Trading Glossary | TradeTips

Trading Glossary

– A –

Abandon – To not to exercise or sell an option. An investor usually chooses abandonment when the option is out-of-the-money on the expiration date.

Above Par – The current price above face value. This generally occurs when the coupon paid on the bond is higher than the market interest rate for similar securities. If the investor purchased the bond above par, he/she will suffer a capital loss upon the Bond’s maturity since it will only be redeemed at face value.

Accounts Payable – The company’s current liability owned to creditors for goods and services obtained during the normal course of business.

Accounts Receivable – Current assets owed to the company for services or goods sold on credit.

Accreted Interest – The difference between par value of a zero coupon security and its original purchase price. Also known as original issue discount.

Accrual Bond – A bond which is sold at a deep discount to its face value, and pays no coupons. Accrual bonds tend to be illiquid, and very sensitive to changes in interest rates. Although there is no actual cash flow of interest, the imputed interest on an accrual bond is taxable as it accrues under U.S. tax laws.

Accrued Interest – The amount of interest the buyer owes the seller on transactions of fixed income securities, such as most bonds and notes.

Accumulation Bond – A bond sold at a price below its face value and can be redeemed at its face value when matured. Also called discount bond.

Acquisition – The act of acquiring control of another corporation, by either stock purchase or exchange. This can be achieved either through hostile or friendly means.

Active Management – The constant supervision of a portfolio’s holdings to maximize gains. Active management by fund managers is one of the benefits of a mutual fund.

Address – The headquarters address of the company as provided in the latest SEC filings.

ADR – See American Depositary Receipt.

ADS – See American Depositary Share.

Advanced Option – Complex option strategies. See Spread Order, Straddle, Strangle, Buy/Write, Sell/Write, and Unwind.

Adviser – The firm primarily responsible for a fund’s day-to-day operation.

After-hours Trading – The buying and selling securities when the major markets are closed. After-hours trading was once a privilege of institutional investors, individual investors can now participate. Stocks are traded after hours on ECNs, which match buyers and seller with a computer system in order to execute trades.

Aftermarket – Markets in which an investor purchases a security from other investors rather than the issuer, subsequent to the original issuance in the primary market. Also called secondary market.

Agency Security – The bills, notes, and bonds issued by agencies of the federal government.

Aggressive Growth Funds – Mutual funds that focus on small-company stocks, the fund’s high level of risk is justified by potential for accelerated earnings.

All-or-None (AON) – The type of order instructing the execution of the entire order quantity at the stated price (or better), or none of it. This prevents partially filled orders. The difference between All-or-None and Fill-or-Kill is that the AON order is left open if the entire order quantity cannot be filled, whereas the FOK order will be cancelled.

Alpha – The measure of a fund’s risk-adjusted return. Alpha is derived by compares the fund’s actual returns and the expected returns as determined by its level of risk (beta). A positive alpha indicates the fund has performed better than expected, while a negative alpha indicates the fund has underperformed.

American Depositary Receipt (ADR) – The negotiable certificates held in an U.S. bank representing shares of a foreign stock traded on an U.S. stock exchange.

American Depositary Share (ADS) – The shares issued under an ADR agreement, which is actually traded.

American Stock Exchange (AMEX) – A major stocks and options exchange located at 86 Trinity Place, New York.

American-Style Option – An option contract that can be exercised at any time between the date of purchase to expiration. Most exchange-traded options are American-style.

AMEX – See American Stock Exchange

Amortization – The gradual elimination of a liability, in regular payments over a specified period of time. Such payments must be sufficient to cover both principal and interest.

Annual Percentage Rate (APR) – The total cost of a loan per year, including both interest charges and most or all fees.

Annual Percentage Yield (APY) – The total income an investment earns per year. The APY generally represents the total earnings of a cash account such as a money market fund or savings account, or be part of the returns from stocks and bonds, which can also experience capital growth.

Annual Report – The audited report of a corporation’s year-end financial results and operations filed annually with the SEC. The report contains information on the company’s financial condition, legal liabilities and future plans. Shareholders may obtain a free copy of the Annual Report from the corporation.

Annual Report (Mutual Fund) – A report that gives an overview of a fund’s performance and operations. SEC requires funds to distribute the report to shareholders at least semiannually.

Annualized Returns – The return on an investment over a specified number of years, calculated as what an investor would have received each year if the cumulative return were distributed evenly over each year within the specified time period.

AON – See All-or-None.

Appreciation Funds – Types of funds that invest in stocks whose value is expected to increase significantly.

APR – See Annual Percentage Rate.

APY – See Annual Percentage Yield.

Arbitrage – Profiting from differences in the price of a security that is traded on multiple markets.

Arms Index – TRading INdex (TRIN) – A market indicator used in technical analysis, calculated as follows: Arms Index = ((# of advancing issues / # of declining issues) / (Total up volume / Total down volume)). A value of less than 1 is considered bullish, greater than 1 bearish.

Arrearage – The overdue interest or dividends of a bond or preferred share.

Asian Funds – A fund that targets primarily the stocks of companies located in Asia. These funds appeal to investors who are bullish on the potential of Asian companies, and want to capitalize on that growth.

Asian Option – An option whose payoff depends on the average value of an underlying security over a specified period.

Ask (Asked Price) – The lowest round lot price at which a broker will sell a security.

Ask Price (Mutual Funds) – Also known as the offering price, the ask price is the price at which a mutual fund’s shares can be bought. The ask price is calculated by adding a fund’s current net asset value per share to its sales charges, if any.

Assignment – The receipt of an exercise notice by an options writer that requires him to sell (in the case of a call) or purchase (in the case of a put) the underlying security at the specified strike price.

Assessment Bond – Municipal bond used for specific projects, to be repaid using tax proceeds collected from those who benefit from the project. Also called special-purpose bond.

Asset Allocation Funds – Funds that seek to provide an optimal mix of stocks, bonds and cash at any given time.

At-the-Money – An option is at-the-money if the strike price of the option is equal to the market price of the underlying security. For example, if a company’s stock is trading at $68, then the company’s $68 option is at-the-money.

Auction (Treasury) – The issuance of new Treasury bills, notes, and bonds at stated intervals by the Federal Reserve.

Auction Market – A market where buyers and sellers enter bids and offers simultaneously, such as the New York Stock Exchange.

Automatic Investment – A shareholder service that allows the periodic transfer of a preset amount from the shareholder’s bank account his or her mutual fund account.

Average – Also known as an index, it is the mathematical calculation that indicates the value of a group of securities. Some of the most famous averages include the Dow Jones Industrial Average (DJI), Standard & Poor’s (S&P) 500, and the New York Stock Exchange Composite.

Average Life – An estimate of the time to maturity for a pool of mortgage-backed securities.

Average Maturity – The average time to maturity of securities held by a mutual fund. Changes in interest rates have greater impact on funds with a longer average life.

Average Volume – Average volume is calculated by dividing the total volume for the previous three months by the number of trading days in the period. Compare this number to the daily volume to see if interest in the security has increased or decreased.

Away From the Market – On a limit order, a buy order which is lower than the current market price, or a sell order which is higher than the current market price. These orders are held to be executed later, unless they are of the fill-or-kill type.

 

– B –

Baby Bond – A bond with a face value smaller than $1,000.

Back-End Load – A special percentage charge assessed when mutual fund shares are redeemed.

Balance Sheet – An accounting statement reflecting the firm’s financial condition in terms of assets, liabilities, and net worth (ownership). The sum of the left side (assets) must be equal to that of the right (liabilities + shareholders equity), balancing both sides of the statement.

Balanced Funds – Mutual funds that invest in both stocks and bonds in an attempt to provide investors with growth and income.

Banker’s Acceptance – A short-term credit investment created by a non-financial firm and guaranteed by a bank as to payment. Acceptances are traded at discounts from face value in the secondary market, and are popular among money market funds.

Bankruptcy – The financial state of being unable to pay debts. Federal bankruptcy laws provide for either the reorganization or liquidation of corporate business and assets to pay some creditors.

Basis – The total cost an investor pays to acquire a security or asset. It is used to determine capital gains or losses when the asset is sold.

Basis Point – One hundredth of one percent, or 0.01%.

Bear – A pessimistic investor who believes a stock or the overall market will decline.

Bear Market – A market in which prices of securities are generally declining.

Bear Raid – A situation where traders sell short a security, attempting to drive the price lower.

Bearer Securities – Securities for which no register of ownership is kept by the issuer. Dividends or interest payments are not received automatically but must be claimed by clipping and returning the coupons attached to the certificate.

Benchmark Index – Indicators used to compare and evaluating a fund’s performance. The most common benchmark for equity-oriented funds is the S&P 500 Index. For fixed-income funds it is the Barclays Capital Aggregate Bond Index.

Beneficial Owner – The owner of a security who is entitled to all the benefits associated with ownership. Clients’ securities are often registered in the name of the brokerage firm rather than in the name of the client, but the client remains the real or beneficial owner.

Best 3-Month Return – The fund’s highest three-month return measured in rolling three-month periods over the past five years.

Beta – Beta measures the volatility of a stock’s returns relative to the S&P 500. It is based on a 36-month historical regression of the return on the security compared to the return on the S&P 500. For example, a beta of 1.5 indicates that a stock tends to move 50% more than the S&P 500 in the same direction. So if the S&P rises 10%, the stock will move higher by 15%; but if the S&P falls 10%, the stock will fall 15%. Generally speaking, a higher beta represents a riskier investment.

Bid – The highest price buyers have declared that they are willing to pay for a security.

Bid/Ask Size – The number of shares buyers are willing to purchase at the quoted bid price and the number of shares offered for sale at the quoted ask price.

Block – A large number of shares of a security, usually more than 10,000, traded in a single transaction. This is usually done by institutional investors.

Blow-Off Top – A steep and rapid increase in price followed by a steep and rapid drop in price. This is an indicator seen in charts and used in technical analysis of stock price and market trends.

Blue-Chip – A term used to describe the common stocks of corporations with the strongest reputation for generating earnings and paying dividends.

Bond – 1) A debt instrument; a security that represents the debt of a corporation, a municipality of the federal government, or any other entity. A bond is usually long-term in nature (10 to 30 years), to be repaid to investors on a specified date. 2) An investment in a government or corporation which is structured like a loan, the difference being payments are made to individual bondholders rather than to a lending institution. Most bonds offer a regular, scheduled income with relatively low risk, making them attractive to retirees and others living off their investments.

Bond Fund – A type of mutual fund that invests in bond and preferred stocks, providing a stable income with low risk.

Book Entry – An electronic record of ownership of Treasury or other securities.

Book Value – A value computed by subtracting the total liabilities from the value of assets on the balance sheet, then dividing by the number of common shares.

Board of Directors – Individuals elected by a corporation’s shareholders to oversee the management of the corporation. The members of a Board of Directors are paid in cash and/or stock, and meet several times each year. Some directors serve on the board of more than one company.

Breadth of the Market – A measurement of the number of share that advance or decline on a trading day.

Breakout – A rise in a security’s price above a resistance level (commonly its previous high price) or drop below a support level (commonly the former lowest price.) A breakout is believed to indicate a continued movement in the same direction.

Breakpoint – A purchase of shares in an open-end mutual fund that is large enough to entitle the buyer to lower sales charges. Various breakpoints are established by the fund, at each of which the charge is reduced.

Bull – An optimistic investor who believes the market or the price of a security will rise.

Bull Market – A market in which prices of securities are generally rising.

Bullish – A term used to describe rising security prices.

Buy-In – When the seller of a security fails to deliver security for settlement, the broker will purchase the security that was to be delivered on the open market and charge the seller’s account for losses incurred.

Buy/Write – An advanced option order that combines the purchase a security and the sale of the corresponding call options.

Buyer’s Option (Contract) – A settlement that calls for delivery and payment according to the number of days specified by the buyer.

Buying Power – In a margin account, the maximum dollar amount of marginable securities that the client can purchase or sell short without having to deposit additional funds.

Buyout – The purchase of a controlling interest (or percent of shares) in a company’s stock.

 

– C –

Call – An option contract gives the holder of the option the rights (but not the obligation) to purchase, and obligates the writer to sell a specified number of shares of the underlying asset at the given strike price on or before the expiration date of the contract.

Call Date – The date when callable bonds are eligible to be redeemed before maturity.

Call Protection – The degree of security that an investor has against a bond being called, usually measured by the number of years between today and the call date.

Call Spread – Simultaneously buying and selling a call options contract on the same underlying security but with different expiration dates, different exercise prices, or both.

Callable – A securities feature of some bonds or convertible securities that allow the issuer to retire the issue prior to the original maturity date. If the current interest rate falls below the yield paid on the security, it is in the issuer’s best interest to call and retire the security, then reissue at the new lower rate. To reflect this risk for the holder of the security, a callable security is usually priced lower than a non-callable security.

Callable Bond – A bond which the issuer can decide to redeem before its stated maturity date. A call date and a call price are always given. A callable bond usually trades lower than a non-callable one.

Capital Expenditures – The expenditure incurred during a particular period to acquire long-term assets such as land, plant, or equipment.

Capital Gain – The amount by which an asset’s selling price exceeds its original purchase price. A realized capital gain is an investment that has been sold at a profit, an unrealized capital gain is an investment that would result in a profit if sold. IRS levies capital gains tax for realized capital gains from the sale of mutual funds, bonds, options, homes, and businesses.

Capital Growth – The increase in value of an investment when either its price rises or its profits are reinvested.

Capitalization – The total dollar value of all stocks and bonds issued by a corporation

Capital Loss – The decrease in the value of an investment or asset. Opposite of capital gain.

Capital Stock – The common and preferred stock of a corporation.

Cash Flow – Sometimes called cash earnings, it is the net earnings before depreciation, amortization and non-cash charges, useful in determining the solvency of a company. Cash flow is calculated by adding depreciation to net earnings then subtracting preferred dividends.

Cash Dividend – A dividend paid in cash to the shareholders of a corporation. The amount, which is usually based on profitability of the corporation and decisions of the board of directors, is considered taxable income.

Cash and Equivalents – The value of a company’s assets that can be converted into cash immediately. These assets usually include bank accounts and liquid marketable securities, such as government bonds and banker’s acceptances.

CBOE – See Chicago Board Options Exchange.

CDSC – See Contingent Deferred Sales Charge.

CEO – See Chief Executive Officer

Certificate – The physical document representing ownership of a stock or bond.

Changes in Financial Position – Sources of funds internally provided from operations that alter a company’s cash flow position: depreciation, deferred taxes, other sources, and capital expenditures.

Chapter 11 – The section of the U.S. Bankruptcy Code which describes how a company or creditor can file for court protection.

Chicago Board Options Exchange(CBOE) – Listed option trading was originated by this marketplace on April 26, 1973.

Chief Executive Officer (CEO) – The highest ranking executive who manages the day-to-day operations of the corporation, as appointed by the board of directors.

Class – Options of the same type, calls or puts on the same security.

Clearing Corporations – A distribution center operated for its member brokerage firms, which works with the exchanges to streamline trade comparison, settlement and assignment procedures.

Client (Account) Statement – A statement of a client’s positions and activities that is required to be sent out quarterly. However, if there is monthly activity on the account, then it is to be sent out monthly.

Cliffing – An investment strategy that organizes bonds in the portfolio so that they all mature in the same year.

CLO – CLO orders are qualified as At-the Close. A CLO qualifier requests that your order will be executed as close to the closing price as possible. The order will be accepted if it is placed before 3:40PM (ET) . CLO orders cannot be edited or cancelled after 3:45PM (ET). Any unfilled orders after opening of the market will be cancelled.

Close – The price of a security’s last transaction on a trading day.

Closed-End Funds – A mutual fund that does not offer new shares after the initial offering. Shares of the fund can only be purchased or sold on securities exchanges. Closed-end funds are actively managed by an investment professional.

Closing Purchase – A transaction in which the purchaser’s intention is to reduce or eliminate a short options positions. (Buy to close).

Closing Sale – A transaction in which the seller’s intention is to reduce or eliminate his long option position. (Sell to close).

Closing Transaction – The transaction executed to close an option contract. The holder would sell to close while the writer would buy to close.

Collateral Trust Bond – A debt instrument issued by one corporation and backed by the securities of another corporation.

Combination – The option strategy involving the purchase or sale of both a put and a call on the same underlying security, but with different strike prices and/or expiration dates.

Combination Order – An order simultaneously buying a call and selling a put, or buying a put and selling a call on the same underlying security.

Commercial Paper – A short-term debt instrument issued by corporations. Its rate of interest is set at issuance and can be realized only if held to maturity.

Commission – The fee paid to a brokerage for the execution of trades or management of an investment portfolio. Commission charges vary based upon the type of brokerage, and may be dependent upon the type of security, the number of shares traded, or the dollar value of the security.

Common Equity – The amount of shareholders’ equity attributable to common stock. Common equity usually consists of the common stock at par value, capital surplus and retained earnings.

Common Stock – A security issued representing ownership of a corporation. Common stockholders may vote to elect management, participate in corporate decision making, and receive dividends.

Comparison – The correspondence between two brokerage firms outlining the terms of the transaction. Comparison can be through a clearing corporation or on a per-trade basis.

Competitive Tender – A method of purchasing new issues of Treasury bills, notes, and bonds in which the investor specifies the yield at which they are willing to purchase the security.

Confirmation – The acknowledgement of a securities transaction providing the investor with information such as the settlement date, terms, price and commission.

Consent to Loan Agreement – An agreement margin clients are required to sign authorizing the brokerage firm to lend the client’s securities to itself or other firms.

Consideration – The money value of a transaction, calculated as the number of shares multiplied by the price, before adding commission.

Constant-Dollar Investment – Securities such as savings accounts and money market funds that do not fluctuate in price.

Consumer Price Index – An inflationary indicator published monthly to reflect the upward price movement of a fixed basket of common goods and services.

Contingent Deferred Sales Charge (CDSC) – The pricing structure that imposes a sales charge when investors exit a mutual fund.

Contractual Plan – A type of accumulation plan where a mutual fund investor makes a firm commitment to invest a specified amount of money over a specific period of time.

Control Person – A director, officer or other affiliate of the issuer or a stockholder who owns at least 10% of outstanding stock.

Control Securities – Securities owned by a control person.

Convertible Issue – A securities feature that gives the issue holder the choice to convert to another issue, usually common stock. This privilege can be used only once.

Convertible Preferred Stock – Preferred stock that may be converted into common stock at specific prices or rates.

Cooling-Off Period – The period between filing of the registration statement on a new issue with the SEC to the effective date of the offering.

Corner a Market – To purchase a significant portion of the supply of a stock in order to manipulate its price.

Corporate Bonds – Bonds issued by corporations to raise capital.

Corporation – The most common form of business organization, chartered by a state and given legal rights as a separate entity from its owners. Corporations are characterized by issuing shares of transferable stock, limited liability of its owners, and existence beyond the life of its owners. – 

Coupon1) The detachable part of bearer stock certificates exchangeable for dividends. 2) The rate of interest on a fixed interest security; a 5% coupon means interest of 5% a year on the nominal value of the security.

Coupon Yield – A bond’s coupon payment divided by par value. Also called nominal yield.

Cover – The number of times the dividend paid out by a company is covered. Calculated by dividing the total net profit a company has available for distribution as dividend by the actually amount paid.

Covered Call – A short call option position where the writer sells a call option while simultaneously owning the number of shares represented by the option contracts. Covered calls can limit the risk the writer since he/she has already purchased the deliverable security.

Covered Put – A put option position where the writer of the option is also short on the corresponding stock. This limits the option writer’s risk because the put can be used to cover the short stock position.

CPI – See Consumer Price Index.

Credit Agreement – The agreement which outlines the credit arrangement between the broker and the client concerning a margin account.

Credit Balance – The funds available to a client in the cash or margin account. In a short sale, this balance is the client’s liability.

Credit Risk – The danger that a bond issuer’s ability to repay what it owes will deteriorate. This danger usually prompts bond rating firms to downgrade the credit rating of company or municipality that issued the bond, sending the yield of the bond higher to justify the increased risk associated with this bond.

Cumulative Dividends – A feature of preferred stocks whereby holders are still entitled to receiving dividends after a pay period has been skipped due to poor company performance, the accumulated dividends must be paid before common stockholders may receive any dividends.

Cumulative Preferred Stock – A feature of preferred stock that entitles the holder to later payment of dividends when they were not paid when due. The dividends accumulated must be paid before common stockholders may receive any dividends.

Current Assets – Liquid assets that can be converted to cash within 12 months. These include cash, marketable securities, accounts receivable and inventory.

Current Income – Regular income generated by investments (as opposed to capital growth).

Current Liabilities – Accounting term describing obligations that must be paid within 12 months. These include accounts payable, short-term debt and interest on long-term debt.

Current Maturity – The number of years remaining until a bond matures.

Current Ratio – An indicator of short-term debt-paying ability. It is determined by dividing current assets by current liabilities. The higher the ratio, the more liquid the company.

Current Share Price – Most recent market price of the shares.

Current Yield – The actual yield of a bond determined by the bond’s current price on the secondary market. The current yield can be calculated by dividing the coupon by the bond’s current market price. For example, a bond with a $1,000 face value and a coupon of 5% purchased at $900 has a current yield of 6.56% (50 / 900). When the market price of a bond declines, its current yield rises. Conversely, when the market price rises, the current yield declines.

Cyclicals – Stocks whose performance is heavily influenced by the business cycle. An example would be the hosing industry, where sales slow down during winter and picks up during the warmer months.

 

– D –

Dated Date – The day that interest starts to accrue on newly issued bonds.

Day Order – An order that is open for the duration of the day it was entered, expiring at the close of that day’s trading.

Day Trade – The buying and selling of the same security on the same day.

DBCC – See District Business Conduct Committee.

DBO – See Delivery Balance Order.

Dealer – An individual or entity, such as a securities firm, that buys and sells security products and holds an inventory.

Debentures – A common kind of corporate bond, often issued by a firm undergoing restructuring. Debentures are backed only by the credit quality or ‘good will’ of the issuer. With no collateral, these bonds carry a higher risk, and therefore offer a higher rate of return, when compared to bonds backed by asset.

Debit Balance – The amount of loan in a margin account.

Debt/Equity Ratio – A comparison of the assets provided by creditors to the assets provided by shareholders. It is calculated by dividing long-term debt by common stockholders’ equity, and serves as an indicator of financial leverage.

Decile Rank – Performance of a mutual fund over time, rated on a scale of 1 to 10. One indicates that a mutual fund’s return was in the top 10% of funds being compared, while 10 means the return was in the worst 10%.

Declaration Date – The date on which a firm’s directors meet and announce the date and amount of the next dividend payout.

Deed of Trust – The trust agreement drawn up when a corporation plans to issue bonds or other debt securities. It includes information such as assets, interest payments, maturity dates, etc.

Default – An issuer’s failure to pay interest on a debt security. Treasury securities are considered default-free.

Defensive Stocks – Stocks whose prices stay stable when the market declines. Defensive stocks are usually those of industries that are less affected by recessions, such as stocks of food and utility companies.

Deferred (Income) Taxes – An amount allocated during the period to cover tax liabilities that have not yet been paid.

Delivery Balance Order (DBO) – An order issued by the clearing corporation to any firm that has delivery or sale position remaining after the day’s trades are netted.

Depository – A centralized location for keeping securities on deposit.

Depository Trust Company (DTC) – A corporation owned by banks and brokerage firms that holds securities, arranges for their receipt and delivery, and arranges for payments in settlement.

Depreciation – Depreciation is a non-cash charge that represents the decline in the value of fixed assets due to deterioration, age, or obsolescence.

Derivative – The securities whose value are derived from or linked to an underlying stock, bond, currency or mortgage.

Derivative Security – A financial security such as an option or a future, whose value is derived in part from the value of another security. For example, the price of an options contract is tied closely to the market price of the underlying stock.

Designated Order Turnaround (DOT) – An order routing and execution reporting system of the NYSE (New York Stock Exchange).

Diagonal Spread – A spread of the same class of options but with different exercise prices and different expiration dates.

Difference from S&P – A mutual fund’s return minus the performance in the Standard & Poor’s 500 Index for the same period.

Differential – The fraction of a point added to the purchase price or subtracted from the sale price of odd lot orders. The charge represents compensation to the dealer/specialist for executing the odd lot order.

Dilution – Diminution in the proportion of income each share is entitled to when new shares are issued.

Director – A corporate board member elected by stockholders to establish corporate policies, including the selection of the management team, and payments of dividends.

Discount – When the market price of a newly issued security is lower than the issue price.

Discount Bond – Bonds that are selling at a current price below its face value. Bonds sell at a discount when the coupon on the bond is lower than prevailing rates on similar investments.

Discount Rate – The interest rate at which member banks may borrow short term funds from the Federal Reserve Bank.

Disposable Income – Disposable income is the total amount available for both regular expenses and investment opportunities. It is calculated as the income available after taxes have been deducted.

Distributions – The payments of dividends or capital gains. Funds are required to distribute gains (if any) to shareholders at least once per year.

District Business Conduct Committee (DBCC) – The local enforcement division of the FINRA that is charged with enforcing FINRA, MSRB and federal securities laws, rules and regulations.

Divergence – When two or more averages or indices move in different directions, failing to show a market trend.

Diversification – The process of dividing investments among a variety of securities to lower or even eliminate risk.

Dividends – A portion of a corporation’s earnings paid to stockholders on a per-share basis. Preferred stock is supposed to pay a regular and prescribed dividend amount. Common stock pays varying amounts as determined the company.

Dividend Reinvestment – Automatic reinvestment of shareholder dividends into more shares of a company’s stock. This is often done without having to pay commissions.

Dividend Reinvestment Plan – Automatic reinvestment of shareholder dividends in more shares of a company’s stock without commission. Dividend reinvestment plans allow shareholders to accumulate capital over the long-term using dollar cost averaging.

Dividend Yield (Funds) – Indicated yield represents return on a share of a mutual fund held over the past year.

Dividend Yield (Stocks) – Indicated yield represents annual dividends divided by current stock price.

Dividends per Share – Dividends paid for the past year divided by the number of common shares outstanding. The number of shares outstanding is determined by a weighted-average of shares outstanding over the specified year.

DJIA – See Dow Jones Industrial Average.

DNR – See Do-Not-Reduce.

Dollar Cost Averaging – An investment strategy used in mutual funds by which clients invest a fixed dollar amount periodically, regardless of the performance of the fund. Since mutual funds permit the buying of fractional shares, the fixed amount will acquire more shares when the fund decreases in price, and fewer shares when the price rises.

Dollar-Denominated – Foreign securities that pay interest and principal in U.S. dollars.

Do-Not-Reduce (DNR) – An order instruction that informs the broker not to reduce the price of the order by the amount of dividends, if and when paid by the corporation.

DOT – See Designated Order Turnaround.

Double Taxation – Corporations pay taxes on revenue before paying dividends, then shareholders pay taxes again as dividends are considered taxable income, hence the term “double” taxation.

Dow Jones Industrial Average (DJIA) – Also known as the Dow, it is the most famous and widely accepted U.S. index of stocks, containing 30 stocks from various industries that trade on the New York Stock Exchange and NASDAQ.

Downgrade – A negative change in the ratings for a rated security.

Downtick – A listed equity trade whose price is lower than that of the last different sale.

Drag on Returns (Drag Grade) – The negative impact on returns from sales charges, annual expenses and portfolio turnover.

DTC – See Depository Trust Company.

Due Diligence (Meeting) – The meeting between corporate officials and underwriters prior to the issuance of the security. During these meetings, contents of the prospectus are thoroughly discussed to ensure accuracy.

Duration – The length of time it will take to recoup the principal of the investment, used to measure part of the risk in a bond or bond fund. Duration tells you how long it will take to recoup your principal. If a bond or a bond fund has a duration of 6 years, a 1% drop in interest rates will raise its value by 6%, while a 1% rise in interest rates will lower its price by 6%.

 

– E –

Earnings – The net income for a company during the reporting period.

Earnings Before Interest and Taxes (EBIT) – A measure of a firm’s earnings performance that is not clouded by debt payments or tax regulations. It is calculated as revenues minus the cost of goods sold and selling, and general expenses.

Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) – Also known as operating cash flow. EBITDA is calculated by subtracting cost of sales and operating expenses from revenues. Like the name implies, EBITDA does not take into consideration the interests, taxes, depreciation and amortization costs.

Earnings Growth % – A weighted average of the one-year earnings growth rates of the stocks in the fund. This calculation excludes stocks whose earnings changed from a loss to a gain and stocks whose earnings gains exceeded 999.99%.

Earnings Per Share (EPS) – The net income divided by the number of shares of common stock outstanding.

Earnings Report – A corporate financial statement released by the company quarterly or annually netting all earnings and expenses to a profit or loss.

Earnings Yield – The ratio of earnings per share to the current share price, after allowing for tax and interest payments on fixed interest debt. It is calculated by taking the total twelve months earnings divided by the number of outstanding shares, divided by the recent price, multiplied by 100.

EBIT – See Earnings Before Interest and Taxes.

EBITDA – See Earnings Before Interest, Taxes, Depreciation and Amortization.

ECN – Electronic Communication Network. The electronic system that matches buyers and sellers for the electronic execution of trades. The benefits an investor gets from trading with an ECN include after-hours trading, avoiding market makers (and their spreads), and anonymity (which is often important for large trades).

EE Savings Bond – A zero-coupon bond issued directly by the Treasury in par values up to $10,000. Purchased at half of par, EE savings bonds mature in 12 years and are eligible for extended maturity. Individuals can purchase up to $30,000 EE savings bonds per year.

Effective Date – The first date after the cooling-off period of a new issue on which the security can be offered.

Endorsement – A signature on the back of a negotiable instrument such as a stock certificate or check, matching the name that appears on the face, making the document negotiable.

Equipment Trust Bonds – Debt instruments issued by some corporations that are backed by equipment such as airplanes, locomotives or freight cars.

EPS – See Earnings Per Share.

Equity – The value of the common stockholders’ ownership interest in a company, in the form of common or preferred stock.

Equity-Income Funds – Mutual funds that focus on large-company stocks that pay big dividends.

Equity Options – An options contract that gives the holder the right to buy or sell a specified number of shares of stock at a specified price before in a specific time period. One option usually equals 100 shares of stock.

Estimated EPS Growth – The mean estimate of earnings-per-share growth from the Wall Street analysts estimates.

ETF – See Exchange Traded Funds.

Eurobonds – Bonds issued and traded in a currency other than that of the country or market in which it is issued. Interest is paid without the deduction of tax.

European-Style Option – An option contract that can only be exercised on the expiration date.

Excess Equity – Equity in a margin account above the requirement set by Regulation T.

Exchange – The marketplace where stocks, bonds, options, futures and commodities are traded. Major U.S. stock exchanges are: New York Stock Exchange (NYSE), American Stock Exchange (AMEX), and the National Association of Securities Dealers (NASD).

Exchange Traded Fund (ETF) – A type of fund that tracks an index, but can be traded like a stock.

Ex-Dividend Date1) The day on which the price of a security is reduced to reflect dividend payout. 2) The first day on which the buyer of a security will no longer be entitled to receive the recently announced dividend payment.

Execution – The completion of a securities trade.

Exercise – To utilize the right of the options holder to buy (call option) or sell (put option) the underlying security.

Exercise Price – The stated price per share at which the underlying asset may be traded between the holder and writer of the options contract. Also called strike price.

Expense Ratio – The operating costs, management fees, administrative fees, 12b-1 fees and all other costs incurred by the fund expressed as a percentage of the fund’s total asset.

Expiration – The day on which an option contract becomes void.

Expiration Cycle – The cycle of 3 months on which options on a particular security expire. Options are placed in one of three cycles: the January cycle (January, April, July, October), the February cycle (February, May, August, November), or the March cycle (March, June, September, December).

Expiration Date – The last day on which an option may be exercised for American style options. For European options, this is the only date when the option can be exercised.

Expiration Month – The month when an option or futures contract expires.

Ex-Rights Date – The date after which stocks are traded without subscription rights.

Extended Maturity – A provision whereby a bond continues to pay interest after the stated maturity.

Ex-Warrants Date – The date after which stocks traded are not entitled to warrants which are to be distributed.

 

– F –

Factor – The amount of mortgages remaining in a pool of mortgage-backed securities as represented by a decimal between 0 and 1.

Factor Table – A table used to compute the outstanding principal on pass-through securities including Ginnie Mae, Freddie Mac and Fannie Mae.

Fannie Mae – See Federal National Mortgage Association.

Fast Market – A market condition where a large number of orders for a particular security are received within a short period of time, faster than what market makers can handle effectively. These situations are usually the results of unexpected news and may lead to price volatility.

Fed – See Federal Reserve Board.

Federal Deposit Insurance Corporation (FDIC) – An independent agency of the federal government created by the Banking Act of 1933. It provides deposit insurance guaranteeing the safety of a depositor’s accounts in member banks up to $250,000 per depositor, per insured bank, for each account ownership category.

FDIC Insured Deposit Account – A program where investors can enroll to earn equal or higher interest rate than their brokerage cash account. Investor’s available cash balance will automatically transfer (Sweep) into a FDIC Insured Deposit Account. Please click here to review the Terms and Conditions in details.

Federal Farm Credit System – An issuer of agency securities, established by Congress to provide credit for farms and farm-related enterprises.

Federal Funds Rate – The interest rate that banks charge each other for the use of Fed funds. The Feds control this rate indirectly through setting the yield of Treasury security issues.

Federal Home Loan Mortgage Corporation (FHLMC) – Also known as Freddie Mac, it is a government-chartered corporation created with the goal of strengthening the existing secondary market in residential mortgages.

Federal Housing Administration (FHA) – A government-sponsored agency that provides a system of mutual mortgage insurance for buyers of homes and mortgage-lending institutions.

Federal National Mortgage Association (FNMA) – Also known as Fannie Mae, a congressionally-chartered corporation created to provide liquidity to mortgage investments. It does this by purchasing mortgages on the secondary market, pools them, then sells them as mortgage backed securities to investors.

Federal Reserve Board – The 7 member board governing the Federal Reserve System, board members are appointed by the President to serve 14-year terms. The actions of the Feds help shape government monetary policy, most notably interest rates and the U.S. economy.

Federal Reserve System – The nation’s central monetary authority and the Treasury Department’s agent for selling new Treasuries.

FHA – See Federal Housing Administration.

FHA Experience – An estimate of the average life of a pool of mortgage-backed securities in relation to experience tables developed by the Federal Housing Administration.

FHLMC – See Federal Home Loan Mortgage Corporation.

Fill or Kill (FOK) – An order instruction requesting the immediate execution of the entire order quantity at the specified price. If not, then the order is automatically cancelled.

Financial Industry Regulatory Authority (FINRA) – (formerly known as National Association of Securities Dealers or NASD) – FINRA, a nonprofit, self-regulating association supervised by the Securities and Exchange Commission (SEC), sets standards and establishes rules for the way that its members, including brokerage firms active in the over-the-counter (OTC) market and investment banks, operate.  FINRA is responsible for licensing of individuals and brokerage firms.

FINRA also has the authority to discipline members who violate those standards. Among FINRA’s other responsibilities are reviewing and approving sales and marketing literature that its members use to promote their products. The goal is to protect investors from misleading information on the risks and rewards of investing.

Fiscal Agent – The authority responsible for issuing new agency securities.

Fiscal Year – The twelve-month period during which businesses or the government maintain financial records. This cycle does not necessarily coincide with the calendar year, therefore it is known as the fiscal year.

Fixed Annuity – Guaranteed payments of a specified fixed dollar amount annually for the period covered under the contract.

Flat – A security position that is neither long nor short in a portfolio.

Flat (Bonds) – A bond trading without accrued interest is said to be trading “flat”.

Floor Broker – An exchange member permitted to conduct business on the exchange floor.

Flotation – A company’s shares offered on the market for the first time.

FNMA – See Federal National Mortgage Association.

FOK – See Fill-or-Kill.

Footsie – See FT-SE 100 Share Index.

Fractional Shares – A share of equity that is less than one full share. Fractional shares usually come about from stock splits, dividend reinvestment plans (DRIPs) and similar corporate actions. Normally, fractional shares cannot be acquired from the market.

Freddie Mac – See Federal Home Loan Mortgage Corporation.

Free Cash Flow – Free cash flow is calculated as operating cash flow minus capital expenditures and dividends. Free cash flow can be used to pay dividends, buy back stock or pay off debt.

Free Cash Flow per Share – Free cash flow divided by the number of common shares outstanding.

Free Stock – The securities that can be used for a loan.

Friendly Takeover – A takeover supported by the target company’s management and board members.

Frozen Account – An account that had failed to make timely payments in the past, thereby requires all purchases to be paid for in cash in advance for a period of 90 days.

FT Index – The Financial Times Industrial Ordinary Share Index, composed of 30 stocks chosen to be representative of British industry, excluding government stocks, banks and insurance companies. The index is calculated hourly during the day with a “closing index” at 4:30 p.m.

FT-SE 100 Share Index – Popularly known as “Footsie”, this index of 100 leading UK shares listed on the London Stock Exchange providing an overview of how the UK stock markets are performing.

Fully Diluted Earnings per Share – Earnings per share expressed as though all outstanding convertible securities and warrants have been exercised.

Fully Diluted Shares Outstanding – All shares outstanding, including common stock, warrants, and convertible securities.

Fully Paid Securities Lending – A strategy used by investors to generate additional income in their portfolios. Securities lending is when an individual temporarily lends fully paid securities to a financial institution (the borrower). The transaction is usually facilitated by an intermediary, like a clearing firm. All parties enter into a lending agreement (Master Securities Lending Agreement) that covers the rights of all counterparties and governs all transactions.

Fund Exchange – Ability to shift a mutual fund investment from one fund to another within same mutual fund family.

Fund Family – The group of mutual funds managed by a single company.

Fundamental Analysis – The security valuation method involving the analysis of the company’s financials and operations, especially sales, earnings, growth potential, assets/ debt ratio, management, and competition. This valuation method seeks to find the intrinsic value of a company, and locate undervalued stock in the market.

Futures – An agreement to buy or sell a set amount of a commodity or financial instrument at a certain price on a predetermined date.

Futures Contract – Agreement to buy or sell a set number of shares of a specific stock in a predetermined future month at a price agreed upon by both sides of the transaction. The contracts themselves are traded on the futures market. The difference between a futures contract and an options contract is that the futures contract is an agreement to actually make a transaction, whereas the option contract is the right to buy or sell.

 

– G –

Gearing – A company’s debt expressed as a percentage of its equity capital.

General Obligation (GO) Bond – A municipal bond backed by the full taxing power of the issuing municipality.

Ginnie Mae – See Government National Mortgage Association.

Good Delivery – Securities delivered to the broker from the seller, properly endorsed to be delivered to the buyer.

Good ‘Til-Canceled (GTC) – An order that remains open until it is either executed or canceled.

Goodwill – The intangible asset of a company, such as a strong brand name or reputation.

GNMA – See Government National Mortgage Association.

Government Bond – Debt security issued by the U.S. government.

Government National Mortgage Association (GNMA) – A government corporation that provides primary mortgages through bond issuances. Its securities are called Ginnie Maes.

Gross Profit – The net sales before tax minus cost of sales.

Growth and Income Funds – Mutual funds that invest in companies whose earnings are expected to grow, sacrificing some future profits in order to provide current income.

Growth Stock – Stock of a company in an emerging young industry.

GTC – See Good ‘Til Canceled.

 

– H –

Head & Shoulders – A technical analysis term, describing the chart formation where a stock price peak is preceded and followed by two smaller peaks, both at the resistance point of a stock cycle. This formation sometimes indicates a trend reversal. The name is derived from the similarity in appearance to the human head and shoulders.

Hedge – To reduce the risk in one security by taking an offsetting position in a related security.

HH Savings Bonds – A savings bond that pays semiannual coupon interest, unlike EE savings bonds. No more than $30,000 can be purchased by any individual in one year.

High-Yield Bond – A high-yield bond is one that is rated poorly by a credit rating system. These bonds offer higher yields compared to bonds of financially sound companies, justifying the greater credit risk.

Holding Company – A corporation that owns enough voting stock in another firm influence the election of its board of directors, gaining control of the management and operations.

Hostile Takeover – A takeover against the will of the target company’s management and board members.

House Maintenance Call – The brokerage firm requesting the client for additional funds because the equity in the client’s margin account has fallen below the minimum amount set by the brokerage.

House Requirement – The minimum amount of equity brokerage firms require margin clients to maintain in the account, failure to meet this would result in a House Maintenance Call.

Hypothecation – A pledging of assets as collateral necessary to secure a debit balance in a margin account.

 

– I –

Immediate-or-Cancel (IOC) – An order instructing for execution at the stated price for as many shares as can be filled immediately, the unfilled remaining amount will be canceled.

Income – The portion of investment return from interest or dividend payments, taxable at an individual’s ordinary income tax rate.

Income Bonds – Bonds issued by a corporation in poor financial condition, interest is paid only if earned by the issuer. These bonds are speculative instruments that pay high rates of interest for its high risks.

Income Funds – Funds that focus on a variety of securities that earn high interests or dividends.

Income Stock – Common stock that unusually pays a high dividend.

Income Stream – A strategy arranging bonds so that they produce a consistent series of payments.

Indenture – The terms and agreement of a corporate bond, usually on the face of the bond certificate.

Index Fund – A mutual fund whose portfolio matches that of an index, such as the S&P 500 or Dow Jones Industrial Average. This allows the fund to reflect the performance of the overall market.

Indicated Dividend – An estimate of the dividends per share that would be paid over the next 12 months if each dividend were the same amount as the most recent dividend.

Indicated Yield – The yield based on the annualized value of the most recent dividend, calculated by dividing the annual dividend by the price of the stock.

Industrial Revenue Bond – A type of municipal bond whose issuer’s ability to pay interest and principal is based on the revenue generated from the industrial complex which the bond financed.

Industry – A category describing a company’s primary business activity. This usually is determined by the corporation’s largest source of revenue.

Inflation – The rate at which the general level of prices for goods and services is rising, usually measured by the Consumer Price Index or Producer Price Index.

Inflation Risk – The risk that the yield of an investment will be diminished by rising inflation rates.

Inflation-indexed Bonds – These Treasuries are designed to keep pace with inflation. The principal is adjusted to match changes in the consumer price index, while the interest rate remains fixed. In this way, inflation can not erode the value of your principal. New in 1997, they are officially known as Treasury Inflation Protection Securities or TIPS.

Initial Investment – The amount required to make the first investment in a mutual fund.

Initial Public Offering (IPO) – A company’s first sale of stock to the public, usually by a young company to capitalize for further expansion and growth.

Inside Information – Relevant information about a company that has not yet been made public. It is illegal to execute make trades based on this information.

Insider – A person with nonpublic information on a corporation. Directors and officers who have access to nonpublic information before the public are usually considered insiders.

Insider Trading – The illegal purchase or sale of shares by someone who possesses inside information about the company. For example, an executive who purchases shares with knowledge of a new invention soon to be announced by his company would be performing illegal insider trading.

Institutional Investor – Entities with large amounts of funds to invest, such as investment companies, mutual funds, brokerages, insurance companies, and endowment funds. Institutional Investors account for the majority of overall market volume.

Interest – The rate charged by the lending for borrowing money over a specified amount of time.

Interest Coverage – The ratio measuring a firm’s ability to pay interest on its debt, calculated by dividing net earnings before interest and taxes by the interest expense on bonds and other long-term debt. Higher ratio means a lower possibility of default.

Interest Expense – The interest paid out by a corporation for loans and debt securities issued.

Interest Rate – The rate charged by a lender for borrowing money. Interest rates are generally fixed at a certain level for the entire length of a loan, though they can also vary over time.

Interest Rate Risk – The risk that prevailing interest rates will rise above the rate on the fixed income securities you are holding, resulting in a decline of the security’s price. The longer the life of the bond, the greater the interest rate risks.

Interim Dividend – A dividend declared and distributed part way through a company’s financial year, before annual earnings have been calculated, authorized solely by the directors.

Intermediate-Term Bonds – Bonds with maturities of four to 10 years.

International Funds – Mutual Funds that invest in foreign companies.

In-the-Money – An option is in-the-money when holder would profit from exercising the contract. For example, a call option is in-the-money if the exercise price is less than the market price of the underlying security, and a put option is in-the-money if the strike price is greater than the market price of the underlying security.

Inventory – The monetary value of a company’s raw materials, work in process, supplies used in operations and finished goods. Excess inventory on the balance sheet can represent slow downs in sales or overproduction. Inventory is considered liquid assets, since they can be easily converted into cash.

Investment Act of 1940 – The primary set of laws governing the mutual fund industry.

Investment Advisor – The individual or firm responsible for managing a portfolio or mutual fund.

Investment Trust – A closed-end fund regulated by the Investment Company Act of 1940 to create value through investment. Share of the investment trust can be bought or sold on an exchange.

IOC – See Immediate-or-Cancel.

IPO – See Initial Public Offering.

Issue – A security offered for sale by a government or corporation.

Issue Date – The date when a security was initially issued.

Issued Stock – Stock sold to the public.

 

– J –

Joint Account – An account with two or more individuals acting as co-owners.

Junk bond – Bonds rated with the lowest credit rating, usually issued by companies in financial turmoil. Since they are riskier, they offer a much higher yield.

 

– K –

Keogh Plan – The tax-deferred qualified retirement plan for unincorporated businesses and self-employed individuals.

 

– L –

Ladder – A portfolio strategy where an investor creates a portfolio consisting of various fixed-income securities that are approximately the same value, but each with different lengths until maturity. This helps reduce interest rate risk.

Large-Cap Stocks – Stocks issued by companies that are valued at over $5 billion.

Last – The price at which the security last traded.

Level-Load Funds – Funds that charge a fixed 12b-1 fee over the life of the fund, usually 0.75% or 1.00% of a fund’s assets.

Liability – An obligation to pay debt owed, or to fulfill a duty or responsibility.

Limit – See Limit Order.

Limit Order – An order instruction which sets the highest price the client is willing to pay for a buy order, or the lowest price the client is willing to accept for a sell order. If the security reaches the price specified by the limit order, the order will be executed at the specified price or possibly better.

Limited Tax Bond – A municipal bond whose ability to pay back principal and interest is based on a special tax.

Limited Trading Authorization – An account where the client gives the power to make trades in his account to another person.

Liquidation – 1) Closing out a position, converting assets into cash. 2) Action taken by margin department when a client has not paid for a purchase.

Liquidity – The degree of ease to convert an asset into cash.

Liquidity Ratio – A measure of how much dollar volume is required to move the stock’s price up or down one percentage point. A high ratio indicates that relatively heavy trading is required to change its price, while a low liquidity ratio indicates that the stock moves on relatively light volume.

Liquidity Risk – Risk from the difficulty in selling an asset. High liquidity risk could lower the value of the asset.

Listed Options – Options that are traded on a national option exchange.

Listed Securities – Securities that are traded on a national exchange.

Listed Stock – Stock that has met the qualifications for trading on an exchange.

Load – The sales charge assessed upon the initial investment in or redemption of a mutual fund.

Load Fund – A mutual fund with shares sold at a price including a sales charge, usually purchased through a salesperson.

Loan Consent Agreement – The agreement required by the SEC that authorizes a securities broker to lend securities that are in a customer name.

Loan Stock – A stock bearing a fixed rate of interest. Unlike a debenture, loan stocks may be unsecured.

Loan Value – The amount of money the client may borrow from the firm, expressed as a percentage of market value.

Long Position – The state of an investor owning a security.

Long-Term Assets – Value of long term property, equipment and other capital assets minus the depreciation over time.

Long-Term Bond – Bonds that mature in more than ten years.

Long-Term Debt – Liabilities to be paid after 12 months from the date of the last balance sheet.

Long-Term Debt/Capitalization – The ratio of long-term debt as a proportion of the capital available, serves as an indicator of financial leverage. Calculated by dividing long-term debt with the sum of long-term debt, preferred stock and common stockholders’ equity.

Long-Term Liabilities – Amount owed for interests, bond repayment, and other debt that are due after one year.

Low – The lowest closing price of a stock over a certain period of time.

 

– M –

Make a Market – A brokerage firms that buys and sells a particular security as a dealer.

Management/Closely Held Shares – The percentage of shares held by persons closely related to a company, as defined by the Securities and Exchange Commission.

Management Company – The group responsible for managing a mutual fund’s portfolio.

Management Fees – The percentage of a fund’s net assets paid to the fund’s advisor.

Margin1) The purchase of securities with money borrowed from a bank or brokerage. 2) The amount of equity required to purchase and hold marginable securities in a margin account.

Margin Account – A leveraged account where the brokerage firm lends the account owner money to purchase certain securities. The loan in the margin account is collateralized by purchased security, and if the value of the security declines, the owner will be asked to either put in more cash or sell a portion of the holdings.

Margin Call – A demand from the brokerage instructing the client to deposit money or securities with the broker when the value of securities purchased on margin falls.

Margin Requirement – The amount of cash and equity that clients must deposit in the brokerage account to be able to purchase using borrowed capital or sell short.

Margin Requirement (Options) – The amount of cash the writer of an uncovered option is required to maintain in his account to cover daily position valuation and possible intraday price changes.

Mark-to-Market – Tracking the price of a security, portfolio, or account daily, to calculate gains and losses or confirm that margin requirements are being met.

Market Capitalization – Also known as market cap, it is the total dollar value of all outstanding shares, calculated as shares outstanding multiplied by current market price per share. Generally speaking, small cap stocks have market values below $1 billion, while large-caps have values in excess of $5 billion.

Market Cycle – The period between the two most recent highs or lows of the S&P 500. A market cycle is complete when the S&P is 15% below the highest point or 15% above the lowest point (ending a down market).

Market Data System – An electronic process where the details of a filled order are transmitted to all interested parties. The information includes the name of the stock, number of shares traded, and the price.

Market Maker – Also known as dealer or specialist, a market maker is a brokerage or bank that maintains a firm bid and ask price in a security by being ready to buy or sell at publicly quoted prices, maintaining liquidity for that security.

Market Not Held Order – A market order that gives the floor trader discretion to execute the order when he/she feels it is ideal.

Market Order – An order to be executed immediately upon being entered at the best price possible.

Market Risk – Risk experienced from daily fluctuations in the price of a security.

Market Value – See Market Capitalization.

Market-Weighted Index – An index calculated using the price of each stock multiplied by the number of shares held. Corporations with the most shares make the largest impact. Some examples include the S&P 500 Index and the NASDAQ composite.

Marketable Securities – A security that may be resold in the secondary market.

Marry a Put – Hedging risk by buying the stock and buying a put on the same day.

Maturity – The date on which a bond or other debt instrument becomes due and payable.

Member Firm – A partnership or corporation whose partners or officers are members of a security exchange, clearing firm, or self-regulatory organization.

Merger – The combining of two or more companies into one, either through the purchase of one by the other, or a pooling of interests. The resulting synergies are expected to increase the company’s efficiency.

Mid-Cap Stocks – Stocks of medium-sized companies. They offer more growth potential than large caps but are less volatile than small cap companies.

Minimum Maintenance – The minimum balance (expressed as a percentage) of equity and cash in a margin account that meet the margin requirements established by the brokerage firm and NASD.

Mini-Refunding – Auctions of Treasury securities occurring in March, June, September, and December.

Minority Interest – Ownership of less than 50% of a corporation’s voting stock, or insufficient ownership to control a company’s operations.

Minus Tick – An execution price below the previous transaction.

Money Market – Market for short-term debt securities maturing within one year, including banker’s acceptances, commercial paper, repos, negotiable certificates of deposit, and Treasury Bills. Money market instruments are extremely liquid, therefore they are safe but do not offer high yields.

Money Market Fund – A type of mutual fund that focuses on money market securities.

Money Market Instruments – Short-term debt instruments such as U.S. Treasury bills, commercial paper, and banker’s acceptances.

Mortgage-Backed Securities – A collection of mortgages pooled into a security that can be retailed and traded by private or institutional investors.

Mortgage Bond – A debt instrument issued by a corporation and secured by the real estate owned by the corporation.

Moving Average – A technical analysis term measuring the average of data for a certain number of time periods. It is calculated using data from a fixed number of time periods, when a new value is added, the last trailing value is removed, hence the name “moving” average.

MSRB – See Municipal Securities Rule-Making Board.

Muni – See Municipal Bond.

Municipal Bond – A long-term debt instrument issued by a state or municipal government.

Municipal Bond Funds – Funds that invest in bonds issued by state and local governments.

Municipal Note – A short-term debt instrument of a state or local government.

Municipal Securities Rule-Making Board (MSRB) – Establishes rules and regulations to be followed in trading, dealings and client relationships concerned in municipal securities.

Mutual Fund – An investment company that actively manages a portfolio and continuously offers new shares to investors. Mutual funds have various different objectives, some aim for growth and others aim for stability; the portfolio is managed to meet these criteria.

 

– N –

Naked Call – An investor selling a call options contract without actually owning the underlying security.

NASDAQ – An automated communication network used to facilitate transactions of qualified over-the-counter or exchange listed securities. Unlike the AMEX or NYSE, the NASDAQ does not have a physical trading floor, all trades are completed through the computer system.

National Association of Securities Dealers (NASD) – See Financial Industry Regulatory Authority(FINRA).

National Securities Clearing Corporation (NSCC) – A major clearing corporation owned jointly by the NYSE, AMEX, and NASDAQ to streamline trade comparison, settlement and assignment procedures.

NAV – See Net Asset Value.

Negotiable – A feature of a security enabling the owner to transfer title or ownership.

Net Assets – The total assets held in a mutual fund.

Net Asset Value – The value of a fund’s assets divided by the number of its outstanding shares.

Net Earnings (Net Income) – Also known as the bottom line, this is the profit a company realizes after all costs, expenses and taxes have been paid. It is calculated by subtracting business, depreciation, interest and tax costs from revenues. Also called net income or net profit.

Net Margin – A measure of company profitability after deducting all costs, expenses and taxes. It is calculated by dividing net earnings by revenues, the resulting percentage is the operating efficiency of a company.

Net Income – See Net Earnings.

New Issue – A company issuing security to the market for the first time or issuing additional shares.

New York Stock Exchange (NYSE) – The oldest and most famous market for the buying and selling of securities. Located at 11 Wall Street, New York, New York.

Nil Paid – A new issue of shares dealt on the stock market on which no payment has yet been made, usually from a new issue or rights issue.

No-Load – Without any sales commissions.

No-Load Fund – An open-end fund purchased directly from a fund company or brokerage firm at the fund’s net asset value, without charges to purchase or redeem shares.

Noise – Price and volume fluctuations that do not show a clear market direction.

Nominal Yield – The interest rate stated on the face of the bond.

Nominee Name – Name in which a security is registered and held on behalf of the beneficial owner.

Noncallable – A note or bond that cannot be called before maturity.

Noncompetitive Tender – The purchase of treasury bills, notes, and bonds directly from the Federal Reserve at the average price of accepted competitive bids during an auction of new securities.

Noncumulative Preferred Stock – The type of preferred stock that does not pay accrued dividends to its holders.

Note – The general name for agency security with a maturity of less than 10 years.

NTF – Stands for “No-Transactions-Fee”, describes mutual funds that don’t charge a transactions fee.

NYSE – See New York Stock Exchange.

 

– O –

Objective – The investment strategy of a mutual fund as stated in the prospectus.

Odd Lot – A quantity of securities smaller than 100 shares, which is considered the standard unit of trading.

Offer – The lowest price at which an investor or dealer is willing to sell shares of a security.

Offer Price – See Offer.

Offer Price (Mutual Fund) – The purchase price of a load fund, calculated by adding the fund’s sales charges to its net asset value.

OID – See Original Issue Discount.

On-Balance Volume Index – This is the ratio of volume to upward price movement, used in technical analysis to determine if a security is being heavily bought into or sold out of.

Open-End Fund – A mutual fund that continuouslys offer shares and stands ready to buy any shares redeemed by the shareholders.

Open-End Management Company – A management company that constantly issues new shares.

Open Interest – The number of outstanding option contracts for a particular class or series currently in the exchange market.

Open Outcry System – The public auction in trading pits of exchanges that involve verbal bids and offers.

Opening Purchase – A transaction made by an investor with the intention of creating or increasing a long option position.

Opening Sale – A transaction made by an investor with the intention of creating or increasing a short option position.

Opening Transaction – An investor either buying or selling an option contract to open a new position.

Operating Margin – A company’s profitability before non-cash charges, it is a measure of a company’s operating efficiency. Operating margin is calculated by dividing EBITDA by revenues then multiplying by 100.

OPG – OPG orders are qualified as At-the-Open. An OPG qualifier requests that your order will be executed as close to the opening price as possible. The order will be accepted if it is received before 9:15AM (ET). The order can be cancelled after 9:15AM, but it cannot be edited. After 9:28AM, OPG orders cannot be edited or cancelled. Any unfilled orders after opening of the market will be cancelled.

Option – A contract that gives the buyer the right to buy (call) or sell (put) a predetermined quantity of an underlying security during a specific period of time at a predetermined price.

Option Adjustments – Adjustments made to the terms of an option contract to reflect changes in the underlying security, such as a dividend payment or split.

Option Agreement – The agreement the client must sign to trade options.

Option Class – The group of options with the same underlying security.

Option-Income Fund – A mutual fund which tries to generate additional income by continuously writing options.

Option Series – The groups of options that have same strike price, expiration date, and unit of trading on the same underlying stock.

Options Clearing Corporation (OCC) – A clearing corporation owned jointly by the major exchanges of listed options. Any options traded on any SEC-regulated exchange can be settled through OCC.

Order Book Official – An employee of an exchange who maintains a book of public orders and executes limit orders on behalf of the membership.

Ordinary Shares – The most common form of shares, also known as common stock.

Original Issue Discount (OID) – The discount from par value when the bond is first issued.

Original Issue Zeros – Zero-coupon securities that were originally issued by a corporation or government as a zero-coupon bond, instead of by severing interest and principal payments from an existing bond.

OTC – See Over-the-Counter Market.

OTC Bulletin Board – An electronic service that provides selected quotes on over-the-counter stocks.

Other Current Assets – Accounting term describing the value of non-cash assets, including prepaid expenses and accounts receivable due within the year.

Out-of-the-Money – An option is out-of-the-money if the price of the underlying security is below the strike price of a call option, or above that of a put. The holder would suffer an immediate loss if he was to exercise the right and purchase or sale the underlying security.

Overbought\Oversold Indicator – An indicator which attempts to define when prices have moved too rapidly in either direction and thus are vulnerable to reaction.

Over-the-Counter Market (OTC) – Comprised of a network of telephone and telecommunication systems over which unlisted securities and other issues trade.

 

– P –

Pacific Clearing Corporation (PCC) – The clearing corporation of the Pacific Stock Exchange.

Pacific Stock Exchange (PSE) – An exchange operating in San Francisco and Los Angeles.

Par Value – The face value of a bond.

Participating Preferred – A type of preferred stock giving holders the right to “participate” in any dividends payouts for common stock over and above those normally paid to common and preferred stockholders.

Pass-Through Security – Instrument representing an interest in a pool of mortgages, paying interest and principal on a monthly basis.

Payee – The person or business receiving a payment.

Payment Date – The date on which an announced stock dividend or a bond interest payment is to be made.

Payout Ratio – The percent of earnings-per-share that was paid out as dividend, calculated by dividing the quarterly dividend by the quarterly EPS then multiplying by 100.

PCC – See Pacific Clearing Corporation.

PE (Price/Earnings Ratio) – See Price/Earnings Ratio.

PEG Ratio – The price-to-earnings-growth ratio is used to find companies that are trading at a discount to the potential future growth. It is calculated by dividing a stock’s forward P/E by its projected three- to five-year annual EPS growth rate. Lower PEG ratios represent a better value, since the investor would be paying less for future earnings growth.

Penny Stocks – Securities priced less than $5 per share, often highly speculative investments.

Percent in Top Five Holdings – Proportion of total assets in the fund’s largest five positions.

Phantom Interest – The interest accreted annually from a zero-coupon security, even though payment of interest isn’t made until the zero matures.

PIN – A personal identification number, designed for secure access into an account for the account holder only.

Pink Sheets – Daily publication providing dealer names and quotes on over-the-counter penny stocks that are not included in NASDAQ listings. It is actually printed on pink paper.

Pit – The circular area on a trading floor, where futures and options are bought and sold.

Pivot – A price level noted by the market’s failure to penetrate or a sudden increase in volume that accompanies the move through the price level.

Point – A price movement of one full increment.

Point and Figure Chart – A chart that only displays whole integer changes in price, disregarding the element of time.

Portfolio – An investor’s combined investment holdings, including cash, stocks, bonds, mutual funds and real estate.

Portfolio Turnover – A measure of the portfolio trading activity for a mutual fund, calculated by dividing the lesser of purchases or sales by the average total asset value for the year.

Position Limits – The maximum number of option contracts of a particular listed security that may be held by an investor.

Preemptive Right – An opportunity for current shareholders to maintain their percentage of ownership if additional shares of the same class are issued. The preemptive right allows them to purchase new shares at a specific price.

Preference Shares – See Preferred Stock.

Preferred Stock – Stock that represents ownership in the issuing corporation, with a specific dividend which accumulates if not paid. In the case of bankruptcy, preferred stock has a claim on assets ahead of common stockholders but after debentures.

Premium (Bonds) – A bond selling at a current market price that is above its face value. Bonds sell at a premium when the coupon on the bond is higher than prevailing rates.

Premium (Options) – The price paid by the buyer to the option writer for the rights to the option contract.

Pre-Tax Margin – The profitability of a company before paying taxes, calculated by dividing pre-tax earnings by revenues.

Price/Book – The ratio of a stock’s latest closing price divided by its book value per share. Book value per share is obtained by dividing the book value (total assets minus total liabilities) by total shares outstanding.

Price/Cash Flow – The ratio of a stock’s latest closing price divided by cash flow per share of the last 12 months.

Price/Earnings Ratio – The ratio obtained by dividing the current share price by the latest earnings per share. The historical average PE ratio for stocks has been around 15.

Price/Sales – The ratio of a stock’s latest closing price divided by revenue per share. Since this ratio reveals little about the profitability of a company, it is usually used for companies with no earnings, since those companies have an undefined P/E ratio.

Price Spread – A simultaneous purchase and sale of two options with the same expiration date but different exercise prices.

Price-Weighted Index – An index calculated by adding together stock prices to compute a figure that indicates the general condition of the market, such as the Dow Jones Index.

Primary Dealer – An institution recognized by the Treasury Department as eligible to bid on Treasuries when they are initially issued and to make a market for secondary buyers.

Primary Market – The market for new securities purchase directly from the issuer.

Principal – The role played by a brokerage firm when it acts as a dealer, trading securities for its own account.

Principal (Bond) – The face value of a bond.

Private Company – A company where all ownership is held privately.

Private Placement – An issue offered to selected investors as opposed to being publicly offered.

Privatization – Conversion of a state-run company to a public-limited company by selling its shares to the public.

Profit Margin – An indicator of profitability, calculated by dividing net income by revenue for a specific period.

Program Trading – Trades entered into a computer program to be executed automatically.

Prospectus – A detailed document for a new security issue explaining the terms, issuer, officers, public accounting firms, legal opinion, and core business. Required by the Securities Act of 1933 to be made available to any client who purchases the issues.

Proxy – Document transferring the shareholder’s voting rights, usually to a member of the company’s management, to represent the shareholder’s interests at a shareholder meeting.

Proxy Fight – An attempt by a dissident group to take over the management of a corporation, sending proxies electing them to the board while the current management sends proxies favoring themselves. Shareholders vote between one proxy or the other.

PSE – See Pacific Stock Exchange.

Public Market – The listed exchanges through which zero-coupon investments can be purchased and sold.

Public Offering Date – The first day new security issues are offered to the public.

Purchase Price – The price paid for the purchase of a Treasury or agency security.

Put – An option contract that gives the holder the right to sell a stated number of shares of the underlying security at a specified strike price to the writer of the put, up to the expiration date.

 

– Q –

Quarterly Refunding – Auctions of Treasury notes and bonds occurring in May, August, November, and February.

Quarterly Report – An unaudited financial report submitted every quarter to the SEC by public companies, containing the company’s financials and other relevant information.

Quick Ratio – Also know as acid test, it is an indicator of a company’s financial condition, calculated by taking current assets less inventories, then divide by current liabilities.

Quote – The highest bid and lowest asking price for a security at a particular time.

 

– R –

R-Squared – A measure of how closely a fund’s performance is correlated to a market index, such as the S&P 500. It is calculated by comparing monthly returns over the past three years to those of a benchmark. A higher value for r-square represents a higher correlation to the performance of the overall market.

Range – The difference between the high and low trading price during a given period.

Rate of Return – The percentage gain or loss within a specific time period, assuming that all distributions are reinvested at the current rate of return.

Rating – The alphabetical evaluation of a bond’s investment quality.

Real-Time Quote – A stock or bond quote that shows a security’s most recent ask and bid prices.

Realized Gains/Losses – The gain or loss that is realized after converting the security into cash.

Record Date – A date established by a corporation’s board of directors, marking when a shareholder must own shares in order to receive a dividend.

Redemption – The retiring of a debt instrument by repaying the principal balance to the investors.

Redemption (Mutual Fund) – The withdrawal of assets from a mutual fund.

Redemption Date – The date on which a fixed-income security is due to be repaid by the issuer at face value.

Redemption Fee – The fee applied when assets are withdrawn from a mutual fund before a specified time period, usually 60 to 90 days after the initial investment in the fund.

Redemption Notice – A notice that the issuer of a security is calling or redeeming the issue.

Red Herring – The preliminary prospectus. The name comes from the advisory printed on the cover of the prospectus in red ink.

Refunding – The retiring of a debt instrument using proceeds from the issuance of a new debt instrument.

Registered Bond – A bond with owner’s name appears on the certificate.

Registered Form – The record of security ownership on the issuer’s central ledger.

Registered to Principal Only – A feature of a bond whose ownership is registered with the issuer’s central ledger. Interest payments are made only when coupons are clipped-off and cashed in.

Registered Trader – A member of an exchange responsible for adding liquidity to the marketplace through the purchase and sell of assigned securities from his own inventory.

Registrar – A commercial bank or trust company that maintains a registry of share owners and the number of shares held.

Registration Statement – Carefully prepared documents, including a prospectus, filed with the Securities and Exchange Commission explaining an impending issue and pertinent data about the issuer.

Reg T Excess – The amount by which the loan value exceeds the debit balance in a margin account.

Regular Way – Settlement on the second business day following the date of the trade.

Regulation A – The SEC regulation that governs the issue of new securities.

Regulation T (Reg T) – The SEC regulation that governs the lending of money by brokerages to its clients.

Reinvestment Opportunity – The opportunity to reinvest interest and principal paid by income securities.

Reinvestment Rate – The rate of interest that can be earned by reinvesting the interest payments.

Reinvestment Risk – The risk that securities might not be able to pay higher rates when prevailing interest rates rise, or retain previous rates when the prevailing rates decline.

Relative Strength – A comparison between a stock’s price movement over the past year and the movement of the S&P 500 in the same time period. A value above 1 represents strong relative strength, while a value below 1 represents relative weakness.

Resistance (Resistance Level) – The inability of a stock to rise above a certain price.

Restricted Account – A margin account in which the debit balance exceeds the loan value, as defined by Regulation T.

Restricted Securities – Unregistered securities with limited transferability, usually acquired in a private placement.

Retained Earnings – The portion of earnings not paid out as dividends, but are instead retained by the firm for reinvestments.

Retractment – A price movement in the opposite direction of the previous trend.

Return – The money earned by investments over a period of time.

Return on Assets (ROA) – A measure of a company’s profitability, calculated by dividing the net income from the past fiscal year earnings by total assets, not taking into account the company’s liabilities.

Return on Equity (ROE) – An indicator of a company’s profitability, calculated by dividing net income from the past fiscal year by shareholders’ equity, showing how efficiently the company uses shareholder’s money.

Revenues – The total amount a company makes selling its products and/or services.

Revenue Anticipation Note (RAN) – A short-term debt instrument issued by municipalities, to be paid off by anticipated future revenue.

Revenue Bond – A municipal bond whose issuer’s ability to pay interest and principal is based on the revenue earned from the specific project financed by the bond.

Reverse Stock Split – A plan instituted by a corporation to proportionally reduce the number of shares outstanding while maintaining the value of shares held by shareholders. This can boost the price of the stock higher, make it more attractive to risk-adverse investors.

Right – A certificate showing an existing stockholder has the privilege of purchasing new securities in proportion to the number of shares already owned before the general public, thereby maintaining his ownership percentage in the company.

Rights Arbitrage – A simultaneous purchase and sale of different securities in anticipation of a merger or tender offer.

Rights Issue – An offer to existing shareholders, giving them the opportunity purchase additional shares in the company.

Rights Offering – An offer to existing shareholders, giving them rights to buy newly issued shares at a discount from the price at which shares will later be offered to the public.

Risk – The inherent possibility that an investment will lose value.

Risk/Return Trade-off – The property between the risk and return of investments. Higher risk is usually justified by higher returns, while a less risky investment will have a relatively lower rate.

ROA – See Return on Assets.

Road Show – Prior to a company’s security offering, bankers and company management travel to present their company to potential investors with the purpose of generating interest in the issue to set a favorable price.

ROE – See Return on Equity.

Round Lot – A standard trading unit. In common stocks, 100 shares make up a round lot. For bonds, a round lot in the over-the-counter market is five bonds.

Rule 144 – The SEC rule that governs the sale of control and restricted securities.

Rules of Fair Practice – FINRA rules which govern the dealings of member firms with the public.

Russell 2000 Index – An index tracking the performance of 2,000 small-cap stocks.

 

– S –

Sales Charge – The fee investors must pay to buy shares in a mutual fund, either paid when shares are purchased or withdrawn. Also known as load.

Sallie Mae – See Student Loan Marketing Association.

Same-Day Substitution – Purchasing one security and selling another of near equal value on the same day.

Savings Bonds – A registered, non-callable, non-negotiable bond sold at a discount, redeemable at face value upon maturity. Savings bonds can be purchased for $50 up to $10,000, with a maximum of $30,000 each year per individual.

Secondary Market – The market where securities are traded after the initial offering.

Secondary Offerings – A company selling additional stock to the market after its initial offering, attempting to raise additional capital. – 

Sector Funds – Mutual funds that focus on investing in a specific industry, these funds have higher risks because of their lack of diversity.

Securities – The general term used to describe investment products, including any stock, treasury stock, bond, debenture, etc. Excludes fixed annuities and insurance policies.

Securities and Exchange Commission (SEC) – The primary regulatory federal agency responsible for the enforcement of laws in the securities industry.

Securities Investor Protection Corporation (SIPC) – A non-profit organization established by the Congress consisting of members of the securities industry. Should a member fail, the SIPC insures the securities and cash in customer’s accounts up to a maximum of $500,000, including up to $250,000 in cash.

Sell-Out – When client incurs a margin or maintenance call and fail to settle the balance by settlement date. The brokerage will sell the securities at the best price available, and hold the client liable for the price and costs.

Sell Short – See Short Sell.

Sell/Write – An advanced option strategy that combines the short selling of a stock and the simultaneous selling of a put option on the same underlying stock.

Serial Bonds – An issue of bonds that matures over a period of years.

Series – All option contracts of the same class that has the same unit of trade, expiration date, and strike price.

Settlement – The payment and delivery of securities after a trade.

Settlement Date – The date on which security transactions are settled. Settlement is generally two business days after the trade.

Settlement Date Inventory – The total of all positions in a security on settlement date.

Shareholder – A person or entity that owns shares in a corporation.

Shareholders’ Equity – The difference between a company’s total assets and total liabilities. Sometimes call net worth or book value, shareholders equity represents the shareholders’ ownership of the company. See Price/Book ratio.

Shareholder Services Fee – A fee that the mutual fund pays the fund’s sponsor to provide for the sponsor’s administrative services.

Shares Outstanding – Shares of common stock that are currently owned by investors.

Share Repurchase – A program by which a corporation buys back some of its own shares in the open market, reducing the shares outstanding and thus increases earnings and dividends per share, driving up the stock price.

Short Account – The margin account in which the client has sold short securities.

Short Exempt – A short sale that is exempt from the short sale rules, such as converting a convertible preferred and selling the common stock before the stock is received.

Short Interest – A technical analysis of market sentiment, calculated by dividing the total shares sold short of a stock by its average daily trading volume.

Short Position – A technique used by investors who believe the price of a stock is going down, selling stocks he does not yet own then later buying it back at a lower price to close out the transaction.

Short Sell – The sale of securities that are not owned with the intention to buy it back at a later date at a lower price.

Short-Term Bond – A bond that matures within five years.

Short-Term Bond Funds – Funds that invest in bonds with average maturities of three years or less.

Short-Term Government Bond – A government bond that matures within five years.

SIPC – See Securities Investor Protection Corporation.

Size – The number of shares available at a given quote.

Slippage – The difference between estimated transaction costs and actual transaction costs.

Small-Cap Stocks – Stocks issued by companies that are valued at less than $1 billion. Small-cap stocks can offer high-growth opportunities, but are more risky and pay little dividends, if not none at all.

Small Company Funds – Funds that invest in companies with a market cap of $500 million or less.

Special-Purpose Bond – Municipal bond which is repaid from taxes collected from those who benefit from the project the bond’s proceeds were used to finance.

Specialist – A member of an exchange who makes a market in certain traded securities.

Spin-off – Selling off a part of an existing firm to form another independent company, through the sale or distribution of new shares.

Split Fund – A mutual fund that holds Treasury securities and other types of investments.

Sponsor – The organizer of a fund, usually also the initial shareholder.

Spread – The difference between the bid and ask of a quote.

Spread Order – An advanced options strategy that involves combines the purchase and sale of two puts or two calls on the same underlying security.

Standard Deviation – A statistical term describing the variations from the average, it measures a fund or portfolio’s historical volatility by looking at past returns. The higher the standard deviation, the greater the potential for volatility.

Statement of Additional Information – A document containing additional detailed information not included in a mutual fund’s prospectus. It can be obtained by request to the fund company.

Statement of Cash Flows – A financial statement showing a firm’s cash receipts payments during a specified period.

Stock – A share in the ownership of a company, representing a proportionate claim to the company’s earnings and assets.

Stock Ahead – Refers to a limit order that has not been executed because of other orders at the same limit that were entered earlier.

Stock Dividend – Payment of dividends in the form of stock rather than cash. The stock could be additional shares of the same company or that of a spun-off subsidiary.

Stockholders’ Equity – See Shareholder’s Equity.

Stock Power – A power of attorney a person the right to transfer ownership of a stock in behalf of the owner.

Stock Splits – The exchange of existing shares for more newly issued shares from the same corporation. Splits do not increase or decrease the capitalization of the company, shareholders equity is simply redistribute over more shares, making the price of each individual share cheaper.

Stop Limit Order – Similar to a stop order, but instead of becoming a market order when the price is reached or passed, it becomes a limit order at the specified price.

Stop-Loss – A stop order to sell set below the current price, mostly used for volatile stocks, so that potential losses are limited if the stock declines rapidly.

Stop Order – A type of order not executed until the specified price has been reached or passed, at which it becomes a market order. In contrast to limit orders, buy stops are entered above the current market price; sell stops are entered below it.

Straddle – An option strategy involving a simultaneous long or short positions of both put and call option contracts, on the same underlying security and same series designation.

Strangle – An option strategy that involves writing a call and a put with different strike prices on the same underlying security.

Street Name – A term describing securities that are registered in the name of a brokerage firm, bank, or depository.

Strike Price – Also known as exercise price, it is the stated price per share at which the underlying asset may be purchased or sold by the option holder upon exercising of the options contract.

Strips – Short for Separate Trading of Registered Interest and Principal of Securities, a term traders use for Treasury zeros.

Student Loan Marketing Association – A publicly traded corporation established by the Federal government which buys student loans from colleges and other lenders, pools the loans and sells the pass-through security to investors.

Subject Quote – A quote given to show the current market status, not to be taken as a firm ask or bid.

Subordinated Debenture – A type of debenture whose claim to interests and principal comes after those of regular debentures and other debt securities.

Subscription Right – A stockholder’s right to maintain his percentage of ownership in the company, given the opportunity to buy newly issued stock before the general public.

Subsequent Investment – The minimum amount that may be invested in a mutual fund following an initial investment.

Support (Support Level) – A term used in technical analysis, describing a price level which a security has had difficulty falling below.

Symbol – An abbreviation designated for publicly traded companies, to facilitate identifying the security in exchanges.

 

– T –

Takeover – The acquisition of control over a corporation by another company, either through hostile or friendly means.

Target Fund – A mutual fund containing bonds that all mature in a single year, giving the entire fund a terminal maturity in that year.

Tax Anticipation Bill – A short-term security similar to a T-bill that is accepted at par in payment of corporate federal taxes.

Tax Anticipation Note – A municipal note issued in anticipation of revenues from a future tax.

Tax-Exempt Bonds – Municipal securities whose interest is exempt from federal income tax.

T-Bills – See Treasury Bills.

T-Bonds – See Treasury Bonds.

Technical Analysis – A method of evaluating securities by relying on market data, such as price charts and volume to predict future market trends. It is believed that investor psychology has a significant influence on the market, creating patterns that can be used to estimate whether the price of a security will rise or fall. In contrast to fundamental analysis, understanding of a company’s intrinsic value is not necessary for technical analysis.

Tender Offer – The offer made by one company or individual for shares of another company, in the form of cash or stock.

Tenure – Duration since the current manager took over the fund.

Term Maturity – Bonds of an issue that mature on the same date.

Term Structure of Interest Rates – A graph representing the yield to maturity of Treasury securities at identified years of maturity.

Ticker – A digital scrolling display showing prices and volume of traded securities.

Tick Indicator – An indicator of market trend, based on the number of stocks whose last trade was on an uptick or a downtick.

Time Horizon (Investment Horizon) – The expected length of time an investor will allow to meet financial goals.

Time Value – The portion of an option’s premium that is attributed by the amount of time remaining until the expiration date of the option contract.

TIPS – Treasury Inflation-Protected Security. A security identical to a treasury bond except that principal and coupon payments are adjusted to account for inflation.

Total Assets – Total sum of current assets plus total long term assets.

Total Debt-to-Equity Ratio – A capitalization ratio calculated as current liabilities plus long-term debt divided by shareholders’ equity.

Total Liabilities – Accounting term referring to total current liabilities plus long-term debt and deferred taxes.

Total Return – The price change (capital gains) plus dividend return for a stock over the last year.

Total Return (Mutual Funds) – The combined return of a fund, including distributed and undistributed income and capital gains after taking into account all fees and expenses.

Total Revenue – Total sales and other revenue for a specific period.

Trade – A transaction involving one party buying a security from another party.

Trade Confirmation – A verification with information concerning a transaction, sent to the client on or before the first business day following the trade date.

Trade Date – The date on which a trade occurs. Settlement date is 2 business days after the trade date.

Trading Range – The difference between the high and low prices at which a security was traded during a period of time.

Trailing P/E Ratio – The ratio of a stock’s latest closing price divided by last reported annual earnings per share.

Transfer – The process by which securities are reregistered to new owners.

Transfer Agent – An agent employed by a corporation or mutual fund to maintain a record of share ownership and transactions.

Treasuries – Debt obligations issued by the U.S. Department of Treasury, so interest and principal is guaranteed by the U.S. Government. Income from Treasuries is taxable at the federal level, but exempt from state and local taxes.

Treasury Bills (T-Bills) – Government issued negotiable debt obligation with maturity in one year or less. T-Bills are purchased at a discount to the full face value which is payable when they mature. T Bills are issued for a minimum of $10,000 with $1,000 increments thereafter.

Treasury Bonds (T-Bonds) – Government issued negotiable debt obligation that mature in 10 to 30 years. Interest is paid semiannually and they can be purchased in denominations of $1,000 or multiples thereof.

Treasury Direct – The program which allows investors to purchase new issues of Treasury bills, notes, and bonds directly from the Federal Reserve.

Treasury Notes (T-Notes) – Government issued debt security that pays interests semiannually, maturing in two to ten years.

TRIN – See Arms Index.

Trust Indenture – A written agreement between a corporation and its debt holders stating interest rates, maturity dates, collateral, etc.

Turnover Ratio – A measure of a how frequently a fund’s portfolio is traded, expressed as a percentage. For example, a fund with a 50% turnover generally changes the composition of approximately half the portfolio each year.

Type – The classification of an option contract as either a put or a call.

 

– U –

Uncovered Call – A short call option position in which the writer of the call does not own shares of underlying security of the option contract.

Uncovered Put – A short put option position in which the writer of the put does not have a short position or the underlying security of the option contract.

Underlying – The security on which options are being bought or sold.

Underwriter (Investment Banker) – An intermediary between the offering institution and the investing public, bringing the new issues to the market while charging the issuer a fee for the services provided.

Underwriting – The process by which investment bankers bring new issues to the market.

Underwriting Manager – The lead firm in a group of underwriters responsible for a new issue.

Uniform Practice Code – Part of the FINRA rules that govern the dealing of member firms with each other.

Unit – A package of securities, such as a bond and warrant that become separable at a later date.

Unit Investment Trust (UIT) – A fixed portfolio of securities purchased by a company registered with the SEC, offering shares in the trust to investors. The difference between a unit trust and a mutual fund is the lack of active management.

Unlisted Security – A security that has not met the requirements to be listed on an exchange.

Unwind – An advanced option order used to intentionally close an existing buy/write or sell/write position.

Uptick – A listed equity trade at a price that is higher than that of the last transaction.

Up-Tick Rule – An SEC rule prohibiting short sale when the last trade on the security was a minus tick.

 

– V –

Volatility – A relative measure of a security’s price movement during a specific time period, calculated mathematically using standard deviation of daily price changes.

Volume – The total number of shares of a stock traded during a specific time period. High volumes usually correspond to news announcements regarding the company.

Voting Trust – The deposit of shares, along with transfer of voting rights to a trustee for a specific period of time.

 

– W –

Warrant – A security which entitles the purchase of a specific amount of common stock at a specific price. Most warrants expire after a certain date, but some never expire.

Wash-Sale Rule – The rule enforced by the IRS to prevent taxpayers from selling securities at a loss and reacquiring near identical securities within a 30-day period before or after a loss. A violation of the rule will void the loss from the sale of the security.

Weighted-Average Maturity – The arithmetic mean of maturities of securities held by a mutual fund.

White Knight – A company that rescues another in financial trouble, preventing a takeover by a hostile bid.

Withdrawal Plan – A plan to automatically redeem mutual fund holdings and have proceeds mailed directly to the investor.

Workout Quote – A price which the trader believes a security can be bought or sold if given time to find a market.

World Bond Funds – Funds that invest in the bonds of U.S. and foreign governments.

World Stock Funds – Funds that invest in the stocks of U.S. and foreign companies.

Worst 3-Month Return – The fund’s worst three-month return measured in rolling periods over the past five year.

Writer – The seller of an option contract.

W-Type Bottom – Two consecutive bottom shapes on a price or indicator chart, resembling the alphabet W.

 

– X –

 

– Y –

Yellow Sheets – Wholesale quote sheets for corporate bonds used by dealers.

Yield (Bond) – The interests earned on a bond investment. If the security was bought on the primary market, the yield will be equal to the interest rate. If the bond was acquired on the secondary market, the yield could be higher or lower depending whether the bond was bought at a premium or discount to face value.

Yield (Stock) – The annual rate of return on a stock as paid in dividends, calculated by dividing the latest dividend rate by the latest closing price, expressed as a percentage.

Yield Curve – This is a graph showing the yields for different bond maturities.

Yield Elbow – The point on the yield curve that indicates the year at which the economy’s highest interest rates occur.

Yield to Call – The percentage rate of a callable bond or note if one were to buy and hold the security until the next available call date.

Yield to maturity – The yield received by the holder of a debt security at maturity, taking into account any gain or loss of principal.

 

– Z –

Zero-Coupon Bonds – Bonds that do not pay interest periodically. Instead these bonds are purchased at a discount and held to maturity, when all compounded interest is paid and the bondholder collects the face value of the bond. Under U.S. tax laws, the imputed interest rate is still taxable as income, although there is no actual cash flow before maturity.

Zero-Coupon CD – A certificate of deposit that pays interest only upon maturity.

Zero-Minus Tick – A stock trade at a price that is equal to the preceding trade but lower than the last different price.

Zero-Plus Tick – A stock trade at a price that is equal to the preceding trade but higher than the last different price.

Zeros – See Zero-Coupon Bonds.