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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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Call date: The date, prior to maturity, on which the issuer may redeem a callable bond.
Call option: A type of option contract that gives its holder the right (but not the obligation) to buy a specified number of shares of the underlying stock at the given price, on or before the expiration date of the contract.
Call premium: The amount that the buyer of a call option has to pay to the seller for thse right to purchase a stock or stock index at a specified price by a specific date.
Call price: The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a specified call date.
Call protection: The length of time during which a security cannot be redeemed (called) by the issurer.
Callable: The security is redeemable by the issuer before the scheduled maturity under specific conditions and at a stated price. Bonds are usually "called" when interest rates fall so significantly that the issuer can save money by issuing new bonds at lower rates.
Capital: The term used to describe money invested in a firm.
Capital asset pricing model (CAPM): A model of the relationship between expected risk and expected return. The theory that investors demand higher returns for higher risks.
Capital expenditures: Is the amount of money to acquire or improve capital assets such as buildings and machinery.
Capital gains: When a security is sold for a profit.
Capital gains tax: Tax on the profits resulting from the sale of a security in which a profit was made.
Capital loss: If a stock is sold below the original price paid.
Capital stock: The number of shares authorized by a company's charter, including both common stock and preferred stock.
Capitalization: Is a company's stock price per share multiplied by the total number of shares outstanding. Also known as market cap. v
Cash flow: Represents a company's cash account during an accounting period. Positive cash flow means more cash is coming in than going out. Negative cash flow is just the opposite.
Cash markets: A market in which commodities, such as grain, gold, crude oil, or RAM chips, are bought and sold for cash and delivered immediately. Also known as spot markets.
Certificate of deposit (CD): Is a certificate issued by a bank that indicates a specified sum of money has been deposited. This is a debt instrument that pays interest, and interest rates are set by the forces in the marketplace.
Chicago Mercantile Exchange: A trading exchange located in Chicago that trades futures and options.
Churning: Excessive trading of a client's account by a broker in order to generate commissions.
Closed-end mutual fund: A type of fund that has a fixed number of shares. These funds to not readily issue and redeem shares on a regular bases, unlike open-ended funds.
Closed-end mortgage: Mortgage that prohibits repayment before maturity.
Closely held: A corporation that has a small group of controlling shareholders who hold the majority of voting stock.
Closing purchase: A trading transaction made in order to close out a position held.
Closing range: A range of prices in which an order to buy or sell a security or commodity can be executed during a trading day.
Collateral trust bonds: A type of corporate debt security backed by other securities held by a bank or other trustee.
Collateralized mortgage obligation: A mortgage-backed investment-grade bond that separates mortgage pools into different maturity classes, called tranches.
Commodity Exchange (COMEX): Formerly known as the Commodity Exchange, COMEX is the leading U.S. market for metals futures and options trading. A division of the New York Mercantile Exchange (NYMEX).
Commission broker: A broker usually a floor broker that executes trades of stocks, bonds, or commodities for a commission.
Commission: A fee paid to a broker to execute a trade based on the number of share or dollar amount of the trade.
Common stock: Securities representing equity ownership in a corporation. Owners typically are entitled to vote on the selection of directors and other important matters.
Common stock equivalent: A convertible security that is traded like an equity issue because the optioned common stock is trading high.
Common stock ratios: Is the percentage of total capitalization represented by common stock. If found by dividing a company's common stock by its total capitalization.
Compounding: A process where the value of an investment increases exponentially over time due to compound interest.
Compound interest: Is the interest earned on an investment plus the interest that was earned earlier.
Conglomerate: A corporation composed of companies in a variety of different businesses.
Consensus forecast: The forecasts given to a company by financial analysts'.
Consolidation: The combination of separate companies, functional areas, or product lines, into a single one. This differs from a merger in that a new entity is created in the consolidation.
Consumer price index (CPI): Is a measure of change in consumer prices as determined by a monthly survey done by the government. Components include housing costs, food, energy and fuel, transportation and electricity.
Contract: The term used to reference a unit of trading for a financial security or commodity future. From a legal point of view, a contract is a binding agreement between two or more parties for performing, or refraining from performing, some specified act.
Contrarian: An investor who does the opposite of what most investors are doing a that particular time.
Contributions: The payments made by an employee into a 401(k), IRAs or other tax-deferred retirement plan account.
Controller: A company's chief accountant.
Conversion premium: The dollar or percentage amount by which the price of the convertible security exceeds the current market value of the common stock into which it could be converted.
Conversion price: The price at which a convertible bond, debenture, or preferred stock can be converted into common stock.
Conversion ratio: The relationship of how many shares of common stock will be received in exchange for each convertible bond or preferred share when the conversion takes place.
Convertible bond: A corporate bond that can be exchanged for a set number of common or preferred stock of the at a pre-stated conversion price.
Convertible: A type of security investment such as a bond, or preferred stock that is convertible into common stock of a particular company.
Correction: A fall in the price of a stock, bond, commodity, index, or the overall market, following a rise.
Coupon rate: The stated percentage rate of interest on bonds, notes or other fixed income securities.
Covariance: A statistical term for the correlation between two variables multiplied by the standard deviation for each of the variables.
Covered call: The process of selling a call option while at the same time holding an equivalent position in the original security.
Covered option: An option contract backed by the shares original the option.
Crash: A abrupt drop in market prices or economic conditions.
Credit rating: A formal evaluation of an individual's or company's credit history and capability of repaying obligations.
Credit risk: The possibility of bond issuer or borrower defaulting on his obligations to repay the debt.
Current yield: The rate of return on an investment expressed in a percentage.
Custodian: An institution, such as a bank, agent or trust company, that holds securities in safekeeping for an investor.
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Day order: A buy or sell order that automatically expires if it is not executed during that trading session.
Dealer: An individual or company, such as a securities firm, that acts as a principal and stands ready to buy and sell for its own account.
Debt ratio: Is the ratio of total debts divided by total assets of a company.
Default: The failure to make the required debt payments on a timely basis or to comply with other conditions of an obligation or agreement.
Default risk: Is the risk that an issuer of a bond may be not capable of making timely principal and interest payments. Also known as credit risk.
Deferred call: A clause in a bond that prohibits a company from calling the bond before a certain date has been reached.
Deferred annuities: A type of annuity that delays income payments until the holder chooses to receive them.
Defined benefit plan: A pension plan in which the sponsor agrees to make specified dollar payments to qualifying employees.
Defined contribution plan: A company retirement plan in which the employer is responsible only for making fixed contributions to the employee's over a period of time. The employees of the company make the main contributions to the plan.
Delayed opening: The postponement of the start of trading in a stock until an imbalance in buys and sell orders is corrected.
Delivery: The transfer and receipt of ownership rights.
Delta: The change in the price of a buyer's right to purchase a given amount of stock at a specific price (option contract) in relation to the change in the price of the stock.
Demand deposits: Checking accounts that pay no interest and can be withdrawn upon demand.
Demand line of credit: A bank line of credit that enables a customer to borrow on a daily or on-demand basis.
Depository Trust Company (DTC): D.T.C. is a user-owned securities depository which accepts deposits of eligible securities for custody, executes book-entry deliveries and records book-entry pledges of securities in its custody, and provides for withdrawals of securities from its custody. Used in the context of general equities. Central securities repository where stock and bond certificates are exchanged. Most of these exchanges now take place electronically, and few paper certificates actually change hands.
Depreciate: To allocate the purchase cost of an asset over its life.
Depreciation: Amount allocated during the period to amortize the cost of acquiring long-term assets over the useful life of the assets.
Derivative instruments: Contracts such as options and futures whose price is derived from the price of the underlying financial asset.
Detachable warrant: A security that allows the holder to buy a given number of shares of stock at a stipulated price.
Devaluation: A decrease in the price of a nation's currency, related to other currencies.
Dilution: Diminution in the proportion of income to which each share is entitled.
Dilution protection: Mainly applies to convertible securities. Standard provision whereby the conversion ratio is changed accordingly in the case of a stock dividend or extraordinary distribution to avoid dilution of a convertible bondholder's potential equity position. Adjustment usually requires a split or stock dividend in excess of 5% or issuance of stock below book value.
Discount bond: A bond that is valued at less than its face amount and has a payment rate far below rates currently available on other bonds.
Discount rate: The interest rate that the Federal Reserve charges a bank to borrow funds when a bank is temporarily short of funds.
Discount securities: Non-interest-bearing money market instruments that are issued at a discount and redeemed at maturity for full face value, e.g. U.S. Treasury bills.
Discounted cash flow Analysis (DCF): A process of evaluating an investment by estimating future cash flows and taking into consideration the time value of money.
Discretionary account: In a discretionary account, a broker can use his or her discretion to make purchases and sale transactions on behalf of the client.
Distributions: Payments from fund or corporate cash flow. May include dividends from earnings, capital gains from sale of portfolio holdings and return of capital.
Diversification: Dividing investment funds among a variety of securities with different risk and reward "profiles" or "expectations."
Dividend: A portion of a company's profit paid to common and preferred shareholders. A stock selling for $20 a share with an annual dividend of $1 a share yields the investor 5%.
Dividend growth model: A model wherein dividends are assumed to be growing at a constant rate in perpetuity. The value of the stock equals next year's dividends divided by the difference between the required rate of return and the assumed constant growth rate in dividends.
Dividend rate: The fixed or floating rate paid on preferred stock based on par value.
Dividend reimbursement plan (DRP): Automatic reinvestment of shareholder dividends in more shares of a company's stock.
Dividend rights: Shareholders' rights to receive per-share dividends identical to those other shareholders receive.
Dividends per share: Dividend paid for the past 12 months divided by the number of common shares outstanding.
Dollar cost averaging: An investment strategy that involves investing a fixed amount in a particular investment at regular intervals, such as putting $1500 into a particular stock or fund each month. The amount you invest remains constant, so you purchase more shares when the price is low and fewer shares when the price is higher.
Dollar returns: The change in value realized on a portfolio for any evaluation period, including (1) the change in market value of the portfolio and (2) any distributions made from the portfolio during that period.
Dow Jones Industrial Average: This is the best-known U.S. index of stocks. It contains 30 stocks that trade on the New York Stock Exchange. The Dow or DJIA, as it is called, is a barometer of how shares of the largest U.S. companies are performing.
Dow theory: Technical theory that a major trend in the stock market must be confirmed by simultaneous movement of the Dow Jones Industrial Average and the Dow Jones Transportation Average to new highs or lows.
Dual listing: Listing of a security on more than one exchange.
Due diligence: In the process of an acquisition, the acquiring firm is often allowed to see the target firm's internal books. The acquiring firm does an internal audit. Offers are often made contingent upon the resolution of the due diligence process.
Duration: A common gauge of the price sensitivity of a fixed income asset or portfolio to a change in interest rates.
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Early withdrawal penalty: A penalty on money withdrawn early from an investment that has a pre-set payout date. Two examples are cashing a certificate of deposit before it matures, or withdrawing from a retirement plan before the age of 59 1/2.
Earnings:Net income for the company during the period.
Earnings per share: A company's profit divided by its number of outstanding shares. If a company earned $2 million in one year had 2 million shares of stock outstanding, its EPS would be $1 per share.
Earnings yield: The total twelve months earnings divided by number of outstanding shares, divided by the recent price, multiplied by 100. The end result is shown in percentage.
EDGAR: The Securities & Exchange Commission (SEC) uses Electronic Data Gathering and Retrieval to transmit company documents such as 10-Ks, 10-Qs, quarterly reports, and other SEC filings, to investors.
www.edgar-online.com
Efficient frontier: The combinations of investments that maximize expected return for any level of expected risk, or that minimizes expected risk for any level of expected return.
Efficient portfolio: A portfolio that provides the greatest expected return for a given level of risk (i.e. standard deviation), or equivalently, the lowest risk for a given expected return.
Emerging market: The financial markets of developing economies.
Emerging market stocks: Stocks of companies based in nations with developing economies.
Employee Retirement Income Security Act (ERISA): ERISA is an acronym for the Employee Retirement Income Security Act of 1974. ERISA is designed to protect workers by setting uniform minimum standards.
Employee stock fund: A firm-sponsored program that enables employees to purchase shares of the firm's common stock on a preferential basis.
Employee stock ownership plan (ESOP): A plan in which a company contributes to a trust fund that buys stock on behalf of employees.
Endowment funds: Investment funds established for the support of institutions such as colleges, private schools, museums, hospitals, and foundations.
Equal dollar swap: Selling common stock/convertibles in one company and reinvesting the proceeds in as many shares of 1) another type of security issued by the company, or 2) another security of the same type but of another company -- as can be bought with the proceeds of the sale.
Equity: Represents ownership interest in a firm. Also the residual dollar value of a futures trading account, assuming its liquidation occurs at the going trade price.
Equity multiplier: Total assets divided by total common stockholders' equity; the amount of total assets per dollar of stockholders' equity.
Equity options: Securities that give the holder the right (but not the obligation) to buy or sell a specified number of shares of stock, at a specified price for a certain (limited) time period.
Equity swap: A swap in which loans are made from one company to another based on the total return on some stock market index and an interest rate (either a fixed rate or floating rate).
Equivalent taxable yield: The yield that must be offered on a taxable bond issue to give the same after-tax yield as a tax-exempt issue.
Estimated tax: A method of paying tax that is not automatically withheld, such as taxes on investment earnings. Estimated tax obligations can include income from interest, dividends and capital gains. This tax is due once every three months.
Eurobond: A bond that is underwritten by an international syndicate; issued simultaneously to investors in a number of countries, and issued outside the jurisdiction of any single country.
Eurodollar: An American dollar held by a foreign institution outside the U.S., usually a bank in Europe, often as a result of payments made to overseas companies for merchandise.
European Currency unit (ECU): An index of foreign exchange consisting of about 10 European currencies, originally devised in 1979.
European Union: An economic association of European nations with the goals of a single market for goods and services without any economic barriers and a common currency with one monetary authority.
Event risk: The risk that the ability of an issuer to make interest and principal payments will change because of rare, discontinuous, and very large, unanticipated changes in the market environment such as (1) a natural or industrial accident or some regulatory change or (2) a takeover or corporate restructuring.
Ex-dividend: The interval between the record date and the payment date during which the stock trades without its dividend -- the buyer of a stock selling ex-dividend does not receive the recently declared dividend.
Exchange: The marketplace in which shares, options and futures on stocks, bonds, commodities and indices are traded. Principal US stock exchanges are: New York Stock Exchange (NYSE), American Stock Exchange (AMEX) and the National Association of Securities Dealers Automatic Quotation System (Nasdaq).
Exchange fund: These funds allow investors to exchange their concentrated stock position for shares in the diversified portfolio of stocks in a tax-free transaction.
Exchange offer: An offer by the firm to give one security, such as a bond or preferred stock, in exchange for another security, such as shares of common stock.
Execution: The process of completing an order to buy or sell securities.
Exempt securities: Investment instruments exempt from the registration requirements of the Securities Act of 1933 or the margin requirements of the Securities & Exchange Commission (SEC) Act of 1934. Such securities include government bonds, agencies, munis, commercial paper, and private placements.
Exercise: To implement the right of the holder of a stock to buy or sell it. Also, to implement the right of the holder of an option to buy or sell the underlying security.
Exercise price: The price at which the security underlying a future or options contract may be bought or sold.
Expected future return: The return that is expected to be earned on an asset in the future.
Expected return on investment: The anticipated profit an investor can earn, expressed as a mark-up over the money the investor has spent to acquire the investment.
Expected return: The expected return on a risky asset based on a probability distribution for the possible rates of return. Expected return equals some risk free rate (generally the prevailing U.S. Treasury note or bond rate) plus a risk premium (the difference between the historic market return, based upon a well diversified index such as the S&P 500 and the historic U.S. Treasury bond) multiplied by a formula that assesses the stock's or fund's risk in relation to the overall market.
Expense ratio: The percentage of the assets that were spent to run a mutual fund (as of the last annual statement). This includes expenses such as management and advisory fees and overhead costs.
Expiration cycle: The dates on which options on a particular security expire.
Expiration date: The last day on which the buyer can exercise their the right, but not the obligation, to buy or sell an asset, such as a stock or fund, at a given price.
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