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Listed below is our glossary subdivided into the six alphabetical chapters. We invite you to use this resourse to better understand the terminology used in this website. |
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AA/Aa: A high grade assigned to a bond (debt instrument) by a rating agency. A rating such as this indicates a very strong capability to pay interest and pay back the principal.
AAA/Aaa: The highest grade assigned to a bond (debt instrument) by a rating agency. Such a rating indicates an exceptionally strong capability to pay interest and pay back principal.
Abandon: The right to choose not to exercise or sell an option before it expires. Also, to voluntarily give up the rights of property ownership, usually dealing with real estate.
Abandonment option: The option of terminating an investment earlier than initially planned.
Above par: Greater than the face value of an investment instrument, such as a bond. A bond selling "above par," for instance, is worth an amount more than its original issue value or its value upon redemption at maturity.
Absolute Priority Rule: The initiative that a creditors' claims take priority over shareholders' claims in the event of a liquidation or reorganization.
Absorbed: Treated as an expense, rather than passing the cost on to customers. Also, is a business that is merged with another company due to acquisition or takeover.
Abusive Tax Shelter: A tax shelter that the IRS feels is being used to claim illegal deductions.
Accelerated Benefits: With some life insurance policies, these are the benefits that are available before death, in such events as long-term catastrophic or terminal illness. Also known as living benefits.
Accidental Death Benefit: A life insurance policy provision that calls for an additional payment, usually equal to the face amount of the insurance, in the event of accidental death. Also known as double indemnity.
Accounting earnings: The earnings of a company as reported on its income statement.
Accounting insolvency: When total liabilities exceed total assets.
Accounting liquidity: The ease and swiftness with which a company or individual's assets can be converted to cash.
Accounts payable: The money a business owes its suppliers or creditors.
Accounts receivable: Money that is owed to a company by a customer for products or services provided on credit.
Accrual bond: A bond in which interest accumulates, but is not paid to the investor during the time of accrual. The amount of accrued interest is added to the remaining principal of the bond and is paid at maturity. Also known as a zero-coupon bond.
Accrued interest: Interest that has accumulated between the most recent payment and the sale of a bond or other fixed-income security. When the bond is sold, the buyer pays the seller the bond's price plus accrued interest.
Accumulation: Buying over a period time and on a fairly regular basis.
Accumulation Unit: A share of participation in a variable annuity.
Acid-test ratio: The ratio is used to measure a company's liquidity and evaluate credit worthiness. Is found by taking current assets minus inventories, accruals, and prepaid items to liabilities.
Acquisition: When one company buys another.
Acquisition Cost: The cost of equipment or property after taking adjustments for incentives, discounts, or closing costs, but before any sales tax.
Active Portfolio Management: A money-management strategy based on independent investment decision which seeks to match the performance of the overall market (or some part of it) by mirroring its composition or by being broadly diversified. The opposite is passive management, or indexing.
Actuary: An insurance company's specialist that calculates risk, especially as it relates to premiums, reserves, dividends, insurance and annuity rates.
Additional voluntary contributions: Any additional amounts of money that you may choose to save in order to improve your retirement benefits.
Adjustable Life Insurance: A type of life insurance polity that the policyholder can change the details of the plan, including the face amount, premium, and coverage period.
Adjustable rate: Refers to a type of interest rate or dividend that is changed periodically, due to changes in interest rates outside the control of the bank or savings institution, such as that prevailing on Treasury bonds or notes.
Adjustable rate mortgage (ARM): A mortgage with an interest rate that may change in response to Treasury bill rates or other predetermined index. For instance, when the Federal Reserve raises interest rates and you have an adjustable interest rate mortgage, your monthly payment will increase.
Adjustable rate preferred stock (ARPS): A type of Preferred stock whose dividend changes, usually quarterly, according to changes in the Treasury bill rate or a similar benchmark.
Adjusted gross income (AGI): Amount of income that is subject to federal income tax. When you participate in deductible contribution plans such as IRAs, 401(k) plans and any other tax credits your adjusted gross income is lowered which results in a lower tax burden.
Administrator: An individual appointed by a probate court to handle the estate of a person who died without a legal will (see intestate).
Advance-Decline Line: A market analysis tool used to measure of the overall market's direction. Equal to the number of stocks that rose divided by the number of stocks that fell during some specified period.
Advisor: A person employed by a company or financial institution that provides investment advice or investment analysis.
After Hours Trading: The trading of securities in the hours after the major exchanges have closed.
After-tax: The amount of income once taxes have been subtracted.
After-tax real rate of return: The after-tax rate of return subtracted from the adjusted inflation rate.
Agency: An individual or company that acts as the intermediary between a buyer and seller of securities, or other investment instruments. Commissions are charged for the service.
Aggressive: Refers to a type of investment policy that seeks above-average returns by accepting greater investment risks.
Aggressive growth mutual funds: These are funds that buy shares in companies that have potential for rapid growth. The shares are characterized by sudden drops in price, and experience greater volatility when compared to other investment vehicles.
Aging schedule: A list of accounts receivable broken down by number of days until due or past due.
Alimony: Payments made to a separated or divorced spouse as required by a divorce decree or separation agreement.
Allocation: Differences in how one divides their investment choices (stocks and bonds).
All or none order: A limited price order for an investment given to a broker that states the order is to be executed in its entirety or not at all (no partial transaction).
Alpha: A measure of risk-adjusted performance considering the risk of the specific security rather than the overall market.
Alternative Minimum Tax (AMT): A mechanism the IRS created to ensure that high-income individuals, corporations, trusts, and estates pay at least some minimum amount of tax, regardless of deductions, credits or exemptions.
Alternative order: Two orders given to a broker with an action of either to buy or sell, never both. Execution of one action automatically eliminates the other.
American Depository Receipts: Certificates issued by a U.S. depositary bank, representing shared of foreign stocks held by the bank, that are traded on a U.S. stock exchange.
American Stock Exchange (AMEX): A New York-based stock exchange where the majority of trading consists of index options (computer technology index, institutional index, major market index) and shares of small to medium-size companies. It's the second largest exchange in the United States.
Amortization: The repayment of a liability, such as a mortgage, by making gradual payments over a period of time.
Analyst: An employee of a brokerage or mutual fund company who studies various companies and makes buy-and-sell recommendations on the stocks of these companies. Most specialize in a specific industry for sector.
Angels: A wealthy individual who provides startup capital to young companies to help them grow. Angels take a large risk in exchange for a potentially big return on their investment.
Announcement date: The date, which certain news relating to a given company is announced to the public.
Annual: Recurring or performed every year. Yearly.
Annualizing: Making calculations or predictions for a period of less than a year as if the period were a whole year.
Annual percentage rate (APR): The periodic interest rate multiplied by the number of periods (monthly or quarterly) in a year. For example, a 2.5% quarterly return has an APR of 10% for the year.
Annual percentage yield (APY): The APY is the interest rate earned or paid in one year, when taking into account the affects of compounding. The APY is calculated by taking one plus the periodic rate raised to the number of periods in a year. For example, a 1% per month rate has an A.P.Y. of 12.68%
Annual rate of return: The rate of return for a yearly period. Can be calculated using either Annual Percentage Rate (APR) or Annual Percentage Yield (APY), which takes in the effects of compounding.
Annuitant: Someone who is entitled to receive an annual income from an investment or annuity.
Annuitize: To begin to receive payments from an investment or annuity.
Annuity: A contract sold by an insurance company to a policyholder or by a pension plan to participants that makes regular periodic payment for a specified period of time. These are usually low risk and safe investments for individuals.
Annuity period: Also known as the payout period or liquidation period. When assets of the individual are sold to make payments to the annuitant.
Anti-Trust Laws: Federal laws that prohibit businesses from monopolizing a market or restraining free trade.
Arbitrage: The buying and selling of a security or commodity in one market, and selling it in a different market.
Arbitrageur: A person who attempts to profit from the price differences of stocks, currency, or commodities that are traded on two or more market exchanges.
Applied Economics: The process of applying theories of economics in real world businesses.
Articles of incorporation: Legal documents that corporations must file with the state that contains the name of the company or organization, its address, names of its officers, and the purpose or purposes for which the company has been formed.
Ask: Is the lowest price an investor will accept to sell a stock. When trading stocks, this is the quoted price at which an investor can buy shares of stock; also called the offer price.
Asked price: The price of a security or commodity that is offered for sale on an exchange or in the over-the-counter market (Nasdaq).
Assets: Items of economic value owned by an individual or corporation, especially that which could be converted to cash.
Asset allocation: The process of dividing investments among various asset classes, such as stocks, bonds, and cash.
Asset classes: Categories of asset classes such as stocks, bonds, real estate, and cash. Asset classes can be further sub-divided. For instance, stocks can be divided in to large-cap, mid-cap, small-cap and micro-cap.
Asset-backed security: A security such as bonds or notes that are backed by loans, leases, accounts receivables, or installment contracts on personal property.
Asset-based financing: A type of secured business loan in which the borrower pledges as collateral any assets that are used to conduct of his/her business.
Assignment: A receipt that states a security is to be sold at the specified price.
Audit: An examination and verification of a company's financial and accounting records and supporting documents by a professional organization such as a Certified Public Accounting firm or the Internal Revenue Service.
Auditors report: A section of a company's annual report that contains the accountant's opinion, vouching for the accuracy of the financial statements made in the report.
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BB/Ba: A higher speculative grade assigned to a bond by a rating agency. Such a rating indicates significant risk and a judgment of moderate ability to pay interest and repay the principal.
BBB/Baa: A medium-grade assigned to a bond by a rating agency. Such a rating indicates an adequate ability to pay interest and repay principal. This is the lowest investment grade rating that is considered safe for purchase.
Back-end load mutual fund: A sales charge or commission paid when an individual sells a mutual fund or an annuity. This is used to discourage early withdrawal of the fund.
Balance sheet: Is a summary of a company's assets, liabilities, and owners' equity at a specific point in time.
Balanced mutual fund: A mutual fund that buys both stocks and bonds. A balanced mutual fund is more diversified, thus reducing investors risk exposure to the market.
Balloon Loan: A long-term loan, often a mortgage loan, which has one large payment (the balloon payment) due upon maturity of the loan. Gradual interest only payments are made prior to the lump-sum payment of principle.
Balloon maturity: A type of repayment schedule used for bond issues in which a large number of the bonds come due at the same time, typically the final maturity date.
Bankruptcy: Unable to pay debts. Usually a proceeding in a federal court in which assets are liquidated in order to pay off creditors. Chapter 7 deals with asset liquidation. Chapter 11 deals with reorganization of a company.
Basis point: A measurement unit used to describe differences between yields or interest rates. For example, 25 basis points equals .25% or _ of one percent.
Bear: An investor who thinks a stock or the overall market will decline. Just the opposite of a bull.
Bear market: A market with a prolonged period of falling prices, usually falling by 20% or more.
Bearer bond: Bonds that are not registered on the books of the issuer. The owner receives interest payments by physically detaching coupons from the bond certificate and delivering them to the paying agent. These types of bonds are no longer issued.
Below par: A bond that is selling "below par," is worth an amount less than its original face value or its value upon redemption at maturity
Benchmark: A standard used by investors to compare performance. For instance, a large-cap growth mutual fund may use the S&P 500 performance as its benchmark.
Beta: A quantitative measure of the volatility of a given stock, mutual fund, or portfolio, relative to the overall market, using a benchmark like the S&P 500. A beta above 1 is more volatile than the overall market, while a beta below 1 is less volatile.
Bid: Is the price a buyer is willing to pay for shares of a stock, or other investment at a given time.
Big board: Is the nickname used for the New York Stock Exchange (NYSE).
Block: A large number of stocks or bonds being held or traded. Usually a block is 10,000 shares or more of stock and $200,000 or more worth of bonds.
Block trade: A large stock trade, taking place on the NASDAQ, New York Stock Exchange or another exchange that has an order, which consists of 10,000 shares of a given stock or a total market value of $200,000 or more.
Blue Chip: Well known large-cap companies that have a long record of profit growth with a reputation of excellent management, products, and services. These stocks usually involve less risk compared with other large-cap growth companies.
Board of directors: The group of people responsible for the supervision and dealings of the corporation.
Boiler room: Cold-calling operation in which aggressive salespeople peddle unknown or little-known securities of debatable stability and legitimacy. Many of these operations work on scripted sales pitches, not unlike telemarketers.
Bonds: Any interest-bearing or discounted government or corporate security that obligates the issuer to pay the bondholder a specified sum of money at specific intervals to repay the principal amount of the loan at maturity.
Bond indexing: A bond portfolio that its intended to have performance that will match the performance of a bond index, such as the 10 Treasury note.
Bondholder: The holder of a bond, an investment instrument that will pay the principal on a pre-designated date.
Book value: Is the value of a company's assets that is carried on a balance sheet.
Breadth of the market: Is a percentage of stocks participating in a market move. Usually analysts say there was good breadth if 2/3 of stocks listed on an exchange rose during a trading session.
Broker: A person who acts as an intermediary between a buyer and a seller, charging commission. Brokers are found in the insurance, real estate, and securities industries.
Budget deficit: Is a measured amount in which government spending exceeds government revenues.
Bull: An investor who thinks the market will rise. Also known as bullish, which means optimistic, which is just the opposite of a Bearish investor.
Bull market: A prolonged rise in the price of stocks, bonds or commodities, usually lasting months or years.
Business risk: The risk that is associated with a company as they might affect the price of the company's stock.
Buy limit order: In securities trading, an order to a broker to purchase a specified quantity of a security at a specified price.
Buy minus order: An order to buy a stock at a price lower than the current market price.
Buy on the close: Buying a stock or bond at the end of the trading session at a price within the closing range.
Buy on margin: When an investor borrows money to buy additional shares, using the shares they already own as collateral.
Buy on opening: Buying a stock or bond at the beginning of a trading session at a price within the opening range.
Buy and hold strategy: A strategy that calls for accumulating shares in a company over years. This is a long-term investment strategy with not a lot of active trading.
Bypass Trust: An agreement allowing parents to pass assets on to their children to reduce estate taxes.
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