Glossary
Accumulation: The process of contributing cash to invest in securities. This is done over a period of time and the goal is to build a portfolio of desired value. Dividends and capital gains are also reinvested during this process.
Amex (American Stock Exchange): The United States third-largest stock exchange by trading volume. Located in New York City, the AMEX handles approx. 10% of all securities traded in the U.S. Today, the majority of trading on the AMEX is in small-cap stocks, exchange-traded funds and derivatives.
American option: An option that can be exercised anytime during its life. The majority of exchange-traded options are American. Since investors have the freedom to exercise their American options at any point during the life of the contract, they are more valuable than European options which can only be exercised at maturity.
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.
Average up: The process of buying additional shares at higher prices. This raises the average price the investor pays for all his/her shares. In the context of short selling, averaging up is achieved by selling additional shares at a price higher than that of the initial purchase transaction.
Away from the market: On a limit order, a buy order which is lower than the current market price or a sell order which is higher than the current market price. Such orders are held to be executed when the market price is suitable.
Analyst: A financial professional with expertise in evaluating investments. An analyst presents buy, sell and hold recommendations on securities. (Also referred to as "financial analyst" or "security analyst").
Barometer stock: A stock that is strongly believed to be an indicator of the overall markets condition.
Back office: Administrative and support personnel in a financial services company. Back office handle settlements, clearances, record maintenance, regulatory compliance, and accounting.
Blue chip stock:> The stock of a well-established, financially balanced company. Meaning dividends are paid without fail. These stocks tend to be less risky than other stocks. The stock price of a blue chip usually closely follows the S&P 500.
Bull market: Bull markets are characterized with 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 follow.
Bear market: A market condition in which the prices of securities are falling or are expected to fall. Although figures can vary, a downturn of 15-20% or more in multiple indexes (Dow or S&P 500) is considered an entry into a bear market.
Buy order: To obtain ownership of a security or asset, in exchange for money or value.
Buy limit order: An order placed with a brokerage to buy or sell a set number of shares at a specified or better price. Limit orders also allow an investor to limit the length of time an order can be outstanding before being canceled.
Broker: An individual or firm, selling financial products for investors.
Private investors need a broker to execute their orders. In return, the broker charges commissions for executing their buy or sell orders.
Call option: An option contract that gives an investor the right (but not the obligation) to buy a stock or any other asset at a specified price within a specific time period.
Cancel order: An instruction by a trader not to carry out an order that has already been placed. A cancel order can only be placed if the earlier order has not been executed.
Chasing the market: Generally viewed as the unwise practice of buying stock after a rise and/or selling after a fall. Chasing the market can also be seen as lagging behind.
Close to the money: An option contract where the strike price is close to the current market price of the underlying security .
Closing bell: A bell that rings to signify the end of a trading session.
Closing price: The price of the last transaction for a given security at the end of a given trading session. Also referred to as “close”.
Commissions: A fee charged by a broker for executing securities. This fee is charged for every transaction (trade, buy or sell) performed
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 debt holders have been paid in full.
Consumer Confidence index (CCI): A survey by the Conference Board that measures how optimistic or pessimistic consumers are with respect to the economy in the near future. The idea is that if the consumers are optimistic, they tend to purchase more goods and services. This increase in spending will inevitably stimulate the whole economy.
Consumer Price Index (CPI): A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to their importance. Changes in CPI are used to assess price changes associated with the cost of living. CPI is one of the most frequently used statistics for identifying periods of inflation or deflation.
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. Splits, dividends, mergers, acquisitions and spin-offs are all examples of corporate actions.
Daily high: The intraday high trading price. In other words, the highest price at which a stock traded during the course of the day.
Daily low: The intraday low trading price. In other words, the lowest price at which a stock traded during the course of the day.
Day order: Any order to buy or sell a security that automatically expires if not executed on the day the order is placed. A day order will not be executed if the limit or stop order prices were not met during the day. A way to increase the life of an order is to order securities on a “good till cancelled” basis, where, as the name implies, the trade will not expire until it is cancelled or until it reaches a maximum time limit set by the brokerage.
Day trade: The purchase and sell (or the short sell and cover) of the same security on the same day.
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.
Defensive stock: A stock that tends to remain stable under difficult economic conditions. Food, tobacco and utilities are prime examples. These stocks stand firm in hard times because demand does not decrease as dramatically as in other sectors. Defensive stock tends not to go up during economic expansions because the demand does not increase as other sectors.
Dividend: The 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 (dividends per share). It can also be quoted in terms of a percent of the current market price, referred to as dividend yield. Dividends may be in the form of cash, stock or property. Most secure and stable companies offer dividends to their stockholders. Their share prices might not move much, but the dividend attempts to compensate for this
Dow Jones (DJIA): The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. DJIA is the oldest and single most watched index in the world.
EAFE Index: An index created by Morgan Stanley Capital International (MSCI), serving as a benchmark of the performance in major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia. This international index has been in existence for more than 30 years.
Earnings estimate: The expected quarterly or annual earnings of a given company, as estimated by analysts. Earnings estimates are watched closely by investors because they are an important indication of the company's outlook.
Earnings per share (EPS): The portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company's profitability. Earnings per share, is generally considered to be the single most important variable in determining a share’s price.
Earning report: A report filed by public companies to record their performance. An earnings report includes items such as net income, earnings per share, earnings from continuing operations and net sales. These reports usually follow the end of each quarter. Most companies file in January, April, July and October. An earnings report is a 'report card' of sorts for public companies. It is through these reports that companies let shareholders know how well they have performed over a time period.
Efficient/Optimal portfolio: A portfolio providing the greatest expected return for a given level of risk, or equivalently, the lowest risk for a given expected return.
Equity: Usually, it refers to an ownership in a business in the form of stocks. Each stock represents a proportional share in the business, thus they are "equitable claims" on the business itself. In the balance sheet of a company, equity refers to the total amount that was invested in the company by the shareholders.
Exchange-Traded Fund (ETF): A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange, thus experiencing price changes throughout the day as it is bought and sold. By owning an ETF, you get the diversification of an index fund as well as the ability to sell short and purchase as little as one share. One of the most widely known ETF’s is called the SPDR (Spider), which tracks the S&P 500 index and trades under the symbol SPY.
Ex-dividend: A classification of trading shares when a declared dividend belongs to the seller rather than the buyer. A stock will be given ex-dividend status if a person has been confirmed by the company to receive the dividend payment. A stock trades ex-dividend on or after the ex-dividend date (ex-date). At this point, the person who owns the security on the ex-dividend date will be awarded the payment, regardless of who currently holds the stock. After the ex-date has been declared, the stock will usually drop in price by the amount of the expected dividend.
Federal Reserve Bank: The banks that carry out Fed operations, including controlling the money supply and regulating member banks. There are 12 District Feds, headquartered in Boston, New York, Philadelphia, Cleveland, St. Louis, San Francisco, Richmond, Atlanta, Chicago, Minneapolis, Kansas City and Dallas. These banks are the operating arms of the central bank. They implement the policies of the Federal Reserve Board and also carry out economic research.
Growth stocks: Shares in a company whose earnings are expected to grow at an above-average rate relative to the market. A growth stock usually does not pay a dividend, as the company would prefer to reinvest retained earnings in capital projects. Most technology companies are growth stocks.
Held: When a security is temporarily unavailable for trading.
Historical trading range: The spread between the high and low prices traded during a period of time. When a stock breaks through or falls below its trading range after several days of trading in a range, it usually means there is momentum (positive or negative) building.
Index: An index is 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. The Standard & Poor's 500 is one of the world's best known indexes, and is the most commonly used benchmark for the stock market.
Initial Public Offering (IPO): The first sale of stock by a private company to the public. IPO’s are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded.
Investment strategy: An investor's plan to distribute assets among various investments, taking into consideration factors such as individual goals, risk tolerance and horizon.
Large cap: An abbreviation for the term "large market capitalization". Market capitalization is calculated by multiplying the number of a company's shares outstanding, by its stock price per share. The expression "large cap" is used by the investment community as an indicator of a company's size. For example, a large-cap stock would be from a company with a market-capitalization dollar value of over $10 billion.
Limit order: An order placed with a brokerage to buy or sell a set number of shares at a specified or better price. Limit orders also allow an investor to limit the length of time an order can be outstanding before being canceled.
Long position: The buying of a security such as a stock, commodity or currency, with the expectation that the asset will rise in value.
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. The Nasdaq is the prime example of an operation of market makers. There are over 500 member firms that act as Nasdaq market makers, keeping the financial markets running efficiently because they are willing to quote both bid and offer prices for an asset.
Market cap: A company's total stock market value, calculated by multiplying the total number of shares outstanding by the stock price.
Market on open (MOO): A buy or sell order in which the execution is at the opening price of the day.
Market on close: A buy or sell order in which the execution is at the closing price of the day.
Market order: An order to buy or sell a stock immediately at the best available current price. A market order guarantees execution.
Market timing: Attempting to predict future market directions usually by examining recent price, volume data and economic data and investing based on these predictions, also referred to as “time to market”.
Mid cap: Company with a market capitalization between $2 and $10 billion, which is calculated by multiplying the number of a company's shares outstanding by its stock price.
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. The term "Nasdaq" used to be capitalized "NASDAQ" as an acronym for National Association of Securities Dealers Automated Quotation. The Nasdaq is traditionally home to many high-tech stocks. The big ones include Microsoft, Intel, Dell and Cisco.
New York Stock Exchange (NYSE): A corporation, operated by a board of directors, responsible for listing securities, setting policies and supervising the stock exchange and its member activities. The NYSE also oversees the transfer of members' seats on the Exchange, judging whether a potential applicant is qualified to be a specialist. The NYSE uses floor traders (people) to make trades, whereas the Nasdaq and many other exchanges are computer driven.
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 orders commonly occur when investors place price restrictions on their buy and sell transactions. As market orders are filled instantaneously, investors who enter limit orders will typically have to wait till the price that they set is reached. These orders will remain open either for the duration determined by the customer or until they are filled.
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. In general, the reason for which a stock is traded over-the-counter is usually because the company is small, making it unable to meet exchange listing requirements. Also known as "unlisted stock", these securities are traded by broker-dealers who negotiate directly with one another over computer networks and by phone.
Price earnings ratio (P/E Ratio): A valuation ratio of a company's current share price compared to its per-share earnings. It is calculated by dividing the stock's price per share by earnings per share for a twelve month period. The P/E is used as an indicator of the company trading below or above its intrinsic value. Generally speaking, stocks with lower P/E are considered relatively cheap, while stocks with higher P/E are considered expensive.
Portfolio: The group of assets - such as stocks, bonds and mutual’s - held by an investor. To reduce their risk, investors tend to hold more than just a single stock or other asset.
Portfolio tracking: Monitoring a collection of stocks, whether held in a real or imaginary portfolio, for the purpose of learning how the prices move or profiting from those movements. Usually done using software or via the internet.
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. The shareholders do not usually have voting rights.
Profit and Loss statement (P&L): A financial statement that summarizes the revenues, costs and expenses incurred during a specific period of time - usually a fiscal quarter or year. These records provide information that shows the ability of a company to generate profit by increasing revenue and reducing costs.
Profit warning: When a company advises that its earnings won't meet analyst expectations. A profit warning is usually done two or more weeks prior to an earnings announcement. Companies do this to soften the blow to investors.
QQQQ: 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.
Quarterly earnings report: A quarterly report filed by public companies to record their performance. An earnings report includes items such as net income, earnings per share, earnings from continuing operations and net sales. These reports follow the end of each quarter. Most companies file in January, April, July and October.
Ranking: Comparison of investments performance to others over a given time period.
Reverse stock split: A reduction in the number of a corporation's shares outstanding that increases the par value of its stock or its earnings per share. The market value of the total number of shares (market capitalization) remains the same. It's usually a bad sign if a company is forced to reverse split - firms do it to make their stock look more valuable when, in fact, nothing has changed. A company may also do a reverse split to avoid being de-listed.
Standard and Poor 500 (S&P 500): An index consisting of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large-cap universe. The S&P 500 is one of the most commonly used benchmarks for the overall U.S. stock market.
Securities and Exchange Commission (SEC): A government commission created by Congress to regulate the securities markets and protects investors. In addition to regulation and protection, it also monitors the corporate takeovers in the U.S. The SEC is composed of five commissioners appointed by the U.S. President and approved by the Senate. The statutes administered by the SEC are designed to promote full public disclosure and to protect the investing public against fraudulent and manipulative practices in the securities markets.
Stock: A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. A holder of stock (a shareholder) has a claim to a part of the corporation's assets and earnings. In other words, a shareholder is an owner of a company. Ownership is determined by the number of shares a person owns relative to the number of outstanding shares.
Sector: A group of securities in the same industry or market and an area of the economy in which businesses share the same or a related product or service.
Short position: The sale of a borrowed security, commodity or currency with the expectation that the asset will fall in value. For example, an investor who borrows shares of stock from a broker and sells them on the open market is said to have a short position in the stock. The investor must eventually return the borrowed stock by buying it back from the open market. If the stock falls in price, the investor buys it for less than he or she sold it, thus making a profit.
Short cover: The act of purchasing securities in order to close an open short position. This is done by buying the same type and number of securities that were sold short. Most often, traders cover their shorts whenever they speculate that the securities will rise. In order to make a profit, a short seller must cover the shorts by purchasing the security below the original selling price.
SPDR’s: Shares in a trust that own 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".
Stock Split: A type of corporate action where a company's existing shares are divided into multiple shares. Although the amount of shares outstanding increases by a specific multiple, the total dollar value of the shares remains the same compared to pre-split amounts, because no real value has been added as a result of the split. One reason as to why stock splits are performed is that a company's share price has grown so high that to many investors the shares are too expensive to buy in round lots.
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.
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 analysts believe that the historical performance of stocks and markets are indications of future performance.
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. Stock symbols are the most recognized type of ticker symbol. Stocks listed and traded on U.S. exchanges such as the NYSE have symbols with up to three letters. Nasdaq-listed stocks have four-letter symbols.
Volatility: Volatility refers to the amount of uncertainty or risk about the size of changes in a security's value. A higher volatility means that a security's value can potentially be spread out over a larger range of values. This means that the price of the security can change dramatically over a short time period in either direction. Whereas a lower volatility would mean that a security's value does not fluctuate dramatically, but changes in value at a steady pace over a period of time.
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.
Yield: In general, yield is the annual rate of return for any investment and is expressed as a percentage. 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. Investors can use yield to measure the performance of their investments and compare it to the yield on other investments or securities. Higher risk securities generally offer higher expected yields as compensation for the additional risk incurred through ownership of the security.