is not a magical creation that flows like the tide. Rather, it's the exact representation of partial ownership in a publicly listed company. For example, if XYZ Corp. has 1 million shares in circulation and you have a single and solitary share, that means you own one-millionth of the company.

Why would someone want to pay you for your millionth? There are quite a few reasons. There will always be someone else who wants one-millionth ownership in the company because they want one-millionth of the votes in a shareholders' meeting. Although the single share here is small in itself, if you combine that millionth with approximately 500,000 of your friends, you suddenly have a majority interest in the company. That means you can make it do all sorts of things, like paying dividends or merging with your company.

Companies also buy shares in other companies for all kinds of reasons. Whether it's via a direct acquisition, in which a company buys all of another company's shares, or a joint venture, in which the company normally buys enough from another company to win a seat on the board of directors, shares are always on sale. The share price translates into the company's worth. This information allows other companies, public or private, to make smart business decisions with clear and concise information about what the shares of another company could cost them.

A portion of the shares is a substitute for the company's shareholders' share in the revenues, profits, cash flow and capital. For an individual investor, however, this usually means worrying about the part of all the numbers that you can get in dividends for as long as the company authorises them. Partial ownership also entitles you to a portion of all dividends. If a company doesn't currently have a dividend yield, there is always the possibility that it may at some point in the future.

Stock Valuation: Basic Concepts



Companies have an intrinsic value based on the amount of free cash flow they can provide during their effective life. However, money in the future is worth less than money now due to inflation, so future free cash flows should be discounted at an appropriate rate.

The theory behind most stock valuation methods is that a company's value equals the total value of all future free cash flows. All future cash flows are discounted due to the decreased value of money over time. If you know all of a company's future cash flows and have an objective rate of return on your money, you can know the exact amount of money you should pay for that company.

However, stock valuation is not so easy in practice because we can only estimate future free cash flows. This valuation approach, therefore, is a mixture of art and science. If we know exactly how much cash flow would be generated, and if we have a known rate of return, we would know exactly what to pay for a dividend stock or any company with positive cash flows, regardless of whether it pays dividends or not. However, the inputs are only estimates and require a degree of skill and experience to be precise.

Three Major Stock Valuation Methods



Many valuation metrics are easily calculated, such as the benefit/price ratio, the price-to-sales ratio or the reserve price. But these numbers only have value in the context of some other form of stock valuation.

The three main stock valuation methods to evaluate a healthy dividend stock are explained below.

Discounted Cash Flow Analysis

The first method, discounted cash flow analysis, treats the company as a large free cash flow machine. We analyse the company as if we bought it all and kept it indefinitely for all of its future free cash flows. If we estimate the value of a company, we can compare it with the company's current market capitalisation to determine if it's worth buying or not. Alternatively, we can divide the total value by the total number of shares and compare this value with the real share price.

Dividend Discount Model

The second method, the dividend discount model, views an individual share as a small free cash flow machine. The dividends are the free cash flow since that is the cash investors receive. In the example of the entire company, a company could spend free cash flows in dividends, buy back shares, perform acquisitions or simply let them accumulate. The point is that investors have little control over what the company's management decides to do with its cash flows. A dividend, however, takes all this into account because the current dividend and the estimated growth of that dividend take into account the company's free cash flows and how management uses those free cash flows.

Multiple Profit Approach

The third method, sometimes called the multiple profit approach, can be used regardless of whether the company pays dividends. The investor estimates the future earnings over a certain amount of time — for example, 10 years — and then places a multiple of hypothetical gains in the estimated final earnings per share (EPS) value. Then, the accumulated dividends are taken into account, and the difference between the price of the current shares and the total hypothetical value at the end of the period is compared to calculate the expected rate of return.

If you want to make an educated estimate about whether a stock's price will go up but don't know how to calculate the valuation of the company's shares, don't be discouraged. Try our free demo account, where you can practice everything you want before moving on to trade and invest with real money.

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