Professional Documents
Culture Documents
PRESENTED TO YOU BY
A
A Nasdaq stock symbol specifying that the stocks are Class "A" shares of the company
A Priori Probability
Probability calculated by logically examining existing information.
A Ton Of Money
A slang term used to describe a significant amount of money. The amount implied typically depends
on the person, company or situation.
A-Share
In a family of multi-class mutual funds, this is the class that is characterized by a front load
structure. Not all fund companies follow this class structure however, it is the prominent method of
distinction
AAA
The highest rating given on bonds by bond rating agencies
Abandonment
1. The act of surrendering a claim to, or interest in, a particular asset.
2. The permitted withdrawal from a forward contract that is made for the purchase of deliverable
securities.
3. The act of allowing an option to expire unexercised.
Abandonment Option
A clause granting parties the option of withdrawing from the contract before the fulfillment or
completion of all contractual duties. This clause adds value by giving the parties the ability to end
the obligation if it is unprofitable.
A type of "real option
Abandonment Value
The value of a project or asset if it were immediately liquidated.
Also referred to as the liquidation value.
Abatement
In general, a decrease in the amount of taxation faced by an individual or company
Abatement Cost
A cost borne by many businesses for the removal and/or reduction of an undesirable item that they
have created. Abatement costs are generally incurred when corporations are required to reduce
possible nuisances or negative byproducts created during production.
ABC Agreement
An agreement made between a purchasing member with a seat on the NYSE and the firm in which he
or she works. With the approval of the NYSE, this agreement stipulates that the employee of the firm
may:
a) transfer the seat to another employee of the firm
b) retain ownership and purchase a new seat for another individual designated by the firm
c) sell the seat and transfer any gains to the firm.
Ability to Pay
The principle that taxes should vary according to an individual's level of wealth or income.
Abnormal Return
When the return on an asset or security is in excess of the expected rate of return.
Above Water
The condition of an asset's actual value when it is greater than the asset's book value
Absolute Advantage
The ability of a country, individual, company, or region to produce a good or service at a lower cost
per unit than the cost at which any other entity produces that good or service.
Absolute Priority
The principle in bankruptcy proceedings that requires senior creditors to be fully paid before junior
creditors and stockholders may receive any payment.
Also known as 'liquidation preference'
Absolute Rate
The fixed portion of an interest-rate swap, expressed as a percentage rather than as a premium or a
discount to a reference rate.
Absolute Return
The return that an asset achieves over a period of time. This measure simply looks at the
appreciation or depreciation (expressed as a percentage) that an asset - usually a stock or a mutual
fund - faces over a period of time. Absolute return differs from relative return because it is
concerned with the return of the asset being looked at and does not compare it to any other measure
Absorbed
1. In a general business sense, when a cost is treated as an expense instead of being passed on to
the customer in the form of higher prices.
2. In underwriting, when an issue has been completely sold to the public.
3. In mergers, when an acquired firm is folded into the acquiring company.
Accelerated Depreciation
Any method of depreciation used for accounting or income tax purposes that allows greater
deductions in the earlier years of the life of an asset.
Acceleration Covenant
A clause included in certain debt securities and swap agreements stating that the immediate
collection of payment and termination of contract will take place should default or a downgrade of
debt occur.
Account
1. An arrangement by which an organization accepts a customer's financial assets and holds them
on behalf of the customer at his or her discretion.
2. A statement summarizing the record of transactions in the form of credits, debits, accruals and
adjustments that have occurred and have an affect on an asset, equity, liability or past, present or
future revenue.
3. A relaying of happenings from one party to another.
Account Balance
The net of debits and credits for an account at the end of a reporting period.
Accountable Plan
A plan for reimbursing employees for business expenses. Under this plan, the reimbursement that
the employee receives for the expenses is not included in his/her income. Employees are required to
account adequately for expenses with records and return any excess reimbursement within a
reasonable period of time.
Accountant
A professional person who performs accounting functions.
Accountant's Opinion
A statement signed by an independent accountant outlining his or her opinion regarding the quality
of information contained in a company's financial reports and records
Accounting
To provide a record such as funds paid or received for a person or business. Accounting
summarizes and submits this information in reports and statements. The reports are intended both
for the firm itself and for outside parties.
Accounting Earnings
A company's earnings as reported in the income statement.
Accounting Method
In terms of taxation, the method by which income and expenses are determined for taxation
purposes.
Accounting Noise
The effect of complex and extensive accounting rules that regulate financial statement reporting and
are thought to distort a company's true operating performance
Accounting Period
1. In general, the time period reflected by a set of financial statements.
2. In terms of taxation, it is the 12-month period a taxpayer uses to determine his or her income tax.
Accounting Profit
A company's total earnings, calculated according to Generally Accepted Accounting Principles
(GAAP), and includes the explicit costs of doing business, such as depreciation, interest and taxes.
Accounting Rate of Return - ARR
ARR provides a quick estimate of a project's worth over its useful life. ARR is derived by finding
profits before taxes and interest
Accounts Payable - AP
An accounting entry that represents an entity's obligation to pay off a short-term debt to its
creditors. The accounts payable entry is found on a balance sheet under the heading current
liabilities.
Accounts payable are often referred to as "payables".
Another common usage of AP refers to a business department or division that is responsible for
making payments owed by the company to suppliers and other creditors.
Accounts Receivable - AR
Money owed by customers (individuals or corporations) to another entity in exchange for goods or
services that have been delivered or used, but not yet paid for. Receivables usually come in the form
of operating lines of credit and are usually due within a relatively short time period, ranging from a
few days to a year.
On a public company's balance sheet, accounts receivable is often recorded as an asset because
this represents a legal obligation for the customer to remit cash for its short-term debts
Accredited Investor
A term used by the Securities and Exchange Commission (SEC) under Regulation D to refer to
investors who are financially sophisticated and have a reduced need for the protection provided by
certain government filings.
Also known as "qualified purchaser
Accretion
1. Asset growth through addition or expansion.
2. In reference to discount bonds, it describes the accumulation of value until maturity
Accretive Acquisition
An acquisition that will increase the acquiring company's EPS
Accrual Accounting
An accounting method that measures the performance and position of a company by recognizing
economic events regardless of when cash transactions occur. The general idea is that economic
events are recognized by matching revenues to expenses (the matching principle) at the time in
which the transaction occurs rather than when payment is made (or received). This method allows
the current cash inflows/outflows to be combined with future expected cash inflows/outflows to give
a more accurate picture of a company's current financial condition.
Accrual accounting is considered to be the standard accounting practice for most companies, with
the exception of very small operations. This method provides a more accurate picture of the
company's current condition, but its relative complexity makes it more expensive to implement. This
is the opposite of cash accounting, which recognizes transactions only when there is an exchange
of cash.
Accruals
Accounts on a balance sheet that represent liabilities and non-cash-based assets used in accrual-
based accounting. These accounts include, among many others, accounts payable, accounts
receivable, goodwill, future tax liability and future interest expense.
Accrued Expense
An accounting expense recognized in the books before it is paid for. It is a liability, usually current.
These expenses are typically periodic and documented upon a company's balance sheet due to the
high probability of collection.
Accrued Interest
The interest that has accumulated on a bond since the last interest payment up to, but not including,
the settlement date.
There are two methods for calculating accrued interest:
1. 360-day year method, used for corporate and municipal bonds
2. 365-day year method, used for government bonds
Accumulation
1) In the context of individual investing, it is the process of contributing cash to invest in securities
over a period of time in order to build a portfolio of desired value. Dividends and capital gains are
also reinvested during this process.
2) In institutional investing, it is the action of a large investor buying up many shares of a public
company over an extended period of time.
3) In corporate finance, the retention of company profits for reinvestment in business operations, as
opposed to the payout of earnings as dividends to shareholders.
Accumulation Phase
1. A period of time when an annuity investor is in the early stages of building up the cash value of
the annuity. This is followed by the annuitization phase where payments are paid out to the
annuitant.
2. The period of time when an investor builds up the value of their investment through savings.
Accumulation Plan
1) A general financial strategy in which an investor attempts to build the value of their portfolio to a
desired size.
2) In the context of mutual funds, a formal arrangement in which the investor contributes a specified
amount of money to the fund on a periodic basis. By doing so, the investor accumulates a larger and
larger investment in the fund through their contributions and the growth of the fund itself
Accumulation Unit
1) In the case of a variable annuity, a measurement of the value invested in the account during the
accumulation period of the contract. The more funds you contribute to your annuity account, the
more accumulation units you will build.
2) In the case of a unit trust, a type of investment structure where the trust's income is directly
reinvested into the trust, instead of being paid out as cash to the investor.
Accumulation/Distribution
A momentum indicator which tries to gauge supply and demand by discovering if investors are
generally "Accumulating" (buying) or "Distributing" (Selling) a certain stock by identifying
divergences between stock price and volume flow. It is calculated using the following formula:
Acid-Test Ratio
A stringent test that indicates whether a firm has enough short-term assets to cover its immediate
liabilities without selling inventory. The acid-test ratio is far more strenuous than the working capital
ratio, primarily because the working capital ratio allows for the inclusion of inventory assets.
Calculated by:
Acquisition
When one company purchases a majority interest in the acquired
Acquisition Debt
Debt incurred to construct, improve or acquire a principal or secondary residence
Acquisition Fee
Charges and commissions paid out for the selection or purchase of property. Some examples are
real estate commission, acquisition expense, and development/construction fees.
Acquisition Premium
The difference between the actual cost for acquiring a target firm versus the estimate made of its
value before the acquisition
Active Bond
A term used to describe fixed-income securities that trade frequently on the floor of the NYSE.
Active Box
This refers to the physical location in a brokerage where securities are kept
Active Income
Income for which services have been performed. This includes wages, tips, salaries, commissions
and income from businesses in which there is material participation.
Active Investing
An investment strategy involving ongoing buying and selling actions of the investor. Active
investors will purchase investments and continuously monitor their activity in order to exploit
profitable conditions
Active Management
An investing strategy that seeks returns in excess of a specified benchmark.
Active-Participant Status
Active-participant status is a reference to an individual's participation in an employer sponsored
retirement plan. The plans which qualify include:
1.Qualified plans, such as profit sharing plans, defined benefit plans, money purchase pension or
target benefit plans and 401(k) plans
2. SEP IRAs
3. SIMPLE IRAs
4. 403(b) plans
5. Qualified annuity plans
6. Employee Funded Pension Trusts (created before June 25, 1959)
7. A plan established for its employees by the United States, by a State or political subdivision of the
United States, or by an agency or instrumentality of the United States or any of its subdivisions
Activity Ratio
Accounting ratios that measure a firm's ability to convert different accounts within their balance
sheets into cash or sales
Actual Return
The actual gain or loss of an investor. This can be expressed in the following formula: expected
return (ex-ante) plus the effect of firm-specific and economy-wide news.
Actuals
1. A term used to describe the underlying in future and forward contracts, dealing with commodities
rather than financial instruments.
2. A term used to describe a securities historical volatitity.
Actuarial Analysis
The analysis of an investment's risk done by an actuary.
Actuarial Risk
The risk that the assumptions that actuaries implement into a model to price a specific insurance
policy may turn out wrong or somewhat inaccurate.
Possible assumptions include the frequency of losses, severity of losses and the correlation of
losses between contracts.
Also known as "insurance risk".
Actuary
A professional statistician working for an insurance company. They evaluate your application and
medical records to project how long you will live.
Ad Valorem Tax
A tax based on the assessed value of real estate or personal property. In other words, ad valorem
taxes can be property tax or even duty on imported items. Property ad valorem taxes are the major
source of revenues for state and municipal governments
Adding To A Loser
The action of a trader/investor increasing a position in an asset when its price is heading in the
direction that's opposite to what the investor/trader desires. This is generally not a wise investment
decision because unless the asset begins to move in the desired direction, the investor's losses will
increase
ADF
In currencies, this is the abbreviation for the Andorran Franc
Adjusted Basis
The proportionate value of an asset or security that reflects any deductions taken on, or capital
improvements to the asset or security
Adjustment Bond
Issued by a corporation during a restructuring phase, an adjustment bond is given to the
bondholders of an outstanding bond issue prior to the restructuring. The debt obligation is
consolidated and transferred from the outstanding bond issue to the adjustment bond. This is
effectively a recapitalization of the company's outstanding debt obligations, which is accomplished
by adjusting the terms (such as interest rates and lengths to maturity) to increase the likelihood that
the company will be able to meet its obligations
Adjustment Frequency
How often the interest rate changes or resets on an adjustable-rate mortgage. Different adjustable-
rate mortgages have different adjustment frequencies. Typically, the adjustment frequency is once a
year, but it can be as often as once a month or as infrequent as once every five years
Adjustment Index
A modification made to a piece of numerical data, or a set of numerical data, by a product of some
type of a mathematical formula. There are a number of different types of adjustment indices, ranging
in scale and purpose from mortgage rate adjustment to handicapping a golfer's score
Administrator
1. A person empowered by a court to act for another person who is deemed incapable of acting for
himself/herself.
2. Under the Uniform Securities Act, an entity that enforces the rules and regulations, including
registration requirements and post-registration requirements, of investment advisory professionals.
Adoption Credit
A per-child tax credit for adopting a child under 18.
ADV Form
A form that is kept on file with the Securities & Exchange Commission that contains critical financial
information about a registered investment advisor (RIA).
Advance Directive
A document expressing a person's wishes about critical care when he or she is unable to decide for
him or herself. However, it does not authorize anyone to act on a person's behalf or make decisions
the way a power of attorney would
Advance Rate
A percentage of collateral that determines the loan amount that a lender will issue a company.
Advance Refunding
1. A bond issuance used to pay off another outstanding bond. The new bond will often be issued at a
lower rate than the older outstanding bond.
2. A bond issuance in which new bonds are sold at a lower rate than outstanding ones. The
proceeds are then invested, and when the older bonds become callable they are paid off with the
invested proceeds.
Advance/Decline Index
A technical analysis tool that represents the total difference between the number of advancing and
declining security prices. This index is considered one of the best indicators of market movements
as a whole. Stock indexes such as the Dow Jones Industrial Average only tell us the strength of 30
stocks, whereas the advance/decline index can provide much more insight into the movements of
the market.
Adverse Opinion
A professional opinion made by an auditor indicating that a company's financial statements are
misrepresented, misstated, and do not accurately reflect its financial performance and health.
Adverse Selection
1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance.
2. A situation where sellers have information that buyers don't (or vice versa) about some aspect of
product quality.
Advisor
A person or company responsible for making investments on behalf of, and/or providing advice to,
investors.
AED
In currencies, this is the abbreviation for the U.A.E. Dirham
AFA
In currencies, this is the abbreviation for the Afghanistan Afghani
Affiliate
A type of inter-company relationship in which one of the companies owns less than a majority of the
other company's stock, or a type of inter-company relationship in which at least two different
companies are subsidiaries of a larger company.
Affiliated Companies
A situation that occurs when one company owns a minority interest (less than 50%) in another
company.
Also refers to companies that are related to each other in some way.
Affiliated Person
An individual who is in a position to influence the actions of a corporation. This includes people
such as directors, executives, and owners.
Affinity Fraud
A type of investment scam in which a con artist targets members of an identifiable group based on
things such as race, age, religion, etc. The fraudster either is, or pretends to be, a member of the
group. Often the fraudster will be promoting a ponzi or pyramid scheme.
Affirmative Obligation
An obligation of NYSE specialists to enter the market on a particular security (either by posting or
bidding and ask) when there is not sufficient market demand and supply to efficiently match orders
After-Acquired Clause
A provision included in legal contracts ensuring that subsequent acquisitions of assets will be
included in the debtors liability to the lender.
Against Actual
A transaction generally used by two hedgers who want to exchange futures for cash positions.
Aged Fail
A fail that has occurred between two or more parties to a securities transactions and has lasted for
over 30 days
Agency Bond
A bond issued by a government-sponsored agency. These bonds carry an AAA credit rating from
Standard & Poor’s (the highest).
Agency Costs
The costs resulting from an agent performing services for a principal.
Agency Cross
A trade that has only one agent acting for the buyer and seller.
Also known as Dual Agency
Agency Problem
A conflict of interest arising between creditors, shareholders and management because of differing
goals.
Agency Security
Low risk debt obligations issued by enterprises that the U.S. Government sponsors
Agency Theory
A theory concerning the relationship between a principal (shareholder) and an agent of the principal
(company's managers).
Agent
1. An individual or firm that places securities transactions for clients.
2. A person licensed by a state to sell insurance.
3. A securities salesperson who represents a broker-dealer or issuer when selling or trying to sell
securities to the investing public.
Aggregate Demand
The total amount of goods and services demanded in the economy at a given overall price level and
in a given time period. It is represented by the aggregate-demand curve, which describes the
relationship between price levels and the quantity of output that firms are willing to provide.
Normally there is a negative relationship between aggregate demand and the price level. Also known
as "total spending".
Aggregation
1. Used in corporate financial planning, aggregation is a process whereby a number of a firm's
smaller projects are combined and treated as an individual project.
2. Used in futures markets, aggregation is a principal involving the combination of all future
positions owned or controlled by a single trader or group of traders.
Aggregate Supply
The total supply of goods and services produced within an economy at a given overall price level in
a given time period. It is represented by the aggregate-supply curve, which describes the
relationship between price levels and the quantity of output that firms are willing to provide.
Normally, there is a positive relationship between aggregate supply and the price level. Rising prices
are usually signals for businesses to expand production to meet a higher level of aggregate demand.
Also known as "total output".
Aggressive Accounting
The practice of inappropriately misconstruing income statements for the purpose of pleasing
investors and inflating stock prices.
Aggressive Growth Fund
A mutual fund that attempts to achieve the highest capital gains. Investments held in these funds are
companies that demonstrate high growth potential, usually accompanied by a lot of share price
volatility. These funds are only for non risk-averse investors willing to accept a high risk-return
trade-off.
Also commonly referred to as a "capital appreciation fund" or "maximum capital gains fund".
Airbag Swap
An interest rate swap whose notional value adjusts according to rising interest rates by indexing the
floating portion to a Constant Maturity Swap (CMS
Alan Greenspan
The former chairman of the Board of Governors of the Federal Reserve System as well as the
Federal Open Market Committee (FOMC), the Fed's principal monetary policymaking body. His
tenure at the helm of the Fed lasted 18 years from 1987 until early 2006 when Ben Bernanke replaced
him. He was first appointed to the post by then-president Ronald Reagan and kept at the Fed's helm
by successors George H.W. Bush, Bill Clinton and President George W. Bush.
Algorithmic Trading
A trading system that utilizes very advanced mathematical models for making transaction decisions
in the financial markets. The strict rules built into the model attempt to determine the optimal time
for an order to be placed that will cause the least amount of impact on a stock's price. Large blocks
of shares are usually purchased by dividing the large share block into smaller lots and allowing the
complex algorithms to decide when the smaller blocks are to be purchased.
Alien
Any person who is not a citizen of the country in which he or she lives
Alimony
Payments made to a spouse or former spouse under a separation or divorce agreement.
ALL
In currencies, this is the abbreviation for the Albanian Lek.
All-Holders Rule
An SEC regulation that requires tender offers to be available to all holders of the identical class of
the security.
All-In Cost
Shorthand for "all-included" costs, which are expressed as the interest paid or received for total
costs of a financial transaction.
Alligator Property
In real estate, when the cost of mortgage payments, property taxes, insurance and maintenance on a
rental property is greater than the income it brings in. If this situation is not corrected, it will eat up
all of the owner's profit, leaving him or her with negative cash flow
Alligator Spread
A term referring to an unprofitable spread regardless of favorable market movements. This loss is
due entirely to large commissions charged upon the transactions.
Allonge
A sheet of paper attached to a bill of exchange for the purpose of documenting endorsements
Allotment
During an IPO, this is the number of shares granted to each participating underwriting firm that they
are permitted to sell. Remaining surpluses are then given to other firms which have won the bid for
the right to sell the IPO.
Alpha
An expression of how much a stock would have appreciated or depreciated on average on a daily
basis over the last year, assuming the S&P 500 remained unchanged during the period.
Alternative Asset
A term referring to any non-traditional asset with potential economic value that would not be found
in a standard investment portfolio. Due to the unconventional nature of some of these investment
assets, valuation may be a problem.
Alternative Order
A combination order whereby two separate orders are entered on the same security. The execution
of one order cancels the other.
Altman Z-Score
A predictive model created by Edward Altman in the 1960s. This model combines five different
financial ratios to determine the likelihood of bankruptcy amongst companies.
Amended Return
A return filed in order to make corrections to a tax return from a previous year. It can be used to
correct errors and claim a more advantageous filing.
American Option
An option that can be exercised anytime during its life. The majority of exchange-traded options are
American.
Amortization
1. The paying off of debt in regular installments over a period of time.
2. The deduction of capital expenses over a specific period of time. Similar to depreciation, it is a
method of measuring the consumption of the value of long-term assets like equipment or buildings
Analyst
A financial professional who has expertise in evaluating investments and puts together buy, sell and
hold recommendations on securities. Also known as a "financial analyst" or a "security analyst".
Anchoring
The use of irrelevant information as a reference for evaluating or estimating some unknown value or
information. When anchoring, people base decisions or estimates on events or values known to
them, even though these facts may have no bearing on the actual event or value.
Ancillary Revenue
Revenue generated from goods or services that differ from or enhance the main services or product
lines of a company. By introducing new products and services or using existing products to branch
into new markets, companies create additional opportunities for growth.
Andersen Effect
A reference to auditors performing more careful due diligence when auditing companies, in order to
prevent accounting errors. This extra level of accounting scrutiny often leads to companies restating
earnings even though they have not necessarily intentionally misrepresented material accounting
information.
Andrew's Pitchfork
A technical indicator that uses three parallel trendlines to identify possible levels of support and
resistance. The trendlines are created by placing three points at the end of identified trends. This is
usually achieved by placing the points in three consecutive peaks or troughs. Once the points have
been placed, a straight line is drawn from the first point that intersects the midpoint of the other two.
Also known as "median line studies".
ANG
In currencies, this is the abbreviation for the Netherlands Antilles Guilder.
Angel Bond
A slang term for investment-grade bonds. This is the opposite of fallen angels, which are bonds that
have a 'junk' rating
Angel Investor
A financial backer providing venture capital funds for small start-ups or entrepreneurs
Ankle Biter
Stock issues with a market capitalization worth less than $500 million.
Also known as "small cap" stocks.
Annual
An event that occurs once a year.
Annual Addition
The maximum dollar amount that may be contributed to a participant's retirement account under a
defined-contribution plan.
Annual earnings
A longer-term indicator of a company's growth. It commonly refers to a company's earnings per
share for a particular year.
The resultant percentage number assumes that funds will remain in the investment vehicle for a full
365 days.
Annual Report
A corporation's annual statement of financial operations. Annual reports include a balance sheet,
income statement, auditor's report, and a description of the company's operations
Annualize
1. To convert a rate of any length into a rate that reflects the rate on an annual (yearly) basis. This is
most often done on rates of less than one year, and usually does not take into account the effects of
compounding. The annualized rate is not a guarantee but only an estimate, and its accuracy
depends on the variance of the rate. This rate is also known as "annualized return" and is similar to
"run rate".
2. To convert a taxation period of less than one year to an annual (yearly) basis. This helps income
earners to set out an effective tax plan and manage any tax implications
Annuitant
1. A person who receives the benefits of an annuity or pension.
2. The person upon whom a life-insurance contract is based
Annuitization
The process of converting an annuity investment into a series of periodic income payments.
Annuities may be annuitized regularly, over a long or short time period, or in some cases, in one
single payment.
Annuitization Method
A type of annuity distribution structure that gives the annuitant periodic income payments for the
rest of his or her life, or a specified period of time. This is different than the systematic withdrawal
method, with which the annuitant chooses the amount he or she would like to receive each month,
which he or she receives until the amount in the account runs out.
Annuitization Phase
The period when the annuitant starts to receive payments from the annuity. This period is after the
accumulation phase where money is invested into the annuity.
Annuity
A series of fixed payments paid at regular intervals over the specified period of the annuity. The
fixed payments are received after a period of investments that are made into the annuity.
Annuity Contract
The written agreement between an insurance company and a customer outlining each party's
obligations in an annuity coverage agreement. This document will include the specific details of the
contract, such as the structure of the annuity (variable or fixed), any penalties for early withdrawal,
spousal provisions such as a survivor clause and rate of spousal coverage, and more.
Annuity Due
An annuity whose payment is to be made immediately, rather than at the end of the period.
Annuity Unit
An accumulation unit for which the annuitant has annuitized their contract. This is a sub-account of
the retiree's total accumulated annuity. These units represent a fixed share of ownership of the
insurer's accounts portfolio.
Anonymous Trading
Visible bids and offers on the market without the identity of the bidder and seller being revealed
Anti-Dilution Provision
A provision in an option or a convertible security. It protects an investor from dilution resulting from
later issues of stock at a lower price than the investor originally paid. Also known as an "anti-
dilution clause".
Anti-Greenmail Provision
A special clause located within a firm's corporate charter that acts as a deterrence against the board
of directors passing a share buy-back.
Anti-Martingale System
A system of position sizing that correlates the levels of investment with the risk and portfolio size.
Anti-Reciprocal Rule
A rule created by the National Association of Securities Dealers (NASD) to protect individual
investors from conflicts of interest that may arise when brokerage firms and mutual funds
collaborate.
Anti-Takeover Measure
Measures taken on a continual or sporadic basis by a firm's management in order to prevent or deter
unwanted takeovers
Anti-Takeover Statute
A set of state regulations that prevent or deter companies from attempting hostile takeovers. These
regulations vary across state lines and typically affect only the companies incorporated within the
state
Antitrust
The antitrust laws apply to virtually all industries and to every level of business, including
manufacturing, transportation, distribution, and marketing. They prohibit a variety of practices that
restrain trade.
Any-and-All Bid
A bid made to purchase all stock being offered at a specific price.
AON
In currencies, this is the abbreviation for the Angolan New Kwanza
Appraisal
A valuation of property (e.g. real estate, a business, an antique) by the estimate of an authorized
person.
Appraisal Ratio
A ratio used to measure the quality of a fund's investment picking ability. It compares the fund's
alpha (or the adjusted return of the fund assuming the market return is zero) to the portfolio's
unsystematic risk (or the risk that could be diversified away).
Appraisal Right
The right of shareholders to demand the fair payment of securities undergoing a merger by a third
party valuator.
Appraiser
A practitioner who has the knowledge and expertise necessary to estimate the value of an asset, or
the likelihood of an event occurring, and the cost of such an occurrence. Ideally, an appraiser acts
independently of the buying and selling parties in a transaction in order to arrive at the fair value of
an asset without bias.
Appreciation
The increase in value of an asset.
Arbitrage
The simultaneous purchase and sale of an asset in order to profit from a difference in the price. This
usually takes place on different exchanges or marketplaces.
Also known as a "riskless profit".
Arbitrage Bond
A lower-rate debt security issued by a municipality prior to the call date of the municipality's existing
higher-rate security
Arbitrageur
A type of investor who attempts to profit from price inefficiencies in the market by making
simultaneous trades that offset each other and capture risk-free profits. An arbitrageur would, for
example, seek out price discrepancies between stocks listed on more than one exchange, buy the
undervalued shares on the one exchange while short selling the same number of overvalued shares
on the other exchange, thus capturing risk-free profits as the prices on the two exchanges converge.
Arbitration
An informal hearing regarding a dispute. The dispute is judged by a group of people (generally
three) who have been selected by an impartial panel. Once a decision has been reached, there is no
further appeal process.
Arithmetic Mean
A mathematical representation of the typical value of a series of numbers, computed as the sum of
all the numbers in the series divided by the count of all numbers in the series.
Arithmetic mean is commonly referred to as "average" or simply as "mean
Aroon Indicator
A technical indicator developed by Tushar Chande used for identifying definable trends in an
underlying security. It is made up of two lines: one line is called "Aroon up", which measures the
strength of the uptrend, and the other line is called "Aroon down", which measures the downtrend.
The indicator reports the time it is taking for the price to reach, from a starting point, the highest and
lowest points over a given time period, each reported as a percentage of total time. Both the Aroon
up and the Aroon down fluctuate between zero and 100, with values close to 100 indicating a strong
trend, and zero indicating a weak trend. The lower the Aroon up, the weaker the uptrend and the
stronger the downtrend, and vice versa. The main assumption underlying this indicator is that a
stock's price will close at record highs in an uptrend, and record lows in a downtrend.
ARP
In currencies, this is the abbreviation for the Argentinian peso.
Arrearage
An amount on a loan, cumulative preferred stock, or any credit instrument that is overdue.
Also referred to as "Arrears."
ARS
In currencies, this is the abbreviation for the Argentinian Nuevo Peso.
Articles Of Incorporation
A set of documents filed with a government body for the purpose of legally documenting the
creation of a corporation.
Also referred to as the "corporate charter."
Ascending Channel
An upward moving channel formed with two parallel, upward sloping trendlines. The upper trendline
connects a stock's highs over a period, with each subsequent high price higher than the previous.
Conversely, the lower trendline connects the stock's lows, with each subsequent low price higher
than the previous.
Ascending Tops
This refers to a series of peaks, each peak higher than the previous one on the stock's chart pattern.
The chart below illustrates a series of four ascending tops
Ascending Triangle
A bullish chart pattern used in technical analysis that is easily recognizable by the distinct
shape created by two trendlines. In an ascending triangle, one trendline is drawn
horizontally at a level that has historically prevented the price from heading higher, while
the second trendline connects a series of increasing troughs. Traders enter into long
positions when the price of the asset breaks above the top resistance. The chart below is
an example of an ascending triangle:
Asia Ex-Japan
The region of countries located in Southeast Asia, not including Japan. These countries are
generally considered emerging markets and are of interest to investors looking for high-growth
investment opportunities.
Asian Option
An option whose payoff depends on the average price of the underlying asset over a certain period
of time as opposed to at maturity. Also known as an average option.
Asian Tail
An option feature whereby a reference price is activated at the end of an option should the
underlying fall below a specified average before option expiry.
Ask
The price a seller is willing to accept for a security, also known as the offer price. Along with the
price, the ask quote will generally also stipulate the amount of the security willing to be sold at that
price.
Sometimes called "the ask".
Ask Size
The number of shares a seller is selling at a quoted ask price.
Assay
The act of testing the purity of precious metals.
Assessable Stock
A class of stock in which the issuing company is allowed to impose levies on stockholders for more
funds. In the past, there was no restriction on how much additional money a company could demand
or on how often a company could impose a levy on its stocks.
These are the opposite of non-assessable stocks.
Assessed Value
Dollar value assigned to property for purposes of assessing taxes
Assessor
A local government official who determines the value of a property for taxation purposes.
Asset
1. A resource having economic value that an individual, corporation or country owns or controls
with the expectation that it will provide future benefit.
2. A balance sheet item representing what a firm owns.
Asset Allocation
The process of dividing a portfolio among major asset categories such as bonds, stocks or cash.
The purpose of asset allocation is to reduce risk by diversifying the portfolio.
Asset Class
A specific category of assets or investments, such as stocks, bonds, cash, international securities
and real estate. Assets within the same class generally exhibit similar characteristics, behave
similarly in the marketplace, and are subject to the same laws and regulations.
Asset Financing
Using balance sheet assets (such as accounts receivable, short-term investments or inventory) to
obtain a loan or borrow money - the borrower provides a security interest in the assets to the lender.
This differs from traditional financing methods, such as issuing debt or equity securities, as the
company simply pledges some of its assets in exchange for a quick cash loan.
Asset Management
1. The management of a client's investments by a financial services company, usually an investment
bank. The company will invest on behalf of its clients and give them access to a wide range of
traditional and alternative product offerings that would not be to the average investor.
2. An account at a financial institution that includes checking services, credit cards, debit cards,
margin loans, the automatic sweep of cash balances into a money market fund, as well as brokerage
services.
Also known as an "asset management account" or a "central asset account".
Asset Play
An incorrectly valued stock that is attractive because its combined asset value is greater than its
market capitalization.
Asset Redeployment
The strategic relocation of company assets in order to increase profitability
Asset Stripper
An individual who determines if the value of a company is worth more purchased as a whole or
divided into separate assets which are sold off. This is usually done in order to fulfill debt
agreements.
Asset Stripping
The process of buying an undervalued company with the intent to sell off its assets for a profit. The
individual assets of the company, such as its equipment and property, may be more valuable than
the company as a whole due to such factors as poor management or poor economic conditions.
Asset Swap
Similar in structure to a plain vanilla swap, the key difference is the underlying of the swap contract.
Rather than regular fixed and floating loan interest rates being swapped, fixed and floating
investments are being exchanged.
Asset Turnover
The amount of sales generated for every dollar's worth of assets. It is calculated by dividing sales in
dollars by assets in dollars
Asset Valuation
The process of determining the current worth of a portfolio, company, investment, or balance sheet
item
Asset-Based Finance
A specialized method of providing structured working capital and term loans that are secured by
accounts receivable, inventory, machinery, equipment and/or real estate. This type of funding is
great for startup companies, refinancing existing loans, financing growth, mergers and acquisitions,
and management buy-outs (MBOs) and buy-ins (MBIs
Asset-Based Lending
A business loan secured by collateral (assets). The loan, or line of credit, is secured by inventory,
accounts receivable and/or other balance-sheet assets.
Also known as "commercial finance" or "asset-based financing".
Asset-Conversion Loan
A short-term loan that is typically repaid by converting an asset, usually inventory or receivables,
into cash.
Asset/Liability Management
A technique companies employ in coordinating the management of assets and liabilities so that an
adequate return may be earned. Also known as "surplus management."
Assign
The act of clearing houses and brokerages selecting short option and future contract holders to
deliver underlying securities or commodities of maturing or exercised/tendered contracts.
Assignable Contract
A futures contract with a provision permitting the contract holder to convey his or her rights of
assignment to a third party. This enables the contract holder to assign the rights and obligations of
a contract to another to perform and receive the benefits of that contract before it closes
Assignment
1. The transfer of an individual's rights or property to another person or business.
2. A notice received by an option writer stating that the option sold has been exercised by the
purchaser of the option.
Assimilation
The absorption of stock by the public from a new issue.
Associated Person
The name given to participants within the futures market that are involved in the solicitation or
facilitation of transacting customer orders, the maintenance of discretionary accounts, or the true
participatory involvement in the futures market.
Assumable Mortgage
A type of financing arrangement in which the outstanding mortgage and its terms can be transfered
from the current owner to a buyer. By assuming the previous owner's remaining debt, the buyer can
avoid having to obtain his or her own mortgage.
Assurance
Coverage of an event that is certain to happen. Assurance is similar to insurance (and sometimes
the terms are interchangeable) except that insurance protects policy holders from events that might
happen.
Asymmetric Information
Information available to some people but not others.
At Risk Rules
Tax laws limiting the amount of losses an investor (usually a limited partner) can claim. Only the
amount actually at risk can be deducted.
At The Market
An order to buy or sell a futures contract at the best available price upon entrance into the exchange
for execution
At the Money
An option is at-the-money if the strike price of the option equals the market price of the underlying
security
At-The-Close Order
An order specifying that a trade is to be executed at the close of the market, or as near to the closing
price as possible.
At-The-Opening-Order
An order specifying that a trade is to be executed at the opening of the market, otherwise it's
canceled
ATS
In currencies, this is the abbreviation for the Austrian Schillings.
Attachment
A legal term referring to the action of seizing property in anticipation of a favorable ruling for a
plaintiff who claims to be owed money by the defendant.
Attestation
The act of witnessing the signing of a document and then also signing it to verify that it was properly
signed by those bound by its contents.
Attornment
The act of granting authority or jurisdiction to a party even though no legal rights exist
Attractiveness Rank
This ranks a stock's Attractiveness Rating within its industry group. If a stock ranks 10th out of 100,
for example, its Attractiveness Rating is in the top 10% of its industry. If 2 or more stocks within a
group have the same 1-99 rating, they will receive the same Attractiveness Rank. For example, if 3
stocks have a 99 Attractiveness Rating, they will all three be ranked best in group. The stock with
the next best rating will be ranked 4th in group.
Attractiveness Rating
This timely rating assesses a stock's attractiveness based on investor demand. It measures current
price and volume gauges for each stock and its industry group, and compares the results to all other
stocks. Rated on a scale from 1 to 99. A 90 rating, for example, indicates the stock’s attractiveness is
greater than 90 percent of all other companies.
The Attractiveness Rating factors in:
•Recent and past price and volume activity
• Alpha
•Up volume vs. down volume
•Recent price performance vs. its industry
•Its industry group’s price performance vs. the S&P 500 index.
Components are not equally weighted.
Attribution Rules
A set of rules created by Canada Customs and Revenue Agency (CCRA) that prevents investors
from transferring assets between family members with the intention of avoiding taxes.
Attrition
The reduction in staff and employees in a company through normal means, such as retirement and
resignation. This is natural in any business and industry.
Auction Market
A market in which buyers enter competitive bids and sellers enter competitive offers at the same
time.
Auction Rate
The interest rate that will be paid on a specific security as determined by the Dutch auction process.
The auctions take place at periodic intervals, and the interest rate is fixed until the next auction is
held. This process is commonly used to determine the interest rate on Treasury bills
AUD
In the currency market, this is the abbreviation for the Australian dollar
Audit
1. An unbiased examination and evaluation of the financial statements of an organization. It can be
done internally (by employees of the organization) or externally (by an outside firm).
2. An IRS examination of a taxpayer's return or other transactions. The IRS performs this
examination to verify the accuracy of these filings.
Audit Trail
A step-by-step record by which accounting data can be traced to their source. The SEC and NYSE
will use this method for the explicit reconstruction of trades when there are questions as to the
validity or accuracy of an accounting figure.
Auditor's Report
Recorded in the annual report, the auditor's report tests to see that a corporation's financial
statements comply with GAAP. This is sometimes referred to as the clean opinion.
Authorized Participant
An entity chosen by an exchange-traded fund's sponsor to undertake the responsibility of obtaining
the underlying assets needed to create an ETF. Authorized participants are typically large
institutional organizations, such as market makers or specialists.
Authorized Stock
The maximum number of shares that a corporation is legally permitted to issue, as specified in its
articles of incorporation. This figure is usually listed in the capital accounts section of the balance
sheet.
Also known as "authorized shares" or "authorized capital stock".
Auto Sales
The major producers of domestic automobiles report sales monthly. These numbers are seasonally
adjusted by the U.S. Department of Commerce and are available to the public one to five business
days after the end of each month.
Autocorrelation
A mathematical representation of the degree of similarity between a given time series and a lagged
version of itself over successive time intervals. It is the same as calculating the correlation between
two different time series, except that the same time series is used twice - once in its original form
and once lagged one or more time periods.
The term can also be referred to as "lagged correlation" or "serial correlation".
Automatic Exercise
A procedure implemented to protect an option holder where the Option Clearing Corporation will
automatically exercise an "in the money" option for the holder
Automatic Rollover
A rollover of a participant's qualified-plan balance to an IRA without the participant's authorization.
Automatic Stabilizer
An economic policy or program that increases or decreases automatically to offset the current
economic trend without government assistance.
Automatic Stay
A provision under the U.S. Bankruptcy Code prohibiting creditors from beginning or continuing
proceedings for collecting owed amounts from a firm who files for bankruptcy under Chapter 11
Autoregressive
Using past data to predict future data.
Aval
A guarantee added to a debt obligation by a third party who ensures payment should the issuing
person default
Average Down
The process of buying additional shares in a company at lower prices than you originally purchased.
This brings the average price you've paid for all your shares down
Average Life
An estimate of the number of terms to maturity, taking the possibility of early payments into
account. Average life is calculated using the weighted average time to the receipt of all future cash
flows.
Average Up
The process of buying additional shares at higher prices. This raises the average price that the
investor pays for all the shares. In the context of short selling, averaging up is achieved by selling
additional shares at a price higher than that of the first transaction.
Average-Cost Method
A costing method by which the value of a pool of assets or expenses is assumed to be equal to the
average cost of the assets or expenses in the pool
AWG
In currencies, this is the abbreviation for the Aruba Guilder.
Ax
The market maker who is most central to the price action of a specific security. The ax can be
identified by spending several days studying level II quotes and noting which market maker seems
to have the greatest effect on the security's price.
Axe
The interest a person or trader shows in buying or selling a bond. A trader may have specific
interest in a certain type of bond based on his or her existing positions.
B
A Nasdaq stock symbol specifying that the stock is Class B shares of the company
B-Share
A class in a family of multi-class mutual funds. This class is characterized by a rear-end load
structure that is paid only when selling the fund.
Baby Bells
A common nickname given to the U.S. regional telephone companies that were formed from the
breakup of AT&T in 1984, which was done to create more competition within the industry
Baby Bills
A nickname given to the hypothetical companies that would have formed if the Justice Department
had broken up Microsoft Corporation.
Baby Bond
Any bond issued with a par value less than $1,000.
Baccalaureate Bond
A zero-coupon bond issued by certain states to assist families save for college tuition by means of
added tax benefits.
Back Fee
The premium charged upon the second term or portion of a compound option.
Back Months
The available futures contracts for a particular commodity that possess expirations or delivery dates
furthest into the future. Also referred to as deferred futures or forward months.
Back Office
Administration and support personnel in a financial services company. They carry out functions like
settlements, clearances, record maintenance, regulatory compliance, and accounting. When order
processing is slow due to high volume, it is commonly referred to as "back office crunch."
Back Stop
The act of providing last-resort support or security in a securities offering for the unsubscribed
portion of shares. A company will try and raise capital through an issuance and to guarantee the
amount received through the issue, the company will get a back stop from an underwriter or major
shareholder to buy any of the unsubscribed shares
Back-End Load
A fee an investor pays when selling a mutual fund within a certain number of years, usually seven.
Back-End Ratio
A ratio that indicates what portion of a person's monthly income goes toward paying debts. Total
monthly debt includes expenses such as mortgage payments (made up of PITI), credit-card
payments, child support and other loan payments. Lenders use this ratio in conjunction with the
front-end ratio to approve mortgages.
Back-End Ratio = (Total Monthly Debt Expense / Gross Monthly Income) x 100
Back-to-Back Loan
A loan in which two companies in different countries borrow offsetting amounts from one another in
each other's currency. The purpose of this transaction is to hedge against currency fluctuations.
With the advent of currency swaps this type of transaction is no longer used very often
Backdating
Dating any document by a date earlier than the one on which the document was originally drawn up.
Backing Away
The act of a market maker failing to honor a posted bid or ask even though the price and quantity are
valid.
Backlog
The total value of sales orders waiting to be fulfilled.
Backpricing
A pricing method used in specific futures contracts whereby the price of the commodity to be
delivered is priced by the purchaser at some future date after entering into the position.
Backspread
A type of options spread in which a trader holds more long positions than short positions. The
premium collected from the sale of the short option is used to help finance the purchase of the long
options. This type of spread enables the trader to have significant exposure to expected moves in
the underlying asset while limiting the amount of loss in the event prices do not move in the
direction the trader had hoped for. This spread can be created using either all call options or all put
options.
Backtesting
The process of testing a trading strategy on prior time periods. Instead of applying a strategy for the
time period forward, which could take years, a trader can do a simulation of his or her trading
strategy on relevant past data in order to gauge the its effectiveness.
Most technical-analysis strategies are tested with this approach
Backup Withholding
Tax that is levied on investment income, at an established tax rate, as the investor withdraws it.
Backup withholding helps to ensure that government tax-collecting agencies (such as the IRS or
Canada Revenue Agency) will be able to receive income taxes owed to them from investors'
earnings. This tax may be imposed for a variety of reasons. In the U.S., for example, backup
withholding may be applied when an investor has not met rules regarding taxpayer identification
numbers (TIN). At the time the investor withdraws his or her investment income, the amount
mandated by the backup withholding tax is remitted to the government, providing the tax-collecting
body with the required funds immediately, but leaving the investor with less short-term cash flow.
Backward Integration
A form of vertical integration that involves the purchase of suppliers in order to reduce dependency.
Backwardation
The theory that says futures prices will tend to rise over the life of a contract. Therefore the near-
term contracts trade at a higher price than the longer-term contracts.
Bad Debt
A debt that is not collectable and therefore worthless to the creditor
Bag Man
Any person in charge of organizing and collecting contributions to political parties or funds
gathered for political reasons.
Balance Sheet
A financial statement that summarizes a company's assets, liabilities and shareholders' equity at a
specific point in time. These three balance sheet segments give investors an idea as to what the
company owns and owes, as well as the amount invested by the shareholders.
The balance sheet must follow the following formula:
Assets = Liabilities + Shareholders' Equity
Each of the three segments of the balance sheet will have many accounts within it that document the
value of each. Accounts such as cash, inventory and property are on the asset side of the balance
sheet, while on the liability side there are accounts such as accounts payable or long-term debt. The
exact accounts on a balance sheet will differ by company and by industry, as there is no one set
template that accurately accommodates for the differences between different types of businesses.
Balanced Fund
A mutual fund that invests its assets into the money market, bonds, preferred stock, and common
stock with the intention to provide both growth and income. Also known as an "asset allocation
fund".
Balanced Scorecard
A performance metric used in strategic management to identify and improve various internal
functions and their resulting external outcomes. The balanced scorecard attempts to measure and
provide feedback to organizations in order to assist in implementing strategies and objectives.
Balloon Maturity
1. A repayment schedule for a bond issue where a large number of the bonds come due at a one
time (normally at the final maturity date).
Balloon Option
An option whose notional payments increase significantly after a set threshold is broken.
Bancassurance
A French term referring to the selling of insurance through a bank's established distribution
channels.
Bandwidth
The data transfer capacity of a network. It is measured in bits per second.
Bank
A commercial institution licensed as a receiver of deposits. Banks are mainly concerned with
making and receiving payments as well as supplying short-term loans to individuals.
Bank For International Settlements - BIS
An international organization fostering the cooperation of central banks and international monetary
policy makers. Established in 1930, it is the oldest international financial organization, and was
created to administer the transaction of monies according to the Treaty of Versailles. Among others,
its main goals are to promote information sharing and to be a key center for economic research
Bank Guarantee
A guarantee from a lending institution ensuring that the liabilities of a debtor will be met. In other
words, if the debtor fails to settle a debt, the bank will cover it.
Bank Insurance
A guarantee on a specified amount of deposits in a bank.
Bank Rate
The rate at which central banks lend funds to national banks.
Bank Run
A situation in which numerous bank customers try to withdraw their bank deposits simultaneously
and the bank's reserves are not sufficient to cover the withdrawals
Banker's Acceptance
A short-term credit investment created by a non-financial firm and guaranteed by a bank.
Bankmail
An agreement made between a company planning a takeover and a bank, which prevents the bank
from financing any other potential acquirer's bid.
Bankruptcy
The state of a person or firm unable to repay debts.
Bankruptcy Financing
Financing arranged by a company while under the chapter 11 bankruptcy process. Clearly, such
financing is extremely high risk and is done at a relatively high interest rate.
Bankruptcy Risk
The risk that a company will be unable to meet its debt obligations. Often referred to as "default" or
"insolvency risk".
Banner Advertising
A common form of advertising on the internet. The banner is an advertisement of 460x68 pixels,
usually placed at the top of the page
Baptism of Fire
A difficult situation that a company or individual experiences that will result in either success or
failure. Examples include Initial Public Offerings (IPOs), a new CEO hired to manage a struggling
company, and hostile takeover attempts.
Bar
A graphical representation of a stock's movement that usually contains the open, high, low and
closing prices for a set period of time.
Bar Chart
A style of chart used by some technical analysts, on which, as illustrated below, the top of the
vertical line indicates the highest price a security traded at during the day, and the bottom
represents the lowest price. The closing price is displayed on the right side of the bar, and the
opening price is shown on the left side of the bar. A single bar like the one below represents one day
of trading.
Barbell
A bond investment strategy that concentrates holdings in both very short-term and extremely long-
term maturities. This is also known as the "dumbbell" or "barbelling."
Barefoot Pilgrim
Slang for an unsophisticated investor who loses all of his or her wealth from trading equities in the
stock market.
Barings Bank
A British merchant bank that was started in 1762, and for centuries was considered the largest and
most stable bank in the world. In 1995, Barings - then the oldest bank in Britain - collapsed after it
was unable to meet its cash requirements following unauthorized speculative trading in derivatives
at its Singapore office by then-trader Nick Leeson.
Barometer
An investment instrument whose movements forecast trends
Barometer Stock
A security whose price pattern is regarded as an indicator of the state of the overall market
Barratry
The act of a vessel's captain or crew knowingly endangering the vessel's cargo and/or the vessel
itself.
Barrels Per Day - B/D
A measure of oil output, represented by the number of barrels of oil produced in a single day. For
example, you might hear "country ABC has the potential to produce five million barrels per day".
The abbreviation "bbl/d" can also be used to represent this production measure.
Barrier Option
A type of option whose payoff depends on whether or not the underlying asset has reached or
exceeded a predetermined price
Barriers To Entry
The existence of high start-up costs or other obstacles that prevent new competitors from easily
entering an industry or area of business. Barriers to entry benefit existing companies already
operating in an industry because they protect an established company's revenues and profits from
being whittled away by new competitors
Barter
The act of trading goods and services between two or more parties without the use of money.
Bartering benefits companies and countries that see a mutual benefit in exchanging goods and
services rather than cash, and it also enables those who are lacking "hard currency" to obtain goods
and services.
Base (and base patterns, base-building, price consolidation area, price pattern)
A term used by technical analysts to refer to an area of consolidation in a stock's chart pattern. It
typically can be an indicator for future price advances. This price consolidation pattern generally
lasts around seven weeks but can last as long as 12 months. (Also, see Cup with handle, Double
bottom, and Flat base.)
Base Currency
The first currency quoted in a currency pair on forex. It is also typically considered the domestic
currency or accounting currency. For accounting purposes, a firm may use the base currency to
represent all profits and losses.
It is sometimes referred to as the "primary currency
Base Period
A particular time period whose data is used for comparative purposes when measuring economic
data of other periods.
Baseline
A benchmark used as a basis for comparison.
Basing
A period in which a stock price has very little or no trend. The resulting price pattern is a flat line.
Basis
1. The variation between the spot price of a deliverable commodity and the relative price of the
futures contract for the same actual that has the shortest duration until maturity.
2. A security's basis is the purchase price after commissions or other expenses. Also known as
"cost basis" or "tax basis".
3. In the context of IRAs, basis is the after-tax balance in the IRA, which originates from
nondeductible IRA contributions and rollover of after-tax amounts. Earnings on these amounts are
tax-deferred, similar to earnings on deductible contributions and rollover of pretax amounts.
Basis Grade
The minimum accepted standard that a deliverable commodity must meet to be used as the actual of
a futures contract. Also known as "par grade" or "contract grade."
Basis Price
Price quotation for a security expressed in terms of yield to maturity. This will usually only be
quoted on fixed-income securities such as bonds.
Basis Quote
A method for simplifying and shortening the quoted price of a futures contract. Used in the futures
markets, a basis quote gives the variation above or below the price of a futures contract.
Basis Risk
The risk that offsetting investments in a hedging strategy will not experience price changes in
entirely opposite directions from each other. This imperfect correlation between the two investments
creates the potential for excess gains or losses in a hedging strategy, thus adding risk to the
position
Basket Option
A type of option whose underlying asset is a basket of commodities, securities, or currencies.
Basket Trade
A single order to buy or sell a set of 15 or more securities.
Batch Trading
A method of transacting different security orders that involves the accumulation of orders and their
simultaneous execution.
Bay Street
1.The street in Toronto where the Toronto Stock Exchange (TSE) is located.
2. The collective name for the financial institutions in Toronto including stock exchanges, banks,
commodity markets, money markets, etc
BBD
In currencies, this is the abbreviation for the Barbados Dollar
BDT
In currencies, this is the abbreviation for the Bangladesh Taka.
Bear
An investor who believes that a particular security or market is headed downward. Bears attempt to
profit from a decline in prices. Bears are generally pessimistic about the state of a given market.
Bear Call Spread
A type of options strategy used when a decline in the price of the underlying asset is expected. It is
achieved by selling call options at a specific strike price while also buying the same number of calls,
but at a higher strike price. The maximum profit to be gained using this strategy is equal to the
difference between the price paid for the long option and the amount collected on the short option
Bear CD
A certificate of deposit whose interest rate fluctuates in inverse correlation to the value of an
underlying market index. In other words, the interest rate paid on the CD increases as the underlying
market index decreases in value.
Bear Flattener
A yield-rate environment in which short-term interest rates are increasing at a faster rate than long-
term interest rates. This causes the yield curve to flatten as short-term and long-term rates start to
converge.
Bear Hug
An offer made by one company to buy the shares of another for a much higher per-share price than
what that company is worth. A bear hug offer is usually made when there is doubt that the target
company's management will be willing to sell. By offering a price far in excess of the target
company's current value, the offering party can usually obtain an agreement. The target company's
management is essentially forced to accept such a generous offer because it is legally obligated to
look out for the best interests of its shareholders.
Bear Market
A period when market indices (i.e., Dow Jones Industrial Average, S&P 500, Nasdaq Composite)
declines 15% to 25% and in some cases as much as 50%.
Bear Spread
1. An option strategy seeking maximum profit when the price of the underlying security declines.
The strategy involves the simultaneous purchase and sale of options puts or calls can be used. A
higher strike price is purchased and a lower strike price is sold. The options should have the same
expiration date.
2. A trading strategy used by futures traders who intend to profit from the decline in commodity
prices while limiting potentially damaging losses
Bear Steepener
A widening of the yield curve caused by long-term rates increasing at a faster rate then short-term
rates. This causes a larger spread between the two rates as the long-term rate moves further away
from the short-term rate.
Bear Trap
A false signal that the rising trend of a stock or index has reversed when it has not.
Bearer Form
A security not registered in the books of issuing corporation but that is payable to its bearer (the
person possessing it). Securities can be issued in two forms: registered or bearer. Registered form
means the issuing firm keeps records of a security's owner and mails out payments to him/her.
Bearer form means the security is traded without any record of ownership, so physical possession
of the security is the sole evidence of ownership. Most securities issued today are in registered
form.
Bearish Harami
A trend indicated by a large candlestick followed by a much smaller candlestick whose body is
located within the vertical range of the larger candle's body. Such a pattern is an indication that the
previous upward trend is coming to an end.
Beginning Inventory - BI
The book value of goods, inputs, or materials available for use or sale at the beginning of an
inventory accounting period
Behavioral Economics
A field of economics that studies how the actual decision-making process influences the decisions
that are reached.
Behavioral Finance
A field of finance that proposes psychology-based theories to explain stock market anomalies.
Within behavioral finance, it is assumed that the information structure and the characteristics of
market participants systematically influence individuals' investment decisions as well as market
outcomes
Behaviorist
1. One who accepts or assumes the theory of behaviorism (behavioral finance in investing.)
2. A psychologist who subscribes to behaviorism.
Beige Book
A commonly used name for the Fed report entitled "Summary of Commentary on Current Economic
Conditions by Federal Reserve District." It is published just before the FOMC meeting on interest
rates and is used to inform the members on changes in the economy since the last meeting.
Bell
The ring that marks the open and close of each trading day on many organized financial exchanges,
most notably the NYSE.
Bellwether
A leading indicator of trends.
Ben Bernanke
The Chairman of the Board of Governors of the U.S. Federal Reserve who took over the helm from
Alan Greenspan on February 1, 2006, ending 18 years of Greenspan's leadership at the Fed. A former
Fed governor, Bernanke was Chairman of the U.S. President's Council of Economic Advisers prior to
being nominated as Greenspan's successor in late 2005
Benchmark
A standard against which the performance of a security, index or investor can be measured.
Benchmark Bond
A bond that provides a standard against which the performance of other bonds can be measured.
Government bonds are almost always used as benchmark bonds. Also referred to as "benchmark
issue" or "bellwether issue".
Beneficial Owner
A person who enjoys the benefits of ownership even though title is in another name.
Beneficiary
A person or entity named in a will or a financial contract as the inheritor of property when the
property owner dies.
Benefit Offset
A reduction in the amount of benefit payments received by a member of a retirement plan which may
result when the member owes money to the plan.
Benjamin Graham
A scholar and financial analyst who is widely recognized as the father of value investing. His famous
book, "The Intelligent Investor", has gained recognition as one of the best and most important
investment pieces written illustrating the fundamentals of a value-investing strategy.
Bequest
The process of giving stocks, bonds, or any other assets to beneficiaries through the provisions of a
will.
Bermuda Option
A type of option that can only be exercised on predetermined dates, usually every month.
Bermuda Swaption
A swaption with predefined limitations on exercise.
Berry Ratio
The ratio of a company's gross profits to operating expenses. This ratio is used as an indicator of a
company's profits in a given period of time. A ratio coefficient of 1 or more indicates that the
company is making profit above all variable expenses, whereas a coefficient below 1 indicates that
the firm is losing money.
Best Ask
The lowest quoted ask price for a particular stock among those offered from competing market
makers.
Best Bid
The highest quoted bid for a particular stock among all those offered by competing market makers.
Best Efforts
An agreement an underwriter makes to act as an agent between an issuing company and investors
Best Execution
The responsibility of brokers to provide the most advantageous, or best price, order execution for
customers.
Beta
Measures a stock’s price volatility relative to price performance of the S&P 500 Index, over a 12-
month period.
BGN
In currencies, this is the abbreviation for the Bulgarian Lev.
BHD
In currencies, this is the abbreviation for the Bahraini Dinar.
Bid
1. An offer made by an investor, a trader or a dealer to buy a security. The bid will stipulate both the
price at which the buyer is willing to purchase the security and the quantity to be purchased.
2. The price at which a market maker is willing to buy a security. The market maker will also display
an ask price, or the amount and price at which it is willing to sell.
Bid Price
The price a buyer is willing to pay for a security. This is one part of the bid with the other being the
bid size, which details the amount of shares the investor is willing to purchase at the bid price. The
opposite of the bid is the ask price, which is the price a seller is looking to get for his or her shares.
Bid Size
The number of shares a buyer is willing to purchase at the quoted bid price.
Bid Tick
An indication of whether the latest bid price is higher, lower, or the same as the previous bid.
Bid-Ask Spread
The amount by which the ask price exceeds the bid. This is essentially the difference in price
between the highest price that a buyer is willing to pay for an asset and the lowest price for which a
seller is willing to sell it.
Bid-to-Cover Ratio
A ratio that compares the number of bids received in a Treasury security auction to the number of
bids accepted.
BIF
In currencies, this is the abbreviation for the Burundi Franc.
Bifurcation
A term used in finance that refers to a splitting of something into two separate pieces
Bond
A debt investment with which the investor loans money to an entity (company or government) that
borrows the funds for a defined period of time at a specified interest rate.
Bond Attorney
A lawyer who represents the bondholders' interests during a bond offering and who prepares the
legal opinion attesting that the issue is legal, valid and binding.
Bond Fund
A mutual fund whose investment objective is to provide stable income while taking on minimal risk.
Bond Ladder
A strategy for managing fixed-income investments by which the investor builds a ladder by dividing
his or her investment dollars evenly among bonds or CDs that mature at regular intervals
simultaneously (for example, every six months, once a year or every two years).
Bond Market
The environment in which the issuance and trading of debt securities occurs. The bond market
primarily includes government-issued securities and corporate debt securities, and facilitates the
transfer of capital from savers to the issuers or organizations requiring capital for government
projects, business expansions and ongoing operations.
Bond Option
An option contract in which the underlying asset is a bond. Other than the different characteristics
of the underlying assets, there is no significant difference between stock and bond options. Just as
with other options, a bond option allows investors the ability to hedge the risk of their bond
portfolios or speculate on the direction of bond prices with limited risk
Bond Quote
The statement of a bond's price
Bond Rating
A specification of a bond issuer's probability of defaulting based on an analysis of the issuer's
financial condition and profit potential.
Bond Swap
A strategy in which an investor sells a bond and at the same time purchases a different bond with
the proceeds from the sale.
Bonus Issue
An offer of free additional shares to existing shareholders. A company may decide to distribute
further shares as an alternative to increasing the dividend payout. Also known as a "scrip issue" or
"capitalization issue".
Book Building
The process by which an underwriter attempts to determine at what price to offer an IPO based on
demand from institutional investors.
Book Closure
A company's announcement of a dividend or bonus to investors.
Book Runner
The managing or lead underwriter who maintains the books of securities sold for a new issue.
Book Value
1. The value at which an asset is carried on a balance sheet. In other words, the cost of an asset
minus accumulated depreciation.
2. The net asset value of a company, calculated by total assets minus intangible assets (patents,
goodwill) and liabilities.
3. The initial outlay for an investment. This number may be net or gross of expenses such as trading
costs, sales taxes, service charges and so on.
In the U.K., book value is known as "net asset value".
Book-Entry Securities
Securities that are recorded in electronic records called book entries rather than as paper
certificates.
Also referred to as "book-entry receipt."
Book-to-Bill Ratio
The technology industry's demand-to-supply ratio for orders on a "firm's book" to number of orders
filled
Book-To-Market Ratio
A ratio used to find the value of a company by comparing the book value of a firm to its market
value. Book value is calculated by looking at the firm's historical cost, or accounting value. Market
value is determined in the stock market through its market capitalization
Booking the Basis
An arrangement made between a buyer and seller giving either party the ability at some future date
to determine the cash price of the forward sales agreement. Also known as "deferred pricing."
Bookout
The process of closing out a position in a swap contract or another OTC derivative agreement prior
to maturity.
Boom
A period of time during which sales or business activity increases rapidly.
Boomerang
An American slang term that refers to an adult who has moved back in with his or her parents (who
are part of the baby boomer generation) instead of living independently. The phrase, when applied to
an individual, makes reference to the fact that the person lived independently for a period, but
subsequently returned home due to the financial costs associated with maintaining a separate
household.
Boomernomics
An investing strategy that involves buying equities directly related to the spending behavior of baby
boomers (people born between 1946 and 1964).
Boon
A general term that refers to a benefit or improvement for investors. This can include such things as
increased dividends, a stock market rally and stock buybacks
Booster Shot
The name given to the first formal recommendation report issued by an underwriter for an IPO. It is
presented in the process of the public offering.
Boot
Cash or other property added to an exchange or a transaction in order to make the value of traded
goods equal
Bootstrap
A situation in which an entrepreneur starts a company with little capital. An individual is said to be
boot strapping when he or she attempts to found and build a company from personal finances or
from the operating revenues of the new company.
Bootstrapping
1. A procedure used to calculate the zero coupon yield curve from market figures.
2. A situation in which an entrepreneur starts a company with little capital. An individual is said to be
boot strapping when he or she attempts to found and build a company from personal finances or
from the operating revenues of the new company.
Bottleneck
A point of congestion in a system that occurs when workloads arrive at a given point more quickly
than that point can handle them. The inefficiencies brought about by the bottleneck often create a
queue and a longer overall cycle time.
Bottom
The lowest point or price reached by a financial security, commodity, index or economic cycle in a
given time period, which is followed by a steady increase.
Bottom Fisher
An investor who looks for bargains among stocks whose prices have recently dropped dramatically.
The investor believes that the recent price drop is temporary and a recovery is soon to follow.
Bottom Line
Slang for net income or profit.
Bottom-Up Investing
An investment approach that de-emphasizes the significance of economic and market cycles. This
approach focuses on the analysis of individual stocks. In bottom-up investing, therefore, the
investor focuses his or her attention on a specific company rather than on the industry in which that
company operates or on the economy as a whole.
Bought Deal
A new share issue that is bought entirely by one underwriter to resell to investors
Bounced Check
A check that cannot be processed because the writer has insufficient funds. Also known as a
"rubber check".
Bourse
Any European stock exchange.
Boutique
A small investment firm specializing in offering specific, but limited services to a select number of
individuals
Box Size
In the context of Point & Figure Charts, the box size is the minimum price change that must occur
for a given period before a mark (an X or an O) is added to the chart.
Box Spread
A dual option position involving a bull and bear spread with identical expiry dates. This investment
strategy provides for minimal risk. Additionally, it can lead to an arbitrage position as an investor
attempts to lock in a small return at expiry.
Box-Top Order
A buy or sell order made at the best market price. If the order cannot be completely filled, a limit
order is placed for the remaining shares at the price at which the filled portion was executed.
Bracket Creep
A situation where inflation pushes income into higher tax brackets. The result is an increase in
income taxes but no increase in real purchasing power
Brady Bonds
Bonds that are issued by the governments of developing countries. Brady Bonds are some of the
most liquid emerging market securities. They are named after former U.S. Treasury Secretary
Nicholas Brady, who sponsored the effort to restructure emerging market debt instruments.
Brand
A distinguishing symbol, mark, logo, name, word, sentence or a combination of these items that
companies use to distinguish their product from others in the market.
Brand Awareness
The likelihood that consumers recognize the existence and availability of a company's product or
service. Creating brand awareness is one of the key steps in promoting a product.
Brand Equity
An intangible value-added aspect of particular goods that are otherwise not considered unique
Break
A term used in futures markets to describe a rapid and sharp price decline.
Break Fee
1. A fee paid by a target company to bidders (during an acquisition) if the pending deal is terminated.
2. A fee paid by one party of a contract to another in order to terminate or cancel legal obligations.
Breakaway Gap
A term used in technical analysis. A breakaway gap represents a gap in the movement of a stock
price supported by levels of high volume.
The image shows a gap at the beginning of a large upward movement.
Breakdown
A price movement through an identified level of support, which is usually followed by heavy volume
and sharp declines. Technical traders will short sell the underlying asset when the price of the
security breaks below a support level because it is a clear indication that the bears are in control
and that additional selling pressure is likely to follow.
Breakout
The action by a stock when it surpasses its resistance level: usually a price ceiling at which the
stock has previously encountered selling. In many cases, but not always, that resistance level is the
highest point in a "handle" portion of a base pattern.
Breakout Trader
A type of trader who uses technical analysis to find potential trading opportunities, identifying
situations where the price of an asset is likely to experience a substantial movement over a short
period of time. Breakout traders generally look for key levels of support and resistance and will
place transactions when the asset's price passes through these levels. Long positions are taken
when the price of an asset breaks through a level of resistance, and short positions are taken when
the price breaks below a level of support.
Breakpoint
A predetermined contribution amount in a mutual fund making the investor eligible for a reduction in
sales charges. Mutual Funds are required to give a description of these breakpoints and the
eligibility requirements in their fund prospectus. It is prudent for investors to be aware of these.
Breakpoint Sale
The sale of a mutual fund at a set dollar amount that allows for the fundholder to move into a lower
sales charge bracket. If an investor is unable at the time of investment to come up with the funds
necessary to qualify for the lower fee they can sign a letter of intent stating they will reach the total
amount, or breakpoint, in a set time period.
Any sales that occur just below a breakpoint are considered unethical and in violation of NASD
rules.
Brent Blend
A type of sweet crude oil that is used as a benchmark for the prices of other crude oils.
Bridge Financing
A method of financing, used by companies before their IPO, to obtain necessary cash for the
maintenance of operations.
Bridge Loan
A short-term loan that is used until a person or company secures permanent financing or removes
an existing obligation. This type of financing allows the user to meet current obligations by
providing immediate cash flow. The loans are short-term (up to one year) with relatively high interest
rates and are backed by some form of collateral such as real estate or inventory.
Also known as "interim financing", "gap financing or a "swing loan".
BRL
In currencies, this is the abbreviation for the Brazilian Real
Broad Liquidity
A category of the money supply which includes: all funds in M3, individual holdings in accounts,
savings bonds, T-bills with maturity of less than one year, commercial papers, and banker's
acceptances.
Broad-Based Index
An index designed to reflect the movement of the entire market. The smallest broad-based index is
the Dow Jones Industrial Average with 30 industrial stocks and the largest is the Wilshire 5000 Total
Market Index. Other examples include the S&P 500, Russell 3000 Index, AMEX Major Market Index
and the Value Line Composite Index.
Broadband
A high-speed, high-capacity transmission medium that can carry signals from multiple independent
network carriers. This is done on a single coaxial or fiber-optic cable by establishing different
bandwidth channels. Broadband technology can support a wide range of frequencies. It is used to
transmit data, voice and video over long distances simultaneously
Broadening Formation
A pattern used in technical analysis to predict the likelihood of a reversal in the direction of the
current trend. It is identified by finding diverging trendlines that connect a series of widening peaks
and troughs. The most common type of broadening formation is found at the end of a prolonged
uptrend and is used to predict a move lower
Brochure Rule
Under the Investment Advisor's Act of 1940, the Brochure Rule requires federally registered
investment advisors provide a written disclosure statement to their clients at specified times during
the advisory process.
Broker
1. An individual or firm that charges a fee or commission for executing buy and sell orders
submitted by an investor.
2. The role of a firm when it acts as an agent for a customer and charges the customer a commission
for its services.
3. A licensed real estate professional who typically represents the seller of a property. A broker's
duties may include: determining market values, advertising properties for sale, showing properties
to prospective buyers, and advising clients with regard to offers and related matters.
Broker Association
A permitted association between exchange members who have shared responsibility for the
execution of orders placed by their customers. These members thereby gain access to a collective
pool of un-transacted orders, and they share the profits and losses associated with trading
activities.
Broker's Call
The interest rate relative to which margin loans are quoted. Also known as the call loan rate.
Broker-Dealer
A person or firm in the business of buying and selling securities operating as both a broker and a
dealer depending on the transaction.
Broker-Reseller
A type of broker that acts as an intermediary between large brokerages and their clients. Broker-
resellers typically take stock orders from clients and then use major brokerages to execute the
trades
Brokerage Account
An arrangement between an investor and a licensed brokerage firm that allows the investor to
deposit funds with the firm and place investment orders through the brokerage, which then carries
out the transactions on the investor's behalf. The investor owns the assets contained in the
brokerage account and must usually claim as income any capital gains he or she incurs from the
account
Brokered Deposit
A large-denomination deposit similar to a certificate of deposit.
BSD
In currencies, this is the abbreviation for the Bahamanian Dollar
BTN
In currencies, this is the abbreviation for the Bhutan Ngultrum
Bubble
1. An economic cycle characterized by rapid expansion followed by a contraction.
2. A surge in equity prices, often more than warranted by the fundamentals and usually in a
particular sector, followed by a drastic drop in prices as a massive selloff occurs.
3. A theory that security prices rise above their true value and will continue to do so until prices go
into freefall and the bubble bursts
Buck
1. Trader's slang for a million dollars.
2. Informal reference to one dollar.
Bucket Shop
1. A fraudulent brokerage firm that uses aggressive telephone sales tactics to sell securities that the
brokerage owns and wants to get rid of. The securities they sell are typically poor investment
opportunities, and almost always penny stocks.
2. A brokerage that makes trades on a client's behalf and promises a certain price. The brokerage,
however, waits until a different price arises and then makes the trade, keeping the difference as
profit.
Bucketing
A situation where, in an attempt to make a short-term profit, a broker confirms an order to a client
without actually executing it. A brokerage which engages in unscrupulous activities, such as
bucketing, is often referred to as a bucket shop
Budget
An estimation of the revenue and expenses over a specified future period of time. A budget can be
made for a person, a family or a group of people, a business, government, country or multinational
organization or just about anything else that makes and spends money. Budgets are a
microeconomic concept that show the tradeoff made when one good is exchanged for another.
Bulge
A slang term used to describe a rapid advance in prices within the commodities market
Bulge Bracket
The group of firms in an underwriting syndicate who sold the largest amount of the issue
Bulk Sales Escrow
A type of escrow agreement placed on the sale of inventory, business assets or an entire company.
The escrow serves to protect the interests of unsecured creditors: it eliminates the risk that the
seller of the assets will use the proceeds from the sale for purposes other than paying debts or
taxes owed.
Bull
An investor who thinks the market, a specific security or an industry will rise.
Bull Flattener
A yield-rate environment in which long-term rates are decreasing at a rate faster than short-term
rates. This causes the yield curve to flatten as the short-term and long-term rates start to converge.
Bull Market
A financial market of a certain group of securities in which prices are rising or are expected to rise.
The term "bull market" is most often used in respect to the stock market, but really can be applied to
anything that is traded, such as bonds, currencies, commodities, etc.
Bull markets are characterized by optimism, investor confidence and expectations that strong
results will continue. Of course, no bull market can last forever, and sooner or later a bear market (in
which prices fall) will come. It's tough if not impossible to predict consistently when the trends in the
market will change. Part of the difficulty is that psychological effects and speculation can sometimes
play a large (if not dominant) role in the markets. The extreme on the high end is a stock-market
bubble, and on the low end a crash.
Bull Spread
An option strategy in which maximum profit is attained if the underlying security rises in price.
Either calls or puts can be used. The lower strike price is purchased and the higher strike price is
sold. The options have the same expiration date.
Bull Steepener
A change in the yield curve caused by short-term rates falling faster than long-term rates, resulting
in a higher spread between the two rates.
Bull Trap
A false signal indicating that a declining trend in a stock or index has reversed and heading upwards
when, in fact, the security will continue to decline
Bulldog Bond
A sterling denominated bond that is issued in London by a company that is not British.
Bullet Bond
A noncallable regular coupon paying debt instrument with a single repayment of principal on the
maturity date.
Bullet GIC
A guaranteed investment contract (GIC) is purchased with a single premium and only one payout
that is made at maturity.
Bullet Loan
Any loan that requires a balloon payment at the end of the term and anticipates that the loan will be
refinanced in order to meet the balloon payment obligation.
Bullet Repayment
A single payment for an entire loan amount that is paid at maturity.
Bullet Trade
The act of purchasing an "in the money" put option so that the buyer can capitalize on a bear market
by effectively shorting a stock without waiting for an uptick
Bullion
Gold and silver that is officially recognized as high quality (at least 99.5% pure), and is in the form of
bars rather than coins.
Bullish Harami
A candlestick chart pattern in which a large candlestick is followed by a smaller candlestick whose
body is located within the vertical range of the larger body. In terms of candlestick colors, the bullish
harami is a downtrend of negative-colored (black) candlesticks engulfing a small positive (white)
candlestick, giving a sign of a reversal of the downward trend.
Bullpen
A slang term referring to the traditional seating arrangement of younger investment advisors or
brokers in a brokerage house
Bunching
The combining of odd-lot or round-lot orders for the same security so that they may be executed at
the same time.
Bund
The German government's federal bond. The bund is issued to the public as a way for the German
government to finance its spending.
Bundesbank
Refers to the central bank of Germany. This is the U.S. equivalent of the Federal Reserve
Bungalow
A one-story house, cottage or cabin. Bungalows are generally small in terms of square footage, but
it is not uncommon to see very large bungalows. Bungalows were originally designed to provide
affordable, modern housing for the working class.
Bunny Bond
A type of bond that offers investors the option to reinvest coupon payments into additional bonds
with the same coupon and maturity. Also known as a "multiplier bond" or a "guaranteed coupon
reinvestment bond
Buoyant
The term used to describe a commodities market where the prices generally rise with ease when
there are considerable signals of strength.
Bureau of Census
A division of the federal government of the United States Bureau of Commerce that is responsible
for conducting the national census at least once every 10 years, in which the population of the
United States is counted. The Bureau of Census is also responsible for collecting data on the
people, economy and country of the United States. Also known as the "United States Census Bureau
Business
1. An organization or enterprising entity engaged in commercial, industrial or professional activities.
A business can be a for-profit entity, such as a publicly-traded corporation, or a non-profit
organization engaged in business activities, such as an agricultural cooperative.
2. Any commercial, industrial or professional activity undertaken by an individual or a group.
3. A reference to a specific area or type of economic activity.
Business Cycle
The recurring and fluctuating levels of economic activity that an economy experiences over a long
period of time. The five stages of the business cycle are growth (expansion), peak, recession
(contraction), trough and recovery. At one time, business cycles were thought to be extremely
regular, with predictable durations. But today business cycles are widely known to be irregular -
varying in frequency, magnitude and duration.
Business Logic
The specific details and information flow of a particular industry.
Business Model
The plan implemented by a company to generate revenue and make a profit from operations. The
model includes the components and functions of the business, as well as the revenues it generates
and the expenses it incurs.
Business Risk
The risk that a company will not have adequate cash flow to meet its operating expenses.
Business To Business - B To B
Business conducted between companies, rather than between a company and individual
consumers.
Business To Consumer - B To C
Business conducted between companies and individual consumers, rather than between two
companies
Busted Takeover
A highly leveraged takeover that, to go through, requires a selling off of some of the acquired
company's assets.
Butterfly Spread
An option strategy combining a bull and bear spread. It uses three strike prices. The lower two strike
prices are used in the bull spread, and the higher strike price in the bear spread. Both puts and calls
can be used.
Buttonwood Agreement
The agreement between 24 of United States' first and most prominent brokers. Rumored to have
occurred under a "Buttonwood" tree, this marked the beginnings of the investment community of
Wall Street.
Buy
1. A recommendation to purchase a specific security.
2. To acquire an asset in exchange for currency.
Buy Minus
A type of order where a client instructs the broker to purchase a stock at a price below the current
market price.
Buy Point
Optimal buy point of a stock as it emerges from a sound and proper basing area or chart pattern (the
most common of which include the 'cup with handle,' 'flat base' and 'double bottom') and breaks out
into a new high in price. This is the point of least resistance and has shown, through William J.
O'Neil's research, to have the greatest chance of moving substantially higher based on its current
and historical price and volume activity.
Buy Side
The side of Wall Street comprising the investing institutions such as mutual funds, pension funds
and insurance firms that tend to buy large portions of securities for money-management purposes.
The buy side is the opposite of the sell-side entities, which provide recommendations for upgrades,
downgrades, target prices and opinions to the public market. Together, the buy side and sell side
make up both sides of Wall Street.
Buy To Close
A term used by many brokerages to represent the closing of a short position in option transactions.
Buy To Cover
An order placed to close out a short position in a particular stock.
Buy To Open
A term used by many brokerages to represent the opening of a long position in option transactions
Buy Weakness
A proactive trading strategy in which a trader takes profits by closing out of a short position or
buying into a long position. This strategy is used when the price of the asset being traded is still
falling but is expected to reverse and move against the trader. This is the opposite of "selling into
strength
Buy-In
When an investor is forced to repurchase shares because the seller did not deliver the securities in a
timely fashion, or did not deliver them at all.
Buyback
The buying back of outstanding shares (repurchase) by a company in order to reduce the number of
shares on the market. Companies will buyback shares either to increase the value of shares still
available (reducing supply), or to eliminate any threats by shareholders who may be looking for a
controlling stake.
Buydown
A mortgage-financing technique with which the buyer attempts to obtain a lower interest rate for at
least the first few years of the mortgage, but possibly its entire life. The builder or seller or the
property usually provides payments to the mortgage-lending institution, which, in turn, lowers the
buyer's monthly interest rate and therefore monthly payment. The home seller, however, increases
the purchase price of the home to compensate for the costs of the buydown agreement.
Buyer's Call
An agreement between a buyer and seller whereby a commodity purchase occurs at a specific price
above a futures contract for an identical grade and quantity.
Also known as a call sale, this agreement gives the buyer the option to fix the price of the
commodity by either purchasing a future from the seller or indicating to the seller a time in which the
price of the transaction will be set. A buyer's call is used instead of buying the commodity on the
spot market because of the possibility that its price will depreciate
Buyer's Market
A market condition characterized by an abundance of goods available for sale.
Buying Hedge
A transaction that commodities investors undertake to hedge against possible increases in the
prices of the actuals underlying the futures contracts.
Buying Power
The money an investor has available to buy securities. In a margin account, the buying power is the
total cash held in the brokerage account plus maximum margin available.
Also referred to as "Excess Equity."
Buyout
The purchase of a company or a controlling interest of a corporation's shares
BWP
In currencies, this is the abbreviation for the Botswana Pula.
BZD
In currencies, this is the abbreviation for the Belize Dollar.
C
A Nasdaq stock symbol indicating the issuer has been granted a continuance in Nasdaq
under an exception to the qualification standards for a limited period.
C-Share
In a family of multi-class mutual funds, the class that has a constant load structure
throughout the life of the fund.
Cabinet Crowd
Members of the NYSE that typically trade in inactive bonds. Also known as the inactive
bond crowd or book crowd.
Cabinet Security
A stock or bond that is listed under a major financial exchange, but is not actively traded
Cable
In the context of the forex market, the exchange rate between the U.S. dollar and the
British pound sterling. Because it is the norm in forex for most major currencies to be
quoted against the U.S. dollar on a regular basis, "cable" is a commonly used term.
"Cable" can also be used to refer simply to the British pound sterling.
CAC 40
The French stock market index that tracks the 40 largest French stocks based on market
capitalization on the Paris Bourse (stock exchange).
CAD
In currencies, this is the abbreviation for the Canadian Dollar.
Cafeteria Plan
An employee benefit plan that allows staff to choose from a variety of benefits to formulate
a plan that best suits their needs.
Also known as "cafeteria employee benefit plan" or "flexible benefit plan".
Cage
A term used to describe the department of a brokerage firm that receives and distributes
physical securities.
Caisse Populaire
A cooperative, member-owned financial institution that fulfills traditional banking roles as
well as diverse activities such as lending, insurance, investment dealing. Caisses
Populaires are primarily found in the province of Quebec in Canada, as caisses populaires
are essentially the francophone equivalent of a credit union.
Calculation Agent
An individual who calculates the value of a derivative or the amount owing from each party
in a swap agreement.
Calendar Spread
An options or futures spread established by simultaneously entering a long and short
position on the same underlying asset but with different delivery months. Sometimes
referred to as an inter-delivery, time or horizontal spread.
Calendar Year
The one-year period that begins on Jan 1 and ends on Dec 31, based on the commonly
used Gregorian calendar. For individual and corporate taxation purposes, a calendar year
will generally comprise all of the year's financial information used to calculate income tax
payable.
Call
1. The period of time between the opening and closing of some future markets wherein the
prices are established through an auction process.
2. An option contract giving the owner the right (but not the obligation) to buy a specified
amount of an underlying security at a specified price within a specified time.
Call Date
The date on which a bond can be redeemed before maturity. If the issuer feels there is a
benefit to refinancing the issue, the bond may be redeemed on the call date at par or at a
small premium to par.
Call Loan
A loan provided to a brokerage firm and used to finance margin accounts. The interest rate
on a call loan is calculated daily. The resulting interest rate is referred to as the call loan
rate.
Call Option
An agreement that gives an investor the right (but not the obligation) to buy a stock, bond,
commodity, or other instrument at a specified price within a specific time period
Call Premium
1. The dollar amount over the par value of a callable fixed-income debt security that is
given to holders when the security is called by the issuer.
2. The amount the purchaser of a call option must pay to the writer.
Call Price
The price at which a bond or a preferred stock can be redeemed by the issuer. This price
is set at the time the security is issued. Also referred to as "redemption price".
Call Protection
A protective provision of a callable security prohibiting the issuer from calling back the
security for a period early in its life.
Call Risk
The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the
callable bond feature and redeem the issue prior to maturity. This means the bondholder
will receive payment on the value of the bond and, in most cases, will be reinvesting in a
less favorable environment (one with a lower interest rate).
Call Rule
A exchange rule whereby the official bidding price for a cash commodity is competitively
established at the end of each trading day and held until the opening of the exchange the
following trading day
Call Warrant
A warrant that gives the holder the right to buy the underlying share for an agreed price,
on or before a specified date
Callable Bond
A bond that can be redeemed by the issuer prior to its maturity. Usually a premium is paid
to the bond owner when the bond is called.
Also known as a "redeemable bond".
Called Away
A term used to describe the elimination of a contract due to the obligation of delivery. This
occurs if an option is exercised, if a redeemable bond is called before maturity or if a short
position held in a security requires delivery.
Calmar Ratio
A ratio used to determine return relative to drawdown (downside) risk in a hedge fund.
Cambist
An expert trader who rapidly buys and sells currency throughout the day.
Camouflage Compensation
Compensation that is granted to upper echelon employees, directors, consultants and
related parties that is not fully disclosed in mandatory company filings. In other cases,
compensation is fully disclosed, but in such a way that it is very difficult for the average
investor to decipher the true value of gross pay compensation.
CAN SLIM®
Acronym for William J. O'Neil's investment strategy. CAN SLIM® is based on the seven
common characteristics found in his study of the greatest stock market winners of the last
45 years. A thorough discussion of CAN SLIM® can be found in William J. O'Neil's book,
How to Make Money in Stocks.
•C = Current Earnings Growth
•A = Annual Earnings Growth
•N = New Products, New Services, New Management, New Price Highs
•S = Supply & Demand
•L = Leader or Laggard
•I = Institutional Sponsorship
•M = Market
Canadian Dollars
IBD's earnings section contains reports from Canadian companies who report their
quarterly results in Canadian dollars.
Cancellation
A notice informing a customer of the cancellation of an erroneous trade that has been
credited to his or her account by the broker.
Candlestick
A price chart that displays the high, low, open, and close for a security each day over a
specified period of time.
Capital
1. Financial assets or the financial value of assets such as cash.
2. The factories, machinery and equipment owned by a business.
Capital Account
The net result of public and private international investment flowing in and out of a
country.
Capital Appreciation
A rise in the market price of an asset.
Capital Asset
A long-term asset that is not bought or sold in the regular course of business.
Capital Base
1. The capital acquired during an IPO, or the additional offerings of a company, plus any
retained earnings.
2. An initial investment plus subsequent investments made by an investor into their
portfolio.
Capital Budgeting
The process of determining whether or not projects such as building a new plant or
investing in a long-term venture are worthwhile.
Also known as "investment appraisal".
Capital Employed
1. The total amount of capital used for the acquisition of profits.
2. The value of all the assets employed in a business.
3. Fixed assets plus working capital.
4. Total assets less current liabilities.
Capital Flight
The action of investors moving their securities out of a particular country because of a
fear of country-specific risks or political instability, or because of the lure of higher returns
in a different country.
Capital Gain
An increase in the value of a capital asset (investment or real estate) that gives it a higher
worth than the purchase price. The gain is not realized until the asset is sold. A capital
gain may be short term (one year or less) or long term (more than one year) and must be
claimed on income taxes.
Capital Goods
Any goods used by an organization to produce other goods.
Capital Improvement
The addition of a permanent structural improvement or the restoration of some aspect of a
property that will either enhance the property's overall value or increases its useful life.
Although the scale of the capital improvement can vary, capital improvements can be
made by both individual homeowners and large-scale property owners.
Capital Intensive
A process or industry that requires large sums of financial resources to produce a
particular good.
Capital Lease
A lease considered to have the economic characteristic of asset ownership.
Capital Loss
The loss incurred when a capital asset (investment or real estate) decreases in value. This
loss is not realized until the asset is sold for a price that is lower than the original
purchase price.
Capital Markets
Markets where capital, such as stocks and bonds, are traded.
Capital Note
Fixed income products issued by companies as a source of short term debt.
Capital Rationing
The act of placing restrictions on the amount of new investments or projects undertaken
by a company. This is accomplished by imposing a higher cost of capital for investment
consideration or by setting a ceiling on the specific sections of the budget.
Capital Risk
1. The risk an investor faces that he or she may lose all or part of the principal amount
invested.
2. The risk a company faces that it may lose value on its capital. The capital of a company
can include equipment, factories and liquid securities.
Capital Share
The class of shares offered by a dual-purpose fund that has opportunity for capital
appreciation but does not offer the holder any portion of the fixed income earned within
the portfolio.
Capital Stock
The common and preferred stock a company is authorized to issue, according to their
corporate charter
Capital Structure
The means by which a firm is financed.
Capital Surplus
Equity which cannot otherwise be classified as capital stock or retained earnings. It's
usually created from a stock issued at a premium over par value.
Capitalism
An economic system based on a free market, open competition, profit motive and private
ownership of the means of production. Capitalism encourages private investment and
business, compared to a government-controlled economy. Investors in these private
companies (i.e. shareholders) also own the firms and are known as capitalists.
Capitalization
1. In accounting, it is where costs to acquire an asset are included in the price of the asset.
2. The sum of a corporation's stock, long-term debt and retained earnings. Also known as
"invested capital".
3. A company's outstanding shares multiplied by its share price, better known as "market
capitalization".
Capitalization Rate
According to the Appraisal Institute, it is a method used to convert an estimate of a single
year's income expectancy into an indication of value in one direct step, by dividing the
income estimate by an appropriate rate.
Capitalize
An accounting method used to delay the recognition of expenses by recording the
expense as a long-term asset.
Capitalized Interest
The amount of accrued interest that is added to an original principal loan amount because
the borrower either has not made large enough payments or has made no payments at all.
In such a situation, the borrower is paying interest on interest.
Capitulation
A military term. Capitulation refers to surrendering or giving up.
In the stock market, capitulation is associated with "giving up" any previous gains in stock
price as investors sell equities in an effort to get out of the market and into less risky
investments. True capitulation involves extremely high volume and sharp declines. It
usually is indicated by panic selling.
Capped Option
An option with a pre-established profit cap. A capped option is automatically exercised
when the underlying security closes at or above (for a call) or at or below (for a put) the
Option's cap price.
Capping
1. The practice of selling large amounts of a commodity or security close to the options
expiry date in order to prevent a rise in market price.
2. An attempt to keep a stock's price low or move its price lower by putting selling
pressure on it.
Captive Fund
A fund that provides investment services solely to the one firm holding ownership.
Caput
A type of exotic option that consists of a call option on a put option. Essentially it gives
the holder the right to purchase another option. This type of option is also known as a
"compound option".
Carbon Trade
An idea presented in response to the Kyoto Protocol that involves the trading of
greenhouse gas (GHG) emission rights between nations.
Cardboard Box Index
An index used by some investors to gauge industrial production by using the output of
cardboard boxes to predict the purchases of non-durable consumer goods.
Carried Interest
Used for resource companies that have a stake in a resource property. The owner of the
property doesn't have to make a proportionate contribution to the expenses incurred for
the project.
Carrot Equity
Equity which allows for the opportunity to purchase more equity if the company reaches
certain financial goals
Carrying Broker
A term used to refer to a commodities exchange member who elects to clear trades on
behalf of another party.
Carrying Charge
A cost associated with holding a financial instrument or storing a physical commodity
over a defined period of time.
Carrying Value
An accounting measure of value, where the value of an asset or a company is based on
the figures in the company's balance sheet. For assets, the value is based on the original
cost of the asset less any depreciation, amortization or impairment costs made against the
asset. For a company, carrying value is a company's total assets minus intangible assets
and liabilities such as debt.
Also known as "book value".
Cartel
A small group of producers of a good or service who agree to regulate supply in an effort
to control or manipulate prices.
Carve-out
1. Sometimes known as a partial spinoff, a carve out occurs when a parent company sells
a minority (usually 20% or less) stake in a subsidiary for an IPO or rights offering.
2. Where an established brick-and-mortar company hooks up with venture investors and a
new management team to launch an Internet spinoff.
Cash
Legal tender or coins that can be used in exchange goods, debt, or services. Sometimes
also including the value of assets that can be converted into cash immediately, as
reported by a company
Cash Account
A regular broker account in which the customer is required by Regulation T to pay for
securities within two days after a purchase is made.
Cash Accounting
An accounting method where receipts are recorded during the period they are received,
and the expenses in the period in which they are actually paid.
Cash Advance
A loan taken out against a line of credit or credit card, typically imposing higher-than-
normal interest charges.
Cash Basis
A major accounting method that recognizes revenues and expenses at the time physical
cash is actually received or paid out. This contrasts to the other major accounting method,
accrual accounting, which requires income to be recognized in a company's books at the
time the revenue is earned (but not necessarily received) and records expenses when
liabilities are incurred (but not necessarily paid for).
Cash Budget
An estimation of the cash inflows and outflows for a business.
Cash Charge
A charge off made by a company against earnings that requires an initial outlay of cash
Cash Commodity
The actual or physical commodity underlying a futures contract.
Cash Conversion Cycle
The duration between the purchase of a firm's inventory and the collection of accounts
receivable for the sale of that inventory. Also known as cash cycle.
Cash Cost
A cash basis accounting cost recognition process that classifies costs as they are paid for
in cash, and is recognized in the general ledger at the point of sale. This method is
contrary to the accrual cost recognition method, which directly influences the operating
cash flow figure.
Cash Cow
1. One of the four categories (quadrants) in the BCG growth-share matrix that represents
the division within a company that has a large market share within a mature industry.
2. A business, product or asset that, once acquired and paid off will produce consistent
cash flow over its lifespan.
Cash Delivery
1. The same-day settlement of a currency trade in the forex market. This means that
delivery and settlement of the transaction occur on the same date that the currency trade
is made. In order for this to occur, the forex position must be opened and closed within
the same trading day.
Also referred to as "same-day settlement".
2. In the context of futures contracts, a settlement term in a contract that stipulates that
the underlying asset of the contract will not be delivered on the delivery date - rather, the
net cash value of the position will be transferred to the applicable party instead.
Cash Dividend
Money paid to stockholders, normally out of the corporation's current earnings or
accumulated profits. All dividends must be declared by the board of directors and are
taxable as income to the recipients.
Cash Flow
1. A revenue or expense stream that changes a cash account over a given period. Cash in-
flows usually arise from one of three activities - financing, operations or investing - though
they also occur as a result of donations or gifts in the case of personal finance. Cash out-
flows result from expenses or investments. This holds true for both business and personal
finance.
2. An accounting statement - the statement of cash flows - that shows the amount of cash
generated and used by a company in a given period, calculated by adding non-cash
charges (such as depreciation) to net income after taxes. Cash flow can be attributed to a
specific project, or to a business as a whole. Cash flow can be used as an indication of a
company's financial strength.
Cash Investment
Short-term obligations, usually ninety days or less, that provide a return in the form of
interest payments
Cash Market
The market for a cash commodity or actual, as opposed to the market for its futures
contract.
Cash Price
The price of the purchase and delivery of cash commodities.
Cash Settlement
A settlement method used in certain future and option contracts whereby, upon expiry or
exercise, the seller of the financial instrument does not deliver the actual but transfers the
associated cash position.
Cash Transaction
A transaction that is settled with cash on the same day as the trade.
Cash-on-Cash Return
A rate of return often used in real-estate transactions. The calculation determines the cash
income on the cash invested:
Cash-on-Cash Yield
A comparative measure using the total amount of distributions paid upon an income trust
divided by its market value.
Cash-or-Nothing Call
A type of option whose payoff is set to a specified fixed price if the final asset price is
above the strike price if not, the payoff is set to zero.
Cash-or-Nothing Put
A type of option whose payoff is set to a specified fixed price if the final asset price is
below the strike price if not, the payoff is set to zero.
Cashier's Check
A check written by a financial institution on its own funds. It is then signed by a
representative of the financial institution and made payable to a third party. A customers
who purchases a cashier's check pays for the full face value of the check and usually also
pays a small premium for the service. These checks are secured by the funds of the issuer
- usually
Cashless Exercise
A transaction that is used when exercising employee stock options (ESO). Essentially,
what you do here is borrow enough money from your broker to exercise the options. You
then simultaneously sell enough shares to pay for the purchase, taxes, and broker
commissions.
Casino Finance
Any investment strategy that is classified as extremely high risk.
Casualty Insurance
A broad category of coverage against loss of property, damage or other liabilities,
including such things as vehicle insurance, liability insurance, theft insurance and
elevator insurance.
Catalyst
Something that initiates or causes an important event to happen. Originally a term used in
chemistry for the volatile (active) chemical in a formula.
Category Killer
Large companies that put less efficient and highly specialized merchants out of business.
Category killers can attain this status by being cheaper, easier, bigger, or more popular
than the competition.
Caveat Emptor
Another way to say, "let the buyer beware."
Ceiling
The highest level of allowance permitted for a certain good, rate, or transaction.
Celtic Tiger
A nickname for Ireland during its boom years of the late 1990s, when it enjoyed an average
annual growth rate of over 6.5%. The first boom was in the late 1990s when investors
(many of them tech firms) poured in, drawn by the country's favorable tax rates - some as
much as 20-50% lower than the rest of Europe. It ended with the bursting of the internet
bubble in 2001.
The second boom in 2004 was largely the result of Ireland opening its doors to workers
from new EU member nations. Increases in house prices, continued investment by
multinationals, growth in jobs and tourism, a resurgence of the IT industry and the U.S.
economic recovery have all been cited as contributing factors for the revival.
Central Bank
The entity responsible for overseeing the monetary system for a nation (or group of
nations). Central banks have a wide range of responsibilities - from overseeing monetary
policy to implementing specific goals such as currency stability, low inflation and full
employment. Central banks also generally issue currency, function as the bank of the
government, regulate the credit system, oversee commercial banks, manage exchange
reserves and act as a lender of last resort.
Certainty Equivalent
The return that would be accepted for the chance at a higher, but uncertain, amount.
Certificate Of Deposit - CD
A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a
specified fixed interest rate and can be issued in any denomination. CDs are generally
issued by commercial banks and are insured by the FDIC. The term of a CD generally
ranges from one month to five years.
Certificate of Indebtedness
A short-term fixed income security issued by the United States Treasury that has a
coupon.
Certificated Stock
A stock of commodity that has been inspected by qualified representatives and
determined to be of basis grade.
Certificates of Accrual on Treasury Securities - CATS
Issued by the U.S. Treasury and stripped by a financial intermediary, these products are
sold at a significant discount from face value and pay no interest during their lifetime.
However, they return full face value and cannot be called away.
Certified Check
A check certified by a bank to show sufficient funds within the account meet the amount
the check is drawn for.
Certified Financial Planner™ - CFP™
The CFP™ legal team has provided their official definition, along with trademarks: CFP™,
Certified Financial Planner™,and marks are certification marks owned by the Certified
Financial Planner Board of Standards, Inc. These marks are awarded to individuals who
successfully complete the CFP Board's initial and ongoing certification requirements.
Ceteris Paribus
Latin phrase that translates approximately to "holding other things constant" and is
usually rendered in English as "all other things being equal". In economics and finance,
the term is used as a shorthand for indicating the effect of one economic variable on
another, holding constant all other variables that may affect the second variable.
Chaikin Oscillator
An oscillator created by subtracting a 10-day EMA from a 3-day EMA of the
accumulation/distribution line.
Chameleon Option
An option that has the ability to change its structure, should certain pre-determined terms
of the contract be met.
Change
1. For an option or futures contract, the difference between the current price and the
previous day's settlement price.
2. For an index or average, the difference between the current value and the previous day's
market close.
3. For a stock or bond quote, the difference between the current price and the last trade of
the previous day.
Changer
The name given to a clearing member that is willing to assume the opposite position of a
futures contract within a larger alternative exchange, of which it also is a clearing member.
Channel
1. The system of intermediaries between the producers, suppliers, consumers, etcetera,
for the movement of a good or service.
2. The technical range between support and resistance levels that a stock price has traded
in for a specific period of time.
Channel Check
A method of independent stock analysis whereby company information is supplied by
third parties.
Channel Stuffing
A deceptive business practice used by a company to inflate its sales and earnings figures
by deliberately sending retailers along its distribution channel more products than they
are able to sell to the public.
Chaos Theory
Also referred to as non-linear dynamics, chaos theory is a mathematical concept
explaining that it is possible to get random results from normal equations. The main
precept behind this theory is the underlying notion of small occurrences significantly
affecting the outcomes of seemingly unrelated events.
Chapter 10
Named after the U.S. bankruptcy code 10, chapter 10 discusses how a company can file
for court protection.
Chapter 11
Named after the U.S. bankruptcy code 11, Chapter 11 is a form of bankruptcy that involves
a reorganization of a debtor's business affairs and assets. It is generally filed by
corporations which require time to restructure their debts.
Chapter 11 gives the debtor a fresh start, subject to the debtor's fulfillment of its
obligations under its plan of reorganization.
Chapter 13
A U.S. bankruptcy proceeding in which the debtor undertakes a reorganization of his/her
finances under the supervision and approval of the courts. The reorganization must
involve the debtor submitting and following through with a plan to repay outstanding
creditors within three to five years. In most circumstances, the repayment plan must
provide a substantial payback to creditors - at least equal to what they would receive
under other forms of bankruptcy - and it must, if needed, use 100% of the debtor's income
for repayment.
Chapter 7
A bankruptcy proceeding in which a company stops all operations and goes completely
out of business. A trustee is appointed to liquidate (sell) the company's assets, and the
money is used to pay off debt
Charge Card
A card that charges no interest but requires the user to pay his/her balance in full upon
receipt of the statement, usually on a monthly basis. While it is similar to a credit card, the
major benefit offered by a charge card is that it has much higher, often unlimited,
spending limits.
Charge Off
1. A debt that is deemed uncollectable and written off. Also known as a bad debt.
2. A one time expense incurred by a company that negatively affects earnings.
Chargeback
The charge a credit card merchant pays to a customer after the customer successfully
disputes an item on his or her credit card statement.
Charitable Donation
A gift made by an individual or an organization to a nonprofit organization, charity or
private foundation. Charitable donations are commonly in the form of cash, but can also
take the form of real estate, motor vehicles, appreciated securities, clothing and other
assets or services.
Charter
A legal document that provides for the creation of a corporate entity. A corporation's
charter is issued by either a federal or a regional government and effectively creates a
legal entity out of the business, which existed only as a partnership, sole proprietorship or
similar business before incorporating.
Also referred to as "articles of incorporation".
Chartered Bank
A financial institution whose primary roles are to accept and safeguard monetary deposits
from individuals and organizations, and to lend money out. The details vary from country
to country, but usually a chartered bank in operation has obtained government permission
on some level to do business in the banking sector.
Chartist
Another name for a technical analyst. This is a person who uses charts to identify patterns
that can suggest future activity.
Chastity Bond
A bond designed to prevent unwanted takeovers by having a maturity that is activated
once a takeover is complete.
Chattel Mortgage
A term used when describing a mobile or manufactured home mortgage. Specifically when
the home is not financed with the land.
Cheap Stock
The illegal practice of issuing stock options at artificially low prices shortly before an
initial public offering.
Often underwriters will require a company to have more qualified management before they
can go public. They attract these qualified individuals by giving options with a low
exercise price.
Check
A written, dated, and signed instrument that contains an unconditional order from the
drawer that directs a bank to pay a definite sum of money to a payee.
Check Representment
A method whereby checks from accounts with insufficient funds are repeatedly deposited
until funds are available.
Checking Account
A deposit account for funds intended for quick turnover. Checking accounts offer very low
interest on unused cash balances.
Cherry Picking
1. The act of investors choosing investments that have performed well within another
portfolio in anticipation that the trend will continue.
2. Relating to bankruptcy proceedings whereby the courts uphold contracts favorable to
bankrupt companies, but annul those that are unfavorable.
CHF
In currencies, this is the abbreviation for the Swiss Franc.
Chill
Special restrictions that can be placed on a given security by the Depository Trust
Company (DTC). Chill restrictions are intended to limit the potential for problems within
the financial marketplace, and they can be placed on a security for various reasons.
Chinese Wall
The ethical (not physical) barrier between different divisions of a financial (or other)
institution to avoid conflict of interest. A Chinese Wall is said to exist, for example,
between the corporate-advisory area and the brokering department to separate those
giving corporate advice on takeovers from those advising clients about buying shares.
The "wall" is thrown up to prevent leaks of corporate inside information, which could
influence the advice given to clients making investments, and allow staff to take
advantage of facts that are not yet known to the general public.
Choice Market
A market in which the spread between the bid and the ask for a given financial instrument
is zero - meaning that, at any point in time, the instrument can be bought for the same
price as it can be sold in the market. This type of market only occurs when there is
extreme liquidity and a limited number of intermediaries.
Choke Price
An economic term used to describe the price at which the quantity demanded of a good is
equal to zero.
Chooser Option
An option where the investor has the opportunity to choose whether the option is a put or
call at a certain point in time during the life of the option.
Choppy Market
A stock market condition whereby prices swing up and down considerably but with no
resulting overall price movement in either direction
Christmas Club
A type short-term savings account that usually pays out the full account balance to its
account holders once each year - right before Christmas. These accounts pay depositors
monthly interest on their account balances and often punish early withdrawals by
forfeiting interest earned if money is taken out before a given date.
Christmas Tree
An options trading strategy that is generally achieved by purchasing one call option and
selling two other call options at different strike prices. When drawn structurally, the strike
price of the long option is located below the two successively higher written calls.
Churn Rate
The percentage of subscribers to a service that discontinue their subscription to that
service in a given time period.
In order for a company to expand its clientele, its growth rate (i.e. its number of new
customers) must exceed its churn rate.
Churning
1. An unethical practice employed by some brokers to increase their commissions by
excessively trading in a client's account. This practice violates the NASD Fair Practice
Rules. It is also referred to as "churn and burn", "twisting" and "overtrading".
2. A period of heavy trading with few sustained price trends and little movement in stock
market indexes
CINS Number
An acronym standing for the "CUSIP International Numbering System," which provides
identification of international securities.
Circuit Breaker
Refers to any of the measures used by stock exchanges during large sell-offs to avert
panic selling. Sometimes called a "collar."
Circular Trading
A fraudulent trading scheme where sell orders are entered by a broker who knows that
offsetting buy orders, the same number of shares at the same time and at the same price,
either have been or will be entered.
Circus Swap
A swap with the features of both a currency swap and an interest rate swap.
Class
In the most general form, a class is a group of securities with similar features.
Class A Shares
A classification of common stock that may be accompanied by more or less voting rights
than Class B shares. Although Class A shares are often thought to carry more voting
rights than Class B shares, this is not always the case. Companies will often try to
disguise the disadvantages associated with owning shares with less voting rights by
naming those shares "Class A", and those with more voting rights "Class B".
Class Action
An action where an individual represents a group in a court claim. The judgment from the
suit is for all the members of the group (class).
Class B Shares
A classification of common stock that may be accompanied by more or less voting rights
than Class A shares. Although Class A shares are often thought to carry more voting
rights than Class B shares, this is not always the case. Companies will often try to
disguise the disadvantages associated with owning shares with less voting rights by
naming those shares "Class A", and those with more voting rights "Class B".
Classical Economics
Classical Economics refers to work done by a group of economists in the 18th and 19th
centuries. They developed theories about the way markets and market economies work.
The study was primarily concerned with the dynamics of economic growth. It stressed
economic freedom and promoted ideas such as laissez-faire and free competition.
Classified Board
A structure for a board of directors in which a portion of the directors serve for different
term lengths, depending on their particular classification. Under a classified system,
directors serve terms usually lasting between one and eight years; longer terms are often
awarded to more senior board positions (i.e. chairman of the corporate governance
committee).
Classified boards are often referred to as "staggered boards", although staggered boards
and classified boards have somewhat different structures. Staggered boards need not be
classified, but classified boards are inherently staggered.
Classified Shares
The separation of company equity into more than one class of common shares, usually
called "Class A" and "Class B."
Clawback
1. Previously given monies or benefits that are taken back due to specially arising
circumstances.
2. A retraction of stock prices or of the market in general.
Clean Price
The price quoted for a bond excluding accrued interest.
Clean Sheeting
The fraudulent act of purchasing a life insurance policy without disclosing a pre-existing
terminal illness or disease. This type of fraud is often done with both the knowledge of the
purchaser and the agent involved.
Clearing
The procedure by which an organization acts as an intermediary and assumes the role of a
buyer and seller for transactions in order to reconcile orders between transacting parties.
Clearing Corporation
An organization associated with an exchange to handle the confirmation, settlement and
delivery of transactions, fulfilling the main obligation of ensuring transactions are made in
a prompt and efficient manner. They are also referred to as "clearing firms" or "clearing
houses".
Clearing Fee
A fee charged by clearing corporations for their services provided to investment firms.
Clearing House
An agency or separate corporation of a futures exchange responsible for settling trading
accounts, clearing trades, collecting and maintaining margin monies, regulating delivery
and reporting trading data. Clearing houses act as third parties to all futures and options
contracts - as a buyer to every clearing member seller and a seller to every clearing
member buyer.
Clearing Price
The specified monetary value assigned to a security or asset. This price is determined by
the bid and ask process of buyers and sellers interested in trading the security
Clearstream International
A European clearing corporation, this organization supports over 2500 different
companies in 80 locations worldwide
Cleave
The occurrence of a gemstone breaking into two or more pieces during the cutting or
polishing process. Naturally occurring impurities in the stones increase the likelihood that
a stone will break apart.
Clientele Effect
The theory that a company's stock price will move according to the demands and goals of
investors in reaction to a tax, dividend or other policy change affecting the company. The
clientele effect assumes that investors are attracted to different company policies, and
that when a company's policy changes, investors will adjust their stock holdings
accordingly. As a result of this adjustment, the stock price will move.
Cliff Vesting
A type of vesting that occurs entirely at a specified time rather than gradually.
Climax
Following a protracted period of selling or buying, a point wherein market trends are
retarded or discontinued.
Climax Top
When a stock suddenly advances at a much faster rate for one or two weeks after an
advance of many months. Generally occurs in the final “stages†of a stock's price
advance, indicating a leveling off or decrease in future price movements. Often
accompanied by a gap up in price. Based on William J. O'Neil's research, many big market
leaders top in this fashion. (Also, see Gap and Exhaustion gap)
Clinton Bond
A bond that is said to have no principal, no interest and no maturity
Cliquet
An extended option that periodically settles and resets its strike price at the level of the
underlying during the time of settlement.
Clone Fund
A mutual fund that replicates the performance or strategy of an existing mutual fund or
index through the use of derivatives.
Close
1. The end of a trading session. The closing price is quoted in the newspaper.
2. The final procedure in a home sale in which documents are signed and recorded. This is
the time when the ownership of the property is transferred.
Close Period
The time period between the completion of a company's balance sheet and the
announcing of the results to the public
Close Position
The act of taking the opposite position of the current position thereby getting out of a
position in a particular stock or security.
Also referred to as "Closing Transaction."
Closed-End Funds
Closed-end investment companies have a fixed number of shares to sell. Their shares are
traded on the major exchanges and fluctuate according to supply and demand in the
market. You do not have a guarantee that you can sell your shares at net asset value like
you do in open-end mutual funds.
Closed-end Indenture
A term in a bond contract that guarantees that the collateral used to back the bond issue
cannot be used again to back another bond issue. This is the opposite of an open-end
indenture in which more than one bond can be backed by a single collateral.
Closed-End Investment
When an investment company issues a fixed number of shares in an actively managed
portfolio of securities. The shares are traded in the market just like common stock.
Closed-End Lease
A rental agreement that puts no obligation on the lessee (the person making periodic lease
payments) to purchase the leased asset at the end of the agreement. Also called a "true
lease", "walkaway lease" or "net lease".
Closed-Market Transaction
An order placed by a company's insider to buy or sell restricted securities from within the
company's own treasury. Appropriate documentation must be filed before the order can be
placed.
Closet Indexing
A portfolio strategy used by some portfolio managers to achieve returns similar to those
of their benchmark index, without exactly replicating the index.
Closing
1. The end of a trading session. The closing price is quoted in the newspaper.
2. The final procedure in a home sale in which documents are signed and recorded. This is
the time when the ownership of the property is transferred.
Closing Bell
A bell that rings to signify the end of a trading session.
Closing Costs
The numerous expenses (over and above the price of the property) that buyers and sellers
normally incur to complete a real estate transaction. Costs incurred include loan
origination fee, discount points, appraisal fee, title search, title insurance, survey, taxes,
deed-recording fee and credit report charges. Also known as "settlement costs".
Closing Statement
A document commonly used in real estate transactions, detailing the fees, commissions,
insurance, etc. that must be transacted for a successful transfer of ownership to take
place. This document is prepared by a closing agent and is also known as a "settlement
sheet".
Closing Tick
The number of stocks which closed higher than their previous trade minus the number of
stocks whose closing prices were lower than their previous trade. A positive closing tick
means that there was buying at the close and indicates strength, the opposite is true for a
down closing tick.
CLP
In currencies, this is the abbreviation for the Chili Peso.
Club Deal
A syndicated loan agreement in which the participants in the syndicate are specifically
requested by the borrower
CNN Effect
The temporary shifting of consumer spending that occurs as a result of gripping news.
CNY
In currencies, this is the abbreviation for the China Yuan Renminbi.
Co-pay
A type of insurance policy where the insured pays a specified amount of out-of-pocket
expenses for health-care services such as doctor visits and prescriptions drugs at the
time the service is rendered, with the insurer paying the remaining costs. However, unlike
coinsurance, where the insured is required to pay a certain percentage of the covered
costs, co-pay plans require the insured to pay a specified dollar amount.
Coattail Investing
An investment strategy where investors mimic the trades of well-known and historically
successful investors.
Cockroach Theory
A market theory that states bad news tends to be released in bunches.
Coefficient Of Variation - CV
A statistical measure of the dispersion of data points in a data series around the mean. It
is calculated as follows:
The coefficient of variation represents the ratio of the standard deviation to the mean, and
it is a useful statistic for comparing the degree of variation from one data series to
another, even if the means are drastically different from each other
Coincident Indicator
An economic factor that varies directly and simultaneously with the business cycle, thus
indicating the current state of the economy.
Coinsurance
A co-sharing agreement between the insured and the insurer under a health-insurance
policy which provides that the insured will cover a set percentage of the covered costs
after the deductible has been paid. Similar to co-pay insurance plans except co-pays
require the insured to pay a set dollar amount at the time the service is rendered.
Cold Calling
A method used by brokers to obtain new business by making unsolicited calls to potential
clients.
Collar
1. A protective options strategy that is implemented after a long position in a stock has
experienced substantial gains. It is created by purchasing an out of the money put option
while simultaneously writing an out of the money call option.
Collateral
Properties or assets that are offered to secure a loan or other credit. Collateral becomes
subject to seizure on default.
Collection Agency
A company hired by lenders to recover funds that are past due or accounts that are in
default. The lending company itself may also have a division or subsidiary that acts as its
collection agency. A collection agency is hired after a company has made multiple
attempts to collect what is owed to it
Collective Fund
An investment vehicle that combines tax exempt assets of various individuals and
organizations in order to create a well diversified portfolio.
Com-Dev Company
Short form for "Commercial Development Company." These companies build and
sell/lease commercial real-estate, software, or applications for wide-scale commercial use.
Combat Zone
An area designated as a war zone during a specified period. Members of the military do
not need to claim taxable income they earn while working in a combat zone.
Combination
When an investor holds a position in both call and put options on the same asset.
Commerce
The buying and selling of goods, especially on a large scale.
Commercial
A term used to refer to any party or organization involved in producing, transporting, or
merchandising a commodity.
Commercial Bank
A financial institution that provides services such as a accepting deposits and giving
business loans.
Commercial Grain Stock
A term used to describe any grain stored within U.S. Borders.
Commercial Paper
An unsecured, short-term debt instrument issued by a corporation, typically for the
financing of accounts receivable, inventories and meeting short-term liabilities. Maturities
on commercial paper rarely range any longer than 270 days. The debt is usually issued at
a discount, reflecting prevailing market interest rates.
Commercial Trader
A classification used by the Commodity Futures Trading Commission (CFTC) for traders
that use the futures market primarily to hedge their business activities.
Commingled Fund
A type of mutual fund consisting of assets from several accounts that are blended
together. Sometimes called a "pooled fund."
Commingling (Commingled)
1. In securities, it is the mixing of customer-owned securities with brokerage-owned
securities.
2. In trust banking, it is the pooling of individual customer accounts into a fund, a share of
which is owned by each contributing customer. This is similar to a mutual fund.
3. In real estate, it is the illegal act of a broker combining clients' funds with personal
funds because, by law, a broker is required to use a separate trust or escrow fund to
temporarily hold a client's funds.
Commission
A service charge assessed by an agent in return for arranging the purchase or sale of a
security or real estate. The commission must be fair and reasonable, considering all the
relevant factors of the transaction. Commissions vary widely from broker to broker.
Commission House
A brokerage or merchant firm which buys and sells futures contracts for customer
accounts.
Commitment Fee
A fee lenders charge their borrowers for unused credit or credit that has been promised at
a specified future date.
Commitments of Traders Report - COT
A report published every Friday by the Commodity Futures Trading Commission (CFTC)
that seeks to provide investors with up-to-date information on futures market operations
and increase the transparency of these complex exchanges.
Committed Facility
A credit facility whereby terms and conditions are clearly defined by the lending institution
and imposed upon the borrowing company.
Commodities Exchange
An entity, usually an incorporated non-profit association, that determines and enforces
rules and procedures for the trading of commodities and related investments, such as
commodity futures. Commodities exchange also refers to the physical center where
trading takes place.
Commoditization
1. A situation when illiquid financial contracts are changed or modified in a way that
promotes trading and results in a more liquid market.
2. Making a product into a commodity.
Commodity
1. A basic good used in commerce that is interchangeable with other commodities of the
same type. Commodities are most often used as inputs in the production of other goods
or services. The quality of a given commodity may differ slightly, but it is essentially
uniform across producers. When they are traded on an exchange, commodities must also
meet specified minimum standards, also known as a basis grade.
2. Any good exchanged during commerce, which includes goods traded on a commodity
exchange.
Commodity Index
An index that tracks a basket of commodities to measure their performance. These
indexes will often be traded on exchanges, allowing investors to gain easier access to
commodities without having to enter the futures market. The value of these indexes
fluctuates based on the underlying commodities, and this value can be trade on the
exchange much in the same way as stock-index futures.
Commodity Pool
A fund that collects investor contributions for use in future and commodity option trading.
Commodity Swap
A swap where exchanged cash flows are dependent on the price of an underlying
commodity. This is usually used to hedge against the price of a commodity.
Common Gap
A price gap found on a price chart for an asset. These gaps are brought about by normal
market forces and, as the name implies, are very common. They are represented
graphically by a non-linear jump or drop from one point on the chart to another point.
Common Stock
A security that represents ownership in a corporation. Holders of common stock exercise
control by electing a board of directors and voting on corporate policy. Common
stockholders are on the bottom of the priority ladder for ownership structure. In the event
of liquidation, common shareholders have rights to a company's assets only after
bondholders, preferred shareholders and other debtholders have been paid in full.
In the U.K., these are called "ordinary shares
Community Property
A U.S. state-level legal distinction of a married individual's assets. Property acquired by
either spouse during the course of a marriage is considered community property. For
example, an IRA in the name of an individual with a spouse, accumulated during the
course of the marriage, would be considered community property.
Company Description
A brief description of the company's operations. This summarized item is based on the
information provided in the company's annual report or 10K. It is updated annually or
when major changes in company operations occur.
Company Name
The name a stock is registered with the Securities & Exchange Commission. The
displayed name may not match its registered name due to space limitations.
Company Owned Life Insurance - COLI
A type of life insurance policy taken out by a company on the lives of employees that the
company believes to be of vital importance to the operations of the firm. Under these
plans, the company pays the premium on the insurance but is also the plan's primary
beneficiary.
Comparables
A valuation technique in which a recently sold asset is used to determine the value of a
similar asset. This technique is often used in real estate to determine the initial sale price
of a property
Comparative Advantage
A situation in which a country, individual, company or region can produce a good at a
lower opportunity cost than that of a competitor.
Competitive Bid
A process whereby an underwriter submits a sealed bid to the issuer. The issuer awards
the contract to the underwriter with the best price and contract terms.
Competitive Tender
A method of distributing debt issues. Bids are submitted by primary distributors and those
who bid the highest receive the debt issue.
Compliance Department
The department within a brokerage firm that oversees the trading and market-making
activities of the firm.
Composite
A grouping of equities, indexes or other factors combined in a standardized way,
providing a useful statistical measure of overall market or sector performance over time.
Also known as a "composite index".
Composite Index
A grouping of equities, indexes or other factors combined in a standardized way,
providing a useful statistical measure of overall market or sector performance over time.
Also known simply as a "composite".
Compound
The ability of an asset to generate earnings that are then reinvested and generate their
own earnings.
Compound Option
An option for which the underlying is another option. Therefore, there are two strike prices
and two exercise dates. These are the four types of compound options:
- Call on a call
- Put on a put
- Call on a put
- Put on a call
Compounding
The ability of an asset to generate earnings, which are then reinvested in order to generate
their own earnings. In other words, compounding refers to generating earnings from
previous earnings.
Also known as "compound interest".
Comprehensive Income
Equals net income minus all recognized changes in equity during a period.
Comps
Another term for "same store sales," which helps investors determine how well a
company's brand is doing and how the stores are increasing revenue.
Concentration Ratio
In economics, a ratio that indicates the relative size of firms in relation to their industry as
a whole.
Concession
A selling group's compensation in a stock or bond underwriting agreement.
Concession Agreement
A right granted by a government to a corporation. It specifies rules under which the
company can operate locally.
Conditional Order
A type of order that will be submitted or canceled if set criteria are met, which are defined
by the trader/investor entering the order. This allows for a greater customization of the
order to meet the specific needs of the investor.
Condominium
A large property complex that is divided into individual units and sold. Ownership usually
includes a non-exclusive interest in certain "common properties" controlled by the
condominium management.
Condor Spread
Similar to a butterfly spread, a condor is an options strategy that also has a bear and a bull
spread, except that the strike prices on the short call and short put are different.
Conduit Financing
A financing arrangement involving a government or other qualified agency using its name
in an issuance of fixed income securities for a non-profit organization's large capital
project.
Conduit IRA
A traditional IRA that holds only assets that were distributed from a qualified plan.
Conduit Theory
A theory stating that an investment firm passing all capital gains, interest, and dividends
onto their customers/shareholders shouldn't be levied at the corporate level like most
regular companies are.
Conference Call
An event during which investors can call in to a special phone number and hear company
management report its quarterly results as well as forward, or projected, earnings. While
the average investor can only listen to the call, the reporting company will often field
questions from analysts. Also known as "earnings conference call", "analyst call" and
"earnings call".
Confirmation
1. The occurrence of two or more indicators corresponding with one another and thereby
corroborating the predicted trend.
2. The written acknowledgment provided by a broker indicating that a trade has been
completed. This includes details such as the date, price, commission, fees and settlement
terms of the trade.
Conforming Loan
A conventional mortgage under $203,150 that conforms to the loan amounts and mortgage
guidelines used by Fannie Mae and/or Freddie Mac.
Congestion
1. A market situation whereby the demand of contract holders wishing to exit their existing
positions exceeds the supply of willing participants wishing to enter into the offsetting
position.
2. A period of time when a stock trades either below resistance or above support, or both.
Conglomerate
A corporation that is made up of a number of different, seemingly unrelated businesses. In
a conglomerate, one company owns a controlling stake in a number of smaller companies,
which conduct business separately. Each of a conglomerate's subsidiary businesses runs
independently of the other business divisions, but the subsidiaries' management reports
to senior management at the parent company.
The largest conglomerates diversify business risk by participating in a number of different
markets, although some conglomerates elect to participate in a single industry - for
example, mining.
Conglomerate Discount
A reference to the tendency of the stock market to undervalue the stocks of conglomerate
businesses. Conglomerate discount is calculated by adding an estimation of the intrinsic
value of each of the subsidiary companies in a conglomerate and subtracting the
conglomerate's market capitalization from that value.
Conglomerate Merger
A merger between firms that are involved in totally unrelated business activities. There are
two types of conglomerate mergers: pure and mixed. Pure conglomerate mergers involve
firms with nothing in common, while mixed conglomerate mergers involve firms that are
looking for product extensions or market extensions.
Consensus Estimate
A figure based on the combined estimates of the analysts covering a public company.
Generally, analysts give a consensus for a company's earnings per share and revenue
these figures are most often made for the quarter, fiscal year and next fiscal year. The size
of the company and the number of analysts covering it will dictate the size of the pool
from which the estimate is derived.
Consent Solicitation
A solicitation by one party to the stakeholders of a particular security for the consent of a
material change.
Conservative Growth
A method of allocating investments with the goal of growing invested capital over the long
term. This investment strategy focuses on minimizing risk by making long-term
investments in companies that show consistent growth over time. Conservative growth
portfolios feature low asset turnover, or a high percentage of fixed assets on their balance
sheets, and should employ a buy-and-hold investment philosophy
Conservative Investing
An investing strategy that seeks to preserve an investment portfolio's value by investing
in lower risk securities such as fixed-income and money market securities, and often blue-
chip or large-cap equities.
Conservatorship
A circumstance in which the court declares an individual unable to take care of legal
matters and appoints another individual, known as a conservator, to do so.
Consignment
When goods are delivered to another company with the understanding that payment for
the goods is only made once the goods are sold.
Consolidate
To combine the assets, liabilities and other financial items of two or more entities into one.
Consolidation
In technical analysis, the movement of an asset's price within a well-defined pattern or
barrier of trading levels. Consolidation is generally regarded as a period of indecision,
which ends when the price of the asset breaks beyond the restrictive barriers. Periods of
consolidation can be found in charts covering any time interval (i.e. hours, days, etc.), and
these periods can last for minutes, days, months or even years. Lengthy periods of
consolidation are often known as a base.
Consolidation Phase
A stage in the life of a company or an industry in which components in the company or
industry start to merge to form fewer components. These components can include product
lines at the company level or companies themselves at the industry level. The
consolidation of companies differs from mergers in that consolidations create new entities
while mergers do not.
Constant Currencies
An exchange rate that eliminates the effects of exchange rate fluctuations and that is used
when calculating financial performance numbers. Companies with major foreign
operations often use constant currencies when calculating their yearly performance
measures.
Constant Dollar
An adjusted value of currency used to compare dollar values from one period to another.
Due to inflation, the purchasing power of the dollar changes over time, so in order to
compare dollar values from one year to another they need to be converted to constant
dollar values.
Constant Maturity
Used by the Federal Reserve Board to quote the yields on various treasury securities,
adjusted to an equivalent maturity.
Constant Maturity Swap - CMS
A variation of the regular interest rate swap. In a constant maturity swap, the floating
interest portion is reset periodically according to a fixed maturity market rate of a product
with a duration extending beyond that of the swap's reset period.
Construction Spending
An economic indicator that measures the amount of spending towards new construction.
Released monthly by the U.S. Department of Commerce's Census Bureau, it looks at
residential and non-residential construction in the private sector, and state and federal at
the public level.
Consumer Credit
A debt that someone incurs for the purpose of purchasing a good or service.
Consumer Staples
The industries that manufacture and sell food/beverages, tobacco, prescription drugs and
household products.
Contagion
The likelihood of significant economic changes in one country spreading to other
countries. This can refer to either economic booms or economic crises.
Contango
When the futures price is above the expected future spot price. Consequently, the price
will decline to the spot price before the delivery date.
Contingency
An economic event, usually negative, that is in the process of occurring and, therefore,
has not yet been resolved.
Contingency Order
An order that is executed only when certain conditions of the security being traded, or
another security, have been fulfilled. Such prerequisite conditions range in scope and
depth. In a simple case, a contingency order may depend on the potential purchaser's
ability to sell a different security in his or her portfolio to free the funds to make the
purchase. In a more complicated situation, an options contingency order's execution may
depend on the share price of the options' underlying stock
Contingent Asset
An asset in which the possibility of an economic benefit depends solely upon future
events that can't be controlled by the company. Due to the uncertainty of the future
events, these assets are not placed on the balance sheet. However, they can be found in
the company's financial statement notes.
Contingent Guarantee
A guarantee of payment that is dependent on one or more future events.
Contingent Immunization
A method of fixed income portfolio management, whereby managers are granted
significant powers of control over the selection of products to be added and removed from
the portfolio, as long as the products remain profitable. Should these products become
unprofitable past a set threshold, the manager must then capitalize the security under
immunization procedures.
Contingent Liability
1. The possibility of an obligation to pay certain sums dependent on future events.
2. Defined obligations by a company that must be met, but the probability of payment is
minimal.
Contingent Order
1. An order involving the simultaneous execution of two or more transactions.
2. An order whose execution depends upon the execution and/or price of another security
Continuation Pattern
A technical analysis pattern that suggests a trend is exhibiting a temporary diversion in
behavior and will eventually continue on its existing trend.
The symmetrical triangle charts displayed below are both exhibiting a continuation
pattern. Notice how the chart extends above (below) its existing pattern.
Continuous Compounding
The process of earning interest on top of interest. The interest is earned constantly, and
immediately begins earning interest on itself.
Continuous Trading
A method of transacting different securities orders. Continuous trading involves the
immediate execution of orders upon their reception by market makers and specialists.
Contra Account
An account on the balance sheet of a corporation or entity that offsets the balance of a
related and corresponding account
Contra Broker
A term used to describe the broker participating on the opposite side of a transaction.
Contract For Differences - CFD
An arrangement made in a futures contract whereby differences in settlement are made
through cash payments, rather than the delivery of physical goods or securities.
Contract Holder
An owner of a segregated fund contract.
Contract Market
Any board of trade designated to trade a specific options or futures contract. Basically it's
another word for "designated exchange".
Contract Size
The deliverable quantity of goods or commodities underlying futures, forward, and option
contracts.
Contract Unit
The actual amount of commodities represented by a single futures contract.
Contraction
A period of general economic decline. It is one of the four stages of the business cycle.
Contraction Risk
The risk of a security shortening in duration due to the acceleration of prepayments.
Contrarian
An investment style that goes against prevailing market trends by buying assets that are
performing poorly and then selling when they perform well.
Contrarian indicators
Specific psychological indicators used by investors who subscribe to contrarian
strategies. Historically, when these indicators reach one extreme or another, this
foreshadows contrary market activity. For example, some Contrarian investors believe that
when a large majority of market analysts are bullish, it is likely that the market is about to
top. Likewise, when most market analysts are bearish, they believe that the market is
preparing for another advance. (Also, see Psychological market indicators).
Contributed Surplus
The amount of money a company earns from sources other than its main business
operation.
Contribution Margin
A cost accounting concept that allows a company to determine the profitability of
individual products.
Contributory Value
A real estate term that refers to the contribution a particular component has to the value of
the whole property.
Control Stock
1. Equity shares owned by major shareholders of a publicly traded corporation. These
shareholders have either a majority of the shares outstanding or a portion of the shares
that is significant enough to allow them to exert a controlling influence on the firm's
decisions.
2. In situations where companies have more than one class of common shares, shares
with superior voting power or vote weighting are considered to be "control stock", relative
to the inferior class.
Controller
In most organizations the controller is the top managerial and financial accountant. The
controller supervises the accounting department and assists management in interpreting
and utilizing managerial accounting information.
Convenience Yield
The benefit or premium associated with holding an underlying product or physical good,
rather than the contract or derivative product.
Convention Expenses
Any travel expenses incurred while at a business convention. These expenses are tax
deductible if they are business or job related.
Conventional Mortgage
A mortgage that falls within Fannie Mae guidelines, and covers loans up to predetermined
amount.
Convergence
A movement in the price of a futures contract toward the price of the underlying cash
commodity. At the start, the contract price is higher because of the time value.
Conversion
The exchange of a convertible type of asset into another type of asset, usually at a
predetermined price, on or before a predetermined date. The conversion feature is a
financial derivative instrument that is valued separately from the underlying security.
Therefore, an embedded conversion feature adds to the overall value of the security.
Conversion Premium
The amount by which the price of a convertible security exceeds the current market value
of the common stock into which it may be converted.
Conversion Price
The price per share at which a convertible security, such as corporate bonds or preferred
shares, can be converted into common stock.
Conversion Ratio
The number of common shares received at the time of conversion for each convertible
security. It is calculated by using this formula:
Convertible Bond
A bond that can be converted into a predetermined amount of the company's equity at
certain times during its life, usually at the discretion of the bondholder.
Convertibles are sometimes called "CVs".
Convertible Debenture
Any type of debenture that can be converted into some other security.
Convertible Preferred Stock
Preferred stock that includes an option for the holder to convert the preferred shares into
a fixed number of common shares, usually anytime after a predetermined date.
Also known as "convertible preferred shares".
Convertibles
Securities, usually bonds or preferred shares, that can be converted into common stock.
Convexity
A measure of the curvature in the relationship between bond prices and bond yields
Conveyance
A written instrument, such as a deed or lease, that transfers some ownership interest in
real property from one person to another
Conveyance Tax
A tax imposed on the transfer of real estate property.
Cooling-Off Rule
A term referring to law pertaining to newly-entered contracts that allows both sides of the
party a period of time (after the contract has been signed) to release themselves from any
obligations without penalty.
COP
In currencies, this is the abbreviation for the Colombian Peso.
Coppock Curve
A long-term price momentum indicator used primarily to recognize major bottoms in the
stock market. It is calculated as a 10-month weighted moving average of the sum of the 14-
month rate of change and the 11-month rate of change for the index.
Also known as the "Coppock Guide".
Copula
A statistical measure that represents a multivariate uniform distribution, which examines
the association or dependence between many variables. Although, the statistical
calculation of a copula was invented in 1957, its application to financial markets and
finance was not implemented until the late 1990s.
Core Earnings
The revenue derived from a company's main or principal business less all associated
expenses.
Core Holding
An investment that you plan on keeping in your portfolio for a very long period of time,
sometimes permanent.
Core Inflation
A measure of inflation that excludes certain items which face volatile price movements.
Core inflation eliminates products that can have temporary price shocks because these
shocks can diverge from the overall trend of inflation and give a false measure of inflation.
Core Inflation is thought to be an indicator of underlying long-term inflation.
Core Plus
A fixed-income style that permits managers to add instruments with greater risk and
greater potential return, such as high yield, global, and emerging market debt, to their core
portfolios of investment-grade bonds.
Corner
1. The act of securing enough controlling interest or ownership within a single security so
that manipulation of price can occur.
2. A rare situation occurring in commodity markets wherein the quantity of underlying
securities and commodities available are exceeded by the commitments of delivery
quantities on future contracts.
Corner A Market
To acquire enough shares of a particular security in order to manipulate its price.
Corporate Action
Any event that brings material change to a company and affects its stakeholders. This
includes shareholders, both common and preferred, as well as bondholders. These events
are generally approved by the company's board of directors; shareholders are permitted to
vote on some events as well.
Corporate Bond
A debt security issued by a corporation, as opposed to those issued by the government.
Corporate Cannibalism
An act of self-infringement upon market share by corporations through the issuance of
new products.
Also known as market cannibalization.
Corporate Charter
A written document filed with a U.S. state by the founders of a corporation detailing the
major components of a company such as its objectives, its structure and its planned
operations. If the charter is approved by the state government, the company becomes a
legal corporation.
Also referred to as "charter" and "articles of incorporation".
Corporate Citizenship
The extent to which businesses are socially responsible in meeting legal, ethical and
economic responsibilities placed on them by shareholders. The aim it to create higher
standards of living and quality of life in the community in which it operates, while
preserving the profitability of the company for its stakeholders both within and outside the
company.
Corporate Event
Abbreviation of a corporate action will appear near the price line with an arrow indicating
the date it occurred.
•ASE = Date stock switched to listed exchange
•CO = Cash offer
•IPO = Initial public offering
•NEW = New issue and price
•NYSE = Date stock switched to listed exchange
•PM = Proposed merger
•PO = Primary offer
•PPO = Proposed primary offering
•PSO = Proposed secondary offering
•PSOF = Partial spin-off
•REORG = Reorganization
•SDIS = Stock distribution
•SO = Secondary offer
•SOF = Spin-off
•TO = Tender offer
•$DIS = Cash distribution
Corporate Finance
Any financial or monetary activity that deals with a company and its money.
Corporate Governance
The relationship between all the stakeholders in a company. This includes the
shareholders, directors, and management of a company, as defined by the corporate
charter, bylaws, formal policy, and rule of law.
Corporate Inflation-Linked Securities
Corporate debt financing securities that offer their holders protection against fluctuations
in the rate of inflation as measured by the consumer price index (CPI). The yields of these
securities adjust monthly with respect to the current rate of inflation.
Corporate Inversion
The act of a parent company, whose headquarters are located within U.S. borders,
switching registration with their offshore subsidiary in order to take advantage of foreign
tax benefits.
Corporate Kleptocracy
Buzzword that describes the greed of corporate executives who use underhanded tactics
to siphon off wealth at the expense of shareholders. This buzzword is attributed to how ex-
Hollinger CEO, Conrad Black, and his fellow associates allegedly embezzled Hollinger for
hundreds of millions of dollars over a seven-year period.
Corporate Resolution
A written statement made by the board of directors detailing which officers are authorized
to act on behalf of the corporation. The corporate resolution will be found in the board
minutes detailing decisions made by the board during the meeting.
Corporate Tax
A levy placed on the profit of a firm different rates are used for different levels of profits
Corporation
A legal entity that is separate and distinct from its owners. Corporations enjoy most of the
rights and responsibilities that an individual possesses that is, a corporation has the right
to enter into contracts, loan and borrow money, sue and be sued, hire employees, own
assets and pay taxes.
The most important aspect of a corporation is limited liability. That is, shareholders have
the right to participate in the profits, through dividends and/or the appreciation of stock,
but are not held personally liable for the company's debts.
Corporations are often called "C Corporations".
Correction
A reverse movement, usually negative, of at least 10% in a stock, bond, commodity or
index. Corrections are generally temporary price declines, interrupting an uptrend in the
market or asset
Correlation
In the world of finance, a statistical measure of how two securities move in relation to each
other. Correlations are used in advanced portfolio management.
Correlation Coefficient
A measure that determines the degree to which two variable's movements are associated.
Correspondent
The name given to a bank, broker, dealer, or financial institution that acts on behalf of
another financial institution with limited or restricted access to the financial markets
where a transaction must occur.
Cost Basis
1. The original value of an asset for tax purposes (usually the purchase price), adjusted for
stock splits, dividends and return of capital distributions. This value is used to determine
the capital gain, which is equal to the difference between the asset's cost basis and the
current market value. Also known as "tax basis".
2. The difference between the cash price and the futures price of a given commodity.
Cost Of Capital
The required return necessary to make a capital budgeting project - such as building a
new factory - worthwhile. Cost of capital would include the cost of debt and the cost of
equity.
Cost Of Carry
Costs incurred as a result of an investment position. These costs can include financial
costs, such as the interest costs on bonds, interest expenses on margin accounts and
interest on loans used to purchase a security, and economic costs, such as the
opportunity costs associated with taking the initial position.
Cost Of Debt
The effective rate that a company pays on its current debt. This can be measured in either
before- or after-tax returns however, because interest expense is deductible, the after-tax
cost is seen most often. This is one part of the company's capital structure, which also
includes the cost of equity.
Cost Of Equity
In financial theory, the return that stockholders require for a company. The traditional
formula is the dividend capitalization model:
A firm's cost of equity represents the compensation that the market demands in exchange
for owning the asset and bearing the risk of ownership.
Cost Of Funds
The interest rate paid on an outstanding loan
Cost Of Goods Sold - COGS
A figure reflecting the cost of the product or good that a company sells to generate
revenue, appearing on the income statement as an expense unto itself. Also referred to as
"cost of sales".
Cost Of Tender
The total charges associated with the delivery and certification of commodities underlying
a futures contract.
Cost Synergy
In the context of mergers, cost synergy is the savings in operating costs expected after
two companies, who compliment each other's strengths, join.
Cost-Push Inflation
A phenomenon where general level of prices rise (inflation) due to increases in the cost of
wages and raw materials.
Count
A trend analysis using point and figure charts to estimate the vertical movement of prices
Counter-Cyclical Stock
A stock whose price will tend to move in the opposite direction of the general economic
trend.
Counterparty Risk
The risk to each party of a contract that the counterparty will not live up to its contractual
obligations.
Counterpurchase
An exchange of goods between two parties that, by means of two contracts, agree to act
as purchaser and supplier to each other and to purchase all goods in cash.
Countertrade
A trade between two countries by which goods are exchanged for other goods rather than
for hard currency
Countertrend Strategy
A trading strategy where an investor attempts to make small gains through a series of
trades against the current trend. It is also known as "counter-trend trading".
Country Basket
A derivative security designed to mimic the major index of an international exchange
Country Risk
The risk that a country will not be able to honor its financial commitments.
Coupon
The interest rate stated on a bond when it's issued. The coupon is typically paid
semiannually.
This is also referred to as the "coupon rate" or "coupon percent rate".
Coupon Bond
A debt obligation with coupons attached that represent semiannual interest payments.
Also known as a "bearer bond".
Coupon Pass
The purchase of treasury notes or bonds from dealers, by the Federal Reserve.
Covariance
A measure of the degree to which returns on two risky assets move in tandem. A positive
covariance means that asset returns move together. A negative covariance means returns
vary inversely.
One method of calculating covariance is by looking at return surprises (deviations from
expected return) in each scenario. Another method is to multiply correlation between the
two variables by the standard deviation of each variable.
Covenant
A promise in an indenture, or any other formal debt agreement, that certain activities will
or will not be carried out.
Cover
The act of completing a transaction in order to remove any obligations.
Coverage Initiated
When a brokerage or analyst issues his/her first rating on a particular stock.
Coverage Ratio
A type of accounting ratio that helps measure a company's ability to meet its obligations
satisfactorily.
Covered Call
An options strategy whereby an investor holds a long position in an asset and writes
(sells) call options on that same asset in an attempt to generate increased income from the
asset. This is often employed when an investor has a short-term neutral view on the asset
and for this reason hold the asset long and simultaneously have a short position via the
option to generate income from the option premium.
This is also known as a "buy-write".
Covered Security
A class of securities, created by the NSIMA, that enjoys federally imposed exemptions
from state restrictions and regulations. Most stocks trading in the US are covered
securities
Covered Warrant
A type of warrant that allows the holder to buy or sell a specific amount of equities,
currency or other financial instruments from the issuer, usually a bank or a similar
financial institution, at a specific price and time.
Crack
A trading strategy used in energy futures to establish a refining margin.
Crack Spread
In commodity markets, the spread created by purchasing oil futures and offsetting the
position by selling gasoline and heating oil futures. This investment alignment allows the
investor to hedge against risk due to the offsetting nature of the securities.
Crammed Down
1. A situation in which venture capitalists refuse to invest in a new project unless the
preceding investors of the company lower the value of their original investment.
2. A bankruptcy procedure that allows a bankruptcy court to initiate a reorganization plan
for a company despite objections from creditors. The creditors will still maintain collateral
on the company as long as the firm offers repayment of the "secured portion" or fair
market value of the collateral in their repayment plan.
Crash
A major decline in a financial market.
Crawling Peg
A system of exchange rate adjustment in which a currency with a fixed exchange rate is
allowed to fluctuate within a band of rates. The par value of the stated currency is also
adjusted frequently due to market factors such as inflation. This gradual shift of the
currency's par value is done as an alternative to a sudden and significant devaluation of
the currency.
CRC
In currencies, this is the abbreviation for the Costa Rican Colon
Creation Unit
A set of shares or securities that makes up one unit of the fund held by the trust that
underlies an exchange-traded fund (ETF). One creation unit is the denomination of
underlying assets that can be redeemed for a certain number of ETF shares.
Creative Destruction
A term coined in 1942 by Joseph Schumpeter in his work, Capitalism, Socialism and
Democracy, to denote a "process of industrial mutation that incessantly revolutionizes the
economic structure from within, incessantly destroying the old one, incessantly creating a
new one."
Credit
1. A contractual agreement in which a borrower receives something of value now, with the
agreement to repay the lender at some date in the future. Also, the borrowing capacity of
an individual or company.
2. An accounting entry system that either decreases assets or increases liabilities.
Credit Balance
In a margin account, the amount of funds deposited in the customer's account following
the successful execution of a short sale order. The credit balance amount includes both
the proceeds of the short sale itself and the specified margin amount the customer is
required to deposit under Regulation T.
Credit Bureau
An agency that researches and collects individual credit information and sells it for a fee
to creditors so they can make a decision on granting loans. Typical clients include banks,
mortgage lenders, credit card companies and other financing companies. Also commonly
referred to as consumer reporting agency or credit reporting agency.
Credit Card
A card allowing someone to make a purchase on borrowed money. Credit cards are one of
the most popular forms of payment for consumer goods and services in the United States.
Credit Cliff
A slang term referring to the compounding of a company's credit deterioration caused by
provisions such as financial covenants, or events that trigger a change in the company's
credit rating. These can put pressure on the company's liquidity or its business to a
material extent.
Credit Crunch
An economic condition whereby investment capital is difficult to obtain. Banks and
investors become weary of lending funds to corporations thereby driving up the price of
debt products for borrowers.
Credit Derivative
Privately held negotiable bilateral contracts that allow users to manage their exposure to
credit risk. Credit derivatives are financial assets like forward contracts, swaps, and
options for which the price is driven by the credit risk of economic agents (private
investors or governments).
Credit Enhancement
A method whereby a company attempts to improve its debt or credit worthiness.
Credit Netting
A system whereby the number of credit checks on financial transactions is reduced by
entering into agreements that simply net all transactions. These agreements are made
between large banks and other financial institutions and place all current and future
transactions into one agreement, removing the need for credit checks on each transaction.
Credit Rating
An assessment of the credit worthiness of individuals and corporations. It is based upon
the history of borrowing and repayment, as well as the availability of assets and extent of
liabilities
Credit Report
A detailed report of an individual's credit history prepared by a credit bureau and used by
a lender to in determining a loan applicant's creditworthiness, including:
1. Personal data (current and previous addresses, social security number, employment
history)
2. Summary of credit history (number and type of accounts that are past-due or in good
standing)
3. Detailed account information
4. Inquires into applicant's credit history (number and type of inquiries into applicant's
credit report)
5. Details of any accounts turned over to credit agency (such as information about liens,
wages garnishments via federal, state or county records)
6. Information on how to dispute any of the above information.
Credit Risk
The possibility of a loss occurring due to the failure to meet contractual debt obligations.
Credit Spread
1. The spread between Treasury securities and non-Treasury securities that are identical
in all respects except for quality rating.
2. An options strategy where a high premium option is sold and a low premium option is
bought on the same underlying security.
Credit Union
Member-owned financial co-operative. These institutions are created and operated by its
members and profits are shared amongst the owners
Creditor
An entity (person or institution) that extends credit by giving another entity permission to
borrow money if it is paid back at a later date. Creditors can be classified as either
"personal" or "real". Those people who loan money to friends or family are personal
creditors. Real creditors (i.e. a bank or finance company) have legal contracts with the
borrower granting the lender the right to claim any of the debtor's real assets (e.g. real
estate or car) if he or she fails to pay back the loan.
Credo
A Latin word which means "a set of fundamental beliefs or a guiding principle.” For a
company, a credo is like a mission statement.
Critical Mass
A very important or crucial stage in a company's development.
Crop Year
A time period for a agricultural commodity it is the duration from one years harvest to the
next.
Cross
When a broker receives a buy and sell order for the same stock at the same price, and
subsequently makes a simultaneous trade between two separate customers.
Cross Currency
A pair of currencies traded in forex that does not include the U.S. dollar. One foreign
currency is traded for another without having to first exchange the currencies into
American dollars.
Cross Default
A provisions in a bond indenture or loan agreement that puts the borrower in default if the
borrower defaults on another obligation.
Also known as "cross acceleration".
Cross Hedge
The act of hedging ones position by taking an offsetting position in another good with
similar price movements.
Cross Holding
When listed corporations own securities issued by other listed corporations.
Cross Margining
An offsetting position where market participants are able to transfer excess margin from
one account to another account whose margin is under the required maintenance margin.
Cross Trade
A practice outlawed on most major stock exchanges in which buy and sell orders for the
same stock are offset without recording the trade on the exchange.
Cross-Correlation
A statistical measure timing the movements and proximity of alignment between two
different information sets of a series of information.
Crossed Market
A situation arising when the bid price of a security exceeds the ask price.
Crossover
The point on a stock chart when a security and an indicator intersect. Crossovers are used
by technical analysts to aid in forecasting the future movements in the price of a stock. In
most technical analysis models, a crossover is a signal to either buy or sell.
Below we have a stock that falls below its 20-day moving average - a bearish sign.
Crossover Fund
An investment fund that invests in both public and private equity.
Crossover Investor
An investor who invests prior to, during and following a company's initial public offering.
Crossover Refunded
The revenue stream pledged to secure "securities being refunded" is being used to payoff
debt on the refunded securities until they mature.
Crown Corporation
Any corporation that is established and regulated by a country's government.
Crown Jewels
The most valuable unit of a corporation because of profitability, asset value, future
prospects, etc.
Crush Spread
A trading strategy used in the soybean futures market to establish a processing margin.
Crystallization
The act of selling and buying stocks almost instantaneously in order to increase or
decrease book value. This is a routine method used by many investors and companies to
change book values without changing beneficial ownership.
Cum Dividend
When a buyer of a security is entitled to receive a dividend that has been declared, but not
paid.
Cum Rights
A situation in which the shares held by holders of record are qualified for a rights offering
declared by a company
Cum Warrant
A condition in which the buyer of a security is entitled to a warrant that has been declared,
but not distributed.
Cumulative Dividend
A limitation placed upon corporations ensuring the payment of preferred dividends before
distributions are made to common shareholders.
Cumulative Voting
The procedure of voting for a company's directors each shareholder is entitled one vote
per share times the number of directors to be elected.
This is sometimes known as 'proportional voting'.
CUP
In currencies, this is the abbreviation for the Cuban Peso.
Curb Trading
Trading that occurs outside of general market regulations, commonly through computers
or telephones after the official exchanges have closed.
Currency
A generally accepted form of money, including coins and paper notes, which is issued by
a government and circulated within an economy. Used as a medium of exchange for
goods and services, currency is the basis for trade.
Currency Basket
A selected group of currencies whose weighted average is used as a measure of the value
or the amount of an obligation. A currency basket functions as a benchmark for regional
currency movements - its composition and weighting depends on its purpose.
Currency Convertibility
The ease with which a country's currency can be converted into gold or another currency.
Convertibility is extremely important for international commerce. When a currency in
inconvertible, it poses a risk and barrier to trade with foreigners who have no need for the
domestic currency.
Currency Forward
A forward contract in the forex market that locks in the price at which an entity can buy or
sell a currency on a future date. Also known as "outright forward currency transaction",
"forward outright" or "FX forward".
Currency Futures
A transferable futures contract that specifies the price at which a specified currency can
be bought or sold at a future date.
Currency Option
A contract that grants the holder the right, but not the obligation, to buy or sell currency at
a specified exchange rate during a specified period of time. For this right, a premium is
paid to the broker, which will vary depending on the number of contracts purchased.
Currency options are one of the best ways for corporations or individuals to hedge against
adverse movements in exchange rates
Currency Overlay
The outsourcing of currency risk management to a specialist firm, known as the overlay
manager. This is used in international investment portfolios to separate the management
of currency risk from the asset allocation and security selection decisions of the investor's
money managers.
Currency Pair
The quotation and pricing structure of the currencies traded in the forex market: the value
of a currency is determined by its comparison to another currency. The first currency of a
currency pair is called the "base currency", and the second currency is called the "quote
currency". The currency pair shows how much of the quote currency is needed to
purchase one unit of the base currency.
Currency Risk
A form of risk that arises from the change in price of one currency against another.
Whenever investors or companies have assets or business operations across national
borders, they face currency risk if their positions are not hedged.
Currency Swap
A swap that involves the exchange of principal and interest in one currency for the same
in another currency. It is considered to be a foreign exchange transaction and is not
required by law to be shown on the balance sheet.
Current Account
The difference between a nation's total exports of goods, services and transfers, and its
total imports of them. Current account balance calculations exclude transactions in
financial assets and liabilities.
Current Assets
1. A balance sheet account that represents the value of all assets that are reasonably
expected to be converted into cash within one year in the normal course of business.
Current assets include cash, accounts receivable, inventory, marketable securities,
prepaid expenses and other liquid assets that can be readily converted to cash.
2. In personal finance, current assets are all assets that a person can readily convert to
cash to pay outstanding debts and cover liabilities without having to sell fixed assets.
In the United Kingdom, current assets are also known as "current accounts".
Current Delivery
A type of futures contract that requires the delivery of the underlying commodity in the
current or following month before other futures contracts of the same commodity with
other delivery dates.
Current Income
The investment objective for a portfolio of securities to achieve a steady income.
Current Liabilities
A company's debts or obligations that are due within one year. Current liabilities appear
on the company's balance sheet and include short term debt, accounts payable, accrued
liabilities and other debts.
Current Price
The amount of money a security most recently traded for.
Current Ratio
A liquidity ratio that measures a company's ability to pay short-term obligations.
Calculated as:
Also known as "liquidity ratio", "cash asset ratio" and "cash ratio".
Current Yield
Annual income (interest or dividends) divided by the current price of the security. This
measure looks at the current price of a bond instead of its face value and represents the
return an investor would expect if he or she purchased the bond and held it for a year.
This measure is not an accurate reflection of the actual return that an investor will receive
in all cases because bond and stock prices are constantly changing due to market factors.
Also referred to as "bond yield", or "dividend yield" for stocks.
Curtailment
The act of contracting or reducing operations of a company in the hope of bringing it
financial or operational stability. This management technique is often used when a
company has grown too fast and is unable to effectively manage its operations
Cushion Bond
A type of callable bond that sells at a premium because the issued coupon payments are
above market interest rates.
CUSIP Number
An identification number assigned to all stocks and registered bonds. The Committee on
Uniform Securities Identification Procedures (CUSIP) oversees the entire CUSIP system.
Custodial Account
1. An account created at a bank, brokerage firm or mutual fund company that is managed
by an adult for a minor that is under the age of 18 to 21 (depending on state legislation).
2. A retirement account managed for eligible employees by a custodian.
Custodial Care
Non-medical care that helps individuals with his or her activities of daily living,
preparation of special diets and self-administration of medication not requiring constant
attention of medical personnel. Providers of custodial care are not required to undergo
medical training.
Custodian
A financial institution that has the legal responsibility for a customer's securities. This
implies management as well as safekeeping.
Also known as "custody".
Custody-Only Trading
A system in which shares must be registered to the holder by name and can only be
traded in physical form.
Cutoff Point
The point at which an investor decides whether or not a particular security is worth
purchasing. The cutoff point is very subjective and will be based on the personal
characteristics of the individual investor. Some examples of personal characteristics that
may determine the cutoff point include the investor's required rate of return and his or her
risk aversion level.
Cutting a Melon
A declaration of a large stock or cash dividend that is in addition to the regular
distribution.
CVE
In currencies, this is the abbreviation for the Cape Verde Escudo.
Cyber Monday
An expression used in online retailing to describe the Monday following U.S. Thanksgiving
weekend. Cyber Monday is generally thought of as the start of the online holiday shopping
season. Similar to Black Friday, (the unofficial start of the holiday season for offline
businesses), online retailers will usually offer special promotions on this day.
Also known as "Black Monday".
Cyclical Industry
A term describing an industry that is sensitive to the business cycle and price changes.
Many cyclical industries produce durable goods such as raw materials and heavy
equipment.
Cyclical Stock
A stock that rises quickly when economic growth is strong and falls rapidly when growth
is slowing down
Cyclical Unemployment
Unemployment resulting from changes in the business cycle.
Cylinder
A term used to describe a transaction, involving two derivatives, where there is no initial
cost bourne by the investor when entering into the position.
CYP
In currencies, this is the abbreviation for the Cyprus Pound.
CZK
In currencies, this is the abbreviation for the Czech Koruna
D
A Nasdaq stock symbol specifying that the stock is a new issue.
Daily Cut-Off
In the forex market, a particular point in time specified by a forex dealer to stand as the
end of the current trading day and the beginning of a new trading day. This is done for
primarily administrative and logistical reasons, because although the forex market trades
24 hours a day, the market and its intermediaries require a specified beginning and end to
each trading day in order to record trade dates and define settlement periods.
Daisy Chain
A group of unscrupulous investors who, practicing a kind of fictitious trading or wash
selling, artificially inflate the price of a security so that they sell it at a profit.
Dalal Street
A term that refers to the Bombay Stock Exchange, the major stock exchange in India. The
street is home not only the Bombay Stock Exchange but also a large number of other
financial institutions.
Data Mining
A type of database application that looks for hidden patterns in large groups of data.
Date Certain
A term identifying the date on/by which the specified actions of a contract can be
reasonably completed. This date is important, as it is generally considered legally binding.
Date of Chart
Date on chart reflects the most recent market activiity. It is displayed in the lower right
corner of the chart.
Date Scale
Calendar information used to indicate the date of price and volume data on a chart. The
vertical line to the immediate left of the month or day indicates its precise reference point
on the chart grid.
To determine an exact date on a chart, utilize the Track Price tool by clicking the right-
hand mouse button while the cursor is over the point of interest
Dawn Raid
The action of a firm or investor buying a substantial amount of shares in a company
(making it a target firm) first thing in the morning when the stock markets open. This is
done by a stock broker acting on behalf of a company. Because the bidding company
builds a substantial stake in its target at the prevailing stock market price, the takeover
costs are likely to be significantly lower than they would be had the acquiring company
first made a formal takeover bid.
DAX
An index of 30 top German Stocks.
Day Order
Any order to buy or sell a security that automatically expires if not executed on the day the
order is placed.
Day Trader
A stock trader who holds positions for a very short time (from minutes to hours) and
makes numerous trades each day. Most trades are entered and closed out within the same
day.
Day-Count Convention
A system used to determine the number of days between two coupon dates, which is
important in calculating accrued interest and present value when the next coupon
payment is less than a full coupon period away. Each bond market has its own day-count
convention.
Days To Cover
A measurement of a company's issued shares that are currently shorted, expressed as the
number of days required to close out all of the short positions. For example, if a company
has 10 million shares outstanding and 2 million shares are currently short sold, the shares
have a days to cover rate of 2 (2M/10M).
Also referred to as the "short-interest ratio".
De-merger
A corporate strategy to sell off subsidiaries or divisions of a company.
Dead Cat Bounce
A temporary recovery from a prolonged decline or bear market, after which the market
continues to fall.
Deadweight Loss
The costs to society created by an inefficiency in the market.
Deal Flow
The rate at which new proposals are flowing to the underwriters of an investment bank.
Dealer
1. An individual or firm willing to buy or sell securities for their own account.
2. One who purchases goods or services for resale to consumers.
Dealer Market
A market where dealers are assigned for specific securities. The dealers create liquid
markets by purchasing and selling against personal inventory.
Dealer Option
An option created upon physical commodities, outside of regular exchange regulations.
Dear Money
A situation in which money or loans are very difficult to obtain in a given country. If you do
have the opportunity to secure a loan, then interest rates are usually extremely high. Also
known as "tight money".
Death Benefit
The amount on a life insurance policy or pension that is payable to the beneficiary when
the annuitant passes away.
Also known as "survivor benefit".
Death Cross
A crossover resulting from a security's long-term moving average breaking above its
short-term moving average or support level.
Death Put
An optional redemption feature on a debt instrument allowing the beneficiary of the estate
of the deceased to put (sell) the bond (back to the issuer) in the event of the beneficiary's
death or legal incapacitation. Also known as a "survivor's option".
Death Spiral
A type of loan investors lend to a company in exchange for convertible debt, which, like a
convertible bond, typically has provisions that allow the investors to convert the bonds
into stock at below-market prices. This can lead to the original shareholders losing control
of the company.
Debasement
1. To lower the value, quality or status of something or someone.
2. To lower the value (of a coin) by adding metal of inferior value.
Debenture
A type of debt instrument that is not secured by physical asset or collateral. Debentures
are backed only by the general creditworthiness and reputation of the issuer. Both
corporations and governments frequently issue this type of bond in order to secure
capital. Like other types of bonds, debentures are documented in an indenture.
Debit
An accounting entry which results in either an increase in assets or a decrease in
liabilities on a company's balance sheet or in your bank account.
Debit Balance
In a margin account, money owed by the customer to the broker for funds advanced to
purchase securities. The debit balance is the amount of funds the customer must put into
his or her margin account, following the successful execution of a security purchase
order, in order to properly settle the transaction.
Debit Card
An electronic card issued by a bank which allows bank clients access to their account to
withdraw cash or pay for goods and services. This removes the need for bank clients to go
to the bank to remove cash from their account as they can now just go to an ATM or pay
electronically at merchant locations. This type of card, as a form of payment, also removes
the need for checks as the debit card immediately transfers money from the client's
account to the business account.
Debt
Expressed in percentage, this figure is based on fiscal year-end values of total debt to
shareholder's equity.
Debt Assignment
A transfer of debt from a creditor to a third party.
Debt Bomb
This occurs when a major financial institution, such as a multinational bank, defaults on
its obligations that causes disruption not only in the financial system of the institution's
home country, but also in the global financial system as a whole.
Debt Consolidation
The action of combining several loans or liabilities into one loan. Put another way, debt
consolidation is the process of taking out a new loan to pay off a number of other debts.
Most people who consolidate their debt are usually doing it to attain a lower interest rate,
or the simplicity of a single loan. Also known as a "consolidation loan".
Debt Deflation
A situation in which the collateral used to secure a loan, or another form of debt,
decreases in value. This can be detrimental to the borrower, as it may lead to a
restructuring of the loan agreement or even a loan recall.
Also known as "worst deflation" and "collateral deflation".
Debt Instrument
A paper or electronic obligation that enables the issuing party to raise funds by promising
to repay a lender in accordance with terms of a contract. Types of debt instruments
include notes, bonds, certificates, mortgages, leases or other agreements between a
lender and a borrower.
Debt Overhang
A situation where the debt stock of a country exceeds the country's future capacity to
repay it.
Debt Restructuring
A method used by companies with outstanding debt obligations to alter the terms of the
debt agreements in order to achieve some advantage.
Debt Security
A security representing a loan given by an investor to an issuer. In return for the loan, the
issuer promises to pay interest and to repay the debt on a specified date.
Debt Service
Cash required over a given period for the repayment of interest and principal on a debt.
Debt-To-Capital Ratio
A measurement of a company's financial leverage, calculated as long-term debt divided by
long-term capital. Total debt includes all short-term and long-term obligations. Total
capital includes all common stock, preferred stock and long-term debt.
Debt/Equity Ratio
A measure of a company's financial leverage calculated by dividing long-term debt by
stockholder equity. It indicates what proportion of equity and debt the company is using to
finance its assets.
Note: Sometimes only interest-bearing long-term debt is used instead of total liabilities in
the calculation.
Debt-To-GDP Ratio
A measure of a country's federal debt in relation to its gross domestic product (GDP). By
comparing what a country owes and what it produces, the debt-to-GDP ratio indicates the
country's ability to pay back its debt. The ratio is a coverage ratio on a national level.
Debt/Equity Swap
A refinancing deal in which a debt holder gets an equity position in exchange for
cancellation of the debt.
Deceased Alert
A notification on a person's credit report that alerts credit agencies that the person is
deceased and should not be issued credit in the future. Upon a person's death, a family
member or friend must request the credit reporting agencies to send out the deceased
alert. The purpose of the deceased alert is to prevent identity thieves from stealing and
abusing the name of the deceased person.
Decimalization
The process of changing the prices that securities trade at from fractions to decimals.
Deck
A term used to refer to the open orders held by floor brokers on futures exchanges.
Declaration Date
1. The date on which the next dividend payment is announced by the directors of a
company. This statement includes the dividend's size, ex-dividend date and payment date.
It is also referred to as the "announcement date".
2. The last day on which the holder of an option must indicate whether they will exercise
the option. Also known as the "expiration date".
Declining Industry
An industry where growth is either negative or is not growing at the broader rate of
economic growth. There are many reasons for a declining industry: consumer demand
may be steadily evaporating, the depletion of a natural resource may be occurring, or
there may be the emergent substitutes because of technological innovation.
Decoupling
The occurrence of returns on asset classes diverging from their normal pattern of
correlation.
Dedicated Portfolio
A passive form of portfolio management that involves the matching of future cash flows
with future liabilities.
Deductible
1. The amount you have to pay out-of-pocket for expenses before the insurance company
will cover the remaining costs.
2. An amount subtracted from an individual's adjusted gross income to reduce the amount
of taxable income.
Also known as "tax deductible".
Deduction
Any item or expenditure subtracted from gross income to reduce the amount of income
subject to tax.
Also referred to as "allowable deduction".
Deed
A legal document that grants the bearer a right or privilege, provided that he or she meets
a number of conditions. In order to receive the privilege - usually ownership, the bearer
must be able to do so without causing others undue hardship. A person who poses a risk
to society as a result of holding a deed may be restricted in his or her ability to use the
property.
Deeds are most known for being used to transfer the ownership of automobiles or land
between two parties.
Deep-Discount Bond
1. A bond that sells at a significant discount from par value.
2. A bond that is selling at a discount from par value and has a coupon rate significantly
less than the prevailing rates of fixed-income securities with a similar risk profile.
Deer Market
A flat market. Neither a bull or bear market, a deer market is characterized by low activity,
with timid investors waiting for a sign of which way the market is going to end up moving.
Default
1. The failure to promptly pay interest or principal when due.
2. The failure to perform on a futures contract as required by an exchange.
Default Premium
The additional amount a borrower must pay to compensate the lender for assuming
default risk.
Default Risk
The risk that companies or individuals will be unable to pay the contractual interest or
principal on their debt obligations.
Defeasance
A provision that voids a bond or loan when the borrower sets aside cash or bonds
sufficient enough to service the borrower's debt.
Also referred to as "defease."
Debtor
A company or individual who owes money. If the debt is in the form of a loan from a
financial institution, the debtor is referred to as a borrower. If the debt is in the form of
securities, such as bonds, the debtor is referred to as an issuer.
Defensive Buy
An investment that is an attractive buy because it is low risk, not because of its return
potential.
Defensive Company
A company whose sales and earnings remain relatively stable during both economic
upturns and downturns.
Defensive Stock
A stock that provides a constant dividend and stable earnings regardless of the state of
the overall stock market.
This is not to be confused with a "defense stock", which refers to stock in companies
which manufacture things like weapons, ammunition and fighter jets.
Deferment Period
The period after the issue of callable security during which it cannot be called by the
issuer.
Defensive Acquisition
The act of firms acquiring other firms and assets as a defense against market downturns
or possible takeovers. A defensive acquisition contrasts with the normal impetus for an
acquisition, which is usually increased market share or revenue.
Deferred Account
An account that postpones tax liabilities until a later date. Deferred accounts are usually retirement
accounts
Deferred Annuity
A type of annuity contract that delays payments of income, installments or a lump sum until the
investor elects to receive them. This type of annuity has two main phases, the savings phase in
which you invest money into the account, and the income phase in which the plan is converted into
an annuity and payments are received.
A deferred annuity can be either variable or fixed.
Deferred Charge
A prepaid expense that is recognized on the balance sheet as an asset until it is used.
Deferred Revenue
A liability account used to collect deposits and other cash receipts prior to the completion of the
sale.
Deferred Share
1. A share that does not have any rights to the assets of a company undergoing bankruptcy until all
common and preferred shareholders are paid.
2. A method of stock payment to directors and executives of a company through the deposit of
shares into a locked account. The value of these shares fluctuate with the market and cannot be
accessed by the beneficiary for the purpose of liquidation until they are no longer employees of the
company.
3. A share generally issued to company founders that restricts their receipt of dividends until
dividends have been distributed to all other classes of shareholders
Deficit
A situation in which liabilities exceed assets, expenditures exceed income, imports exceed exports,
or losses exceed profits.
Defined-Benefit Plan
An employer-sponsored retirement plan for which retirement benefits are based on a formula
indicating the exact benefit that one can expect upon retiring. Investment risk and portfolio
management are entirely under the control of the company. There are restrictions on when and how
you can withdraw these funds without penalties.
Defined-Contribution Plan
A retirement plan wherein a certain amount or percentage of money is set aside each year for the
benefit of the employee. There are restrictions as to when and how you can withdraw these funds
without penalties.
Deflation
A general decline in prices, often caused by a reduction in the supply of money or credit. Deflation
can be caused also by a decrease in government, personal or investment spending. The opposite of
inflation, deflation has the side effect of increased unemployment since there is a lower level of
demand in the economy, which can lead to an economic depression.
Defunct
The condition of a company, whether publicly traded or private, that has gone bankrupt and ceased
to exist. If the company was publicly traded, it will be delisted from the exchange where it was listed,
and its stock will be worth nothing.
This term also applies to currencies that are no longer in circulation
Degearing
The action of a company altering its capital structure by replacing long-term debt with equity,
thereby easing the burden of interest payments and also increasing management's flexibility
Deleted
A security that is no longer included on a specified market. Sometimes referred to as "delisted
Deleverage
The reduction of financial instruments or borrowed capital previously used to increase the potential
return of an investment. It is the opposite of leverage.
Deleveraged Floater
A fixed-income investment with a floating rate tied to a specific index with less than a one for one
payback ratio.
Delinquent
A term describing the failure to meet required obligations according to schedule.
Delisting
The removal of a listed security from the exchange on which it trades. Stock is removed from an
exchange because the company for which the stock is issued, whether voluntarily or involuntarily, is
not in compliance with the listing requirements of the exchange.
Delivery
The action by which an underlying commodity, security, cash value, or delivery instrument covering
a contract is tendered and received by the contract holder.
Delivery Date
1. The final date by which the underlying commodity for a futures contract must be delivered in
order for the terms of the contract to be fulfilled.
Delivery Instrument
A document that, during the delivery of the futures contract, stands in lieu of the physical asset
underlying the contract.
Delivery Month
The month in which a contract expires and delivery of the underlying asset or cash is required.
Delivery Notice
A notice written by the holder of the short position in a futures contract informing the clearing house
of the intent and details of delivering a commodity for settlement.
Delivery Option
A feature added to some futures contracts permitting the short position to determine the
combination of timing, location, quantity, and quality of the underlying commodity stated in the
delivery notice.
Delivery Price
The price for the delivery of underlying commodities occurring upon the expiration of a futures
contract.
Delivery Versus Payment - DVP
A securities industry procedure in which the buyer's payment for securities is due at the time of
delivery. Security delivery and payment are simultaneous.
Delta
The ratio comparing the change in the price of the underlying asset to the corresponding change in
the price of a derivative. Sometimes referred to as the "hedge ratio".
Delta Hedging
An options strategy that aims to reduce (hedge) the risk associated with price movements in the
underlying asset by offsetting long and short positions. For example, a long call position may be
delta hedged by shorting the underlying stock. This strategy is based on the change in premium
(price of option) caused by a change in the price of the underlying security. The change in premium
for each basis-point change in price of the underlying is the delta and the relationship between the
two movements is the hedge ratio.
Delta Neutral
A portfolio consisting of positions with offsetting positive and negative deltas. The deltas balance
out to bring the net change of the position to zero.
Demand
A consumer's desire and willingness to pay for a good or service.
Demand Deposit
An account from which deposited funds can be withdrawn at any time without any notice to the
depository institution.
Demand Note
A loan with no fixed term or set duration of repayment. It can be recalled upon the lenders request,
assuming the notice required by the provisions of the loan are met.
Demand Shock
A sudden surprise event that temporarily increases or decreases demand for goods or services. A
positive demand shock increases demand, while a negative demand shock decreases demand. Both
positive and negative demand shock have an effect on the prices of goods and services.
Demand-Pull Inflation
A situation in which inflation increases because of a continual increase in consumer demand.
Demarker Indicator
An indicator used in technical analysis that compares the most recent price action to the previous
period's price in an attempt to measure the demand of the underlying asset. This indicator is
generally used to identify price exhaustion and can also be used to identify market tops and
bottoms. This oscillator is bounded between -100 and +100 and, unlike many other oscillators, it
does not use smoothed data.
Dematerialization - DEMAT
The move from physical certificates to electronic book keeping. Actual stock certificates are slowly
being removed and retired from circulation in exchange for electronic recording.
Demutualization
The process of changing corporate structure from a mutual fund company to some other form, such
as a limited liability or corporation.
Denomination
The stated value found on financial instruments.
Dependency Ratio
A measure showing the number of dependents (aged 0-14 and over the age of 65) to the total
population (aged 15-64). Also referred to as the "total dependency ratio".
Dependent
A person who relies on someone else for financial support. The taxpayer supporting the dependent
is allowed to claim dependency exemptions.
Depletion
An accounting term describing the amortization of assets that can be physically reduced.
Deposit
1. A transaction involving a transfer of funds to another party for safekeeping.
2. A portion of funds that is used as security or collateral for the delivery of a good.
Depositary Receipt
A negotiable financial instrument issued by a bank to represent a foreign company's publicly traded
securities. The depositary receipt trades on a local stock exchange
Depreciated Cost
Calculated by subtracting the amount of depreciation claimed from the original cost of an asset.
Depreciation
1. In accounting, an expense recorded to allocate a tangible asset's cost over its useful life. Since it
is a non-cash expense, it increases free cash flow while decreasing reported earnings.
2. A decrease in the value of a particular currency relative to other currencies.
Depressed
A description of a market, security, or product that is experiencing weak demand and lowering
prices.
Depression
A severe and prolonged recession characterized by inefficient economic productivity, high
unemployment, and falling price levels.
Depth
The ability of a security to absorb buy and sell orders without the stock price dramatically moving in
either direction.
Deregulation
The reduction or elimination of government power in a particular industry, usually enacted to create
more competition within the industry.
Derivative
In finance, a security whose price is dependent upon or derived from one or more underlying assets.
The derivative itself is merely a contract between two or more parties. Its value is determined by
fluctuations in the underlying asset. The most common underlying assets include stocks, bonds,
commodities, currencies, interest rates and market indexes. Most derivatives are characterized by
high leverage.
Descending Channel
A downward moving channel formed by two parallel, downward sloping trendlines. The upper
trendline connects a stock's highs over a period of time, with each subsequent high price lower than
the previous. Conversely, the lower trendline connects the stock's lows, with each subsequent low
price lower than the previous.
Descending Tops
A pattern in charts where each peak in price is lower then the previous peak in price. The pattern
signals a bearish trend in the security.
The above is an example of descending tops.
Descending Triangle
A bearish chart pattern used in technical analysis that is created by drawing one trendline that
connects a series of lower highs and a second trendline that has historically proven to be a strong
level of support. Traders watch for a move below support, as it suggests that downward momentum
is building. Once the breakdown occurs, traders enter into short positions and aggressively push
the price of the asset lower. The chart below is an example of a descending triangle:
Desk Trader
A trader who is restricted to instituting trades for a firm's clients and who is unable to trade with
his/her firm's own accounts.
Detrend
In forecasting models, the process of removing the effects of accumulating data sets from a trend to
show only the absolute changes in values and to allow potential cyclical patterns to be identified.
This is done using regression and other statistical techniques.
Devaluation
A deliberate downward adjustment to a country's official exchange rate relative to other currencies.
In a fixed exchange rate regime, only a decision by a country's government (i.e central bank) can
alter the official value of the currency. Contrast to "revaluation".
Development Stage
A company that is focusing a majority of its attention on research & development.
Diagonal Spread
An options strategy established by simultaneously entering into a long and short position in two
options of the same type (two call options or two put options) but with different strike prices and
expiration dates.
Diamonds
1. An extremely hard gemstone used mainly for jewelry and tools.
2. An exchange traded security, issued by the American Stock Exchange, that replicates the
movements in the Dow Jones Industrial Average
Differential
The amount of adjustment of the delivery location and grade of deliverables that a futures contract
permits. Also known as "allowance. "
Diffusion Index
1. A measure of the percentage of stocks that have advanced in price or are showing a positive
momentum over a defined period. It is used in the technical analysis of stocks.
2. A measure of the breadth of a move in any of the Conference Boards Business Cycle Indicators
(BCI), showing how many of an indicators components are moving together with the overall
indicator index.
Digital Option
An option whose payout is fixed after the underlying stock exceeds the predetermined threshold or
strike price.
Also referred to as "binary" or "all-or-nothing option."
Diluted Founders
A slang term often used by venture capitalists to describe the process by which the founders of a
startup gradually lose ownership of the company they founded. As a startup that is using venture
capital for funding progresses through multiple rounds of financing, the venture capitalists
providing the financing will often want more and more ownership of the company.
In other words, the founders dilute their ownership in the company in exchange for capital to grow
their business.
Dilution
A reduction in earnings per share of common stock that occurs through the issuance of additional
shares or the conversion of convertible securities
Dilutive Acquisition
An acquisition that will decrease the acquiring company's EPS.
Direct Cost
A cost that can be directly traced to producing specific goods or services.
Direct Deposit
1. When the tax authorities deposit your tax refund directly into your bank account rather than
mailing you a check.
2. When your employer deposits your paycheck directly into your bank account rather than issuing
you a physical check.
Direct Repurchase
A company's plan to buy back its own shares from the marketplace, thereby reducing the number of
outstanding shares.
Direct Rollover
A distribution of eligible rollover assets from a qualified plan, 403(b) plan, or a governmental 457
plan to a Traditional IRA, qualified plan, 403(b) plan, or a governmental 457 plan or a distribution
from an IRA to a qualified plan, 403(b) plan or a governmental 457 plan
Direct Tax
A tax that cannot be shifted onto others.
Direct-Access Broker
A stockbroker that concentrates on speed and order execution - unlike a full-service broker that
focuses on research and advice. Direct-access brokers usually use complicated computer software
that allows clients to trade directly with an exchange or with other individuals via electronic
communication networks (ECN).
Directed Order
A customer order where the customer gives specific instructions to the broker concerning the
orders routing destination
Directional Trading
A general term referring to the strategy used by investors that open positions, either long or short,
on the belief that they are able to correctly predict the movement of price in a security.
Dirty Float
A system of floating exchange rates in which the government or the country's central bank
occasionally intervenes to change the direction of the value of the country's currency. In most
instances, the intervention aspect of a dirty float system is meant to act as a buffer against an
external economic shock before its effects become truly disruptive to the domestic economy.
Dirty Price
A bond price that includes accrued interest
Discharge in Bankruptcy
When a bankrupt person or company is legally free and clear of any obligation to repay certain
debts.
Disclaim
To renounce an interest or obligation by way of a legal instrument - usually a written disclaimer, or a
disclaiming trust. Property may be disclaimed for several reasons: because it is unwanted, because
it carries heavy liabilities, because of tax reasons, or because the intended beneficiary wants to pass
the property to another beneficiary. Liabilities, obligations, beneficial ownership, or rights may also
be disclaimed.
Disclaimer Trust
A trust that has embedded provisions (usually contained in a will) which allow a surviving spouse to
put specific assets under the trust by disclaiming ownership of a portion of the estate. Disclaimed
property interests are transferred to the trust, without being taxed.
Provisions can be written into the trust that provide for regular payouts from the trust to support
survivors. Surviving minor children can also be provided for, as long as the surviving spouse elects
to disclaim inherited assets, passing them on to the trust.
Disclosure
The act of releasing all relevant information pertaining to a company that may influence an
investment decision. In order to be listed on major U.S. stock exchanges, companies must follow all
of the Securities and Exchange Commission's disclosure requirements and regulations.
Disclosure Statement
1. A document explaining the rules of an IRA in plain, nontechnical language. This must be provided
to the IRA owner at least seven days before the IRA is established, or it can be provided to the IRA
owner at the time the IRA is being established providing the IRA owner is given seven days within
which he/she may revoke the IRA.
2. A document outlining the specific terms and conditions of a loan, including the interest rate of the
loan, any loan fees, the amount borrowed, insurance, prepayment rights and the responsibilities of
the borrower.
Discount
The condition of the price of a bond that is lower than par. The discount equals the difference
between the price paid for a security and the security's par value.
Discount Bond
A bond that is valued at less than its face amount
Discount Broker
A stockbroker who carries out buy and sell orders at a reduced commission, compared to a full-
service broker, but provides no investment advice.
Discount Margin - DM
The return earned in addition to the index underlying the floating rate security.
Discount Note
An unsecured corporate debt that is issued at a discount and matures at par. It is similar to a zero
coupon bond or T-bill. Discount notes give institutional and retail investors convenient choices with
respect to the investment size and maturity date for a short-term investment.
Discount Rate
1. The interest rate that an eligible depository institution is charged to borrow short-term funds
directly from a Federal Reserve Bank.
2. The interest rate used in determining the present value of future cash flows.
Discount Window
The location at the Federal Reserve where financial institutions go to borrow money at the discount
rate.
Discounted Cash Flow - DCF
A valuation method used to estimate the attractiveness of an investment opportunity. Discounted
cash flow (DCF) analysis uses future free cash flow projections and discounts them (most often
using the weighted average cost of capital) to arrive at a present value, which is used to evaluate the
potential for investment. If the value arrived at through DCF analysis is higher than the current cost
of the investment, the opportunity may be a good one.
Discretionary Account
An account that allows a broker to buy and sell securities without the client's consent. Sometimes
referred to as a managed account. The client must sign a discretionary disclosure with the broker as
documentation of the clients consent.
Discretionary Income
The amount of an individual's income that is left for spending after the essentials have been taken
care of.
Discretionary Order
An order giving a broker the ability to decide when to buy/sell securities at the best possible price
for the customer. Some discretionary orders place restrictive terms to limit the amount of discretion
the broker has.
Diseconomies of Scale
An economic concept referring to a situation in which economies of scale no longer function for a
firm. Rather than experiencing continued decreasing costs per increase in output, firms see an
increase in marginal cost when output is increased.
Disgorgement
A repayment of ill-gotten gains that is imposed on wrongdoers by the courts. Funds that were
received through illegal or unethical business transactions are disgorged, or paid back, with interest
to those affected by the action. Disgorgement is a remedial civil action, rather than a punitive civil
action.
Disinflation
A slowing of the rate at which prices increase. Typically, this occurs during a recession as sales
drop and retailers are not able to pass on higher prices to customers.
Disintermediation
1. In finance, withdrawal of funds from intermediary financial institutions, such as banks and
savings and loan associations, in order to invest them directly.
2. Generally, removing the middleman or intermediary.
Disinvestment
1. The action of an organization or government selling or liquidating an asset or subsidiary. Also
known as "divestiture".
2. A reduction in capital expenditure, or the decision of a company not to replenish depleted capital
goods.
Dismal Science
A slang term used to describe the discipline of economics. It was given this description by Thomas
Carlyle, who was inspired to coin the phrase by T. R. Malthus's gloomy prediction that population
would always grow faster than food, dooming mankind to unending poverty and hardship.
Disparity Index
A technical indicator that measures the relative position of the most recent closing price to a
selected moving average and reports the value as a percentage. A value greater than zero suggests
that the asset is gaining upward momentum, while a value less than zero can be interpreted as a
sign that selling pressure is increasing.
Dispersion
A term used in statistics that refers to the location of a set of values relative to a mean or average
level.
Disposable Income
The amount of after-tax income that is available to divide between spending and personal savings.
Disposition
Getting rid of an asset or security through a direct sale or some other method.
Distressed Sale
An urgent sale of assets because of negative conditions.
Distressed Securities
A financial instrument in a company that is near or is currently going through bankruptcy. This
usually results from a company's inability to meet its financial obligations. As a result, these
financial instruments have suffered a substantial reduction in value. Distressed securities can
include common and preferred shares, bank debt, trade claims (goods owed) and corporate bonds.
Distribution
1. An occurrence where trading volume is, without any price appreciation, higher than that of the
previous day.
2. A removal of assets from a retirement account that is paid to the retirement account owner or
beneficiary.
3. A company's payment of cash, stock or physical products to their shareholders.
Distribution In Kind
A distribution made in the form of stock rather than cash.
Also referred to as a "distribution in specie
Divergence
A situation in which the price of an asset and an indicator, index or other related asset move in
opposite directions. In technical analysis traders make transaction decisions by identifying
situations of divergence, where the price of a stock and a set of relevant indicators, such as the
MACD, are moving in opposite directions.
Diversification
A risk-management technique that mixes a wide variety of investments within a portfolio. The
rationale behind this technique contends that a portfolio of different kinds of investments will, on
average, yield higher returns and pose a lower risk than any individual investment found within the
portfolio.
Diversification strives to smooth out unsystematic risk events in a portfolio so that the positive
performance of some investments will neutralize the negative performance of others. Therefore, the
benefits of diversification will hold only if the securities in the portfolio are not perfectly correlated.
Diversified Fund
A type of investment fund that contains a wide array of securities and is adequately diversified. A
mutual fund classified as a "diversified fund" will actively maintain a high level of diversification in
its holdings, thus reducing the amount of risk in the fund, since events that affect one sector won't
have the same effect on other sectors. For example, the fund may restrict its purchases so it is not
dominated by companies from one industry or representing one market capitalization size.
Diversity Score
A measure, created by Moody's Investors Service, to estimate the diversification in a portfolio,
specifically in the context of a collateralized debt obligation (CDO). The calculation methodology for
a diversification score takes into account the extent to which a portfolio is diversified by industry.
Divestiture
The partial or full disposal of an investment or asset through sale, exchange, closure or bankruptcy.
Divestiture can be done slowly and systematically over a long period of time, or in large lots over a
short time period.
Divestment
The process of selling an asset. Also known as divestiture, it is made for either financial or social
goals. Divestment is the opposite of investment
Dividend
Distribution of a portion of a company's earnings, decided by the board of directors, to a class of its
shareholders. The dividend is most often quoted in terms of the dollar amount each share receives
(i.e. dividends per share or DPS). It can also be quoted in terms of a percent of the current market
price, referred to as dividend yield.
Dividend Clawback
An arrangement under which those financing a project agree to contribute, as equity, any prior
dividends received from the project to cover any cash shortages.
Dividend Imputation
An arrangement in Australia that eliminates the double taxation of dividends.
Dividend Irrelevance Theory
A theory that investors are not concerned with a company's dividend policy since they can sell a
portion of their portfolio of equities if they want cash
Dividend Modification
An abbreviation will appear on a chart when the company announces a change (increase or
decrease) or omission in a quarterly dividend pay-out:
•Div Incr = Dividend increase
•Div Decr = Dividend decrease
•Div Initl = Dividend initialized
•Div Rsum = Dividend resume
•Div Omit = Omission of payment
•Div Spec = Special dividend
•Div Extra = Extra dividend
Dividend Payout Ratio
The percentage of earnings paid to shareholders in dividends.
Dividend Policy
The policy a company uses to decide how much it will pay out to shareholders in dividends.
Dividend Reinvestment Plan - DRIP
A plan offered by a corporation allowing investors to reinvest their cash dividends by purchasing
additional shares or fractional shares on the dividend payment date.
Dividend Yield
A financial ratio that shows how much a company pays out in dividends each year relative to its
share price. In the absence of any capital gains, the dividend yield is the return on investment for a
stock. Dividend yield is calculated as follows:
Diworsification
The process of adding to one's portfolio in such a way that the risk/return tradeoff is worsened.
DJF
In currencies, this is the abbreviation for the Djibourti Franc.
DKK
In currencies, this is the abbreviation for the Danish Krone.
Do Not Increase - DNI
Instructions on a good-till-cancelled buy-limit or stop order that tell a broker not to increase the
number of shares bought or sold in the event of a stock dividend or stock split.
Dog
One of the four categories (quadrants) of the BCG growth-share matrix that represents the division
within a company that has a small market share in a mature industry.
Doji
A name for candlesticks that provide information on their own and also feature in a number of
important patterns. Dojis form when a security's open and close are virtually equal.
Dollar Drain
A situation that occurs when a country imports more goods and services from another country than
it exports back to the same country. The net effect of spending more money importing than is
received from exporting causes a net reduction in the importing country's reserves of the exporting
country's currency.
Dollar Price
Percentage of par, or face value, that a bond is quoted at. The other way bonds are often quoted is in
terms of their yield.
Dollar Roll
A special type of repurchase agreement in which the security, transferred to the investor as
collateral, is a mortgage-backed security. The investor who sells the security gives up the cash
flows during the roll period, but has use of the proceeds.
Domicile
The location where an individual, partnership, or corporation establishes permanent residence as
per legal obligations.
Don't Know - DK
A slang expression for an out trade that is used when there is a discrepancy in the details of a trade.
Also known as a "DK'd trade."
Donchian Channels
A moving average indicator developed by Richard Donchian. It plots the highest high and lowest low
over the last period time intervals.
Doomsday Call
A call provision added to fixed income securities that allows for early redemption by the issuer if
certain conditions are favorable.
DOP
In currencies, this is the abbreviation for the Dominican Republic Peso.
Dotcom
A company that embraces the internet as the key component in its business.
Double Barreled
Bonds secured by the pledge of two or more sources of repayment.
Double Bottom
A William J. O'Neil chart pattern resembling a 'W.' One of the three positive chart patterns to look for
when doing technical analysis of a stock.
Double Dipping
For brokerage firms, when a broker puts commissioned products into a fee-based account. The
broker makes money from both the client and the commission.
Double Gearing
Used to describe situations where multiple companies are using shared capital to buffer against risk
occurring in separate entities without the proper documentation of exposure.
Double Top
A term used in technical analysis to describe the rise of a stock, a drop, another rise to the same
level as the original rise, and finally another drop.
Double Witching
Similar to triple witching, but instead of three classes of options or futures expiring on the same day,
double witching is when only two classes (any two) are expiring. The three classes are stock
options, index options, and index futures.
Dove
An economic policy advisor who promotes monetary policies that involve the maintenance of low
interest rates, believing that inflation and its negative effects will have minimal impact on society.
This term is derived from the docile and placid nature of the bird of the same name.
Dow Divisor
A number used in the calculation of the Dow Jones Industrial Average that accounts for stock splits
and stock dividends
Dow Theory
A theory which says the market is in an upward trend if one of its averages (industrial or
transportation) advances above a previous important high, it is accompanied or followed by a
similar advance in the other.
Down Round
A round of financing where investors purchase stock from a company at a lower valuation than the
valuation placed upon the company by earlier investors.
Down Volume
A stock volume that closes at a price lower than the previous day's close.
Down-and-In Option
A form of a knock-in option whose payoff is determined by the price of the underlying asset sinking
to the barrier price level.
Down-and-Out Option
A type of knock-out barrier option that ceases to exist when the price of the underlying security hits
a specific barrier price level. If the price of the underlying does not reach the barrier level, the
investor has the right to exercise their European call or put option at the exercise price specified in
the contract.
Downgrade
A negative change in the rating of a security.
Downside
The dollar amount by which the market or a stock has the potential to fall.
Downside Risk
An estimation of a security's potential to suffer a decline in price if the market conditions turn bad.
Downsize
Reducing the size of a company by eliminating workers and/or divisions within the company.
Downstream
The oil and gas operations that take place after the production phase through to the point of sale.
Downtick
A transaction on an exchange that occurs at a price below the previous transaction.
In order for a downtick to occur, a transaction price must be followed by a decreased transaction
price. This is commonly used in reference to stocks, but it can also be extended to commodities and
other forms of securities.
Downtick Volume
The share volume of a security that trades at a price lower than its previous price.
Drag-Along Rights
A right that enables a majority shareholder to force a minority shareholder to join in the sale of a
company. The majority owner doing the dragging must give the minority shareholder the same price,
terms, and conditions as any other
Dragon Bond
A bond that is issued in Asia but denominated in U.S. dollars.
Drawdown
The peak-to-trough decline during a specific record period of an investment or fund. It is usually
quoted as the percentage between the peak and the trough.
Drill-Bit Stock
A term used to describe shares that trade for prices less than one dollar. The fractional prices are
comparable to the diameter measures of drill-bits found in a hardware store.
Drip Feed
1) The process of investing on an ongoing basis in a small but growing firm over a period of time.
Essentially, a drip feed results in a startup company receiving capital contributions as the need for
capital arises, rather than getting a lump sum capital contribution at the company's inception.
2) The process of retail investors contributing small amounts of their savings to their investment
pool on a periodic basis, such as $200/month, for example.
Drive-By Deal
Slang referring to a deal in which a venture capitalist invests in a startup with the goal of a quick exit
strategy. The VC takes little to no role in the management and monitoring of the startup.
Drop Lock
An arrangement whereby the interest rate on a floating rate note or preferred stock becomes fixed if
it falls to a specified level.
Drought Sale
When a farmer is forced to sell more animals than in a typical year because of poor weather
conditions. The profits from the livestock sales can be deferred to the following year, even if the
proceeds exceed the losses.
Dry Powder
A slang term for cash reserves kept on hand to cover future obligations.
Du Pont Analysis
A method of performance measurement that was started by the DuPont Corporation in the 1920s,
and has been used by them ever since. With this method, assets are measured at their gross book
value rather than at net book value in order to produce a higher ROI.
Du Pont Identity
An expression breaking down return on equity (ROE) into three parts: profit margin, total asset
turnover and financial leverage.
The Du Pont identity tells us that ROE is affected by three things:
-Operating efficiency (as measured by profit margin)
-Asset use efficiency (as measured by total asset turnover)
-Financial leverage (as measured by the equity multiplier)
Dual Listing
A company's securities are listed on more than one exchange for the purpose of adding liquidity to
the shares and allow investors greater choice in where they can trade their shares.
Dual Trading
When a broker simultaneously executes customer orders and places trades in his or her own
account, or one in which he or she has a beneficial interest, on the same trading day. This is also
known as acting as both an agent and a dealer at the same time. Dual trading is prevalent in the
futures market.
Due Bill
A financial instrument used to document and identify the seller's obligation to deliver securities sold
to the buyer.
Due Diligence - DD
1. An investigation or audit of a potential investment. Due diligence serves to confirm all material
facts in regards to a sale.
2. Generally, due diligence refers to the care a reasonable person should take before entering into an
agreement or a transaction with another party.
Dumbbell
An investment strategy, used mainly for bonds, where holdings are heavily concentrated in both
very short and long term maturities.
Dummy Director
A person on a company's board of directors who votes and acts on the wishes of a non board
member.
Dummy Shareholder
A person who holds shares in his or her name, but the shares are really owned by someone else.
Dumping
1. In international trade, this occurs when one country exports a significant amount of goods to
another country at prices much lower than in the domestic market.
2. A slang term for selling a stock with little regard for price.
Dunning
The process of communicating with customers to ensure the collection of accounts receivable.
Duopoly
A situation in which two companies own all or nearly all of the market for a given type of product or
service.
Durables
A category of consumer goods, durables are products that do not have to be purchased frequently.
Some examples of durables are appliances, home and office furnishings, lawn and garden
equipment, consumer electronics, toy makers, small tool manufacturers, sporting goods,
photographic equipment, and jewelry.
Duration
The measure of the price sensitivity of a fixed-income security to an interest rate change of 100
basis points. Calculation is based on the weighted average of the present values for all cash flows.
Dutch Auction
An auction where the price on an item is lowered until it gets its first bid, and then the item is sold at
that price.
Dutch Disease
An economic condition that, in its broadest sense, refers to negative consequences arising from
large increases to a country's income. Dutch disease is primarily associated with a natural resource
discovery, but it can result from any large increase in foreign currency, including foreign direct
investment, foreign aid or a substantial increase in natural resource prices.
This condition arises when foreign currency inflows cause an increase in the affected country's
currency. This has two main effects for the country with Dutch disease:
1. A decrease in the price competitiveness, and thus the exports, of its manufactured goods
2. An increase in imports
In the long run, both these factors can contribute to manufacturing jobs being moved to lower-cost
countries. The end result is that non-resource industries are hurt by the increase in wealth
generated by the resource-based industries.
Dwarf
A name given to a pool of mortgage-backed securities, issued by Fannie Mae, with a maturity of 15
years
A Nasdaq stock symbol specifying that the stock has been delinquent in required filings
with the SEC.
E-mini (Stock Index Futures)
An electronically traded futures contract on the Chicago Mercantile Exchange that
represents a portion of the normal futures contracts. E-mini contracts are available on a
wide range of indices such as the Nasdaq 100, S&P 500, S&P MidCap 400 and Russell
2000.
Early Exercise
When an option or other security is exercised prior to its maturity date.
Early Withdrawal
The removal of funds from a fixed-term investment before the maturity date, or the
removal of funds from a tax-deferred investment account or retirement savings account
(such as an IRA) before a prescribed time, such as the account owner's attainment of a
minimum age requirement.
Earned Income
Income derived from active participation in a trade or business, including wages, salary,
tips, commissions and bonuses. This is the opposite of unearned income.
Earning Assets
Any income-earning asset owned by a company.
EBITDA can be used to analyze and compare profitability between companies and
industries because it eliminates the effects of financing and accounting decisions.
However, this is a non-GAAP measure that allows a greater amount of discretion as to
what is (and is not) included in the calculation. This also means that companies often
change the items included in their EBITDA calculation from one reporting period to the
next.
Earnings Estimate
An analyst's estimate for a company's future quarterly or annual earnings.
Earnings Multiplier
The estimated price-earnings ratio adjusted for the current level of interest rates.
Earnings Season
The months in which a majority of quarterly corporate earnings are released to the public.
Earnings Stability
Indicates in percentage from one standard deviation of the variability around the trend line
fitted through 3 to 5 years of earnings' history with a scale ranging from 1 to 99. Lower
numbers represent more stable company earnings history.
Earnings Surprise
When the earnings reported in a company's quarterly or annual report are above or below
analysts' earnings estimates.
Earnings Yield
The earnings per share for the most recent 12 months divided by market price per share.
Earnout
A contractual provision stating that the seller of a business is to obtain additional future
compensation based on the business achieving certain future financial goals.
Ease Of Movement
A technical momentum indicator that is used to illustrate the relationship between the rate
of an asset's price change and its volume. This indicator attempts to identify the amount
of volume required to move prices. Generally a value greater than zero is an indication that
the stock is being accumulated (bought) and negative values are used to signal increased
selling pressure.
A high positive value appears when prices move upward on low volume. Strong negative
numbers indicate that price is moving downward on low volume.
Easy-To-Borrow List
A list of securities deemed to be available for borrowing in short selling transactions
because their delivery is assured. Availability is usually due to their accessible nature
and/or high number of outstanding shares
Eating Stock
Purchasing stock not because you desire it but because you are forced to do so.
Echo Bubble
A post-bubble rally that becomes another, smaller bubble.
Eclectic Paradigm
A theory that provides a three-tiered framework for a company to follow when determining
if it is beneficial to pursue direct foreign investment
Econometrics
The application of statistical theories to economic ones for the purpose of forecasting
future trends.
Economic Exposure
An exposure to fluctuating exchange rates, which affects a company's earnings, cash flow
and foreign investments. The extent to which a company is affected by economic
exposure depends on the specific characteristics of the company and its industry.
Economic Growth
An increase in the capacity of an economy to produce goods and services, compared from
one period of time to another. Economic growth can be measured in nominal terms, which
include inflation, or in real terms, which are adjusted for inflation.
For comparing one country's economic growth to another, GDP or GNP per capita should
be used as these take into account population differences between countries.
Economic Moat
The competitive advantage that one company has over other companies in the same
industry. This term was coined by renowned investor Warren Buffett.
Economic Refugee
A person seeking refugee status in another country for purely economic reasons.
Economic Spread
1. A performance metric that is equal to the difference between a company's weighted
average cost of capital (WACC) and its return on invested capital (ROIC).
2. The difference between the real rate of return on an investment and the rate of inflation
in the economy
Economic Spread
1. A performance metric that is equal to the difference between a company's weighted
average cost of capital (WACC) and its return on invested capital (ROIC).
2. The difference between the real rate of return on an investment and the rate of inflation
in the economy
Economies Of Scale
The increase in efficiency of production as the number of goods being produced
increases. Typically, a company that achieves economies of scale lowers the average cost
per unit through increased production since fixed costs are shared over an increased
number of goods.
There are two types of economies of scale:
External economies - the cost per unit depends on the size of the industry, not the firm.
Internal economies - the cost per unit depends on size of the individual firm.
Economy
The large set of inter-related economic production and consumption activities which aid in
determining how scarce resources are allocated.
Economies of Scope
An economic theory stating that the average total cost of production decreases as a result
of increasing the number of different goods produced.
Effective Duration
A duration calculation for bonds with embedded options. Effective duration takes into
account that expected cash flows will fluctuate as interest rates change
. Effective Date
The date, declared by the Securities & Exchange Commission (SEC), on which shares can
start trading. This usually refers to the date when shares become available for sale in an
initial public offering.
Effective Yield
The yield of a bond, assuming that you reinvest the coupon (interest payments) once you
have received payment.
EEK
In currencies, this is the abbreviation for the Estonian Kroon.
Efficient Frontier
A line created from the risk-reward graph, comprised of optimal portfolios.
Efficiency Ratio
A ratio used to calculate a bank's efficiency. Not all banks calculate the efficiency ratio the
same way. We've seen the ratio calculated as all of the following:
1. Non-interest expense divided by total revenue less interest expense
2. Non-interest expense divided by net interest income before provision for loan losses
3. Non-interest expense divided into revenue
4. Operating expenses divided by fee income plus tax equivalent net interest income.
For all versions of the ratio, an increase means the company is losing a larger percentage
of its income to expenses. If it is getting lower, it is good for the bank and its
shareholders.
EGP
In currencies, this is the abbreviation for the Egyptian Pound.
Elasticity
A measure of sensitivity of one variable to another. More specifically, the degree to which
consumers respond to price changes.
Elder-Ray Index
A technical indicator developed by Alexander Elder that measures the amount of buying
and selling pressure in the market. This indicator consists of two separate indicators
known as "bull power" and "bear power". These figures allow a trader to determine the
position of the price relative to a certain exponential moving average (EMA).
Bull Power = Daily High - n-period EMA
Bear Power = Daily Low - n-period EMA
Elephants
Slang for large institutions that make trades in very high volumes.
Elevator Pitch
A slang term referring to the 20-60 seconds an entrepreneur has to interest a venture
capitalist (VC) in his or her business idea.
Eligible Rollover Distribution
A distribution from an IRA, qualified plan, 403(b) plan or 457 plan that is eligible to be
rolled over to another eligible retirement plan.
Election Period
The period of time during which an investor who owns an extendable or retractable bond
must indicate to the issuer whether or not he or she will exercise his or her option.
Elves
A slang term for guests appearing on the PBS television show "Wall Street Week."
Embedded Option
An option that is an inseparable part of another instrument. Compare this to a normal (or
bare) option, which trades separately from the underlying security.
Embedded Value
A common valuation measure used outside North America, particularly in the insurance
industry. It is calculated by adding the adjusted net asset value and the present value of
future profits of a firm. The present value of future profits considers the potential profits
that shareholders will receive in the future, while adjusted net asset value considers the
funds belonging to shareholders that have been accumulated in the past.
Elimination Period
The length of time between when an injury or illness begins and receiving benefit
payments from an insurer. Also known as the "waiting" or "qualifying" period,
policyholders must in the interim pay for these services and can be thought of as a
deductible.
Emerging Industry
An industry, usually formed by a new product or idea, that is in the early stages of
development.
Empire Building
The act of attempting to increase the size and scope of an individual or organization's
power and influence. In the corporate world, this is seen when managers or executives are
more concerned with expanding their business units, their staffing levels and the dollar
value of assets under their control than they are with developing and implementing ways
to benefit shareholders.
Encumbered Securities
Securities that are owned by one entity, but subject to a legal claim by another.
When an entity borrows from another, legal claim on the securities owned by the borrower
can be taken as security by the lender should the borrower default on its obligation. The
securities' owner still has title to the securities, but the claim or lien remains on record. In
the event that the securities are sold, the party with the legal claim on them must be given
first opportunity to be paid back. In some cases, encumbered securities cannot be sold
until any outstanding debts belonging to the owner of the securities are paid to the lender
who holds claim against the securities.
Encumbrance
A claim against a property by another party. Encumbrance usually impacts the
transferability of the property.
Ending Inventory
A book value of goods, inputs, or materials available for use or sale at the end of an
inventory accounting period.
Endorsement
1. A legal term that refers to the signing of a document which allows for the legal transfer
of a negotiable from one party to another.
2. An attachment to a document that amends or adds to it. Typically, it is an added
provision to an insurance policy. Also referred to as a "rider".
Endowment
Assets, funds, or property donated to an institution, individual, or group as a source of
income.
Enduring Purpose
Similar to a corporate mission statement, enduring purpose is a combination of a
company's goals, attitudes, and beliefs.
Enron
A U.S. energy-trading and utilities company that housed one of the biggest accounting
frauds in history. Enron's executives employed accounting practices that falsely inflated
the company's revenues, which, at the height of the scandal, made the firm become the
seventh largest corporation in the United States. Once the fraud came to light, the
company quickly unraveled and filed for Chapter 11 bankruptcy on Dec. 2, 2001.
Enronomics
A fraudulent accounting technique that involves a parent company making artificial paper-
only transactions with its subsidiaries to hide losses the parent company has incurred
through business activities.
By transferring losses to off-book entities or wholly-owned subsidiaries, the now-bankrupt
energy corporation Enron created one of the largest accounting scandals and securities
frauds in history.
Enterprise Multiple
A ratio used to determine the value of a company. The enterprise multiple looks at a firm
as a potential acquirer would, because it takes debt into account - an item which other
multiples like the P/E ratio do not include. Enterprise multiple is calculated as:
Enterprise Value - EV
A measure of a company's value, often used as an alternative to straightforward market
capitalization. EV is calculated as market cap plus debt, minority interest and preferred
shares, minus total cash and cash equivalents.
Enterprise-Value-To-Sales - EV/Sales
A valuation measure that compares the enterprise value of a company to the company's
sales. EV/sales gives investors an idea of how much it costs to buy the company's sales.
This measure is an expansion of the price-to-sales valuation, which uses market
capitalization instead of enterprise value. EV/sales is seen as more accurate because
market capitalization does not take into account as well as enterprise value the amount of
debt a company has, which needs to be paid back at some point. Generally the lower the
EV/sales the more attractive or undervalued the company is believed to be.
Entrepôt
A seaport or warehouse where goods are stored until they are shipped. The goods do not
face any import or export duties upon shipment from the port or warehouse.
Entrepreneur
An individual who, rather than working as an employee, runs a small business and
assumes all the risk and reward of a given business venture, idea, or good or service
offered for sale. The entrepreneur is commonly seen as a business leader and innovator of
new ideas and business processes.
Envelope
A trading band composed of two moving averages, one of which is shifting upwards and
the other shifting downwards.
EPS Rating
Exclusive rating found in Investor’s Business Daily's SmartSelect® Corporate Ratings.
Stocks are rated on a 1 to 99 scale (with 99 being best) comparing a company’s earnings
per share growth on both a current and annual basis with all other publicly traded
companies in the William O’Neil + Co database. Stocks with EPS Ratings of 80 or above
have outperformed 80% of all publicly traded companies in earnings. The EPS Rating
combines each company’s most recent two quarters of earnings-per-share growth with its
three- to five-year annual growth rate.
Equalization Reserve
A long-term reserve that an insurance company keeps for the purpose of preventing cash-
flow depletion in the event of a significant unforeseen catastrophe.
Equalizing Dividend
An additional dividend paid to eligible stockholders when their divided income is reduced
due to a change the board of directors makes to the dividend payment schedule.
Equilibrium
The state in which market supply and demand balance each other and, as a result, prices
become stable.
Equity
1. Stock or any other security representing an ownership interest.
2. On the balance sheet, the amount of the funds contributed by the owners (the
stockholders) plus the retained earnings (or losses). Also referred to as "shareholder's
equity".
3. In the context of margin trading, the value of securities in a margin account minus what
has been borrowed from the brokerage.
4. In the context of real estate, the difference between the current market value of the
property and the amount the owner still owes on the mortgage. Thus, it is the amount, if
any, the owner would receive after selling a property and paying off the mortgage.
Equity Accounting
A method of accounting whereby a corporation will document a portion of the
undistributed profits for an affiliated company in which they own a position
Equity Financing
The act of raising money for company activities by selling common or preferred stock to
individual or institutional investors. In return for the money paid, shareholders receive
ownership interests in the corporation.
Equity Fund
A mutual fund that invests in a broad, well-diversified group of stocks.
Equity Income
1. Income that is earned through an investment in equity.
2. A type of mutual fund whose portfolio is invested in companies that are determined to
be of high quality and have a strong history of dividend growth.
Equity Market
The market in which shares are issued and traded, either through exchanges or over-the-
counter markets. Also known as the stock market, it is one of the most vital areas of a
market economy because it gives companies access to capital and investors a slice of
ownership in a company with the potential to realize gains based on its future
performance.
Equity Method
An accounting technique used by firms to assess the profits earned by their investments
in other companies. The firm reports the income earned on the investment on its income
statement and the reported value is based on the firm's share of the company assets. The
reported profit is proportional to the size of the equity investment. This is the standard
technique used when one company has significant influence over another.
Equity Multiplier
A measure of financial leverage. Calculated as:
Total Assets / Total Stockholders' Equity
Like all debt management ratios, the equity multiplier is a way of examining how a
company uses debt to finance its assets. Also known as the financial leverage ratio or
leverage ratio.
Erasure Guarantee
A guarantee made by accredited institutions assuring the legitimacy and accuracy of
changes made to bonds and securities.
Escheat
When property and/or an estate is transferred to the government because a person has
died without a will or an heir to his or her estate.
Escrow
A financial instrument held by a third party on behalf of the other two parties in a
transaction. The funds are held by the escrow service until it receives the appropriate
written or oral instructions or until obligations have been fulfilled. Securities, funds and
other assets can be held in escrow.
Escrow Agreement
A certificate provided by an approved bank that guarantees the indicated securities are
deposited at that particular bank.
Escrow Receipt
A bank guarantee that an option writer has the underlying security on deposit and that the
underlying security is readily available for delivery if the option is exercised.
Escrowed Shares
Shares held in an escrow account and in most cases cannot be traded or transfered until
certain circumstances like time horizon have been reached. The use of escrow for holding
shares is often done during acquisitions and for performance-based executive incentives.
Escrowed To Maturity
The condition of a bond that has been repaid in advance by means of an escrow account,
which holds the funds needed to pay the periodic coupon payments and the principal.
Estate
All of the valuable things an individual owns, such as real estate, art collections,
collectibles, antiques, jewelry, investments and life insurance.
Estate Planning
The overall planning of a person's wealth, including the preparation of a will and the
planning of taxes after the individual's death
Estate Tax
A tax levied on an heir's inherited portion of an estate if the value of the estate exceeds an
exclusion limit set by law. The estate tax is mostly imposed on assets left to heirs, but it
does not apply to the transfer of assets to a surviving spouse. The right of spouses to
leave any amount to one another is known as the "unlimited marital deduction".
ETB
In currencies, this is the abbreviation for the Ethiopian Birr.
EUR
In currencies, this is the abbreviation for the euro.
EUREX
The largest futures and options market in the world, dealing primarily with European-
based derivatives. The products that trade on this exchange range from German and
Swiss debt instruments to European stocks and STOXX indexes. Along with facilitating
trade, EUREX also provides settlement of the contracts.
Euro LIBOR
London Interbank Offer Rate denominated in euros. This is the interest rate that banks
offer each other for large short-term loans in euros. The rate is fixed once a day by a small
group of large London banks but fluctuates throughout the day. This market makes it
easier for banks to maintain liquidity requirements because they are able to quickly
borrow from other banks that have surpluses
Eurobank
A financial institution that readily accepts foreign currency denominated deposits and
makes foreign currency loans.
Eurobond
A bond issued in a currency other than the currency of the country or market in which it is
issued.
Eurocheck
A check from a European bank that can be cashed at over 200,000 banks around the world
displaying the "European Union" crest.
Euroclear
One of two principal clearing houses for securities traded in the Euromarket. Euroclear
specializes in verifying information supplied by two brokers in a securities transaction and
the settlement of securities. Euroclear is market owned and governed and was recently
renamed Euroclear Belgium.
Eurocommercial Paper
An unsecured, short-term loan issued by a bank or corporation in the international money
market, denominated in a currency that differs from the corporation's domestic currency.
Eurocredit
A type of loan whose denominated currency is not the lending bank's national currency.
Eurocurrency
Currency deposited by national governments or corporations in banks outside their home
market. This applies to any currency and to banks in any country. For example, South
Korean won deposited at a bank in South Africa, is considered eurocurrency.
Also known as "euromoney".
Eurocurrency Market
The money market in which Eurocurrency, currency held in banks outside of the country
where it is legal tender, is borrowed and lent by banks in Europe.
The Eurocurrency market allows for more convenient borrowing, which improves the
international flow of capital for trade between countries and companies.
Eurodollar
U.S.-dollar denominated deposits at foreign banks or foreign branches of American banks.
By locating outside of the United States, eurodollars escape regulation by the Federal
Reserve Board.
Eurodollar Bond
A U.S.-dollar denominated bond issued by an overseas company and held in a foreign
institution outside both the U.S. and the issuer's home nation. Eurodollar bonds are an
important source of capital for multinational companies and foreign governments.
A eurodollar bond is a type of Eurobond.
Euroequity
A term used to describe an IPO occurring simultaneously on more than one national
market.
Euromarket
The market that includes all of the European Union member countries - many of which use
the same currency, the euro. All tariffs between Euromarket member countries have been
abolished, and import duties from all non-member countries have been fixed for all of the
member countries. The Euromarket also has one central bank for all of the member
countries, the European Central Bank (ECB).
Also known as "the Common Market".
Euronext
A cross-border European stock exchange, originally created in 2000 from the merger of
the Amsterdam, Brussels and Paris stock exchanges. In 2001 and 2002, respectively,
Euronext acquired the London International Financial Futures and Options Exchange
(LIFFE) and the Portuguese stock exchange, Bolsa de Valores de Lisboa e Porto (BVLP), in
order to become the world's fifth-largest exchange. In addition to being an equities market,
Euronext is also a derivatives market and a provider of clearing and information services.
European Union - EU
A group of European countries that participates in the world economy as one economic
unit and operates under one official currency, the euro. The EU's goal is to create a
barrier-free trade zone and to enhance economic wealth by creating more efficiency within
its marketplace.
European Option
An option that can only be exercised at the end of its life.
Euroyen
Japanese yen-denominated deposits held in banks outside Japan. Also a term that refers
to yen traded in the Eurocurrency market.
Euroyen Bond
A Eurobond that is denominated in Japanese yen and issued by a non-Japanese company
outside of Japan. Despite what the name suggests, Euroyen bonds can be found in bond
markets around the world, not just in European markets.
Eurozone
A geographic and economic region that consists of all the European Union countries that
have fully incorporated the euro as their national currency.
Also referred to as "Euroland".
Even Lot
Quantities established by futures exchanges as benchmarks for quoting commodity prices
Evening Star
A bearish candlestick pattern consisting of three candles that have demonstrated the
following characteristics:
1. The first bar is a large white candlestick located within an uptrend.
2. The middle bar is a small-bodied candle (red or white) that closes above the first white
bar.
3. The last bar is a large red candle that opens below the middle candle and closes near
the center of the first bar's body.
As shown by the chart below, this pattern is used by traders as an early indication that the
uptrend is about to reverse.
Event Driven Strategy
A hedge fund strategy in which the manager takes significant positions in a certain
number of companies with "special situations."
Event Risk
1. The risk due to unforeseen events partaken by or associated with a company.
2. The risk associated with a changing portfolio value due to large swings in market
prices. Also referred to as "jump risk" or "fat-tails".
Evergreen Funding
1. A British term that describes a revolving credit arrangement in which the borrower
periodically renews the debt financing rather than having the debt reach maturity.
2. The gradual infusion of capital into a new or recapitalized enterprise. This type of
funding differs from the situation in which the aggregate capital required for a business
venture is supplied up-front, in which case the company invests in short-term, low-risk
securities until it is ready to use the money for business operations.
Evergreen Option
An employee option plan that grants additional shares to the plan every year. Also known
as an "evergreen plan".
Ex Works - EXW
A trade term requiring the seller to deliver goods at his or her own place of business. All
other transportation costs and risks are assumed by the buyer.
Ex-Ante
A term that refers to future events, such as future returns or prospects of a company.
Using ex-ante analysis helps to give an idea of future movements in price or the future
impact of a newly implemented policy.
Ex-Date
The date on or after which a security is traded without a previously declared dividend or
distribution. After the ex-date, a stock is said to trade ex-dividend.
Ex-Dividend
The trading of shares when a declared dividend belongs to the seller rather than the buyer.
Ex-Legal
Municipal bonds that are delivered without a legal opinion from a bond law firm.
Ex-Post
Another term for actual returns. Ex-post translated from Latin means "after the fact". The
use of historical returns has traditionally been the most common way to predict the
probability of incurring a loss on any given day. Ex-post is the opposite of ex-ante, which
means "before the event".
Ex-Post Risk
A type of risk measurement technique that uses historic returns to predict the riskiness of
a certain investment in the future. This type of risk measure is the equivalent of the
statistical variance of an asset's returns relative to its mean.
Ex-Warrant
The trading of shares when a warrant has been declared but not distributed.
Exceptional Item
Charges incurred that must be noted on a company's balance sheet, in accordance with
GAAP principles. Even though they are considered to be part of ordinary business
charges, exceptional items must be disclosed due to their sheer size or frequency.
Excess Capacity
A situation in which actual production is less than what is achievable or optimal for a firm.
This often means that the demand in the market for the product is below what the firm
could potentially supply to the market.
Excess Returns
Returns in excess of the risk-free rate or in excess of a market measure (such as an index
fund).
Excess Spread
Remaining net interest payments from the underlying assets of an asset-backed security,
after all payables and expenses are covered.
Excess-Accumulation Penalty
The penalty a retirement account owner or the beneficiary of a retirement account must
pay when he or she fails to distribute a minimum amount due for a year from the
retirement account.
Exchange
A market in which securities, commodities, options or futures are traded.
Exchange Control
Types of controls that governments put in place to ban or restrict the amount of foreign
currency or local currency that is allowed to be traded or purchased. Common exchange
controls include banning the use of foreign currency and restricting the amount of
domestic currency that can be exchanged within the country.
Exchange Rate
The price of one country's currency expressed in another country's currency. In other
words, the rate at which one currency can be exchanged for another. For example, the
higher the exchange rate for one euro in terms of one yen, the lower the relative value of
the yen.
Exchange-Traded Option
An option traded on a regulated exchange where the terms of each option are
standardized by the exchange. The contract is standardized so that underlying asset,
quantity, expiration date and strike price are known in advance. Over-the-counter options
are not traded on exchanges and allow for the customization of the terms of the option
contract.
Exchange-traded options are also known as "listed options".
Exchangeable Debt
Similar to convertibles, except this type of debt can be converted into the shares of a
company other than the issuing company (usually a subsidiary).
Exchangeable Security
A security that grants its holder the right to exchange it for the common stock of a firm
other than the issuer.
Excise Tax
1. An indirect tax charged on the sale of a particular good.
2. A penalty tax applied to ineligible transactions in retirement accounts. This penalty is
assessed by and paid to the IRS.
Exclusion Ratio
The portion of the return on investments that is income tax exempt. It represents a
payback of initial investments rather than capital gains.
Execution
The completion of a buy or sell order for a security.
Executor
An individual appointed to administrate the estate of a deceased person. The executor's
main duty is to carry out the instructions and wishes of the deceased. The executor is
appointed either by the testator of the will (the individual who makes the will) or by a court,
in cases where there was no prior appointment.
Exempt Income
Certain types of income that are not subject to income tax.
Exemption
A deduction allowed by law to reduce the amount of income that would otherwise be
taxed. An exemption is based on a status or circumstance rather than economic standing.
Exemption Trust
A trust whose purpose is to drastically reduce or eliminate federal estate taxes for a
married couple's estate. This type of estate plan sets up an irrevocable trust that will hold
the assets of the first spouse to die.
Exercise
An action by a stockholder taking advantage of a privilege offered by a company or other
financial institution. This includes warrants, options and other exotic financial
instruments.
Exercise Limit
A restriction on the amount of option contracts of a single class that any one person or
company can exercise within a fixed time period (usually a period of five business days).
This limit is in place so that no one person or company can corner or greatly impact the
option market.
Exercise Price
The price at which the underlying security can be purchased (call option) or sold (put
option). The exercise price is determined at the time the option contract is formed.
Also known as the "strike price".
Exhaustion
Situation in which a majority of participants trading in the same asset are either long or
short, leaving few investors to take the other side of the transaction when participants
wish to close their positions. Exhaustion signals the reversal of the current trend because
it illustrates excess levels of supply or demand.
Exhaustion Gap
A technical term describing that the stock's price opens up on a gap from the prior day's
high close.
Exit Strategy
1. The method by which a venture capitalist or business owner intends to get out of an
investment that he or she has made in the past. In other words, the exit strategy is a way
of "cashing out" an investment. Examples include an initial public offering (IPO) or being
bought out by a larger player in the industry. Also referred to as a "harvest strategy" or
"liquidity event".
2. In the context of an active trader, a plan as to when a trade will be closed out.
Exordium Clause
A clause most often at the opening of a will that declares that the document is a will and
effectively lays out to the readers a few basic premises upon which the rest of the
document is based. Contents of an exordium clause are likely to include:
1. Identity of the person who has left the will.
2. The name of the place of residence of that person.
3. A revocation of all previous wills made by that person existing before the date that the
current will was produced.
4. Declaration that the current document is the will belonging to the named person.
Exotic Option
A type of option that differs from common American or European options in terms of the
underlying asset or the calculation of how or when the investor receives a certain payoff.
These options are more complex than options that trade on an exchange, and generally
trade over the counter.
Expansion
The phase of the business cycle when the economy moves from a trough to a peak. It is a
period when business activity surges and gross domestic product expands until it reaches
a peak.
Also known as an "economic recovery".
Expectations Index
A sub-index that measures overall consumer sentiments toward the short-term (6-month)
future economic situation, and is used to derive (about 60% of) the Consumer Confidence
Index, a widely used economic indicator. The sub-index is compiled from data gathered
from a survey of 5,000 households on questions regarding expected business and
employment conditions as well as expected income in the near term.
Expectations Theory
A theory proposing that long-term interest rates can act as a predictor of future short-term
interest rates.
Expected Return
The average of a probability distribution of possible returns, calculated by using the
following formula:
Expense Ratio
The percentage of total fund assets that is used to cover expenses associated with the
operation of a mutual fund. This amount is taken out of the fund's assets and lowers the
return that fund holders achieve. These expenses include management fees and operating
expenses. The management fee is the fee that is charged to the fund by the portfolio
manager, and it is often a fixed percentage. The operating expenses are the expenses that
the fund incurs through operation and this can include brokerage fees, taxes, investor
services and interest expenses.
Also known as the "management expense ratio" (MER).
Expenses
1. Money spent by a firm to continue its ongoing operations.
2. Money spent or costs incurred that are deductible and reduce your taxable income.
Expiration Date
The day on which an options or futures contract is no longer valid and, therefore, ceases
to exist.
Export
In international trade, goods that are shipped from one country to another.
Expropriation
The act of removing property from an owner.
Extendable Bond
A bond issue with a maturity that can be extended to a longer period at the option of the
issuer.
Extended IRA
An IRA that allows a second-generation beneficiary to continue to distribute the assets
over the life expectancy used by the first-generation beneficiary, thereby extending the
IRA.
Extension Risk
The risk of a security lengthening in duration due to the deceleration of prepayments.
Externality
A consequence of an economic activity that is experienced by unrelated third parties. An
externality can be either positive or negative.
Extra Dividend
A non-recurring distribution of company assets, usually in the form of cash, to
shareholders which is of unusually large size or different date of issue compared to
normal dividends paid out by the given company. Also referred to as a "special dividend".
Extraordinary Item
Gains or losses included in a company's financial statements, which are infrequent and
unusual in nature. These are usually explained further in the "notes to the financial
statements."
Extraordinary Redemption
A provision which gives a bond issuer the right to call the bonds due to a one-time
occurrence, as specified in the offering statement. The circumstances could range from
natural disasters and cancelled projects to almost anything else.
Also known as an "extraordinary call" or "extraordinary redemption provision".
Extrinsic Value
The difference between an option's price and the intrinsic value.
F
A Nasdaq stock symbol specifying that the stock is a foreign company.
Fabless Company
The Fabless Semiconductor Association (FSA) defines fabless as follows:
Fabless (without fab) refers to the business methodology of outsourcing the manufacturing of
silicon wafers, which hundreds of semiconductor companies have adopted. Fabless companies
focus on the design, development and marketing of their products and form alliances with silicon
wafer manufacturers, or foundries.
Face Value
The nominal value or dollar value of a security stated by the issuer. For stocks, it is the original cost
of the stock shown on the certificate. For bonds, it is the amount paid to the holder at maturity
(generally $1,000). Also known as "par value" or simply "par".
Facility
A term used to describe financial assistance programs offered by lending institutions to help
companies requiring capital
Factor
1. A financial intermediary that purchases receivables from companies.
2. In terms of mortgages, the ratio of principal outstanding to the original balance.
Fade
1. A contrarian investment strategy used to trade against the prevailing trend. "Fading the market" is
typically very high risk, requiring the trader to have a high risk tolerance. A fade trader would sell
when a price is rising and buy when it's falling. Also known as "fading".
2. In a dealer market, it is the failure of a dealer to honor a quote when a customer or another dealer
wants to trade.
Fail
A transaction that has not been settled before a deadline.
Failed Break
A price movement through an identified level of support or resistance that does not have enough
momentum to maintain its direction. Since the validity of the breakout (or breakdown) is
compromised, many traders close their positions and the price fails to make the sharp move that
many were expecting.
A failed break is also commonly referred to as a "false breakout".
Fair Value
1. The estimated value of all assets and liabilities of an acquired company used to consolidate the
financial statements of both companies.
2. In the futures market, fair value is the equilibrium price for a futures contract. This is equal to the
spot price after taking into account compounded interest (and dividends lost because the investor
owns the futures contract rather than the physical stocks) over a certain period of time.
Fairness Opinion
A report put together by qualified analysts or advisors providing to key decision makers an
evaluation of and facts about a merger or acquisition.
Fairway Bond
A type of bond that accrues interest if the embedded index or interest-rate option underlying the
bond remains within a specified range.
Fakeout
A term used in technical analysis that refers to a situation in which a trader enters into a position in
anticipation of a future transaction signal or price movement, but the signal or movement never
develops and the asset moves in the opposite direction.
Fallen Angel
1. A bond that was once investment grade but has since been reduced to junk bond status.
2. A stock that has fallen substantially from its all time highs.
Falling Knife
A stock whose price has fallen significantly in a short period of time.
False Market
A market where prices are manipulated and impacted by erroneous information, preventing the
efficient negotiation of prices. These types of markets will often be marred by volatile swings
because the true value of the market is clouded by the misinformation.
Family of Funds
A group of mutual funds offered by one investment or fund company. Each mutual fund has different
characteristics and can range depending on investment objective.
Also referred to as a "Mutual Fund Family" or simply a "Fund Family".
Fast Market
A financial market that has a combination of high volatility and heavy trading
Fast Tape
A type of futures market that occurs when a single traded price is unavailable because of the rapid
and large number of transactions occurring in the pit or ring.
Featherbedding
Term used to describe the practice of a labor union requiring an employer to hire more workers than
necessary for a particular task.
Fed Model
A model thought to be used by the Federal Reserve that hypothesizes a relationship between long-
term treasury notes and the market return of equities.
Federal Covered Advisor
An investment advisor that manages over $25 million in assets for other investors.
Federal Debt
The total amount of money that the United States federal government owes to creditors. The
government's creditors include all individuals, businesses, governments and other organizations
that own U.S. government debt securities. The federal debt exists as a result of federal government
shortfalls, or deficit budgets in which the government's expenses exceed its revenues. The federal
debt does not include any debts in the name of individuals, corporations, and state or municipal
governments.
Federal Funds
Funds deposited to regional Federal Reserve Banks by commercial banks, including funds in excess
of reserve requirements.
Federal Funds
Funds deposited to regional Federal Reserve Banks by commercial banks, including funds in excess
of reserve requirements.
Fee-Based Investment
An investment account in which the advisor's compensation is based on a set percentage of the
client's assets instead of on commissions. Contrast this to commission-based investment, in which
the advisor makes money based on the amount of trades made or the amount of assets sold to the
client.
Feed Ratio
A ratio used in futures markets to express the profit margin associated with the feeding and selling
of animals.
Feeder Fund
A fund that conducts virtually all of its investing through another fund (called the master fund).
Fiat Money
Money that a government has declared to be legal tender, despite the fact that it has no intrinsic
value and is not backed by reserves.
Fibonacci Arc
A charting technique consisting of three curved lines that are drawn for the purpose of anticipating
key support and resistance levels, and areas of ranging.
Fibonacci Channel
A variation of the Fibonacci retracement pattern in which the trendlines run diagonally rather than
horizontally. These channels are used to estimate areas of support and resistance in the same way
as the horizontal Fibonacci retracement levels.
Fibonacci Clusters
A tool used in technical analysis that combines various numbers of Fibonacci retracements, all of
which are drawn from different highs and lows. Fibonacci clusters are indicators which are usually
found on the side of a price chart and look like a series of horizontal bars with various degrees of
shading. Each retracement level that overlaps with another makes the horizontal bar on the side
darker at that price level. The most significant levels of support and resistance are found where the
Fibonacci cluster is the darkest.
Fibonacci Extensions
Levels used in Fibonacci retracement to forecast areas of support or resistance. Extensions consist
of all levels drawn beyond the standard 100% level and are used by many traders to determine areas
where they will wish to take profits. The most popular extension levels are 161.8%, 261.8% and
423.6%.
Fibonacci Fan
A charting technique consisting of three diagonal lines that use Fibonacci ratios to help identify key
levels of support and resistance.
Fibonacci Numbers/Lines
Leonardo Fibonacci was an Italian mathematician born in the 12th century. He is known to have
discovered the "Fibonacci numbers," which are a sequence of numbers where each successive
number is the sum of the two previous numbers.
e.g. 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc.
These numbers possess a number of interrelationships, such as the fact that any given number is
approximately 1.618 times the preceding number.
Fibonacci Retracement
A term used in technical analysis that refers to the likelihood that a financial asset's price will retrace
a large portion of an original move and find support or resistance at the key Fibonacci levels before
it continues in the original direction. These levels are created by drawing a trendline between two
extreme points and then dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%,
50%, 61.8% and 100%.
FICO Score
A standard credit score which makes up a substantial portion of a credit report that credit bureaus
sell to lenders so they can asses an applicant's credit risk and whether to extend them credit.
It is an acronym for the creators of the FICO score, Fair Isaac Credit Organization.
Fiduciary
1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary
manages the assets for the benefit of the other person rather than for his or her own profit.
2. A loan made on trust rather than against some security or asset.
Filing Status
The category defining the type of tax-return form an individual will use. The filing status is closely
tied to marital status. These are five filing statuses:
1. Single individual.
2. Married persons filing jointly or surviving spouse.
3. Married persons filing separately.
4. Head of households.
5. Qualifying window(er) with dependent child.
Fill
The action of completing or satisfying an order for a security or commodity. It is the basic act in
transacting stocks, bonds or any other type of security.
Filter
A set of criteria used to help an investor narrow down which financial instruments or conditions of
financial instruments are the most profitable.
Filter Rule
Rules that attempt to guide investors towards buying and selling patterns that will be the most
profitable.
Final Dividend
The final dividend declared at a company's Annual General Meeting (AGM) for any given year. This
amount is calculated after all financial statements are recorded and the directors are aware of the
company's profitability and financial health.
Final Prospectus
A legal document stating the price of a newly issued security, the delivery date and other facts that
are important for investors.
Finance
The science that describes the management of money, banking, credit, investments, and assets.
Financial Accounting
Reporting of the financial position and performance of a firm through financial statements issued to
external users on a periodic basis.
Financial Asset
An asset that derives value because of a contractual claim. Stocks, bonds, bank deposits, and the
like are all examples of financial assets.
Financial Crimes Enforcement Network - FinCEN
A network administered by the United States Department of the Treasury whose goal it is to prevent
and punish criminals and criminal networks that participate in money laundering. FinCEN operates
domestically and internationally, and it consists of three major players: law-enforcement agencies,
the regulatory community and the financial-services community.
Financial Engineering
The creation of new and improved financial products through innovative design or repackaging of
existing financial instruments.
Financial Instrument
A real or virtual document representing a legal agreement involving some sort of monetary value. In
today's financial marketplace, financial instruments can be classified generally as equity based,
representing ownership of the asset, or debt based, representing a loan made by an investor to the
owner of the asset. Foreign exchange instruments comprise a third, unique type of instrument.
Different subcategories of each instrument type exist, such as preferred share equity and common
share equity, for example.
Financial Intermediary
An institution that acts as the middleman between investors and firms raising funds. Often referred
to as financial institutions.
Financial Performance
A company's ability to generate new resources, from day-to-day operations, over a given period of
time.
Financial Planner
A qualified investment professional who assists individuals and corporations meet their long-term
financial objectives by analyzing the client's status and setting a program to achieve these goals.
They are specialized in tax planning, asset allocation, risk management, retirement and/or estate
planning.
Also referred to as a "Registered Financial Planner," when the financial planner is registered with
the Registered Financial Planner Institute (RFPI).
Financial Porn
A slang term used to describe sensationalist reports of financial news and products causing
irrational buying that can be detrimental to investors' financial health. Short-term focus by the media
on a financial topic can create excitement that does little to help investors make smart, long-term
financial decisions, and in many cases clouds investors' decision-making ability.
Financial Portal
A website that provides a variety of financial data and information, acting as an information hub for
clients who are individual investors requiring timely financial news and data to make their
investment decisions.
Financial Risk
The risk that a company will not have adequate cash flow to meet financial obligations.
Financial Supermarket
A company offering a wide range of financial services (e.g. stock, insurance and real-estate
brokerage).
Financing
The act of providing funds for business activities, making purchases or investing. Financial
institutions and banks are in the business of financing as they provide capital to businesses,
consumers and investors to help them achieve their goals.
Financing
The act of providing funds for business activities, making purchases or investing. Financial
institutions and banks are in the business of financing as they provide capital to businesses,
consumers and investors to help them achieve their goals.
Financing
The act of providing funds for business activities, making purchases or investing. Financial
institutions and banks are in the business of financing as they provide capital to businesses,
consumers and investors to help them achieve their goals.
Fine Print
Non-standard terms included in a contract, often in a small font.
Finite Reinsurance
A type of reinsurance that transfers over only a finite or limited amount of risk. Risk is reduced
through accounting or financial methods, along with the actual transfer of economic risk. By
transferring less risk to the reinsurer, the insurer receives coverage on its potential claims at a lower
cost than traditional reinsurance.
Finmins
A term used to refer to the financial ministers that head the federal banks of major economic
powers. Depending on the country, a financial minister is responsible for implementing the
monetary policy of a country, mainly through the adjustment of borrowing rates.
Fire Sale
A situation in which the prices of securities in the financial markets are considered to be very low.
Firewall
Legal barriers that prevent both the transference of inside information and the performance of
financial transactions between commercial and investment banks.
Firm Commitment
1. A lending institution's promise to enter into a loan agreement with a specific entity, within a
certain period of time.
2. An underwriter's agreement to assume all inventory risk and purchase all securities directly from
the issuer for sale to the public at the price specified.
Firm Quote
A price quote on a security, made by a dealer or market maker, that guarantees a bid or ask price up
to the amount quoted. This differs from a nominal quote wherein the price and quantity of a bid or
ask quote are not firmly posted.
First Call
A company that gathers research notes and earnings estimates from brokerage analysts. The
estimate is compared to the actual reported earnings, and then the difference between the two is the
earnings surprise.
First-Time Homebuyer
An IRA owner who is exempt from the early-distribution penalty (which applies to IRA distributions
that occur before the IRA owner reaches age 59.5) for distributing funds from his or her IRA to buy,
build, or rebuild a home when having had no interest in a main home during the two-year period
ending on the date of acquisition of the home for which the distribution is being made.
Fiscal Agent
An organization, such as a bank or trust company, that takes responsibility for the fiscal duties of an
unrelated party.
Fiscal Capacity
In economics, the ability of groups, institutions, etc. to generate revenue. The fiscal capacity of
governments depends on a variety of factors including industrial capacity, natural resource wealth
and personal incomes.
Fiscal Deficit
When a government's total expenditures exceed the revenue that it generates (excluding money
from borrowings). Deficit differs from debt, which is an accumulation of yearly deficits.
Fiscal Policy
Government spending policies that influence macroeconomic conditions. These policies affect tax
rates, interest rates and government spending, in an effort to control the economy.
Fiscal Policy
Government spending policies that influence macroeconomic conditions. These policies affect tax
rates, interest rates and government spending, in an effort to control the economy.
Fiscal Year - FY
Any 12-month period that a company uses for accounting purposes.
Fiscal Year-End
The completion of a one-year, or 12-month, accounting period.
Fisher Effect
A theory describing the long-run relationship between inflation and interest rates.
Fisher Effect
A theory describing the long-run relationship between inflation and interest rates.
Five-Year Rule
If a retirement account owner dies before the required beginning date for receiving distributions, the
beneficiary may distribute the inherited assets over his/her (the beneficiary's) life expectancy or
distribute the assets under the five-year rule. Under the five-year rule, the assets must be distributed
by December 31 of the fifth year since the retirement account owner's death.
Fixed Annuity
An insurance contract in which the insurance company makes fixed dollar payments to the
annuitant for the term of the contract, usually until the annuitant dies. The insurance company
guarantees both earnings and principal.
Fixed Asset
A long-term tangible piece of property that a firm owns and uses in the production of its income and
is not expected to be consumed or converted into cash any sooner than at least one year's time.
Fixed Asset
A long-term tangible piece of property that a firm owns and uses in the production of its income and
is not expected to be consumed or converted into cash any sooner than at least one year's time.
Fixed Cost
A cost that remains constant, regardless of any change in a company's activity.
Fixed Income
A type of investing or budgeting style for which real return rates or periodic income is received in
regular intervals at reasonably predictable levels. Fixed-income budgeters and investors are often
one and the same - typically, retired individuals who rely on their investments to provide a regular,
stable income stream. This demographic tends to invest heavily in fixed-income investments
because of the reliable returns they offer.
Fixed Term
Describes an investment vehicle, usually some kind of debt instrument, that has a fixed time period
of investment. With a fixed-term investment, the investor parts with his or her money for a specified
period of time and is repaid his or her principal investment only at the end of the investment period.
Fixed-Charge Coverage Ratio
A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases.
It is calculated as the following:
Fixed-For-Fixed Swaps
An arrangement between two parties (known as counterparties) in which both parties pay a fixed
interest rate that they could not otherwise obtain outside of a swap arrangement.
Fixed-For-Fixed Swaps
An arrangement between two parties (known as counterparties) in which both parties pay a fixed
interest rate that they could not otherwise obtain outside of a swap arrangement.
Fixed-For-Floating Swap
An advantageous arrangement between two parties (counterparties), in which one party pays a fixed
rate, while the other pays a floating rate.
Fixed-Income Arbitrage
An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities.
When using a fixed-income arbitrage strategy, the investor assumes opposing positions in the
market to take advantage of small price discrepancies while limiting interest rate risk.
Fixed-Income Security
An investment that provides a return in the form of fixed periodic payments and eventual return of
principal at maturity. Unlike a variable-income security, where payments change based on some
underlying measure such as short-term interest rates, the payments of a fixed-income security are
known in advance.
FJD
In currencies, this is the abbreviation for the Fiji Dollar.
FKP
In currencies, this is the abbreviation for the Falkland Islands Pound.
Flag
A technical charting pattern that looks like a flag with a mast on either side. Flags result from price
fluctuations within a narrow range and mark a consolidation before the previous move resumes.
Likewise, "pennant" formations are usually treated like flag formations because they are very similar
in appearance, tend to show up at the same place in an existing trend, and have the same volume
and measuring criteria.
Flash Price
Ticker tape display designation used when volume on an exchange is so heavy that the tape runs
more than five minutes behind. The "flash price" interrupts the delayed prices to show the current
price of a heavily traded stock.
Flat
1. A price that is neither rising nor declining.
2. In forex, the condition of being neither long nor short in a particular currency. Also referred to as
'being square'.
3. A bond that is trading without accrued interest.
Flat base
One of three positive chart patterns to look for when doing technical analysis. It usually occurs after
a stock has advanced off of a 'cup with handle' or 'double bottom' pattern. The 'flat base' moves
straight sideways in a fairly tight price range for at least five weeks and does not correct more than
8% to 12%.
Flat base
One of three positive chart patterns to look for when doing technical analysis. It usually occurs after
a stock has advanced off of a 'cup with handle' or 'double bottom' pattern. The 'flat base' moves
straight sideways in a fairly tight price range for at least five weeks and does not correct more than
8% to 12%.
Flat Tax
A system that taxes everyone at the same rate, regardless of their income bracket.
Flight to Quality
The action of investors moving their capital away from riskier investments to the safest possible
investment vehicles. This flight is usually caused by uncertainty in the financial or international
markets. However, at other times, this move may be an instance of investors cutting back on the
more volatile investments for the conservative ones (i.e. diversifying) without much consideration of
the international markets
Flight to Quality
The action of investors moving their capital away from riskier investments to the safest possible
investment vehicles. This flight is usually caused by uncertainty in the financial or international
markets. However, at other times, this move may be an instance of investors cutting back on the
more volatile investments for the conservative ones (i.e. diversifying) without much consideration of
the international markets.
Flip
A point when traders shift from having more long positions to having more short positions.
Flipper
A short-term investor or day trader who buys pre-IPO shares, swiftly spinning them out into public
markets for a quick profit.
Float
The total number of shares publicly owned and available for trading. The float is calculated by
subtracting restricted shares from outstanding shares.
Also known as "free float".
Floater
A bond or other type of debt whose coupon rate changes with market conditions (short-term interest
rates). Also known as "floating-rate debt".
Floater Insurance
A type of insurance policy that covers property that is easily movable and provides additional
coverage over what normal insurance policies do not. This can cover anything from jewelery to
expensive stereo equipment.
Floor
The lowest acceptable limit as restricted by controlling parties.
Floor Broker - FB
An employee of a member firm who executes trades on the exchange floor on behalf of the firm's
clients
Floor Trader - FT
An exchange member who executes transactions from the floor of the exchange exclusively for their
own account.
Floortion
A type of option that gives the holder the right, but not the obligation, to purchase or sell an interest
rate floor at a specific price during a predetermined period of time. The only upfront cost to the
holder is the premium the holder has to pay to purchase the option.
Floortion
A type of option that gives the holder the right, but not the obligation, to purchase or sell an interest
rate floor at a specific price during a predetermined period of time. The only upfront cost to the
holder is the premium the holder has to pay to purchase the option.
Flotation
The process of changing a private company into a public company by issuing shares and soliciting
the public to purchase them.
Flotation
The process of changing a private company into a public company by issuing shares and soliciting
the public to purchase them.
Flotation Cost
The costs associated with the issuance of new securities.
Flower Bond
Fixed income products that were originally purchased by investors at a discount for the purpose of
paying federal estate taxes upon their maturity.
FMAN
An acronym representing the months February, May, August, and November.
Focus List
A list of recommended stocks published by an investment firm's research department. Focus lists
generally consist of a small number of stocks that the firm believes are the most attractive
opportunities at the time.
Focused Fund
Funds that contain a large holding of a small amount of stocks.
Follow-On Offering
An offering of additional shares after a company has had an initial public offering.
Fool's Gold
Also known as Iron Pyrite, fool's gold is a gold colored mineral that is often mistaken for real gold.
Footnote
Additional information provided in a company's financial statements. Footnotes report the details
and additional information that are left out of the main reporting documents, such as the balance
sheet and income statement. This is done mainly for the sake of clarity because footnotes can be
quite long, and if they were included, they would cloud the data reported in the financial statements.
Footsie
A slang term for the FTSE 100 index.
Forbearance
A postponement of loan payments, granted by a lender or creditor, for a temporary period of time.
This is done to give the borrower time to make up for overdue payments.
Force Majeure
A French term literally translated as "greater force", this clause is included in contracts to remove
liability for natural and unavoidable catastrophes that interrupt the expected course of events and
restrict participants from fulfilling obligations.
Forced Conversion
The occurrence of an issuer of a convertible security exercising the right to call the issue, forcing
investors to convert their securities into the predetermined number of shares.
Forced Liquidation
An action taken by brokerage houses that offsets and closes all positions within delinquent
customer accounts in order to reduce exposure.
Forecasting
The process of analyzing current and historical data to determine future trends
Foreclosure
A situation in which a homeowner is unable to make principal and/or interest payments on his or her
mortgage, so the lender, be it a bank or building society, can seize and sell the property as
stipulated in the terms of the mortgage contract.
Foreign
1. A non-U.S. company with securities trading on the North American market.
2. In general, any corporation organized under the laws of another country.
Foreign Bond
A bond that is issued in a domestic market by a foreign entity, in the domestic market's currency.
Foreign Plan
A retirement savings plan created by a person or a company to benefit individuals who are not
Canadian residents. These beneficiaries may or may not be Canadian citizens, but the plan applies
to income they earn for services they perform outside of Canada.
Foreign-Exchange Risk
1. The risk of an investment's value changing due to changes in currency exchange rates.
2. The risk that an investor will have to close out a long or short position in a foreign currency at a
loss due to an adverse movement in exchange rates. Also known as "currency risk" or "exchange-
rate risk".
Forensic Accounting
Forensic Accounting utilizes accounting, auditing, and investigative skills to conduct an
examination into a company's financial statements. Thus, providing an accounting analysis that is
suitable for court.
Forex - FX
The foreign exchange (also known as "forex" or "FX") market is the place where currencies are
traded. The overall forex market is the largest, most liquid market in the world with an average
traded value that exceeds $1.9 trillion per day and includes all of the currencies in the world.
Forex Futures
An exchange-traded contract to buy or sell a specified amount of a given currency at a
predetermined price on a set date in the future. All forex futures are written with a specific
termination date, at which point delivery of the currency must occur unless an offsetting trade is
made on the initial position.
Forfaiting
The purchasing of an exporter's receivables (the amount importers owe the exporter) at a discount
by paying cash. The forfaiter, the purchaser of the receivables, becomes the entity to whom the
importer is obliged to pay its debt.
Forfeiture
The loss of an asset, or rights to an asset, as a result of defaulting on contractual obligations or
conditions.
Form 1099-DIV
A form sent to investors by investment fund companies. The form is a record of all taxable capital
gains and dividends paid to an investor, including those that have been re-invested in a given
taxation year. The amounts stated on the form represent the amounts that fund companies are
attributing to each investor's investment return for the year and reporting to the IRS. Investors use
Form 1099-DIV to help report income received from investments on their tax return each year.
Form 1099-R
An Internal Revenue Service (IRS) form with which an individual reports his or her distributions from
annuities, profit-sharing plans, retirement plans, IRAs, insurance contracts and/or pensions. The
following are some of the items included on the form: the gross distribution paid during the given
tax year, the amount of the distribution that is taxable, the federal income tax that has been withheld,
the contributions made to the investment or premiums paid, and a code that represents the type of
distributions made to the holder of the plan.
Form 13F
An SEC reporting form filed by institutional investment managers in accordance with the provisions
of section 13(f) of the Securities and Exchange Act of 1934, which states that all institutional
investment managers who are managing over $100 million on the last trading day of any month of
the calendar year must disclose their holdings on a quarterly basis.
Form 144
A form that must be filed with the SEC when an executive officer, director, or affiliate of a company
places an order to sell that company's stock. Also known as Rule 144.
Form 3
A document that must be filed with the Securities and Exchange Commission (SEC) by an insider
affiliated with a public company's operation or by any investor owning 10% or more of the
company's outstanding shares.
Form 4
A document that must be filed with the Securities and Exchange Commission (SEC) whenever there
is a material change in the holdings of company insiders (including shareholders owning 10% or
more of the company's outstanding stock).
Form 5
A document that must be filed with the Securities and Exchange Commission (SEC) by an insider
who has conducted insider transactions during the year which were not previously reported via a
Form 4 submission.
Form S-4
A form that must be submitted to the Securities and Exchange Commission in the event of a merger
or acquisition between two companies. The form must also be submitted for exchange offers.
Form T
A form required by the NASD for reporting an equity trade executed after normal market hours.
Formal Tax Legislation
The steps required to propose a new tax law or a change to an existing one. The process involves
the President and Congress.
Fortune 500
An annual list of the 500 largest companies in the United States. The list is compiled using the most
recent figures for revenue
Forward Averaging
Treating lump-sum retirement-plan distributions as if they occurred over a five- or ten-year period.
Forward averaging is available only to qualified plan participants who were born before 1936 and
meet certain requirements.
Forward Averaging
Treating lump-sum retirement-plan distributions as if they occurred over a five- or ten-year period.
Forward averaging is available only to qualified plan participants who were born before 1936 and
meet certain requirements.
Forward Contract
A cash market transaction in which delivery of the commodity is deferred until after the contract has
been made. Although the delivery is made in the future, the price is determined on the initial trade
date.
Forward Earnings
A company's forecasted, or estimated, earnings made by analysts or by the company itself. Forward
earnings differ from trailing earnings (which is the figure that is quoted more often) in that they are a
projection and not a fact. There is are many methods used to calculate forward earnings and no
single established way.
Forward Integration
A business strategy that involves a form of vertical integration whereby activities are expanded to
include control of the direct distribution of its products.
Forward Market
The over-the-counter trading of forward contracts.
Forward Points
The number of basis points added to or subtracted from the current spot rate to determine the
forward rate. When points are added to the spot rate, there is a forward points premium when points
are subtracted from the spot rate, there is a points discount.
Forward Pricing
A Securities and Exchange Commission regulation that requires that investment companies price all
of their buy and sell orders of fund shares according to the next net asset value (NAV). This
valuation process is for open-end mutual fund transactions in which the mutual fund itself is
constantly issuing and redeeming mutual fund shares at the most recent NAV per share.
Forward Rate
The amount that it will cost to deliver a currency, commodity, or some other asset some time in the
future.
Forward Swap
A swap agreement created through the synthesis of two swaps differing in duration for the purpose
of fulfilling the specific time-frame needs of an investor. Also referred to as a "forward start swap",
"delayed start swap", and a "deferred start swap."
Found Money
Money or funds that an investor possesses but just discovers.
Four Cs
Short for carat, cut, clarity and color. These four characteristics are the main determinants of a
diamond's value.
Fourier Analysis
A type of mathematical analysis that attempts to identify patterns or cycles in a time series data set
which has already been normalized. By first removing any effects of trends or other complicating
factors from the data set, the effects of periodic cycles or patterns can be identified more accurately,
leaving the analyst with a good estimate of the direction that the data under analysis will take in the
future. Named after the nineteenth-century French mathematician and physicist Joseph Fourier.
Fourth Market
The trading of exchange-listed securities between institutions on a private over-the-counter
computer network, rather than over a recognized exchange such as the New York Stock Exchange
(NYSE) or Nasdaq. Trades between institutions will often be made in large blocks and without a
broker, allowing the institutions to avoid brokerage fees.
Fox-Trot Economy
A term coined by investment strategist Jeffery Saut that describes a period in which "fast-fast"
growth economic figures are expected to be followed by periods of "slow-slow" figures.
Fractal
A type of pattern used in technical analysis to predict a reversal in the current trend. A fractal
pattern consists of five bars and is identified when the price meets the following characteristics:
1. A shift from a downtrend to an uptrend occurs when the lowest bar is located in the middle of the
pattern and two bars with successively higher lows are positioned around it.
2. A shift from an uptrend to a downtrend occurs when the highest bar is located in the middle of the
pattern and two bars with successively lower highs are positioned around it.
Fractional Share
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.
Fractional Share
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.
Franked Dividend
An arrangement in Australia that elimintates the double taxation of dividends. Dividends are
dispersed with tax imputations attached to them. The shareholder is able to reduce the tax paid on
the dividend by an amount equal to the tax imputation credits. Basically taxation of dividends has
been partially paid by the company issuing the dividend.
Franked Income
After-tax investment income that is distributed by one U.K. company to another. This income is often
distributed in the form of dividends. The idea behind franked income is to prevent double taxation.
Fraption
A type of option that gives the option holder the opportunity to enter into a forward rate agreement
at a specific strike price during a predetermined amount of time. Buyers use fraptions to protect
against falls in interest rates at the cost of a slight premium.
Also known as an "interest rate guarantee".
Fraudulent Conveyance
The illegal transfer of property to another party in order to defer, hinder or defraud creditors.
Free Market
A market economy based on supply and demand with little or no government control. A completely
free market is an idealized form of a market economy where buyers and sells are allowed to transact
freely (i.e. buy/sell/trade) based on a mutual agreement on price without state intervention in the
form of taxes, subsidies or regulation.
In financial markets, free market stocks are securities that are widely traded and whose prices are
not affected by availability.
In foreign-exchange markets, it is a market where exchange rates are not pegged (by government)
and thus rise and fall freely though supply and demand for currency.
Free Market
A market economy based on supply and demand with little or no government control. A completely
free market is an idealized form of a market economy where buyers and sells are allowed to transact
freely (i.e. buy/sell/trade) based on a mutual agreement on price without state intervention in the
form of taxes, subsidies or regulation.
In financial markets, free market stocks are securities that are widely traded and whose prices are
not affected by availability.
In foreign-exchange markets, it is a market where exchange rates are not pegged (by government)
and thus rise and fall freely though supply and demand for currency.
Free-Crowd System
A system of commodity trading in which floor members can make bids and offers simultaneously for
personal or customer accounts, which is common in the U.S.
Free-Crowd System
A system of commodity trading in which floor members can make bids and offers simultaneously for
personal or customer accounts, which is common in the U.S.
Freeriding
1. An illegal practice in which an underwriting syndicate member withholds part of a new securities
issue and later sells it at a higher price.
2. The illegal activity of buying a stock and selling it before paying for the purchase.
Friction Cost
The implicit and explicit costs associated with market transactions.
Frictional Unemployment
Unemployment that is always present in the economy, resulting from temporary transitions made by
workers and employers or from workers and employers having inconsistent or incomplete
information.
Frictionless Market
A theoretical trading environment where all costs and restraints associated with transactions are
non-existent.
Friendly Hands
A nickname for investors in an IPO who will likely hold onto the security for a long time.
Front Fee
The premium charged upon the initial purchase of a compound option.
Front Office
The sales personnel and corporate finance employees in a financial services company. It's in the
front office where revenues are generated.
Front Running
The unethical practice of a broker trading an equity based on information from the analyst
department before his or her clients have been given the information.
Front-End Load
A commission or sales fee charged at the time of the initial purchase for an investment, usually
mutual funds and insurance policies. It is deducted from the investment amount and thus, lowers
the size of the investment. For mutual funds, the use of loads is suggested to prevent frequent
trading of the fund, which can hurt a fund if it has to hold large cash reserves to meet payouts.
Front-End Ratio
A ratio that indicates what portion of an individual's income is used to make mortgage payments. It
is calculated as an individual's monthly housing expenses divided by his or her monthly gross
income and is expressed as a percentage. Monthly gross income is simply annual income divided by
12 (months). Lenders use the front-end ratio in conjunction with the back-end ratio to approve
mortgages.
Calculated as:
Front-End Ratio = Monthly Housing Expenses / Monthly Income
Frontspread
A type of options spread in which a trader holds more short positions than long positions. This type
of spread has unlimited risk of loss while also limiting profit potential. This type of trade is often
implemented by professional traders who believe that the price of an underlying asset will make a
calculated move higher or that volatility will decrease.
Also known as a "ratio vertical spread".
Frozen Account
An account to which no withdrawals or purchases can be charged. This usually occurs when the
account holder fails to pay promptly for purchases charged to the account. For example, cash
accounts are frozen for 90 days until the full purchase price of the intended order is paid in full.
FTSE
A company that specializes in index calculation. Although not part of a stock exchange, co-owners
include the London Stock Exchange and the
Fulcrum Fee
An additional, performance-based fee an advisor charges a client. The advisor charges the fee when
he or she achieves a return above a specified benchmark.
Fulcrum Point
A point of inflection (POI) on a graph where the pattern of the financial instrument's payout changes
direction.
Full Carry
A futures market in which the price difference between contracts with two different delivery months
equals the full cost of carrying the commodity from the delivery month of the first contract to the
next. Carrying costs include interest, insurance and storage. Also known as "full carry market" or
"full carrying charge market".
Full Charge
The event in which the price of a futures contract covers all of the carrying charges of the underlying
asset, such as storage and insurance. Also referred to as a "full carry".
Full Ratchet
An anti-dilution provision that, for any shares of common stock sold by a company after the issuing
of an option (or convertible security), applies the lowest sale price as being the adjusted option price
or conversion ratio for existing shareholders.
Full Stock
A stock with a par value of $100 per share. This can be either a preferred or common share.
Full-Service Broker
A broker that provides a large variety of services to its clients, including research and advice,
retirement planning, tax tips, and much more. Of course, this all comes at a price, as commissions at
full-service brokerages are much higher than those at discount brokers.
Full-Time Student
A status that is important for determining dependency exemptions. An individual enrolled in a post-
secondary institution may be eligible for certain tax breaks.
Fully Subscribed
A situation in which an underwriting firm has successfully sold to investors all of its available issues
of a public offering of securities. When the issue is fully subscribed, the underwriter's risk of being
undersubscribed (being unable to sell its allotment of the issue) is completely removed.
Also referred to in slang terms as "pot is clean".
Fully Valued
A stock whose price analysts believe reflects the market's recognition of the company's underlying
fundamental earnings power and therefore is unlikely to rise further in price. If the stock goes up
from that price, it is called overvalued. If the stock goes down, it is termed undervalued.
Fund of Funds
A mutual fund that invests in other mutual funds
Fundamental Analysis
A method of evaluating a stock by attempting to measure its intrinsic value. Fundamental analysts
study everything from the overall economy and industry conditions, to the financial condition and
management of companies.
Fundamental Rank
This compares a stock's Fundamental Rating to the other stocks in its industry group. For example,
5th out of 100 indicates a stock's Fundamental Rating is better than 95% of its group. If 2 or more
stocks within a group have the same 1-99 rating, they will receive the same Fundamental Rank. For
example, if 3 stocks have a 99 Fundamental Rating, they will all three be ranked best in group. The
stock with the next best rating will be ranked 4th in group.
Fundamental Rating
This rating examines vital fundamental data for each company and compares it to over 10,000
stocks. Ratings are on a 1 to 99 scale, with 99, for example, representing companies outperforming
99% of all other stocks based on key fundamental factors.
These factors include:
• Annual and quarterly sales and earnings growth rates
•Sales and earnings acceleration
•Earnings stability
•Profit margins and return on equity (ROE)
Components are not equally weighted.
This rating should not be considered a sole indicator to buy or sell a stock but should be
used along with the other Stock Checkup Ratings, as well as price and volume charts.
Fundamentals
Information relating to the economic well-being of a company such as revenue, earnings, assets,
liabilities and growth. These factors are used to determine the worth of an investment in
fundamental analysis.
Funded Debt
Long-term debt that matures after more than one year.
Funding Agreement
Illiquid insurance contracts that provide guaranteed principal repayment and interest payments for a
predetermined period of time.
Fungibility
The interchangeability of listed options, futures contracts, and other instruments dependent upon
identical terms.
Fungibles
Goods, securities or instruments that are equivalent and, therefore, interchangeable. In other words,
they are goods that consist of many identical parts which can be easily replaced by other, identical
goods. If the goods are sold by weight or number, this is a good sign that they are fungible
Furthest Out
Mainly pertaining to options and futures, this is the options or futures contract that has the most
distant deliverly month or expiration.
Future Value - FV
The value of an asset or cash at a specified date in the future that is equivalent in value to a
specified sum today. There are two ways to calculate FV:
1) For an asset with simple annual interest: = Original Investment x (1+(interest rate*number of
years))
2) For an asset with interest compounded annually: = Original Investment x ((1+interest
rate)^number of years)
Futures
A financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as
a physical commodity or a financial instrument, at a predetermined future date and price. Futures
contracts detail the quality and quantity of the underlying asset they are standardized to facilitate
trading on a futures exchange. Some futures contracts may call for physical delivery of the asset,
while others are settled in cash. The futures markets are characterized by the ability to use very high
leverage relative to stock markets.
Futures can be used either to hedge or to speculate on the price movement of the underlying asset.
For example, a producer of corn could use futures to lock in a certain price and reduce risk (hedge).
On the other hand, anybody could speculate on the price movement of corn by going long or short
using futures.
Futures Bundle
A type of futures order that enables an investor to purchase a predefined number of futures
contracts in each consecutive quarterly delivery month for a period of two or more years.
Futures Commission Merchant - FCM
A merchant involved in the solicitation or acceptance of commodity orders for future delivery of
commodities related to the futures contract market.
Futures Contract
A contractual agreement, generally made on the trading floor of a futures exchange, to buy or sell a
particular commodity or financial instrument at a pre-determined price in the future. Futures
contracts detail the quality and quantity of the underlying asset they are standardized to facilitate
trading on a futures exchange. Some futures contracts may call for physical delivery of the asset,
while others are settled in cash.
Futures Equivalent
The number of futures contracts needed to be associated with a speculative option position.
Futures Exchange
Traditionally, a term referring to a central marketplace where futures contracts and options on
futures contracts are traded. More recently, with the growth in electronic trading, it is also used to
describe the activity of futures trading itself.
Futures Market
An auction market in which participants buy and sell commodity/future contracts for delivery on a
specified future date. Trading is carried on through open yelling and hand signals in a trading pit.
Futures Pack
A type of futures order enabling purchase of a predefined number of futures contracts in four
consecutive delivery months.
Futures Spread
An arbitrage technique whereby you buy one commodity and sell another contract of the same
commodity to capitalize on a discrepancy in prices.
A Nasdaq stock symbol specifying that it is the first preferred bond of the company.
Gain
An increase in the value of an asset or property. A gain is measured as the amount of capital
realized from selling a good at a price higher than the original purchase price.
Gambling Income
Any income that is the result of games of chance or wagers upon events with uncertain outcomes
(gambling). This income is subject to taxation.
Gambling Loss
A loss resulting from games of chance or wagers upon events with uncertain outcomes (gambling).
These losses can only be claimed against gambling income.
Game Theory
A model of optimality taking into consideration not only benefits less costs, but also the interaction
between participants.
Gamma
The rate of change for delta with respect to the underlying asset's price
Gamma Neutral
An asset portfolio whose delta rate of change is zero.
Gann Angles
Created by W.D. Gann, a method of predicting price movements through the relation of geometric
angles in charts depicting time and price.
Gap
A break between prices on a chart that occurs when the price of a stock makes a sharp move up or
down with no trading occurring in between. Gaps can be created by factors such as regular buying
or selling pressure, earnings announcements, a change in an analyst's outlook or any other type of
news release.
Gap Risk
The risk that an investment's price will change from one level to another with no trading in between.
Usually such movements occur when there are adverse news announcements, which can cause a
stock price to drop substantially from the previous day's closing price.
Garbatrage
An increase in price and trading volume in a particular sector of the economy that results from a
recent takeover creating a change in sentiment towards the sector. Also known as rumortrage.
Garnishment
Money withheld from an individual's paycheck and remitted to another party, usually a creditor.
Gartley Pattern
In technical analysis, it is a complex price pattern based on Fibonacci numbers/ratios. It is used to
determine buy and sell signals by measuring price retracements of a stock's up and down
movement in stock price.
Gatekeeper
Requirements that must be met before an individual can qualify for a long-term care plan. A person
must qualify for the plan's benefits before he or she can be paid out.
Gazelle Company
A company growing at an annual rate of 20% or more.
Gazump
A situation in which the price for real estate or land is raised to a higher price than what was
previously verbally agreed upon.
Gazunder
When a buyer reduces his or her bid for a property before the transaction has been signed and
finalized
GBP
In the currency market, this is the abbreviation for the British pound.
GDP Gap
The forfeited output of a country's economy resulting from the failure to create sufficient jobs for all
those willing to work.
Gearing
A fundamental analysis ratio of a company's level of long-term debt to its equity capital and is
expressed in percentage form.
A company with a high gearing - more long-term liabilities than shareholder equity - are considered
speculative.
Gearing Ratio
A general term describing a financial ratio that compares some form of owner's equity (or capital) to
borrowed funds. Gearing is a measure of financial leverage, demonstrating the degree to which a
firm's activities are funded by owner's funds versus creditor's funds.
Gemology
The combined art and science of studying, cutting, valuing, buying and selling precious stones.
Some of the most precious stones that gemologists deal in include diamonds, rubies, sapphires and
emeralds.
Gemology is spelled gemmology outside of North America.
General Ledger
A company's accounting records. This formal ledger contains all the financial accounts and
statements of a business.
General Partner
A partner in a business who has unlimited liability.
General Partnership
A arrangement by which partners conducting a business jointly have unlimited liability, which
means their personal assets are liable to the partnership's obligations.
Generation-Skipping Trust
A type of legally binding trust agreement in which the contributed assets are passed down to the
grantor's grandchildren, not the grantor's children. The generation to which the grantor's children
belong skips the opportunity to receive the assets in order to avoid the estate taxes that would apply
if the assets were transferred to them.
Gentleman's Agreement
An unwritten agreement or transaction backed only by the integrity of the counterparty to actually
abide by the terms of the agreement. An agreement like this is not legally binding and could have a
negative effect on business relationships if one party decides to default on their promise.
George Soros
Born in Budapest, Hungary, in 1930, George Soros is considered by many to be one of the world's
greatest investors. A famous hedge fund manager, Soros managed the Quantum Fund, a fund that
achieved an average annual return of 30% from 1970-2000. Besides his investing prowess, Soros is
also known for his vast philanthropic activities, donating billions of dollars to various causes
through the Soros Foundation.
GHC
In currencies, this is the abbreviation for the Ghanian Cedi.
Ghosting
An illegal practice whereby two or more market makers collectively attempt to influence and change
the price of a stock. Ghosting is used by corrupt companies to affect stock prices so they can profit
from the price movement.
Gibson's Paradox
An economic observation made by J. M. Keynes during the period of the gold standard that there is
a correlation between interest rates and the general price level. Keynes' finding, which he discusses
in "A Treatise on Money" (1930), is a paradox because it is contrary to the view generally held by
economists at the time, which was that interest rates are correlated to the rate of inflation.
Gift
Property, money or asset that one person transfers to another while receiving nothing in return.
Gift Tax
A federal tax applied to an individual giving anything of value to another person. For something to
be considered a gift, the receiving party cannot pay the giver full value for the gift, but may pay an
amount less than its full value. It is the giver of the gift who is required to pay the gift tax. The
receiver of the gift may pay the gift tax, or a percentage of it, on the giver's behalf in the event that
the giver has exceeded his/her annual personal gift tax deduction limit.
Gifting Phase
The stage in an investor's life where he or she seeks to use his or her accumulated wealth to provide
for the current and future needs of family and friends, as well as to leave a mark on the world by
funding charities of his or her choice through philanthropy. The investor's concerns during this
phase shift from matters of capital accumulation to estate planning and tax minimization.
Gilt Fund
A mutual fund that invests in several different types of medium and long-term government securities
in addition to top quality corporate debt. Gilts originated in Britain.
Gilts
Risk-free bonds issued by the British government. They are the equivalent of U.S. Treasury
securities.
Ginzy Trading
An illegal trading practice used by floor brokers. It is considered to be non-competitive, as it
involves the execution of large trades at different prices.
GIP
In currencies, this is the abbreviation for the Gibraltar Pound.
Give Up
A procedure in securities or commodities trading where the executing broker places a trade on
behalf of another broker as if he/she actually executed the trade. This is usually done because a
broker is too busy to place a trade for a client and asks another broker to place the trade for him/her.
On the record books, the trade will not show the executing broker's information, but the broker to
whom the client belongs. Thus, the broker of the client and the broker on the other side of the trade
will receive the commission, while the executing trader will get nothing. This is a grey area of law
governing reimbursement of brokers for services (e.g. research).
Glass-Steagall Act
An Act passed by Congress in 1933, that prohibited commercial banks from collaborating with full-
service brokerage firms or participating in investment banking activities.
Global Bond
Bonds that can be offered within the euromarket and several other markets simultaneously.
Global Crossing
A communication services company that filed for bankruptcy protection amid an accounting scandal
where it had allegedly inflated earnings by using capacity swaps, among other things. Capacity
swaps are the exchange of telecommunications capacity between carriers that is booked as revenue
without money ever being exchanged.
Global Fund
A mutual fund that can invest in companies located anywhere in the world, including your own
country.
Globalization
The tendency of investment funds and businesses to move beyond domestic and national markets
to other markets around the globe, thereby increasing the interconnectedness of different markets.
Globalization has had the effect of markedly increasing not only international trade, but also cultural
exchange.
Globex
An electronic trading platform used for derivative, futures, and commodity contracts. Globex runs
continuously, so it is not restricted by borders or time zones.
GMD
In currencies, this is the abbreviation for the Gambian Dalasi.
GNF
In currencies, this is the abbreviation for the Guinea Franc.
GNF
In currencies, this is the abbreviation for the Guinea Franc.
Gnomes of Zurich
A term used by British labor ministers during the 1964 Sterling Crisis to refer to Swiss banks.
Gnomes of Zurich
A term used by British labor ministers during the 1964 Sterling Crisis to refer to Swiss banks.
Going Concern
A term for a company that has the resources needed in order to continue to operate. If a company is
not a going concern, it means the company has gone bankrupt.
Going Public
The process of selling shares that were formerly privately held to new investors for the first time.
Otherwise known as an initial public offering (IPO).
Going-Concern Value
The value of a company as an ongoing entity. This value differs from the value of a company's
assets if they were to be liquidated in that an ongoing operation has the ability to continue to earn
profit, while a liquidated company does not.
Gold Bug
A person who is bullish on gold. Gold bugs believe that gold is still a stable source of wealth like it
was during the years of the gold standard international currency system. A gold bug invests in gold
for (what they perceive) as financial security in the event of a currency devaluation, and often also
believe that the price of gold will continue to rise in the future. The term also refers to analysts who
consistently recommend gold buys.
Gold Certificate
A certificate of ownership that gold investors hold instead of storing the actual gold bullion.
Gold Fix
The setting of gold prices, twice a day, by the five members of the London gold pool. This rate is
used as a benchmark for pricing the majority of global gold products and derivatives.
Gold Standard
A monetary system in which a country's government allows its currency unit to be freely converted
into fixed amounts of gold and vice versa. The exchange rate under the gold standard monetary
system is determined by the economic difference for an ounce of gold between two currencies. The
gold standard was mainly used from 1875 to 1914 and also during the interwar years.
Goldbrick Shares
A stock that bears the surface appearance of quality and worth, but is in fact worth very little.
Golden Boot
An inducement, using maximum incentives and financial benefits, for an older worker to take
"voluntary" early retirement.
Golden Cross
A crossover involving a security's short-term moving average (such as 15-day moving average)
breaking above its long-term moving average (such as 50-day moving average) or resistance level.
Golden Handcuffs
An incentive given to existing employees in hopes that they will decide to stay with the company.
Golden Hello
A signing bonus offered by a securities firm to a key executive from a competing firm.
Golden Parachute
Lucrative benefits given to top executives in the event that a company is taken over by another firm,
resulting in the loss of their job. Benefits include items such as stock options, bonuses, severance
pay, etc
Golden Share
A type of share that gives its shareholder veto power over changes to the company's charter.
Goldilocks Economy
An economy that is not so hot that it causes inflation, and not so cold that it causes a recession.
This term is used to describe the U.S. economy of the mid- to late-1990s - it was "not too hot, not too
cold, but just right."
Good Delivery
The status of a security traded on an exchange when it meets a set of requirements for being in
proper form for transfer of title to the buyer.
Goodwill
The excess of the purchase price over the fair market value of an asset. Accountants record this as a
'write off' in the financial report.
Gorilla
A company that dominates an industry without having a complete monopoly.
Government Purchases
Expenditures made in the private sector by all levels of government, such as when a government
entity contracts a construction company to build office space or pave highways.
Government Security
A government debt obligation (local or national) backed by the credit and taxing power of a country
with very little risk of default.
Grading Certificate
A document, issued by inspectors or approved graders, that formally signifies the quality of a
commodity.
Graduated Lease
A lease (usually long-term) that is periodically adjusted to reflect the appraised value of the asset
being leased.
Grandfather Clause
An exemption that allows persons or entities to continue with an activity they were engaging in
before it became illegal through a change in regulation.
Grantor
1. A seller of either call or put options who profits from the premium for which the options are sold.
Synonymous with option writer.
2. The creator of a trust, meaning the individual whose assets are put into the trust.
Graveyard Market
The period near the end of a prolonged bear market. In a graveyard market, long-time investors have
taken large losses, while new investors prefer to stay liquid by sitting on the sidelines and keeping
their money in cash or cash-equivalent securities until market conditions improve.
Gray Knight
A second, unsolicited bidder in a corporate takeover. A gray knight enters the scene in order to take
advantage of any problems between the first bidder and the target company
Gray Market
1. An unofficial market where new issues of shares are bought and sold before they become
officially available for trading on the stock exchange.
2. The sale or import of goods by unauthorized dealers.
Greeks
Refers to the Greek letters used in options trading.
Greenback
A slang term for U.S. paper dollars.
Greenmail
A situation in which a large block of stock is held by an unfriendly company. This forces the target
company to repurchase the stock at a substantial premium to prevent a takeover. It is also known as
a "Bon Voyage Bonus" or a "Goodbye Kiss".
Greensheet
An information circular prepared by an underwriter that summarizes the main components of a new
issue's prospectus.
Greenshoe Option
Legally referred to as an over-allotment option, a provision contained in an underwriting agreement
which gives the underwriter the right to sell investors more shares than originally planned by the
issuer. This would normally be done if the demand for a security issue proves higher than expected.
A greenshoe option can provide additional price stability to a security issue, since the underwriter
has the ability to increase supply and smooth out price fluctuations if demand surges too high.
Greenspan Put
A description of the perceived attempt of then-chairman of the Federal Reserve Board, Alan
Greenspan, of propping up the securities markets by lowering interest rates and thereby helping
money flow into the markets.
Investors assumed that they would be able to liquidate their stocks at a set price at or before a
future date as if there was a built-in put option. They believed that Greenspan would manipulate
monetary policy and continue to maintain market stability. While the former Fed chair's actions did
have an effect on the markets, it was not necessarily his objective.
Grey Market
1. A market where a product is bought and sold outside of the manufacturer's authorized trading
channels.
2. The unofficial trading of a company's shares, usually before they are issued in an initial public
offering (IPO).
Gridlock
A government, business or institution's inability to function at a normal level due either to complex
or conflicting procedures within the administrative framework or to impending change in the
business.
Grinder
A slang term for a person who works in the investment industry and makes small amounts of money
at a time on small investments, over and over again.
Gross Estate
The total dollar value of all property and assets in which an individual had an interest at the time of
his or her death.
Gross Income
1. An individual's total personal income before taking taxes or deductions into account.
2. A company's revenue minus cost of goods sold. Also called "gross margin" and "gross profit".
Gross Margin
1) A company's total sales revenue minus its cost of goods sold.
2) A company's total sales revenue minus cost of goods sold, divided by the total sales revenue,
expressed as a percentage.
3) In the case of an adjustable-rate mortgage, the interest rate (expressed as a percentage) that is
added on to the base index rate in order to establish the actual interest rate the borrower will pay on
the loan.
Gross Sales
A measure of overall sales that isn't adjusted for customer discounts or returns, calculated simply
by adding all sales invoices, and not including operating expenses, cost of goods sold, payment of
taxes, or any other charge.
Gross Spread
The difference between the underwriting price received by the issuing company and the actual price
offered to the public.
Group-Home Care
Care given to a group of people with similar disabilities within a residence. Those in a group home
receive both custodial care and care that is provided by skilled and medically trained professionals.
A common disability of people in group homes is Alzheimer's disease.
Growth Accounting
A method whereby a set of economic techniques or theories are used to determine what specific
factor, or factors, contributed to an economy's growth.
Growth Company
Any firm whose business generates significant positive cash flows or earnings, which increase at
significantly faster rates than the overall economy. A growth company tends to have very profitable
reinvestment opportunities for its own retained earnings. Thus, it typically pays little to no dividends
to stockholders, opting instead to plow most or all of its profits back into its expanding business.
Growth Fund
A diversified portfolio of stocks that has capital appreciation as its primary goal, and thereby invests
in companies that reinvest their earnings into expansion, acquisitions, and/or research and
development.
Growth Industry
A sector of the economy experiencing a higher-than-average growth rate.
Growth Investing
A strategy whereby an investor seeks out stocks with what they deem good growth potential. In
most cases a growth stock is defined as a company whose earnings are expected to grow at an
above-average rate than its industry or the overall market.
Growth Rates
The compounded annualized rate of growth of a company's revenues, earnings, dividends, or other
figures
Growth Stock
Shares in a company whose earnings are expected to grow at an above average rate relative to the
market.
Also known as a "glamor stock".
GTQ
In currencies, this is the abbreviation for the Guatemala Quetzal.
Guaranteed Bond
A type of bond in which the interest and principal on the bond are guaranteed to be paid by a firm
other than the issuer of the bond.
Guaranteed Stock
Common or preferred stock whose dividends are guaranteed.
Guarantor
A person who guarantees to pay for someone else's debt if he or she should default on a loan
obligation.
Guardian
An individual who has been given the legal responsibility to care for a child or adult who is
incapable of taking care of themselves due to age or lack of capacity. The appointed individual is
often responsible for both the care of the ward (the child or incapable adult) and their affairs.
Also referred to as a "conservator" when referring to an adult in need of care.
Guardian IRA
An IRA held in the name of a legal guardian or parent on behalf of either a child under the age of 18-
21 (depending on state legislation) or an individual who is incapable of handling finances due to
physical or mental disability.
Guidance
Information that a company provides as an indication or estimate of their future earnings. Also
known as "earnings guidance."
Guide to Markets
(See Investor's Business Daily Guide to the Markets)
Guilt-Edged Investment
A transaction that makes money by unethical means. Culprits supposedly feel guilty having made
money in such an unscrupulous way.
H
A Nasdaq stock symbol specifying that it is the second preferred bond of the company
H-Shares
A share of a Chinese company listed on the Hong Kong Stock Exchange.
Haircut
1. The difference between prices at which a market maker can buy and sell a security.
2. The percentage by which an asset's market value is reduced for the purpose of calculating capital
requirement, margin and collateral levels.
Half Stock
A stock with a par value of $50.
Hammer
A price pattern in candlestick charting that occurs when a security trades significantly lower than its
opening, but rallies later in the day to close either above or close to its opening price. This pattern
forms a hammer-shaped candlestick.
Hammering
The rapid and concentrated sale of a stock thought to be overvalued by the market. It performed by
investors and speculators who beleive that prices are inflated and that a period of liquidation is
imminent.
Handle
Component of William J. O'Neil's 'cup with handle' chart pattern.
Hands-Off Investor
An investor who accepts a passive management role in a company, even while holding a large
portion of the company's stock.
Hands-On Investor
An investor who holds a large portion of a company's shares and takes an active management role.
Hang Seng
An index of the leading stocks on the Hong Kong stock market.
Hang Seng Index
A market-cap weighted index of the stock prices of the 33 largest companies in Hong Kong.
Hanging Man
A bearish candlestick pattern that forms at the end of an uptrend. It is created when there is a
significant sell-off near the market open, but buyers are able to push this stock back up so that it
closes at or near the opening price. Generally the large sell-off is seen as an early indication that the
bulls (buyers) are losing control and demand for the asset is waning.
Harami Cross
A trend indicated by a large candlestick followed by a doji that is located within the top and bottom
of the candlestick's body. This indicates that the previous trend is about to reverse.
Harami Cross
A trend indicated by a large candlestick followed by a doji that is located within the top and bottom
of the candlestick's body. This indicates that the previous trend is about to reverse.
Hard Currency
A currency, usually from a highly industrialized country, that is widely accepted around the world as
a form of payment for goods and services. A hard currency is expected to remain relatively stable
through a short period of time, and to be highly liquid in the forex market.
Hard Dollars
Fees or payments paid to brokerage firms in return for their services.
Hard Landing
A term used to describe an economy going into recession as the government attempts to slow down
inflation.
Hard Loan
A foreign loan that must be paid in the currency of a nation that has stability and a reputation abroad
for economic strength (a hard currency).
Hard Money
1. Funding by a government or organization that is repetitive, rather than a one-time grant. Examples
include ongoing government daycare subsidies or firms that pay annual scholarships to post-
secondary students.
2. Describes gold/silver/platinum (bullion) coins. A government that uses a hard money policy backs
the value of the currency it uses with a hard, tangible and lasting material that will retain its relative
value over time.
Hard-To-Borrow List
A list used by brokerages to indicate securities considered difficult or unavailable to borrow for
short selling transactions.
Hardening
1. A term used to describe a price of commodity or futures contracts that is gradually stabilizing.
2. A futures market that is slowly advancing in prices.
Harmonic Average
The mean of a set of positive variables. Calculated by dividing the number of observations by the
reciprocal of each number in the series.
Also known as 'harmonic mean'.
Haurlan Index
A technical analysis indicator, developed by P.N. Haurlan, that is used to detect market breadth.
There are three components of the Haurlan index:
Short Term: a 3-day exponential moving average is taken of the net NYSE advances over declines.
Hawk
An economic policy advisor who has a negative view toward inflation and its effects on society.
Also known as "inflation hawk".
Hazard Insurance
Insurance protecting a property owner against damages caused by fires or severe storms. If the
owner lives in an area that is prone to natural disasters, like earthquakes and floods, he or she may
need a separate policy.
Head Of Household
Someone who is unmarried and resides with a dependent.
Headline Earnings
A basis for measuring earnings per share implemented by the Institute of Investment Management
and Research. This method accounts for all the profits and losses from operational, trading, and
interest activities, that have been discontinued or acquired at any point during the year. Excluded
from this figure are profits or losses associated with the sale or termination of discontinued
operations, fixed assets or related businesses, or from any permanent devaluation or write off of
their values
Headline Effect
The effect that negative news in the popular press has on a corporation or an economy. Whether it is
justified or not, the investing public's reaction to various headlines can be very dramatic. Many
economists believe that negative news headlines make consumers more reluctant to spend money.
Headquarters
The location of a company's main offices, presented as “city, state” when based in the United
States. International listings will also display relevant headquarter information.
Heads of Agreement
A non-binding document outlining the main issues relevant to a tentative partnership agreement.
Health Savings Account - HSA
An account created for individuals who are covered under high-deductible health plans (HDHPs) to
save for medical expenses that HDHPs do not cover. Contributions are made into the account by the
individual or the individual's employer and are limited to a maximum amount each year. The
contributions are invested over time and can be used to pay for qualified medical expenses, which
include most medical care such as dental, vision and over-the-counter drugs.
Heavy
A term used to describe a futures market showing difficulty in advancing or a tendency to decline.
Hedge
Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge
consists of taking an offsetting position in a related security, such as a futures contract.
Hedge Fund
An aggressively managed portfolio of investments that uses advanced investment strategies such
as leverage, long, short and derivative positions in both domestic and international markets with the
goal of generating high returns (either in an absolute sense or over a specified market benchmark).
Legally, hedge funds are most often set up as private investment partnerships that are open to a
limited number of investors and require a very large initial minimum investment. Investments in
hedge funds are illiquid as they often require investors keep their money in the fund for a minimum
period of at least one year.
Hedge Ratio
1. A ratio comparing the value of a position protected via a hedge with the size of the entire position
itself.
2. A ratio comparing the value of futures contracts purchased or sold to the value of the cash
commodity being hedged.
Hedged Tender
A strategy in a tender offer where an investor short sells a portion of the shares they own. This is to
protect against the risk of loss in the event that the tender offer does not go through.
Hedgelet
A simplified derivative instrument that allows investors to hedge or speculate on economic events
such as housing prices, commodity prices, interest rates, currencies and economic indicators.
The price for a hedgelet contract is based on the prevailing market price determined by participants
in the market. Every contract has the same defined payout scheme: $10 for a correct contract and $0
for an incorrect one. Each hedgelet contract is set so that investors must make a decision on
whether an economic event will occur or not occur.
Hedonic Pricing
A model identifying price factors according to the premise that price is determined both by internal
characteristics of the good and external factors affecting it.
Heikin-Ashi Technique
A type of candlestick chart that shares many characteristics with standard candlestick charts, but
differs because of the values used to create each bar. Instead of using the open-high-low-close
(OHLC) bars like standard candlestick charts, the Heikin-Ashi technique uses a modified formula:
Close = (Open+High+Low+Close)/4
Open = [Open (previous bar) + Close (previous bar)]/2
High = Max (High,Open,Close)
Low = Min (Low,Open, Close)
Heir
A person who inherits some or all of the estate of a recently deceased person. The legal
successor is usually selected because they are related to the deceased by a direct
bloodline or have been designated in a will or by a legal authority.
A Nasdaq stock symbol specifying that it is the third preferred bond of the company.
IBD Charts
These price and volume charts are in color to help you more easily identify current base patterns
and trends. Just right click on a chart to receive the daily price track box, which provides day’s high,
low, last price and volume.
Iceberg Order
A large single order that has been divided into smaller lots, usually by the use of an automated
program, for the purpose of hiding the actual order quantity.
Ichimoku Chart
A chart that provides a glance at equilibrium prices for specified securities.
Identity Theft
The crime of obtaining the personal or financial information of another person for the purpose of
assuming that person's name to make transactions or purchases.
Idiosyncratic Risk
Risk that affects a very small number of assets, and can be almost eliminated with diversification.
Similar to unsystematic risk.
Idle Funds
Money that is not invested and, therefore, earning no income. For example, funds in a checking
account.
Idle Time
Unproductive time spent by employees due to factors beyond their control.
IDR
In currencies, this is the abbreviation for the Indonesian Rupiah.
Illiquid
An asset or security that cannot be converted into cash very quickly (or near prevailing market
prices).
ILS
In currencies, this is the abbreviation for the Israeli New Shekel.
Imbalance of Orders
A situation when too many orders of a particular type - either buy, sell or limit - for listed securities
and not enough of the other, matching orders are received by an exchange. Also referred to as
"order imbalance".
ImClone - IMCL
A publicly-traded biotechnology company marketing products in the field of oncology. The company
made international headlines in 2002 after ImClone's founder and CEO Sam Waksal was indicted for
attempting an insider trade of the company's stock. Shortly after Waksal's indictment, "domestic
diva" Martha Stewart was also indicted for insider trading of the same stock. Stewart received
information from Waksal and her own broker that Waksal had been trying to dump $5 million worth
of his shares in the company on insider information, and she sold her shares on the knowledge that
Waksal had tried to sell his.
Immunization
A strategy that matches the durations of assets and liabilities, thereby minimizing the impact of
interest rates on the net worth.
Impact Day
The day that a corporation has a secondary offering of shares to the public.
Impaired Asset
An asset with a market value that is worth less than its book value.
Impaired Credit
The deterioration of a borrower's credit rating.
Impairment
1. A reduction in a company's stated capital.
2. The total capital that is less than the par value of the company's capital stock.
Implicit Cost
A cost that is represented by lost opportunity in the use of a company's own resources, excluding
cash.
Implied Rate
An interest rate that is determined by the difference between the spot rate and the forward/futures
rate. The degree of relative costliness of a future rate can be assessed by comparing the implied rate
with the spot rate.
Calculated as:
Implied Volatility - IV
The estimated volatility of a security's price.
Import
In reference to international trade, these are goods brought into one country from another.
Impression
An advertisement's (usually a banner ad) appearance on a web page. Ad space is often sold on a
CPM basis.
Imputed Interest
A term used to describe interest considered to be paid, even through no interest payment has been
made.
In And Out
The purchase and sale of a security within a short period of time, usually on the same day.
In Sight
A term describing deliverable grades of commodities underlying futures contracts that are held in
approved delivery facilities near terminals, centralized locations or production areas.
In Street Name
A brokerage account where the customer's securities and assets are held in the name of the
brokerage firm, rather than you holding the stock certificate yourself. The customer is still listed as
the real or beneficial owner.
In The Money
1. For a call option, when the option's strike price is below the market price of the underlying asset.
2. For a put option, when the strike price is above the market price of the underlying asset.
In the Pink
An informal expression used to describe a situation in which an investor or an economy is in a good
financial position. More generally, it refers to being in the best of health or condition.
In-Service Withdrawal
A withdrawal made from a plan account before the holder experiences a triggering event.
In-Service Withdrawal
A withdrawal made from a plan account before the holder experiences a triggering event.
Inactivity Fee
A fee charged to investors whose trading activity meets their brokerages' criteria for an inactive
account.
Incentive Trust
A legally binding fiduciary relationship in which the trustee holds and manages the assets
contributed to the trust by the grantor. In an incentive trust arrangement, the trustee must adhere to
specific requirements set out by the grantor regarding what conditions the trust's beneficiaries must
meet in order to receive funds from the trust.
Incidents Of Ownership
Any interests or rights that an individual maintains on an asset, including property and insurance,
that allow the person to change, modify, use or benefit from the asset. This is important for
determining estate taxes. An individual can reduce the size of his or her estate by gifting assets to
beneficiaries but, to avoid estate tax on the gift, the original owner must not retain any incidents of
ownership in the gifted assets.
Income
Money received by a person or organization because of effort (work) or from return on investments.
Income Bond
A type of debt security in which only the face value of the bond is promised to be paid to the
investor, with any coupon payments being paid only if the issuing company has enough earnings to
pay for the coupon payment.
Income Fund
A mutual fund that seeks to provide stable current income by investing in securities that pay interest
or dividends.
Income Share
A class of shares offered by a dual purpose fund that has little room for capital appreciation but
gives the holder a portion of all income earned in the portfolio.
Income Shifting
A strategy of moving a person's income from a high income bracket or tax rate to a lower one.
Income Splitting
A tax reduction strategy employed by families living in areas that are subject to bracketed tax
regulations. The goal of using an income-splitting strategy is to reduce the family's gross tax level,
at the expense of some family members paying higher taxes than they otherwise would.
Income Spreading
A tax reduction strategy that is typically used by people with highly volatile incomes to reduce the
overall marginal tax rate paid on a large sum of income. This strategy involves taking the particularly
large source of income and dividing the amount realized over a period of years in order to reduce
the overall amount of taxes paid.
Income Statement
A financial report that - by summarizing revenues and expenses, and showing the net profit or loss
in a specified accounting period - depicts a business entity's financial performance due to
operations as well as other activities rendering gains or losses. Also known as the "profit and loss
statement" or "statement of revenue and expense".
Income Stock
A stock with a history of regular dividend payments that constitute the largest portion of the stock's
overall return.
Income Tax
A tax on any money earned during a fiscal year, usually filed on a yearly basis. All businesses
except partnerships must file an annual income tax return. Partnerships file an information return.
Income Trust
An investment trust that holds assets which are income producing. The income is passed on to the
unit holders.
Incoterms
Trade terms, published by the International Chamber of Commerce (ICC), that are commonly used in
international contracts.
Incremental Cost
The encompassing change that a company experiences within its balance sheet due to one
additional unit of production.
Incumbency Certificate
An official document that lists the names of incumbent individuals and their respective corporate
office within an organization.
Incumbent
An individual that is responsible for a specific office within a corporation.
Indemnity
A contractual agreement made between different parties to compensate for any damages or losses.
Indenture
A contract between an issuer of bonds and the bondholder stating the time period before repayment,
amount of interest paid, if the bond is convertible (and if so, at what price or what ratio), if the bond
is callable and the amount of money that is to be repaid.
Independent Auditor
An external auditor with a certified public accounting designation that qualifies him or her to provide
an auditor's report.
Index
A statistical measure of change in an economy or a securities market. In the case of financial
markets, an index is essentially an imaginary portfolio of securities representing a particular market
or a portion of it. Each index has its own calculation methodology and is usually expressed in terms
of a change from a base value. Thus, the percentage change is more important than the actual
numeric value. For example, knowing that a stock exchange is at, say, 5,000 doesn't tell you much.
However, knowing that the index has risen 30% over the last year to 5,000 gives a much better
demonstration of performance.
The plural of index can be either "indexes" or "indices".
Index Arbitrage
An investment strategy that attempts to profit from the differences between actual and theoretical
futures prices of the same stock index. This is done by simultaneously buying (or selling) a stock
index future while selling (or buying) the stocks in that index.
Index Fund
A portfolio of investments that is weighted the same as a stock-exchange index in order to mirror its
performance.
This process is also referred to as "indexing".
Index Futures
A futures contract on a stock or financial index. For each index there may be a different multiple for
determining the price of the futures contract.
Index Hugger
A mutual fund that tends to perform very similar to a benchmark index like the S&P 500.
Index Option
A call or put option on a financial index.
Index Percentage
The weight an individual stock holds in an index, expressed as a percentage.
Index-Linked Bond
A bond in which payment of income on the principal is related to a specific price index, often the
Consumer Price Index. This feature provides protection to investors by shielding them from changes
in the underlying index. The bond's cash flows are adjusted to ensure that the holder of the bond
receives a known real rate of return.
In Canada, they also referred to as "real return bonds".
Indexing
1. The adjustment of the weights of assets in an investment portfolio so that its performance
matches that of an index.
2. Linking movements of rates to the performance of an index.
Indicated Dividend
The total dividends that would be paid on a share of stock throughout the next year if each dividend
is the same amount as the previous payment.
Indicated Yield
The yield that a share of stock would return based on its current indicated dividend. It is calculated
by dividing the indicated dividend by the current share price. It is usually quoted as a percentage.
Indicative Quote
In forex trading, a currency quote that is provided by a market maker to a trading party but that is
not firm. In other words, when a market maker provides an indicative quote to a trader, the market
maker is not obligated to trade the given currency pair at the price or the quantity stated in the
quote. Contrast this to a firm quote, in which a market maker guarantees a specified bid or ask price
to a trader up to the maximum quantity specified in the quote.
Indicator
Statistics used to measure current conditions as well as to forecast financial or economic trends.
Indicators are use extensively in technical analysis to predict changes in stock trends or price
patterns. In fundamental analysis, economic indicators that quantify current economic and industry
conditions are used to provide insight into the future profitability potential of public companies.
Indifference Curve
A diagram depicting equal levels of utility (satisfaction) for a consumer faced with various
combinations of goods
Indirect Quote
A foreign exchange rate quoted as the foreign currency per unit of the domestic currency. In an
indirect quote, the foreign currency is a variable amount and the domestic currency is fixed at one
unit.
Indirect Tax
A tax that increases the price of a good so that consumers are actually paying the tax by paying
more for the products.
Industry
A category used to describe a company's primary business activity, usually determined by the
largest source of a company's revenues.
Industry Bet
When an investor or portfolio manager increases (or decreases) holdings in a particular industry.
Industry Group
A William O’Neil + Company Inc. proprietary classification of stocks into 197 groups, based on a
company's major source of revenue, competitors, products, markets served, etc.
*The William O'Neil + Co. 197 Industry Groups is a Trademark owned by William O'Neil + Co., Inc.
and is used by IBD under license agreement.
Inefficient Market
A theory which asserts that the market prices of common stocks and similar securities are not
always accurately priced and tend to deviate from the true discounted value of their future cash
flows. This theory opposes the efficient market hypothesis.
The phrase is also used to refer to a market which is not operating efficiently for example, it could be
argued that the low-volume stocks traded over the counter comprise an inefficient market compared
to blue chip stocks.
Inelastic
An economic term used to describe the situation in which the supply and demand for a good are
unaffected when the price of that good or service changes.
Infant-Industry Theory
A school of thought that believes emerging domestic industries should be protected until they
become stable and mature.
Inflation
The rate at which the general level of prices for goods and services is rising, and, subsequently,
purchasing power is falling.
Inflation-Indexed Security
A security that guarantees a return higher than the rate of inflation if it is held to maturity.
Inflationary Psychology
The relationship between inflation and individuals' behavior.
Inflationary Risk
The uncertainty over the future real value (after inflation) of your investment.
Inflection Point
An event that changes the way we think and act.
-Andy Grove, Founder of Intel.
Information Circular
A document sent to shareholders outlining important matters to be discussed at the annual
shareholders' meeting.
Information Ratio
A measure of portfolio management's performance against risk and return relative to a benchmark
or alternative measure.
Infrastructure
The basic physical systems of a business or nation
Ingot
Gold in bar form.
Inheritance
All or part of a person's estate/assets that is given to an heir once the person is deceased.
Inheritance Tax
In some states in the U.S. (and in the United Kingdom), a tax imposed on those who inherit assets
from a deceased person. The tax rate for inheritance taxes depends on the value of the property
received by the heir or beneficiary and his/her relationship to the decedent.
Inheritance tax is known in some countries as a "death duty" and is occasionally called "the last
twist of the taxman's knife".
Initial Claims
A measurement of the number of jobless claims filed by individuals seeking to receive state jobless
benefits. This number is watched closely by financial analysts because it provides insight into the
direction of the economy. Higher initial claims positively correlate with a weakening economy, and
vice versa for lower initial claims.
Initial Margin
The percentage of the purchase price of securities (that can be purchased on margin) that the
investor must pay for with his or her own cash or marginable securities.
Also called the "initital margin requirement".
INR
In currencies, this is the abbreviation for the Indian Rupee.
Inside Market
The highest quoted bid and the lowest offer price among competing market makers in a security
trading on the Nasdaq market.
Inside Quote
The highest bid and lowest offer price for a security quoted among all of the market makers
competing in a security.
Insider
Any person who has knowledge of, or access to, valuable nonpublic information about a
corporation.
Insider Information
Material information about a company's activities that has not been disclosed to the public.
Insider Trading
The buying or selling of a security by someone who has access to material, nonpublic information
about the security.
Insolvency
When a company can no longer meet its debt obligations with another firm or institution.
Inspectorial Powers
A state administrator's or other regulatory entity's power to initiate investigations to determine
whether provisions of the Uniform Securities Act have been violated or are about to be violated.
Installment Debt
Debt issued with the condition of regularly occurring intervals for payment by the debtor, until the
principal and interest are paid in full.
Installment Receipt
A debt or equity issuance in which the purchaser does not pay the full value of the issue up front. In
the purchase of an installment receipt, an initial payment is made to the issuer at the time the issue
closes the remaining balance must be paid in installments, usually within a two-year period .
Although the purchaser has not paid the full value of the issue, he or she is still entitled to full voting
rights and dividends.
Instinet
An electronic securities order-matching (trading) and information system that allows members
(primarily professional traders and investors) to display bid and offer quotes for stocks, and to
transact between themselves using brokers. As a global securities broker, Instinet enables over
1,500 institutional customers to trade securities in over 40 global markets.
Institutional Fund
A mutual fund targeting high value investors with low fees, but high minimum requirements.
Institutional Investor
A non-bank person or organization that trades securities in large enough share quantities or dollar
amounts that they qualify for preferential treatment and lower commissions. Institutional investors
face less protective regulations because it is assumed that they are more knowledgeable and better
able to protect themselves.
Institutional Investors
Mutual funds, banks, pension funds, insurance companies, etc. engaged in investing. They are
responsible for most of the trading that occurs in the market, and their impact on both an individual
stock's price movement as well as the movement of the general market is tremendous
Insurance
A contract (policy) in which an individual or entity receives financial protection or reimbursement
against losses from an insurance company. The company pools clients' risks to make payments
more affordable for the insured.
Insurance Score
A rating computed and used by insurance companies that represents the probability of a client filing
an insurance claim during his or her coverage. The score is based on the client's credit rating and
will impact the premiums he or she pays for the insurance coverage - a higher score will result in
lower premiums, and vice versa.
Intangible Asset
An asset that is not physical in nature. Corporate intellectual property (items such as patents,
trademarks, copyrights, business methodologies), goodwill and brand recognition are all common
intangible assets in today's marketplace. An intangible asset can be classified as either indefinite or
definite depending on the specifics of that asset. A company brand name is considered to be an
indefinite asset, as it stays with the company as long as the company continues operations.
However, if a company enters a legal agreement to operate under another company's patent, with no
plans of extending the agreement, it would have a limited life and would be classified as a definite
asset.
Inter-dealer Broker
1. A brokerage firm operating in the bond or OTC derivatives market that acts as an intermediary
between major dealers to facilitate inter-dealer trades.
2. A member of the London Stock Exchange who is only permitted to deal with market makers,
rather than the public.
Inter-Vivos Trust
A trust created during the lifetime of the trustor.
Interbank Market
The financial system and trading of currencies among banks and financial institutions, excluding
retail investors and smaller trading parties. While some interbank trading is performed by banks on
behalf of large customers, most interbank trading takes place from the banks' own accounts.
Interbank Rate
The rate of interest charged on short-term loans made between banks. Banks borrow and lend
money in the interbank market in order to manage liquidity and meet the requirements placed on
them. The interest rate charged depends on the availability of money in the market, on prevailing
rates and on the specific terms of the contract, such as term length.
Intercommodity Spread
Going long on one futures market in a given delivery month and simultaneously going short on the
same commodity and delivery month but a different futures market but with similar underlying asset.
Interdealer Quotation System
The exchange system comprised of the Nasdaq (National Association of Securities Dealers
Automatic Quotation), Nasdaq small-cap market and the Over-the-Counter Bulletin Board (OTCBB)
exchange platforms.
Interdelivery Spread
Simultaneously entering a long and short on the same futures contract but with different delivery
months in the hopes that the price difference between the two months widens or narrows,
depending on the underlying investment.
Interest
1. The charge for the privilege of borrowing money, typically expressed as an annual percentage
rate.
2. The amount of ownership a stockholder has in a company, usually expressed as a percentage.
Interest Expense
The amount reported by a company or individual as an expense for borrowed money.
Interest Rate
The monthly effective rate paid (or received, if you are a creditor) on borrowed money. Expressed as
a percentage of the sum borrowed.
Interested Shareholder
A shareholder or association with beneficial ownership, whether direct or indirect, of enough voting
stock to affect company decisions
Interim Dividend
A dividend payment made before a company's AGM and final financial statements. This declared
dividend usually accompanies the company's interim financial statements.
Intermarket Spread
The simultaneous purchase of a given delivery month of a futures contract on one exchange, and
the simultaneous sale of the same delivery month of the same futures contract on another exchange
in the hope the sale price is greater than the purchase price.
Internal Audit
An audit performed by a person (or persons) employed by the firm being audited.
Internalization
A decision by a brokerage to fill an order with the firm's own inventory of stock.
International Accounting Standards - IAS
An older set of standards stating how particular types of transactions and other events should be
reflected in financial statements. In the past, international accounting standards (IAS) were issued
by the Board of the International Accounting Standards Committee (IASC).
Since 2001, the new set of standards has been known as the international financial reporting
standards (IFRS) and has been issued by the International Accounting Standards Board (IASB).
International Bond
Bonds that are issued in a country by a non-domestic entity.
International Fund
A mutual fund that can invest in companies located anywhere outside of your own country.
International Fund
A mutual fund that can invest in companies located anywhere outside of your own country.
Interpolation
A method of estimating an unknown price or yield of a security. This is achieved by using other
related known values that are located in sequence with the unknown value.
Interpositioning
An illegal action of a specialist or broker-dealer unnecessarily inserting him/herself into a natural
transaction between a buyer and seller in order to pocket an improper profit.
Intertemporal Choice
An economic term describing how an individual's current decisions affect what options become
available in the future. Theoretically, by not consuming today, consumption levels could increases
significantly in the future, and vice versa.
Intestacy
The act of dying without a legal will.
Intestate
The act of dying without a legal will. Determining the distribution of the deceased's assets then
becomes the responsibility of a probate court.
Intraday
Another way of saying "within the day". Intraday price movements are particularly important to
short-term traders looking to make many trades over the course of a single trading session. The
term intraday is occasionally used to describe securities that trade on the markets during regular
business hours, such as stocks and ETFs, as opposed to mutual funds, which must be bought from
a dealer.
Intraday High and Low Price
This represents a day's price action in terms of three variables. The top of the bar signifies the
highest price the stock traded for the day: this is the intra-day high price. The bottom of the bar
marks the low price of the day: this is the intra-day low price. The horizontal intersecting slash
shows where the stock closed for the day.
Intrastate Offering
In the United States, a securities offering that can only be purchased in the state in which it is being
issued. Because the offering does not include more than one state, it does not fall under the
jurisdiction of the Securities and Exchange Commission and therefore does not need to be
registered with the SEC. The offering does, however, fall under the jurisdiction of state regulators.
Intrinsic Value
1. The value of a company or an asset based on an underlying perception of the value.
2. For call options, this is the difference between the underlying stock's price and the strike price.
For put options, it is the difference between the strike price and the underlying stock's price. In the
case of both puts and calls, if the difference between the underlying stock's price and the strike
price is negative, the value is given as zero.
Introducing Broker - IB
A futures broker who has a direct relationship with a client, but delegates the work of the floor
operation and trade execution to another futures merchant. The merchant firm is usually a close
partner of the IB.
Inventory
Inventory can be either raw materials, finished items already available for sale, or goods in the
process of being manufactured. Inventory is recorded as an asset on a company's balance sheet.
Inventory Accounting
The body of accounting that deals with valuing and accounting for changes in inventoried assets.
Changes in value can occur for a number of reasons including depreciation, deterioration,
obsolescence, change in customer taste, increased demand, decreased market supply and so on.
Inventory Reserve
An accounting entry that represents a deduction from earnings for the purpose of fairly and
reasonably representing the value of inventoried assets on a balance sheet. The inventory reserve is
used to make up for the fact that all inventory will not be sold at the cost to the firm.
Inventory Turnover
A ratio showing how many times a company's inventory is sold and replaced over a period.
Inverse Floater
A bond or other type of debt whose coupon rate has an inverse relationship to short-term interest
rates.
Inverse Saucer
A technical chart formation that indicates the stock's price has reached its high and that the upward
trend has come to an end. An inverse saucer is characterized by a steady flattening of the uptrend to
such a degree that the market at one moment enters a sideways range, but then slowly starts to fall
slowly and finally accelerates downward. This rare formation provides no clear price target but
usually implies quite a lot of potential since 50% or more retracement of the preceding uptrend can
be expected. Also known as "rounded top".
Inverted Market
In the context of options and futures, this is when the current (or short-term) contract prices are
higher than the long-term contracts.
Inverted Spread
A situation in which the yield difference between a longer term financial instrument and a shorter
term instrument is negative. This is calculated by subtracting the longer term by the shorter term. In
effect, the shorter term instrument is yielding a higher rate of return than the longer term instrument.
This is in contrast to what is considered a normal market, where longer term instruments should
yield higher returns to compensate for time.
Investability Quotient - IQ
A term used by Standard and Poor's to describe how good a company's medium to long-term return
potential is. While medium to long-term return potential is the major contributor to IQ, other factors
are also considered. The scale ranges from a minimum of 0 to a maximum of 250.
Investing
The act of committing money or capital to an endeavor (a business, project, real estate, etc.) with the
expectation of obtaining an additional income or profit.
Investing Sage
An investor who is seen to be extremely knowledgeable about the markets, and to have much
experience at making successful investments. These investors are widely known to the investing
public and generate double-digit returns.
Investment
An asset or item that is purchased with the hope that it will generate income or appreciate in the
future. In an economic sense, an investment is the purchase of goods that are not consumed today
but are used in the future to create wealth. In finance, an investment is a monetary asset purchased
with the idea that the asset will provide income in the future or appreciate and be sold at a higher
price.
Investment Advisor
1. A person making investment recommendations in return for a flat fee or percentage of assets
managed, known as a commission.
2. For mutual fund companies, it is the individual who has the day-to-day responsibility of investing
and monitoring the cash and securities within the fund's portfolio in order to achieve the fund's
objectives.
Also referred to as a "financial advisor".
Investment Advisor's Act of 1940
The federal law enforced and interpreted by the Securities and Exchange Commission (SEC) that
governs investment advisors.
Investment Bank - IB
A financial intermediary that performs a variety of services. This includes underwriting, acting as an
intermediary between an issuer of securities and the investing public, facilitating mergers and other
corporate reorganizations, and also acting as a broker for institutional clients.
Investment Banker
A person representing a financial institution that is in the business of raising capital for corporations
and municipalities.
Investment Climate
The general economic conditions affecting the financial markets.
Investment Club
A group of people who pool their money to make investments. Usually, investment clubs are
organized as partnerships and after the members study different investments, the group decides to
buy or sell based on a majority vote of the members. Club meetings may be educational and each
member may actively participate in investment decisions.
Investment Company
A corporation or trust engaged in the business of investing the pooled capital of shareholders in the
financial instruments of other companies. This is most often done either through a closed-end fund
or an open-end fund (also referred to as a "mutual fund"). In the U.S., most investment companies
are registered with and regulated by the Securities & Exchange Commission under the Investment
Company Act of 1940.
Investment Consultant
An advisor who helps investors with their long-term investment planning. An investment consultant,
unlike a broker, does more in-depth work on formulating clients' investment strategies, helping them
fulfill their needs and goals.
Investment Consultant
An advisor who helps investors with their long-term investment planning. An investment consultant,
unlike a broker, does more in-depth work on formulating clients' investment strategies, helping them
fulfill their needs and goals.
Investment Farm
A farm owned solely for investment purposes.
Investment Grade
1. In the case of a stock, a firm that has a strong balance sheet, considerable capitalization, and is
recognized as a leader in its industry.
2. In the case of fixed income, a bond with a rating of BBB or higher.
Investment Income
Income coming from interest payments, dividends, capital gains collected upon the sale of a
security or other assets, and any other profit that is made through an investment vehicle of any kind.
Investment Policy Statement - IPS
A document drafted between a portfolio manager and a client that outlines general rules for the
manager.
This statement provides the general investment goals and objectives of a client and describes the
strategies that the manager should employ to meet these objectives. Specific information on matters
such as asset allocation, risk tolerance, and liquidity requirements would also be included in an IPS.
Investment Pyramid
A portfolio strategy that allocates assets according to the relative safety and soundness of
investments. The bottom of the pyramid is comprised of low-risk investments, the mid-portion is
composed of growth investments and the top is speculative investments.
Investment Strategy
An investor's plan of attack to guide their investment decisions based on individual goals, risk
tolerance and future needs for capital. The components of most investment strategies include asset
allocation, buy and sell guidelines, and risk guidelines.
Investment Vehicle
In general, any method by which to invest.
Investor Relations - IR
A department, present in most medium to large public companies, that provides investors with an
accurate account of the company's affairs. This helps investors to make informed buy or sell
decisions.
Invisible Hand
A term coined by economist Adam Smith in his 1776 book "An Inquiry into the Nature and Causes of
the Wealth of Nations". In his book he states:
"Every individual necessarily labours to render the annual revenue of the society as great as he can.
He generally neither intends to promote the public interest, nor knows how much he is promoting
it... He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand
to promote an end which was no part of his intention. Nor is it always the worse for society that it
was no part of his intention. By pursuing his own interest he frequently promotes that of the society
more effectually than when he really intends to promote it. I have never known much good done by
those who affected to trade for the public good."
Thus, the invisible hand is essentially a natural phenomenon that guides free markets and capitalism
through competition for scarce resources.
Invisible Supply
Physical stocks of a commodity that are available for delivery upon futures contracts, but whose
quantities cannot be accurately identified.
Involuntary Cash-Out
Distributing the balance of a participant's retirement account under a qualified plan without the
written consent of the participant, the participant's spouse or beneficiary.
IOU
An abbreviation of the phrase "I owe you."
IPO Date
The Initial Public Offering date is the day a stock first traded shares on the AMEX, NASDAQ or NYSE
exchange. It is presented in the format of Month/Day/Year.
The IPO Date is available for stocks whose initial public offering was held in 1971 or later. This data
item is not presented for stocks that traded before 1971, were spin-offs from another publicly traded
stock, switched to a major exchange from the Bulletin Board or Over-the-Counter exchanges, or for
stocks that traded in foreign markets prior to their listing with the U.S. exchanges.
IPO Lock-Up
A legally binding contract between the underwriters and insiders of the company undergoing an
initial public offering (IPO). The contract prevents them from selling any shares of stock for a
specified period of time.
IQD
In currencies, this is the abbreviation for the Iraqi Dinar.
Iridium
A corrosive resistant element that is sometimes used to harden platinum.
Iron Butterfly
An options strategy that is created with four options at three consecutively higher strike prices. The
two options located at the middle strike create a long or short straddle (one call and one put with the
same strike price and expiration date) depending on whether the options are being bought or sold.
The "wings" (options at the higher and lower strike prices) of the strategy are created by the
purchase or sale of a strangle (one call and one put at different strike prices but the same expiration
date). This strategy differs from the butterfly spread because it uses both calls and puts, as opposed
to all calls or all puts.
Iron Condor
An advanced options strategy that involves buying and holding four different options with different
strike prices. The iron condor is constructed by holding a long and short position in two different
strangle strategies. A strangle is created by buying or selling a call option and a put option with
different strike prices, but the same expiration date. The potential for profit or loss is limited in this
strategy because an offsetting strangle is positioned around the two options that make up the
strangle at the middle strike prices.
IRR
In currencies, this is the abbreviation for the Iranian Rial.
Irrational Exuberance
An infamous phrase uttered by Alan Greenspan in 1996 to describe the overvalued market at the
time.
Irrelevant Cost
A managerial accounting term that represents a cost, either positive or negative, that does not relate
to a situation requiring management's decision.
Irrevocable Beneficiary
A beneficiary in a life insurance policy or segregated fund contract whose compensation cannot be
changed without his or her consent.
Irrevocable Trust
A trust that can't be modified or terminated without the permission of the beneficiary. The grantor,
having transferred assets into the trust, effectively removes all of his or her rights of ownership to
the assets and the trust.
This is the opposite of a "revocable trust", which allows the grantor to modify the trust.
iShares
Index funds that trade like stocks on stock markets. Each share represents a proportion of
ownership in each stock that makes up an index.
ISK
In currencies, this is the abbreviation for the Iceland Krona.
Islamic Banking
A banking system that is based on the principles of Islamic law (also known as Sharia, or Shariah)
and guided by Islamic economics. Two basic principles behind Islamic banking are the sharing of
profit and loss and, significantly, the prohibition of the collection and payment of interest. Collecting
interest is not permitted under Islamic law.
Island Reversal
An occurrence in technical analysis where a stock price will gap up/down, trade higher than this
price, and then gap down/up below the initial price.
Isoquant Curve
A graph of all possible combinations of inputs that result in the production of a given level of output.
Used in the study of microeconomics to measure the influence of inputs on the level of production
or output that can be achieved.
Issued Shares
The amount of authorized shares that are sold to and held by the shareholders of a company.Also
known as "issued stock".
Issuer
A legal entity that develops, registers and sells securities for the purpose of financing its operations.
Issuers may be domestic or foreign governments, corporations or investment trusts. Issuers are
legally responsible for the obligations of the issue and for reporting financial conditions, material
developments and any other operational activities as required by the regulations of their
jurisdictions. The most common types of securities issued are common and preferred stocks,
bonds, notes, debentures, bills and derivatives.
Itayose
A clearing method used by Japanese commodity exchanges to set prices. It is a form of auction
market in which the time of order entry is not distinguished, and an opening price is derived on the
principle of price priority requiring that the following occurs:
1. All market orders are executed first.
2. Next, all limit orders are executed to sell/buy at prices lower/higher than the execution price.
3. Finally, the following amounts of limit orders to sell or buy are at the execution price:
- the entire amount of all either sell or buy orders, and
- at least one trading unit from the opposite side of the order book.
Itemized Deduction
A deduction from a taxpayer's taxable adjusted gross income that is made up of deductions for
money spent on certain goods and services throughout the year. The specific deductions that are
allowed are outlined by the IRS and include such expenses as mortgage interest, state and local
taxes, gifts, and medical expenses.
J
A Nasdaq stock symbol specifying that the stock has voting rights.
J Curve
A theory stating that a country's trade deficit will worsen initially after the depreciation of its
currency because higher prices on foreign imports will be greater than the reduced volume of
imports.
JAJO
An acronym representing the months January, April, July, and October.
Japan Inc.
A nickname for the corporate world of Japan that came about during the 1980s boom, when Western
business people saw how closely the Japanese government worked with its nation's business
sector.
January Effect
A general increase in stock prices during the month of January. This rally is generally attributed to
investors buying stocks that have dropped in price following a sell-off at the end of December by
investors seeking to create tax losses to offset any capital gains.
Java
A programming language developed by Sun Microsystems to support widespread software
distribution, in particular over the Web. It is a smaller and more secure version of the C++
programming language.
Jensen's Measure
A risk-adjusted performance measure that represents the average return on a portfolio over and
above that predicted by the capital asset pricing model (CAPM), given the portfolio's beta and the
average market return. This is the portfolio's alpha. In fact, the concept is sometimes referred to as
"Jensen's alpha."
Jitney
1. A situation in which one broker who has direct access to a stock exchange performs trades for a
broker who does not have access.
2. A fraudulent activity in the penny stock market involving two brokers trading a stock back and
forth to rack up commissions and give the impression of trading volume
Jumbo CD
A certificate of deposit (CD) with a minimum denomination of $100,000.
Junior Security
A security that ranks lower than other securities in regards to the owner's claims on assets and
income in the event of the issuer becoming insolvent.
Junior (Issue)
Generally speaking, any issue that ranks lower in claim to another issue in terms of dividends,
interest, principal, etc.
Jumbo Loan
Any residential or commercial mortgage with a loan amount exceeding the guidelines of Fannie Mae
and Freddie Mac.
Judgment
A court order to pay a party a certain amount of money.
JPY
In currencies, this is the abbreviation for the Japanese Yen.
Joseph Effect
The idea that movements in a time series tend to be part of larger trends and cycles more often than
they are completely random. The Joseph Effect is quantified by the Hurst component, where
movements fall between a Hurst range of 0 to 1. The term was coined by Benoit Mandelbrot.
Jonestown Defense
A defensive strategy by which the target company engages in an activity that might actually ruin the
company rather than prevent the hostile takeover. Also known as a "suicide pill."
Joint Venture - JV
The cooperation of two or more individuals or businesses--each agreeing to share profit, loss and
control--in a specific enterprise.
Joint Return
A tax return filed on behalf of both the husband and wife, resulting in a combined tax liability
Joint Bond
A bond that is guaranteed by a party other than the issuer. Also called a "joint-and-several bond."
Joint Account
A brokerage or bank account that is owned together (jointly) by two or more people.
Joint
In general, a legal term describing a transaction in which two or more parties act together.
JOD
In currencies, this is the abbreviation for the Jordanian Dina.
Jobber
A slang term for a market maker on the London stock exchange.
Job Lot
A futures contract with a minimum trading unit smaller than the levels required in regular contracts.
JMD
In currencies, this is the abbreviation for the Jamaican Dollar.
January Barometer
A theory stating that the movement of the S&P 500 during the month of January sets the stock
market's direction for the year (as measured by the S&P 500). In other words, if the S&P 500 was up
at the end of January compared to the beginning of the month, proponents would expect the stock
market to rise during the rest of the year.
K
A Nasdaq stock symbol specifying that the stock has no voting rights
Kagi Chart
A type of chart developed by the Japanese in the 1870s that uses a series of vertical lines to
illustrate general levels of supply and demand for certain assets. Thick lines are drawn when the
price of the underlying asset breaks above the previous high price and is interpreted as an increase
in demand for the asset. Thin lines are used to represent increased supply when the price falls
below the previous low.
Kaizen
A philosophy that recognizes improvement in productivity as a gradual and methodical process.
Kaizen is a Japanese term that literally means "change for the better". The concept of Kaizen
encompasses a wide scope of ideas it involves making the work environment more efficient and
effective by creating a team atmosphere, improving everyday procedures, ensuring employee
satisfaction and making a job more fulfilling, less tiring and safer.
Kangaroos
Slang term for Australian stocks, it refers mostly to the stocks on the All Ordinaries index, which is
composed of 280 of the most active Australian companies.
Kappa
Used in regression analysis, Kappa represents the ratio of the dollar price change in the price of an
option to a 1% change in the expected price volatility.
Katie Couric Clause
A slang term for a proposed new Securities and Exchange Commission rule, formally known as the
Executive Compensation and Related Party Disclosure, that would require publicly traded
companies to disclose not only the salaries of their top five executives, but also those of top earning
non-executives, including actors, directors and TV news anchors.
The term refers to former "Today Show" host Katie Couric, who became CBS's highest paid
newscaster in April 2006, with a reported salary of US$15 million over five years. As of April 2006,
this proposed rule has not been approved by the SEC.
Keepwell Agreement
A contract between a parent company and its subsidiary to maintain solvency and financial backing
throughout the term set in the agreement.
Keiretsu
A Japanese term describing a loose conglomeration of firms sharing one or more common
denominators. The companies don't necessarily need to own equity in each other.
Keltner Channel
A volatility based 'envelope' indicator that measures the movement of stocks in relation to an upper
and lower moving-average band.
Keogh Plan
A defined-benefit plan or defined-contribution plan established by a self-employed individual for
him/herself and his/her employees.
KES
In currencies, this is the abbreviation for the Kenyan Shilling.
Keynesian Economics
An economic theory stating that active government intervention in the marketplace and monetary
policy is the best method of ensuring economic growth and stability.
KHR
In currencies, this is the abbreviation for the Cambodian Riel.
Kickback
A slang term used to describe the payment of something of value to another individual with the goal
of persuading or influencing their decision or performance in certain situations.
Kicker
A right, warrant, or some other feature added to a debt instrument to make it more desirable to
potential investors.
Kicker Pattern
A two-bar candlestick pattern that is used to predict a change in the direction of the trend for an
asset's price. This pattern is characterized by a very sharp reversal in price over the span of two
candlesticks traders use it to determine which group of market participants is in control of the
direction.
Kiddie Tax
A tax on children under 14 years old who earn income over $1,200. The extra income is taxed at the
guardian's rate.
Kill
To cancel a trade or order that has been placed, but not filled.
Killer Application
Killer application or "killer app" is a buzzword that describes a software application that surpasses
all of its competitors.
Killer Bees
Those who help a company fend off a takeover attempt with the use of defensive strategies.
Kiting
1. The act of misrepresenting the value of a financial instrument for the purpose of extending credit
obligations or increasing financial leverage.
2. A fraudulent act involving the alteration or issuance of a check or draft with insufficient funds.
Kiwi
A slang term for the New Zealand dollar (NZD). It derives its name from New Zealand's national icon -
a flightless bird called a kiwi - which is pictured on one side of the country's $1 coin.
Klinger Oscillator
A technical indicator developed by Stephen Klinger that is used to determine long-term trends of
money flow while remaining sensitive enough to short-term fluctuations to enable a trader to predict
short-term reversals. This indicator compares the volume flowing in and out of a security to price
movement, and it is then turned into an oscillator
KMF
In currencies, this is the abbreviation for the Comoros Franc.
Knock-In Option
A latent option contract that begins to function as a normal option ("knocks in") only once a certain
price level is reached before expiration.
Knock-Out Option
An option with a built in mechanism to expire worthless should a specified price level be exceeded.
Kondratiev Wave
An economic theory created by Soviet economist Nikolai Kondratiev that states that Western
capitalist economies are susceptible to high performance volatility.
KPW
In currencies, this is the abbreviation for the North Korean Won.
KRW
In currencies, this is the abbreviation for the Korean Won.
Kurtosis
A statistical measure used to describe the distribution of observed data around the mean
KWD
In currencies, this is the abbreviation for the Kuwaiti Dinar.
KYD
In currencies, this is the abbreviation for the Cayman Islands Dollar
KZT
In currencies, this is the abbreviation for the Kazakhstan Tenge
L
A Nasdaq stock symbol specifying that it is a miscellaneous situation such as a depositary receipt,
stub, additional warrant or unit.
Labor Intensive
A process or industry that requires large amounts of human effort to produce goods.
Lessee
The person who rents land or property from a lessor.
Leprechaun Leader
A corporate manager or an executive who, like the fabled Irish elf, is a mischievous and elusive
creature said to possess buried treasures of money and gold.
Lemming
The act of following the crowd into an investment that will inevitably head for disaster.
Leasehold Improvement
Improvements on a leased asset that increase the value of the asset.
Leg
1. Term describing an order entry technique used by brokers. A leg occurs when a broker executes
contingent orders in separate phases, thus increasing the risk for price swings through time delays.
2. A description of different aspects in a combination
Ladder Option
An option that locks-in gains once the underlying reaches predetermined price levels or "rungs,"
guaranteeing some profit even if the underlying security falls back below these levels before the
option expires.
Lemon
A very disappointing investment. Your expected return wasn't even close to being achieved.
Lehman Formula
A compensation formula developed by Lehman Brothers for investment banking services. The
structure is as follows:
Legislative Overkill
A law enacted to stop or prevent the abuse of a loophole, but ends up imposing more restrictions
than are necessary for reasonable prevention.
Legend
A notification placed on certain stock certificates describing the terms and conditions of sale and
ownership.
Legal List
A selection of eligible companies and investments, determined by local state governments, for
institutions such as insurance companies and pension plans.
Leaseback
An arrangement where the seller of an asset leases back the same asset from the purchaser.
Lease
An agreement in which one party gains a long-term rental agreement, and the other party receives a
form of secured long-term debt.
Leakage
A release of information to certain people before the official public announcement.
Leading Indicator
A measurable economic factor that changes before the economy starts to follow a particular pattern
or trend. Leading indicators are used to predict changes in the economy, but are not always
accurate.
Leader or Laggard
Refers to a company that is either outperforming or underperforming the general market. To look for
top stocks in leading industry groups, refer to the Relative Price Strength Rating and Industry Group
Relative Strength Rating in Investor's Business Daily.
Laddering
The promotion of inflated pre-IPO prices for the sake of obtaining a greater allotment of the offering.
Laffer Curve
Invented by Arthur Laffer, this curve shows the relationship between tax rates and tax revenue
collected by governments. The chart below shows the Laffer Curve:
The curve suggests that, as taxes increase from low levels, tax revenue collected by the government
also increases. It also shows that tax rates increasing after a certain point (T*) would cause people
not to work as hard or not at all, thereby reducing tax revenue. Eventually, if tax rates reached 100%
(the far right of the curve), then all people would choose not to work because everything they earned
would go to the government.
Lead Time
In terms of a supply chain, the total time needed for an order to be processed.
LBP
In currencies, this is the abbreviation for the Lebanese Pound
Layoff
1. When a company eliminates jobs regardless of how good the employees' performance. 2. A risk
reduction, made by investment bankers, that minimizes the potential downside associated with a
commitment to purchase and sell a stock issue unsubscribed by stockholders holding rights.
Law of Supply
A microeconomic law stating that, all other factors being equal, as the price of a good or service
increases, the quantity of goods or services offered by suppliers increases, and vice versa.
Late-Stage Base
A base that forms after a stock has staged a series of technical breakouts from prior bases. They
usually occur near a stock's top and are often referred to as fourth- or fifth-stage bases. Late-stage
bases often show erratic, wide-and-loose trading.
Lagging Indicator
1. A measurable economic factor that changes after the economy has already begun to follow a
particular pattern or trend.
2. A technical indicator that trails the price action of an underlying asset and is used by traders to
generate transaction signals or to confirm the strength of a given trend. Since these indicators lag
the price of the asset, a significant move will generally occur before the indicator is able to provide a
signal.
Laissez Faire
An economic theory from the 18th century that is strongly opposed to any government intervention
in business affairs. Sometimes referred to as "Let it be economics."
Late-Day Trading
An unethical (if not illegal) practice of a hedge fund purchasing and then selling securities (usually
shares of a mutual fund) after the close of a trading day, but making the transactions appear as
though they occurred before the market close.
Last-Sale Reporting
An electronic entry, to the Nasdaq Stock Market, of the amount and price of shares involved in a
transaction's not less than a board lot.
Landominium
A type of residential property in which the owner owns both the home and the land on which the
home is built. The home is a part of a community, like a condominium, where the landscaping,
maintenance and other services are provided by a homeowners' association
Land Value
The total value of the land, including any upgrades or improvements to the land
Land
Property or real estate, not including buildings or equipment, that does not occur naturally.
Depending on the title, land ownership may also give the holder the rights to all natural resources on
the land. These may include water, plants, human and animal life, fossils, soil, minerals,
electromagnetic features, geographical location, and geophysical occurrences.
Lame Duck
A person who has defaulted on his or her debts or has gone bankrupted due to the stock market.
The financial use of the term is most commonly used in Europe.
Lambda
A ratio comparing change in option price to a 1% change in option volatility.
LAK
In currencies, this is the abbreviation for the Laos Kip.
Late-Stage Base
A base that forms after a stock has staged a series of technical breakouts from prior bases. They
usually occur near a stock's top and are often referred to as fourth- or fifth-stage bases. Late-stage
bases often show erratic, wide-and-loose trading.
Lease
An agreement in which one party gains a long-term rental agreement, and the other party receives a
form of secured long-term debt.
Leakage
A release of information to certain people before the official public announcement.
Lemon
A very disappointing investment. Your expected return wasn't even close to being achieved.
Last-Sale Reporting
An electronic entry, to the Nasdaq Stock Market, of the amount and price of shares involved in a
transaction's not less than a board lot.
Lessee
The person who rents land or property from a lessor.
Layoff
1. When a company eliminates jobs regardless of how good the employees' performance. 2. A risk
reduction, made by investment bankers, that minimizes the potential downside associated with a
commitment to purchase and sell a stock issue unsubscribed by stockholders holding rights.
Lehman Formula
A compensation formula developed by Lehman Brothers for investment banking services. The
structure is as follows:
LBP
In currencies, this is the abbreviation for the Lebanese Pound.
Lead Time
In terms of a supply chain, the total time needed for an order to be processed
Legend
A notification placed on certain stock certificates describing the terms and conditions of sale and
ownership.
Leader or Laggard
Refers to a company that is either outperforming or underperforming the general market. To look for
top stocks in leading industry groups, refer to the Relative Price Strength Rating and Industry Group
Relative Strength Rating in Investor's Business Daily.
Leading Indicator
A measurable economic factor that changes before the economy starts to follow a particular pattern
or trend. Leading indicators are used to predict changes in the economy, but are not always
accurate.
Leaseback
An arrangement where the seller of an asset leases back the same asset from the purchaser.
Leasehold Improvement
Improvements on a leased asset that increase the value of the asset.
Leg
1. Term describing an order entry technique used by brokers. A leg occurs when a broker executes
contingent orders in separate phases, thus increasing the risk for price swings through time delays.
2. A description of different aspects in a combination option.
Legal List
A selection of eligible companies and investments, determined by local state governments, for
institutions such as insurance companies and pension plans.
Lemming
The act of following the crowd into an investment that will inevitably head for disaster.
Legislative Overkill
A law enacted to stop or prevent the abuse of a loophole, but ends up imposing more restrictions
than are necessary for reasonable prevention.
Lessor
The person who rents land or property to a lessee.
Letter of Comfort
A letter issued to a lending institution by a parent company acknowledging the approval of a
subsidiary company's attempt for financing.
Letter Of Credit
A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for
the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank
will be required to cover the full or remaining amount of the purchase.
Letter of Indemnity
1. A letter guaranteeing that contractual provisions will be met, otherwise financial reparations will
be made.
2. A letter requesting replacements for lost shares from a company's treasury.
Letter Security
A security that is not registered with the SEC, and so cannot be sold publicly in the marketplace.
Level 1
A trading service consisting of real-time bid/ask quotes for securities trading on the Nasdaq stock
market and comparable information for securities quoted in the OTC Bulletin Board Service.
Level 2
A trading service consisting of real-time access to the quotations of individual market makers
registered in every Nasdaq listed security, as well as market makers' quotes in OTC Bulletin Board
securities.
Level 3
A trading service consisting of everything in Level 2, plus the ability to enter quotes, execute orders,
and send information. This service is restricted to NASD member firms that function as registered
market makers.
Level Load
An annual load charged to a mutual fund holder for the time he or she is invested in the fund
Level-Premium Insurance
A type of term life insurance for which the premiums remain the same throughout the duration of the
contract. The premium paid on this type of policy will be higher at the beginning of its life but lower
towards the end of its life as compared to term policies that have rising premium rates.
Leverage
1. The use of various financial instruments or borrowed capital, such as margin, to increase the
potential return of an investment.
2. The amount of debt used to finance a firm's assets. A firm with significantly more debt than equity
is considered to be highly leveraged.
Leverage helps both the investor and the firm to invest or operate. However, it comes with greater
risk. If an investor uses leverage to make an investment and the investment moves against the
investor, his or her loss is much greater than it would've been if the investment had not been
leveraged - leverage magnifies both gains
Leverage Ratio
1. Any ratio used to calculate the financial leverage of a company to get an idea of the company's
methods of financing or to measure its ability to meet financial obligations. There are several
different ratios, but the main factors looked at include debt, equity, assets and interest expenses.
2. A ratio used to measure a company's mix of operating costs, giving an idea of how changes in
output will affect operating income. Fixed and variable costs are the two types of operating costs
depending on the company and the industry, the mix will differ.
Leveraged Lease
A lease agreement wherein the lessor, by borrowing funds from a lending institution, finances the
purchase of the asset being leased.
Liquidated Damages
Present in certain legal contracts, this provision allows for the payment of a specified sum should
one of the parties be in breach of contract.
Leveraged Recapitalization
A strategy where a company takes on significant additional debt with the purpose of either paying a
large dividend or repurchasing shares. The result is a far more financially leveraged company.
Levy
To collect or assess money that is due.
Liability
A company's legal debts or obligations that arise during the course of business operations. These
are settled over time through the transfer of economic benefits including money, goods or services.
Lien
When a creditor or bank has the right to sell the mortgaged or collateral property of those who fail to
meet the obligations of a loan contract.
Life Annuity
An insurance product that features a predetermined periodic payout amount until the death of the
annuitant. These products are most frequently used to help retirees budget their money after
retirement. Typically, the annuitant pays into the annuity on a periodic basis when he or she is still
working. However, annuitants may also buy the annuity product in one large purchase. When the
annuitant retires, the annuity makes periodic (usually monthly) payouts to the annuitant, providing a
reliable source of income. When a triggering event (such as death) occurs, the periodic payments
from the annuity usually cease.
Liquid Market
A market with many bid and ask offers. The market is characterized by high liquidity, low spreads,
and low volatility.
Lintner's Model
A model stating that dividend policy has two parameters: (1) the target payout ratio and (2) the
speed at which current dividends adjust to the target.
Life Expectancy
1. The age until which a person is expected to live.
2. The remaining number of years an individual is expected to live, based on IRS issued life
expectancy tables. The life expectancy, for required minimum distribution (RMD) calculation
purposes, is determined by the current age of the individual.
Life Insurance
A protection against the loss of income that would result if the insured passed away. The named
beneficiary receives the proceeds and is thereby safeguarded from the financial impact of the death
of the insured.
Life Option
An annuitization-method option for a typical annuity offered by an insurance company with which
the annuitant chooses to receive regular income payments from his or her annuity account for life.
The insurance company guarantees that the annuitant will receive payments for the rest of his or her
life, and structures the payment amounts to provide room for the insurance company's profit
margin.
Lifestyle Fund
An investment fund featuring an asset mix determined by the level of risk and return that is
appropriate for an individual investor. Factors that determine this mix include an investor's age,
level of risk aversion, the investment's purpose and the length of time until the principal will be
withdrawn.
LIFO Liquidation
When a company using the LIFO (Last In, First Out) method of inventory costing liquidates their
older LIFO inventory. A LIFO liquidation would occur if current sales are higher than current
purchases, as a result, any inventory not sold in previous periods must be liquidated.
Like-for-Like Sales
The portion of current sales achieved through activities that are comparable to the activities of the
previous year.
Like-Kind Property
Any two assets or properties that are considered to be the same type, making an exchange between
them tax free. To qualify as like kind, two assets must be of the same type (e.g. two pieces of
residential real estate), but do not have to be of the same quality.
Limit Down
The maximum amount by which the price of a commodity futures contract may decline in one
trading day.
Limit Order
An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
Limit orders also allow an investor to limit the length of time an order can be outstanding before
being canceled.
Limit-On-Close Order
A type of limit order to buy or sell shares near the market close only if the closing price is trading
better than the limit price. This order is an expansion of the market-on-close order, adding to it a
limit condition, which places a maximum on the entry price and minimum on the selling price.
Limit-On-Open Order
A type of limit order to buy or sell shares at the market open if the market price meets the limit
condition. This type of order is good only for the market opening and does not last for the whole
trading day.
Limited Liability
A type of liability that does not exceed the initial amount a person invested into a partnership.
Limited Partnership - LP
Two or more partners formed to conduct a business jointly, and in which one or more of the partners
is liable only to the extent of the amount of money they have invested. Limited partners do not
receive dividends, but enjoy direct access to the flow of income and expenses.
Limited Risk
The risk of an investment that has a predetermined maximum downside potential, which is usually
the initial amount invested.
Liquidate
1. To convert assets into cash or equivalents by selling them on the open market.
2. When an entity chooses or is forced by a legal judgment or contract to turn assets into a "liquid"
form (cash).
Liquidating Dividend
Payment by a firm to its owners from capital rather than from earnings.
Liquidation
1. When a business or firm is terminated or bankrupt, its assets are sold and the proceeds pay
creditors. Any leftovers are distributed to shareholders.
2. Any transaction that offsets or closes out a long or short position.
Liquidation Level
In forex trading, the specific value of a trader's account below which the liquidation of the trader's
positions is automatically triggered and executed at the best available exchange rate at the time. The
liquidation level is expressed as a percentage value of assets. If a forex trader's positions go against
him or her, his or her account will eventually reach the liquidation level, unless the trader
contributes further margin to top up his or her account.
Liquidity
1. The degree to which an asset or security can be bought or sold in the market without affecting the
asset's price. Liquidity is characterized by a high level of trading activity.
2. The ability to convert an asset to cash quickly. Also known as "marketability
Liquidity Cushion
A reserve fund for a company or person containing money market and highly liquid investments.
Liquidity Path
A way of referring to the process of taking a company public.
Liquidity Trap
A situation in which prevailing interest rates are low and savings rates are high. As a result,
monetary policy is ineffective.
Listed
Being included and traded on a given exchange. Most exchanges have specific requirements which
companies must meet in order to be listed and continue to stay listed.
Listed Security
Securities that have been accepted for trading purposes by a recognized and regulated exchange.
Living Will
A legal document that sets out the medical care an individual, or the principal, wants or does not
want in the event that he or she becomes incapable of communicating his or her wishes.
LKR
In currencies, this is the abbreviation for the Sri Lankan Rupee.
Load
A fee or commission charged to an investor when buying or redeeming shares in a mutual fund. The
fee may be charged at the time the investor buys into the mutual fund (called a front-end load) or
when the investor redeems his/her mutual fund shares (called a back-end load).
Load Fund
A mutual fund with shares sold at a price including a large sales charge. This sales fee may range
from 3% to as high as 8% of the full purchase.
Loan
When a lender gives money or property to a borrower, and the borrower agrees to return the
property or repay the borrowed money, along with interest, at a predetermined date in the future.
Loan Constant
The required annual cash flow needed to service both the principal and interest upon a loan
obligation.
Loan Sharking
When a borrower is charged interest above an established legal rate. Depending on where you live,
lenders typically cannot charge more than 60% interest per annum.
Loan Syndication
The process of involving numerous different lenders in providing various portions of a loan
Local
Traders on future exchanges who occasionally fill public orders, but mainly buy and sell for their
own personal accounts.
Local Tax
An additional tax on top of federal and state taxes, usually collected in the form of property taxes.
Also called municipal tax.
Lock Limit
Commonly associated with the futures market, a lock limit occurs when the trading price of a futures
contract arrives at the exchanges predetermined limit price. At the lock limit, trades above or below
the lock price are not executed.
Lock-Up Agreement
A legally binding contract between the underwriters and insiders of a company prohibiting these
individuals from selling any shares of stock for a specified period of time. Lock-up periods typically
last 180 days (six months) but can on occasion last for as little as 120 days or as long as 365 days
(one year).
Lock-Up Option
A stock option offered by a target company to a white knight for additional equity or for the
purchase of a valuable portion of their company.
Lockdown
A specified period when an employee of a public company is barred from selling - and occasionally
buying - their company's stock.
Locked Market
A short-term situation occurring within a market where both the bid and ask are identical, resulting
in no bid-ask spread.
Logistics
The overall management of the way resources are moved to the areas where they are required.
Lombard Rate
The rate charged to banks by the German central bank for collateralized loan obligations.
Long Bond
A bond that matures in more than 10 years. When people refer to "the long bond," this typically is
the 30-year U.S. treasury.
Long-Term Assets
1. Reported on the balance sheet, it's the value of a company's property, equipment and other capital
assets, less depreciation.
2. A stock, bond or other asset that you plan on holding in your portfolio for a lengthy period of time.
Long-Term Debt
Loans and financial obligations lasting over one year.
In the U.K., long-term debts are known as "long-term loans."
Long-Term Debt/Capitalization
A ratio showing the financial leverage of a firm, calculated by dividing long-term debt by the amount
of capital available:
Long/Short Equity
A hedge fund strategy that involves buying certain stocks long and selling others short. There
usually isn't a restriction on the country that the stocks trade in either.
Long/Short Fund
A type of mutual fund that mimics some of the trading strategies typically employed by a hedge
fund. Unlike most mutual funds, long/short funds use leverage, derivatives and short positions in an
attempt to maximize total returns, regardless of market conditions. The amount of leverage used and
the number of derivatives and short positions that long/short funds may contain are limited by law.
These funds invest primarily in stocks.
Look Thru
An accounting method for calculating taxes owed on income from controlled foreign corporations.
Look-Ahead Bias
Bias created by the use of information or data in a study or simulation that would not have been
known or available during the period being analyzed. This will usually lead to inaccurate results in
the study or simulation.
Lookback Option
An exotic option that allows investors to "look back" at the underlying prices occurring over the life
of the option, and then exercise based on the underlying asset's optimal value.
Loonie
A slang term for a Canadian dollar. It is derived from the picture of a loon on one side of the coin.
Loophole
A technicality that allows a person or business to avoid the scope of a law without directly violating
the law.
Loss Carryback
An accounting technique with which a company retroactively applies net operating losses to a
preceding year's income in order to reduce tax liabilities present in that previous year.
Loss Carryforward
An accounting technique that applies the current year's net operating losses to future years' profits
in order to reduce tax liability. Generally accepted accounting principles (GAAP) specify that loss
carryforwards can be used in any one of the seven years following the loss.
Lot
In general, any group of goods or services making up a transaction. In the financial markets, a lot
represents the standardized quantity of a financial instrument as set out by an exchange or similar
regulatory body. For exchange-traded securities, a lot may represent the minimum quantity of that
security that may be traded
Lottery Bond
A bond issued in the U.S. and U.K. with a rate of return dependent upon a lottery style payout.
Love Money
Seed money or capital given by family or friends to an entrepreneur to start a business. In this type
of situation, the decision to lend money and the terms of the agreement are usually based on
qualitative factors and the relationship between the two parties, rather than on a formulaic risk
analysis
Low
The lowest price a security traded at within that trading day.
Low Ball
A slang term for an offer that is significantly below the fair value of an asset or group of assets.
LRD
In currencies, this is the abbreviation for the Liberian Dollar
LSL
In currencies, this is the abbreviation for the Lesotho Loti.
LTL
In currencies, this is the abbreviation for the Lithuanian Litas.
LYD
In currencies, this is the abbreviation for the Libyan Dinar.
Lump-Sum Distribution
A one-time payment for the entire amount due, rather than breaking payments into smaller
installments. Some lump-sum distributions receive special tax treatment.
M1
The category of the money supply that includes all physical money like coins and
currency. It also includes demand deposits, which are checking accounts and NOW
accounts.
M2
A category within the money supply that includes M1 in addition to all time-related
deposits, savings deposits, and non-institutional money-market funds.
M3
The category of the money supply that includes M2 as well as all large time deposits,
institutional money-market funds, short-term repurchase agreements, along with other
larger liquid assets.
Macaroni Defense
An approach taken by a company that does not want to be taken over. The company
issues a large number of bonds with the condition they must be redeemed at a high price
if the company is taken over.
Macaulay Duration
The weighted-average term to maturity of the cash flows from a bond. The weight of each
cash flow is determined by dividing the present value of the cash flow by the price.
Macro Risk
A type of political risk in which political actions in a host country can adversely affect all
foreign operations. Macro risk can come about from events that may or may not be in the
reigning government's control.
Macro-Hedge
An investment technique used to eliminate the risk of a portfolio of assets. In most cases,
this would mean taking a position that offsets the whole portfolio. But this technique is
difficult in practice because there is rarely one asset that will offset the risk of a broader
portfolio, so applying a macro-hedge most likely requires taking an offsetting position in
each individual asset.
Macroeconomics
The field of economics that studies the behavior of the aggregate economy.
Macroeconomics examines economy-wide phenomena such as changes in
unemployment, national income, rate of growth, gross domestic product, inflation and
price levels
MAD
In currencies, this is the abbreviation for the Moroccan Dirham.
Mad Hatter
A CEO or managerial team whose ability to lead a company is highly suspect.
Main Home
A person's regular or permanent place of residence.
Main Street
Shorthand for "the investing public"--in the same way that "Wall Street" is used to refer to
investment professionals and brokers.
Maintenance Margin
The minimum amount of equity that must be maintained in a margin account. In the
context of the NYSE and NASD, after an investor has bought securities on margin, the
minimum required level of margin is 25% of the total market value of the securities in the
margin account. Keep in mind that this level is a minimum, and many brokerages have
higher maintenance requirements of 30-40%.
Also referred to as "minimum maintenance" or "maintenance requirement".
Majority Shareholder
A person or conglomerate who owns more than 50% of the outstanding shares of a
corporation.
Make A Market
An action whereby a dealer stands by ready, willing and able to buy or sell a particular
security at the quoted bid and ask price.
Managed Account
An investment account that is owned by an individual investor and looked after by a hired
professional money manager. In contrast to mutual funds (which are professionally
managed on behalf of many mutual-fund holders), managed accounts are personalized
investment portfolios tailored to the specific needs of the account holder.
Managed Money
A means of investment where the investor, rather than buying and selling their own
securities, places their investment funds in the hands of a qualified investment
professional for a predetermined annual fee
Management Fee
A fixed fee that a mutual fund manager charges investors for his services and work with
the fund.
Management Ownership
Percent of common stock which is owned by the company's management; a higher
percentage generally assumes an increased level of commitment.
Management Risk
The risks associated with ineffective, destructive or underperforming management, which
hurts shareholders and the company or fund being managed. This term refers to the risk
of the situation in which the company and shareholders would have been better off
without the choices made by management.
Managerial Accounting
The process of identifying, measuring, analyzing, interpreting, and communicating
information for the pursuit of an organization's goals
Mandatory Convertible
A type of convertible bond that has a required conversion or redemption feature. Either on
or before a contractual conversion date, the holder must convert the mandatory
convertible into the underlying common stock.
These securities provide investors with higher yields to compensate holders for the
mandatory conversion structure.
Manipulation
The act of artificially inflating or deflating the price of a security. In most cases,
manipulation is illegal. It is much easier to manipulate the share price of smaller
companies, such as penny stocks, because they are not as closely watched by analysts as
the medium- and large-sized firms.
Also known as "price manipulation".
Manufactured Payment
A tax concept whereby the lender of a stock receives the equivalent dividend payment
from the borrower of the stock.
Margin
1. Borrowed money that is used to purchase securities. This practice is referred to as
"buying on margin".
2. The amount of equity contributed by a customer as a percentage of the current market
value of the securities held in a margin account.
3. In a general business context, the difference between a product's (or service's) selling
price and the cost of production.
4. The portion of the interest rate on an adjustable-rate mortgage that is over and above
the adjustment-index rate. This portion is retained as profit by the lender.
Margin Account
A brokerage account in which the broker lends the customer cash to purchase securities.
The loan in the account is collateralized by the securities and cash. If the value of the
stock drops sufficiently, the account holder will be required to deposit more cash or sell a
portion of the stock.
Margin Call
A broker's demand on an investor using margin to deposit additional money or securities
so that the margin account is brought up to the minimum maintenance margin. This is
sometimes called a "fed call" or "maintenance call".
Margin Of Safety
A principle of investing in which an investor only purchases securities when the market
price is significantly below its intrinsic value. In other words, when market price is
significantly below your estimation of the intrinsic value, the difference is the margin of
safety. This difference allows an investment to be made with minimal downside risk.
The term was popularized by Benjamin Graham (known as "the father of value investing")
and his followers, most notably Warren Buffett. Margin of safety doesn't guarantee a
successful investment, but it does provide room for error in an analyst's judgment.
Determining a company's "true" worth (its intrinsic value) is highly subjective. Each
investor has a different way of calculating intrinsic value which may or may not be correct.
Plus, it's notoriously difficult to predict a company's earnings. Margin of safety provides a
cushion against errors in calculation.
Marginal Utility
The additional satisfaction a consumer gains from consuming one more unit of a good or
service.
Marital Deduction
A tax reduction that is mainly used for the purposes of estate and gifts. It allows an
individual to transfer some assets to his or her spouse tax free, creating a deduction in
taxable income.
Marital Property
A U.S. state-level legal distinction of a married individual's assets. Property acquired by
either spouse during the course of a marriage is considered marital property. For example,
an IRA in the name of an individual with a spouse, which is accumulated during the course
of the marriage, would be considered marital property.
Markdown
The difference between the highest current bid price among broker-dealers in the market
and the lower price that a dealer charges a customer.
Market
1. Typically refers to the equity market where stocks are traded, but can also refer to the
bond, options, or commodity market.
2. People with the desire and ability to buy a specific product.
Market Arbitrage
Purchasing and selling the same security at the same time in different markets to take
advantage of a price difference between the two separate markets.
Market Average
A measure of the overall price level of a given market, as defined by a specified group of
stocks or other securities. A market average equals the sum of all current values of stocks
in the group divided by the total number of shares in the group.
Market Bottom
Term that refers to the overall general market making a low point and then turning around
for a period of improvement.
Market Cannibalization
The negative impact of a company's new product on the sales performance of its existing
related products.
Market Capitalization
Total market value of company. Calculated by multiplying shares outstanding by the stock
price.
Market Disruption
A situation where markets cease to function in a regular manner, typically characterized
by rapid and large market declines. Market disruptions can result from both physical
threats to the stock exchange or a unusual trading (as in a crash). In either case, the
disruption creates widespread panic and results in disorderly market conditions.
Market Economy
An economic system in which economic decisions and the pricing of goods and services
are guided solely by the aggregate interactions of a country's citizens and businesses and
there is little government intervention or central planning. This is the opposite of a
centrally planned economy, in which government decisions drive most aspects of a
country's economic activity.
Market Efficiency
The degree to which stock prices reflect all available, relevant information.
Market Exposure
The amount of funds invested in a particular type of security and/or market sector or
industry and usually expressed as a percentage of total portfolio holdings. Thus, it is the
amount an investor has at risk or the amount he/she can lose. Also known as "exposure".
Market Index
An aggregate value produced by combining several stocks or other investment vehicles
together and expressing their total value against a base value from a specific date. Market
indexes are intended to represent an entire stock market and thus track the market's
changes over time.
Market Is Off
A common phrase meaning that the market (or a major market index) is trading below the
previous closing price.
Market Is Up
A common phrase meaning the market (or a major market index) is trading higher than the
previous closing price
Market Jitters
Feelings of nervousness created by uncertainty or fear about the current investment
environment
Market Maker
A broker-dealer firm that accepts the risk of holding a certain number of shares of a
particular security in order to facilitate trading in that security. Each market maker
competes for customer order flow by displaying buy and sell quotations for a guaranteed
number of shares. Once an order is received, the market maker immediately sells from its
own inventory or seeks an offsetting order. This process takes place in mere seconds.
Market Maven
Slang used to describe a good investor who is "in-the-know." It also implies opinion
leadership.
Market Momentum
A measure of overall market sentiment, calculated as the change in the value of a market
index multiplied by the aggregate trading volume occurring within the index components.
Market Neutral
A strategy undertaken by an investor or an investment manager that seeks to profit from
both increasing and decreasing prices in a single and numerous markets. Market-neutral
strategies are often attained by taking matching long and short positions in different
stocks to increase the return from making good stock selections and decreasing the
return from broad market movements. Market neutral strategists may also use other tools
such as merger arbitrage, shorting sectors, and so on. There is no single accepted method
of employing a market-neutral strategy.
Market Order
An order to buy or sell a stock immediately at the best available current price.
Market Risk
The day-to-day potential for an investor to experience losses from fluctuations in
securities prices. This risk cannot be diversified away. Also referred to as "systematic
risk".
Market Segmentation
A marketing term referring to the aggregating of prospective buyers into groups
(segments) that have common needs and will respond similarly to a marketing action.
Market Sentiment
The feeling or tone of a market (i.e. crowd psychology). It is shown by the activity and
price movement of securities.
Market Share
The percentage of total industry sales that is made up by a particular company's individual
sales.
Market Surveillance
A department responsible for investigating and preventing abusive, manipulative, or illegal
trading practices on the NASDAQ.
Market Timing
1. The act of attempting to predict the future direction of the market, typically through the
use of technical indicators or economic data.
2. The practice of switching among mutual fund asset classes in an attempt to profit from
the changes in their market outlook.
Market Value
1. The current quoted price at which investors buy or sell a share of common stock or a
bond at a given time.
2. The market capitalization plus the market value of debt. Sometimes referred to as "total
market value".
Market-With-Protection Order
A type of market order that is canceled and re-submitted as a limit order if the price of the
asset moves dramatically after the investor places the order. The limit on the limit order is
placed at around the current market price as determined by a broker. This type of order
adds a protective measure, helping the investor ensure his or her market order will not be
completed at a price that is far off from the market price at the time of the order.
Marketable Securities
Very liquid securities that can be converted into cash quickly at a reasonable price.
Marketable securities are very liquid as they tend to have maturities of less than one year.
Furthermore, the rate at which these securities can be bought or sold has little effect on
their prices.
Marketing
The activities of a company associated with buying and selling a product or service. It
includes advertising, selling and delivering products to people. People who work in
marketing departments of companies try to get the attention of target audiences by using
slogans, packaging design, celebrity endorsements and general media exposure. The four
'Ps' of marketing are product, place, price and promotion.
Markup
The difference between an investment's lowest current offering price among dealers and
the higher price a dealer charges a customer. Markups occur when dealers act as
principals (buying and selling securities from their own accounts, at their own risk), as
opposed to brokers (receiving a fee for facilitating a transaction).
Marlboro Friday
A reference to Friday, Apr 2, 1993, when Philip Morris, the maker of Marlboro cigarettes,
announced that it would be cutting the price of Marlboros to compete with generic
cigarette makers. The company's stock tanked 26% following the announcement, losing
about $10 billion off its market cap in a single day.
The day is remembered as a landmark moment in the 1990s consumer movement away
from name brand products in favor of cheaper generic products with prices 50% lower
than their branded competitors. In its wake, money managers moved cash from name
brand consumer goods makers like Coca-Cola and Tambrands (the former maker of
Tampax tampons) to technology stocks and generic consumer goods producers.
Marquee Asset
A company's most appealing asset. Also referred to as a trophy asset.
Married Put
An option strategy whereby an investor, holding a long position in stock, purchases a put
on the same stock to protect against a depreciation in the stock's price.
Martingale System
A money management system of investing in which the dollar values of investments
continually increase after losses, or the position size increases with lowering portfolio
size.
Marubozo
A type of candlestick charting formation that appears when a security's price does not
trade outside the range of the opening and closing prices.
Mass Customization
The process of delivering wide-market goods and services that are customized to satisfy a
specific customer need.
Master Fund
In general, an investment vehicle that enables individual investors to invest money into
one or more underlying investments that are operated by professional managers.
Master Notes
High-quality debt instruments offered by the Federal Farm Credit Bank (FFCB) with a
minimum face value of $25 million.
Master Trust
A collection of funds from individual investors that are pooled together in order to obtain
wholesale prices and rates unavailable for regular investors.
Matador Bond
A foreign bond denominated in pesetas and issued in Spain by a non-Spanish company.
Match-Rate Funds
When the interest rate on a loan matches (or is extremely close to) the interest rate on the
source of the funds loaned out. An example of this would be if a bank accepted a $100,000
deposit and agreed to pay 5% interest on it for five years, then loaned the $100,000 out at
5.25%.
A securitization lender would be a typical user of match-rate funds.
Matched Book
A bank is running a matched book when the maturities of its assets and liabilities are
equally distributed. Also known as "asset/liability management".
Matching Contribution
A type of contribution an employer chooses to make to his or her employee's employer-
sponsored retirement plan. The contribution is based on elective deferral contributions
made by the employee.
Matching Orders
Entering identical buy and sell orders at the same time to create the appearance of active
trading in that security.
Matching Strategy
A strategy of creating investment portfolios that meet the individual needs of investors
through tiered investment durations.
Material Weakness
When one or more of a company's internal controls, put in place to prevent significant
financial statement irregularities, is considered to be ineffective. If a deficiency in an
internal control is thought to be of material weakness, this means that it could lead to a
material misstatement in a company's financial statements.
Matilda Bond
An bond denominated in the Australian dollar and issued on the Australian market by a
foreign entity.
Mature Industry
An industry which has passed both the emerging and the growth phases of industry
growth. Earnings and sales grow slower in mature industries than in growth and emerging
industries.
As can be seen above, the third phase is the mature industry phase.
Matured RRSP
A Canadian retirement savings vehicle that is registered with the Canadian government
and is being used to produce retirement income for the beneficiary
Maturity
1. The length of time until the principal amount of a bond must be repaid.
2. The end of the life of a security.
Maturity Date
The date on which the principal amount of a note, draft, acceptance bond or other debt
instrument becomes due and is repaid to the investor and interest payments stop. It is
also the termination or due date on which an installment loan must be paid in full.
Maturity Guarantee
The dollar amount of a contract (such as a life insurance policy or segregated fund
contract) that is guaranteed after a certain amount of time has elapsed
Maximizer™
A brand of customer relationship management software popularly used by brokers and
investment advisors for tracking clients and leads.
May Day
Refers to May 1st, 1975, when brokerages changed from a fixed commission for securities
transactions to a negotiated one.
McClellan Oscillator
A market breadth indicator that is based on the difference between the number of
advancing and declining issues on the NYSE. It is primarily used for short and
intermediate term trading.
To calculate subtract a 39 day EMA (of advancing issues - declining issues) from a 19 day
EMA (of advancing issues - declining issues).
Simplified, it looks as follows: (19 Day EMA of Advances - Declines) - (39 Day EMA of
Advances - Declines)
Mean
The simple mathematical average of a set of two or more numbers. The mean for a given
set of numbers can be computed in more than one way, including the arithmetic mean
method, which uses the sum of the numbers in the series, and the geometric mean
method. However, all of the primary methods for computing a simple average of a normal
number series produce the same approximate result most of the time.
Mean Return
1. In securities analysis, it is the expected value, or mean, of all the likely returns of
investments comprising a portfolio. It is also known as "expected return".
Mean Reversion
A theory suggesting that prices and returns eventually move back towards the mean or
average. This mean or average can be the historical average of the price or return or
another relevant average such as the growth in the economy or the average return of an
industry.
Mechanical Investing
Buying and selling stocks according to a screen based on predetermined criteria, usually
ranking stocks using relative strength or momentum as the central indicator, but other
indicators can also be used.
Medallion Signature Guarantee
A guarantee seal applied to securities, in the process of transfer, by member institutions
of the Medallion program.
Median
The midpoint of the range numbers that are arranged in order of value.
Medicaid
A joint federal and state program that helps low-income individuals or families pay for the
costs associated with long-term medical and custodial care, provided they qualify.
Although largely funded by the federal government, Medicaid is run by the state where
coverage may vary.
Medicare
A U.S. federal health program that subsidizes people who meet one of the following
criteria:
1. An individual over the age of 65 who has been a U.S. citizen or permanent legal resident
for five years.
2. An individual who is disabled and has collected Social Security for a minimum of two
years.
3. An individual who is undergoing dialysis for kidney failure or who is in need of a kidney
transplant.
4. An individual who has Amyotrophic Lateral Sclerosis (ALS-Lou Gehrig's disease).
Medicare helps out people at a time in their lives when they may have serious health
problems but lack the funding for treatment.
Medicare Part D
A prescription drug benefit program that was created through the U.S. Medicare
Prescription Drug, Improvement, and Modernization Act of 2003. The "D" stands for
"drugs". The program gives Medicare recipients these basic choices: stay in traditional
Medicare without signing up for the prescription drug benefit outlined in the Act, stay in
traditional Medicare and enroll in a Medicare drug plan, enroll in other Medicare plans, or
enroll in a comprehensive private health plan (which may or may not cover prescription
costs). The program began providing coverage for users on Jan 1, 2006.
Medicare Wages
The portion of a person's earnings that are subject to "Medicare tax."
Medium Of Exchange
An intermediary instrument used to facilitate the sale, purchase or trade of goods between
parties. In modern economies the medium of exchange is currency.
Medium Term
An intermediate period of time to hold an asset.
Mello-Roos
In the U.S., a form of financing that can be used by cities, counties and special districts
(such as school districts) to finance major improvements and services within the
particular district. Special taxes and bonds used for Mello-Roos financing can only be
issued by counties or districts in which two-thirds of the voters in the area have voted in
favor of becoming a Mello-Roos district.
Member
1. In the most general context, a brokerage firm (or broker) holding membership on an
organized stock or commodities exchange. Membership is generally required in order to
fill trades for clients on the exchange.
2. For the New York Stock Exchange, one of over 1300 individuals or firms owning a seat
on the exchange.
3. For the National Association of Securities Dealers (NASD), any broker-dealer admitted
to membership in the association.
Member Firm
A broker-dealer in which at least one of the principal officers is a member of either the
NYSE, another major stock exchange, a self-regulatory organization or a clearing house
corporation.
Also referred to as "clearing member".
Member Of Household
A person who is claimed as a dependent when filing year-end tax forms. Such a dependent
allows a taxpayer to qualify for the dependency exemption. A member of household can
be a relative or a non-relative, but in order for a non-relative to be claimed as a member of
household, he or she must meet the relationship requirements outlined by the IRS.
Mental Accounting
An economic concept established by economist Richard Thaler, which contends that
individuals divide their current and future assets into separate, non-transferable portions.
The theory purports individuals assign different levels of utility to each asset group, which
affects their consumption decisions and other behaviors.
Merchant Bank
A bank that deals mostly in (but is not limited to) international finance, long-term loans for
companies and underwriting. Merchant banks do not provide regular banking services to
the general public.
Merger
The combining of two or more companies, generally by offering the stockholders of one
company securities in the acquiring company in exchange for the surrender of their stock.
Merger Arbitrage
A hedge fund strategy with which the stocks of two merging companies are
simultaneously bought and sold to create a risk less profit.
Mezzanine Financing
A hybrid of debt and equity financing that is is typically used to finance the expansion of
existing companies. Mezzanine financing is basically debt capital that gives the lender the
rights to convert to an ownership or equity interest in the company if the loan is not paid
back in time and in full. It is generally subordinated to debt provided by senior lenders
such as banks and venture capital companies.
Since mezzanine financing is usually provided to the borrower very quickly with little due
diligence on the part of the lender and little or no collateral on the part of the borrower,
this type of financing is aggressively priced with the lender seeking a return in the 20-30%
range.
Mgmt
Represents the amount of the total outstanding stock (capitalization) that is held by
management. Figure is expressed as a percentage.
Michael Milken
As an executive at investment bank Drexel Burnham Lambert Inc during the 1980s, Milken
used high-yield junk bonds for corporate financing and mergers and acquisitions. He
amassed an enormous personal fortune, but in 1989 he was indicted by a federal grand
jury and eventually spent nearly two years in prison after pleading guilty to charges of
securities fraud. While he is credited with founding the high-yield debt market, he was
banned for life from the securities industry.
Micro Cap
Companies having a market capitalization between $50 million and $300 million.
Micro Risk
A type of political risk that refers to political actions in a host country that can adversely
affect selected foreign operations. Micro risk can come about from events that may or may
not be in the reigning government's control
Micro-Hedge
An investment technique used to eliminate the risk of a single asset. In most cases, this
means taking an offsetting position in that single asset.
If this asset is part of a larger portfolio, the hedge will eliminate the risk of the one asset
but will have less of an effect on the risk associated with the portfolio.
Micro credit
An extremely small loan given to impoverished people to help them become self
employed. Also known as "micro lending."
Microeconomics
The branch of economics that analyzes the market behavior of individual consumers and
firms in an attempt to understand the decision-making process of firms and households. It
is concerned with the interaction between individual buyers and sellers and the factors
that influence the choices made by buyers and sellers. In particular, microeconomics
focuses on patterns of supply and demand and the determination of price and output in
individual markets (e.g. coffee industry).
Microfinance
A type of banking service that is provided to unemployed or low-income individuals or
groups who would otherwise have no other means of gaining financial services.
Ultimately, the goal of microfinance is to give low income people an opportunity to
become self-sufficient by providing a means of saving money, borrowing money and
insurance.
Mid-Atlantic Option
An option that can be exercised at different times during the life of the option. The various
times set for exercise are written within the option and allow for flexibility for both the
writer and holder of the option.
Middle Office
The group of employees in a financial services company that manages risk, calculates
profits and losses, and (generally) is in charge of information technology. The middle
office draws on the resources of both the front and the back offices.
Mileage Allowance
A deduction of automobile expenses for people using their vehicles for business, charity,
moving, medical or any other purpose that qualifies for a deduction.
Mill Rate
The amount of tax paid per dollar of the assessed property value.
Mini Perm
Short-term financing used to pay off income-producing construction or commercial
properties, usually payable in three to five years.
Minimum Margin
The initial amount required to be deposited in a margin account before trading on margin
or selling short. For example, the NYSE and the NASD require investors to deposit a
minimum of $2,000 in cash or securities to open a margin account. Keep in mind that this
amount is only a minimum - some brokerages may require you to deposit more than
$2,000.
Minus Tick
Designates a trade that occurs at a lower price than the immediately preceding trade. Also
referred to as "downtick" or "zero minus tick".
Mirror Fund
A type of mutual fund, typically run by a life insurance company, that enables an investor
to access another company's mutual fund through his or her life insurance policies.
Misery Index
A measure of economic well-being for a specified economy, computed by taking the sum
of the unemployment rate and the inflation rate for a given period. An increasing index
means a worsening economic climate for the economy in question, and vice versa.
Mismatch Risk
1) A category of risk that refers to the possibility that a swap dealer will be unable to find a
suitable counterparty for a swap transaction for which it is acting as an intermediary.
2) The risk that an investor has chosen investments that are not suitable for his or her
circumstances.
MJSD
An acronym representing the months March, June, September, and December.
MMK
In currencies, this is the abbreviation for the Myanmar Kyat.
MNT
In currencies, this is the abbreviation for the Mongolian Tughrik.
Mode
A statistical term referring to the most frequently occurring term in a set of numbers.
Modern Portfolio Theory - MPT
A theory on how risk-averse investors can construct portfolios in order to optimize market
risk for expected returns, emphasizing that risk is an inherent part of higher reward. Also
called portfolio theory or portfolio management theory.
Modified Duration
A formula that expresses the measurable change in the value of a security in response to
a change in interest rates. Calculated as the following:
Where:
n = number of coupon periods per year
YTM = the bond's yield to maturity
Momentum
The rate of acceleration of a security's price or volume.
Momentum Fund
Investment funds that invest in companies based on current trends in such things as
earnings or price movement. The portfolio manager will look for companies that have been
trending in a certain direction (e.g. a series of extremely positive earnings releases or
upward price momentum in the short term). The manager will then take positions in the
same direction as the trend and attempt to ride the wave and sell once it has peaked.
These funds are also known as "momo funds".
Momo Play
A slang term used to describe an investment purely as a momentum play, not worrying
about the company's fundamentals.
Monday Effect
A theory that returns on the stock market on Mondays will follow the prevailing trend from
the previous Friday. Therefore, if the market was up on Friday, it should continue through
the weekend and, come Monday, resume its rise.
Monetarism
A set of views based on the belief that inflation depends on how much money the
government prints. It is closely associated with Milton Friedman, who argued, based on
the Quantity Theory of Money, that the government should keep the money supply fairly
steady, expanding it slightly each year mainly to allow for the natural growth of the
economy.
Monetarist
An economist who holds the strong belief that the economy's performance is determined
almost entirely by changes in the money supply.
Monetarist Theory
An economic concept which contends that changes in the money supply are the most
significant determinants of the rate of economic growth and the behavior of the business
cycle.
Monetary Base
The total amount of a currency that is either circulated in the hands of the public or in the
commercial bank deposits held in the central bank's reserves. This measure of the money
supply typically only includes the most liquid currencies.
Also known as the "money base".
Monetary Policy
The actions of a central bank, currency board or other regulatory committee, that
determine the size and rate of growth of the money supply, which in turn affects interest
rates.
Monetize
1. To convert into money.
2. To convert from securities into currency that can be used to purchase goods and
services.
Money
1. A commodity or asset, such as gold, an officially issued currency, coin or paper note,
that can be legally exchanged for something equivalent, such as goods or services.
2. As defined by common law: a medium of exchange that is authorized or adopted by a
domestic or foreign government and includes a monetary unit of account established by
an intergovernmental organization or by agreement between two or more nations.
Money Flow
Calculated by averaging the high, low, and closing prices, and multiplying by the daily
volume. Comparing that result with the number for the previous day tells you whether
money flow was positive or negative for the current day.
Money Laundering
The process of creating the appearance that large amounts of money obtained from
serious crimes, such as drug trafficking or terrorist activity, originated from a legitimate
source.
Money Management
The process of budgeting, saving, investing, spending or otherwise in overseeing the cash
usage of an individual or group. The predominant use of the phrase in financial markets is
that of an investment professional making investment decisions for large pools of funds,
such as mutual funds or pension plans.
Also referred to as "investment management" and/or "portfolio management".
Money Manager
A business or bank responsible for managing the securities portfolio of an individual or
institutional investor. Typically, a money manager employs people with various expertise
ranging from research and selection of investment options to monitoring the assets and
deciding when to sell them. In return for a fee, the money manager has the fiduciary duty
to choose and manage investments prudently for his or her clients, including developing
an appropriate investment strategy, buying and selling securities to meet those goals.
Also known as "portfolio manager" or "investment manager".
Money Market
The securities market dealing in short-term debt and monetary instruments. Money market
instruments are forms of debt that mature in less than one year and are very liquid.
Money Supply
The entire quantity of bills, coins, loans, credit, and other liquid instruments in a country's
economy.
Money-Purchase Provisions
The terms of a registered pension plan that detail the specific amounts that an employer
and employee contribute to the plan. The amounts may be stated in dollars or
percentages. The provisions of the pension plan states the maximum amount of the
employee's contribution that can be matched by the employer. Money-purchase
provisions for registered plans must fall under the governing requirements outlined by the
Government of Canada
Monopolist
A person, group or organization with a monopoly. In other words, an individual or
company that controls all of the market for a particular good or service.
Monopolistic Competition
A type of competition within an industry where:
1. All firms produce similar yet not perfectly substitutable products.
2. All firms are able to enter the industry if the profits are attractive.
3. All firms are profit maximizers.
4. All firms have some market power, which means none are price takers.
Monopoly
A situation in which a single company or group owns all or nearly all of the market for a
given type of product or service. By definition, monopoly is characterized by an absence
of competition - which often results in high prices and inferior products.
For a strict academic definition, a monopoly is a market containing a single firm.
Monopsony
A market similar to a monopoly except that a large buyer not seller controls a large
proportion of the market and drives the prices down. Sometimes referred to as the buyer's
monopoly.
Montreal Exchange
A Canadian derivatives exchange that facilitates the trading of stock options, interest rate
futures and options, as well as index options and futures. Located in Montreal, Quebec, it
is the country's main financial derivative market, while the Winnipeg Commodities
Exchange in Manitoba is the home to Canadian commodity derivative trading.
Moore's Law
An observation, In 1965, by Intel co-founder Gordon Moore. He noticed the number of
transistors per square inch on integrated circuits had doubled every year since their
invention. Moore predicted the trend would continue for the foreseeable future.
Although the pace has slowed, the number of transistors per square inch has since
doubled approximately every 18 months. This is used as the current definition of Moore's
Law.
MOP
In currencies, this is the abbreviation for the Macau Pataca.
Moral Hazard
The risk that a party to a transaction has not entered into the contract in good faith, has
provided misleading information about its assets, liabilities or credit capacity, or has an
incentive to take unusual risks in a desperate attempt to earn a profit before the contract
settles.
Moral Suasion
A persuasion tactic used by an authority (i.e. Federal Reserve Board) to influence and
pressure, but not force, banks into adhering to policy. Tactics used are closed-door
meetings with bank directors, increased severity of inspections, appeals to community
spirit, or vague threats. A good example of moral suasion is when Fed Chairman Alan
Greenspan speaks on the markets - his opinion on the overall economy can send financial
markets falling or flying.
Moratorium
1) A period of time in which there is a suspension of a specific activity until future events
warrant a removal of the suspension or issues regarding the activity have been resolved.
2) In bankruptcy law, a legally binding halt of the right to collect debt.
Morgan Stanley Capital International - MSCI
A series of indexes constructed by Morgan Stanley to help institutional investors
benchmark their returns. These indexes are also used for investment purposes - in the
form of exchanged-traded funds - by all types of investors. There are a wide range of
indexes created by Morgan Stanely covering a wide range of developed and emerging
economies and a wide range of economic sectors.
Morning Star
A bullish candlestick pattern that consists of three candles that have demonstrated the
following characteristics:
1. The first bar is a large red candlestick located within a defined downtrend.
2. The second bar is a small-bodied candle (either red or white) that closes below the first
red bar.
3. The last bar is a large white candle that opens above the middle candle and closes near
the center of the first bar's body.
As shown by the chart, this pattern is used by traders as an early indication that the
downtrend is about to reverse.
Mortgage
A debt instrument, secured by the collateral of specified real estate property, that the
borrower is obliged to pay back with a predetermined set of payments. Mortgages are
used by individuals and businesses wishing to make large value purchases of real estate
without paying the entire value of the purchase up front.
Mortgages are also known as liens against property, or claims on property.
Mortgage Banker
A company, individual or institution that originates, sells and services mortgage loans.
Mortgage Broker
The matchmaker between a homebuyer and a lender whose goal is to originate a mortgage
loan. The broker draws from a pool of various lenders to find the right match.
Mortgagee
An entity that lends money to a borrower for the purpose of purchasing a piece of real
property. By accepting a mortgage on the real property, the lender creates security in the
full repayment of the loan in the future.
Mortgagor
An individual or company who borrows money to purchase a piece of real property. By
granting the lender an interest in the property, which allows it to lend the funds with an
accurate assessment of risk, the mortgagor provides the lender with a guarantee for the
full repayment of the loan. Also known as a "chargor".
Most Active
The stocks on an exchange that had the highest volume over a given period. The most
common time period used is a single trading day.
Mothballing
The preservation of a production facility without using it to produce. Machinery in a
mothballed facility is kept in working order so that production may be restored quickly if
needed.
Moving Average - MA
An indicator frequently used in technical analysis showing the average value of a
security's price over a set period. Moving averages are generally used to measure
momentum and define areas of possible support and resistance.
Moving Expenses
Deductible expenses that are related to moving an individual and/or his or her family and
possessions for employment reasons
Mr. Copper
Otherwise known as Yasuo Hamanaka, Mr. Copper was a trader in the copper market who
lost over $2.5 Billion for his employer, Sumitomo Corp. (in Japan). The losses amassed
from unauthorized trading in secret accounts between 1985 and 1996.
MRO
In currencies, this is the abbreviation for the Mauritanian Ouguiya.
MTL
In currencies, this is the abbreviation for the Maltese Lira.
Multi-Advisor Fund
An investment fund that is managed by more than one investment manager, each with a
particular specialty. The goal of the multi-advisor fund is to make investment decisions
based on multiple professional opinions, rather than relying on a single person to have
comprehensive knowledge of investment options.
Multi-Discipline Account
A type of investment account that allows access by several specialized investment
managers within one main account. The account is split into several sub-accounts that are
separately run by managers with relevant expertise. The multi-discipline account provides
investors with an efficient way to get professional investment management and asset
diversification. It is also referred to as a "multi-style" and "multi-strategy account".
Multiples Approach
A valuation theory based on the idea that similar assets sell at similar prices. This
assumes that a ratio comparing value to some firm-specific variable (operating margins,
cash flow, etc.) is the same across similar firms.
Multiplier
In Keynesian economic theory, a factor that quantifies the change in total income as
compared to the injection of capital deposits or investments which originally fueled the
growth. It is usually used as a measurement of the effects of government spending on
income, and it can be calculated as one divided by the marginal propensity to save.
Multiplier Effect
The expansion of a country's money supply that results from banks being able to lend.
The size of the multiplier effect depends on the percentage of deposits that banks are
required to hold on reserves. In other words, it is money used to create more money and
calculated by dividing total bank deposits by the reserve requirement.
Municipal Bond
A debt security issued by a state, municipality, or county, in order to finance its capital
expenditures. Municipal bonds are exempt from federal taxes and from most state and
local taxes, especially if you live in the state the bond is issued.
Municipal Convertible
A zero-coupon municipal bond that can be converted into an interest-bearing bond under
certain circumstances.
Munifacts
A newswire service for municipal bonds that provides information on new municipal bond
issues in the primary market and secondary market.
MUR
In currencies, this is the abbreviation for the Mauritius Rupee.
Mutual Company
A private company whose ownership base is made of customers. Also referred to as a
"co-operative".
MVR
In currencies, this is the abbreviation for the Maldive Rufiyaa.
MWK
In currencies, this is the abbreviation for the Malawi Kwacha.
MXN
In the currency market, this is the abbreviation for the Mexican peso
My Stock Lists
My Stock Lists tracks those stocks you want to keep a close eye on. Besides providing
price and price change, My Stock Lists also tracks Volume % Change and IBD’s
unique Earnings Per Share and Relative Strength Ratings for up to 80 stocks (2 lists of up
to 40 each). Links are also provided for easy access to the IBD Investing Tools.
MYR
In currencies, this is the abbreviation for the Malaysian Ringgit
MZM
In currencies, this is the abbreviation for the Mozambique Metical
N
A Nasdaq stock symbol specifying that it is the company's third class of preferred shares.
NAD
In currencies, this is the abbreviation for the Namibia Dollar.
Naked Call
A call option position held by a writer who does not hold a long position in the stock on which the
call has been written. Sometimes referred to as an "uncovered call".
Naked Option
An option position where the buyer or seller has no underlying security position.
Naked Position
A securities position that is not hedged from market risk. Both the potential gain and the potential
risk are greater when a position is naked instead of covered (a covered position is hedged from
market risk).
Naked Put
A put option whose writer does not have a short position in the stock on which he or she has written
the put. Sometimes referred to as an "uncovered put."
Naked Put
A put option whose writer does not have a short position in the stock on which he or she has written
the put. Sometimes referred to as an "uncovered put."
Naked Shorting
The illegal practice of short selling shares that have not been affirmatively determined to exist.
Ordinarily, traders must borrow a stock, or determine that it can be borrowed, before they sell it
short. However, some professional investors and hedge funds take advantage of loopholes in the
rules to sell shares without making any attempt to borrow the stock.
Nano Cap
Small public companies having a market capitalization below $50 million.
Narrow Basis
A condition found in futures markets in which the spot price of underlying commodities is close to
the futures price of the same contract.
Narrow Money
Another term for M1, the category of the money supply that includes all physical money like coins
and currency. It also includes demand deposits, which include checking accounts and NOW
accounts.
Nasdaq
Created in 1971, the Nasdaq was the world's first electronic stock market. The Nasdaq is a
computerized system that facilitates trading and provides price quotations on some 5,000 of the
more actively traded over-the-counter stocks.
National Treatment
A concept of international laws that declares that if a state provides certain rights and privileges to
its own citizens, it should also provide equivalent rights and privileges to foreigners who are
currently in the country. This concept of equality can be found in bilateral tax treaties and also in
most World Trade Organization agreements.
Natural Unemployment
The lowest rate of unemployment that an economy can sustain over the long run. Keynesians
believe that a government can lower the rate of unemployment (i.e. employ more people) if it were
willing to accept a higher level of inflation (the idea behind the Phillips Curve). However, critics of
this say that the effect is temporary and that unemployment would bounce back up but inflation
would stay high. Thus, the natural, or equilibrium, rate is the lowest level of unemployment at which
inflation remains stable. Also known as the "non-accelerating inflation rate of unemployment"
(NAIRU).
Near Term - NT
Another word for "short term."
Nearby Month
In the context of options and futures, it's the month closest to delivery (futures) or expiration
(options).
Needs Approach
A method of calculating how much life insurance is required by an individual/family to cover their
needs (i.e. expenses). These include things like funeral expenses, legal fees, estate and gift taxes,
business buyout costs, probate fees, medical deductibles, emergency funds, mortgage expenses,
rent, debt and loans, college, child care, private schooling and maintenance costs. The needs
approach contrasts the human-life approach.
Negative Amortization
The increase in the balance of a loan caused by interest payments being larger than the re-payments
made on the loan. On adjustable-rate mortgages, if the monthly payments are not enough to cover
both the interest and principal payments on the loan, the shortage is added to the principal. This
situation occurs when the mortgage payments reach the maximum (as defined by the loan
agreement) while the interest rate on the loan is increasing.
Negative Butterfly
A non-parallel yield curve shift in which long- and short-term yields decrease by a greater degree
than intermediate rates. This yield curve shift effectively humps the curve, adding to the curvature of
the yield curve.
Negative Carry
A situation in which the cost of financing a securities or financial futures position exceeds the yield
earned.
Negative Covenant
A bond covenant preventing certain activities, unless agreed to by the bondholders. Negative
covenants are written directly into the agreement creating the bond issue, are legally binding on the
issuer, and exist to protect the best interests of the bondholders. Also referred to as "restrictive
covenant".
Negative Goodwill
A gain occurring when the price paid for an acquisition is less than the fair value of its net assets.
Negative Obligation
An obligation of NYSE specialists to remain on the sidelines and refrain from acting as principal
when there is sufficient market demand and supply to efficiently match orders.
Negotiable
1. Describing the price of a good or security that is not firmly established.
2. Describing a good or security whose ownership is easily transferable from one party to another.
Negotiated Market
A type of secondary market exchange in which the prices of each security are bargained out
between buyers and sellers.
Negotiated Sale
A method of offering municipal bonds or similar financial instruments in which the issuing entity
and a selected underwriter negotiate the terms of the issue, as opposed to having multiple
underwriting groups competitively bidding on the issue to establish its terms.
Negotiated Underwriting
A process in which both the purchase price and the offering price for a new issue are negotiated
between the issuer and a single underwriter.
Neoclassical Economics
An approach to economics that relates supply and demand to an individual's rationality and his or
her ability to maximize utility or profit. Neoclassical economics also increased the use of
mathematical equations in the study of various aspects of the economy. This approach was
developed in the late-nineteenth century, based on books by William Stanley Jevons, Carl Menger
and Leon Walras.
Nervous Nellie
An investor who isn't comfortable with investing and the risks associated with it.
Nest Egg
A special sum of money saved or invested for one specific future purpose.
Net Change
The difference between the closing price of a security on the day's trading and the previous day's
closing price. Net change can be positive or negative and is quoted in terms of dollars. This is what
the newspaper stock tables quote
Net Exporter
A country or territory whose value of exported goods is higher than its value of imported goods over
a given period of time.
A net exporter is the opposite of a net importer.
Net Exports
The value of a country's total exports minus the value of its total imports. It is used to calculate a
country's aggregate expenditures, or GDP, in an open economy.
Net Importer
A country or territory whose value of imported goods is higher than its value of exported goods over
a given period of time.
A net importer is the opposite of a net exporter.
Net Income - NI
1. A company's total earnings (or profit). Net income is calculated by taking revenues and adjusting
for the cost of doing business, depreciation, interest, taxes and other expenses. This number is
found on a company's income statement and is an important measure of how profitable the
company is over a period of time. The measure is also used to calculate earnings per share.
Often referred to as "the bottom line" since net income is listed at the bottom of the income
statement. In the U.K., net income is known as "profit attributable to shareholders".
2. An individual's income after deductions, credits and taxes are factored into gross income.
Deductions and credits are subtracted from gross income to arrive at taxable income, which is used
to calculate income tax. Net income is income tax subtracted from taxable income.
Net Investment
A measure of a company's investment in capital, found by subtracting non-cash depreciation from
capital expenditures. This measure helps to give a sense of how much money a company is
spending on capital items (such as property, plants and equipment), which are used for operations.
Net Long
A condition in which an investor has more long positions than short positions in a given asset,
market, portfolio or trading strategy. Investors who are net long will benefit when the price of the
asset increases.
Net Loss
The result that occurs when expenses exceed the income produced.
Net Receivables
A company's accounts receivable (money owed to the company) minus bad debts.
Net Sales
The amount a seller receives from the buyer after costs associated with the sale are deducted.
Net Short
A condition in which an investor has more short positions than long positions in a given asset,
market, portfolio or trading strategy. Investors who are net short will benefit when the price of the
underlying asset decreases.
Net Volume
A security's uptick volume minus its downtick volume over a specified period. An indicator very
similar to money flow.
Net Worth
The amount by which a company or individual's assets exceed their liabilities.
Netback
A summary of all the costs associated with bringing one unit of oil to the marketplace, and all of the
revenues from the sale of all the products generated from that same unit. The netback is calculated
by taking all of the revenues from the oil, less all costs associated with getting the oil to a market.
These costs can include, but are not limited to, importing, transportation, production and refining
costs, and royalty fees.
Netscaped
A slang term referring to an instance in which a company gets hurt materially or put out of business
as a result of head-to-head competition with Microsoft. Microsoft's size, resources and expertise
mean there is always a risk that the company will steal market share. Many competitors have tried to
beat the software giant and ended up suffering serious damage.
Netting
1. Settling mutual obligations at the net value of a contract as opposed to its gross dollar value.
2. Reducing the transfer of funds between subsidiaries to a net amount.
Neutral
1) A term that describes an option on a security or market that is neither bullish nor bearish.
2) A term that describes a person who is non-biased in the case of a dispute, such as an arbitrator.
New Economy
A buzzword describing the new, high growth industries that are on the cutting edge of technology
and are the driving force of economic growth.
New Highs
Refers to a stock attaining a new price high when compared to its old price high of the last 52 weeks
New Paradigm
In the investing world, a totally new way of doing things that has a huge effect on business.
News Item
Summary of the most recent news event. News items are obtained from several sources, including
all major news wires and company press releases
NGN
In currencies, this is the abbreviation for the Nigerian Naira.
Nifty 50
The 50 stocks that were most favored by institutional investors in the 1960s and 1970s. Companies
in this group were usually characterized by consistent earnings growth and high P/E ratios.
Nigerian Scam
A scam most often perpetrated by email. In a Nigerian scam, the sender requests help in facilitating
the transfer of a substantial sum of money. In return, the sender offers a commission, usually in the
range of several million dollars. The scammers then request that money be sent to pay for some of
the costs associated with the transfer. If money is sent to the scammers, they will either immediately
disappear or try to get more money with claims of continued problems with the transfer.
Nikkei
Short for Japan's Nikkei 225 Stock Average, the leading and most-respected index of Japanese
stocks. It is a price-weighted index comprised of Japan's top 225 blue-chip companies on the Tokyo
Stock Exchange. The Nikkei is equivalent to the Dow Jones Industrial Average Index in the U.S. In
fact, it was called the Nikkei Dow Jones Stock Average from 1975 to 1985.
Nil-Paid
Security that are tradeable but originally posed no cost to the seller. For example, a renounceable
right being sold by the original owner to another investor is considered nil-paid. A right is an
opportunity to purchase more shares, usually at discount, given to shareholders by a corporation.
The shareholders receive these rights at no cost, and if the rights are renounceable, the
shareholders can choose to sell them on the market
Nine-Bond Rule
The NYSE requirement that all orders for nine bonds or less be sent to the floor for one hour, in
which time a market is sought. The rule doesn't apply if the customer directs the broker to go to the
OTC market. Also known as "Rule 396".
NIO
In currencies, this is the abbreviation for the Nicaraguan Cordoba.
NMF
An abbreviation for "no meaningful figure". You'll often see this when comparing financial data
among companies where a certain ratio or figure isn't applicable.
No Quote
A designation indicating that no market makers are making an inside market at this time.
No-Load Fund
A mutual fund whose shares are sold without a commission or sales charge. The reason for this is
that the shares are distributed directly by the investment company, instead of going through a
secondary party. This is the opposite of a load fund, which charges a commission upon the initial
purchase at the time of sale.
Noise
Price and volume fluctuations in the market that can confuse one's interpretation of market
direction. Used in the context of equities, it is stock market activity caused by program trading,
dividend payments or other phenomena that is not reflective of overall market sentiment. Also
known as "market noise".
Noise Trader
The term used to describe an investor who makes decisions regarding buy and sell trades without
the use of fundamental data. These investors generally have poor timing, follow trends, and over-
react to good and bad news.
Noise Trader Risk
A form of market risk associated with the investment decisions of noise traders. The higher the
volatility in market price for a particular security, the greater the associated noise trader risk
NOK
In currencies, this is the abbreviation for the Norwegian Krone.
Nominal
An unadjusted rate, value or change in value. This type of measure often reflects the current
situation, such as the current price of a car, and doesn't make adjustments to reflect factors such as
seasonality or inflation, which provide a more accurate measure in real terms.
Nominal GDP
A gross domestic product (GDP) figure that has not been adjusted for inflation.
Also known as "current dollar GDP" or "chained dollar GDP".
Nominal Quotation
A quote generated by a futures exchange or broker for contracts that have not traded for a specific
period of time.
Also referred to as a "nominal quote" or "nominal price".
Nominal Value
The stated value of an issued security that remains fixed, as opposed to its market value, which
fluctuates.
Nominal Yield
The interest rate stated on the face of a bond, it represents the percentage of interest to be paid by
the issuer on the face value of the bond.
Nominalism
The principle of keeping the amount of a debt obligation fixed despite fluctuations in the money's
purchasing power or exchange rate.
Nominee
A person or firm into whose name securities or other properties are transferred in order to facilitate
transactions, while leaving the customer as the actual owner.
Nominee Dividend
A dividend that a person receives on behalf of someone else. If you pass the dividends on to another
person, then you must file a Form 1099-DIV to get a dividend adjustment and thereby reduce your
taxable dividend interest.
Nominee Interest
Interest that a person receives on behalf of someone else. If you pass the interest on to another
person, then you must file a Form 1099-INT to get an interest adjustment and thereby reduce your
taxable interest.
Non-Accredited Investor
An investor who does not meet the net worth requirements for an accredited investor under the
Securities & Exchange Commission's Regulation D. A non-accredited individual investor is one who
has a net worth of less than $1 million (including spouse) and who earned less than $200,000
annually ($300,000 with spouse) in the last two years.
Non-Assessable Stock
A class of stock in which the issuing company is not allowed to impose levies on its shareholders
for additional funds for further investment. Non-assessable stocks typically have the words "fully
paid and non-assessable" printed on the stock certificate.
These are the opposite of assessable stocks.
Non-Cash Charge
A charge off, made by a company against earnings, that does not require an initial outlay of cash.
Non-Client Order
An order on an exchange made by a participant firm or on behalf of a partner, officer, director or
employee of the participant firm. Where a participant firm is a firm that is entitled to trade on the
exchange, it also known as a member firm. While these orders are allowed, priority must be given to
client orders for the same securities.
Non-Competitive Tender
One of the two bid processes for buying debt issuances. Non-competitive tender is for small
investors, while competitive tender is for large institutional investors. The price that a non-
competitive bidder receives is the average bid price of all competitive bids.
Also known as a "non-competitive bid".
Non-Contestability Clause
1. A provision in a person's will designed to stop beneficiaries from contesting the will. The
provision states that if beneficiaries try to contest the will, their potential inheritances will be
effectively redistributed to other beneficiaries.
2. A provision in a life insurance policy designed to stop life insurance companies from refusing to
pay out a claim to individuals because of fraud or error.
Non-Directed Order
A customer order where specific instructions are not given, by the customer to the broker,
pertaining to its routing destination.
Non-Equity Option
A term for option contracts whose underlying securities are instruments other than equities.
Non-Farm Payroll
A statistic researched, recorded and reported by the U.S. Bureau of Labor Statistics intended to
represent the total number of paid U.S. workers of any business, excluding the following employees:
- general government employees
- private household employees
- employees of nonprofit organizations that provide assistance to individuals
- farm employees
This monthly report also includes estimates on the average work week and the average weekly
earnings of all non-farm employees.
Non-Financial Asset
An asset with a physical value such as land, property or some type of object.
Non-Fluctuating
The characteristic of constancy in a security or measurement's value, rate of change or other metric.
Non-Negotiable
1. A term relating to the price of a good or security which is firmly established and cannot be
adjusted.
2. A term relating to a good or security whose ownership is not easily transferable from one party to
another.
Non-Operating Asset
Assets that are unnecessary to the ongoing operations of a business.
Non-Qualified Distribution
1) A distribution from a Roth IRA that occurs before the Roth IRA owner meets certain requirements
(see definition for qualified distributions).
2) A distribution from an education savings account that exceeds the amount used for qualified
education expenses.
Non-Qualifying Investment
An investment that does not qualify for any level of tax-deferred or tax-exempt status. Investments
of this sort are made with after-tax money. They are purchased and held in tax-deferred accounts,
plans or trusts. Returns from these investments are taxed on an annual basis.
Non-Recourse Debt
A loan that is secured by some sort of collateral, usually property. The issuer can seize the collateral
if the borrower defaults.
Non-Recourse Finance
A loan where the lending bank is only entitled to repayment from the profits of the project the loan is
funding, not from other assets of the borrower.
Non-Recurring Item
Indicates pre-tax, non-recurring items were included in calculation. Daily Graphs Online uses a blue
delta (triangle) to denote non-recurring items.
Non-Renounceable Rights
An offer issued by a corporation to shareholders to purchase more shares of the corporation
(usually at a discount). Unlike a renounceable right, a non-renounceable right is not transferable,
and therefore cannot be bought or sold.
Non-Resident
An individual who mainly resides in one region or jurisdiction but has interests in another region. In
the region where he or she does not mainly reside, he or she will be classified by government
authorities as a non-resident. The classification itself will be determined in each region based on set
circumstances such as the amount of time spent within the region during the calendar year. This
classification is focused on where the person resides and does not focus on citizenship.
Non-Resident Alien
A non-U.S. citizen who doesn't pass the green card test or the substantial presence test. If a non-
citizen currently has a green card or has had a green card in the past calender year, he or she would
pass the green card test and would be classified as a resident alien. If the individual has resided in
the U.S. for more than 31 days in the current year and has resided in the U.S. for more than 183 days
over a three-year period, including the current year, he or she would pass the substantial presence
test and also be classified as a resident alien.
Noncallable
Securities that cannot be called by the issuer prior to maturity.
Noncommercial Trader
A classification used by the Commodity Futures Trading Commission (CFTC) to identify traders that
use the futures market for speculative purposes.
Nonconvertible Currency
Any currency that is used primarily for domestic transactions and is not openly traded on a forex
market. This usually is a result of government restrictions, which prevent it from being exchanged
for foreign currencies.
Also known as a "blocked currency".
Noncumulative
A type of preferred stock that does not pay the holder any unpaid or omitted dividends. If the
corporation chooses to not pay dividends in a given year, the investor does not have the right to
claim any of those forgone dividends in the future.
Nonelective Contribution
A type of contribution an employer chooses to make to each of his or her eligible employee's
employer-sponsored retirement plan. The contribution is not based on salary reduction
contributions made by the employee.
Nonprofit Organization
An association that is given tax-free status. Donations to a nonprofit organization are often tax
deductible as well.
Nonrecurring Charge
An expense occurring only once on a company's financial statement.
Nontaxable Dividends
Dividends from a mutual fund or some other regulated investment company that are not taxed.
Taxes are not paid out because the fund invests in municipal and other tax exempt investments.
Normalized Earnings
1. Earnings adjusted for cyclical ups and downs in the economy.
2. On the balance sheet, earnings adjusted to remove unusual or one-time influences.
Nostro Account
An account that a bank holds with a foreign bank.
Not-Held Order
A market or limit order that gives the broker or floor trader both time and price discretion to attempt
to get the best possible price.
Note
A debt security, usually maturing in one to 10 years.
Notice Of Seizure
A letter or written notice from the Internal Revenue Service (IRS) informing the recipient that
authorization has been given to liquidate his or her assets in order to cover the income taxes due.
Notional Value
The total value of a leveraged position's assets. This term is commonly used in the options, futures
and currency markets because in them a very little amount of invested money can control a large
position (have a large consequence for the trader).
Novation
1.The act of replacing one participating member of a contract with another.
2. The exchange of new debts or obligations for older existing ones
NPR
In currencies, this is the abbreviation for the Nepal Rupee.
Numeraire
An economic term that represents a unit of account. In French, the term means counting or
measuring. Usually a numeraire is applied to a single good, which becomes the base good. All other
similar goods are then valued and priced against the base good. This comparison makes it possible
to identify which goods are worth more than others.
Nuncupative Will
A verbal will that must have two witnesses and can only deal with the distribution of personal
property. A nuncupative will is considered a "deathbed" will, meaning that it is a safety for people
struck with a terminal illness and robbed of the ability or time to draft a proper written will.
O
A Nasdaq stock symbol specifying that it is the company's second class of preferred shares.
Obligation Bond
A municipal bond used to secure a mortgage on property or other physical assets that can be
liquidated. The face value of the bond is greater than the value of the property itself.
Obligation
The legal responsibility to meet the terms of a contract. If the obligation is not met there is often
recourse for the other party to the contract.
Obligor
An entity that has an obligation to pay all principal and interest payments on a debt.
Obsolete Inventory
Term that refers to inventory that is at the end of its product life cycle and has not seen any sales or
usage for a set period of time usually determined by the industry. This type of inventory has to be
written down and can cause large losses for a company.
Also referred to as "dead inventory" or "excess inventory".
October Effect
A theory that postulates that stocks will tend to decline during the month of October.
Odd Lot
An amount of a security that is less than the normal unit of trading for that particular security.
Odd Lotter
An individual investor who buys securities, usually stocks, in odd lots. This is the opposite of
someone who buys securities in round lots.
OEX
The ticker symbol for the Standard & Poor's 100 Index.
Off-Balance-Sheet Financing
A form of financing in which large capital expenditures are kept off of a company's balance sheet
through various classification methods. Companies will often use off-balance-sheet financing to
keep their debt to equity (D/E) and leverage ratios low, especially if the inclusion of a large
expenditure would break negative debt covenants.
Off-The-Run Treasuries
All Treasury bonds and notes issued before the most recently issued bond or note of a particular
maturity. These are the opposite of "on-the-run treasuries".
Offering
In the most general sense, the issue or sale of a security by a company. It is often used in reference
to an initial public offering (IPO) when a company's stock is made available for purchase by the
public but it can also be used in the context of a bond issue.
Offering Circular
An abbreviated prospectus for a new security listing. Delivered to individuals and brokerage houses,
these documents are issued to arouse interest in the new issue.
Offering Memorandum
A legal document stating the objectives, risks and terms of investment involved with a private
placement. This includes items such as the financial statements, management biographies, detailed
description of the business, etc. An offering memorandum serves to provide buyers with information
on the offering and to protect the sellers from the liability associated with selling unregistered
securities.
Also known as a "private placement memorandum (PPM)".
Offering Price
The price at which publicly issued securities are made available for purchase by the investment
bank underwriting the issue. A security's offering price includes the underwriter's fee and any
management fees applicable to the issue.
Office Audit
An examination of documents by the Internal Revenue Service (IRS) for a matter that is considered
to be reasonably simple.
Offset
1. To liquidate a futures position by entering an equivalent, but opposite, transaction which
eliminates the delivery obligation.
2. To reduce an investor's net position in an investment to zero, so that no further gains or losses
will be experienced from that position.
Offshore
Located or based outside of one's national boundaries.
OHLC Chart
Short for "Open, High, Low, Close chart." This is a securities chart that clearly shows the opening,
high, low and closing prices for a security.
Oil Sands
Sand and rock material which contains crude bitumen (a heavy, viscous form of crude oil). Oil sands
are found primarily in the Athabasca region of northern Alberta, Canada, and in areas of Venezuela.
Bitumen is extracted and processed using two methods:
1. Mining - Large areas of land are cleared of trees and brush, then the top soil and clay are removed
to expose the oil sand. This surface mining method uses large trucks and shovels to remove the
sand, which can have a volume of anywhere from 1-20% of actual bitumen. After processing and
upgrading, the end result is sent to refineries, where it's made into gasoline, jet fuel and other
petroleum products.
2. In situ - This relatively new method is mainly used to get bitumen in oil sand that is buried too
deep below the earth's surface to be recovered with a truck and shovel. In situ technology injects
steam deep beneath the earth to separate the viscous bitumen from the sand and pump it up to the
surface. The bitumen then goes through the same upgrading process as it would in the mining
method.
Okun's Law
A relationship between an economy's GDP gap and the actual unemployment rate.
Old Economy
A term describing the old blue chip industries which enjoyed fabulous growth during the early parts
of the century. These companies are usually very traditional in their ways of doing business.
Oligopoly
A situation in which a particular market is controlled by a small group of firms.
An oligopoly is much like a monopoly, in which only one company exerts control over most of a
market. In an oligopoly, there are at least two firms controlling the market
Oligopsony
Similar to an oligopoly (few sellers), this is a market in which there are only a few large buyers for a
product or service. This allows the buyers to exert a great deal of control over the sellers and can
effectively drive down prices.
Omega
A measure of the change in an option's value with respect to the percentage change in the
underlying price. The omega gives option investors an idea of how the option price and the stock
price that underlies it move together.
Omega is the third derivative of the option price, and the derivative of gamma.
Omnibus Account
An account between two futures merchants (brokers). It involves the transaction of individual
accounts which are combined in this type of account, allowing for easier management by the futures
merchant.
OMR
In currencies, this is the abbreviation for the Oman Rial.
On Stream
An investment that is on track to earn its expected return.
On Track
1. A type of commodities delivery for futures contracts that is deferred and priced according to the
seller's location FOB.
2. A physical commodity that is already loaded on railroad cars or trucks and ready for delivery.
On-The-Run Treasuries
The most recently issued U.S. Treasury bond or note of a particular maturity. These are the opposite
of "off-the-run treasuries".
One-Cancel-All Order
A type of order comprising several limit orders for several companies, but in the event that one gets
filled, the rest are canceled. This type of order allows a trader to buy one out of a number of potential
stocks at the best price in the shortest amount of time.
One-sided Market
When the market for a security only shows either one bid or one ask.
One-Stop Shop
A company or a location that offers a multitude of services to a client or a customer. The idea is to
provide convenient and efficient service and also to create the opportunity for the company to sell
more products to clients and customers.
One-Touch Option
A type of exotic option that gives an investor a payout once the price of the underlying asset
reaches or surpasses a predetermined barrier. This type of option allows the investor to set the
position of the barrier, the time to expiration and the payout to be received once the barrier is
broken. Only two outcomes are possible with this type of option: 1) the barrier is breached and the
trader collects the full payout agreed upon at the outset of the contract, or 2) the barrier is not
breached and the trader loses the full premium paid to the broker.
Online Banking
The performance of banking activities via the Internet.
Online Trading
Making trades via the Internet.
OPEC Basket
A weighted average of oil prices collected from various oil producing countries. This average is
determined according to the production and exports of each country and is used as a reference
point by OPEC to monitor worldwide oil market conditions.
Open
1. An unexecuted order that is still valid.
2. The start of trading on a securities exchange.
Open Interest
1. The total number of options and/or futures contracts that are not closed or delivered on a
particular day.
2. The number of buy market orders before the stock market opens.
Open Listing
A property that is simultaneously marketed by multiple real estate agents.
Open Order
An order to buy or sell a security that remains in effect until it is either canceled by the customer or
executed.
Open Outcry
A method of trading on a commodity exchange by making verbal bids and offers in the trading pits.
Open Rotation
Orders to be executed only during the initial trading rotation of the specified day.
Open-End Fund
A mutual fund that continues to sell shares to investors and will buy back shares when investors
wish to sell
Open-End Indenture
A clause in a revenue-bond agreement that permits the issuance of additional revenue bonds in the
future, provided that the revenue of the previous year was sufficient enough to cover the costs of
the new issue.
Open-End Indenture
A clause in a revenue-bond agreement that permits the issuance of additional revenue bonds in the
future, provided that the revenue of the previous year was sufficient enough to cover the costs of
the new issue.
Open-End Lease
A rental agreement that obliges the lessee (the person making periodic lease payments) to purchase
the leased asset at the end of the agreement. Also called a "finance lease".
Open-Market Transaction
An order placed by an insider, after all appropriate documentation has been filed, to buy or sell
restricted securities openly on an exchange
Opening Bell
A bell that rings to signify the day's start of trading on a securities exchange.
Opening Price
The price at which a security first trades upon the opening of an exchange on a given trading day.
Opening Transaction
The initial or primary transaction of an options contract. Rights for a buyer are created as is the
obligation of the seller.
Operating Earnings
Profits after subtracting expenses such as marketing, cost of goods sold, administration and
general operating costs from revenue.
Operating Expense
The essential things that a company must pay for in order to maintain business.
Also known as "OPEX".
Operating Lease
A lease contract that allows the use of an asset, but does not convey rights similar to ownership of
the asset
Operating Leverage
A measurement of the degree to which a firm or project incurs a combination of fixed and variable
costs.
1. A business that makes few sales, with each sale providing a very high gross margin, is said to be
highly leveraged. A business that makes many sales, with each sale contributing a very slight
margin, is said to be less leveraged. As the volume of sales in a business increases, each new sale
contributes less to fixed costs and more to profitability.
2. A business that has a higher proportion of fixed costs and a lower proportion of variable costs is
said to have used more operating leverage. Those businesses with lower fixed costs and higher
variable costs are said to employ less operating leverage.
Operating Margin
A ratio used to measure a company's pricing strategy and operating efficiency.
Calculated by:
Operating margin is a measurement of what proportion of a company's revenue is left over after
paying for variable costs of production, such as wages, raw materials, etc. A healthy operating
margin is required for a company to be able to pay for its fixed costs, such as interest on debt.
Also known as "operating profit margin" or "net profit margin".
Operating Netback
A measure of oil and gas sales net of royalties, production and transportation expenses. This is a
non-GAAP measure used specifically in the oil and gas industry as a benchmark to compare
performance between time periods, operations and competitors.
Operating Ratio
A ratio that shows the efficiency of management by comparing operating expense to net sales:
Opinion Shopping
A company's action of searching for an auditor who will give a positive opinion of the company's
accounting practices (even though they might not deserve it).
Opportunity Cost
1. The cost of an alternative that must be forgone in order to pursue a certain action. Put another
way, the benefits you could have received by taking an alternative action.
2. The difference in return between a chosen investment and one that is necessarily passed up. Say
you invest in a stock and it returns a paltry 2% over the year. In placing your money in the stock, you
gave up the opportunity of another investment - say, a risk-free government bond yielding 6%. In
this situation, your opportunity costs are 4% (6%-2%).
Optimization
In the context of technical analysis, it is the process of adjusting one's trading system in an attempt
to make it more effective. These adjustments include changing the number of periods used in
moving averages, changing the number of indicators used, or simply taking away what doesn't work.
Option
A privilege sold by one party to another that offers the buyer the right, but not the obligation, to buy
(call) or sell (put) a security at an agreed-upon price during a certain period of time or on a specific
date.
Option Agreement
1. A signed agreement between an investor who is seeking to open an options account and his or
her brokerage firm. This agreement is used to verify the investor's level of experience and to ensure
that the investor clearly understands the various risks involved when trading options.
2. An agreement between two parties that provides one of the parties with the right but not the
obligation to buy, sell or obtain a specific asset at an agreed upon price at some time in the future.
Option Chain
A way of quoting options prices through a list of all of the options for a given security.
Option Cycle
A pattern of months in which option contracts usually expire (usually a nine month period). There
are three common cycles:
JAJO - January, April, July, and October
MJSD - March, June, September, and December
FMAN - February, May, August, and November
Option Indicator
Indicates options are available for trading and the exchange(s) which it trades through. Exchange
names are abbreviated as follows:
• AM = American Stock Exchange
• CB = Chicago Board of Exchange
• PA = Pacific Stock Exchange
• PH = Philadelphia Stock Exchange
• NONE = Indicates options are not traded
Option Series
A specific set of calls or puts on the same underlying security, in the same class and with the same
strike price and expiration date.
Optionable Stock
A stock that has options trading on a market exchange. Not all companies that trade publicly have
exchange traded options, this is due to requirements that need to be met, such as minimum share
price and minimum outstanding shares.
Options Contract
One options contract represents one hundred shares in the underlying stock. The quoted price of an
option is per share.
Oracle Of Omaha
A nickname for Warren Buffett, who is arguably one of the greatest investors of all time. He is called
the "Oracle of Omaha" because his investment picks and comments on the market are very closely
followed by the investment community, and he lives and works in Omaha, Nebraska.
Order
The instruction, by a customer to a brokerage, for the purchase or sale of a security with specific
conditions.
Order Book Official
A trading floor participant responsible for maintaining a list of public market or limit orders of a
specific option class using the "market-marker" system of executing orders.
Order Splitting
When brokers split up larger orders to qualify them for the Small Order Execution System (SOES)
and, therefore, have them automatically executed.
Ordering Rules
The order in which Roth IRA assets are distributed. Assets are distributed from a Roth IRA in the
following order:
1. IRA participant contributions
2. Taxable conversions
3. Non-taxable conversions
4. Earnings
Orderly Market
Any market in which the supply and demand are reasonably equal.
Ordinary Income
Income derived from regular business activities.
Organic Growth
The growth rate of a company, excluding any growth from takeovers, acquisitions, or mergers.
Organized Labor
An association of workers united as a single, representative entity for the purpose of improving the
workers' economic status and working conditions through collective bargaining with employers.
Also known as "unions". There are two types: the horizontal union, in which all members share a
common skill, and the vertical union, composed of workers from across the same industry.
Original Cost
All of the costs directly associated with acquiring an asset and putting it into use.
Oscillator
A technical analysis tool that is banded between two extreme values and built with the results from a
trend indicator for discovering short-term overbought or oversold conditions. As the value of the
oscillator approaches the upper extreme value the asset is deemed to be overbought, and as it
approaches the lower extreme it is deemed to be oversold.
OTC Options
Exotic options traded on the over-the-counter market, where participants can choose the
characteristics of the options traded.
Out Trade
A trade that cannot be cleared by the associated exchange clearing house because of discrepancies
between the data submitted by both parties on the opposite sides of a transaction.
Out-of-pocket Expenses
An expense that an individual incurs for either business or personal usage. These expenses are tax
deductible.
Outlay Cost
Any concrete costs that can be identified in the past, present or future.
Also referred to as "explicit costs".
Outperform
An analyst recommendation meaning a stock is expected to do slightly better than the market return.
Also known as "market outperform", "moderate buy", or "accumulate".
Output Gap
An economic measure of the difference between the actual output of an economy and the output it
could achieve when it is most efficient, or at full capacity. There are two types of output gaps:
positive and negative. A positive output gap occurs when actual output is more than the full-
capacity output. Negative output gap occurs when actual output is less than full-capacity output.
Outside Director
Any member of a company's board of directors who is not an employee or stakeholder in the
company.
Outside Earnings
The amount of income an elderly individual under the age of 70 has earned outside of his or her
social security benefits.
Outside Reversal
A charting trend in which a stock price's high and low for the day exceed those of the preceding day.
Outsourcing
A practice used by different companies to reduce costs by transferring portions of work to outside
suppliers rather than completing it internally.
Outstanding Shares
Stock currently held by investors, including restricted shares owned by the company's officers and
insiders, as well as those held by the public. Shares that have been repurchased by the company are
not considered outstanding stock.
They are also known as "issued shares" or "issued and outstanding".
Over-Hedging
A hedged position in which the offsetting position is for a greater amount than the underlying
position held by the firm entering into the hedge. While hedging ensures price certainty, over-
hedging can in effect become partly a hedge and partly a speculative investment and can unduly
hurt a firm.
Over-The-Counter - OTC
A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX,
etc. The phrase "over-the-counter" can be used to refer to stocks that trade via a dealer network as
opposed to on a centralized exchange. It also refers to debt securities and other financial
instruments such as derivatives, which are traded through a dealer network.
Over-The-Counter Market
A decentralized market of securities not listed on an exchange where market participants trade over
the telephone, facsimile or electronic network instead of a physical trading floor. There is no central
exchange or meeting place for this market. Also referred to as the "OTC market".
Overadvance
When a company obtains a loan in order to increase their inventory prior to an expected increase in
sales volume.
Overall Rank
This compares a stock's Overall Rating to all other stocks in its industry group. For example, if a
stock ranks 10th out of 100, it is in the top 10% of its industry group, based on the Overall Rating. If
2 or more stocks within a group have the same 1-99 rating, they will receive the same Overall Rank.
For example, if 3 stocks have a 99 Overall Rating, they will all three be ranked best in group. The
stock with the next best rating will be ranked 4th in group.
Overbought
1. A situation in which the demand for a certain asset unjustifiably pushes the price of an underlying
asset to levels that do not support the fundamentals.
2. In technical analysis, this term describes a situation in which the price of a security has risen to
such a degree - usually on high volume - that an oscillator has reached its upper bound. This is
generally interpreted as a sign that the price of the asset is becoming overvalued and may
experience a pullback.
Overcapitalization
When a company has too much capital for the needs of its business.
Overcollateralization
The posting of more collateral than is needed to obtain financing.
Overcontribution
Any contribution to a tax-deductible retirement savings plan exceeding the maximum allowed
contribution for a given period as determined by the retirement plan's registrar. Overcontributions
are subject to the retirement plan's regulations or laws. Overcontributions are usually subject to
some form of monetary penalty, intentioned to reduce their occurrences.
Overdraft
An instant extension of credit from a lending institution.
Overhang
A measure of the potential dilution to which a common stock's existing shareholders are exposed
due to the potential that stock-based compensation will be awarded to executives, directors or key
employees of the company. It is usually represented in percentage form and is calculated as stock
options granted, plus the remaining options that have yet to be granted divided by the total shares
outstanding.
Overhead
A reference in accounting to all costs not including or related to direct labor, materials, or
administration costs.
Overlapping Debt
The debt of a political entity such as a state where its tax base overlaps the tax base of another
political entity such as a city within the state.
Overnight Rate
The interest rate at which a depository institution lends immediately available funds (balances within
the central bank) to another depository institution overnight.
Overnight Trading
The buying or selling of currencies between 9pm and 8am local time. This type of transaction occurs
when an investor takes a position at the end of the trading day in a foreign market that will be open
while the local market is closed. The trade will be executed sometime that evening or early morning
Overshopped
The perception that a firm's attempt to raise capital by selling equity or debt through a private or
public offering is an act of desperation. When a company's management overshops a financing deal,
it leaves investment banks, bridge financiers, lenders and private equity groups wondering why they
should be the ones to take on the risk of financing a project that others have rejected.
Oversold
1. A condition in which the price of an underlying asset has fallen sharply, and to a level below
which its true value resides. This condition is usually a result of market overreaction or panic
selling.
2. A situation in technical analysis where the price of an asset has fallen to such a degree - usually
on high volume - that an oscillator has reached a lower bound. This is generally interpreted as a sign
that the price of the asset is becoming undervalued and may represent a buying opportunity for
investors.
Overstay
The act of holding an investment for too long. It often occurs when traders attempt to time the
market by identifying the end of a price trend and the beginning of a new one, but, due to greed and
fear, tend to overstay their positions. This usually results in reduced gains or, worse, further losses.
Oversubscribed
A situation in which the demand for an initial public offering of securities exceeds the number of
shares issued.
Overtrading
1. Excessive buying and selling of stocks by a broker on an investor's behalf in order to increase the
commission the broker collects.
This situation has been known to arise when brokers are pressured to place a newly issued security
underwritten by a firm's investment banking arm.
Also known as "churning".
2. A situation in which a company is growing its sales faster than it can finance them. This usually
leads to enormous accounts payable or accounts receivable and a lack of working capital to finance
operations.
Overvalued
A stock whose current price is not justified by the earnings outlook or price/earnings (P/E) ratio and
thus, expected to drop in price. Overvaluation may result from an emotional buying spurt, which
inflates the market price of the stock or from a deterioration in a company's financial strength.
Overweight
Refers to an investment position that is larger than the generally accepted benchmark.
Overwrite
A type of covered-call strategy that consists of writing call options on stocks that the writer already
owns to generate maximum current income from options premiums and dividends.
Overwriting
An options strategy that involves the sale of call or put options on stocks that are believed to be
overpriced or underpriced. The options are not expected to be exercised.
P
A Nasdaq stock symbol specifying that it is the company's first class of preferred shares.
Pac Man
A form of defense used in a hostile takeover situation. The target firm turns around and tries to take
over the company that has made the hostile bid.
Paid In Capital
Capital received from investors in exchange for stock. This is recorded as an entry on the balance
sheet.
Paid-Up
The state of a settlement when all payment obligations for a security have been completed in a
customer account. When an individual has paid up, he or she has paid for the security in full.
Paid-Up Capital
The total amount of shareholder capital that has been paid in full by shareholders.
Paired Shares
Stock of two companies under the same management that is sold as one unit and usually appears
on one certificate.
Pairing Off
An illegal practice of a brokerage firm offsetting short and long positions between house accounts
by collecting cash payments without physically delivering the securities.
Pairoff
A purchase of securities to offset a previously transacted sale of the same security.
Pairs Trade
The strategy of matching a long position with a short position in two stocks of the same sector. This
creates a hedge against the sector and the overall market that the two stocks are in. The hedge
created is essentially a bet that you are placing on the two stocks the stock you are long in versus
the stock you are short in.
Palladium
An element commonly used in jewelry, electronics, and the purification of hydrogen.
Panel Bank
The name given to the group of banks contributing to the EURIBOR. This group is made up of the
largest participants within the Euro money market.
Panic Buying
High volume buying brought about by sharp price increases.
Panic Selling
Wide-scale selling of an investment, causing a sharp decline in price. In most instances of panic
selling, investors just want to get out of the investment, with little regard for the price at which they
sell.
Paper Dealer
A firm that specializes in buying commercial paper from companies and then selling/marketing it to
investors.
Paper Trade
Simulated trading that investors use to practice mimicking trades (buys and sells) without actually
entering into any monetary transactions.
Par
1. The face value of a bond. Generally $1,000 for corporate issues, with higher denominations such
as $10,000 for many government issues.
2. A dollar amount assigned to a security when first issued.
Par Value
1) The face value of a bond.
2) A dollar amount that is assigned to a security when representing the value contributed for each
share in cash or goods.
Parabolic Indicator
A technical analysis strategy that uses a trailing stop and reverse method called "SAR," or stop-and-
reversal, to determine good exit and entry points.
Parallel Loan
A type of foreign exchange loan agreement that was a precursor to currency swaps. A parallel loan
involves two parent companies taking loans from their respective national financial institutions and
then lending the resulting funds to the other company's subsidiary.
Parent Company
A company that controls other companies by owning an influential amount of voting stock.
Pareto Principle
A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between
inputs and outputs. The principle states that, for many phenomena, 20% of invested input is
responsible for 80% of the results obtained. Put another way, 80% of consequences stem from 20%
of the causes. Also referred to as the "Pareto rule" or the "80/20 rule".
Pari-passu
Two securities or obligations having equal rights to payment.
Paris Club
A monthly meeting in Paris attended by creditors of 19 countries to discuss debt issues. Among
other things, the Paris Club addresses the issue of coordinated debt relief for developing countries
that cannot service their debt.
Parity
1. In general, a situation of equality. Parity can occur in many different contexts, but it always means
that two things are equal.
2. The official value.
3. In an exchange market, when all brokers bidding for the same security have equal standing due to
identical bids.
Parity Bond
Two or more bond issues with equal rights to bond payments.
Parity Price
The term "parity" refers to equality. Thus, parity price is a price for an asset that is directly linked to
another price. Examples of parity price are:
1. Convertibles - the price at which a convertible security equals the value of the underlying stock.
2. Options - when an option is trading at its intrinsic value ("trading at parity").
3. International parity - official rates for a currency in terms of other pegged currencies, typically the
U.S. dollar.
4. Commodities - a commodity's price dependent on a composite of prices during a period of time,
usually the most recent 10-year period.
5. Listed parity - situation when all parties involved are of equal standing and priority.
Parking
A form of kiting shares that a brokerage commits by moving long positions in unrelated accounts to
cover short positions that are improperly settled according to SEC regulations.
Parking Violation
The illegal practice of an acquiring company concealing ownership of the target company by holding
stock under a related third party before attempting corporate takeover.
Parsonage Allowance
An allowance designated by a church or other organization for its church professionals (clergy) for
the expenses of providing and maintaining a home.
Partial Redemption
An investment-transaction classification that refers to the withdrawal of a portion of a security's
value by the owner. Rather than withdrawing the entire amount of his or her security's value from the
account, an investor may prefer to keep a portion of the value invested in the asset while still
obtaining some cash.
Partial Release
A mortgage provision allowing some of the pledged collateral to be released from the mortgage
contract if certain conditions are met
Participation Rate
A measure of the participating portion of an economy's labor force.
Partnership
A business organization in which two or more individuals manage and operate the business. Both
owners are equally and personally liable for the debts from the business.
Pass-Through Certificate
Fixed-income securities that represent an undivided interest in a pool of federally insured mortgages
put together by the Government National Mortgage Association (Ginnie Mae).
Pass-Through Security
A pool of fixed-income securities backed by a package of assets. A servicing intermediary collects
the monthly payments from issuers, and, after deducting a fee, remits or passes them through to the
holders of the pass-through security.
Also known as a "pass-through certificate" or "pay-through security."
Passive Activity
An activity from which you have the potential to profit but in which you do not physically participate.
Passive Income
Earnings an individual derives from a rental property, limited partnership or other enterprise in
which he or she is not actively involved.
Passive Investing
An investment strategy involving limited ongoing buying and selling actions. Passive investors will
purchase investments with the intention of long-term appreciation and limited maintenance
Passive Loss
A loss incurred through a rental property, limited partnership, or other enterprise in which the
individual is not actively involved.
Passive Management
An investing strategy that mirrors a market index and does not attempt to beat the market.
Also known as "passive strategy" or "passive investing".
Patent
A government license that gives the holder exclusive rights to a process, design or new invention
for a designated period of time.
Pay/Collect
An abbreviated reference to the payment or collection of funds (after futures positions have been
marked to market) between clearing members and their respective clearing houses.
Payback Period
The length of time required to recover the cost of an investment.
Paydown
A payment made towards an outstanding loan balance.
Paydown Factor
The portion of cash subtracted each month from the principal of a mortgage security divided by the
original principal of the security.
Payee
A party who receives payment.
Payer
A person who makes a payment to a payee.
Paying Agent
An agent who accepts payments from the issuer of a security and then distributes the payments to
the holders of the security. Also known as a "disbursing agent."
Payment
The transfer of one form of good, service or financial asset in exchange for another form of good,
service or financial asset in proportions that have been previously agreed upon by all parties
involved. Payment can be made in the form of funds, assets or services.
Payment Date
The date on which a declared stock dividend is scheduled to be paid.
Payout Phase
The phase in an annuity during which payments are made to the annuitant. These are usually paid
on a monthly basis and last for the lifetime of the annuitant. The income received from an annuity by
a retired investor is considered taxable income.
Payout Ratio
The amount of earnings paid out in dividends to shareholders. Investors can use the payout ratio to
determine what companies are doing with their earnings.
Payroll Tax
Tax an employer withholds and/or pays on behalf of their employees based on the wage or salary of
the employee. In most countries, including the U.S., both state and federal authorities collect some
form of payroll tax
Peak
The highest point between the end of an economic expansion and the start of a contraction in a
business cycle. The peak of the cycle refers to the last month before several key economic
indicators, such as employment and new housing starts, begin to fall. It is at this point that real GDP
spending in an economy is its highest level.
Pearson Coefficient
A type of correlation coefficient that represents the relationship between two variables that are
measured on the same interval or ratio scale.
Pegging
1. A method of stabilizing a country's currency by fixing its exchange rate to that of another country.
2. A practice of and investor buying large amounts of an underlying commodity or security close to
the expiry date of a derivative held by the investor. This is done to encourage a favorable move in
market price.
PEN
In currencies, this is the abbreviation for the Peruvian Nuevo Sol.
Penalty Bid
A bid intended to facilitate a securities offering by stabilizing its price during the distribution period.
This bid is typically entered by the managing underwriter on behalf of a syndicate.
Pennant
A continuation pattern in technical analysis formed when there is a large movement in a stock, the
flagpole, followed by a consolidation period with converging trendlines, the pennant, followed by a
breakout movement in the same direction as the initial large movement, the second half of the
flagpole.
As can be seen in the above picture, there is a large rise in the stock, followed by a converging
consolidation period that resembles a pennant and a resulting continuation of the initial trend.
Penny Stock
A stock that sells for less than $1 per share but may also rise to as much as
$10 per share as a result of heavy promotion. All penny stocks are traded over
the count (OTC) or on the pink sheets.
Pension Adjustment - PA
The amount of contributions that can be made to a Registered Retirement Savings Plan (RRSP) on
top of any contributions to a Registered Pension Plan (RPP) in a given year.
Pension Fund
A fund established by an employer to facilitate and organize the investment of employees' retirement
funds contributed by the employer and employees. The pension fund is a common asset pool meant
to generate stable growth over the long term, and provide pensions for employees when they reach
the end of their working years and commence retirement.
P
A Nasdaq stock symbol specifying that it is the company's first class of preferred shares.
PAB
In currencies, this is the abbreviation for the Panama Balboa.
Pac Man
A form of defense used in a hostile takeover situation. The target firm turns around and tries to take
over the company that has made the hostile bid.
Paid In Capital
Capital received from investors in exchange for stock. This is recorded as an entry on the balance
sheet.
Paid-Up
The state of a settlement when all payment obligations for a security have been completed in a
customer account. When an individual has paid up, he or she has paid for the security in full.
Paid-Up Capital
The total amount of shareholder capital that has been paid in full by shareholders.
Paired Shares
Stock of two companies under the same management that is sold as one unit and usually appears
on one certificate.
Pairing Off
An illegal practice of a brokerage firm offsetting short and long positions between house accounts
by collecting cash payments without physically delivering the securities.
Pairoff
A purchase of securities to offset a previously transacted sale of the same security.
Pairs Trade
The strategy of matching a long position with a short position in two stocks of the same sector. This
creates a hedge against the sector and the overall market that the two stocks are in. The hedge
created is essentially a bet that you are placing on the two stocks the stock you are long in versus
the stock you are short in.
Palladium
An element commonly used in jewelry, electronics, and the purification of hydrogen.
Panel Bank
The name given to the group of banks contributing to the EURIBOR. This group is made up of the
largest participants within the Euro money market.
Panic Buying
High volume buying brought about by sharp price increases.
Panic Selling
Wide-scale selling of an investment, causing a sharp decline in price. In most instances of panic
selling, investors just want to get out of the investment, with little regard for the price at which they
sell.
Paper Dealer
A firm that specializes in buying commercial paper from companies and then selling/marketing it to
investors.
Paper Trade
Simulated trading that investors use to practice mimicking trades (buys and sells) without actually
entering into any monetary transactions.
Par
1. The face value of a bond. Generally $1,000 for corporate issues, with higher denominations such
as $10,000 for many government issues.
2. A dollar amount assigned to a security when first issued.
Par Value
1) The face value of a bond.
2) A dollar amount that is assigned to a security when representing the value contributed for each
share in cash or goods.
Parabolic Indicator
A technical analysis strategy that uses a trailing stop and reverse method called "SAR," or stop-and-
reversal, to determine good exit and entry points.
Parallel Loan
A type of foreign exchange loan agreement that was a precursor to currency swaps. A parallel loan
involves two parent companies taking loans from their respective national financial institutions and
then lending the resulting funds to the other company's subsidiary.
Parent Company
A company that controls other companies by owning an influential amount of voting stock.
Pareto Principle
A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between
inputs and outputs. The principle states that, for many phenomena, 20% of invested input is
responsible for 80% of the results obtained. Put another way, 80% of consequences stem from 20%
of the causes. Also referred to as the "Pareto rule" or the "80/20 rule".
Pari-passu
Two securities or obligations having equal rights to payment.
Paris Club
A monthly meeting in Paris attended by creditors of 19 countries to discuss debt issues. Among
other things, the Paris Club addresses the issue of coordinated debt relief for developing countries
that cannot service their debt.
Parity
1. In general, a situation of equality. Parity can occur in many different contexts, but it always means
that two things are equal.
2. The official value.
3. In an exchange market, when all brokers bidding for the same security have equal standing due to
identical bids.
Parity Bond
Two or more bond issues with equal rights to bond payments.
Parity Price
The term "parity" refers to equality. Thus, parity price is a price for an asset that is directly linked to
another price. Examples of parity price are:
1. Convertibles - the price at which a convertible security equals the value of the underlying stock.
2. Options - when an option is trading at its intrinsic value ("trading at parity").
3. International parity - official rates for a currency in terms of other pegged currencies, typically the
U.S. dollar.
4. Commodities - a commodity's price dependent on a composite of prices during a period of time,
usually the most recent 10-year period.
5. Listed parity - situation when all parties involved are of equal standing and priority.
Parking
A form of kiting shares that a brokerage commits by moving long positions in unrelated accounts to
cover short positions that are improperly settled according to SEC regulations.
Parking Violation
The illegal practice of an acquiring company concealing ownership of the target company by holding
stock under a related third party before attempting corporate takeover.
Parsonage Allowance
An allowance designated by a church or other organization for its church professionals (clergy) for
the expenses of providing and maintaining a home.
Partial Redemption
An investment-transaction classification that refers to the withdrawal of a portion of a security's
value by the owner. Rather than withdrawing the entire amount of his or her security's value from the
account, an investor may prefer to keep a portion of the value invested in the asset while still
obtaining some cash.
Partial Release
A mortgage provision allowing some of the pledged collateral to be released from the mortgage
contract if certain conditions are met
Participation Rate
A measure of the participating portion of an economy's labor force.
Partnership
A business organization in which two or more individuals manage and operate the business. Both
owners are equally and personally liable for the debts from the business.
Pass-Through Certificate
Fixed-income securities that represent an undivided interest in a pool of federally insured mortgages
put together by the Government National Mortgage Association (Ginnie Mae).
Pass-Through Security
A pool of fixed-income securities backed by a package of assets. A servicing intermediary collects
the monthly payments from issuers, and, after deducting a fee, remits or passes them through to the
holders of the pass-through security.
Also known as a "pass-through certificate" or "pay-through security."
Passive Activity
An activity from which you have the potential to profit but in which you do not physically participate.
Passive Income
Earnings an individual derives from a rental property, limited partnership or other enterprise in
which he or she is not actively involved.
Passive Investing
An investment strategy involving limited ongoing buying and selling actions. Passive investors will
purchase investments with the intention of long-term appreciation and limited maintenance
Passive Loss
A loss incurred through a rental property, limited partnership, or other enterprise in which the
individual is not actively involved.
Passive Management
An investing strategy that mirrors a market index and does not attempt to beat the market.
Also known as "passive strategy" or "passive investing".
Patent
A government license that gives the holder exclusive rights to a process, design or new invention
for a designated period of time.
Pattern
In technical analysis, the distinctive formation created by the movement of security prices on a
chart. It is identified by a line connecting common price points (closing prices, highs, lows) over a
period of time. Chartists try to identify patterns to try to anticipate the future price direction. Also
known as "trading pattern".
People Pill
A defensive strategy to ward off a hostile takeover. Management threatens that, in the event of a
takeover, the entire management team will resign.
Pay/Collect
An abbreviated reference to the payment or collection of funds (after futures positions have been
marked to market) between clearing members and their respective clearing houses.
Payback Period
The length of time required to recover the cost of an investment.
Paydown
A payment made towards an outstanding loan balance.
Paydown Factor
The portion of cash subtracted each month from the principal of a mortgage security divided by the
original principal of the security.
Payee
A party who receives payment.
Payer
A person who makes a payment to a payee.
Paying Agent
An agent who accepts payments from the issuer of a security and then distributes the payments to
the holders of the security. Also known as a "disbursing agent."
Payment
The transfer of one form of good, service or financial asset in exchange for another form of good,
service or financial asset in proportions that have been previously agreed upon by all parties
involved. Payment can be made in the form of funds, assets or services.
Payment Date
The date on which a declared stock dividend is scheduled to be paid.
Payout
The expected financial return from an investment over a given period of time. Payout may be
expressed on an overall or periodic basis as either a percentage of the investment's cost or in a real
dollar amount. Payout can also refer to the period of time in which an investment or a project is
expected to recoup its initial capital investment and become minimally profitable.
Short for "time to payout", "term to payout" or "payout period".
Payout Phase
The phase in an annuity during which payments are made to the annuitant. These are usually paid
on a monthly basis and last for the lifetime of the annuitant. The income received from an annuity by
a retired investor is considered taxable income.
Payout Ratio
The amount of earnings paid out in dividends to shareholders. Investors can use the payout ratio to
determine what companies are doing with their earnings.
Payroll Tax
Tax an employer withholds and/or pays on behalf of their employees based on the wage or salary of
the employee. In most countries, including the U.S., both state and federal authorities collect some
form of payroll tax
Peak
The highest point between the end of an economic expansion and the start of a contraction in a
business cycle. The peak of the cycle refers to the last month before several key economic
indicators, such as employment and new housing starts, begin to fall. It is at this point that real GDP
spending in an economy is its highest level.
Pearson Coefficient
A type of correlation coefficient that represents the relationship between two variables that are
measured on the same interval or ratio scale.
Pegging
1. A method of stabilizing a country's currency by fixing its exchange rate to that of another country.
2. A practice of and investor buying large amounts of an underlying commodity or security close to
the expiry date of a derivative held by the investor. This is done to encourage a favorable move in
market price.
PEN
In currencies, this is the abbreviation for the Peruvian Nuevo Sol.
Penalty Bid
A bid intended to facilitate a securities offering by stabilizing its price during the distribution period.
This bid is typically entered by the managing underwriter on behalf of a syndicate.
Pennant
A continuation pattern in technical analysis formed when there is a large movement in a stock, the
flagpole, followed by a consolidation period with converging trendlines, the pennant, followed by a
breakout movement in the same direction as the initial large movement, the second half of the
flagpole.
As can be seen in the above picture, there is a large rise in the stock, followed by a converging
consolidation period that resembles a pennant and a resulting continuation of the initial trend.
Penny Stock
A stock that sells for less than $1 per share but may also rise to as much as
$10 per share as a result of heavy promotion. All penny stocks are traded over
the count (OTC) or on the pink sheets.
Pension Adjustment - PA
The amount of contributions that can be made to a Registered Retirement Savings Plan (RRSP) on
top of any contributions to a Registered Pension Plan (RPP) in a given year.
Pension Fund
A fund established by an employer to facilitate and organize the investment of employees' retirement
funds contributed by the employer and employees. The pension fund is a common asset pool meant
to generate stable growth over the long term, and provide pensions for employees when they reach
the end of their working years and commence retirement.
Pension Plan
A retirement plan, usually tax exempt, wherein the employer makes contributions for the employee.
Many pension plans are being replaced by the 401(k).
Pension Shortfall
A situation in which a company offering employees a defined benefit plan does not have enough
money set aside to meet the pension obligations to employees who will be retired in the future.
Per Capita
A Latin term that translates into "by head," basically meaning "average per person."
Per Stirpes
A stipulation that, should a beneficiary predecease the testator, the beneficiary's share of the
inheritance will go to his or her heirs.
Perfect Competition
A market structure in which the following five criteria are met:
1. All firms sell an identical product.
2. All firms are price-takers.
3. All firms have a relatively small market share.
4. Buyers know the nature of the product being sold and the prices
charged by each firm.
5. The industry is characterized by freedom of entry and exit.
Sometimes referred to as "pure competition".
Performance Bond
A bond issued to one party of a contract as a guarantee against the failure of the other party to meet
obligations specified in the contract.
Performance Shares
In the case of stock compensation, shares of company stock given to managers only if certain
company wide performance criteria are met, such as earnings per share targets.
Period Certain
An annuitization-method option with which the annuitant selects a specific time period for which the
annuity income payments will last. This is unlike the more commonly selected life option, with which
the annuitant receives an income payment for the rest of his or her life, regardless of how long (or
short) their retirement years end up lasting.
Perp Walk
A slang term describing the police action of parading an arrested suspect in handcuffs before the
media.
Perpetual Bond
A bond with no maturity date. Perpetual bonds are not redeemable but pay a steady stream of
interest forever. Some of the only notable perpetual bonds in existence are those that were issued
by the British Treasury to pay off smaller issues used to finance the Napoleonic Wars (1814). Some
in the U.S. believe it would be more efficient for the government to issue perpetual bonds, which
may help it avoid the refinancing costs associated with bond issues that have maturity dates.
Perpetual Inventory
An accounting method of maintaining up-to-date property records that accurately reflect the level of
goods on hand.
Perpetuity
A constant stream of identical cash flows with no end. The formula for determining the present value
of a perpetuity is as follows:
Personal Finance
Financial planning for individuals. Generally, it involves analyzing their current financial position,
predicting short-term and long-term needs, and recommending a financial strategy. This may involve
advice on pensions, school fees, mortgages, life insurance, and investments.
Personal Income
An individual's total annual gross earnings coming from wages, business enterprises and various
investments.
Personal Property
A type of property which, in it's most general definition, can include any asset other than real estate.
The distinguishing factor between personal property and real estate is that personal property is
movable. That is, the asset is not fixed permanently to one location as with real property such as
land or buildings. Examples of personal property include vehicles, furniture, boats, collectibles, etc.
Also known as "movable property", "movables" and "chattels".
Petrodollars
The money that oil exporters receive from selling oil and then deposit into Western banks.
Petrodollars are also known as petrocurrency.
Petty Cash
The small amount of cash and coins that an organization uses for minor purchases and providing
change to customers.
Pfandbriefe
A type of bond issued by German mortgage banks that is collateralized by long-term assets used.
These types of bonds represent the largest segment of the German private debt market and are
considered to be the safest debt instruments in the private market.
PGK
In currencies, this is the abbreviation for the Papua New Guinea Kina.
Philanthropy
1. An activity performed with the goal of promoting the well-being of fellow man.
2. To dispense or receive aid in the form of a gift from funds intentioned for humanitarian purposes.
Phillips Curve
An economic concept developed by A. W. Phillips stating that inflation and unemployment have a
stable and inverse relationship.
Phishing
A method of identity theft carried out through the creation of a website that seems to represent a
legitimate company. The visitors to the site, thinking they are buying something from a real
business, submit their personal information to the site. The criminals then use the personal
information for their own purposes, or sell the information to other criminal parties.
PHP
In currencies, this is the abbreviation for the Philippine Peso.
Physical Asset
An item of economic, commercial or exchange value that has a tangible or material existence. For
most businesses, physical assets usually refer to cash, equipment, inventory and properties owned
by the business. Physical assets are the opposite of intangible assets, which are non-physical
assets such as leases, computer programs or agreements.
Physical Delivery
Term in an options or futures contract which requires the actual underlying asset to be delivered
upon the specified delivery date, rather than being traded out with offsetting contracts.
Pick-Up Tax
A tax imposed by state authorities based on the estate tax credit the U.S. federal government allows
on the federal estate tax return. As this tax is imposed at the state level, the amounts owing vary
state to state. And because estates are taxed at the federal level only when the minimum federal
estate threshold has been surpassed, state pick-up taxes are not always applied.
Pickup
A gain in yield made by selling one bond and buying another. Also referred to as "yield pickup."
Pig
An investor who is often seen as greedy, having forgotten his or her original investment strategy to
focus on securing unrealistic future gains. After experiencing a gain, these investors often have very
high expectations about the future prospects of the investment and, therefore, do not sell their
position to realize the gain.
Piggyback Warrants
Additional warrants that are acquired following the exercise of primary warrants.
Pin Risk
A risk that the writer of an options or futures contract faces when the price of the underlying asset
closes at or very near the exercise price of the contract upon expiration.
Pink Sheets
A daily publication compiled by the National Quotation Bureau with bid and ask prices of over-the-
counter stocks, including the market makers who trade them. Unlike companies on a stock
exchange, companies quoted on the pink sheets system do not need to meet minimum requirements
or file with the SEC. Pink sheets also refers to OTC trading.
Pip
The smallest price change that a given exchange rate can make. Since most major currency pairs
are priced to four decimal places, the smallest change is that of the last decimal point - for most
pairs this is the equivalent of 1/100
Pipeline
1) An investment company whose purpose is to collect investment funds from a pool of individual
investors and invest them in financial securities.
2) The underwriting procedure which must be completed by the Securities & Exchange Commission
(SEC) before a security can be offered for sale to the public.
3) A type of risk most often present in mortgage transactions. It expresses the potential for change
in financial factors during the time lapse between the mortgage application and the purchase of the
property.
Pipeline Theory
A theory stating that an investment firm passing all capital gains, interest and dividends onto their
customers/shareholders shouldn't be levied at the corporate level like most regular companies are.
Also referred to as "conduit theory".
Pit
A specific area of the trading floor that is designated for the trading of an individual futures or
options contract.
Pitchbook
A sales book created by an investment bank/firm that details the main attributes of the firm. The
pitchbook is used by the firm's sales force to aid it with selling products and issues, and generating
new clients.
Pivot
A price level established as being significant either by the market's failure to penetrate it or when a
sudden increase in volume accompanies the move through the price level.
Pivot Point
A technical indicator derived by calculating the numerical average of a particular stock's high, low
and closing prices.
PKR
In currencies, this is the abbreviation for the Pakistani Rupee.
Placement
The act of marketing new securities to the private or public sector.
Plain Vanilla
The most basic or standard version of a financial instrument, usually options, bonds, futures and
swaps. Its opposite is an exotic instrument, which alters the components of a traditional financial
instrument, resulting in a more complex security.
Platinum
An element that is sometimes used in jewelry or as a catalyst in electronics.
Pledge Fund
A special type of fund in which members of the fund work toward a specific investment goal by
making defined contributions in a pool over a period of time. Many angel investors have started to
employ a pledge fund format in venture capital investing.
Pledged Asset
An asset that is transferred to a lender for the purpose of securing debt. The lender of the debt
maintains possession of the pledged asset, but does not have ownership unless default occurs.
PLN
In currencies, this is the abbreviation for the Polish Zloty.
Plowback Ratio
A fundamental analysis ratio that measures the amount of earnings retained after dividends have
been paid out. This is the opposite of the payout ratio, which measures the amount of dividends that
are paid out as a percentage of earnings. Also known as "retention rate", "retention ratio" or the
"earnings retention ratio".
Plunge Team
A colloquial reference to a group of economic leaders within the United States whose purpose is to
ensure the nation's financial markets are efficient, competitive, and provide confidence for investors.
Plus Tick
A price designation referring to the trading of a security at a price higher than the previous sale
price for the same security.
Point & Figure Chart
A chart that plots day-to-day price movements without taking into consideration the passage of time.
Point and figure charts are composed of a number of columns that either consist of a series of
stacked Xs or Os. A column of Xs is used to illustrate a rising price, while Os represent a falling
price. As you can see from the chart below, this type of chart is used to filter out non-significant
price movements, and enables the trader to easily determine critical support and resistance levels.
Traders will place orders when the price moves beyond identified support/resistance levels
Point Balance
A statement typically produced at the end of the calendar month indicating the profits and losses of
a client's open futures contracts.
Points
1. A 1% change in the face value of a bond or a debenture.
2. In futures contracts, a price change of one one-hundredth, or 1% of one cent.
3. A $1 price change in the value of common stock.
4. In real estate mortgages, the initial fee charged by the lender, with each point being equal to 1% of
the amount of the loan. It can also refer to each percentage difference between a mortgage's interest
rate and the prime interest rate.
Poison Pill
A strategy used by corporations to discourage a hostile takeover by another company. The target
company attempts to make its stock less attractive to the acquirer. There are two types of poison
pills:
1. A "flip-in" allows existing shareholders (except the acquirer) to buy more shares at a discount.
2. The "flip-over" allows stockholders to buy the acquirer's shares at a discounted price after the
merger.
Political Risk
The financial risk that a country's government will suddenly change its policies.
Also known as "geopolitical risk".
Ponzi Scheme
A fraudulent investing scam that promises high rates of return at little risk to investors. The scheme
generates return by acquiring new investors
Poop
A slang term often used to describe people with insider information.
Pop-Up Option
A joint and survivor option that allows you to be reinstated to the basic pension amount if the
spouse predeceases the retiree. More and more companies are utilizing this option for an additional
charge.
Pork Bellies
The commodities underlying the majority of futures contracts trading pork livestock.
Pork Chop
An arrangement on the floor of the NYSE whereby clerks cover the booth of a floor broker and
accept orders, phone calls, and associated tasks.
Portable Alpha
The strategy of portfolio managers separating alpha from beta by investing in securities that differ
from the market index from which their beta is derived. Alpha is the return achieved over and above
the return that results from the correlation between the portfolio and the market (beta). In simple
terms, this is a strategy that involves investing in areas that have little to no correlation with the
market.
Porter's 5 Forces
Named after Michael E. Porter, this model identifies and analyzes 5 competitive forces that shape
every industry, and helps determine an industry's weaknesses and strengths.
1. Competition in the industry
2. Potential of new entrants into industry
3. Power of suppliers
4. Power of customers
5. Threat of substitute products
Portfolio
The group of assets - such as stocks, bonds and mutuals - held by an investor.
Portfolio Income
Income from investments, including dividends, interest, royalties, and capital gains.
Portfolio Insurance
1. A method of hedging a portfolio of stocks against the market risk by short selling stock index
futures.
2. Brokerage insurance such as the Securities Investor Protection Corporation (SIPC).
Portfolio Management
The art and science of making decisions about investment mix and policy, matching investments to
objectives, asset allocation for individuals and institutions, and balancing risk vs. performance.
Portfolio Manager
The person responsible for investing a mutual fund's assets, implementing its investment strategy,
and managing the day-to-day portfolio trading.
Portfolio Pumping
The illegal act of bidding up the value of a fund's holdings right before the end of a quarter, when the
fund's performance is measured. This is done by placing a large number of orders on existing
holdings, which drives up the value of the fund.
Also known as "marking the close".
Portfolio Runoff
A decrease in the value and size of portfolios investing in mortgages and mortgage-backed
securities.
Portfolio Turnover
A measurement of how frequently assets within a fund are bought and sold by the managers. It is
calculated by taking either the total amount of new securities purchased or the amount of securities
sold - whichever is less - over a particular period, divided by the total net asset value (NAV) of the
fund. The measurement is usually reported for a 12-month time period.
Position
The amount of a security either owned (which constitutes a long position) or borrowed (which
constitutes a short position) by an individual or by a dealer. In other words, it's a trade an investor
currently holds open.
Position Limit
A predetermined position level set by regulatory bodies for a specific contract or option.
Position Sizing
The dollar value being invested into a particular security by an investor. An investor's account size
and risk tolerance should be taken into account when determining appropriate position sizing.
Position Trader
A commodities trader who holds a long position for the long term.
Positive Butterfly
A non-parallel yield curve shift in which short- and long-term rates shift upward by a greater
magnitude than medium term rates. This yield curve shift effectively humps the curve, adding to its
curvature.
Positive Carry
A strategy of holding two offsetting positions, one of which creates an incoming cashflow that is
greater than the obligations of the other
Post-Analysis
Vital process of evaluating your successes and mistakes in the stock market by posting all previous
buys and sells on charts for a specified timeframe and separating out those that made money from
those that were losses. Allows investors a way to improve their future performance by realistically
learning from past decisions
Post-Money Valuation
The value of a company after external financing alternatives are added to its balance sheet.
Pot
The portion of a stock or bond issue that investment bankers return to the underwriter so the portion
can be sold to institutional investors.
Pot Is Clean
A slang phrase referring to a situation in which an underwriter has successfully sold to investors all
of its available issues of a public offering of securities. Also known in more formal terms as "fully
subscribed".
Pour-Over Will
A will established by an individual who has already taken the necessary steps to set up a trust, so
that upon the death of the individual, all of his or her assets are to be transferred - or "poured over" -
to the trust. By doing so, the individual ensures that his or her estate has an explicit direction to
shift assets into the trust.
Power Of Attorney
A legal document giving one person (called an "agent" or "attorney-in-fact") the power to act for
another person (the principal). The agent can have broad legal authority or limited authority to make
legal decisions about the principal's property and finance. The power of attorney is frequently used
in the event of a principal's illness or disability, or when the principal can't be present to sign
necessary legal documents for financial transactions.
Pre-arranged Trading
Trading that occurs between brokers through an expressed or implied agreement or understanding.
Pre-Emptive Right
The right of a company's existing common shareholders to have the first chance to purchase shares
in a company's future stock issue.
Pre-Market
Trading done before the regular market opens
Pre-Money Valuation
A slang phrased that refers to the value of a company's stock before it goes public. The term is often
used by venture capitalists.
Also known as "pre-money".
Pre-Settlement Risk
The risk that one party of a contract will fail to meet the terms of the contract and default before the
contract's settlement date, prematurely ending the contract.
This type of risk can lead to replacement-cost risk.
Pre-Syndicate Bid
A bid entered by a syndicate manager or underwriter in the Nasdaq system to stabilize the price of a
Nasdaq security prior to the effective date of a registered secondary offering. The term "penalty bid"
is also used.
Precious Metals
Valuable metals such as gold, iridium, palladium, platinum and silver.
Predatory Dumping
A type of anti-competitive event in which foreign companies or governments price their products
below market values in an attempt to drive out domestic competition. This may lead to conditions
where one company has a monopoly in a certain product or industry. Antitrust or competition laws
forbid predatory dumping in many countries such as the U.S. and the European Union.
Also referred to as "predatory pricing".
Preferred Stock
A class of ownership in a corporation that has a higher claim on the assets and earnings than
common stock. Preferred stock generally has a dividend that must be paid out before dividends to
common stockholders and the shares usually do not have voting rights.
The precise details as to the structure of preferred stock is specific to each corporation. However,
the best way to think of preferred stock is as a financial instrument that has characteristics of both
debt (fixed dividends) and equity (potential appreciation). Also known as "preferred shares".
Preliminary Prospectus
A first draft registration statement filed by a firm prior to proceeding with an initial public offering of
securities. The document, filed with the Securities & Exchange Commission, is intended to provide
pertinent information to prospective shareholders about the company's business description,
management, strategic initiatives, financial statements and ownership structure
Premium
1. The total cost of an option.
2. The difference between the higher price paid for a fixed-income security and the security's face
amount at issue.
3. The specified amount of payment required periodically by an insurer to provide coverage under a
given insurance plan for a defined period of time. The premium is paid by the insured party to the
insurer, and primarily compensates the insurer for bearing the risk of a payout should the insurance
agreement's coverage be required.
Premium Bond
A bond that is priced higher than its par value
Prenuptial Agreement
A type of contract created by two people before entering into marriage. This contract could outline
each party's responsibilities and property rights for the duration of the marriage. More commonly,
prenuptial agreements outline terms and conditions associated with dividing up financial assets and
responsibilities if the marriage dissolves.
Prepackaged Bankruptcy
When acompany prepares a reorganization plan that is negotiated and voted on by creditors and
shareholders before the company actually files for bankruptcy.
Prepaid Expense
An asset that arises on a balance sheet because of the payment of something in advance
(prepayment). Services for the payment will be received in the near future.
Prepaid Interest
The interest that a debtor pays before the first scheduled debt repayment. For taxation purposes,
most kinds of prepaid interest are expensed over the life of the loan.
For mortgage loans, prepaid interest can also be the interim interest that accrues from the
settlement day to the beginning of the first mortgage period.
Prepayment
1. The payment of a debt obligation prior to its due date.
2. The excess payment over a scheduled debt repayment amount.
Prepayment Risk
The uncertainty related to unscheduled prepayment in excess of scheduled principal repayment.
Prepetition Liability
A term that refers to liabilities that arise prior to a company filing of bankruptcy. A company has to
petition for bankruptcy protection once this is done, liabilities fall into two categories: prepetition, or
those that arise prior to petition, and post-petition, those that arise after petition. These two types of
liabilities are often shown on the balance sheets of companies in bankruptcy protection
Present Value - PV
The amount that a future sum of money is worth today given a specified rate of return.
Preservation Of Capital
An investment strategy whose primary goal is to prevent the loss of an investment's total value
Press Release
If it's an earnings press release, the release will discuss the financial results of the company for the
recently completed quarter and may provide comments from management. Press releases often list
valuable contact information that can assist you in your research, such as the company's web
address.
Press Release
If it's an earnings press release, the release will discuss the financial results of the company for the
recently completed quarter and may provide comments from management. Press releases often list
valuable contact information that can assist you in your research, such as the company's web
address.
Price
The amount of money a security most recently traded for.
Price Bars
Blue or pink colored marks that represent price history (high/low/close). The amount of trading
history each bar represents is based on the period of a chart (i.e., weekly, daily, intraday). The length
of each vertical bar illustrates a stock's high/low price range. The small intersecting horizontal slash
indicates the current price or where a stock closed at the end of official market hours.
A Price Bar will be presented in blue if the price of the most recent trade is equal to or greater than
the previous period's last price, or it may be pink if it is less than the previous period’s price.
Price bars, like price quotes, are updated throughout market hours on a 20-minute delayed basis for
all stocks listed on NASDAQ, NYSE and AMEX exchanges. This update schedule will often result in
the length, location of the horizontal slash, and coloring of a Price Bar to change during market
hours.
Price Basing
A method of pricing commercial commodity transactions that bases these prices on related futures
contract prices. This method is used by commodity producers, processors, merchants and
consumers.
Price Change
The difference between the latest price and its previous closing price. Price Change presented in
blue font is an indication the price is equal to or greater than its previous close. A pink font color
represents a current price that is below the previous close. When viewing a daily or intraday chart,
the difference in price is a reference to the prior day's closing price.
For a weekly chart, font coloring reflects the relationship between the current price and the price
recorded at the previous week’s close.
For Daily Graphs Online subscribers with monthly charts, font coloring reflects the relationship
between the current price and the price recorded at the previous month's close.
Price information is presented on a 20-minute delayed basis for all stocks listed on the NASDAQ,
NYSE and AMEX exchanges. Prices for all other stocks are updated after the market close. Price
information does not reflect after-hours trading. All prices, including those stocks trading on
Canadian exchanges, are reported in U.S. dollars.
Price Discovery
A method of determining the price for a specific commodity or security through basic supply and
demand factors related to the market.
Price Fixing
Establishing the price of a product or service, rather than allowing it to be determined naturally
through free market forces. This procedure is often an illegal practice.
Price Improvement
Attaining a higher bid price, if you are selling a stock, or a lower ask price, if you are buying a stock,
than the price quoted at the time your order was placed.
Price Maker
A monopoly or a firm within monopolistic competition that has the power to influence the price it
charges as the good it produces does not have perfect substitutes.
Price Multiple
Any ratio that uses the share price of a company in conjunction with some specific per-share
financial metric in order to evaluate a company's financial situation. The share price is typically
divided by a chosen per-share metric to form a ratio.
Price Risk
The risk that the value of a security or portfolio of securities will decline in the future.
Price Scale
Numeric scaling on a chart grid used to visually determine the value of a Price Line or Price Bar. The
numeric interval is based on arithmetic scaling for daily and intraday charts, and logarithmic scaling
for weekly charts.
Price Skimming
A product pricing strategy by which a firm charges the highest initial price that customers will pay.
As the demand of the first customers is satisfied, the firm lowers the price to attract another, more
price-sensitive segment.
Therefore, the skimming strategy gets its name from skimming successive layers of "cream," or
customer segments, as prices are lowered over time.
Price Target
1. A projected price level as stated by an investment analyst or advisor.
2. A price that, if achieved, would result in a trader recognizing the best possible outcome for his or
her investment. This is the price at which the trader would like to exit his or her existing position so
that he or she can realize the most reward.
Price Tension
The phenomenon by which the seller of a particular good, service, or security desires to maximize
the selling price, while the buyer desires to minimize the purchasing price. Generally speaking, the
greater the price tension within a particular market, the greater the bid-ask spread.
Price Transparency
The accessibility of information on the order flow for a particular stock, allowing knowledge of the
quantities of stock being offered and the bids at the various price levels. Also referred to as "market
depth".
Price, Current/Close
The dollar value at which a stock most recently traded or closed. Price information is presented on a
20-minute delayed basis for all stocks listed on the NASDAQ, NYSE and AMEX exchanges. Prices for
all other stocks are updated after the market close. Price information does not reflect after-hours
trading.
A price quote presented in blue font is an indication the price is equal to or greater than its previous
close. A pink font color represents a current price that is below the previous close. When viewing a
daily or intraday chart, the change reference is to the prior day's trading session. For a weekly chart,
font coloring reflects the relationship between the current price and the price the previous week’s
close.
All prices, including those stocks trading on Canadian exchanges, are reported in U.S. dollars.
Price-Based Option
A derivative financial instrument in which the underlying asset is a debt security. Typically, these
options give their holders the right to purchase or sell an underlying debt security (usually a bond)
or to receive cash payment based on the current value of the underlying debt security
Price-Earnings Relative
A price-earnings ratio of a stock divided by the price-earnings ratio of a market measure, or index,
such as the S&P 500 or Wilshire 5000.
Price-Taker
1. An investor whose buying or selling transactions are assumed to have no effect on the market.
2. A firm that can alter its rate of production and sales without significantly affecting the market
price of its product.
Price-to-Book Value
Compares a stock's value in the market (determined by the current stock price) to the value of total
company assets less total company liabilities (book value). Based on the '45-Year Study of the
Greatest Stock Market Winners', this measurement did not prove to be significant among winning
stocks.
Price-To-Innovation-Adjusted Earnings
A variation of the price-to-earnings ratio (P/E ratio) that takes a company's level of spending on
research and development (R&D) into account. It is calculated by adding any expenditure on R&D
back to earnings and then calculating the P/E ratio for that company.
Price-To-Research Ratio
A measure of the relationship between a company's market capitalization and research and
development (R&D) expenses.
Price/Growth Flow
A measure formulated to identify companies that are producing solid earnings and investing a large
amount in research and development (R&D). This measure is calculated as the following:
Q
Nasdaq stock symbol specifying that a particular stock is in bankruptcy proceedings.
QAR
In currencies, this is the abbreviation for the Qatar Riyal.
QQQQ
Formerly the QQQ, this is the ticker symbol for the Nasdaq 100 Trust, which is an ETF that trades on
the Nasdaq. This security offers broad exposure to the tech sector by tracking the Nasdaq 100 Index,
which consists of the 100 largest and most actively traded non-financial stocks on the Nasdaq. It is
also known as "cubes" or the "quadruple-Qs".
Qstick Indicator
A technical indicator developed by Tushar Chande to numerically identify trends in candlestick
charting. It is calculated by taking an 'n' period moving average of the difference between the open
and closing prices. A Qstick value greater than zero means that the majority of the last 'n' days have
been up, indicating that buying pressure has been increasing.
Quadrix
A stock valuation system that uses over 100 variables in seven major categories to determine the
value of a stock. The overall score for a particular stock is determined by a weighted average of all
100 variables.
Quadruple Witching
A day on which contracts for stock index futures, stock index options, stock options, and single
stock futures (SSF) all expire
Qualified Acquisition Cost
These are items, in the context of IRA withdrawls, that constitute penalty free withdrawls for an IRA
owner who uses the assets to purchase a first home.
Qualified Adoption Expenses - QAE
Used for the adoption credit, this includes all the necessary expenses surrounding the adoption of a
child.
Qualified Disclaimer
A refusal to accept property that meets with provisions set forth in the Internal Revenue Code Tax
Reform Act of 1976 allowing for the property or interest in property to be treated as an entity that has
never been received. These types of refusals can be used to avoid federal estate tax and gift tax, and
to create legal inter-generational transfers which avoid taxation, provided they meet the following
set of requirements:
1. The disclaimer must be made in writing and signed by the disclaiming party.
2. The disclaimer must identify the property, or interest in property that is being disclaimed.
3. The disclaimer must be delivered, in writing, to the person or entity charged with the obligation of
transferring assets from the giver to the receiver(s).
4. The disclaimer must be written less than nine months after the date the property was transferred.
In the case of a disclaimant aged under 21, the disclaimer must be written less than nine months
after the disclaimant reaches 21.
Disclaimed property is given to the "contingent beneficiary" by default.
Qualified Distribution
Distributions made from a Roth IRA that are tax and penalty free. In order to be a qualified
distribution, the following two requirements must be met:
1) It must occur at least five years after the Roth IRA owner established and funded his/her first Roth
IRA
2) At least one of the following requirements must be met:
a) The Roth IRA holder must be at least age 59.5 when the distribution occurs.
b) Distributed assets limited to $10,000 are used towards the purchase or rebuilding of a first home
for the Roth IRA holder or a qualified family member.
c)The distribution occurs after the Roth IRA holder becomes disabled.
d)The assets are distributed to the beneficiary of the Roth IRA holder after his/her death
Qualified Dividend
A type of dividend to which capital gains tax rates are applied. These tax rates are usually lower than
regular income tax rates
Qualified Opinion
A statement written upon the front page of an audit done by a professional auditor. A qualified
opinion suggests that the information provided was limited in scope and/or the company being
audited has not maintained GAAP accounting principles.
Qualified Trust
A trust whose underlying beneficiary may use his or her life expectancy to determine RMD (required
minimum distribution) amounts, including those for the beneficiary of a retirement account.
Qualifying Investment
An investment purchased with pretax income. Money invested in a qualifying investment trust,
annuity or plan is exempt from income taxes until it is withdrawn. These sorts of investments are
tax-deferred, because the money invested in them is taxed at withdrawal only.
Qualitative Analysis
Securities analysis that uses subjective judgment based on nonquantifiable information, such as
management expertise, industry cycles, strength of research and development, and labor relations.
This type of analysis technique is different than quantitative analysis, which focuses on numbers.
The two techniques, however, will often be used together.
Quality of Earnings
The amount of earnings attributable to higher sales or lower costs rather than artificial profits
created by accounting anomalies such as inflation of inventory.
Quant Fund
An investment fund that selects securities based on quantitative analysis. In such funds, the
managers build computer-based models to determine whether or not an investment is attractive. In a
pure "quant shop" the final decision to buy or sell is made by the model. However, there is a middle
ground where the fund manager will use human judgment in addition to a quantitative model.
Quantitative Analysis
A business or financial analysis technique that seeks to understand behavior by using complex
mathematical and statistical modeling, measurement and research. By assigning a numerical value
to variables, quantitative analysts try to replicate reality mathematically.
Quantitative analysis can be done for a number of reasons such as measurement, performance
evaluation or valuation of a financial instrument. It can also be used to predict real world events
such as changes in a share price.
Quanto Swap
A swap with varying combinations of interest rate, currency and equity swap features, where
payments are based on the movement of two different countries' interest rates.
This is also referred to as a differential or "diff" swap
Quartile
A statistical term describing a division of observations into four defined intervals based upon the
values of the data and how they compare to the entire set of observations.
Quick Assets
Assets that can be easily be converted into cash or are already in cash form. It is calculated as
current assets minus inventories
Quick Ratio
An indicator of a company's short-term liquidity. The quick ratio measures a company's ability to
meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the
position of the company.
The quick ratio is calculated as:
Also known as the "acid-test ratio."
Quiet Filing
The name given to an IPO filing where important details are intentionally excluded. Sent to the SEC
in order to begin the process of issuing a new security, these details must be submitted through
amendments. This form of filing generally takes longer than the conventional methods.
Quiet Period
In terms of an IPO, the period where an issuer is subject to a SEC ban on promotional publicity. The
quiet period usually lasts either 40 or 90 days from the IPO.
Quitclaim Deed
A deed releasing all of a person's interest in a property or land.
Quorum
The minimum acceptable level of individuals with a vested interest in a company needed to make the
proceedings of a meeting valid under the corporate charter.
Quota
In the context of international trade, this is a limit put on the amount of a specific good that can be
imported.
Quotation
A very common term which actually refers to two numbers - the highest bid price currently available
for a security or commodity and the lowest ask price currently available for the same
security/commodity
Quote
1. The last price at which a security or commodity traded, meaning the most recent price on which a
buyer and seller agreed and at which some amount of the asset was transacted.
2. The bid or ask quotes are the most current prices and quantities at which the shares can be
bought or sold. The bid quote shows the price and quantity at which a current buyer is willing to
purchase the shares, while the ask shows what a current participant is willing to sell the shares for.
This is also known as an asset's "quoted price".
R
A Nasdaq stock symbol specifying that the stock has rights.
R-Squared
A statistical measure that represents the percentage of a fund's or security's movements that are
explained by movements in a benchmark index. For fixed-income securities the benchmark is the T-
bill, and for equities the benchmark is the S&P 500.
Rabbi Trust
A trust created for the purpose of supporting the non-qualified benefit obligations of employers to
their employees.
These trusts are sometimes referred to as "grantor trusts".
Raider
An individual or organization who tries to take over a company by initiating a hostile takeover bid.
Rain Check
A promise or commitment by a seller to a buyer that an item currently out of stock can be purchased
at a later date for today's sale price.
Rainbow Option
A single option linked to two or more underlying assets. In order for the option to pay off,
Rainmaker
An employee of a brokerage firm who brings a large amount of wealthy individuals or corporations
to the brokerage firm's client base.
Rally
A period of sustained increases in the prices of stocks, bonds or indexes. This type of price
movement can happen during either a bull or a bear market, when it is known as either a bull market
rally or a bear market rally, respectively. However, a rally will generally follow a period of flat or
declining prices.
Ramp Up
To increase a company's operations in anticipation of increased demand.
Range-Bound Trading
A trading strategy that identifies stocks trading in channels. By finding major support and resistance
levels with technical analysis, a trend trader buys stocks at the lower level of support (bottom of the
channel) and sells them near resistance (top of the channel).
Rate Of Change
The speed at which a variable changes over a specific period of time. Rate of change is often used
when speaking about momentum, and it can generally be expressed as a ratio between a change in
one variable relative to a corresponding change in another. Graphically, the rate of change is
represented by the slope of a line.
Rate Of Return
The gain or loss of an investment over a specified period, expressed as a percentage increase over
the initial investment cost. Gains on investments are considered to be any income received from the
security, plus realized capital gains.
Rating
1. An evaluation of a corporate or municipal bond's relative safety from an investment standpoint.
Basically, it scrutinizes the issuer's ability to repay principal and make interest payments.
2. An analyst's recommendation on whether to buy, sell or hold a specific stock.
Ratings Service
A company, such as Moody's or Standard & Poor's, that rates various debt and preferred stock
issues for safety of payment of principal, interest, or dividends.
Ratio Analysis
A tool used by individuals to conduct a quantitative analysis of information in a company's financial
statements. Ratios are calculated from current year numbers and are then compared to previous
years, other companies, the industry, or even the economy to judge the performance of the
company. Ratio analysis is predominately used by proponents of fundamental analysis
Ratio Spread
An options strategy in which an investor simultaneously holds an unequal number of long and short
positions. A commonly used ratio is two short options for every option purchased.
Rationalization
A reorganization of a company in order to increase its efficiency. This reorganization may lead to an
expansion or reduction in company size, a change of policy, or an alteration of strategy pertaining to
particular products.
Reaction
The typical downward movement in the price of a security after the price had previously risen.
Reaganomics
A popular term used to refer to the economic policies of Ronald Reagan, the 40th U.S. President
(1981-1989), which called for widespread tax cuts, decreased social spending, increased military
spending, and the deregulation of domestic markets.
Real Asset
Physical or identifiable assets such as gold, land, equipment, patents, etc. They are the opposite of a
financial asset.
Real Body
In candlestick charting this is the wide part of a candle that represents the range between the
opening and the closing prices over a specific time period.
Real Estate
Land plus anything permanently fixed to it, including buildings, sheds and other items attached to
the structure.
Real Income
The income of an individual or group after taking into consideration the effects of inflation on
purchasing power. For example, if you received a 2% salary rise over the previous year and inflation
for the year was 1%, then your real income only rose 1%. Conversely, if you received a 2% raise in
salary and inflation stood at 3%, then your real income would have shrunk 1%. Also known as "real
wages".
Real-Estate Agent
A person with a state/provincial license to represent a buyer or a seller in a real-estate transaction in
exchange for commission. Most agents work for a real-estate broker or realtor.
Realized Gain
A gain resulting from selling an asset at a price higher than the original purchase price.
Realized Loss
A loss recognized when assets are sold for a price lower than the original purchase price.
Reallowance
In securities underwriting, the fee that the underwriting group pays to a securities firm that isn't part
of the syndicate, but who still sells shares in the offering.
Realtor
In the United States a designation used to describe a member of the National Association of Realtors
(NAR).
Reassessment
The process of re-determining the value of property or land for tax purposes.
Rebalancing
The process of realigning the weightings of one's portfolio of assets.
Rebate
1. In a short-sale transaction, the portion of interest or dividends earned by the owner (lender) of
shares that are paid to the short seller (borrower) of the shares.
2. In an options transaction, the amount paid to the holder of the option if the option expires
worthless.
Recapitalization
Restructuring a company's debt and equity mixture, most often with the aim of making a company's
capital structure more stable. Essentially, the process involves the exchange of one form of
financing for another, such as removing preferred shares from the company's capital structure and
replacing them with bonds.
Recapture
1. A condition set by the seller of an asset that gives him/her the right to purchase back some or all
of the assets within a certain period of time.
2. A situation where an individual must add back a deduction from a previous year to their income.
Receivables
An asset designation applicable to all debts, unsettled transactions or other monetary obligations
owed to a company by its debtors or customers. Receivables are recorded by a company's
accountants and reported on the balance sheet, and they and include all debts owed to the
company, even if the debts are not currently due.
Receiver
A person appointed by a bankruptcy court or secured creditor to run a company for a short period of
time in a manner that will ensure as much debt is paid back to creditors as possible.
Receivership
A type of bankruptcy a company enters when a receiver is appointed by bankruptcy courts or
creditors to run the company.
Recession
A significant decline in activity spread across the economy, lasting longer than a few months. It is
visible in industrial production, employment, real income and wholesale-retail trade. The technical
indicator of a recession is two consecutive quarters of negative economic growth as measured by a
country's gross domestic product (GDP).
Recharacterization
The treatment of a contribution as being made to another type of IRA instead of the IRA that the
contribution was initially made.
Reclassification
The process of changing the class of mutual funds once certain requirements have been met. These
requirements are generally placed on load mutual funds. Reclassification is not considered to be a
taxable event.
Recognized Gain
The amount of gain reported for income tax purposes.
Recognized Loss
The amount of loss reported for income tax purposes.
Reconversion
A method used by individuals to minimize the tax burden of converting by recharacterizing Roth
IRA-converted amounts back to a Traditional IRA and then converting these assets back to a Roth
IRA again. Be aware that the IRS released regulations in 1999 placing limits on reconversions.
Record Date
The date established by an issuer of a security for the purpose of determining the holders who are
entitled to receive a dividend or distribution
Recording Fee
The fee a government charges for reporting a real estate purchase or sale into the public record
Recurring Revenue
The portion of a company's revenue that is highly likely to continue in the future. This is revenue
that is predictable, stable and can be counted on in the future with a high degree of certainty.
Red
A term relating to a negative balance on a company's financial statements.
Red Chip
A company incorporated and listed in Hong Kong with controlling Chinese shareholders.
Red Flag
An indicator of potential problems with a security. Most often used to refer to a stock, a red flag can
be any undesirable characteristic that stands out to an analyst. There is no universal standard for
identifying red flags the method used will depend on the investment methodology being employed.
Red Herring
A preliminary registration statement that must be filed with the SEC describing a new issue of stock
and the prospects of the issuing company
Redemption
The return of an investor's principal in a security, such as a stock, bond, or mutual fund.
Redenomination
1. The process whereby a country's currency is recalibrated due to significant inflation and currency
devaluation. Certain currencies have been redenominated a number of times over the last century
for various reasons.
2. The process of changing the currency value on a financial security.
Redeposit
1. The requirement for a person to reinvest a certain amount of money into their retirement fund after
he or she previously requested and obtained a return on the deposits made to the fund during a set
time period, in order to receive a certain payout from the fund upon retirement.
2. A cash management policy used by the Bank of Canada, where money is transferred from the
central bank to the chartered banks.
Registration
1. The process by which a company files required documents with the Securities and Exchange
Commission detailing the particulars of a proposed public offering. A company issuing shares must
reveal essential facts and detailed information about its business during the registration process,
including a business and asset description, a description of the security being offered and the
details of that offering, a description and names of the company's management, and the company's
financial statements, which have been certified by an accountant working independently of the
company.
2. The process by which securities brokers or dealers become legally entitled to sell securities. To
have the authority to sell securities, a broker or dealer must file forms and be granted registration
with the SEC, must already be a member, or must become a member of a self-regulatory
organization such as the NASD, be registered with the state or states in which he or she intends to
sell securities if such state laws require him or her to do so, and finally, be or become a member of
the Security Investor Protection Corporation.
Redlining
The unethical practice whereby financial institutions either flat out deny or make it extremely difficult
for residents of poor inner-city neighborhoods to borrow money, gain approval for a mortgage, take
out insurance or gain access to other financial services because of high default rates. In this case,
the rejection does not take the individual's qualifications and creditworthiness into account. The
federal Community Reinvestment Act was passed in 1977 to put an end to all redlining practices, but
critics say the discrimination still occurs.
Registration Right
A contractual right giving investors holding restricted stock the ability to demand that the issuing
company register the shares to the SEC, effectively making the stock available for sale to the public.
Regression
A statistical measure that attempts to determine the strength of the relationship between one
dependent variable (usually denoted by Y) and a series of other changing variables (known as
independent variables). The two basic types of regression are linear regression and multiple
regression. Linear regression uses one independent variable to explain and/or predict the outcome
of Y, while multiple regression uses two or more independent variables to predict the outcome. The
general form of each type of regression is:
Linear Regression: Y = a + bX + u
Multiple Regression: Y = a + b
Regressive Tax
A tax that takes a larger percentage from the income of low-income people than the income of high-
income people.
Reference Rate
The underlying index or rate upon which a floating-rate security is based.
Refinance
1. When a business or person revises their payment schedule for repaying debt.
2. Replacing an older loan with a new loan offering better terms.
Refinancing Risk
A type of risk that a borrower faces when the actual cost of extending or reborrowing funds may
exceed the predicted cost of financing. Refinancing risk can occur whenever an investor possesses
short-term liabilities and longer term investments.
Reflation
An economic policy whereby a government uses fiscal or monetary stimulus in order to expand a
country's output
Refinance
1. When a business or person revises their payment schedule for repaying debt.
2. Replacing an older loan with a new loan offering better terms.
Refinancing Risk
A type of risk that a borrower faces when the actual cost of extending or reborrowing funds may
exceed the predicted cost of financing. Refinancing risk can occur whenever an investor possesses
short-term liabilities and longer term investments
Refinancing Risk
A type of risk that a borrower faces when the actual cost of extending or reborrowing funds may
exceed the predicted cost of financing. Refinancing risk can occur whenever an investor possesses
short-term liabilities and longer term investments
Refund
A payment from the government for an individual's overpaid taxes. An individual in this situation is
said to be "over-withholding." Federal income tax refunds are not taxable.
Refundable Credit
A tax credit that is not limited by the amount of an individual's tax liability. Typically a tax credit only
reduces an individual's tax liability to zero. Refundable credits go beyond this and so really can be
considered the same as a payment.
Refunded Bond
A bond, originally issued as a regular or revenue bond, that is now secured by a second issue of
bonds which are held in an "escrow fund" consisting of U.S. government debt until the first bond
issue reaches maturity.
Refunding
Retiring an outstanding bond issue at maturity by using money from the sale of a new offering.
Refunded Bond
A bond, originally issued as a regular or revenue bond, that is now secured by a second issue of
bonds which are held in an "escrow fund" consisting of U.S. government debt until the first bond
issue reaches maturity.
Regional Fund
A mutual fund that confines itself to investments in securities from a specified geographical area,
such as Latin America, Europe or Asia. A regional mutual fund will generally look to own a
diversified portfolio of companies based in and operating out of its specified geographical area.
However, some regional funds can also be set up to invest in a specific segment of the region's
economy, such as energy.
Refunding
Retiring an outstanding bond issue at maturity by using money from the sale of a new offering.
Regional Fund
A mutual fund that confines itself to investments in securities from a specified geographical area,
such as Latin America, Europe or Asia. A regional mutual fund will generally look to own a
diversified portfolio of companies based in and operating out of its specified geographical area.
However, some regional funds can also be set up to invest in a specific segment of the region's
economy, such as energy.
Registered Security
1. The name given to securities whereby ownership is registered with the issuing company or their
agent.
2. Securities that are unavailable for sale due to restrictions placed upon them at the time of issue
Registrar
An institution or organization that is responsible for keeping records of bondholders and
shareholders. If you are the owner of a bond or a share in a company you will be registered as a
owner by one of these institutions.
Registration
1. The process by which a company files required documents with the Securities and Exchange
Commission detailing the particulars of a proposed public offering. A company issuing shares must
reveal essential facts and detailed information about its business during the registration process,
including a business and asset description, a description of the security being offered and the
details of that offering, a description and names of the company's management, and the company's
financial statements, which have been certified by an accountant working independently of the
company.
2. The process by which securities brokers or dealers become legally entitled to sell securities. To
have the authority to sell securities, a broker or dealer must file forms and be granted registration
with the SEC, must already be a member, or must become a member of a self-regulatory
organization such as the NASD, be registered with the state or states in which he or she intends to
sell securities if such state laws require him or her to do so, and finally, be or become a member of
the Security Investor Protection Corporation.
Registered Security
1. The name given to securities whereby ownership is registered with the issuing company or their
agent.
2. Securities that are unavailable for sale due to restrictions placed upon them at the time of issue.
Registrar
An institution or organization that is responsible for keeping records of bondholders and
shareholders. If you are the owner of a bond or a share in a company you will be registered as a
owner by one of these institutions.
Registration
1. The process by which a company files required documents with the Securities and Exchange
Commission detailing the particulars of a proposed public offering. A company issuing shares must
reveal essential facts and detailed information about its business during the registration process,
including a business and asset description, a description of the security being offered and the
details of that offering, a description and names of the company's management, and the company's
financial statements, which have been certified by an accountant working independently of the
company.
2. The process by which securities brokers or dealers become legally entitled to sell securities. To
have the authority to sell securities, a broker or dealer must file forms and be granted registration
with the SEC, must already be a member, or must become a member of a self-regulatory
organization such as the NASD, be registered with the state or states in which he or she intends to
sell securities if such state laws require him or her to do so, and finally, be or become a member of
the Security Investor Protection Corporation
Registered Security
1. The name given to securities whereby ownership is registered with the issuing company or their
agent.
2. Securities that are unavailable for sale due to restrictions placed upon them at the time of issue
Registrar
An institution or organization that is responsible for keeping records of bondholders and
shareholders. If you are the owner of a bond or a share in a company you will be registered as a
owner by one of these institutions.
Registration Right
A contractual right giving investors holding restricted stock the ability to demand that the issuing
company register the shares to the SEC, effectively making the stock available for sale to the public.
Regression
A statistical measure that attempts to determine the strength of the relationship between one
dependent variable (usually denoted by Y) and a series of other changing variables (known as
independent variables). The two basic types of regression are linear regression and multiple
regression. Linear regression uses one independent variable to explain and/or predict the outcome
of Y, while multiple regression uses two or more independent variables to predict the outcome. The
general form of each type of regression is:
Linear Regression: Y = a + bX + u
Multiple Regression: Y = a + b
Regressive Tax
A tax that takes a larger percentage from the income of low-income people than the income of high-
income people.
Regret Theory
A theory that says people anticipate regret if they make a wrong choice, and take this anticipation
into consideration when making decisions. Fear of regret can play a large role in dissuading or
motivating someone to do something.
Regular-Way Trade - RW
A type of trade that is settled through the regular settlement cycle required for the particular
investment being traded. The settlement cycle is the time that the regulations of the securities
market allows for the buyer to complete payment and for the seller to deliver the goods being
purchased. The settlement cycle differs for different assets. Most trades are regular-way trades.
Regulation A - Reg A
An SEC regulation that governs offerings of $5,000,000 or less, which qualify for simplified
registration (an exemption).
Regulation G
The Federal Reserve Board regulation that governs the extension of credit for securities
transactions by commercial lenders and non-financial corporations.
Regulation D - Reg D
A Securities and Exchange Commission (SEC) regulation governing private placement exemptions.
Reg D allows usually smaller companies to raise capital through the sale of equity or debt securities
without having to register their securities with the SEC.
Remittance
The process of sending money to remove an obligation. This is most often done through an
electronic network, wire transfer or mail. The term also refers to the amount of money being sent to
remove the obligation.
Regulation M
An IRS regulation that allows regulated investment companies to pass taxes from capital gains,
dividends, and interest distributions onto individual investors.
Regulation SHO
A regulatory addition by the Securities & Exchange Commission, expanding and updating the
restrictions placed on short sale transactions. The updated regulations came into effect on Jan 3,
2005 and help to address several key issues in the short sale market.
Regulation T - Reg T
The Federal Reserve Board regulation that governs customer cash accounts and the amount of
credit that brokerage firms and dealers may extend to customers for the purchase of securities
Regulation U
The Federal Reserve Board regulation that governs loans by banks for the purchase of securities.
Rehypothecation
When a broker pledges hypothecated client owned securities in a margin account to secure a bank
loan.
Reinsurance
The practice of insurers transferring portions of risk portfolios to other parties by some form of
agreement in order to reduce the likelihood of having to pay a large obligation resulting from an
insurance claim.
Also known as "insurance for insurers" or "stop-loss insurance".
Reinvestment
Using dividends, interest and capital gains earned in an investment or mutual fund to purchase
additional shares or units, rather than receiving the distributions in cash.
1. In terms of stocks, it is the reinvestment of dividends to purchase additional shares.
2. In terms of mutual funds, it is the reinvestment of distributions and dividends to purchase
additional units of that fund.
3. In terms of tax gain/loss harvesting, it is the realization of losses to offset a capital gains liability.
Reinvestment Rate
The rate at which cash flows from fixed-income securities may be reinvested.
Reinvestment Risk
The risk that future proceeds will have to be reinvested at a lower potential interest rate.
Related-Party Transaction
A business deal or arrangement between two parties who are joined by a special relationship prior
to the deal. For example, a business transaction between a major shareholder and the corporation,
such as a contract for the shareholder's company to perform renovations to the corporation's
offices, would be deemed a related-party transaction.
Regulation Q
A Federal Reserve Board regulation that limits the interest rate banks can pay on savings deposits.
Relative Return
The return that an asset achieves over a period of time compared to a benchmark. The relative return
is the difference between the absolute return achieved by the asset and the return achieved by the
benchmark.
Relative Strength
A measure of price trend that indicates how a stock is performing relative to other stocks in its
industry
Relevant Cost
A managerial accounting term that is used to describe costs that are specific to management's
decisions. The concept of relevant costs eliminates unnecessary data that could complicate the
decision-making process
Repudiation
When one party refuses to honor their terms in a loan contract.
Reload Option
An employee stock option that grants additional options upon exercise of the original.
Reloading
A term lenders commonly use to refer to the habits of borrowers taking out loans to repay the
balance on other loans. Often reloading is done to take advantage of lower interest rates offered by
other loans, and potential tax benefits.
Remainder Man
The person who receives the principal remaining in a trust account after all other required payments
have been made, such as those to the beneficiary and expenses.
Remittance
The process of sending money to remove an obligation. This is most often done through an
electronic network, wire transfer or mail. The term also refers to the amount of money being sent to
remove the obligation.
Remuneration
Payment or compensation received for services or employment. This includes the base salary and
any bonuses or other economic benefits that an employee or executive receives during employment.
Renko Chart
A type of chart, developed by the Japanese, that is only concerned with price movement time and
volume are not included. It is thought to be named for the Japanese word for bricks, "renga". A
renko chart is constructed by placing a brick in the next column once the price surpasses the top or
bottom of the previous brick by a predefined amount. White bricks are used when the direction of
the trend is up, while black bricks are used when the trend is down. This type of chart is very
effective for traders to identify key support/resistance levels. Transaction signals are generated
when the direction of the trend changes and the bricks alternate colors.
Renounceable Right
An offer issued by a corporation to shareholders to purchase more shares of the corporation's stock
(usually at a discount). Renounceable rights have a value and can be traded
Rent-Seeking
When a company, organization or individual uses their resources to obtain an economic gain from
others without reciprocating any benefits back to society through wealth creation.
Reorganization
A process designed to revive a financially troubled or bankrupt firm. A reorganization involves the
restatement of assets and liabilities, as well as holding talks with creditors in order to make
arrangements for maintaining repayments
Repatriation
The process of converting a foreign currency into the currency of one's own country. The amount
that the investor will receive depends on the exchange rate between the two currencies being traded
at the settlement time.
Replacement Cost
The price that will have to be paid to replace an existing asset with a similar asset.
Reporting Currency
The currency used in published reports and financial documents.
Reporting Level
A level of ownership of a specific futures position wherein the holders exceed the stated amounts
and are required by the CFTC to submit daily reports.
Also known as reporting limit.
Required Yield
The return a bond must offer in order to be a worthwhile investment. Required yield is set by the
market and sets the precedent for how current bond issues will be priced.
Rescission
The right of an individual involved within a contract to return to the identical state as before they
entered into the agreement, due to courts not recognizing the contract as legally binding
Reserve Currency
A foreign currency held by central banks and other major financial institutions as a means to pay off
international debt obligations, or to influence their domestic exchange rate.
Reserve Fund
An account set aside by an individual or business to meet any unexpected costs that may arise in
the future as well as the future costs of upkeep. In most cases, the fund is simply a savings account
or another highly liquid asset, as it is impossible to predict when an unexpected cost may arise.
However, if the fund is set up to meet the costs of scheduled upgrades, less liquid assets may be
used.
Reserve Ratio
The portion (expressed as a percent) of depositors' balances banks must have on hand as cash.
This is a requirement determined by the country's central bank, which in the U.S. is the Federal
Reserve. The reserve ratio affects the money supply in a country. This is also referred to as the
"cash reserve ratio" (CRR).
Reserve Requirements
Requirements regarding the amount of funds that banks must hold in reserve against deposits made
by their customers. This money must be in the bank's vaults or at the closest Federal Reserve Bank.
Resident Alien
A foreigner who is a permanent resident of the country in which he or she resides but does not have
citizenship. To fall under this classification in the U.S., you need to either currently have a green
card or have had one in the last calendar year. You also fall under the U.S. classification of resident
alien if you have been in the U.S. for more than 31 days during the current year along with having
been in the U.S. for at least 183 days over a three-year period that includes the current year
Residual Interest
A type of interest payment received by investors in a real estate mortgage investment conduit
(REMIC).
Residual Security
Another way to describe convertibles.
Resistance
In technical analysis, a price level at which a stock has a tendency to stay below. When a stock
moves above such a level on high volume, it is sometimes viewed as a bullish indication.
Respite Care
Short-term or temporary care of a few hours or weeks of the sick or disabled to provide relief, or
respite, to the regular caregiver, usually a family member.
Restatement
A revision in a company's earlier financial statements.
Restricted Stock
Insider holdings that are under some other kind of sales restriction. Restricted stock must be traded
in compliance with special SEC regulations
Restructuring
A significant modification made to the debt, operations or structure of a company. This type of
corporate action is usually made when there are significant problems in a company, which are
causing some form of financial harm and putting the overall business in jeopardy. The hope is that
through restructuring, a company can eliminate financial harm and improve the business
Retail Banking
Retail banking is typical mass-market banking where individual customers use local branches of
larger commercial banks. Services offered include: savings and checking accounts, mortgages,
personal loans, debit cards, credit cards, and so forth.
Retail Investor
Individual investors who buy and sell securities for their personal account, and not for another
company or organization.
Also known as an "individual investor" or "small investor".
Retail Note
A medium-term, subordinated, unsecured debt obligation usually issued by a multinational
corporation. Retail notes can be purchased directly from the issuer at par in $1,000 increments with
no accrued interest or added markups. They will usually pay a fixed interest rate for nine months or
more (after that, the rate may vary). Retail notes may be callable and can be redeemed at the option
of the issuer or holder. Most retail notes also feature a survivor's option.
Also known as "retail bonds".
Retained Earnings
The percentage of net earnings not paid out as dividends, but retained by the company to be
reinvested in its core business or to pay debt. It is recorded under shareholders' equity on the
balance sheet.
Calculated by adding net income to (or subtracting any net losses from) beginning retained earnings
and subtracting any dividends paid to shareholders:
Also known as the "retention ratio" or "retained surplus".
Retender
The act of an investor selling the delivery note issued by a clearing house upon tender by the
counter-party of the futures contract.
Retention Ratio
The percent of earnings credited to retained earnings. In other words, the proportion of net income
that is not paid out as dividends.
Retired Securities
Securities that have been repurchased by the issuer out of the company's retained earnings and
cancelled according to Securities & Exchange Commission (SEC) regulations. They have no market
value and no longer represent a share of ownership in the issuing corporation.
Retirement of Securities
1. The cancellation of stocks or bonds because the issuer has bought them back.
2. The removal of an asset from securities markets because its maturity date has been reached.
Retracement
A reversal in the movement of a stock's price, countering the prevailing trend.
Retractable Bond
A bond that features an option for the holder to force the issuer to redeem the bond before maturity
at par value. An investor may choose to shorten the maturity on a bond because of market
conditions or if he or she requires the principal sooner than expected.
Retrocession
1. The practice of one reinsurance company essentially insuring another reinsurance company by
accepting business that the other company had agreed to underwrite.
2. The voluntary act of returning ceded property from one group to another. Retrocession can also
be the result of a request to have property returned but, by definition, is not the result of a forced
transaction.
3. The process of differentiating or diversifying assets by consolidating and then subdividing them
amongst a number of stakeholders.
Return Of Capital
A return from an investment that is not considered income. The return of capital is when some or all
of the money an investor has in an investment is paid back to him or her, thus decreasing the value
of the investment. This is not a gain of any type because it is not in excess of the original
investment.
Reuters
A global information provider headquartered in London, England, and serving professionals in the
financial services, media and corporate markets. The news agency provides text, graphics, video
and pictures to subscribers around the world, including general and economic news. Reuters Group
trades on the London Stock Exchange and Nasdaq as 'RTR' and 'RTRSY'.
Revaluation
A calculated adjustment to a country's official exchange rate relative to a chosen baseline. The
baseline can be anything from wage rates to the price of gold to a foreign currency. In a fixed
exchange rate regime, only a decision by a country's government (i.e. central bank) can alter the
official value of the currency. Contrast to "devaluation".
Revaluation Rates
Market currency rates from a specific point in time that are used as a base value by currency traders
to assess whether a profit or a loss has been realized for the day. In most cases, the revaluation rate
is the closing rate for the previous trading day.
Revenue
The amount of money that a company actually receives during a specific period, including discounts
and deductions for returned merchandise. It is the "top line" or "gross income" figure from which
costs are subtracted to determine net income.
Revenue is calculated by multiplying the price at which goods or services are sold by the number of
units or amount sold.
Revenue is also known as "REVs"
Revenue Agent
A person who works for the Internal Revenue Service (IRS) examination department.
Revenue Bond
A municipal bond supported by the revenue from a specific project, such as a toll bridge, highway,
or local stadium.
Revenue Deficit
When actual revenues exceed actual expenditures. This occurs when actual revenues and
expenditures do not correspond with predicted figures. A revenue deficit is calculated by many
groups including governments, corporations and universities/colleges.
Revenue Officer
1. A person working for the Internal Revenue Service (IRS) collections department.
2. Short for Chief Revenue Officer, a person responsible for all revenue-generating functions.
Revenue Recognition
An accounting principle under generally accepted accounting principles (GAAP) that determines the
specific conditions under which income becomes realized as revenue. Generally, revenue is
recognized only when a specific critical event has occurred and the amount of revenue is
measurable.
Reversal
A sudden change in the price direction of a stock, index, commodity or derivative security.
Also referred to as a "trend reversal", "rally" or "correction".
Reversal Amount
The amount of price movement required to shift a chart to the right. This condition is used on charts
that only take into consideration price movement instead of both price and time.
Risk-Return Tradeoff
The principle that potential return rises with an increase in risk. Low levels of uncertainty (low risk)
are associated with low potential returns, whereas high levels of uncertainty (high risk) are
associated with high potential returns. In other words, the risk-return tradeoff says that invested
money can render higher profits only if it is subject to the possibility of being lost.
Risk Lover
An investor who is willing to take on additional risk for an investment that has a relatively low
expected return. This contrasts with the typical investor mentality - risk aversion. Risk averse
investors tend to take on increased risks only if they are warranted by the potential for higher
returns.
Reverse Conversion
A finance and risk management technique based on a put-call parity strategy that consists of selling
a put and buying call (a synthetic long position), while shorting the underlying stock. As long as the
put and call have the same underlying, strike price and expiration date, a synthetic long position will
have the same risk/return profile as ownership of an equivalent amount of the underlying stock.
Reverse Convertible Bond - RCB
A bond that can be converted to cash, debt or equity at the discretion of the issuer at a set date. The
bond contains an embedded derivative that allows the issuer to put the bond to bondholders at a set
date prior to the bond's maturity for existing debt or shares of an underlying company. The
underlying company need not be related in any way to the issuer's business. These types of bonds
usually have shorter terms to maturity and higher yields than most other bonds because of the risk
involved for investors, who may be forced to redeem their bonds for securities in a company that
have, or are expected to, decrease substantially in value.
Reverse Convertible Note - RCN
A synthetic instrument that behaves similar to both bonds and stocks, providing high coupon
payments with final payoffs dependant upon the equity markets.
Reverse Mortgage
A special type of loan used to convert the equity in a home into cash. The money obtained through a
reverse mortgage is usually used to provide seniors with financial security in their retirement years.
Revocable Beneficiary
The ability of a policy owner either to change who will receive the compensation from his or her
policy or to terminate the policy without having to get consent from the current beneficiary. Most life
insurance policies have this feature.
This is the opposite of an "irrevocable beneficiary".
Revocable Trust
A trust whereby provisions can be altered or canceled dependent on the grantor. During the life of
the trust, income earned is distributed to the grantor, and only after death does property transfer to
the beneficiaries.
Also referred to as a "revocable living trust".
Revoked IRA
An IRA holder may revoke an IRA within the 7 days after the IRA is established. When an IRA holder
elects to revoke the IRA, the full amount contributed to the IRA must be returned to the IRA holder.
Revolving Credit
A line of credit where the customer pays a commitment fee and is then allowed to use the funds
when they are needed. It is usually used for operating purposes, fluctuating each month depending
on the customers current cash flow needs.
Often referred to as "revolver."
Rho
The rate at which the price of a derivative changes relative to a change in the risk-free rate of
interest. Rho measures the sensitivity of an option or options portfolio to a change in interest rate.
Rider
A provision in an insurance policy allowing for amendments to its terms and/or coverage
Rights
A security giving stockholders entitlement to purchase new shares issued by the corporation at a
predetermined price (normally less than the current market price) in proportion to the number of
shares already owned. Rights are issued only for a short period of time, after which they expire.
Rights of Accumulation - ROA
A right that allows a shareholder to receive reduced sales charges when the amount of mutual funds
purchased, plus the amount already held, equals an ROA breakpoint. In addition, there is no time
limit on how long the mutual fund needs to be held to qualify for a ROA.
Ring Fence
A strategy with which an investor isolates a certain amount of money from any outside risk.
Rings
Trading arenas, located on the floor of an exchange, in which traders execute orders. Rings are also
referred to as pits.
Rio Trade
In the securities market, a transaction made in a desperate attempt to recover previous losses.
Ripple
A metaphor for a short-term market trend.
Rising Bottom
A pattern on a security's chart that results from the daily low price rising over time, creating a series
of ascending troughs. Technical traders use this pattern to confirm that the trend of the underlying
security is heading upward. The chart below illustrates a security that has three rising bottoms,
indicating progressively higher lows over time.
Also known as "ascending bottom".
Risk
The chance that an investment's actual return will be different than expected. This includes the
possibility of losing some or all of the original investment. It is usually measured by calculating the
standard deviation of the historical returns or average returns of a specific investment.
Risk Adjusted Return on Capital - RAROC
In financial analysis, riskier projects and investments must be evaluated differently from their
riskless counterparts. By discounting risky cashflows against less risky cashflows RAROC accounts
for changes in the profile of the investment.
Risk Arbitrage
A broad definition for three types of arbitrage that contain an element of risk:
1) Merger and acquisition arbitrage - The simultaneous purchase of stock in a company being
acquired and the sale (or short sale) of stock in the acquiring company.
2) Liquidation arbitrage - The exploitation of a difference between a company's current value and its
estimated liquidation value.
3) Pairs trading - The exploitation of a difference between two very similar companies in the same
industry that have historically been highly correlated. When the two company's values diverge to a
historically high level you can take an offsetting position in each (e.g. go long in one and short the
other) because, as history has shown, they will inevitable come to be similarly valued.
Risk Averse
Describes an investor who, when faced with two investments with a similar expected return (but
different risks), will prefer the one with the lower risk
Risk Capital
The money that a person allocates to investing in high-risk securities.
Risk Graph
A two-dimensional graphical representation that displays the profit or loss of an option at various
prices. The x-axis represents the price of the underlying security and the y-axis represents the
potential profit/loss. Often called a "profit/loss diagram", this graph provides an easy way to
understand and visualize the effects of what may happen to an option in various situations.
Risk Management
The process of identification, analysis and either acceptance or mitigation of uncertainty in
investment decision-making. Essentially, risk management occurs anytime an investor or fund
manager analyzes and attempts to quantify the potential for losses in an investment and then takes
the appropriate action (or inaction) given their investment objectives and risk tolerance.
Risk Neutral
A description of an investor who purposely overlooks risk when deciding between investments.
Risk Premium
The return in excess of the risk-free rate of return that an investment is expected to yield. An asset's
risk premium is a form of compensation for investors who tolerate the extra risk - compared to that
of a risk-free asset - in a given investment.
Risk Reversal
1. In commodities trading, it is a hedge strategy that consists of selling a call and buying a put
option. This strategy protects against unfavorable, downward price movements but limits the profits
that can be made from favorable upward price movements.
2. In foreign-exchange trading, risk reversal is the difference in volatility (delta) between similar call
and put options, which conveys market information used to make trading decisions.
Risk Tolerance
The degree of uncertainty that an investor can handle in regards to a negative change in the value of
their portfolio.
Risk-Adjusted Return
A measure of how much risk a fund or portfolio takes on to earn its returns, usually expressed as a
number or a rating.
Risk-Free Asset
An asset which has a certain future return. Treasuries (especially T-bills) are considered to be risk-
free because they are backed by the U.S. government.
Risk-Free Return
The theoretical rate of return attributed to an investment with zero risk. The risk-free rate represents
the interest on an investor's money they would expect from an absolutely risk-free investment over a
specified period of time.
Risk-Weighted Assets
In terms of the minimum amount of capital that is required within banks and other institutions, based
on a percentage of the assets, weighted by risk.
Risk/Reward Ratio
A ratio used by many investors to compare the expected returns of an investment to the amount of
risk undertaken to capture these returns. This ratio is calculated mathematically by dividing the
amount of profit the trader expects to have made when the position is closed (i.e. the reward) by the
amount he or she stands to lose if price moves in the unexpected direction (i.e. the risk).
Riskless Principal
Two principal transactions occurring at the same price that are reported only once as an agency
transaction.
Road Show
A presentation by an issuer of securities to potential buyers. It is intended to create interest in the
securities.
Rocket Scientist
In the world of finance, these are people with science and math degrees who work in the finance
field building highly advanced quantitative finance models. These models help banking, insurance
and investment firms to price financial instruments.
Rogue Trader
A trader who acts independently of others - and, typically, recklessly - usually to the detriment of
both the clients and the institution that employs him or her. In most cases this type of trading is high
risk and can create huge losses.
Roll Back
When an investor replaces an old options position with new one having an earlier expiration date
(and the same strike price).
Roth 401(k)
A new employer-sponsored investment savings account that is funded with after-tax money. After
the investor reaches age 59.5, withdrawals of any money from the account (including investment
gains) are tax-free. Unlike the Roth IRA, the Roth 401(k) has no income limitations for those
investors who want to participate - anyone, no matter what his/her income, is allowed to invest up to
the contribution limit into the plan.
Roll Down
When an investor replaces an old options position with new one at a lower strike price.
Run
When a large amount of bank customers try to withdrawal their bank deposits simultaneously, and
the bank's reserves are not sufficient to cover the withdrawals.
Roll Forward
When an investor replaces an old options position with a new one having a later expiration date (and
same strike price).
RS
This IBD SmartSelect® Corporate Rating is a measure of a stock’s price performance over the last
twelve months, compared to all stocks in our database.
The rating scale ranges from 1 (lowest) to 99 (highest).
Initial Public Offering (IPO) stocks will be assigned a “1” rating until the data from five trading
sessions are available for calculation.
Roll Up
1. The move from one option position to another with a higher exercise price.
2. In the context of venture capital, when a VC forces small companies to merge in order to reduce
costs.
Rust Bowl
An area that was once known for its manufacturing plants but
is now abandoned as the plants have either gone out of business
or moved to Latin American or Asia, where labor costs are lower.
Rollercoaster Swap
A seasonal swap providing flexibility of payments at predetermined periods in order to best meet
cyclical financing needs or other requirements of the counterparty.
Russian Option
A lookback option without an expiry date. This type of option can have either an American or a Mid-
Atlantic settlement.
Runoff
The procedure of printing the end-of-day prices for every stock on an exchange onto ticker tape
Rolling EPS
Measuring a company's EPS by using the previous 2 quarters and adding them to the following 2
quarter's estimated EPS
Rolling Returns
The annualized average return for a period ending with the listed year. Rolling returns are useful for
examining the behavior of returns for holding periods similar to those actually experienced by
investors.
Also known as 'rolling period returns' or 'rolling time periods'.
Rollover
1. The process of reinvesting funds from a mature security into a new issue of the same or a similar
security.
2. The process of transferring the holdings of one retirement plan to another without suffering tax
consequences.
Running Yield
Used to describe the income investors get from their portfolio as a percentage of market value of the
securities.
RON
In currencies, this is the abbreviation for the Romanian New Leu
Runaway Gap
A type of gap on a price chart that occurs during strong bull or bear movements characterized by an
abrupt change in price and appearing over a range of prices. They are best decribed as gaps caused
by an sudden increase/decrease in interest for a stock.
The image shows a gap in the middle of a large upward movement.
Run Rate
1. How the financial performance of a company would look if you were to extrapolate current results
out over a certain period of time.
2. The average annual dilution from company stock option grants over the most recent three year
period recorded in the annual report.
Roth IRA
An individual retirement plan that bears many similarities to the Traditional IRA. Contributions are
never deductible, and qualified distributions are tax-free.
Rump
The name given to the group of investors refusing to tender their shares into a corporate action,
such as a merger or acquisition.
Round Lot
The normal unit of trading for a security, which is generally 100 shares of stock.
Rumortrage
A term often used by traders to refer to increased trading caused by a takeover rumor.
Rule Of 72
A rule stating that in order to find the number of years required to double your money at a given
interest rate, you divide the compound return into 72. The result is the approximate number of years
that it will take for your investment to double.
Rule Of 18
A rule whereby the sum of the inflation rate and the P/E ratio of the Dow Jones Industrial Average is
an indicator of the direction of the stock market. If the total is above 18, stocks are supposed to
decrease. If the total is under 18, then the stock market is expected to increase.
Rule 72(t)
An Internal Revenue Service (IRS) rule that allows for penalty-free withdrawals from an IRA account.
The rule requires that, in order for the IRA owner to take penalty-free early withdrawals, he or she
must take at least five "substantially equal periodic payments" (SEPPs). The amount depends on the
IRA owner's life expectancy calculated with various IRS-approved methods.
Rule 144A
A Securities & Exchange Commission rule modifying a two-year holding period requirement on
privately placed securities to permit qualified institutional buyers to trade these positions among
themselves.
Rule 144
A Securities and Exchange Commission rule that sets the conditions under which restricted,
unregistered and control securities can be sold. These are the five conditions that must be met for
these securities to be sold:
1. The prescribed holding period must be met.
2. There is an 'adequate' amount of current information available to the public regarding the
historical performance of the security.
3. The amount to be sold is less than 1% of the shares outstanding and accounts for less than 1% of
the average of the previous four weeks' trading volume.
4. All of the normal trading conditions that apply to any trade have been met.
5. If wishing to sell more than 500 shares or an amount worth more than $10,000, the seller must file
a form with the SEC before the sale.
Rubber Check
Another name for a "bounced check," the check cannot be processed because the writer has
insufficient funds.
RUB
In currencies, this is the abbreviation for the Russian ruble
Royalty Units
An ownership unit in a royalty trust. A royalty unit gives the unit holder a stake in the income
generated by the holdings of the trust. A royalty trust takes ownership stakes in operating
companies or in their cash flows. The royalty trust owns the income or cash flow that the company
generates and passes this income on to the royalty unit holders of that trust. Royalty units are seen
as an attractive investment because the income generated by the assets is subject to taxes at the
individual level, rather than the double taxation which is seen with dividends on common stock.
Royalty
A payment to an owner for the use of property, especially patents, copyrighted works, franchises or
natural resources.
Round-Trip Trading
An action that attempts to inflate transaction volumes through the continuous and frequent
purchase and sale of a particular security, commodity or asset. Round-trip trading can be used to
refer to the practice of a business selling an unused asset to another company while agreeing to buy
back the same asset for about the same price (which has been seen in the energy and telecom
business
S
A Nasdaq stock symbol indicating shares of beneficial interest.
S&P Phenomenon
The tendency for a stock that is newly added to the S&P index to temporarily increase in price.
S-3 Filing
The most simplified registration form. It can only be used by companies that have been required to
report under the '34 Act for a minimum of twelve months and have met the timely filing requirements
set forth under Form S-2.
S-8 Filing
A SEC filing required for companies wishing to issue equity to their employees.
Sacrifice Ratio
An economic ratio that measures the costs associated with slowing down economic output to
change inflationary trends. The ratio is calculated by taking the cost of lost production and dividing
it by the percentage change in inflation, and its quotient gives the loss of output per 1% change in
inflation:
Safe Harbor
1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated.
2. A form of shark repellent implemented by a target company acquiring a business that is so poorly
regulated that the target itself is less attractive. In effect, this gives the target company a "safe
harbor."
3. An accounting method that avoids legal or tax regulations and allows for a simpler method
(usually) of determining a tax consequence than those methods described by the precise language
of the tax code.
Safekeeping
The storage of assets or other items of value in a protected area.
Individuals may use self-directed methods of safekeeping or the services of a bank or brokerage
firm. Financial institutions are custodians and are therefore legally responsible for the items in
safekeeping.
Also known as "safekeep"
Saitori
A member of the Tokyo Stock Exchange who facilitates the trading of securities by matching buy
and sell orders. Their role is to make the market as orderly and efficient as possible.
Salary Freeze
The action of a company suspending salary increases for a period of time.
Salary-Reduction Contribution
A cash- or deferred-contribution arrangement of an employer-sponsored retirement plan, under
which participants can choose to set aside part of their pre-tax compensation as a contribution to
the plan.
Sale
1) In general, a transaction between two parties where the buyer receives goods (tangible or
intangible), services and/or assets in exchange for money.
2) An agreement between a buyer and seller on the price of a security.
Sales Charge
A commission or fee paid by an investor at the time of purchasing mutual fund shares. The charge is
paid to a mutual fund salesperson or financial advisor and is intended to provide compensation for
the financial salesperson's efforts in assisting their client select the mutual fund best suited to their
needs. The term is also used when referring to fees associated with stock and real-estate
transactions.
Sales Growth
A company's annual and quarterly rate of increase in revenues (sales). A measure of growth and
success as long as it is accompanied by an equally strong rate of increase in earnings per share.
You want to see both in a potential investment.
Sales Tax
A tax imposed by the government at the point of sale on retail goods and services. It is collected by
the retailer and passed on to the state.
Salvage Value
The estimated value that an asset will realize upon its sale at the end of its useful life. The value is
used in accounting to determine depreciation amounts and in the tax system to determine
deductions. The value can be a best guess of the end value or can be determined by a regulatory
body such as the IRS.
Salvage Value
The estimated value that an asset will realize upon its sale at the end of its useful life. The value is
used in accounting to determine depreciation amounts and in the tax system to determine
deductions. The value can be a best guess of the end value or can be determined by a regulatory
body such as the IRS.
Same-Day Substitution
An offsetting change in a margin account, made over the trading day, that results in no overall
change in the value of the account. When a same-day substitution is made, a margin call is not
generated.
Samurai Bond
A yen-denominated bond issued in Tokyo by a non-Japanese company and subject to Japanese
regulations. Other types of yen-denominated bonds are Euroyens issued in countries other than
Japan.
Sandbag
A stalling tactic used by management to deter a company that is showing interest in taking them
over.
Sandwich Generation
The generation of middle-aged individuals who are pressured to support both aging parents and
growing children
SAR
In currencies, this is the abbreviation for the Saudi Riyal.
Saucer
A technical charting formation that indicates that a stock's price has reached its low and that the
downward trend has come to a close.
Savings
According to Keynesian economics, the amount left over when the cost of a person's consumer
expenditure is subtracted from the amount of disposable income that he or she earns in a given
period of time.
Savings Account
A deposit account intended for funds that are expected to stay in for the short term. A savings
account offers lower returns than the market rates.
SBD
In currencies, this is the abbreviation for the Solomon Islands Dollar.
SBO-401(k)
A tax-deferred, government-registered retirement savings plan that is specially designed for small
business owners (SBOs). Eligible participants are businesses that employ the business's owners
and their spouses. The business must not have any other eligible employees.
Scale Order
A type of order that comprises several limit orders at incrementally increasing or decreasing prices.
If it is a buy scale order, the limit orders will decrease in price, triggering buys at lower prices as the
price starts to fall. With a sell order, the limit orders will increase in price, allowing the trader to take
advantage of increasing prices, thereby locking in higher returns.
Scalpers
A person trading in the equities or options and futures market who holds a position for a very short
period of time, attempting to make money off of the bid-ask spread.
Scalping
A trading strategy that attempts to make many profits on small price changes. Traders who
implement this strategy will place anywhere from 10 to a couple hundred trades in a single day in the
belief that small moves in stock price are easier to catch than large ones.
Scarcity
The basic economic problem which arises from people having unlimited wants while there are and
always will be limited resources. Because of scarcity, various economic decisions must be made to
allocate resources efficiently.
Schedule 13D
An form that must be filed with the SEC under Rule 13D when a person or group acquiring more than
5% of any class of a company's shares to disclose this information within 10 days of the transaction.
Rule 13D requires the owner to also disclose any other person who has voting power or the power to
sell the security.
Schedule 13G
An SEC form similar to the Schedule 13D used to report a party's ownership of stock that is over 5%
of the company. Schedule 13G is shorter and requires less information from the filing party.
Ownership of over 5% in a publicly-traded stock is considered to be significant ownership, and
therefore must be reported to the public
Schedule D
A U.S. income tax form used by taxpayers to report their realized capital gains or losses. Investors
are required to report their capital gains (and losses) from the sales of assets, which result in
different cash values being received for them than what was originally paid, in order to affix some
amount of taxation to the income and wealth that is generated through investment activities.
SCR
In currencies, this is the abbreviation for the Seychelles Rupee.
Scrip
1. A written document that acknowledges a debt.
2. A temporary document representing a fraction of a share resulting from a split or spin-off. Scrips
may be applied to the purchase of full shares.
3. Currency issued by a private corporation
Scrip
1. A written document that acknowledges a debt.
2. A temporary document representing a fraction of a share resulting from a split or spin-off. Scrips
may be applied to the purchase of full shares.
3. Currency issued by a private corporation
Scripophily
The hobby of collecting antique bonds, stocks, and other financial instruments based upon their
esthetics and prominence in the financial world.
SDD
In currencies, this is the abbreviation for the Sudanese Dinar.
SDP
In currencies, this is the abbreviation for the Sudanese Pound.
Seasoned Issue
An issue of securities from an established company whose existing shares have exhibited stable
price movements and substantial trading volume over time, thereby earning a good reputation.
Seasons
A slang phrase used by venture capitalists to refer to the current stage of a proposed business idea
or concept.
The progression is spring (infancy), summer (adolescence), fall (maturing), winter (mature).
Seat
Membership to the NYSE
SEC Fee
A nominal fee that was created by the Securities Exchange Act of 1934 to be an additional
transaction cost attached to the selling of exchange-listed equities. This fee is usually listed as a
separate fee, independent of any associated brokerage commissions or fees.
Up until 2007, the fee is 1% of one three-hundredth of the dollar value of the equities sold. After
2007, the fee will be 1% of one eight-hundredth of the dollar value of the equities sold.
SEC Release IA-1092
A release from the Securities & Exchange Commission (SEC) that provides uniform interpretations
of how state and federal advisor laws would apply to people providing financial services.
SEC Yield
A standard yield calculation developed by the Securities and Exchange Commission (SEC) that
allows for fairer comparisons of bond funds. It is based on the most recent 30-day period covered by
the fund's filings with the SEC. The yield figure reflects the dividends and interest earned during the
period, after the deduction of the fund's expenses. This is also referred to as the "standardized
yield."
Second-to-Die Insurance
A type of life insurance on two people (usually married) that provides benefits to the heirs only after
the last surviving spouse dies. This differs from regular life insurance in that the surviving partner
doesn't receive any benefits after their spouse dies. Thus, second-to-die insurance is used for estate
planning.
Secondary Market
A market on which an investor purchases an asset from another investor rather than an issuing
corporation.
Secondary Offering
1. The issuance of new stock for public sale from a company that has already made its initial public
offering (IPO). Usually, these kinds of public offerings are made by companies wishing to refinance,
or raise capital for growth. Money raised from these kinds of secondary offerings goes to the
company, through the investment bank that underwrites the offering. Investment banks are issued
an allotment, and possibly an overallotment which they may choose to exercise if there is a strong
possibility of making money on the spread between the allotment price and the selling price of the
securities.
2. A sale of securities in which one or more major stockholders in a company sell all or a large
portion of their holdings. The proceeds of this sale are paid to the stockholders that sell their
shares. Often, the company that issued the shares holds a large percentage of the stocks it issues.
Secondary Stock
A stock that is considered riskier than blue chips because it has a smaller market capitalization.
Section 1031
A section of the U.S. Internal Revenue Service Code that allows investors to defer capital gains taxes
on any exchange of like-kind properties for business or investment purposes. Taxes on capital gains
are not charged upon sale of a property if the money is being used to purchase another property -
the payment of tax is deferred until property is sold with no re-investment.
Section 1245
A part of the IRS code stating that depreciable property that has been sold at a price in excess of
depreciated or salvage value may qualify for favorable capital-gains tax treatment.
Section 1250
A section of the IRS code stating that a gain from selling real estate that has been subjected to
accelerated depreciation should be treated as ordinary income instead of a capital gain.
Sector
Consist of a number of similar industry groups. Sectors are broader than industries. For instance,
the high-tech or consumer sector can include several different industries.
Sector Charts
Found on the 'General Markets & Sectors' page of Investor's Business Daily, these charts show the
last three months percentage increase for the leading sectors. Sector charts are useful in
determining the strength of each sector.
Sector Fund
An investment fund that makes investments solely in businesses that operate in a particular
industry or sector of the economy.
Sector Rotation
The action of a mutual fund or portfolio manager shifting investment assets from one sector of the
economy to another.
Secular
An adjective used to describe a long-term time frame, usually at least 10 years.
Secured Bond
A type of bond that is secured by the issuer's pledge of a specific asset, which is a form of collateral
on the loan. In the event of a default, the bond issuer passes title of the asset or the money that has
been set aside onto the bondholders. Secured bonds can also be secured with a revenue stream that
comes from the project that the bond issue was used to finance.
Secured Card
A type of credit card that is backed by a savings account used as collateral on the credit available
with the card. Money is deposited and held in the account backing the card. The limit will be based
on both your previous credit history and the amount deposited in the account. The limit as a percent
of the deposit tends to range between 50% and 100%.
Secured Debt
Debt backed or secured by collateral to reduce the risk associated with lending. An example would
be a mortgage, your house is considered collateral towards the debt. If you default on repayment,
the bank seizes your house, sells it and uses the proceeds to pay back the debt.
Secured Note
A bilateral lending agreement, the note represents a contractual obligation to lend and borrow
money at a specified interest rate.
Securities Lending
When a brokerage lends securities owned by its clients to short sellers.
Securitization
The process of creating a financial instrument by combining other financial assets and then
marketing them to investors.
Securitize
The practice of a company selling accounts receivables or other debts owed to it. The third party
that buys the debt assumes ownership of it and the responsibility for collecting the debts, and keeps
the repayments when made. When it sells the debt to the third party, the company recognizes the
sale price of debts as a positive cash flow under GAAP rules.
Security
An instrument representing ownership (stocks), a debt agreement (bonds), or the rights to
ownership (derivatives).
Security Analyst
A financial professional who studies various industries and companies, providing research and
valuation reports, and making buy, sell, and hold recommendations.
Seed Capital
The initial equity capital used to start a new venture or business.
Segregated Fund
A type of annuity that is similar to a mutual fund, and is an insurance product and offered only by
insurance companies.
Seigniorage
The difference between the value of money and the cost to produce it - in other words, the economic
cost of producing a currency within a given economy or country. If the seigniorage is positive, then
the government will make an economic profit; a negative seigniorage will result in an economic loss.
SEK
In currencies, this is the abbreviation for the Swedish Krona.
Self-Directed RRSP
A type of RRSP (Registered Retirement Savings Plan) whose owner determines the asset mix held in
the trust. An RRSP is a Canadian retirement savings vehicle to which contributions are tax
deductible on an annual basis, up to a certain amount. With a self-directed RRSP, an investor can
determine the portfolio of investment products in his or her RRSP. Investments that are not RRSP
eligible, however, are sill not allowed in a self-directed RRSP.
Self-Employment Tax
A tax imposed on self-employed people, who must pay this tax in order to receive social-security
benefits upon retirement.
Sell
1. A recommendation to sell a particular security.
2. The process of liquidating an asset in exchange for money.
Sell Plus
An order to sell a stock at a price above the current market price.
Sell Side
The retail brokers and research departments that sell securities and make recommendations for
brokerage firms' customers.
Sell To Close
A phrase used by many brokerages on the street to represent the closing of a long position in option
transactions.
Sell To Open
A phrase used by many brokerages on the street to represent the opening of a short position in
option transactions.
Sell To Open
A phrase used by many brokerages on the street to represent the opening of a short position in
option transactions.
Sell-Off
The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply
leads to a decline in the value of the security.
Sell-Out
When a broker or investor buying stocks has failed to settle the trade in a timely manner and, as a
result, the broker can forcibly sell the securities on the investor's behalf.
Seller
1. An individual or entity that exchanges any type of good or service in return for payment.
2. In the option market, the seller is the investor who collects a premium from the buyer in return for
taking on the risk associated with holding a short position in an option. The seller of an option is
also known as a "writer".
Seller's Call
An agreement between a buyer and a seller for a specific grade and quantity of commodity that
allows a period of time for the seller to set the price a fixed number of points above (or below) a
specified delivery month's futures price.
Seller's Market
A market condition characterized by a shortage of goods available for sale.
Seller's Option
The right of a forward contract seller to choose some of the specifications of a commodity to be
delivered. The choices about the delivered commodity's quality and delivery specifications must fit
among the limits imposed by the terms of the contract.
Seller's option can also refer to a put option.
Selling Away
When a broker solicits you to purchase securities not held or offered by the brokerage firm. As a
general rule, such activities are a violation of securities regulations.
Selling Group
All financial institutions involved in selling or marketing a new issue of debt or equity but not
necessarily participating in the underwriting consortium.
Selling Hedge
A hedging strategy with which the sale of futures contracts are meant to offset a long underlying
commodity position. Also known as a "short hedge."
Selling Hedge
A hedging strategy with which the sale of futures contracts are meant to offset a long underlying
commodity position. Also known as a "short hedge."
Semi-Variable Cost
A cost composed of a mixture of fixed and variable components. Costs are fixed for a set level of
production or consumption, becoming variable after the level is exceeded. Also known as a "semi-
fixed cost."
Semiannual
An event that occurs twice in a calendar year
Semiconductor
Another word for "chip." A semiconductor is a material such as silicon, which conducts electrical
charges but not as well as metals such as copper and aluminum.
Senior Debt
A bond or other form of debt that takes priority over other debt securities sold by the issuer.
Senior Security
A security (usually debt) that, in the event the issuer goes bankrupt, must be repaid before other
creditors receive any payment.
Sensex
An abbreviation of the Bombay Exchange Sensitive Index (Sensex) - the benchmark index of the
Bombay Stock Exchange (BSE). It is composed of 30 of the largest and most actively-traded stocks
on the BSE. Initially compiled in 1986, the Sensex is the oldest stock index in India.
Sensitivity
The magnitude of a financial instrument's reaction to changes in underlying factors. Financial
instruments, such as stocks and bonds, are constantly impacted by many factors. Sensitivity
accounts for all factors that impact a given instrument in a negative or positive way in an attempt to
learn how much a certain factor will impact the value of a particular instrument.
Sensitivity Analysis
A technique for determining the outcome of a decision if a key prediction turns out to be wrong.
Sentiment Indicator
A general term used to describe indicators that gauge investor attitudes toward the market.
Separate Account
1. A privately managed investment account opened through a brokerage or financial advisor that
uses pooled money to buy individual assets.
2. In the context of variable annuities, these are payments made to an insurance company for the
purpose of investing in securities. These securities are kept separate from the insurer's general
investments.
Serial Bond
A bond issue in which a portion of the outstanding bonds matures at regular intervals until
eventually all of the bonds have matured. As they mature gradually over a period of years, these
bonds are used to finance a project providing regular, level or predictable income streams. Serial
bonds are also used to finance projects with regular, level debt payments such as residential
developments
Series 11
A securities license for sales assistants who also take unsolicited securities orders for customers.
Series 24
A securities license entitling the holder to supervise and manage branch activities. Before taking the
Series 24 exam, you must have your Series 7 license.
Series 26
A securities license entitling the holder to supervise and manage sales activities for investment
companies and annuity activities.
Series 27
A securities license entitling the holder to become a chief financial officer for a NASD member firm.
Series 3
A securities license entitling the holder to sell commodities or futures contracts.
Series 30
A securities license entitling the holder to become a futures branch office manager
Series 31
A securities license entitling the holder to sell managed futures(funds).
Series 4
A securities license entitling the holder to supervise options sales personnel and compliance
issues. Before taking the Series 4 exam, you must have your Series 7 license.
Series 55
A securities license entitling the holder to actively participate in equity trading.
Series 6
A securities license entitling the holder to sell mutual funds and variable annuities.
Series 63
A securities license entitling the holder to solicit orders for any type of security in a particular state.
This license is required in addition to the Series 7 or Series 6.
Series 65
A securities license required by most U.S. states for individuals that act as an investment advisor.
Series 66
An exam administered by the North American Securities Administrators Association. Successful
completion of the Series 66 exam is equivalent to successful completion of both the Series 63 and
Series 65 exams.
Series 7
A general securities registered representative license, it entitles the holder to sell all types of
securities products with the exception of commodities/futures (which requires a Series 3 license).
Series 9/10
A securities license entitling the holder to supervise branch activities. Before taking the Series 9/10
exam, you must have your Series 7 license.
Series EE Bond
A non-marketable, interest-bearing U.S. government savings bond issued at a discount from par.
Series HH Bond
A non-marketable, interest-bearing U.S. government savings bond issued at par and acquired only
by exchanging Series EE bonds.
Series I Bond
A non-marketable, interest-bearing U.S. government savings bond that is a combination of two
separate rates:
1) Fixed Interest Rate
2) Variable Inflation Rate (adjusted semiannually)
Settlement Date
1. The date by which an executed security trade must be settled. That is, the date by which a buyer
must pay for the securities delivered by the seller.
2. The payment date of benefits from a life insurance policy.
Settlement Price
The average price at which a contract trades, calculated at both the open and close of each trading
day.
Settlement Risk
The risk that one party will fail to deliver the terms of a contract with another party at the time of
settlement. Settlement risk can be the risk associated with default at settlement and any timing
differences in settlement between the two parties. This type of risk can lead to principal risk.
Settlement Statement
A statement that summarizes all the fees and charges that both the homebuyer and seller face
during the settlement process of a housing transaction. This form, which is under the jurisdiction of
the U.S. Department of Housing and Urban Development, is also known as the HUD-1.
Settling Price
The price used daily by clearing houses to clear all trades and settle accounts between clearing
members. Also commonly referred to as "settlement price."
Severability
A clause in a contract that allows for the terms of the contract to be independent of one another, so
that if a term in the contract is deemed unenforceable by a court, the contract as a whole will not be
deemed unenforceable. If there were no severability clause in a contract, a whole contract could be
deemed unenforceable because of one unenforceable term.
Also known as a "severability clause" or a "savings clause".
Severance Pay
Compensation that an employer gives to someone who is about to lose his or her job.
SGD
In currencies, this is the abbreviation for the Singapore Dollar.
Shadow
A small line found on a candle in a candlestick chart that is used to indicate where the price of a
stock has fluctuated relative to the opening and closing prices. Essentially, these shadows illustrate
the highest and lowest prices at which a security has traded over a specific time period.
Shadow Pricing
The arbitrary assignment of dollar values to non-marketed goods.
Shadow Rating
1. The name given to a bond rating performed on an issuing party by a credited institution, but
without any public announcement of the results.
2. A rating given by S&P to Israel Bonds, which are not permitted to be traded on the secondary
marke
Shakeout
A situation in which many investors exit their positions, often at a loss, because of uncertainty or
recent bad news circulating around a particular security or industry.
Share Capital
The portion of a corporation's equity obtained from issuing shares in return for cash or other
considerations.
Share Repurchase
A program by which a company buys back its own shares from the marketplace, reducing the
number of outstanding shares. This is usually an indication that the company's management thinks
the shares are undervalued.
Share Turnover
A measure of stock liquidity calculated by dividing the total number of shares traded over a period
by the average number of shares outstanding for the period. The higher the share turnover, the more
liquid the share of the company
Shareholder
Any person, company, or other institution that owns at least 1 share in a company. A shareholder
may also be referred to as a stockholder.
Shareholder Activist
A person who attempts to use his or her rights as a shareholder of a publicly-traded corporation to
bring about social change. Some of the issues most often addressed by shareholder activists are
related to the environment, investments in politically sensitive parts of the world and workers' rights
(sweatshops).
The term can also refer to investors who believe that a company's management is doing a bad job
and who attempt to gain control of the company and replace management for the good of the
shareholders.
Shareholder Activist
A person who attempts to use his or her rights as a shareholder of a publicly-traded corporation to
bring about social change. Some of the issues most often addressed by shareholder activists are
related to the environment, investments in politically sensitive parts of the world and workers' rights
(sweatshops).
The term can also refer to investors who believe that a company's management is doing a bad job
and who attempt to gain control of the company and replace management for the good of the
shareholders.
Shareholders' Equity
A firm's total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings
minus treasury shares. Shareholders' equity represents the amount by which a company is financed
through common and preferred shares.
Shark Repellent
Any number of measures taken by a corporation to discourage an unwanted takeover attempt.
Shark Watcher
A firm specializing in the early detection of takeovers. The firm's primary business is usually the
solicitation of proxies for client corporations.
Sharpe Ratio
A ratio developed by Nobel Laureate Bill Sharpe to measure risk-adjusted performance. It is
calculated by subtracting the risk-free rate from the rate of return for a portfolio and dividing the
result by the standard deviation of the portfolio returns.
Sheep
An investor who lacks a focused trading strategy and trades on emotion and the suggestions of
others, including friends, family and financial gurus. This type of investor often makes rash
investments without reviewing their financial viability. The behavior of sheep contrasts with that of
bulls and bears, who have focused views about the market.
Shelf Offering
An SEC provision allowing an issuer to register a new issue security without selling the entire issue
at once.
Shelf Registration
A term used for the SEC rule 415, which allows a corporation the ability to comply with registration
requirements up to 2 years before doing a public offering. The corporation must still file the required
annual and quarterly reports to the SEC.
Shell Corporation
A corporation without active business operations or significant assets.
Shingle Theory
A suitability doctrine first introduced by the Securities and Exchange Commission in the 1930s. The
idea is that a broker who hangs out a shingle will represent his or her customers fairly and
responsibly when making suggestions regarding securities.
Shipping Certificate
An instrument used by futures exchanges as a negotiable commitment by an approved delivery
facility to transfer the underlying commodity to the holder of the certificate under the prescribed
terms.
Shock Absorber
A temporary restriction placed on the trading of index futures because of substantial intraday
decreases in the underlying indexes.
Shogun Bond
A type of foreign-currency denominated bond that is issued in Japan by foreign entities.
Organizations such as the World Bank have issued such debt instruments in the past .
Also known as a "geisha bond".
Shooting Star
A type of candlestick formation that results when a security's price, at some point during the day,
advances well above the opening price but closes lower than the opening price.
Short Covering
The purchase of shares previously sold short in order to close the open position.
Short Interest
The total number of shares of a security that have been sold short by customers and securities
firms.
Short Interest
The total number of shares of a security that have been sold short by customers and securities
firms.
Short Interest
The total number of shares of a security that have been sold short by customers and securities
firms.
Short Interest Ratio
Indicates the number of days it would take short-sellers to cover their positions.
Short Run
A period of time in which the quantity of some inputs cannot be increased beyond the fixed amount
that is available.
Short Sale
A market transaction in which an investor sells borrowed securities in anticipation of a price decline
and is required to return an equal amount of shares at some point in the future.
The payoff to selling short is the opposite of a long position. A short seller will make money if the
stock goes down in price, while a long position makes money when the stock goes up. The profit
that the investor receives is equal to the value of the sold borrowed shares less the cost of
repurchasing the borrowed shares.
Short Selling
The selling of a security that the seller does not own, or any sale that is completed by the delivery of
a security borrowed by the seller. Short sellers assume that they will be able to buy the stock at a
lower amount than the price at which they sold short.
Short Squeeze
A situation in which a lack of supply and an excess demand for a traded stock forces the price
upward
Short Straddle
An options strategy carried out by holding a short position in both a call and a put that have the
same strike price and expiration date. The maximum profit is the amount of premium collected by
writing the options.
Short Term
1. In general, holding an asset for short period of time.
2. In accounting, an asset expected to be converted into cash in the next year, or a liability coming
due in the next year. Also known as current assets and liabilities.
3. For investing, a security that matures in one year or less.
4. For taxes, a holding period of less that one year.
Shortfall
The amount by which the capital required to fulfill a financial obligation exceeds available capital.
Shotgun Clause
A buy-sell provision used by related parties in a business venture which gives an investor within the
partnership the right to offer his/her portion to a partner at a specified price. If the partner does not
buy the offered interest at this price, the partner must then sell his/her own interest to the offering
party at the same specified price.
Shout Option
An exotic option that allows the holder to lock in a defined profit while maintaining the right to
continue participating in gains without a loss of locked-in monies.
SHP
In currencies, this is the abbreviation for the St. Helana Pound.
Shrinkage
The amount by which inventory on hand is shorter than the amount of inventory recorded.
Sideways Market
A situation in which stock price changes little over a period of time.
Signaling Approach
The idea that insiders have information not available to the market. Moves made by insiders can
signal information to outsiders and change the stock price.
Signature Guarantee
A form of authentication issued by a bank or other financial institution that verifies the legitimacy of
a signature and the signatory's overall request. This type of guarantee is often used in situations
where financial instruments are being transferred. In most cases, the guarantor accepts all
consequences in the event that the signature is fraudulent.
Significant Order
An order to buy or sell a security that, due to its abnormally large size, has the potential to have a
significant effect on a security's price.
Silent Partner
An investor who does not have any management responsibilities but provides capital and shares
liability for any losses experienced by the entity.
Silicon Valley
Nickname for the region in North California (around San Jose) that contains a huge concentration of
computer and Internet companies.
Siliconaires
Slang referring to young dotcom entrepreneurs in their 20s and 30s who found themselves suddenly
rich due to stock options from their Silicon Valley Internet companies
Silver
An element commonly used in jewelry, coins, electronics, and photography. Silver has the highest
electrical conductivity of any metal.
Silver Parachute
A form of severance that is paid to employees of a company should the company be taken over by
another.
Sine Wave
An geometric waveform that oscillates (moves up, down or side-to-side) periodically, and is defined
by the function y = sin x. In other words, it is an s-shaped, smooth wave that oscillates above and
below zero.
Sinful Stock
Stock from companies that are associated with (or are directly involved in) activities considered
unethical or immoral.
Single
The filing status used by a taxpayer who is unmarried and does not qualify for any other filing
status.
Single-Country Fund
A mutual fund that restricts its investment to the assets of one country and is able to allocate its
funds only within the range of investment instruments available in the specified country. This
restriction is based on the mutual fund prospectus. If the fund's prospectus states that it is only
investing in one country, the fund is bound by this statement.
Sinker
A bond whose payments are provided by the issuer's sinking fund
Sinking Fund
A means of repaying funds that were borrowed through a bond issue. The issuer makes periodic
payments to a trustee who retires part of the issue by purchasing the bonds in the open market.
SIT
In currencies, this is the abbreviation for the Slovenian Tolar.
Skewness
A statistical term used to describe a situation's asymmetry in relation to a normal distribution.
Skimming
An electronic method of capturing a victim's personal information used by identity thieves. The
skimmer is a small device that scans a credit card and stores the information contained in the
magnetic strip. Skimming can take place during a legitimate transaction at a business
Sleeping Beauty
A company that is prime for takeover but has not been approached by an acquiring company.
Slippage
The difference between estimated transaction costs and the amount actually paid
SLL
In currencies, this is the abbreviation for the Sierra Leone Leone
SLR
In currencies, this is the abbreviation for the Sri Lankan rupee.
Sluggish Economy
A state in the economy in which the growth is slow, flat or declining. The term can refer to the
economy as a whole or a component of the economy, such as weak housing starts.
Slush Fund
A fund (or something similar) that does not have a designated purpose. These types of funds are
often illegal
Small Cap
Refers to stocks with a relatively small market capitalization. The definition of small cap can vary
among brokerages, but generally it is a company with a market capitalization of between $300
million and $2 billion.
Small Trader
An options or futures investor holding or controlling a single position below the required reporting
levels.
Smoking Gun
Something that serves as indisputable evidence or proof, especially of a crime.
SMR Rating
A proprietary rating pioneered by Investor's Business Daily to help investors identify companies
with superior Sales Growth, Profit Margins, and Return on Equity ratios.
The SMR Rating data item is one of five Investor's Business Daily SmartSelect® Corporate Ratings.
This data item combines into one simple "A" to "E" rating system, four fundamental factors used by
analysts:
• Sales growth rate over the last three quarters;
• Pre-tax profit margins;
• After-tax profit margins;
• Return on equity (ROE).
Sales growth and after-tax margins are computed with quarterly figures, while return on equity and
pre-tax margins are calculated using annual figures. All four factors take into account acceleration
of the variables (rate of increase).
The rating system is weighted in the following manner:
• A = Top 20% (Outperforming over 80% of other stocks)
• B = Next 20% (Outperforming 60%-80% of other stocks)
• C = Next 20% (Outperforming 40%-60% of other stocks)
• D = Next 20% (Outperforming 20%-40% of other stocks)
• E = Bottom 20% (Outperformed by over 80% of other stocks)
NOTE: Stocks will be listed as "N/A" when some or all of the variables used for calculation, are not
available.
Smurf
Slang for somebody who frequently launders money.
Social Capital
An economic idea that refers to the connections between individuals and entities that can be
economically valuable. Social networks that include people who trust and assist each other can be a
powerful asset. These relationships between individuals and firms can lead to a state in which each
will think of the other when something needs to be done. Along with economic capital, social capital
is a valuable mechanism in economic growth.
Social Responsibility
The principle that companies should contribute to the welfare of society and not be solely devoted
to maximizing profits.
Social Security
A U.S. federal benefits program developed in 1935. The program includes retirement benefits,
disability income, veteran's pension, public housing, and even the food stamp program.
SOES Bandits
A slang term for traders who make rapid buy and sell orders, using the SOES system, in order to
make a profit from small price changes
Soft Commodity
A commodity such as coffee, cocoa, sugar and fruit. This term generally refers to commodities that
are grown, rather than mined.
Soft Currency
Another name for "weak currency". The values of soft currencies fluctuate often, and other countries
do not want to hold these currencies due to political or economic uncertainty within the country with
the soft currency.
Soft Dollars
A means of paying brokerage firms for their services through commission revenue, as opposed to
through normal payments (hard-dollar fees).
Soft Landing
A term used to describe a rate of economic growth high enough to avoid recession, but slow enough
to avoid high inflation
Soft Loan
1. A loan with a below-market rate of interest.
2. Loans made by multinational development banks and the World Bank to developing countries.
Typically, soft loans have extended grace periods in which only interest or service charges are due.
They also offer longer amortization schedules and lower interest rates than conventional bank loans.
Soft Metrics
A slang term for intangible indicators used to value a startup company.
Soft Money
1. The "one-time" funding from governments and organizations for a project or special purpose.
2. Paper currency, as opposed to gold, silver, or some other coined metal.
Soft Patch
A period of economic slowdown amid a larger trend of economic growth. The term is most often
used in the financial media and by the U.S. Federal Reserve to describe a period of economic
weakness.
Sold-Out Market
A market for a specific futures contract that, due to a substantial liquidation of holdings by
investors, has limited offerings.
Sole Proprietorship
A business organization that is unincorporated and has only one owner
Solvency
The ability of a corporation to meet its long-term fixed expenses and to accomplish long-term
expansion and growth.
Solvency Ratio
One of many ratios used to measure a company's ability to meet long-term obligations. The solvency
ratio measures the size of a company's after-tax income, excluding non-cash depreciation expenses,
as compared to the firm's total debt obligations. It provides a measurement of how likely a company
will be to continue meeting its debt obligations.
The measure is usually calculated as follows:
Sortino Ratio
A ratio developed by Frank A. Sortino to differentiate between good and bad volatility in the Sharpe
ratio. This differentiation of upwards and downwards volatility allows the calculation to provide a
risk-adjusted measure of a security or fund's performance without penalizing it for upward price
changes. It it is calculated as follows
SOS
In currencies, this is the abbreviation for the Somali Shilling.
Sotheby's
One of the world's most venerable auction houses. The company is largely known for holding
auctions of very valuable and rare collectors' items such as jewelry, antiques and fine art.
Sour Crude
The name given to barrels of crude oil that do not meet certain content requirements, such as low
levels of sulfur and hydrogen.
Sovereign Bond
A debt security issued by a national government within a given country and denominated in a
foreign currency. The foreign currency used will most likely be a hard currency, and may represent
significantly more risk to the bondholder.
Sovereign Risk
The risk that a foreign central bank will alter its foreign-exchange regulations thereby significantly
reducing or completely nulling the value of foreign-exchange contracts.
Spark Spread
The difference between the market price of electricity and its cost of production
Special Dividend
A non-recurring distribution of company assets, usually in the form of cash, to shareholders. A
special dividend is larger compared to normal dividends paid out by the company. Also referred to
as an "extra dividend".
Specialist
A member of an exchange who acts as the market maker to facilitate the trading of a given stock.
The specialist holds an inventory of the stock, posts the bid and ask prices, manages limit orders
and executes trades. Specialists are also responsible for managing large movements by trading out
of their own inventory. If there is a large shift in demand on the buy or sell side, the specialist will
step in and sell out of their inventory to meet the demand until the gap has been narrowed.
Specific Risk
Risk that affects a very small number of assets. This is sometimes referred to as "unsystematic
risk."
Specific-Shares Method
A personal financial accounting method that, when used properly, can help reduce capital gains
realized for an investor who purchased multiple sets of a stock or mutual fund. In turn, the investor's
total tax paid in a given tax year is also reduced. In order to use the specific-shares method, the
investor needs to keep careful records - particularly the cost basis - of each stock or mutual fund
purchase. Then he/she must provide detailed information on which particular shares are to be sold
to the broker managing the investor's account.
Speculation
The process of selecting investments with higher risk in order to profit from an anticipated price
movement.
Speculation Index
A ratio comparing the volume of trades upon the American Stock Exchange and the NYSE.
Speculative Bubble
A temporary market condition created through excessive buying, and an unfounded run-up in prices
occurs.
Speculative Capital
The funds earmarked by an investor for the sole purpose of speculation. This capital is often
associated with extreme volatility and a high probability of loss. Most speculators have short-term
investment horizons and often use high degrees of leverage in their efforts to obtain profits.
Speculative Company
A company with a large number of assets tied up in projects with uncertain returns.
Speculative Risk
A category of risk that, when undertaken, results in an uncertain degree of gain or loss. All
speculative risks are made as conscious choices and are not just a result of uncontrollable
circumstances.
Speculative risk is the opposite of pure risk.
Speculative Stock
A stock with extremely high risk relative to potential return.
Speculator
A person who trades (i.e. derivatives, commodities, bonds, equities or currencies) with a higher-
than-average risk, in return for a higher-than-average profit potential. Speculators take large risks,
especially with respect to anticipating future price movements, or gambling, in the hopes of making
quick, large gains.
Spending Phase
The period in a person's life following retirement in which earning income has come to a stop and
the person is living off government subsidy, retirement plans, investments and/or money saved for
retirement
Spiders - SPDRs
Shares in a trust that owns stocks in the same proportion as that represented by the S&P 500 stock
index. Due to the acronym SPDR, Standard & Poor's Depository Receipts are commonly known as
"spiders". Each share of a spider contains one-tenth of the S&P 500 index, and so trades at roughly
one-tenth of the level of the S&P 500. Spiders trade on the American Stock Exchange (AMEX) under
the ticker symbol SPY.
Spike
1) The comparatively large upward or downward movement of a price or value level in a short period.
2) The trade order execution confirmation slip which shows all the pertinent data, such as the stock
symbol, price, type and trading account information.
Spinning
The practice of brokerage houses exchanging IPO shares with top executives for reciprocating
business from their companies.
Spinoff
The creation of an independent company through the sale or distribution of new shares of an
existing business/division of a parent company. A spinoff is a type of divestiture.
Split Adjusted
A stock price that takes into consideration the effect of a stock split in order to accurately compare
the company's current price to its historical price.
Split Close
A market closing with price discrepancies within a series of final daily futures-contract transactions.
Split-Off
A type of corporate reorganization whereby the stock of a subsidiary is exchanged for shares in a
parent company.
Split-Up
A corporate action in which a single company splits into two or more separately run companies.
Shares of the original company are exchanged for shares in the new companies, with the exact
distribution of shares depending on each situation. This is an effective way to break up a company
into several independent companies. After a split-up, the original company ceases to exist.
Sponsor
1. In the context of stocks, an influential investor who creates demand for a security because of their
positive outlook on it.
2. In the context of mutual funds, an underwriting company that offers shares in its mutual funds.
3. In the context of exchange-traded funds (ETFs), the fund manager or other entity who files the
needed regulatory materials with the SEC to create an ETF. The sponsor also solicits and approves
an authorized participant to create and redeem ETF shares.
Sponsored ADR
An American depositary receipt (ADR) that is issued in co-operation with the underlying foreign
company whose equity shares will underly the ADR shares. With the corporation's sponsorship, the
ADRs created in the issue usually afford their owners the same rights normally given to
stockholders, such as voting rights.
Sponsorship
Refers to the shares of a company owned by an institution. The largest sources of demand for
stocks are mutual funds and other institutional buyers.
Sponsorship Rating
Unique Investor's Business Daily rating that helps investors know if a company's stock is owned by
the better performing mutual funds. Its calculation averages 3-year performance of all mutual funds
owning the stock. The rating scale ranges from "A" to "E" (A=Best, E=Worst). An "N/A" appears if
not enough data is available to calculate a rating.
Spot Commodity
A commodity traded on the spot market. That is, with the expectation of actual delivery, as opposed
to a commodity future that is usually not delivered.
Spot Market
1. A commodities or securities market in which goods are sold for cash and delivered immediately.
Contracts bought and sold on these markets are immediately effective.
2. A futures transaction for which commodities can be reasonably expected to be delivered in one
month or less. Though these goods may be bought and sold at spot prices, the goods in question
are traded on a forward physical market.
Spot Price
The current price at which a particular commodity can be bought or sold at a specified time and
place.
Spot Secondary
A secondary distribution made by a company without any additional filings to the SEC
Spot Trade
The purchase or sale of a foreign currency or commodity for immediate delivery. Spot trades are
settled "on the spot", as opposed to at a set date in the future. Also known as "cash trades".
Futures transactions that expire in the current month are also known as spot trades because in the
case that goods are actually delivered, delivery time is reasonably expected to take one month.
Spousal IRA
A Traditional or Roth IRA established and funded by an individual for his/her spouse.
pread
1. The difference between the bid and the ask price of a security or asset.
2. An options position established by purchasing one option and selling another option of the same
class but of a different series.
Spread Option
A type of option that derives its value from the difference between the prices of two or more assets.
Spread options can be written on all types of financial products including equities, bonds and
currencies. This type of position can be purchased on large exchanges, but is primarily traded in the
over-the-counter market.
Spread To Worst
The difference in overall returns between two different classes of securities, or returns from the
same class, but different representative securities. The spread to worst measures the difference
from the worst performing security to the best, and can be seen as a measure of dispersion of
returns within a given market or between markets. The spread to worst can vary significantly
depending on different market and economic variables.
Spreadlock
An agreement that fixes the spread between the forward price of an interest rate swap and its
underlying government bond yield.
Squawk Box
An intercom speaker often used on brokers' trading desks in investment banks and stock
brokerages. A squawk box allows a firm's analysts and traders to communicate with the firm's
brokers.
Squeeze
1. In financial terms, a period of time when borrowing is difficult.
2. In general business terms, times when increasing costs cannot be passed onto consumers. The
decrease in profits is said to be caused by a "squeeze" on profit margins.
SRD
In currencies, this is the abbreviation for the Suriname Dollar.
Stag
A slang term for short-term speculator.
Stage of Base
A term referring to the number or 'stage' of the bases a stock will form as it advances on its way up
in price. Successful stock advances over a year can consist of two, three or four bases on the way
up before going into a major decline. The initial base is referred to as a 'first stage' base, the second
base as the 'second stage,' etc.
Stagflation
A condition of slow economic growth and relatively high unemployment - a time of stagnation -
accompanied by a rise in prices, or inflation.
Stagger System
A method of electing a company's board of directors that puts up only part of the board for re-
election in any one year. This method contrasts the system in which all board members go up for re-
election annually.
Stagnation
A period of little or no growth in the economy. Economic growth of less than 2-3% is considered
stagnation. Sometimes used to describe low trading volume or inactive trading in securities.
Stakeholder
One who has a share or an interest in an enterprise.
Stalking-Horse Bid
An initial bid on a bankrupt company's assets from an interested buyer chosen by the bankrupt
company. From a pool of bidders, the bankrupt company chooses the stalking horse to make the
first bid.
Stalwart
A description of companies that have large capitalizations and provide investors with slow but
steady and dependable growth prospects.
Stamp Duty
An ad-valorem or flat rate charged upon certain documents.
Standard Deduction
A base amount of income not subject to tax. This base amount can be used to reduce a taxpayer's
adjusted gross income (AGI) if he/she does not choose the itemized deduction method of calculating
taxable income. The amount of the standard deduction is based on a taxpayer's filing status, age
and whether he or she is blind or claimed as a dependent on someone else's tax return.
Standard Deviation
1. A measure of the dispersion of a set of data from its mean. The more spread apart the data is, the
higher the deviation.
2. In finance, standard deviation is applied to the annual rate of return of an investment to measure
the investment's volatility (risk).
Star
One of the four categories (quadrants) of the BCG growth-share matrix that represents the division
within a company that has a large market share in a rapidly expanding industry.
STARC Bands
A type of technical indicator that is created by plotting two bands around a short-term simple
moving average (SMA) of an underlying asset's price. The upper band is created by adding a value
of the average true range (ATR) - a popular indicator used by technical traders - to the moving
average. The lower band is created by subtracting a value of the ATR from the SMA.
Upper STARC band = SMA + ATR
State Administrator
An entity governing the rules and regulations set forth in the state-level Uniform Securities Act.
Stated Value
A value that, instead of being par value, is assigned to a corporation's stock for accounting
purposes. Stated value has no relation to market price.
Statement of Additional Information - SAI
A supplementary document to a mutual fund's prospectus that contains additional information about
the fund and includes further disclosure regarding its operations. Also, known as "Part B" of the
fund's registration statement.
Statistical Arbitrage
A profit situation arising from pricing inefficiencies between securities. Investors identify the
arbitrage situation through mathematical modeling techniques.
Statutory Voting
The procedure of voting for a company's directors in which each shareholder is entitled to one vote
per share. This is sometimes known as straight voting.
STD
In currencies, this is the abbreviation for the Sao Tome/Principe Dobra.
Step-out Trading
When a brokerage firm executes an order, but gives other firms credit and some of the commission
for the trade.
Step-up Bond
A bond that pays an initial coupon rate for the first period, and then a higher coupon rate for the
following periods.
Step-Up In Basis
The readjustment of the value of an appreciated asset for tax purposes upon inheritance. With a
step-up in basis, the value of the asset is determined to be the higher market value of the asset at
the time of inheritance, not the value at which the original party purchased the asset
Sterile Investment
An investment that does not provide dividends or interest to the investor. In a sterile investment, the
return is generated completely by capital gains.
Sterilization
A form of monetary action in which a central bank or federal reserve attempts to insulate itself from
the foreign exchange market to counteract the effects of a changing monetary base. The sterilization
process is used to manipulate the value of one domestic currency relative to another, and is initiated
in the forex market.
Sterilized Intervention
A method used by monetary authorities to equalize the effects of foreign exchange transactions on
the domestic monetary base by offsetting the purchase or sale of domestic assets within the
domestic markets. The process limits the amount of domestic currency available for foreign
exchange.
Sterling Ratio
A ratio used mainly in the context of hedge funds. This risk-reward measure determines which
hedge funds have the highest returns while enduring the least amount of volatility. The formula is as
follows:
This formula uses the average for risk (drawdown) and return over the past three years. Drawdown
is calculated at the maximum potential loss in the given year.
Sticky Deal
An issue of new securities that may present a selling challenge to an underwriter, usually because
there's been some bad news about the issuing company or overall economy.
STIX
A short-term trading oscillator that compares the amount of volume flowing into advancing and
declining stocks.
Stochastic Oscillator
A technical momentum indicator that compares a security's closing price to its price range over a
given time period. The oscillator's sensitivity to market movements can be reduced by adjusting the
time period or by taking a moving average of the result. This indicator is calculated with the
following formula:
%K = 100[(C - L14)/(H14 - L14)]
Stock
A type of security that signifies ownership in a corporation and represents a claim on part of the
corporation's assets and earnings.
There are two main types of stock: common and preferred. Common stock usually entitles the owner
to vote at shareholders' meetings and to receive dividends. Preferred stock generally does not have
voting rights, but has a higher claim on assets and earnings than the common shares. For example,
owners of preferred stock receive dividends before common shareholders and have priority in the
event that a company goes bankrupt and is liquidated.
Also known as "shares" or "equity".
Stock Ahead
A situation in which an order is placed, but not executed, because of a previously sent order
involving the same price. Depending on the exchange's priority rules, this can also happen when
two bids are made at the same time with identical prices only the larger order will be executed.
Stock Basher
An individual, either acting alone or on behalf of someone else, who attempts to devalue a stock by
spreading untrue or exaggerated claims against a public company. After the stock's price has
dropped, the basher, or the basher's employer, will then purchase the stock at a lower price than
what they believe it is intrinsically worth.
Stock Certificate
Another name for stock, certificate actually refers to the physical piece of paper representing
ownership in a company.
Stock Compensation
The payment of stock in lieu of cash for services provided.
Stock Dividend
A dividend payment made in the form of additional shares, rather than a cash payout.
Also known as a "scrip dividend
Stock Exchange
Public market where securities are traded. The majority of stocks in the William O'Neil + Co database
are listed on one of the three main U.S. markets: New York Stock Exchange, Nasdaq, and American
Stock Exchange. This database also provides information for numerous stocks traded as a bulletin
board listing and stocks traded on Canadian exchanges. The following symbols are use to identify
an exchange:
• AMEX = American Stock Exchange
• NYSE = New York Stock Exchange
• NMS = National Market Securities (one of two NASDAQ classifications)
• SCM = SmallCap Market (one of two NASDAQ classifications)
• PCSE = Pacific Stock Exchange
• BB = Bulletin Board
• TOR = Toronto Stock Exchange
• VAN = Vancouver Stock Exchange
Stock Jobbing
The buying and selling of securities with the intent of generating quick profits. While most investors
seek value through long-term investments, stock jobbing takes on a more speculative short-term
tone.
Stock Market
The market in which shares are issued and traded either through exchanges or over-the-counter
markets. Also known as the equity market, it is one of the most vital areas of a market economy as it
provides companies with access to capital and investors with a slice of ownership in the company
and the potential of gains based on the company's future performance
Stock Option
A privilege, sold by one party to another, that gives the buyer the right, but not the obligation, to buy
(call) or sell (put) a stock at an agreed-upon price within a certain period or on a specific date.
In the U.K., it is known as a "share option
Stock Performance
This measures a stock’s price percentage change over the last four weeks, 12 months and year to
date. For example, a percentage change of 50% indicates that a stock has increased 50% within the
specified time period.
Stock Power
A power of attorney that allows the current owner of a registered security to transfer ownership to
another party.
Stock Quote
A list of prices (generally bid, ask, and last) for a stock at a particular point during the trading day.
Stocks used to be quoted in fractions, but now most all exchanges use decimals.
Stock Record
A system that helps brokerage firms keep track of the position and physical location of the
securities they are holding.
Stock Screener
A tool investors can use to filter stocks given certain criteria of their choice
Stock Split
The dividing of a company's existing stock into multiple shares. In a 2-for-1 split, each stockholder
receives an additional share for each share he or she holds.
In the U.K., a stock split is referred to as a "scrip issue", "bonus issue", "capitalization issue" or
"free issue".
Stock Symbol
A unique series of letters assigned to a security for trading purposes. NYSE and AMEX listed stocks
have three characters or less. Nasdaq-listed securities have four or five characters. If a fifth letter
appears, it identifies the security as other than a single issue of common stock. They are also known
as "ticker symbols".
Stock Watcher
A computer program used by the NYSE that continuously monitors all trading activity in order to
detect any illegal trades.
Stock-for-Stock
1. In the context of mergers and acquisitions, the exchange of an acquiring company's stock for the
stock of the acquired company at a predetermined rate. Usually, only a portion of a merger is
completed with a stock-for-stock transaction, with the rest of the expenses being covered with cash
or other payment methods.
2. A method of satisfying the option price in an employee stock option compensation scheme. Under
these compensation programs, employees are granted stock options but must pay the company the
option price before they are given the grant. By exchanging mature stock (stock that has been held
for a required holding period), the grantee can receive his/her options without having to pay for
them. After a given time period, grantees are given back the stock they used to pay for their options.
Stockbroker
1. An agent that charges a fee or commission for executing buy and sell orders submitted by an
investor.
2. The firm that acts as an agent for a customer, charging the customer a commission for its
services.
Stockholders' Equity
The portion of the balance sheet that represents the capital received from investors in exchange for
stock (paid-in capital), donated capital and retained earnings. Stockholders' equity represents the
equity stake currently held on the books by a firm's equity investors.
It is calculated either as a firm's total assets minus its total liabilities, or as share capital plus
retained earnings minus treasury shares:
Stop Order
An order to buy or sell a security when its price surpasses a particular point, thus ensuring a greater
probability of achieving a predetermined entry or exit price, limiting the investor's loss or locking in
his or her profit. Once the price surpasses the predefined entry/exit point, the stop order becomes a
market order.
Also referred to as a "stop" and/or "stop-loss order".
Stop Payment
When a bank account holder instructs his or her financial institution not to honor payment.
Stop-Limit Order
An order placed with a broker that combines the features of stop order with those of a limit order. A
stop-limit order will be executed at a specified price (or better) after a given stop price has been
reached. Once the stop price is reached, the stop-limit order becomes a limit order to buy (or sell) at
the limit price or better.
The primary benefit of a stop-limit order is that the trader has precise control over where the order
should be filled. The downside, as with all limit orders, is that the trade is not guaranteed to be
executed if the stock/commodity does not reach the limit price.
Stop-Loss Order
An order placed with a broker to sell a security when it reaches a certain price. It is designed to limit
an investor's loss on a security position.
Also known as a "stop order" or "stop-market order".
Stopped Order
A market order on the NYSE that is stopped from being executed by the specialist because of a
request from a member firm to obtain a better price than that available. According to NYSE rules,
once the order is stopped, it must be identified and the specialist must guarantee the market price at
the time of the stop should they be unsuccessful in obtaining a better price.
Stopped Out
A situation where a stock price decreases and, consequently, an investor's stop order is executed.
Story Stock
A stock whose value is a reflection of expected future potential (or favorable press coverage) rather
than its assets and income.
STOXX
A series of market indexes that are representative of the European and global markets. These
indexes cover a wide range of market segments including the broad market, blue chips, individual
sectors and global indexes. While there are global STOXX indexes, the majority of the focus is
placed on the European market.
Straddle
An options strategy with which the investor holds a position in both a call and put with the same
strike price and expiration date.
Strangle
An options strategy where the investor holds a position in both a call and put with different strike
prices but with the same maturity and underlying asset. This option strategy is profitable only if
there are large movements in the price of the underlying asset.
This is a good strategy if you think there will be a large price movement in the near future but are
unsure of which way that price movement will be.
Strap
An options strategy created by being long in one put and two call options, all with the exact same
strike price, maturity and underlying asset. Also referred to as a "triple option".
Strategic Alliance
An arrangement between two companies who have decided to share resources in a specific project.
Street Book
A record of futures-contract transactions that is maintained daily by futures commission merchants
and clearing houses
Street Expectation
The average earnings estimates made by brokers and securities analysts. Also known as the
"market consensus" or "earnings expectations."
Street Name
When securities are held in the name of a broker or other nominee, as opposed to holding them in
the customer's name.
Streetable
A company that has a management team with enough strength and experience to run a public
company. It's imperative for Wall Street to have confidence in a company's management - otherwise
it will be difficult, if not impossible, for that company to go public
Stress Testing
A simulation technique used on asset and liability portfolios to determine their reactions to different
financial situations.
Strike Price
The stated price per share for which underlying stock may be purchased (for a call) or sold (for a
put) by the option holder upon exercise of the option contract.
Strip
1. For bonds, the process of removing coupons from a bond and then selling the separate parts as a
zero coupon bond and interest paying coupons. Also known as a stripped bond or zero coupon
bond.
2. In options, a strategy created by being long in one call and two put options, all with the exact
same strike price
Strip Bond
A bond where both the principal and regular coupon payments--which have been removed--are sold
separately. Also known as a "zero-coupon bond."
Stripped Yield
The implied sovereign yield of a bond, or the theoretical yield of the non-collateralized portion of a
bond.
Stripper
Slang for an individual homeowner who strips the equity out of his or her home through mortgage
refinancing. The proceeds are generally not re-invested, but spent on consumer goods.
Strong Hands
1. The intention of futures-contract holders to receive delivery of the underlying commodity.
Structural Unemployment
Unemployment resulting from changes in the basic composition of the economy. These changes
simultaneously open new positions for trained workers.
Structured Finance
A service offered by many large financial institutions for companies with very unique financing
needs. These financing needs usually don't match conventional financial products such as a loan.
Structured finance generally involves highly complex financial transactions.
Stub
Stock in a company that is over-leveraged as a result of recapitalization.
Stutzer Index
A performance measure that rewards portfolios with a lower probability of underperforming a
benchmark. Technically, the Stutzer index penalizes negative skewness and high kurtosis - such a
distribution will have a lower Stutzer index than a normal distribution with the same mean and
variance.
Style
The investment approach an investment manager takes to reach his/her objectives.
Style Box
A tool showing a fund's characteristics such as the investment philosophy, underlying investments
and risks. This helps investors and investment companies easily understand and convey
information about the fund.
The above mutual fund style box illustrates that the mutual fund is a large-cap, value-oriented fund.
This conveys to investors that the fund is investing in well-established companies that are under- or
fairly valued. The company will not be invested in small-cap, mid-cap or growth stocks.
Style Drift
The tendency of a broker or investment portfolio manager to alter his or her investment style over
time
Subchapter S (S Corporation)
A form of corporation that meets the IRS requirements to be taxed under Subchapter S of the
Internal Revenue Code. This gives a corporation with 100 shareholders or less the benefit of
incorporation while being taxed as a partnership. This means that any profits earned by the
corporation are not taxed at the corporate level, but rather at the level of the shareholders. Also
known as "S corporation".
Subindex
A group of securities that is part of an index but is also tracked separately as a smaller, separate
index.
Subordinated Debt
A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or
earnings. Also known as "junior security" or "subordinated loan".
Subordination Clause
A clause in an agreement which states that the current claim on any debts will take priority over any
other claims formed in other agreements made in the future. Subordination is the act of yielding
priority.
Subprime Loan
A loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans.
Subscribed
Newly issued securities that an investor has agree to, or stated his intent to, buy in a public offering
prior to the issue date. When an investor uses rights, he expects to own the designated number of
shares they have subscribed to once the offering is completed.
Subscription Agreement
An application by an investor to join a limited partnership. In most cases, the investor will have to fill
out a form created by the general partner evaluating the investor's suitability for the investment in
the partnership.
Subsequent Offering
An offering of additional shares after the issuing company has already had an initial public offering
(IPO).
Subsidiary
A company whose voting stock is more than 50% controlled by another company, usually referred to
as the parent company.
Subsidiary Bank
A type of foreign bank that is incorporated in the host country but is considered to be owned by a
foreign parent bank. The subsidiary bank only needs to operate under the host country's
regulations.
Subsidy
A benefit given by the government to groups or individuals usually in the form of a cash payment or
tax reduction. The subsidy is usually given to remove some type of burden and is often considered
to be in the interest of the public.
Politics play an important part in subsidization. In general, the left is more in favor of having
subsidized industries, while the right feels that industry should stand on its own without public
funds.
Substitute
A product or service that partly satisfies the need of a consumer that another product or service
fulfills.
Substitution Swap
A swap that is carried out by trading a fixed-income security for a higher-yielding bond with similar
features.
Succession
The action of one party, person or product being replaced by another that has become obsolete,
incapacitated, retired or deceased. Ideally, a successor will fill the role of its predecessor, being fully
compatible with all other entities in place and perfectly functional without any interruption in service
Suicide Pill
A defensive strategy by which a target company engages in an activity that might actually ruin the
company rather than prevent the hostile takeover. Also known as the "Jonestown Defense."
Sum Certain
A legal description of the predetermined settlement price for a contract or negotiable instrument.
Sum-Of-Parts Valuation
Valuing a company by determining what its divisions would be worth if it was broken up and spun
off or acquired by another company.
Sundry Income
External income that results from factors outside of a firm's control.
Sunk Cost
A cost that has been incurred and cannot be reversed. Also referred to as "stranded cost."
Sunrise Industry
Slang for a new, emerging growth industry that is expected to be a strong sector in the future.
Sunset Provision
A clause in a statute, regulation or similar piece of legislation that provides for an automatic
repealing of the entirety or sections of the law once a specific future date is reached. Once the
sunset provision date is reached, the pieces of legislation mentioned in the clause are rendered
void. If the government wishes to extend the length of time for which the law in question will be in
effect, it can push back the sunset provision date anytime before it is reached
Sunshine Laws
U.S. federal and state laws requiring regulatory authorities' meetings, decisions and records to be
made available to the public.
T
A Nasdaq stock symbol specifying that the stock has warrants or rights.
T+1 (T+2,T+3)
Abbreviations that refer to the settlement date of security transactions. The T stands for transaction
date, which is the day the transaction takes place. The numbers 1, 2 or 3 denote how many days
after the transaction date the settlement or the transfer of money and security ownership takes
place.
Taft-Hartley Act
A Federal law that was enacted in 1947 that prohibited certain union practices and required
improvement in union disclosure of financial and political dealings.
Tag-Along Rights
A contractual obligation used to protect a minority shareholder (usually in a venture capital deal).
Basically, if a majority shareholder sells their stake, then the minority shareholder has the right to
join the transaction and sell their minority stake in the company. Also referred to as "co-sale rights".
Tailgating
The action of a broker or advisor purchasing or selling a security for his or her client(s) and then
immediately making the same transaction in his or her own account.
Take A Bath
A slang term referring to the situation of an investor who has experienced a large loss from an
investment or speculative position. Investors whose shares have declined significantly are said to
have taken a bath.
Take A Flier
The slang term for a decision to invest in highly speculative investments.
Take or Pay
A provision, written into a contract, whereby one party has the obligation of either taking delivery of
goods or paying a specified amount.
Takedown
1. The price at which underwriters obtain securities to be offered to the public.
2. The portion of securities that each investment banker will distribute in a secondary or initial pubic
offering.
Takeover
A corporate action where an acquiring company makes a bid for an acquiree. If the target company
is publicly traded, the acquiring company will make an offer for the outstanding shares.
Takeunder
A corporate takeover where the target firm is offered a price per share that is less than its current
market value.
Tangible Asset
An asset that has a physical form such as machinery, buildings and land.
Tankan Survey
An economic survey of Japanese business issued by the central Bank of Japan, which it then uses
to formulate monetary policy. The report is released four times a year in April, July, October and
mid-December.
Tape Is Late
A situation on the trading floor where trading volume is so heavy that the real-time ticker quotes are
delayed by a minute or two. When the tape is late some price or volume digits will be deleted.
Target Firm
A firm that has been targeted by another firm for a takeover.
Target-Benefit Plan
A benefit plan that is similar to a defined benefit plan since contributions are based on projected
retirement benefits. However, unlike a defined benefit plan, the benefits provided to participants at
retirement are based on the performance of the investments, and are therefore not guaranteed.
Tariff
A taxation imposed on goods and services imported into a country. Also known as a duty tax.
Tax Base
The assessed value of a set of assets, investments or income streams that is subject to taxation, or
the assessed value of a single asset that is subject to taxation. Anything that can be taxed has a tax
base.
Tax Bracket
The rate at which an individual is taxed due to a particular income level.
Tax Court
A court of law whose sole jurisdiction is to decide litigation involving federal income, death, and
other taxes.
Tax Credit
A dollar-for-dollar reduction in the tax payment required from a person.
Tax Deferred
Refers to investment earnings such as interest, dividends or capital gains that accumulate free from
taxation until the investor withdraws and takes possession of them. The most common types of tax-
deferred investments include those in individual retirement accounts (IRAs) and deferred annuities.
Tax Evasion
An illegal practice whereby an individual intentionally avoids paying their true tax liability. Anyone
caught evading taxes is generally subject to criminal charges and substantial penalties.
Tax Haven
A country that offers individuals and businesses little or no tax liability.
Tax Holiday
A government incentive program that offers a tax reduction to foreign investors.
Tax Home
An individual's primary place of work or residence. This is used when determining tax for travel or
transportation expenses.
Tax Liability
The total amount of tax that an entity is legally obligated to pay to an authority as the result of the
occurrence of a taxable event. Taxable events include, but are not limited to, annual income, the sale
of an asset, a fiscal year-end or an inheritance. Tax liability can be calculated by applying the
appropriate tax rate to the taxable event's tax base.
Tax Lien
A claim imposed by the federal government to liquidate a person's property until the tax and debt
owed is fully paid.
Tax Rate
1) The rate at which a business or person is taxed on income. Essentially the percent of income that
goes towards taxes.
2) The rate of tax on good and services.
Tax Schedule
A scale published by the IRS, it is used for taxpayers with taxable income over $100,000
Tax Shelter
A legal method of minimizing or decreasing an investor's taxable income and, therefore, their tax
liability. Tax shelters can range from investments or investment accounts that provide favorable tax
treatment, to activities or transactions that lower taxable income. The most common type of tax
shelter is an employer-sponsored 401(k) plan.
Tax Shield
The reduction in income taxes that results from taking an allowable deduction from taxable income.
Tax Swap
A method of crystallizing capital losses by selling losing positions and purchasing companies within
similar industries that have similar fundamentals.
Tax Table
A table that shows the amount of tax payable depending on an individual's income bracket.
Tax Treaty
A bilateral agreement made by two countries to resolve issues involving double taxation of passive
and active income. Tax treaties generally determine the amount of tax that a country can apply to a
taxpayer's income and wealth. Tax haven countries are the only countries that typically do not enter
into tax treaties.
Tax Year
The 12-month period for which you are filing your tax return
Tax-Exempt Interest
Interest income that is exempt from federal income tax. Although it is not directly taxed, this income
may still be required to determine other tax calculations such as social security benefits.
Tax-Sheltered Annuity
A type of annuity that allows an employee to make contributions from his or her income into a
retirement plan. The contributions are deducted from the employee's income and, as a result, the
contributions and related benefits are not taxed until the employee withdraws them from the plan.
Because the employer can also make direct contributions to the plan, the employee gains the benefit
of having additional tax-free funds accruing.
Taxable Bond
A debt security whose return to the investor is subject to taxes at the local, state or federal level, or
some combination thereof.
Taxable Estate
The total value of a deceased person's assets that are subject to taxation - minus liabilities and
minus the prescribed tax-deductible portion of assets left behind by the deceased.
Taxable Gain
The portion of a sale that is liable to taxation.
Taxable Income
The amount of net income used in calculating income tax.
Taxes
An involuntary fee levied on corporations or individuals that is enforced by a level of government in
order to finance government activities.
Taylors Rule
A guideline for interest rate manipulation. It was introduced by Stanford economist John Taylor in
order to set and adjust prudent rates that will stabilize the economy in the short-term and still
maintain long-term growth. This rule is based on 3 factors:
1) Actual versus targeted inflation levels
2) Actual employment versus full employment levels
3) The appropriate short-term interest rate consistent with full employment.
Tear Sheets
Slang for the pages from the S&P stock reports summarizing business and financial information
regarding thousands of public companies.
Teaser
A document circulated to potential buyers of a specific security that may be offered for sale in the
future. The document, often prepared by the investment bank representing the company, details
information that is designed to entice potential buyers to buy the security.
Tech Street
A term used in the financial markets and the press to refer to the technology sector. Companies like
Intel, Microsoft, Apple and Dell are all considered to be part of Tech Street.
Technical Analysis
A method of evaluating securities by analyzing statistics generated by market activity, such as past
prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but
instead use charts and other tools to identify patterns that can suggest future activity.
Technical Bankruptcy
The state of a company or person who has defaulted on a financial obligation and would be declared
bankruptcy if the creditor makes a claim through the courts.
Technical Rally
An upward movement in a security's price following a declining trend. The movement is caused by
technical as opposed to fundamental factors affecting sentiment.
Technical Rank
This ranks a stock's Technical Rating within its industry group. For example, if a stock ranks 1st out
of 100, its Technical Rating outscores 99% of stocks in its industry. If 2 or more stocks within a
group have the same 1-99 rating, they will receive the same Technical Rank. For example, if 3 stocks
have a 99 Technical Rating, they will all three be ranked best in group. The stock with the next best
rating will be ranked 4th in group.
Technical Rating
This exclusive rating assesses the overall investment performance of a stock, relative to all other
publicly-traded companies. Ratings are on a 1-99 scale, with 99 being highest. For example, a
Technical Rating of 90 indicates a stock’s overall technical performance has outpaced 90% of the
market.
Technical measurements include:
• Relative Price Strength Rating
• The stock’s current price relative to its 52 week price high
• Moving Average trends
• Recent and past price and volume activity
Components are not equally weighted.
Ted Spread
The price difference between three-month futures contracts for U.S. Treasuries and three-month
contracts for Eurodollars having identical expiration months.
Teenie
A measure of value representing a sixteenth (1/16 or .0625) of one point. Since decimalization, many
traders have referred to a teenie as a cent.
Telephone Booth
A slang term referring to one of the many phone terminals on the floor of the New York Stock
Exchange that is used by floor traders to receive orders
Tenbagger
A stock whose value increases ten times.
Tender
1. To accept a formal offer, such as a takeover bid or tender offer.
2. Means of settlement in a financial transaction.
3. A bid to buy treasury bills.
4. Notice from a futures contract seller to offer money or goods for settlement of a futures contract.
Tender Offer
An offer to purchase some or all of shareholders' shares in a corporation. The price offered is
usually at a premium to the market price.
Tenor
The term or life of a contract.
Tequila Effect
Informal name given to the impact of the 1994 Mexican economic crisis on the South American
economy. The crisis occurred because of a sudden devaluation in the Mexican peso, which then
caused other currencies in the region (the Southern Cone and Brazil) to decline. The falling peso
was propped up by a US$50-billion loan granted by then-U.S. president Bill Clinton.
Also referred to as the "Mexican Shock".
Term
1. The lifespan assigned to an asset or a liability, over which the value of the asset/liability is
expected to either grow or shrink, depending on its nature.
2. The period of time assigned as the lifespan of any investment. In the case of debt, the time it takes
for all payments to be made by the borrower and received by the lender. In the case of an equity
investment, the time that elapses between the acquisition of the equity and its sale or removal from
holdings for another reason.
Term Bond
An issue of bonds that all have the same maturity date.
Term Deposit
A deposit held at a financial institution that has a fixed term. These are generally short-term with
maturities ranging anywhere from a month to a few years. When a term deposit is purchased, the
lender (the customer) understands that the money can only be withdrawn after the term has ended
or by giving a predetermined number of days notice.
Term Loan
A loan from a bank for a specific amount that has a specified repayment schedule and a floating
interest rate. Term loans almost always mature between one and 10 years.
Term Out
The transfer of debt within a company's balance sheet without acquiring new debt. This is done
through the capitalization of short-term to long-term debt.
Term Sheet
A non-binding agreement setting forth the basic terms and conditions under which an investment
will be made.
Term to Maturity
The remaining life of a financial instrument. In bonds, it is the time between now and when the bond
matures (maturity date), when the issuer must redeem the bond by paying the principal (or face
value).
Terminal Elevator
An agricultural elevator that is considered to be the largest accumulator of the actual.
Terminal Value - TV
The value of an investment at the end of a period, taking into account a specified rate of interest
Terminal Year
For income tax and estate planning, this refers to the year in which a person has died.
Terminally Ill
When a person is not expected to live more than 12 months.
Terotechnology
A Greek word referring to the study of the costs associated with an asset throughout its life cycle,
from acquisition to disposal. The goals of this approach are to try to reduce the different costs
incurred at the various stages of the asset's life and to derive methods that will help extend the
asset's life span. Also known as "life-cycle costing".
Terotechnology uses tools such as net present value, internal rate of return and discounted cash
flow in an attempt to minimize the costs associated with the asset in the future. These costs can
include engineering, maintenance, wages payable to operate the equipment, operating costs and
even disposal costs.
Tertiary Industry
The segment of the economy that provides services to its consumers. This includes a wide range of
businesses including financial institutions, schools, transports and restaurants.
Also known as "tertiary sector of industry," or "service industry/sector".
Test
In technical analysis, it is when a stock price approaches a support or resistance level set by the
market. If the stock stays within the support and resistance levels, the test is passed. However, if the
stock price reaches new lows and/or new highs, the test has failed.
Testamentary Trust
A trust created as a result of explicit instructions from a deceased's will.
THB
In currencies, this is the abbreviation for the Thai Baht.
Theta
A measure of the rate of decline in the value of an option due to the passage of time. Theta can also
be referred to as the time decay on the value of an option. If everything is held constant, then the
option will lose value as time moves closer to the maturity of the option.
Theta is part of the group of measures known as the "Greeks" (other measures include delta, gamma
and vega) which are used in options pricing.
Thin Market
A market with few bid and ask offers. The market is characterized by low liquidity, high spreads, and
high volatility. Also known as a narrow market.
Third Market
Trading by non exchange-member brokers/dealers and institutional investors of exchange-listed
stocks. In other words, the third market involves exchange-listed securities that are being traded
over-the-counter between brokers/dealers and large institutional investors.
Third-Party Distributor
The name given to institutions that sell or distribute mutual funds to investors for fund management
companies without direct relation to the fund itself.
Thirty-Year Treasury
A U.S. Treasury debt obligation that has a maturity of 30 years. The 30-year Treasury is the
benchmark U.S. bond and one of the world's most closely watched financial instrument.
Three-Year Rule
Section 2035 of the tax code, which stipulates that assets that have been gifted through an
ownership transfer, or assets for which the original owner has relinquished power, are to be
included in the gross value of the original owner's estate if the transfer took place within three years
of his or her death. If gifted assets do not meet the necessary requirements, the value of the assets
is added to the value of the estate at the time of the original owner's death, increasing its value and
the estate taxes imposed on it.
Thrift Bank
A bank whose main purpose is to take deposits from consumers and make home mortgages.
Tick
The minimum upward or downward movement in the price of a security.
Tick Index
The number of stocks trading on an uptick minus the number of stocks trading on a downtick.
Tick-Test Rules
Restrictions on when a short sale may be executed. Tick-test rules dictate that a short sale can be
made only in two situations:
1. When the price of the particular stock is higher than the last trade price (an uptick).
2. In a case where there is no change in the last trade price. The previous trade price must be higher
than the trade price that preceded it (a zero uptick or zero plus tick)
Ticker Symbol
An arrangement of characters (usually letters) representing a particular security listed on an
exchange or otherwise traded publicly. When a company issues securities to the public marketplace,
it selects an available ticker symbol for its securities which investors use to place trade orders.
Every listed security has a unique ticker symbol, facilitating the vast array of trade orders that flow
through the financial markets every day.
Ticker Tape
A computerized device that relays financial information to investors around the world, including the
stock symbol, the latest price, and volume on securities as they are traded.
Tide
A metaphor for a long-term market trend.
Tied Selling
The illegal practice of a company providing a product or service on condition the customer
purchases a product from the same or related company. It is mainly used in reference to banks and
referred to as coercive tied selling.
Tier 1 Capital
A term used to describe the capital adequacy of a bank. Tier I capital is core capital, this includes
equity capital and disclosed reserves.
Tier 2 Capital
A term used to describe the capital adequacy of a bank. Tier II capital is secondary bank capital that
includes items such as undisclosed reserves, general loss reserves, subordinated term debt, and
more.
Tiger Economy
A nickname given to the economies of southeast Asia. Some of the tigers are Indonesia, Singapore,
Malaysia, Thailand, South Korea and China.
Tight Money
A situation in which money or loans are very difficult to obtain in a given country. If you do have the
opportunity to secure a loan, then interest rates are usually extremely high. Also known as "dear
money".
Time Decay
The ratio of the change in an option price to the decrease in time to expiration. Since options are a
wasting asset, their value declines over time. As an option approaches its expiry date without being
in the money, its time value declines since the probability of that option being profitable (in the
money) is reduced. Also known as "theta" and "time-value decay".
Time Deposit
A savings account or CD held for a fixed-term with the understanding that the depositor can only
withdraw by giving written notice.
Time Horizon
The length of time for which an investment is made, or held, before it is liquidated. Time horizons
can range from seconds, in the case of a day trader, all the way up to decades for a buy-and-hold
investor. There is no "right" time frame - it depends on the investor's individual objectives.
Time In Force
A special instruction used when placing a trade to indicate how long an order will remain active
before it is executed or expires. Time-in-force options allow traders to be more specific about the
time parameters in which an order is activated. This is especially important for active traders.
Time Series
A sequence of numerical data points in successive order, usually occurring in uniform intervals. In
plain English, a time series is simply a sequence of numbers collected at regular intervals over a
period of time.
Time Value
The portion of the option premium that is attributable to the amount of time remaining until the
expiration of the option contract.
Timeliness Rating
Proprietary rating system based upon recent earnings changes and price performance indicating
possible or potential relative price performance over the next 12 months. General market factors are
not considered in the stock rating system. Ratings presented are updated daily, from A (highest) to
E (lowest). While stocks with ratings of A and B may outperform stocks with ratings of C and D in up
markets, higher rated stocks can be more volatile and may involve added risk. Price stability may be
improved by giving preference to stocks with lower betas, no debt or low debt, larger capitalization
(common shares outstanding) with more established markets, and an extension in price no more
than 5% to 10% above a recent consolidation or basing area of 8 or more weeks duration.
Caution should be used when considering purchase of any A-Rated stocks. High rated stocks
frequently involve added volatility and risk, as well as added potential. Safety may be improved by
selecting A & B rated stocks with lower Betas, lower % debt, larger capitalizations and by avoiding
stocks extended in price more than 5% to 10% from the most recent price consolidation zone (or
basing area) of 2 to 3 months or more. Smaller capitalization stocks are usually more volatile and
speculative in nature, and low priced stocks are of lower quality. General market conditions should
also be considered since the best of stocks will be affected by adverse market periods.
Tip Income
Funds received over and above wages for services rendered. Also known as gratuities.
Tipping
The act of providing material non-public information about a publicly-traded company to a person
who is not authorized to have the information. This is an illegal act. Information is considered non-
public until it has been publicly released and the financial markets have had sufficient time to digest
the impact the information may have had on prices.
Tirone Levels
A series of three sequentially higher horizontal lines used to identify possible areas of support and
resistance for the price of an asset. The position of the center line is plotted by calculating the
difference between the highest high and the lowest low for the asset price over a period of time and
dividing it by 2. The top and bottom line are drawn 1/3 and 2/3 of the difference, respectively,
between the same high and low that are used to calculate the center line.
Title
The right to the ownership and possession of any item that may be legally recognized as belonging
to someone or something. In its most basic sense, title is the recognition of ownership.
There are three components to the concept of title possession or occupation, the right of
possession and apparent ownership.
Title Search
An examination of public records to determine and confirm a property's legal ownership, and find
out what claims are on the property. A title search is usually performed by a title company or an
attorney, who researches the vested owner, the liens or other judgments on the property, the loans
on the property and the property taxes due.
TND
In currencies, this is the abbreviation for the Tunisian Dinar.
To Be Announced - TBA
An underlying contract on a mortgage backed security to buy or sell a MBS which will be delivered
at an agreed-upon date in the future.
Today's High
The intraday high trading price. In other words, this is the highest price at which a stock traded
during the course of the day.
Today's Low
The intraday low trading price. In other words, this is the lowest price at which a stock traded during
the course of the day.
Toehold Purchase
A purchase of less than 5% of a target company's outstanding stock made by an acquiring company.
Tombstone
A written advertisement placed by investment bankers in a public offering of a security. It gives
basic details about the issue and, in order of importance, the underwriting groups involved in the
deal.
Top
The highest price level reached by a security, index of securities, commodity or economic cycle in a
given time period, followed by at least a short-term decline.
Top Line
A reference to sales or revenue.
Top-Down Investing
An investment approach where an investor looks at a country's economy before considering an
industry to invest in. Next, they determine what industries or sectors will return well because of the
economic conditions and, finally, they then buy stocks that are attractive within that industry.
Total Return
When measuring performance, the actual rate of return of an investment or a pool of investments
over a given evaluation period. Total return includes interest, capital gains, dividends and
distributions realized over a given period of time.
Touchline
The highest bid and lowest ask at market for a particular security during a given time in the trading
day.
Toxic Waste
A slang term referring to securities that are unattractive due to certain underlying provisions or risks
making them generally illiquid with poor pricing schemes and transparency.
Track Price
A chart tool for determining exact historical price/volume information. May also be use to align items
with its corresponding date and/or scale.
To access the Track-Price tool, place the cursor over an item on the chart, then press and hold the
right-hand mouse button. The Track-Price Box and Track-Price Lines will appear.
The Track-Price Box provides the date, price high/low/last/change, and volume details for any
market trading day.
The Track-Price Lines are a display of horizontal and vertical lines that intersect at the cursor. Use
this tool to align items on the chart with its corresponding date or scale.
Tracker Fund
A type of mutual fund that provides the same returns as an index. The fund invests in all the
companies within the index according to a market value weighting.
Tracking Error
A divergence between the price behavior of a position or a portfolio and the price behavior of a
benchmark. This is often in the context of a hedge that did not work as effectively as intended,
creating an unexpected profit or loss instead.
Tracking Stock
1. Common stock issued by a parent company that tracks the performance of a particular division
without having claim on the assets of the division or the parent company. Also known as "designer
stock".
2. A type of security specifically designed to mirror the performance of a larger index.
Trade
1. A transaction involving the sale and purchase of a security.
2. In general, the buying and selling of goods and services.
Trade Date
The date on which a security trade occurs
Trade Finance
The science that describes the management of money, banking, credit, investments, and assets for
international trade transactions
Trade Sanction
A trade penalty imposed by one nation onto one or more other nations.
Trade Through
The completion of a client's order at a price inferior to the best posted bid or ask.
Trade-Weighted Dollar
A representation of the foreign currency price of the U.S. dollar or the export value of the U.S. dollar.
Trademark
A symbol, word, phrase, logo, or combination of these that legally distinguishes one company's
product from any others. Any infringement on a trademark is illegal and therefore grounds for the
company owning the trademark to sue the infringing party.
Trading Account
1. An account similar to a traditional bank account, holding cash and securities, and is administered
by an investment dealer.
2. An account held at a financial institution and administered by an investment dealer that the
account holder uses to employ a trading strategy rather than a buy-and-hold investment strategy.
Trading Account
1. An account similar to a traditional bank account, holding cash and securities, and is administered
by an investment dealer.
2. An account held at a financial institution and administered by an investment dealer that the
account holder uses to employ a trading strategy rather than a buy-and-hold investment strategy.
Trading Ahead
A trade transacted from a specialist's account even though there is a public order that offsets the
trade.
Trading Book
The portfolio of financial instruments held by a brokerage or bank. The financial instruments in the
trading book are purchased or sold to facilitate trading for their customers, to profit from spreads
between the bid/ask spread, or to hedge against various types of risk.
Trading Channel
When charting the price of an asset, this is the space on the chart between an asset's support and
resistance levels. The price of the asset will stay within the support and resistance levels until a
breakout occurs.
Trading Curb
A temporary restriction on program trading in a particular security or market, usually to reduce
dramatic price movements. Also known as a collar or circuit breaker.
Trading Desk
A desk where transactions for buying and selling securities occur. Trading desks can be found in
most organizations (banks, finance companies, etc.) involved in trading investment instruments
such as equities, fixed-income securities, futures, commodities and foreign exchange. A trading
desk provides traders with access to instantaneous trade executions. Also known as "dealing desk".
Trading Dollars
Slang for a company that is spending just as much money as it is making on a product that it
develops.
Trading Halt
A temporary suspension in the trading of a particular security on one or more exchanges, usually in
anticipation of a news announcement or to correct an order imbalance. A trading halt may also be
imposed for purely regulatory reasons. During a trading halt, open orders may be canceled and
options may be exercised.
Trading Range
The spread between the high and low prices traded during a period of time.
Traditional IRA
An IRA that is not a Roth IRA or a SIMPLE IRA. Individual taxpayers are allowed to contribute 100%
of compensation (Self-employment income for Sole proprietors and partners) up to a specified
maximum dollar amount to their Traditional IRA. Contributions to the Traditional IRA may be tax-
deductible depending on the taxpayer's income, tax-filing status, and coverage by an employer-
sponsored retirement plan.
Trailer Fee
A fee that a mutual fund manager pays to a salesperson who sells the fund to investors.
Trailing
A term used to describe the most recent time period.
Trailing EPS
The sum of a company's earnings per share for the previous four quarters.
Trailing Stop
A stop-loss order that is set at a percentage level below (for a long position) the market price. The
price is adjusted as the price fluctuates.
Tranches
A piece, portion or slice of a deal or structured financing. This portion is one of several related
securities that are offered at the same time but have different risks, rewards and/or maturities.
"Tranche" is the French word for "slice".
Transaction
An agreement between a buyer and a seller for the exchange of goods or services for payment.
Transaction Costs
Costs incurred when buying or selling securities. These include brokers' commissions and spreads
(the difference between the price the dealer paid for a security and the price at which it can be sold).
Transaction Exposure
The risk, faced by companies involved in international trade, that currency exchange rates will
change after the companies have already entered into financial obligations. Such exposure to
fluctuating exchange rates can lead to major losses for firms.
Transaction Risk
The exchange rate risk associated with the time delay between entering into a contract and settling
it. The greater the time differential between the entrance and settlement of the contract, the greater
the transaction risk, because there is more time for the two exchange rates to fluctuate.
Transfer
A tax-free, non-reportable movement of assets between retirement plans.
Transfer Agent
A trust company, bank or similar financial institution assigned by a corporation to maintain records
of investors and account balances and transactions, to cancel and issue certificates, to process
investor mailings and to deal with any associated problems (i.e. lost or stolen certificates).
Transfer Payment
1. In the United States, a payment made to individuals by the federal government through various
social benefit programs.
2. In Canada, a payment made to the provinces and territories by the federal government.
Transfer Price
The price at which divisions of a company transact with each other. Transactions may include the
trade of supplies or labor between departments. Transfer prices are used when individual entities of
a larger multi-entity firm are treated and measured as separately run entities.
Also known as "transfer cost".
Transfer Procedures
The procedure by which ownership of a stock moves from one party to another. The transfer agent
follows a detailed, documented series of steps governed by the SEC to ensure that a transaction has
been completed.
Transfer-On-Death - TOD
A way of designating beneficiaries to receive your assets at the time of your death without having to
go through probate. This designation also allows you to specify the percentage of assets each
person or entity (your "TOD beneficiary") will receive. Your assets will then be automatically
transferred to the designated beneficiaries upon your death.
Translation Exposure
The risk that a company's equities, assets, liabilities or income will change in value as a result of
exchange rate changes. This occurs when a firm denominates a portion of its equities, assets,
liabilities or income in a foreign currency.
Translation Risk
The exchange rate risk associated with companies that deal in foreign currencies or list foreign
assets on their balance sheets. The greater the proportion of asset, liability and equity classes
denominated in a foreign currency, the greater the translation risk.
Transportation Expenses
A business expense incurred by an employee or self-employed taxpayer while away from home in a
travel status.
Traunch
One of many influxes of cash that is part of a single round of investment.
Travel Expenses
Business expenses incurred while an individual is away from home. These include meals, lodging,
and transportation expenses.
Treasury Bill - T-Bill
A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-
bills are sold in denominations of $1,000 up to a maximum purchase of $5 million and commonly
have maturities of one month (four weeks), three months (13 weeks) or six months (26 weeks).
T-bills are issued through a competitive bidding process at a discount from par, which means that
rather than paying fixed interest payments like conventional bonds, the appreciation of the bond
provides the return to the holder.
Treasury Index
An index based on the auctions of U.S. Treasury bills, or on the U.S. Treasury's daily yield curve. It is
commonly used in determining mortgage rates for mortgages with an unfixed component and as a
performance benchmark for investors in the capital markets as it represents a rate of return that
investors would be able to get from almost any bank, with minimal effort. Treasury indexes are
proprietary. The calculations of treasury indexes and their components vary by the financial
institution calculating the index.
Treasury Inflation Protected Securities - TIPS
A special type of Treasury note or bond that offers protection from inflation. Like other Treasuries,
an inflation-indexed security pays interest every six months and pays the principal when the
security matures. The difference is that the coupon payments and underlying principal are
automatically increased to compensate for inflation as measured by the consumer price index (CPI).
Also referred to as "Treasury inflation-indexed securities".
Treasury Lock
A customized derivative security used by investors to lock in the yield or price of a treasury security.
Treasury Note
A marketable, U.S. government debt security with a fixed interest rate and a maturity between one
and 10 years. T-notes can be bought either directly from the U.S. government or through a bank.
When buying from the government you can either put in a competitive or noncompetitive bid. With a
competitive bid you specify the yield you want; however, this does not mean your bid will be
approved. With a noncompetitive bid is one where you accept whatever yield is determined at
auction.
U
A Nasdaq stock symbol specifying that the issue is in units.
U.S. Treasury
Created in 1798, the United States Department of the Treasury is the government (Cabinet)
department responsible for issuing all Treasury bonds, notes and bills. Some of the government
branches operating under the U.S. Treasury umbrella include the IRS, U.S. Mint, Bureau of the Public
Debt, and the Alcohol and Tobacco Tax Bureau
UAH
In currencies, this is the abbreviation for the Ukraine Hryvnia.
UGX
In currencies, this is the abbreviation for the Uganda Shilling.
Ulcer Index - UI
An indicator developed by Peter G. Martin and Byron B. McCann that is used to measure the
riskiness of investments such as securities, commodities, indexes or mutual funds. It is created by
factoring in the depth and duration of drawdowns from recent peaks. A large UI value indicates that
the security represents undue risk and an investor who holds it will likely need to wait longer for the
investment's price to climb back to its recent highs.
Ultimate Oscillator
A technical indicator invented by Larry Williams that uses the weighted average of three different
time periods to reduce the volatility and false transaction signals that are associated with many
other indicators that mainly rely on a single time period.
Unadjusted Basis
A basis used for depreciation purposes. Unadjusted basis uses the original cost of property or
equipment without regard to salvage value.
Unbundling
The process of taking over a large company with several different lines of business, and then, while
retaining the core business, selling off the subsidiaries to help fund the takeover.
Unchanged
A situation in which the price or rate of a security does not change between two periods. This can be
over any time frame including a trading day, week, or even as much as a year.
Sometimes seen as "UNCH."
Uncommitted Facility
A credit facility with no restrictions placed upon the lending institution regarding the amount of
funds to be lent.
Under Reporting
An illegal practice in which a person understates his or her taxable income
Underlying
1. In derivatives, the security that must be delivered when a derivative contract, such as a put or call
option, is exercised.
2. In equities, the common stock that must be delivered when a warrant is exercised, or when a
convertible bond or convertible preferred share is converted to common stock.
Underpayment Penalty
A tax penalty enacted on an individual for not paying enough of his or her total estimated tax and
withholding. If an individual has an underpayment of estimated tax, they may be required to pay a
penalty (on Form 2210).
Underperform
An analyst recommendation that means a stock is expected to do slightly worse than the market
return.
Also known as market underperform, moderate sell, or weak hold.
Undersubscribed
A situation in which the demand for an initial public offering of securities is less than the number of
shares issued. Also known as an "underbooking".
Undervalued
A stock or other security that is trading below its true value.
Underwater
1. The condition a call option is in when its strike price is higher than the market price of the
underlying stock.
2. The condition a put option is in when its strike price is lower than the market price of the
underlying stock.
Also known as "out of the money."
Underweight
An situation where a portfolio does not hold a sufficient amount of securities to satisfy the accepted
benchmark of the portfolio's asset allocation strategy.
Underwriter
A company or other entity that administers the public issuance and distribution of securities from a
corporation or other issuing body. An underwriter works closely with the issuing body to determine
the offering price of the securities, buys them from the issuer and sells them to investors via the
underwriter's distribution network.
Underwriting
1. The process by which investment bankers raise investment capital from investors on behalf of
corporations and governments that are issuing securities (both equity and debt).
2. The process of issuing insurance policies.
Underwriting Spread
The spread between the amount underwriters pay an issuing company for its securities and the
amount the underwriters receive from selling the securities in the public offering.
Undivided Account
An underwriting system in which each underwriter in the group is responsible not only for selling its
alloted amount of the new issue but also for selling any excess issue not sold by the underwriting
group as a whole. This is also referred to as an "Eastern account", and it is the opposite of a divided
account.
Unearned Income
Any income that comes from investments and other sources unrelated to employment services.
Unearned Revenue
When an individual or company receives money for a service or product that has yet to be fulfilled.
Unemployment Rate
The percentage of the total labor force that is unemployed but actively seeking employment and
willing to work.
Unencumbered
Property that is not subject to any creditor claims or liens.
Unified Managed Account - UMA
A professionally managed private investment account that is rebalanced regularly and can
encompass every investment vehicle (e.g. mutual funds, stocks, bonds and exchange traded funds)
in an investor's portfolio, all in a single account.
Unissued Stock
When a corporation possesses authorized common and preferred shares, but never actually
exchanges them for money or services.
Unit Trust - UT
An unincorporated mutual fund structure that allows funds to hold assets and pass through profits
to the individual owners, rather than reinvest profits back into the fund.
Unit Trust - UT
An unincorporated mutual fund structure that allows funds to hold assets and pass through profits
to the individual owners, rather than reinvest profits back into the fund.
Universal Banking
Banking that includes investment services in addition to services related to savings and loans.
Universe of Securities
A set of securities with a common feature whether by sharing the same market capitalization,
industry or index. It can also refer to securities within a defined price range, securities that deal in
specific commodities and/or securities with the same product line.
V
A Nasdaq stock symbol specifying that it is when-issued or when-distributed.
Vacation Home
A home separate from an individual's primary residence that is used for recreational purposes and
may also be rented out at unused times.
Valuation
The process of determining the current worth of an asset or company. There are many techniques
that can be used to determine value, some are subjective and others are objective.
Value Added
The enhancement a company gives its product or service before offering the product to customers
Value Chain
A high-level model of how businesses receive raw materials as input, add value to the raw materials
through various processes, and sell finished products to customers.
Value Date
A future date used in determining the value of a product that fluctuates in price. Typically, you will
see the use of value dates in determining the payment of products and accounts where there is a
possibility for discrepancies due to differences in the timing of valuation. Such products include
forward currency contracts, option contracts, and the interest payable or receivable on personal
accounts. Also referred to as "valuta".
Value Fund
A mutual fund that primarily holds value stocks, stocks deemed to be undervalued in price.
Value Investing
The strategy of selecting stocks that trade for less than their intrinsic value. Value investors actively
seek stocks of companies that they believe the market has undervalued. They believe the market
overreacts to good and bad news, causing stock price movements that do not correspond with the
company's long-term fundamentals. The result is an opportunity for value investors to profit by
buying when the price is deflated.
Typically, value investors select stocks with lower-than-average price-to-book or price-to-earnings
ratios and/or high dividend yields.
Value Stock
A stock that tends to trade at a lower price relative to it's fundamentals (i.e. dividends, earnings,
sales, etc.) and thus considered undervalued by a value investor. Common characteristics of such
stocks include a high dividend yield, low price-to-book ratio and/or low price-to-earnings ratio.
Value Trap
A stock that has experienced a large price depreciation and is mistaken to be a value stock.
Value-Based Pricing
A pricing strategy in which a product's price is actively dependant upon its demand.
Vanilla Option
A normal option with no special or unusual features.
Variability
The possible range of outcomes for any given event.
Variable Annuity
An insurance contract in which, at the end of the accumulation stage, the insurance company
guarantees a minimum payment. The remaining income payments can vary depending on the
performance of the managed portfolio.
Variable Cost A cost that changes in proportion to a change in a company's activity or business.
Variance
A measure of the dispersion of a set of data points around their mean value. It is a mathematical
expectation of the average squared deviations from the mean.
Variance Swap
A type of volatility swap where the payout is linear to variance rather than volatility. Therefore, the
payout will rise at a higher rate than volatility
Variation Margin
A variable margin payment that is made by clearing members to their respective clearing houses
based upon adverse price movements of the futures contracts that these members hold.
Vault Receipt
A document frequently used as a delivery instrument to indicate ownership of precious metals
stored in a bank, warehouse, or depository. Also known as warrant or warehouse receipt for metals.
VEB
In currencies, this is the abbreviation for the Venezuelan Bolivar
Vega
The amount that the price of an option changes compared to a 1% change in volatility.
Vendor Financing
The lending of money by a company to one of its customers so that the customer can buy products
from it. By doing this, the company increases its sales even though it is basically buying its own
products.
Venture Capital
Financing for new businesses. In other words, money provided by investors to startup firms and
small businesses with perceived, long-term growth potential. This is a very important source of
funding for startups that do not have access to capital markets. It typically entails high risk for the
investor, but it has the potential for above-average returns.
Venture Capitalist
An investor who either provides capital to startup ventures or supports small companies that wish
to expand but do not have access to public funding.
Vertical Integration
When a company expands its business into areas that are at different points of the same production
path.
Vertical Market
A focused market that is only able to meet the need of one specific industry.
Vertical Merger
A merger between two companies producing different goods or services for one specific finished
product.
Vertical Spread
An options trading strategy with which a trader makes a simultaneous purchase and sale of two
options of the same type that have the same expiration dates but different strike prices.
Vest Fleece
A slang term used to describe a situation in which a company's executives accelerate the vesting of
their employee stock options. Usually, accelerated vesting is preceded by a period of excessively
high employee stock option grants. The result of vest fleecing is that shareholders' ownership is
reduced, and option holders are able to turn their options into stock in a shorter time period than if
they had not accelerated vesting.
Vested Interest
A financial or personal stake one entity has in an asset, security, or transaction.
Vesting
The process by which employees accrue non-forfeitable rights over employer contributions that are
made to the employee's qualified retirement plan account.
Viager
A (French) real estate agreement where property is sold on a reverse annuity basis. Also known as a
Reverse Annuity Mortgage or Charitable Remainder Trust.
Viatical Settlement
An arrangement in which someone with a terminal disease sells his or her life insurance policy at a
discount from its face value for ready cash. The buyer cashes in the full amount of the policy when
the original owner dies. Also referred to as a Life Settlement.
Viator
A person with terminal or a life-threatening illness who sells their life insurance policy at a steep
discount to an insurance firm to pay for their health-care costs or improve their quality of life.
Visibility
The extent to which future projections are probable.
Visible Supply
The deliverable commodities in licensed warehouses and approved delivery facilities.
VIX - CBOE Volatility Index
The ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows
the market's expectation of 30-day volatility. It is constructed using the implied volatilities of a wide
range of S&P 500 index options. This volatility is meant to be forward looking and is calculated from
both calls and puts. The VIX is a widely used measure of market risk.
The index is often referred to as the "investor fear gauge".
VIX Option
A type of non-equity option that uses the CBOE Volatility Index as the underlying asset. This is the
first exchange-traded option that gives individual investors the ability to trade market volatility.
Trading VIX options can be a useful tool for investors wanting to hedge their portfolios against
sudden market declines, as well as to speculate on future moves in volatility.
VND
In currencies, this is the abbreviation for the Vietnamese Dong.
Volatility
1. A statistical measure of the dispersion of returns for a given security or market index. Volatility
can either be measured by using the standard deviation or variance between returns from that same
security or market index. Commonly, the higher the volatility, the riskier the security.
2. A variable in option-pricing formulas showing the extent to which the return of the underlying
asset will fluctuate between now and the option's expiration. Volatility, as expressed as a percentage
coefficient within option-pricing formulas, arises from daily trading activities. How volatility is
measured will affect the value of the coefficient used.
Volatility Smile
A common graphical shape that results from plotting the strike price and implied volatility of a group
of options with the same expiration date.
Volatility Swap
A forward contract whose underlying is the volatility of a given product.
Volume
The number of shares or contracts traded in a security or an entire market during a given period of
time. It is simply the amount of shares that trade hands from sellers to buyers as a measure of
activity. If a buyer of a stock purchases 100 shares from a seller, then the volume for that period
increases by 100 shares based on that transaction
Volume of Trade
The quantity of futures contracts transacted over a specified period of time during a trading day.
Volume Scale
The numeric interval on a chart used to determine the placement and thus the value of a Volume Bar
or Volume Line.
Voluntary Compliance
An assumption or principle that taxpayers will comply with tax laws and, more importantly,
accurately report their income and deductions honestly.
Voodoo Accounting
Any form of accounting that does not follow principles of conservatism. While there are many
methods by which financial statements can be fudged, it always comes down to inflating revenue or
hiding expenses. Examples of accounting shenanigans include the big bath, cookie jar accounting
and improper recognition of revenue.
Voodoo Economics
A slanderous term used by President George H. W. Bush in reference to President Reagan's
economic policies known as Reaganomics.
VUV
In currencies, this is the abbreviation for the Vanuatu Vatu.
Voting Right
The right of a stockholder to vote on matters of corporate policy as well as on who is to compose
the board of directors.
Voting Shares
Shares that give the stockholder the right to vote on matters of corporate policy making as well as
who will compose the members of the board of directors
Vulture Fund
A fund that buys securities in distressed investments, such as high-yield bonds in or near default, or
equities that are in or near bankruptcy.
Vulture Capitalist
1. A slang word for a venture capitalist who deprives an inventor of control over their own
innovations and most of the money they should have made from the invention.
2. A venture capitalist who invests in floundering firms in the hopes that they will turn around.
Voucher
A document recording a liability or allowing for the payment of a liability, or debt. A voucher would
be held by the person or company who will receive payment.
Voting Trust
A legal trust created to combine the voting power of shareholders. With the establishment of the
voting trust, the shareholders' legal title (their stock) and voting rights are transferred to a
designated trustee for a set duration.
W
A Nasdaq symbol specifying that a particular security is a warrant.
W-2 Form
The form that an employer must send to an employee and the IRS at the end of the year. The W-2
form reports an employee's annual wages and the amount of taxes withheld from his or her
paycheck.
W-4 Form
A form completed by an employee to indicate his or her tax situation (exemptions, status, etc.) to the
employer. The W-4 form tells the employer the correct amount of tax to withhold from an employee's
paycheck.
W-8 Form
An IRS form that grants a foreigner an exemption from certain U.S. information return reporting and
backup withholding regulations.
There are many variations of the W-8 form, such as the W-8BEN and W-8ECI.
W-9 Form
An IRS form, also known as "Request for Taxpayer Identification Number and Certification", which is
used by an individual defined as a "U.S. person" or a resident alien to verify his or her taxpayer
identification number (TIN).
An entity that is required to file an information return with the IRS must obtain your correct TIN to
report, for example, income paid to you, real estate transactions, mortgage interest you paid, etc.
For example, companies that issue dividends use the W-9 form to verify a shareholder's TIN.
Waiting Period
1. The period of time between filing a registration statement with the SEC and the registration
statement being declared effective by the SEC. Also known as the "quiet period" and the "cooling-off
period".
2. The time between the filing of an insurance claim and the payments made on the claim. Also
known as the "elimination period".
Waiver
The voluntary action of a person or party that removes that person's or party's right or particular
ability in an agreement. The waiver can either be in written form or some form of action. A waiver
essentially removes a real or potential liability for the other party in the agreement.
Wall of Worry
A phrase used to describe a bullish market trend occurring in the face of negative uncertainties.
Wall Street
1. A street in lower Manhattan that is the original home of the New York Stock Exchange. The street
is the historic headquarters of the largest U.S. brokerages and investment banks. Many have since
relocated to other areas of Manhattan and the United States. Wall Street was named after the
wooden wall Dutch colonists built in this area in 1653 to defend themselves from the British and
Native Americans.
2. The collective name for the financial and investment community, which includes stock exchanges
and large banks, brokerages, securities and underwriting firms, and big businesses. Some people
believe that the interests of these big firms contrast those of smaller businesses, or "Main Street".
Wallflower
A stock that has fallen out of favor with investors and, consequently, tends to trade at a low P/E.
Also called orphan stock.
Wallpaper
The name given to stocks, bonds and other securities that have become worthless.
Walrasian Market
An economic model of a market process in which orders are collected into batches of buys and sells
and then analyzed to determine a clearing price that will decide the market price. Also referred to as
"call market".
War Babies
A name given to securities in companies that are defense contractors. Also known as defense
stocks.
War Bond
Debt securities issued by a government for the purpose of financing military operations during times
of war. It is an emotional appeal to patriotic citizens to lend the government their money because
these bonds offer a rate of return below the market rate.
War Chest
Slang for the reserve of cash a corporation sets aside to attempt a takeover or to defend against a
hostile takeover.
Warehouse Receipt
A receipt used in futures markets to guarantee the quantity and quality of a particular commodity
being stored within an approved facility.
Warehousing
1. A procedure whereby a company gradually builds up a holding of shares in a company it wishes
to takeover in the future.
2. The process of storing goods within a storage facility.
Warrant
A derivative security that gives the holder the right to purchase securities (usually equity) from the
issuer at a specific price within a certain time frame. Warrants are often included in a new debt issue
as a "sweetener" to entice investors.
Warrant Coverage
An agreement between a company and its shareholders whereby the company issues warrants
equal to some percentage of the dollar amount of the shareholder's investment.
Warrant Premium
The premium paid for the rights associated with a warrant.
Warren Buffett
Known as "the Oracle of Omaha", Buffett is Chairman of Berkshire Hathaway and arguably the
greatest investor of all time. His wealth fluctuates with the performance of the market, but for the last
few years he has been reported to be worth over $30 billion, making him the second richest man in
the world.
Wash
A situation in which two events or actions have the effect of nullifying each other. In terms of
investment, this could be when the gains in a portfolio equal the losses.
Wash Sale
An illegal transaction an investor makes by simultaneously buying and selling a security through
two different brokers, thereby creating the illusion of activity. Investors do this to try and recognize a
tax loss without actually changing their position.
Wash Trading
An illegal stock trading practice where an investor simultaneously buys and sells shares in a
company through two different brokers.
Wash-Sale Rule
An Internal Revenue Service (IRS) rule prohibiting a taxpayer from claiming a loss on the sale of an
investment when the same investment was purchased within 30 days before or after the sale date.
Also know as the "30-day wash-sale rule".
Wasting Asset
A derivative security that loses value due to time decay.
Watch List
A list of securities being monitored closely by a brokerage or exchange in order to spot
irregularities.
Watered Stock
Stock that is issued with a value much greater than the value of the issuing company's assets.
Watered stock can be caused by excessive stock dividends, overvalued assets and/or large
operating losses.
Wave
A metaphor for daily market activity that goes against the weekly market tide.
Weak Hands
1. The intention of futures contract holders not to receive delivery of the underlying.
2. Retail traders in the forex market who abide by the conventional wisdom that when a pattern is
broken, get out.
Weak Sister
A slang term for an undependable or weak link.
Wealth Management
A professional service which is the combination of financial/investment advice, accounting/tax
services, and legal/estate planning for one fee.
Weather Derivative
An instrument used by companies to hedge against the risk of weather-related losses. The investor
who sells a weather derivative agrees to bear this risk for a premium. If nothing happens, the
investor makes a profit. However, if the weather turns bad, then the company who buys the
derivative claims the agreed amount.
Weather Future
A type of weather derivative that obligates the buyer to purchase the value of the underlying weather
index - measured in heating degree days (HDD) or cooling degree days (CDD) - at a future date. The
settlement price of the underlying weather index is equal to the value of the relevant month's
HDD/CDD multiplied by $20. Weather futures can enable businesses to protect themselves against
losses caused by unexpected shifts in weather conditions.
Wedge
A technical chart pattern composed of two converging lines connecting a series of peaks and
troughs.
Wedging
Technical term referring to how the handle area of a “cup with handle” price pattern moves up over a
period of a week, just prior to the “pivot” or buy point. This is not a constructive signal. Proper
handles should show a drifting off or a minor downtrend prior to the breakout point. Handles that
wedge up tend to indicate a faulty pattern and are prone to failure.
Weekend Effect
A common occurrence in which stock prices tend to be negative Friday through Monday.
Weighted
Figures or components that are adjusted to reflect importance by value or proportion.
Weighted Alpha
A weighted measure of how much a stock has risen or fallen over a certain period, usually a year.
Generally, more emphasis is placed on recent activity by assigning higher weights to it than those
assigned to earlier movements. This helps to give a return figure that has a greater focus on the
most current period and is a more relevant measure for short-term analysis. This technique is
popular with technical analysts.
Weighted Average
An average in which each quantity to be averaged is assigned a weight. These weightings determine
the relative importance of each quantity on the average. Weightings are the equivalent of having that
many like items with the same value involved in the average.
Where:
Re = cost of equity
Rd = cost of debt
E = market value of the firm's equity
D = market value of the firm's debt
V=E+D
E/V = percentage of financing that is equity
D/V = percentage of financing that is debt
Tc = corporate tax rate
Well's Notice
Notifications issued by regulators to inform individuals and companies of completed investigations
where infractions have been discovered.
Western Account
An offering agreement in which each underwriter in a consortium of underwriters is responsible only
for selling its alloted amount of the new issue. Once participants have met their previously agreed
upon target allotment sale, their liability in the offering is completed.
When Issued - WI
A transaction which is made conditionally because a security has been authorized, but not yet
issued.
Whipsaw
A condition where an investor's security transaction is quickly followed by an opposite reaction.
Sometimes referred to as "being whipped".
Whisper Number
1. Traditionally, the unofficial and unpublished earnings per share (EPS) forecasts that circulate
among professionals on Wall Street. In this context, whisper numbers were generally reserved for
the favored (wealthy) clients of a brokerage.
2. A company's forecasted future earnings or revenues according to the collective expectations of
individual investors. In this sense, a whisper number would be compiled by a website polling its
visitors. Individuals come up with a whisper number using their own analysis of company financials,
market trends, gut feel, etc.
Whisper Stock
Shares in a company that is rumored to be the target of a takeover offer. The source of whisper
stocks could be anybody from an investment banker involved in a deal, to the spouse of an
executive privy to the information.
Whistle Blower
An employee who has inside knowledge of illegal activities occurring within his or her organization
and reports these to the public.
White Elephant
Any investment that nobody wants because it is unprofitable.
White Knight
A company that makes a friendly takeover offer to a target company that is being faced with a hostile
takeover from a separate party.
White Paper
An informational document issued by companies trying to promote or highlight the significance of a
planned product or service.
White Squire
Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a
lesser interest in the target firm.
White-Shoe Firm
Slang for broker-dealers who are strongly against hostile takeover practices
Whitemail
A strategy that a takeover target uses to try and thwart an undesired takeover attempt. The target
firm issues a large amount of shares at below-market prices, which the acquiring company will then
have to purchase if it wishes to complete the takeover.
Whole Loan
A term used to distinguish between an original mortgage loan and a pass-through security.
Wholesale Banking
Banking services between merchant banks and other financial institutions.
Whoops
Slang for the Washington Public Power Supply System (WPPSS), which made the record books with
the largest municipal bond default in history.
Wide Basis
A condition found in futures markets in which the spot price of underlying commodities is not close
to the futures price of the same contract
Wide Open
The situation at the opening of a trading day when there is a wide spread between the bid and ask
prices for a security.
Widow-and-Orphan Stock
Relatively low-risk stocks from well-known firms that pay high dividends.
Will Variation
A law that allows spouses and children to contest a will if they are not adequately provided for.
Williams %R
In technical analysis, this is a momentum indicator measuring overbought and oversold levels,
similar to a stochastic oscillator. It was developed by Larry Williams and compares a stock's close to
the high-low range over a certain period of time, usually 14 days.
Williams Act
A federal act, passed in 1968, that defines the rules in regards to acquisitions and tender offers.
Windfall Shares
Shares given for free to insiders of a society, a firm or a company when that same society, firm or
company is undergoing the process of demutualization. Windfall shares are often given to promote
goodwill and to encourage the demutualization process.
Windfall Tax
A tax levied by governments against certain industries when economic conditions allow those
industries to experience above-average profits. Windfall taxes are primarily levied on the companies
in the targeted industry that have benefited the most from the economic windfall.
Winding Up
A process that entails selling all the assets of a business entity, paying off creditors, distributing any
remaining assets to the principals, and then dissolving the business.
Window Dressing
A strategy used by mutual fund and portfolio managers near the year or quarter end to improve the
appearance of the portfolio/fund performance before presenting it to clients or shareholders.
Window Settlement
A form of settlement between dealers whereby trades are settled through the physical comparison of
transactions and actual money and stocks are transferred.
Winner's Curse
A tendency for the winning bid in an auction to exceed the intrinsic value of the item purchased.
Because of incomplete information, emotions or any other number of factors regarding the item
being auctioned, bidders can have a difficult time determining the item's intrinsic value. As a result,
the largest overestimation of an item's value ends up winning the auction.
Originally, the term was coined as a result of companies bidding for offshore oil drilling rights in the
Gulf of Mexico. In the investing world, the term often applies to initial public offerings.
Wire Fraud
A situation where a person concocts a scheme to defraud or obtain money based on false
representation or promises. This criminal act is done using electronic communications or an
interstate communications facility.
Wire House
A company whose different branches are linked by a communications system enabling the sharing
of financial information, research, and prices.
Wire Transfer
An electronic transfer of funds across a network administered by hundreds of banks around the
world.
With Discretion
A type of limit order that can be modified by a floor broker according to his or her own judgment,
allowing him or her to buy or sell to a set point beyond the bounds of the original order. This trading
modifier used along with limit and stop orders allows greater customization and flexibility.
Withdrawal
Removing funds from an account, plan, pension or trust. In some cases, conditions must be met in
order to withdraw funds without penalization. There are two ways to withdraw money: in cash or in
kind.
Withdrawal Plan
1) A payment structure arranged with a mutual fund in which the investor receives a set amount of
funds from the fund on a periodic basis. This is also called a "systematic withdrawal plan".
2) Any strategy in which an investor liquidates a portion of their portfolio and extracts cash
periodically, such as an investor selling equity shares every year to help supplement their
retirement.
Withholding
Any tax that is taken directly out of an individual's wages or other income before he or she receives
the funds.
Withholding Allowance
An allowance an individual claims on a W-4 Form. It is mainly used to assist an employer in
calculating the amount of income tax to withhold from an employee's paycheck.
Withholding Tax
1. Income tax withheld from employees' wages and paid directly to the government by the employer.
2. A tax levied on income (interest and dividends) from securities owned by a non-resident.
Wolfe Wave
In technical analysis, it is a naturally occurring trading pattern present in all financial markets. The
pattern is composed of five waves showing supply and demand and a fight towards an equilibrium
price. These patterns can develop over short- and long-term time frames such as minutes or weeks
and are used to predict where a price is heading and when it will get there.
Woody
Slang to describe when the market has a strong and quick upward movement.
Working Capital
A measure of both a company's efficiency and its short-term financial health. The working capital
ratio is calculated as:
Positive working capital means that the company is able to pay off its short-term liabilities. Negative
working capital means that a company currently is unable to meet its short-term liabilities with its
current assets (cash, accounts receivable, inventory). Also known as "net working capital".
Working Capital Loan
A loan whose purpose is to finance everyday operations of a company.
Working Ratio
A ratio used to measure a company's ability to recover operating costs from annual revenue. This
ratio is calculated by taking the company's total annual expenses (excluding depreciation and debt-
related expenses) and dividing it by the annual gross income:
Workout Market
A market maker prediction as to the trading price range that a security will occupy within a
reasonable period of time. The characteristics of a workout market are seen prevalently in thin
markets
Workout Period
The period of time in which temporary yield discrepancies between fixed income securities are
adjusted
WorldCom
Formerly known as WorldCom, now known as MCI, this U.S.-based telecommunications company
was at one time the second-largest long distance phone company in the U.S. Today, it is perhaps
best known for a massive accounting scandal that led to the company filing for bankruptcy
protection in 2002. WorldCom executives effectively fudged the company's accounting numbers,
inflating the company's assets by around $12 billion dollars. The swift bankruptcy that followed led
to massive losses for investors.
Wrap Account
An account in which a brokerage manages an investor's portfolio for a flat quarterly or annual fee.
This fee covers all administrative, commission, and management expenses. Sometimes this also
includes funds of funds.
Writ
A formal document written by a judge or official requiring specific action.
Writ Of Seizure And Sale
A court order that permits a creditor to instruct a sheriff to seize and sell assets/property of a debtor
in order to payoff a debt.
Write-Down
Reducing the book value of an asset because it is overvalued compared to the market value.
Write-Off
A reduction in the value of an asset or earnings by the amount of an expense or loss. Companies are
able to write off certain expenses that are required to run the business, or have been incurred in the
operation of the business and detract from retained revenues.
Write-Up
An increase made to the book value of an asset because it is undervalued compared to market
values.
Writer
The seller of an option who collects the premium payment from the buyer.
Written-Down Value
The book value of an asset after accounting for depreciation and amortization.
WST
In currencies, this is the abbreviation for the Samoan Tala.
X
1. A Nasdaq stock symbol specifying that it is a mutual fund.
2. A symbol used in stock transaction tables found on the internet and in newspapers to indicate
that a stock is trading ex-dividends or ex-rights.
XD
A symbol used to signify that a security is trading ex-dividend.
XDIS
A symbol used specifically upon the consolidated tape to indicate a security trading ex-distribution.
Xenocurrency
A currency that trades in markets outside of its domestic borders. "Xeno" is a prefix meaning
foreign or strange.
XRT
A symbol used specifically upon the consolidated tape to indicate a security trading ex-rights.
XW
A symbol used to signify that a security is trading ex-warrant.
Y
A Nasdaq stock symbol specifying that a particular stock is an American Depositary Receipt (ADR).
Yankee Bond
A bond denominated in U.S. dollars and issued in the United States by foreign banks and
corporations.
Yankee CD
A certificate of deposit (CD) issued in the U.S. market, typically in New York, by a branch of a foreign
bank.
Yard
Slang for one billion units in currency.
Year
In taxation, year refers to the calendar year that runs from January 1st to December 31st. However,
corporations can generally set the time period for which they report financial results to be different
than the calendar year.
Yellow Knight
A company that was once making a takeover attempt but ends up discussing a merger with the
target company.
Yellow Sheets
A U.S. bulletin that gives updated bid and ask prices as well as other information on OTC bonds.
Yield
1. In general, yield is the annual rate of return for any investment and is expressed as a percentage.
2. With stocks, yield can refer to the rate of income generated from a stock in the form of regular
dividends. This is often represented in percentage form, calculated as the annual dividend payments
divided by the stock's current share price.
3. With bonds, yield is the effective rate of interest paid on a bond, calculated by the coupon rate
divided by the bond's market price:
Yield Curve
A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but
differing maturity dates. The most frequently reported yield curve compares the three-month, two-
year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other
debt in the market, such as mortgage rates or bank lending rates. The curve is also used to predict
changes in economic output and growth.
Yield Elbow
The point on the yield curve indicating the year in which the economy's highest interest rates occur.
Yield Equivalence
The interest rate on a taxable security that would render a return equivalent to that of a tax-exempt
security, and vice versa, calculated as follows:
Yield Maintenance
A prepayment premium that allows investors to attain the same yield as if the borrower made all
scheduled mortgage payments until maturity.
Yield Pickup
A gain in yield achieved by selling one bond and buying another with a higher yield.
Yield Spread
The difference between yields on differing debt instruments, calculated by deducting the yield of one
instrument from another. The higher the yield spread, the greater the difference between the yields
offered by each instrument. The spread can be measured between debt instruments of differing
maturities, credit ratings and risk.
Yield To Call
The yield of a bond or note if you were to buy and hold the security until the call date. This yield is
valid only if the security is called prior to maturity. The calculation of yield to call is based on the
coupon rate, the length of time to the call date and the market price.
Yield to Worst
The yield to maturity if the worst possible bond repayment takes place. If market yields are higher
than the coupon, the yield to worst would assume no prepayment. If market yields are below the
coupon, the yield to worst would assume prepayment. In other words, yield to worst assumes that
market yields are unchanged
Yield-Based Option
A type of debt-instrument-based option that derives its value from the difference between the
exercise price and the value of the yield of the underlying debt instrument. Yield-based options are
settled in cash. A yield-based call buyer expects interest rates to go up, while a yield-based put
buyer expects interest rates to go down.
Yo-Yo
Slang for a very volatile market.
Z
A Nasdaq stock symbol specifying that it is a miscellaneous situation such as a depositary receipt,
stub, additional warrant, or unit.
Z-Score
A statistical measure that quantifies the distance (measured in standard deviations) a data point is
from the mean of a data set. In a more financial sense, Z-score is the output from a credit-strength
test that gauges the likelihood of bankruptcy
ZAR
In currencies, this is the abbreviation for the South African Rand.
Zero-Beta Portfolio
A portfolio constructed to have zero systematic risk or, in other words, a beta of zero.
Zero-Coupon Bond
A debt security that doesn't pay interest (a coupon) but is traded at a deep discount, rendering profit
at maturity when the bond is redeemed for its full face value.
Also known as an "accrual bond".
Zero-Coupon Bond
A debt security that doesn't pay interest (a coupon) but is traded at a deep discount, rendering profit
at maturity when the bond is redeemed for its full face value.
Also known as an "accrual bond".
Zero-Coupon Convertible
A zero-coupon bond issued by a corporation that can be converted into that corporation's common
stock. Also known as a "split coupon bond".
Zero-Sum Game
A situation in which one participant's gains result only from another participant's equivalent losses.
The net change in total wealth among participants is zero the wealth is just shifted from one to
another.
Zig Zag
A technical analysis indicator that filters out changes in an underlying plot that are less than a
specified amount
ZMK
In currencies, this is the abbreviation for the Zambian Kwacha.
Zombies
Companies that continue to operate even though they are insolvent. Also known as living dead.
Zoning
Government (usually municipal) laws that control the use of land within a jurisdiction
ZWD
In currencies, this is the abbreviation for the Zibabwe Dollar.
ZZZZ Best
A company owned by Barry Minkow in the 1980s. Through such means as forgery and theft, Minkow
appeared to be building a multimillion dollar corporation. Zzzz Best went public in December of
1986, eventually reaching a market capitalization of over US$200 million