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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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JASDAQ: Stands for the Japanese Association of Securities Dealers Automated Quotation System, that nation's equivalent of the U.S. Nasdaq.
Junk bond: A bond with a speculative credit rating of BB (S&P) or Ba (Moody's) or lower is a junk or high yield bonds. To help defray the inherent risk, bonds offer investors higher yields than bonds of financially sound companies.
Kansas City Board of Trade: An options and futures exchange where contracts covering the sale of various agricultural products, including wheat, are bought and sold.
Keogh plan: A tax-deferred pension account for employees of unincorporated businesses or for persons who are self-employed, either part-time or full- time.
Keynesian economics: The doctrine that active government intervention in the marketplace and monetary policy at key times is the best method of reducing the risk of financial instability in the investment markets, and in the economy as a whole.
Killer bees: Those who aid a company in fending off a takeover bid, usually investment bankers who devise strategies to make the target less attractive or more difficult to acquire.
Ladder portfolio strategy: A bond portfolio strategy in which the portfolio is constructed to have approximately equal amounts invested in every maturity/redemption rate within a given price range.
Lag: Payment of a financial obligation later than is expected or required.
Large-capitalization stock: Stocks issued by large (more than $1 billion in capitalization), well-established corporations listed in stock indexes, such as the S&P 500 index or the Dow Jones Industrial Average.
Last trading day: The final day under an exchange's rules during which trading may take place in a particular futures or options contract.
Lead underwriter: The head of a group of financial companies, such as investment banks, that are sponsoring an initial public offering or secondary offering of stock.
Leading economic indicators: A group of economic measurements, such as average prices for raw materials or supply-related purchasing activity among corporations, that tend to rise or fall in advance of the rest of the economy and can help predict future economic trends.
Lender: Businesses that provide loans to others.
Lessee: A business or individual that leases an asset, such as an automobile or a computer system, from a business or financial services firm.
Lessor: A business or financial services firm that leases an asset, such as an automobile or computer system, to a business or individual.
Level coupon bond: Bond with a schedule of successive payments that are equal throughout the life of the bond.
Leverage ratios: Value of a company's debt to the total value of the firm.
Leveraged buyout (LBO): A transaction used for taking over a company or controlling interest in a company through the use of debt funds: bank loans and bonds. Investors can participate in an LBO through either the purchase of the debt (i.e., purchase of the bonds or participation in the bank loan) or the purchase of equity through an LBO fund that specializes in such investments.
Liability: A financial obligation, or the cash outlay that must be made at a specific time to satisfy the contractual terms of such an obligation.
Lien: A security interest in one or more assets that is granted to lenders in connection for financing. An example would be a lien on equipment granted to a lender by a company seeking financing.
Life cycle fund / Life stages fund: Funds that funds hold stocks, bonds and cash in proportions that considered appropriate for investors at certain stages of life. Generally, the investments in a life-cycle fund shift from growth stocks to more stable holdings as the fund participant ages.
Limit order: An order to buy a stock at or below a specified price or to sell a stock at or above a specified price.
Limited liability: Limits the possible loss to what has already been invested.
Limited partner: A business partner or investor in a business whose maximum financial loss is limited to what has already been invested in the business.
Limited partnership:A partnership that includes one or more partners whose maximum financial losses are limited to what they have each invested in the business.
Limited-tax general obligation bond: A bond that is limited as to revenue sources, such as a specific type of tax.
Liquid asset: Asset that is easily and cheaply turned into cash - notably cash itself and short-term securities.
Liquidation: Occurs when a firm's business is terminated, assets are sold, proceeds pay creditors and any leftovers are distributed to shareholders. Or when an investor sells a portion of an investment.
Liquidation value: Net amount that could be realized by selling the possessions of a firm after paying the debt.
Liquidator: Term used in Great Britain for a person appointed by an unsecured creditor to oversee the sale of an insolvent firm's assets and the repayment of its debts.
Load fund: A mutual fund with shares sold at a price including a sales charge - typically 4% to 8% of the net amount.
Long bonds: Bonds with a long current maturity. The best known is the 30-year U.S. Treasury bond.
Long position: When an investor who has the right, but not the obligation, to buy or sell bonds, or shares of stock or mutual funds at a set price on or before a given date, has bought, and now owns, more contracts than they've sold over a specific length of time.
Long-term assets: Value of property, equipment and other capital assets minus the depreciation taken.
Long-term debt: An obligation, such as a bank loan, having a payout completion due date of more than one year from the date it was issued.
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Majority stockholder: An institution or individual that owns more than 50% of a publicly traded company's shares of voting stock.
Management buyout (MBO): When an acquiring group led by a company's current management, buys a controlling interest in the firm, and finances the purchase with debt instruments, such as loans which causes the company to go private.
Management/closely held shares: Percentage of shares held by persons closely related to a company, such as senior executives or the firm's founders.
Management fee: An investment advisory fee charged by the financial advisor to a fund based on the fund's average net assets, sometimes determined on a sliding scale that declines as the asset level of the fund increases.
Margin: When investors buy securities by borrowing money from a broker, the margin is the difference between the market value of a stock and the loan a broker makes.
Margin account: An account with a brokerage, the nature of which stocks can be purchased for a combination of cash and a loan. The loan in the margin account is guaranteed by the stock. If the value of the stock drops by more than a pre-set amount, the owner will be asked to either put in more cash, or sell a portion of the stock.
Margin call: When the price of a stock purchased with a margin loan falls under a specified level for a specific length of time, the broker who issued the margin loan may insist on more cash, or a sale of stock to satisfy the debt.
Marginal tax rate: The tax rate that would have to be paid on any additional dollars of taxable income earned.
Market: Usually refers to the stock market. As in: "the market went down today" meaning that the value of the stock market dropped that day.
Market Cap: Relating to stocks, the monetary value of a company's total outstanding shares. Determined by multiplying the total number of shares outstanding with the current stock price.
Market capitalization: The total dollar value of all outstanding shares. Computed as shares times current market price. It is a measure of corporate size.
Market conversion price: The price that an investor effectively pays for bonds or preferred stock by purchasing a bond or preferred stock and then exercising his option to convert it into common stock.
Market cycle: Sometimes defined as a period between the 2 latest highs or lows of the S&P 500, showing net performance of a fund through both an up and a down market.
Market prices:The amount of money that a willing buyer pays to acquire something from a willing seller.
Market risk: A degree of uncertainty about stock market conditions that can't be eased by diversifying investments into different types of stocks, or even other financial instruments.
Market timer: A money manager who assumes he or she can forecast when the stock market would go up and down.
Maturity date: Usually used for bonds. Date that the bond is scheduled to be paid off.
Merger: A combination of two companies. Usually, mergers result in the acquired company's assets and liabilities being assumed by the acquiree.
Mezzanine financing: Usually the second stage of financing that follows venture capital financing. Often a precursor to an Initial Public Offering of the company's stock. Because of the intermediate nature of the event, the term "mezzanine financing" is used.
Modern portfolio theory: A set of principles that analyzes investment portfolios based on risk-return trade-offs and the diversification of investments intended to mute the effects of declines in the worth of specific holdings in the portfolio.
Monetary policy: Actions taken by the Board of Governors of the Federal Reserve System to influence the amount of cash, drawable checking account funds and interest rates in the U.S. economy.
Money market: Money markets are for borrowing and lending money for three years or less. The securities in a money market can be U.S. government bonds, Treasury bills and short-term notes from banks and companies.
Money market fund: A mutual fund that invests only in short term instruments, such as short-term notes issued by corporations, or Treasury bills.
Money purchase plan: A pension investment plan in which in the participant contributes some part and the firm contributes at the same or a different rate.
Moody's:An investment rating service that assesses the financial viability and prospects for corporate securities, bonds and other investment types.
Mortgage: A loan secured by the collateral of some specified real estate property, such as a home or warehouse. This loan obligates the borrower to make a predetermined series of payments on a regular schedule.
Mortgage bond: A bond in which the issuer has granted the bondholders a lien against the pledged assets.
Mortgage rate: The interest rate on a mortgage loan.
Mortgage-backed securities: Securities backed by a pool of mortgage loans.
Municipal bond: State or local governments offer municipal bonds or municipals, as they are called, to pay for special projects such as highways or sewers. The interest that investors receive is exempt from some income taxes.
Municipal notes: Short-term notes issued by cities in anticipation of tax receipts, proceeds from a bond issue, or other revenues.
Mutual fund: An investment company that pools money from shareholders and invests in a diversified portfolio of securities. Mutual funds offer investors a variety of goals. Some funds, for example, seek to generate income on a regular basis. Others seek to preserve an investor's money. Still others seek to invest in companies that are growing at a rapid pace.
National Association of Securities Dealers (NASD): Non-profit organization of people who directly participate in the buying and selling of stock in the over the counter market, where, instead of meeting on an exchange floor, geographically dispersed dealers are linked together by telephones and computer screens. Nasdaq is the best-known over-the-counter market.
National Association of Securities Dealers Automatic Quotation (Nasdaq): An electronic quotation system that provides price quotations to market participants about the more actively traded common stock issues in the O.T.C. market. About 4,000 common stock issues are included in the Nasdaq system.
National Market System (NMS): Refers to over-the-counter trading. System of trading over-the-counter stocks under the sponsorship of the National Association of Securities Dealers. Stocks traded must meet certain criteria for size, profitability and trading activity.
Negative amortization: A loan repayment schedule in which the balance of the loan increases, rather than decreases, because the scheduled monthly payments do not cover the full amount required to amortize the loan. The unpaid interest is added to the outstanding principal, to be repaid later.
Negotiated sale: Situation in which the terms of an offering of stock are determined by negotiation between the issuer and the underwriter rather than through competitive bidding by underwriting groups.
Net assets: The difference between total assets and liabilities.
Net asset value (NAV): The current value of all a mutual fund's assets, minus liabilities, divided by the total number of shares outstanding.
Net change: The difference between the closing price of a stock at the end of the most recent trading day, and the closing price of the same stock at the end of the previous trading day.
Net income: The company's total earnings, which are revenues minus costs of doing business, depreciation, interest, taxes and other expenses.
New York Stock Exchange (NYSE): The largest market for the buying and selling of stocks. To be eligible for listing on the NYSE, a company must earn at least $2,500,000 a year (before taxes), have issued at least 1,000,000 shares of stock, and give voting rights to common stockholders.
Nikkei stock average: A price-weighted index of 225 Japanese company stocks traded on the Tokyo Stock Exchange. The Nikkei has been called the Japanese equivalent of the Dow Jones Industrial Average.
No load mutual fund: A mutual fund with shares that are sold without a sales charge.
Note: An investment instrument, such as a bond, with maturities greater than one year and less than ten years.
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Off-board: A stock that isn't bought or sold on a stock exchange, even though the company is listed on that exchange. Off-board transactions can occur over-the-counter, on a regional stock exchange, or directly between two parties.
Offshore: Incorporated or organized in a foreign jurisdiction. Typically, the term describes a wholly owned affiliate of a publicly traded corporation. The affiliate is incorporated overseas, usually in a tax haven country, which has a moderate level of taxation and/or liberal tax incentives for undertaking specific activities such as exporting or investing.
Open-end fund: A mutual fund that continually offers it shares for purchase by investors. Investors redeem open-end fund shares by selling them back to the fund. This practice is in contrast to closed-end funds and other exchange-traded securities, which are bought and sold by investors in the open markets.
Operating expenses: For investment companies, the management fee and "other expenses," including the expenses for maintaining shareholder records, providing shareholders with financial statements, and providing custodial and accounting services to the fund. For 12(b) - 1 funds, selling and marketing costs are also included.
Optimal portfolio: A portfolio that maximizes an investor's preferences with their ideal balance of returns and risk.
Option: The right to buy or sell a stock at a set price on or before a specific date.
Options contract: A contract that for a premium price, gives an investor the right to buy or sell a stock at a set price on or before a specific date.
Order: Instruction to a broker/dealer to buy, sell, deliver, or receive securities or commodities which commits the issuer of the "order" to specific terms.
Outstanding shares: Shares that are currently owned by investors.
Over-the-counter (OTC): A securities market where geographically dispersed dealers are linked together by telephones and computer screens, trading for securities not listed on a stock or bond exchange, such as the New York Stock Exchange. The N.A.S.D.A.Q. market is the best-known OTC market.
Oversubscribed issue: This occurs when a new issue of securities is under priced or in great demand because of growth prospects, and investors are not able to buy all the shares they'd like to.
Overvalued: A stock price which is perceived to be "too high," using a valuation model such as a price-earnings ratio that is much higher than that of other comparable stocks.
P & L: A profit and loss statement. Same as an earnings report, a document published by a publicly traded company which lists its earnings, expenses, and net profit for the past year, or three months.
P/E or P/E ratio: Short for "price/earnings ratio." P/E shows the "multiple" of earnings at which a stock sells. Determined by dividing current stock price by current earnings per share (adjusted for stock splits). Earnings per share for the P/E ratio is often determined by dividing earnings for past 12 months by the number of common shares outstanding. Higher "multiple" means investors have higher expectations for future growth, and have bid up the stock's price.
P/E effect: Traditionally, portfolios with low P/E stocks have exhibited higher average risk-adjusted returns than high P/E stocks.
Pacific Stock Exchange: A U.S. regional stock exchange, with trading floors located in Los Angeles and San Francisco.
Paper loss: Based on a comparison of current market price to original cost, paper loss is the difference between the net cost of a security and the net sale price, if that security were to be sold at its current price (assuming that price is lower than what the buyer paid for it).
Par: Equal to the nominal or face value of an investment instrument, such as a bond. A bond selling at "par," for instance, is worth an amount equivalent to its original issue value or its value upon redemption at maturity.
Par value: The amount that the issuer of a bond agrees to pay on the date the bond matures.
Partnership: Shared ownership of a firm (not a corporation) among two or more individuals.
Payment date: The date on which each holder of a company's or fund's stock will be sent a dividend check.
Pell Grant: A federal need-based student aid program.
Penny stock: Stock that typically sells for less than $1 a share. Usually, these stocks are offered over the counter or on regional stock exchanges.
Pension Benefit Guaranty Corporation (PBGC): A federal agency that insures the vested benefits of pension plan participants. Established in 1974 by ERISA legislation.
Pension plan: A fund that is established for the payment of retirement benefits.
Performance shares: Shares of stock given to managers to motivate performance. These awards are usually based on company financial performance as measured by earnings per share and similar criteria. In short, the better job you do as a company manager, the more shares of stock you will be awarded.
Philadelphia Stock Exchange: A securities exchange where currency options are traded that convey the right (but not the obligation) to buy or sell a specified amount of foreign currency at a specified price within a specified time period.
Plan sponsors: The organizations that establish pension plans, including companies acting for their employees; state and local governing bodies operating on behalf of their employees; unions acting on behalf of their members; and individuals representing themselves.
Poison pill: Anti-takeover device that gives a prospective acquiree's shareholders the right to buy shares of the firm or shares of anyone who acquires the firm at a deep discount to their fair market value. Named after the cyanide pill that secret agents are instructed to swallow if capture is imminent.
Portfolio: A combined collection of financial investments held by an individual, a mutual fund, or another entity.
Portfolio manager: Professional responsible for the securities portfolio of an individual or institutional investor, such as a mutual fund, pension fund, profit-sharing plan, bank trust department, or insurance company. In return for a fee, the manager has the fiduciary responsibility to manage the assets prudently and choose which types are most appropriate for the individual's, or the institution's, desired investment strategy.
Preference stock: A type of stock that ranks junior to preferred stock but senior to common stock in the right to receive dividend payments from the firm.
Preferred shares: Preferred shares give investors a fixed dividend from the company's earnings. And more importantly: preferred shareholders get paid dividends before common shareholders. If the company is liquidated, preferred shareholders are paid their claim on company assets before common shareholders are.
Present value: The amount of cash today that is equivalent in value to a payment, or to a stream of payments, to be received in the future.
Price risk: The sale of a bond or other security directly to a limited number of institutional investors, such as insurance companies or pension funds. These sales bypass the stock exchanges, or other public markets where stocks are normally bought or sold.
Price value of a basis point: A measure of the change in the price of a bond if the required yield changes by one basis point, or yield percentage. For example, an interest rate of 5% is 50 basis points greater than an interest rate of 4.5%.
Price/book ratio: Compares the price at which a stock is trading and presumably could be sold to the value of total assets less total liabilities (book value). This ratio is determined by dividing current stock price by common stockholder equity per share (book value), adjusted for stock splits.
Price/earnings ratio: Short for "price/earnings ratio." P/E shows the "multiple" of earnings at which a stock sells. Determined by dividing current stock price by current earnings per share (adjusted for stock splits). Earnings per share for the P/E ratio is often determined by dividing earnings for past 12 months by the number of common shares outstanding. Higher "multiple" means investors have higher expectations for future growth, and have bid up the stock's price.
Primary market: The first buyer of a newly issued security buys that security in the primary market, such as in an Initial Public Offering. All subsequent trading of those securities is done in the secondary market, such as on stock exchanges.
Prime rate: The interest rate at which banks lend to their best (prime) customers. However, more often than not, a bank's most creditworthy customers borrow at rates below the prime rate.
Principal: The total amount of money being borrowed or lent.
Principal amount: The total amount of money being borrowed or lent.
Principle of diversification: The theory that investment portfolios with holdings spread out over several or more companies will be less susceptible to risk than if the portfolio consisted of stock from only one company.
Private placement: irc.glossary.p.def32
Probability: The relative likelihood of a particular outcome among all possible outcomes.
Profit: Revenue minus cost: How much you make on a transaction.
Profit margin: An indicator of profitability, profit margin is the ratio of earnings available to stockholders to net sales. Determined by dividing a company's total earnings, reflecting revenues adjusted for costs of doing business, depreciation, interest, taxes and other expenses, by revenue for the same 12-month period. Result is shown as a percentage.
Profit taking: Action by stock traders to cash-in on gains created by a market rise. Or the rise in the value of a particular investment.
Profitability: Ratios Ratios that focus on the profitability of the firm. Profit margins, a type of profitability ratio, measure performance with relation to sales.
Program trades: Orders requiring the completion of trades in a large number of different stocks at as near the same time as possible.
Program trading: Trades based on signals from computer programs, usually entered directly from the trader's computer to the market's computer system and executed automatically.
Projected benefit obligation: A measure of the total amount a pension plan owes its beneficiaries.
Prospectus: Formal written document to sell securities that describes the business plan for an existing or proposed company that an investor needs to make an informed decision. Prospectuses also are used by mutual funds to describe the fund objectives, risks and other essential information.
Proxy: Document intended to provide shareholders with information necessary to vote in an informed manner on matters to be brought up at a stockholders' meeting.
Proxy fights: Technique used by an acquiring company to attempt to gain control of a takeover target. The acquirer tries to persuade the shareholders of the target company that the present management of the firm should be ousted in favor of a slate of directors favorable to the acquirer, thus enabling the acquiring company to gain control of the company without paying a premium price.
Public offering: An offering of a company's stock usually made by an investment banker or a syndicate made up of several investment bankers, at a price agreed upon between the issuer and the investment bankers. See also Initial Public Offering (IPO). Put.
An option granting the right to sell a set number of shares of a specific stock in a designated future month at a price agreed upon today by the buyer and seller. Buyers of put options bet the stock's price will go down below the price set by the option.
Put price: The price at which the futures contract will be sold if a put option is exercised.
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