Dictionary - Investing
# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

10 Bagger

A 10 bagger is a term used to describe an investment (such as stock) that increases in value by 10 times its initial purchase price.More simply, 10 bagger stocks are investments that have a 1000% return on investment (ROI).  This term was coined by the legendary fund manager, Peter Lynch in his best-selling book, "One Up on Wall Street." This popular stock term was inspired by Lynch’s love of baseball. Read more

1031 Exchange

A 1031 exchange is a real estate transaction in which the buyer and seller effectively swap properties in order to avoid paying capital gains tax on the sale. For example, let’s assume that John Doe wants to sell his commercial property for $600,000, which he bought for $400,000 as an investment. Read more

12b-1 Fee

A 12b-1 fee is a fee assessed by a mutual fund to its shareholders.The fees cover the fund's marketing expenses and are named after the section of the Investment Company Act of 1940 that makes them legal. Read more

13-F

The Form 13-F must be filed by institutional investors who exercise discretion over at least $100 million in investments. Data reported on this form include the names of investment managers, the names and class of securities they manage, the CUSIP number, the number of shares owned, and the total market value of each security. Read more

30-Day Annualized Yield

The 30-day annualized yield is a measure of the yearly rate paid to investors of an interest-bearing account, based on the returns earned in a 30-day period.  The 30-day annualized yield is a measure of return usually used for mutual funds. Read more

52-Week High

The 52-week high refers to the highest market price of a given security over a 52-week (one year) period. If you observe the market prices for a given security during a specific period of time, there will be a price that is the highest price over that time period. Read more

52-Week High/Low

The 52-week high and low refers to the highest and lowest market prices of a given security over a 52-week (one year) period. If you observe the market prices for a given security during a specific period of time, there will be a price that is higher than all others and a price that is lower than all others. Read more

52-Week Low

The 52-week low refers to the lowest market price of a security over a 52-week (one year) time span. If you observe the market prices for a given security during a specific period of time, there will be a price that is lower than all others. Read more

7-Day Annualized Yield

Discover what the 7 day annualized yield is, as well as why it's so important to investors.  Read more

A Priori Probability

A priori probability is a method to determine the likelihood an asset's price will behave a certain way based on odds, not history. A priori is Latin for "deductive" or "presumptive." An a priori probability is deduced rather than based on past behavior. Read more

A Shares

A shares are a type of mutual fund share.They are distinguished from B Shares and C Shares by their load (fee) structure. Read more

A+/A1

A+ and A1 are actually two ratings from different ratings agencies: Standard & Poor's uses the A+ rating, and Moody's uses the A1 rating.Both ratings indicate a relatively high level of creditworthiness. Read more

A- & A3 Rating

What is an A3 credit rating? Is it the same as an A- credit rating? From Moody’s to Standard & Poor’s, discover more.  Read more

Abandonment Value

Abandonment value refers to the value of a project or investment were it to be liquidated presently. Also called liquidation value, the abandonment value of a project or investment is the immediate value in cash that would be generated from liquidating a project or selling an investment.  A given project's abandonment value can be an important consideration for a company. Read more

ABC Agreement

An ABC agreement is a contractual agreement between an investment house and its broker which allows the firm to purchase a seat (membership) on the New York Stock Exchange (NYSE). So called for its three standard conditions, an ABC agreement is entered into by a stock broker and his employing investment house. Read more

Abnormal Earnings Valuation

Also called the residual income model, the abnormal earnings valuation model is a method for predicting stock prices. In this theory, every stock is worth the company's book value per share if investors expect the company to earn a "normal" rate of return in the future. Read more

Abnormal Rate of Return

Abnormal rate of return, also known as "alpha" or "excess return," is the fraction of a security's or portfolio's return not explained by the rate of return of the market.Rather, it is produced from the expertise of the investor or portfolio manager, and is one of the most common measures of risk-adjusted performance. Read more

Abnormal Return

Abnormal return, also known as "alpha" or "excess return," is the fraction of a security's or portfolio's return not explained by the rate of return of the market.Instead, it is a result of the expertise of the investor. Read more

Above Par

When a bond's price is above par, the bond is selling at a premium above face value. In the bond world, par is the face value of a bond. Read more

Above the Market

Above the market describes the price at which a person wants to buy or sell a security. Let's say John Doe owns 100 shares of Company XYZ stock that he bought at $10 a share. Read more

Abstract of Title

An abstract of title is a history of a piece of property. For example, let's say John Doe wants to buy the house at 123 Main St. Read more

Accounting Rate of Return (ARR)

The accounting rate of return (ARR) is a simple estimate of a project's or investment's profitability that subtracts money invested from returns without regard to interest accrual or applicable taxes. Also called the "simple rate of return," the accounting rate of return (ARR) allows companies to evaluate the basic viability and profitability of a project based on projected revenue less any money invested. Read more

Accredited Investor

An accredited investor is an individual or organization allowed to participate in higher-risk investments such as hedge funds, angel investor networks, and some limited partnerships. Generally, for U.S. Read more

Accretion

Accretion is growth, typically in earnings, usually after an acquisition or other significant event.In the bond world, accretion refers to the capital gains earned on a bond purchased at a discount. Read more

Accrued Market Discount

Accrued market discount refers to the steady increase in value of a discounted bond from the time of purchase until maturity. The accrued market discount is a discount bond's increase in value resulting from the approach of its maturity date rather than a drop in interest rates. Read more

Accumulation Phase

Accumulation phase refers to the period of time (often several years or even decades) during which an annuitant (annuity policyholder) is making cash contributions to an annuity account.After the accumulation phase ends, the annuitization phase typically begins, whereby the annuitant receives payments for a certain period. Read more

Acid Test Ratio

With our acid test ratio explanation, you’ll learn how to calculate and interpret this important financial ratio.   Read more

Acquisition

An acquisition occurs when one company buys out another company’s stock or other asset shares. The acquiring/buying company becomes the owner of the company they purchased (i.e. the target company). Read more

Acquisition Premium

An acquisition premium is the difference between the actual price paid to acquire a company and the estimated real value of the acquired company before the acquisition.It is often recorded as "goodwill" on the balance sheet. Read more

Active Bond

An active bond is a corporate bond that is traded actively on the New York Stock Exchange (NYSE). Companies participating on the NYSE often choose to offer their bonds to investors in the same venue. Read more

Active Bond Crowd

Active bond crowd refers to the group of bond traders of the New York Stock Exchange (NYSE) that trades the highest volume of active bonds. Members of the NYSE's active bond crowd include those traders whose trading volumes in active bonds are disproportionately larger than those of other traders in the bond market called the cabinet crowd. Read more

Active Investing

The opposite of passive investing, active investing is an investment strategy that advocates significant trading and a short-term horizon. Active investment strategies generally dismiss long-term trends and focus on short-term profits, whereas passive investors maintain that long-term price movements are important and often predictable. Read more

Active Management

Active management is an investment strategy that tries to create excess returns through the recognition, anticipation, and exploitation of short-term investment trends. Active management is the opposite of passive management (also known as buy-and-hold investing). Read more

Active Risk

Also called tracking error, active risk is the difference between a portfolio’s returns and the benchmark or index it was meant to mimic or beat. There are two ways to measure active risk. Read more

Activist Investor

An activist investor invests in a company for the purpose of changing or influencing the company's decisions. Carl Icahn, known as a corporate "raider" in the 1980s, is one of the most famous activist investors. Read more

Activity Ratio

An activity ratio is a metric which determines the ability of a company to convert its balance sheet accounts into revenue. Activity ratios assess how effectively a company is able to generate revenue in the form of cash and sales based on its asset, liability and capital share accounts. Read more

Actual Return

Actual return refers to the nominal return made on an investment during a given period.  The actual return on an investment is the actual amount of money gained or lost during a period of time (e.g.a quarter or year) relative to the investment's initial value. Read more

Adjustable Rate Mortgage (ARM)

An adjustable rate mortgage (ARM) is a type of mortgage using a varying interest rate calculated by adding a premium to a specific benchmark rate.These loans are also called variable-rate mortgages or floating-rate mortgages. Read more

Adjusted Present Value (APV)

Adjusted present value (APV) refers to the net present value (NPV) or investment adjusted for the interest and tax advantages of leveraging debt provided that equity is the only source of financing. A company may finance a project or investment using shareholders' equity alone (i.e., without leveraged, or borrowed, cash flows). Read more

Advance Refunding

Advance refunding occurs when a bond issuer, usually a municipality, invests the proceeds from the sale of new bonds in U.S.Treasurys with the intent of using the Treasurys to pay off the old bonds. Read more

Advisor

In the finance world, an advisor (also spelled adviser) is an educated investment professional who helps people and businesses set and meet long-term financial goals. An advisor is similar to an investment advisor, financial planner, investment manager or investment consultant. Read more

Affirmative Obligation

An affirmative obligation is a responsibility incumbent upon New York Stock Exchange (NYSE) specialists to ensure that a market for a stock still exists in the absence of sufficient supply or demand. In certain instances, there may be high demand for a stock accompanied by a short supply of shares. Read more

After Hours Trading

After hours trading is the trading that occurs on electronic market exchanges after regular stock market trading hours have ended. In the United States, pre-market trading occurs between 8:00 a.m. Read more

After Market Trading

After market trading occurs on an electronic market exchange after regular trading hours have ended. In the United States, after market trading typically occurs between 4:00 p.m. Read more

Agency Bond

Agency bonds are bonds issued by agencies of the U.S.government. Read more

Aggressive Growth Fund

An aggressive growth fund is a mutual fund which invests exclusively in high-risk/high-return stocks in an attempt to benefit from the potentially high returns on start-up companies and IPOs. An aggressive growth fund brings together a number of equity securities issued by start-up companies believed to have a high growth potential combined with shares of initial public offerings (IPOs) issued by existing companies intending to expand. Read more

Aggressive Investment Strategy

An aggressive investment strategy emphasizes a substantially higher portfolio allocation of high-return equity over debt in order to generate high returns through exposure to high risk. An aggressive investment strategy weights a portfolio's composition primarily on a combination of moderate- to high-growth stocks with much smaller portions of bonds and commercial paper. Read more

Air Pocket Stock

An air pocket stock is one that experiences an abrupt and severe price decline. Named for the dropping action of an aircraft flying through a random low-pressure air pocket, an air pocket stock experiences a sharp price drop when the issuer announces negative news and panic selling ensues. Read more

All or Nothing Order (AON)

All or nothing (AON), also known as an "all or none" order, is a condition used on a buy or sell order which instructs a broker to execute the order in its entirety or to do nothing. For example, if you wanted to purchase 1,000 shares of Company XYZ at $5 per share "all or nothing," the broker would have to find all 1,000 shares at $5 in order to complete the transaction. Read more

All Weather Fund

An all weather fund is a mutual fund that performs well regardless of market conditions. The performance of an all weather fund is largely unaffected by market climate. Read more

Alpha

Alpha, also known as "excess return" or "abnormal rate of return," is one of the most widely used measures of risk-adjusted performance.The number shows how much better or worse a fund performed relative to a benchmark. Read more

Alternative Asset

An alternative asset is an item that has intrinsic value, but is not traditionally considered a financial asset. Alternative assets are best defined by their absence from the capital markets. Read more

Alternative Order

An alternative order is a group of limit orders linked together within a brokerage account.If one order is executed, all other linked orders are automatically canceled. Read more

Altman's Z-Score

Altman's Z-score is a financial statistic that is used to measure the probability of bankruptcy. Altman's Z-score is used to determine the likelihood of a company going bankrupt. Read more

American Depositary Receipt (ADR)

An American Depositary Receipt (ADR) is a certificate that represents shares of a foreign stock owned and issued by a U.S.bank. Read more

American Income Trust

An American Income Trust is a type of royalty trust. A royalty trust is a type of corporation created to act as the owner of the mineral rights to wells, mines and similar properties.  It exists only to pass income generated from the sale of the property's assets (gold, oil, etc.) to shareholders. Read more

American Stock Exchange (AMEX)

The American Stock Exchange (AMEX), sometimes referred to as the "Little Board," is a stock and options exchange in New York.  Though not as large as the New York Stock Exchange (NYSE), the AMEX is a large exchange that serves as a market for equities, a variety of options and other derivatives, American Depository Receipts (ADRs), exchange-traded funds (ETFs), and other financial instruments.The first ETFs traded on the AMEX in 1993. Read more

AMEX Biotech Index

The AMEX Biotech Index is the benchmark index for the Biotechnology industry.This index was started on October 18, 1991, with a value of 200. Read more

Analyst

An analyst gathers and interprets data about securities, companies, corporate strategies, economies or financial markets.Analysts are sometimes called financial analysts, securities analysts, equity analysts or investment analysts (although there is a distinction among these titles). Read more

Analyst Expectation

An analyst expectation is typically a prediction of a company's quarterly or annual earnings per share. Securities analysts are tasked with the job of making earnings estimates for the companies they cover. Read more

Angel Investor

An angel investor is a person who invests in highly risky companies, typically before those companies have any revenue or profits.Usually these companies are start-ups and/or small businesses that typically have little or no access to capital markets. Read more

Annual Equivalent Rate (AER)

Same as the effective annual interest rate, the annual equivalent (AER) rate is the rate of interest an investor earns in a year after accounting for the effects of compounding.The formula for AER is: (1 + i/n)n - 1 Where: i = the stated annual interest rate n = the number of compounding periods in one year For example, let’s assume you buy a certificate deposit with a 12% stated annual interest rate. Read more

Annual Percentage Yield (APY)

Annual percentage yield (APY) is the rate of interest an investor earns in a year after accounting for the effects of compounding.APY is not the same as annual percentage rate (APR). Read more

Annualize

Annualize means to express a rate in terms of its annual equivalent. The concept is best illustrated with an example: Assume a portfolio generates a 1% return in one month. Read more

Annuitization

Annuitization is the act of triggering a series of payments, usually from an annuity. An annuity is a contract whereby an investor makes a lump-sum payment to an insurance company, bank or other financial institution that in return agrees to give the investor either a higher lump-sum payment in the future or a series of guaranteed payments. Read more

Anti-Dilution Provision

An anti-dilution provision is a clause in an option, security, or merger agreement that gives the investor the right to maintain his or her percentage ownership of a company by buying a proportionate number of shares of any future issue of the security. Anti-dilution provisions are sometimes called "subscription rights," "preemptive rights," or "subscription privileges." Anti-dilution provisions are particularly relevant for convertible preferred stock. Read more

Anti-Martingale System

The anti-Martingale system is an investment strategy that doubles the position sizes of securities that experience gains.By using this method, investors will overweight their winning investments in hopes that they continue to rise. Read more

Any-and-All Bid

An any-and-all bid is an offer to acquire a company whereby the potential buyer offers to purchase any and all of the shareholders' shares at a specific price by a certain deadline. Let's assume Company XYZ wants to buy Company ABC, which is a public company. Read more

Appraisal Ratio

An appraisal ratio is the ratio of a mutual fund's alpha to its risk. The formula for the appraisal ratio is: Appraisal Ratio = Alpha / Fund's Unsystematic Risk Let's assume Mutual Fund XYZ has an alpha of 0.06 and an unsystematic risk of 0.60. Read more

Appreciation

Appreciation is an increase in the value of an investment. Let's assume you purchased one share of Company XYZ stock for $5. Read more

Arbitrage

Arbitrage is the process of exploiting differences in the price of an asset by simultaneously buying and selling it.In the process the arbitrageur pockets a risk-free return. Read more

Arbitrage Pricing Theory (APT)

Arbitrage pricing theory (APT) is a well-known method of estimating the price of an asset.The theory assumes an asset's return is dependent on various macroeconomic, market and security-specific factors. Read more

Arbitrage Trading Program

An arbitrage trading program is a software program that attempts to take advantage of very small price differences between securities, such as index futures and the underlying stocks represented.The program automatically scans for opportunities and places appropriate trades. Read more

Arbitrageur

An arbitrageur is a person who exploits the differences in the price of a given security by simultaneously purchasing and selling that security. For example, if Company XYZ's stock trades at $5 per share on the New York Stock Exchange and the equivalent of $5.05 on the London Stock Exchange, an arbitrageur would purchase the stock for $5 on the NYSE and sell it on the LSE for $5.05, pocketing $0.05 per share. Read more

Arithmetic Mean

The arithmetic mean is the average of a series of numbers. The formula for calculating the arithmetic mean is: Arithmetic mean = (X1 + X2 + X3 + ... Read more

Arithmetic Mean Average

The arithmetic mean average is the average of a series of numbers. The formula for calculating the arithmetic mean average is: Arithmetic mean average = (X1 + X2 + X3 + ... Read more

Ask Price

The ask price is the lowest price a prospective seller is willing to accept in exchange for a specific security.  While the ask price is the lowest price a prospective seller is willing to accept, the bid price is the highest price that a prospective buyer is willing to pay for the security.The highest bid and lowest ask are quoted on most major exchanges, and the difference between the two prices is called the bid-ask spread. Read more

Ask Size

The ask size is the number of shares that a seller is willing to sell at a given price.For instance, a seller is willing to part with 3,000 of their shares at a specific asking price.  People who offer to buy and sell securities are the market makers. Read more

Assessed Value

Assessed value refers to the value of an asset -- usually real estate -- as determined by an assessor for tax purposes.The assessed value is often computed by incorporating the purchases and sales of similar properties in nearby areas. Read more

Asset Allocation

Similar to diversification, asset allocation refers to the portioning of a portfolio among various types of investment asset classes so as to maximize return for a given level of risk. Just as it is prudent to diversify a portfolio among a number of holdings to reduce volatility, it is also generally recommended that an investor spread out his or her investments among several asset classes. Read more

Asset Backed Securities (ABS)

Asset backed securities (ABS) are securities backed by the cash flows of a pool of assets.Home equity loans, auto loans, credit card receivables, and student loans commonly back this class of securities. Read more

Asset Class

An asset class is a group of investments that have similar characteristics, behave similarly and are subject to similar market forces, laws and regulations.  Typical asset classes include stocks, bonds, real estate, cash and commodities.These groups can also be broken down further. Read more

Asset Management

Asset management has two general definitions, one relating to advisory services and the other relating to corporate finance.In the first instance, an advisor or financial services company provides asset management by coordinating and overseeing a client's financial portfolio -- e.g., investments, budgets, accounts, insurance and taxes.  In corporate finance, asset management is the process of ensuring that a company's tangible and intangible assets are maintained, accounted for, and put to their highest and best use. Read more

Asset Turnover Ratio

The asset turnover ratio is a measure of how efficiently a company's assets generate revenue.It measures the number of dollars of revenue generated by one dollar of the company's assets.  The formula for the asset turnover ratio is: Revenue / Average Total Assets Let's look at an example using the following hypothetical information for Company ABC: Revenue is found on the income statement, and total assets are found on the balance sheet.  Using the asset turnover ratio formula and the information above, we can calculate that Company ABC's asset turnover ratio this year was: $1,500,000 / [($975,000 + $1,140,000)/2]  = 1.418 This means that for every dollar of Company ABC's assets, Company ABC generated $1.42 in revenue. Read more

Assets Under Management (AUM)

Assets under management (AUM) refers to the total market value of investments managed by a mutual fund, money management firm, hedge fund, portfolio manager, or other financial services company. AUM generally changes according to the flow of money into and out of a particular fund or company. Read more

Assignable Contract

An assignable contract allows a contract holder to assign his or her rights and obligations under the contract to a third party.The most common assignable contracts are futures contracts. Read more

Asymmetric Information

Asymmetric information occurs when information is held by one, but not all, of the parties to a transaction. For example, consider a potential buyer of Company XYZ shares and the seller of those shares. Read more

At Par

In the bond world, at par means "equal to face value." Face value, also known as par value, is the amount the issuer promises to pay the bondholder when the bond matures. Let's assume Company XYZ issues $10 million in bonds to the public. Read more

Auction Market

An auction market is a market in which buyers indicate the highest price they are willing to pay and sellers indicate the lowest price they are willing to accept.A trade occurs when the buyer and seller agree on a price. Read more

Automated Bond System (ABS)

The Automated Bond System (ABS) is a computerized platform that tracks the prices for inactive bonds on the New York Stock Exchange (NYSE). Many bonds on the NYSE do not experience much price movement due to exceptionally low volume levels. Read more

Automatic Investment Plan (AIP)

An automatic investment plan (AIP) is a strategy whereby an investor can arrange for funds to transfer into an investment account automatically on a regular basis. Let's assume you want to save money for a down payment on a house. Read more

Average Annual Growth Rate (AAGR)

The average annual growth rate (AAGR) is the arithmetic mean of a series of growth rates. The average annual growth rate (AAGR) formula is: AAGR = (Growth Rate in Period A + Growth Rate in Period B + Growth Rate in Period C + [Other Periods]) / Number of Periods Let's look at an example. Read more

Average Annual Return (AAR)

The average annual return (AAR) is the arithmetic mean of a series of rates of return. The formula for AAR is: AAR = (Return in Period A + Return in Period B + Return in Period C + ...Return in Period X) / Number of Periods Let's look at an example. Read more

Average Down

Average down (or averaging down) refers to the purchase of additional units of a stock already held by an investor after the price has dropped.Averaging down results in a decrease of the average price at which the investor purchased the stock. Read more

B Shares

B shares are a type of mutual fund share.  They are distinguished from A shares and C shares by their load (fee) structure. B shares have a "back-end load."  This means that the entire initial investment amount is invested into mutual fund shares, but when the investor is ready to sell the shares, a certain percentage is deducted and paid to the mutual fund as commission.  Therefore, the investor receives less than the total value of the investment when the shares are sold.  B shares can be converted into A shares if the investor decides the front-end load payment structure is more advantageous. Read more

Baby Berkshire

A Baby Berkshire is a Class B share of Berkshire Hathaway (NYSE: BRK-B).The term also refers to the act of creating a portfolio of the same companies that Berkshire Hathaway invests in and then buying and selling proportionately when Berkshire Hathaway buys and sells. Read more

Baby Bonds

Baby bonds are bonds with a par value below $1,000.Additionally, the term also refers to savings bonds issued by the Treasury Department from 1935 to 1941. Read more

Back Door Listing

A back door listing occurs when a private company acquires a publicly traded company and thus “goes public” without an initial public offering. For example, let’s assume that Company XYZ is a privately held company with 150 shareholders and $25 million in cash. Read more

Back End Load

A back end load (also known as a sales charge or an exit fee) is a commission or sales fee.Investors pay back end loads when selling their investments, which are commonly associated with mutual funds and annuities.  The fee is usually a percentage of the current value of the fund’s shares, with the amount gradually decreasing over time. Read more

Back Month Contract

Also called a far month contract, a back month contract is a futures contract that has an expiration date that is the farthest beyond the next approaching expiration date (called the “front month contract). For example, let’s assume that John Doe wants to buy orange juice futures. Read more

Back Months

Back months are the expiration dates of futures contracts that fall furthest from the nearest expiration date.  For example, let’s assume that John Doe wants to buy orange juice futures. Read more

Back Office

In the finance world, a back office processes the day-to-day paperwork and record-keeping associated with trades, confirmations, settlements and other financial transactions. For example, let’s assume you visit your broker in her office at 123 Main Street in Anytown, USA. Read more

Back Stop

A back stop is a person or entity that purchases leftover shares from the underwriter of an equity or rights offering. For example, let’s assume that Company XYZ is going public. Read more

Back Up

A back up is an increase in a security’s price, yield, or spread before issuance.In other circles, back up means replacing a long-maturity security with a short-maturity security in order to capitalize on short-term interest rates that are higher than long-term interest rates. Read more

Back Up the Truck

Back up the truck is slang for bullish sentiment about a market or security. In the transportation world, drivers often back up the truck when they’re getting ready to get a load from a warehouse. Read more

Back-End Ratio

Banks use the back-end ratio to determine whether a mortgage applicant is a good credit risk.The formula for the back-end ratio, generally, is: Back-End Ratio = (All monthly loan payments + requested loan’s monthly principal and interest payment + monthly property taxes on proposed real estate + monthly homeowners insurance premium)/Gross monthly income For example, let’s assume John Doe wants to get a $500,000 mortgage that comes with a principal and interest payment of $2,400. Read more

Back-Stop Purchaser

A back-stop purchaser buys leftover shares from the underwriter of an equity or rights offering. Company XYZ is going public. Read more

Backing Away

Backing away occurs when a market maker does not honor a quoted bid or ask price for a minimum quantity of a particular security. John Doe wants to buy 1,000 shares of Company XYZ. Read more

Backpricing

Backpricing is a method for pricing commodities, whereby the buyer and seller agree to buy/sell a commodity but set the price at a later date. For example, let's assume that John wants to buy some corn. Read more

Backtesting

Backtesting is the process of applying a trading strategy or analytical method to historical data to see how accurately the strategy or method would have predicted actual results. For example, let's assume you devise a model that you think consistently predicts the future value of the S&P 500. Read more

Backwardation

Backwardation describes a downward sloping forward curve in a commodity market.This means that as the price of a commodity for future delivery is lower than the spot price -- the price of a commodity today.  Backwardation starts when the cost of carry – i.e., storage, financing and convenience fees, exceeds the difference between the forward and spot price.  This situation usually arises when a commodity that normally experiences contango faces a positive demand or negative supply shock. Read more

Bad Paper

Bad paper refers to uncollateralized bonds (typically with short maturities) that are poorly rated and at high risk of default. For example, let's assume Company XYZ is teetering on the verge of bankruptcy. Read more

Bag Holder

A bag holder is a person whose investment has become worthless or almost worthless.The investor is left "holding the bag." For example, let's assume that John invests $10,000 in Start-Up Company. Read more

Bagel Land

"Bagel land" is a slang term that describes where investments go when their prices approach zero. For example, let's assume that Company XYZ's stock falls from $10 per share to $0.50 per share due to a series of internal scandals and product failures. Read more

Bagging the Street

"Bagging the street" refers to the strategy of profiting from price changes created by block trades. For example, let's assume that Pension Fund ABC wants to buy 100,000 shares of Company XYZ. Read more

Baidu

Baidu is a large search engine in China.The word translates to "hundreds of times." Its ticker symbol is BIDU. Read more

Bailout Bond

A bailout bond is intended to help ailing companies.Bailout bonds were most common in the 1980s and 1990s when many savings and loans were failing; they are less common  now. Read more

Balanced Fund

A balanced fund is a mutual fund that generally keeps to a 50-50 mix of stock and bond investments.  Balanced funds are one of two general types of income funds (the other type is equity-income funds, which mostly invest in dividend paying stocks).Income funds seek to generate income but give some attention to capital appreciation -- that is, capital appreciation is secondary to maintaining current income and capital preservation.  Balanced funds (and income funds in general) are mechanically very similar to bond funds but they include varying amounts of non-debt instruments like preferred stock, common stock, or even real estate. Read more

Balanced Investment Strategy

A balanced investment strategy is a method of portfolio allocation. Let's assume that John Doe has $500,000 in his portfolio. Read more

Balloon Interest

In the bond world, balloon interest is an increase in the coupon rate of a bond issue corresponding to the maturity of the bond.Serial bonds often use balloon interest. Read more

Balloon Maturity

A balloon maturity is a the date on which a large payment is due, usually at or near the end of a loan term.In the bond market, a balloon maturity refers to the idea that a large portion of an issuer's bonds become due at the same time. Unlike a loan whose total cost (interest and principal) is amortized -- that is, paid incrementally during the life of the loan -- a balloon loan's principal is paid in one sum at the end of the term. Read more

Balloon Mortgage

A balloon mortgage is a mortgage with a large payment made near or at the end of a loan term. Unlike a loan whose total cost (interest and principal) is amortized -- that is, paid incrementally during the life of the loan -- most or all of a balloon mortgage's principal is paid in one sum at the end of the term. Read more

Bank Deposit Agreement

A bank deposit agreement, also called a Bank Investment Contract (BIC), is an agreement between a bank and an investor where the bank provides a guaranteed rate of return in exchange for keeping a deposit for a fixed amount of time (usually several months to several years). Bank deposit agreements are similar to guaranteed investment contracts (GICs) except that they are issued by banks rather than insurance companies. Read more

Bank Efficiency Ratio

A bank efficiency ratio is a measure of a bank's overhead as a percentage of its revenue. The formula varies, but the most common one is: Bank Efficiency Ratio = Expenses* / Revenue *not including interest expense For example, if Bank XYZ's costs (excluding interest expense) totaled $5,000,000 and its revenues totaled $10,000,000, then using the formula above, we can calculate that Bank XYZ's efficiency ratio is $5,000,000 / $10,000,000 = 50%. Read more

Bank Investment Contract (BIC)

A bank investment contract (BIC), also sometimes called a Bank Deposit Agreement, is an agreement between a bank and an investor whereby the bank provides a guaranteed rate of return in exchange for keeping a deposit for a fixed period of time (several months to several years). BICs are similar to guaranteed investment contracts (GICs) except that they are issued by banks rather than insurance companies. Read more

Barclays Capital U.S. Aggregate Bond Index

The Barclays Capital U.S.Aggregate Bond Index is the most common index used to track the performance of investment grade bonds in the U.S. Read more

Barrel of Oil Equivalent (BOE)

A barrel of oil equivalent (or BOE) is a unit measure of unused energy resources.Expressed frequently in the financial statements of energy companies, BOEs are defined by the U.S. Read more

Basis

Basis refers to the original price of an asset.It is sometimes called cost basis or tax basis. Read more

Basis Points (bps)

A basis point is the smallest measure used in quoting yields on fixed income products.Basis points also pertain to interest rates. Read more

Bear

A bear has a negative outlook on the market (belief that the value of an asset or market will decrease). Investors generally fall into two mindsets: those with an optimistic outlook who foresee prosperity, called "bulls," and those with a pessimistic outlook who foresee decline, called "bears." A bearish investor will alter their portfolio strategy by liquidating securities they believe are going to lose value in the foreseeable future. Read more

Bear Market

A bear market is a period of several months or years during which securities prices consistently fall.The term is typically used in reference to the stock market, but it can also describe specific sectors such as real estate, bond or foreign exchange. It is the opposite of a bull market, in which asset prices consistently rise. Read more

Bearish Harami

A bearish harami refers to a stock market trend indicating that the value of a stock is likely to experience a downwards, or bearish, momentum following a period of upward, bullish movement. In technical analysis, stock market trends are calculated using a number of different methods. Read more

Behavioral Finance

Behavioral finance combines social and psychological theory with financial theory as a means of understanding how price movements in the securities markets occur independent of any corporate actions. Suppose a lawsuit is brought against a tobacco company. Read more

Bellwether

A bellwether is a security or indicator that signals the market's direction. Let's assume Company XYZ is an auto manufacturer. Read more

Belly Up

In the finance world, a company goes belly up when it declares bankruptcy or goes out of business. Let’s assume Company XYZ’s stock falls from $10 per share to 50 cents per share due to a series of internal scandals and product failures. Read more

Below Par

In the bond world, below par means "below face value." Face value is the amount the issuer promises to pay the bondholder when the bond matures. Let's assume Company XYZ issues $10 million in bonds to the public. Read more

Belt and Suspenders

Belt and suspenders is a term to describe a risk-averse person or situation.The term refers to the act of wearing redundant items to hold up a pair of pants. Read more

Benchmark

A benchmark is a feasible alternative to a portfolio against which performance is measured. Let's assume you compare the returns of your stock portfolio, which is a broadly diversified collection of small-cap stocks and is managed by Company XYZ, with the Russell 2000 index, which you feel is an accurate universe of feasible alternative investments. Read more

Beneficial Owner

The beneficial owner is the individual or entity that enjoys the benefits of owning an asset, regardless of whose name the title of the property or security is in. Beneficial ownership commonly refers to two situations: 1.Under U.S. Read more

Best Ask

The best ask is the lowest price offered by a stock's market makers.For stocks, the best ask is quoted in dollars. Read more

Best Bid

The best bid is the highest price offered by a stock's market makers to buy a security.For stocks, the best bid is quoted in dollars. Read more

Best Efforts

Best efforts is a legal agreement between a securities underwriter (usually an investment bank) and a securities issuer, whereby the underwriter agrees to do the best it can to sell as many of the issuer’s securities as possible to the public.  A best efforts agreement does not guarantee that all of the securities in the issue must be sold.An issuer and underwriter agree upon a minimum level of sales and once the minimum has been reached, the underwriter is not responsible for any unsold securities.  Let’s assume Company XYZ plans to go public and it hires an investment bank to become their underwriter and arrange the offering. Read more

Best Execution

Best execution refers to the imperative that a broker, market maker, or other agent acting on behalf of an investor is obligated to execute the investor's order in a way that is most advantageous to the investor rather than the agent. Let's assume you place an order to buy 100 shares of Company XYZ stock. Read more

Best-Price Rule

The best-price rule refers to Securities and Exchange Commission (SEC) Rule 14d-10.This rule requires an entity making a tender offer for a certain class of shares to make the same offer to all the shareholders in that class. Read more

Beta

Beta is a measure of a stock's volatility relative to the overall market.It is most often calculated using a stock's movements relative to the S&P 500 Index over the trailing 12-month period. Read more

Bid Price

The bid price is the highest price that a prospective buyer is willing to pay for a specific security.The "ask price," is the lowest price acceptable to a prospective seller of the same security. Read more

Bid Size

Bid size is the number of shares a buyer is willing to purchase at a given price.For bond trading, bid size is measured in dollars. Read more

Bid-Ask Spread

The bid-ask spread (also known simply as "the spread") is the difference between a security's bid price and its ask price. Let's assume you are watching Company XYZ's stock. Read more

Bitcoin

Bitcoin is a digital currency. Though the name includes the word "coin", there are no actual coins. It exists only on the Internet. Read more

Black Friday

In the investing world, Black Friday refers to the gold crisis of September 24, 1869.It sometimes also refers to the New York Stock Exchange crash of September 19, 1873. Read more

Black Monday

Black Monday, also called "The Crash of 1987," refers to the 509-point fall in the Dow Jones Industrial Average on October 19, 1987.It also refers to October 28, 1929, when the DJIA fell 12.8%. Read more

Black Thursday

Black Thursday refers to October 24, 1929, when panicked sellers traded nearly 13 million shares on the New York Stock Exchange (more than three times the normal volume at the time), and investors suffered $5 billion in losses. The years preceding Black Thursday were filled with irrational exuberance. Read more

Black Tuesday

Also known as the Wall Street Crash of 1929, Black Tuesday was the worst stock market crash in US history.Black Tuesday was an abrupt end to the rapid economic expansion of The Roaring 20’s. Read more

Blank Check Preferred Stock

Blank check preferred stock refers to the issuance of a class of preferred shares where the board of directors has authority determining voting rights, dividends, and conversion without separate shareholder approval. The most common reason a company will issue blank check preferred stock is to create a "poison pill" whereby the rights associated with the stock make a takeover unattractive. Read more

Blend Fund

A blend fund, also called a hybrid fund, is a mutual fund composed of a combination of securities from different asset classes designed to increase diversification with just a single fund. A blend fund differs from a traditional fund, which usually focus exclusively on one asset class such as value stocks or highly rated domestic bonds. Read more

Blue Sheets

Blue sheets are petitions for information from the Securities and Exchange Commission (SEC) to investment companies whose trading activity has resulted in significant price movements. Blue sheets are requests from the SEC that are sent out to investment companies which have executed a trade that considerably affected the price of a security. Read more

Blue-Chip Stock

A blue-chip stock is a stock of an established company that has consistently shown qualities like generating consistent earnings, paying generous dividends or increasing revenue. Blue-chip stocks are shares of stock issued by companies which have a reputation for financial stability and a record of successfully weathering any economic condition. Read more

Bo Derek

A "Bo Derek" is a so-called perfect investment.The term comes from the 1979 movie "10," starring the actress Bo Derek, who depicted "the perfect woman." The term is less common now than it was in the 10 years after the movie came out, but the search for Bo Derek investments continues. Read more

Boiler Room

A boiler room is a call center in which salespeople call potential investors in an attempt to sell risky, or even falsified, investment opportunities using aggressive and unethical tactics. The term came about as a result of the high pressure sales environment it creates. Read more

Bond

A bond is an agreement between an investor and the company, government, or government agency that issues the bond.When investors buy a bond, they are loaning money to the issuer in exchange for interest and the return of principal at maturity. Read more

Bond Equivalent Yield (BEY)

The bond equivalent yield (BEY) is a formula that allows investors to calculate the annual yield from a bond being sold at a discount. The bond equivalent yield enables investors to compare the yield of a short-term security purchased at a discount with that of a bond with an annual yield.Calculated as: ((Par Value – Purchase Price) / Purchase Price) * (365 / Days to Maturity)The BEY for a bond with 100 days to maturity, a par value of $1000, and purchased at the discounted price of $975 would be calculated as follows:(($1000 - $975) / $975) * (365 / 100) = 0.0935The BEY would be 9.35%. Read more

Bond Fund

A bond fund is a mutual fund or exchange traded fund (ETF) composed of bonds. Bond funds come in many shapes and sizes. Read more

Bond Ladder

A bond ladder is an investment strategy whereby an investor staggers the maturity of the bonds in his/her portfolio so that the bond proceeds mature and can be reinvested at regular intervals. For example, say you have $75,000 to invest. Read more

Bond Laddering

Bond laddering is a bond investment strategy whereby an investor staggers their portfolio with bonds according to their maturity so that the bond proceeds can be reinvested at regular intervals. For example, say you have $75,000 to invest. Read more

Bond Option

A bond option is a derivative contract that allows investors to buy or sell a particular bond with a given expiration date for a particular price (strike price).  For example, a call bond option hedges that the value of a bond will increase at a future date.If the price of the underlying bond is higher than the strike price, the bond option is valued at a premium. Read more

Bond Quote

A bond quote refers to a bond's market price. The market prices of bonds are quoted as a percentage of the bonds' par value. Read more

Bond Rating

A bond rating is a "grade" assigned to a bond.These ratings can also be assigned to bond issuers, insurance companies or other entities or securities to indicate riskiness. Read more

Bondholder

A bondholder is a person who owns a bond issued by a borrower, typically a company or a government.They are considered a creditor of a company. Read more

Book Value of Equity Per Share (BVPS)

Book value of equity per share, abbreviated as BVPS, is a company’s available equity to common shareholders apportioned by the number of outstanding common shares."Book value” is based on the amount the company has invested in its assets, but not their current market value. Read more

Book-Entry Savings Bond

A book-entry savings bond is a savings bond issued in electronic form rather than in paper form. Savings bonds are bonds issued by the U.S. Read more

Book-Entry Securities

Book-entry securities are securities issued in electronic form rather than in paper form. The commercial book-entry system is a system whereby the investor's ownership of the security is reflected only in the investor's account records at his or her financial institution, brokerage firm or dealer. Read more

Book-to-Bill Ratio

A company's book-to-bill ratio measures the company's number of outstanding orders as compared with the number of shipped or fulfilled orders.The book-to-bill ratio is a valuable tool for measuring the strength of the technology sector. Read more

Bottom Fishing

Bottom fishing is an investment strategy in which investors seek out securities whose prices have recently dropped and are considered undervalued. Investors that engage in bottom fishing, called “bottom fishers,” hunt for securities that they believe are undervalued in the market or that recently have experienced a significant price drop. Read more

Bottom-Up Investing

Bottom-up investing focuses on individual securities rather than on the overall movements in the securities market or the prospects of particular industries. Taking a bottom-up approach to investing means becoming fully familiarized with the company you are considering investing in. Read more

Brady Bonds

Brady bonds are U.S.Treasury bonds issued by developing countries in an effort to reduce these countries’ external debt. Read more

Breakpoint

In the mutual fund world, a breakpoint is the size of an investment that qualifies the investor for a lower load. Let's assume you are interested in making a $10,000 investment in the Company XYZ mutual fund, which has a 4% front-end load (a fee for buying the shares). Read more

Broken Date

Broken dates, also known as "odd dates," are arbitrary maturity dates that do not necessarily match the duration of the bond, option, futures contract, forward contract or other maturing instrument. For example, let's assume that a futures contract for shares of Company XYZ is three months long and is issued on April 1. Read more

Broker-Dealer

A broker-dealer is an individual or company that buys and sells securities for its clients and for itself.Broker-dealers differ from plain-vanilla brokers, which can only buy and sell for their clients. Read more

Brokerage Fee

A brokerage fee compensates a broker for executing a transaction.It is usually, but not always, a percentage of the transaction value. Read more

Brokered Certificate of Deposit

A brokered certificate of deposit (a brokered CD) is a CD sold by a brokerage firm. A CD is a time deposit with a bank or financial institution. Read more

Build to Rent (BTR)

Sometimes referred to as B2R, build to rent is a type of residential new construction, purpose-built to be rented out, rather than sold to homebuyers. Read more

Bulge Bracket

Bulge bracket is a term used to describe the investment company(ies) with the highest volume of sales of an initial public offering (IPO) When a company issues new securities in the market, groups of investment companies called "underwriting syndicates" offer the security to the public for the first time.The company in the underwriting syndicate that issues the highest volume of the new security in the market is called the bulge bracket. Read more

Bull

A bull has a positive outlook on an asset class or an entire market.In investing terminology, bull is the opposite of bear. Read more

Bull Market

A bull market is a period of several months or years during which asset prices consistently rise.The term is usually used in reference to the stock market, but it can describe specific sectors such as real estate, bonds or foreign exchange. It is the opposite of a bear market, in which securities prices consistently fall. Read more

Bull/Bear Ratio

The bull/bear ratio indicates overall investor sentiment in the market by comparing the number of bullish and bearish investors.This market indicator is calculated and published weekly by the Investors Intelligence Sentiment Survey. Read more

Buy and Hold

Buy and hold is an investment strategy whereby an investor holds securities for the long-term, regardless of short-term market fluctuations. Let's assume you have $100,000 to invest. Read more

Buy Limit Order

A buy limit order is an order to purchase a security at or below a given price. Let's assume you want to buy 100 shares of Company XYZ, but you don't want to pay more than $5 per share for the stock. Read more

Buy Side

Firms that buy securities and assets for their own or their clients' accounts are said to be on the buy side.Institutional investors like mutual funds, pension funds, hedge funds, private equity funds, trusts, insurance companies and proprietary traders make up the vast majority of the buy side. Read more

Buyer's Market

A buyer's market exists when there are more sellers than buyers in the market for a certain good or service. Housing is a common place to find a buyer's market. Read more

Buying on Margin

Buying on margin refers to borrowing from a brokerage firm (through a margin account) to make an investment. You want to buy 1,000 shares of Company XYZ for $5 per share but don't have the necessary $5,000 -- you only have $2,500. Read more

C Shares

C shares are a type of mutual fund share.  They are distinguished from A shares and B shares by their load (fee) structure. The main aspect that differentiates C shares from A shares and B shares is that C shares are level-load.  This means the full amount of money paid to the mutual fund is invested in shares.  Commissions for level-load shares are paid to the mutual fund through annual fees.  This level-load structure is unique to C shares. Read more

Cabinet Security

A cabinet security is an inactive security (often a bond) that is listed on an exchange. Before the advent of computers, it was necessary to move physical evidence of securities and orders. Read more

CAC 40 Index

The CAC 40 Index is the benchmark tracking index for the Paris Bourse. Started in December of 1987 with a value of 1000, the CAC 40 is comprised of the 40 largest and most liquid stocks trading on the exchange. Read more

Cage

A cage is a department in a brokerage firm. The cage is a physical location in which people at a brokerage firm handle physical securities and certificates. Read more

CAGR - Compound Annual Growth Rate

CAGR stands for compound annual growth rate.A widely-used measure of growth, CAGR is used to evaluate anything that can fluctuate in value (such as assets and investments). Read more

Caisse Populaire

A caisse populaire is a Canadian financial institution that is owned and controlled by its members rather than shareholders.It is essentially a credit union. Read more

Calculation Agent

A calculation agent is a person or company that calculates how much the parties to certain derivatives owe each other. For example, consider an interest rate swap, which is a contractual agreement between two parties to exchange interest payments. Read more

Calendar Effect

A calendar effect is a theory that stock prices will perform differently at different times of the year. There are many different calendar effects, including the Monday effect, "Sell in May and Go Away," and the October effect. Read more

Call Date

A call date is the date after which a bond issuer can redeem a callable bond. Callable bonds usually have a call schedule. Read more

Call Market

In a call market, buy and sell orders are grouped together and then executed at specific times, rather than executed one by one continuously. Let's assume that the following buy orders for Company XYZ stock are received: Buy 1,000 shares @ $4.25 Buy 500 shares @ $4.00 Buy 700 shares @ $4.50 Buy 500 shares @ $4.25 Sell 1,000 shares @ $4.25 Sell 500 shares @ $4.00 Sell 700 shares @ $4.50 Sell 500 shares @ $4.25 In a call market, the buy orders are grouped together and executed at a price and time that will clear most of those orders. Read more

Call Money

Call money is a very short-term bank loan that does not contain regular principal and interest payments.It is often used by brokerage firms to finance margin accounts. Read more

Call Price

The call price is the price a bond issuer or preferred stock issuer must pay investors if it wants to buy back, or call, all or part of an issue before the maturity date. The bond indenture will stipulate when and how a bond can be called, and there are usually multiple call dates throughout the life of a callable bond. Read more

Call Protection

Call protection is a period of time during which a bond issuer cannot call, or buy back, a bond. Call protection is described in a callable bond's indenture. Read more

Call Provision

A call provision is a clause in a bond's indenture granting the issuer the right to call, or buy back, all or part of an issue prior to the maturity date. The bond indenture will stipulate when and how the bond can be called, and there are usually multiple call dates throughout the life of a callable bond. Read more

Call Risk

Call risk is the risk that a bond issuer will redeem its bonds before they mature. Some bonds are callable, that is, the issuer has the right to call, or buy back all or some of the bonds before they mature. Read more

Call Rule

The call rule is a rule that requires the official opening price of a cash commodity to be near the previous day's closing price of that commodity. For example, let's assume that on June 1, the price of gold is $1,000 an ounce at the end of the trading day. Read more

Callable Bond

A callable bond gives the borrower (issuer) the right to pay back the obligation to the lender (bondholder) before the stated maturity date. A callable bond (also called a "redeemable bond") is a bond with an embedded call option. Read more

Callable Common Stock

Callable common stock is an equity stake in a company where either the issuer or a third party has the right, but not the obligation, to repurchase the stock at a specific price after a certain date. Let's assume you own 100 shares of Company XYZ callable common stock. Read more

Callable Preferred Stock

Issuers of callable preferred stock have the right (but not the obligation) to repurchase the stock at a specific price after a certain date. For example, consider Company XYZ preferred stock issued in 2000, paying a 10% rate, maturing in 2020, and callable in 2010 at 102% of par. Read more

Callable Security

A callable security gives the issuer or a third party the right but not the obligation to repurchase the security at a specific price after a certain time. Let's assume you own 100 shares of Company XYZ callable common stock. Read more

CAN SLIM

CAN SLIM is an investing system that uses seven fundamental and technical traits to pick stocks. The system, developed in the 1950s by Investor's Business Daily founder William J. Read more

Canada Learning Bond

A Canada Learning Bond offers money to Canadian families to help them start saving for college. In general, under the program, the Canadian government gives families $500 in the form of a bond to start saving for college. Read more

Canadian Income Trust

A Canadian income trust is a type of investment trust that holds stable, income-producing assets and pays out at least 90% of its net cash flows to its unitholders (shareholders are known as unitholders in trust lingo).These trusts usually hold assets such as oil, coal, natural gas, or other natural resources, which generally have a steady demand and therefore steady revenues.  Canadian income trusts usually have no management or employees but are instead run by financial institutions. Read more

Canary Call

A canary call is a step-up bond that can't be called after a certain period. A step-up bond is a bond with a coupon that increases (“steps up”), usually at regular intervals, while the bond is outstanding. Read more

Cancel Former Order

Cancel former order is a specific type of trade order a client places with a broker in order to cancel an unfilled buy or sell order. For example, if a client has an outstanding order to buy 100 shares of Company XYZ at $15 per share and decides he wants to buy the shares at the current market price of $17 per share, he must submit a cancel former order for the pending instructions and replace it with a new order to buy at the market price. Read more

Canceled Order

In the finance world, a canceled order is an order that is deleted before it is executed. Let's say Jane Smith calls her broker, John Doe, and tells him to buy 1,000 shares of Company XYZ. Read more

Cancellation

In the finance world, a cancellation is a notice informing a broker that a trade was made incorrectly.In the insurance world, a cancellation occurs when a policyholder stops paying the premium on an insurance policy and/or the insurance policy is no longer effective. Read more

Capital Appreciation

Capital appreciation (also called a capital gain) is an increase in the value of an investment.It is the difference between the purchase price (the basis) and the sale price of an asset.  The formula for capital appreciation is: sale Price - Purchase Price = Capital Appreciation note that this formula assumes the sale price is higher than the purchase price. Read more

Capital Asset Pricing Model (CAPM)

The capital asset pricing model (CAPM) is used to calculate the required rate of return for any risky asset.Your required rate of return is the increase in value you should expect to see based on the inherent risk level of the asset. Read more

Capital Budgeting

Capital budgeting is the process of figuring out which projects are financially worth an investment. Let's assume Company XYZ is deciding whether to purchase a piece of factory equipment for $300,000. Read more

Capital Dividend Account (CDA)

A capital dividend account is a special account that companies use to pay tax-free dividends to shareholders. Let's say five people pool their capital to form a company. Read more

Capital Flight

Capital flight is the movement of capital from one country to another, or sometimes from one investment sector to another, to capitalize on returns or mitigate risk. Let's say the Venezuelan government is overthrown. Read more

Capital Gain

A capital gain is an increase in the value of an investment.It is the difference between the purchase price (the basis) and the sale price of an asset. Read more

Capital Gains Distribution

Capital gains distributions are capital gains that are passed on to investment company shareholders. Let's assume that XYZ Company mutual fund invested well during the year and realized $1,000,000 in net capital gains (that is, capital gains after subtracting capital losses). Read more

Capital Gains Treatment

Capital gains treatment refers to whether capital gains are taxed as short-term capital gains, long-term capital gains, or in another manner. Let's assume you purchase 100 shares of XYZ Company for $1 per share. Read more

Capital Loss

A capital loss is a decrease in the value of an investment.It is the difference between the sale price and the purchase price (the basis) of an asset.  The formula for capital loss is: Purchase Price - sale Price = Capital Loss note that this formula assumes the purchase price is higher than the sale price. Read more

Capital Markets

The capital markets are a source of financing for companies around the world.The most famous of the capital markets are the stock market and bond market.  Companies utilize capital markets to raise money for projects by issuing stock IPOs, bonds and short-term money market securities. Read more

Capital Stock

Capital stock is the number of shares that a company's charter authorizes for issuance. A corporate charter is a legal document that sets forth a corporation's basic information, such as its location, profit/nonprofit status, board composition, and ownership structure. Read more

Capitalization

In the business world, capitalization has two meanings.The first meaning, also called market capitalization, refers to the value of a company's outstanding shares. Read more

Capitalization Rate

In real estate, a capitalization rate is a measure of return on investment.The formula for capitalization rate is: Capitalization Rate = (Expected Income from Property – Fixed Costs – Variable Costs)/Property Value Let's say Jane Doe buys a house to rent out for extra income. Read more

Capitulation

Capitulation occurs when investors attempt to exit an investment or market so quickly that they are willing to surrender any and all gains to do so.Panicked behavior often causes a capitulation, and investors may attempt to liquidate most or all of their holdings in these circumstances. Read more

Case-Shiller Home Price Index

The Case-Shiller Home Price Index refers to a set of indices released by Standard and Poor's that tracks changes in the value of residential real estate. There are several "Case-Shiller" indices to track changes in a variety of markets. Read more

Cash Cow

A cash cow is a business unit, product line, or investment that has a return on assets (ROA) greater than the market growth rate.The idiom refers to the idea that it produces "milk" (profit) long after the cost of the investment has been recouped. Read more

Cash Dividend

A cash dividend is a cash payment made to the shareholders of a corporation. Generally, cash dividends are reported in dollars per share when discussing common stock. Read more

Cash Flow from Financing Activities

The section of the cash flow statement titled Cash Flow from Financing Activities accounts for inflows and outflows of cash resulting from debt issuance and financing, the issuance of any new stock, dividend payments, and any repurchase of existing stock. The cash flow from financing activities section expresses the total net cash flow from the total of any of the financing activities described above. Read more

Cash Flow Per Share

Cash flow per share represents the portion of a company's cash flow allocated to each share of common stock. Cash flow per share can be calculated by dividing cash flow earned in a given reporting period (usually quarterly or annually) by the total number of shares outstanding during the same term. Read more

Cash Flow Return on Investment

The cash flow return on investment (CFROI) measures a company's cash return on invested assets.It is determined by dividing a company's gross cash flow by its gross investment. Read more

Cash Flow to Capital Expenditures

Cash flow to capital expenditures is the ratio of a company's cash from operations to its capital expenditures for acquiring or upgrading assets, such as buildings or equipment, required to improve or maintain business operations. It is an important measure used by analysts to determine a company's ability to fund operations. Read more

Cash Market

A cash market is a market for securities or commodities in which the goods are sold for cash and delivered immediately.In some cases, "immediate" means one month or less. Read more

Cash Price

Also called the spot price or the current price, a cash price is the current price of a commodity if it were to be sold or purchased today. For example, if you purchase a cup of coffee in a restaurant, you pay the cash price -- the price of the good for immediate delivery. Read more

Cash-Flow Matching

Cash-flow matching is an investing strategy for investors who need to fund a series of future cash needs.  Buy-and-hold and indexing strategies are about generating steady rates of return in a portfolio.But a structured portfolio strategy (also called a dedicated portfolio strategy) is for investors who want to make sure their portfolios are worth a specific amount at a certain point in the future, usually because they need to fund future expenses like tuition or retirement.  Cash-flow matching is one of two kinds of structured portfolio strategies (the other is immunization), and it is intended for investors who need to fund a series of future expenses. Read more

Catalyst

A catalyst is news or information that changes a pricing trend in a security. Let's assume that Company XYZ announces earnings that far exceed analysts' expectations. Read more

Catastrophe Call

Catastrophe calls are provisions in bonds that allow the issuer to call the bonds if the item built or produced by the bond is destroyed. Let's assume ABC Town wants to build a new toll road, but it doesn't have the money to fund the construction. Read more

CD Ladder

A CD ladder is an investing strategy whereby the investor staggers the maturity of ("ladders") the certificates of deposit in his portfolio so that the proceeds can be reinvested at regular intervals. For example, say you have $75,000 to invest. Read more

Certificate of Deposit (CD)

A certificate of deposit (CD) is a relatively low-risk debt instrument purchased directly through a commercial bank or savings and loan institution. The certificate of deposit indicates that the investor has deposited a sum of money for specified period of time and at a specified rate of interest. Read more

Certified Financial Planner (CFP)

Certified Financial Planner (CFP) is a professional designation attained by a financial planner or advisor who has successfully completed the requirements set by the Certified Financial Planner Board.  The CFP is a respected designation that denotes a person is a competent, professional and ethical financial planner.CFP professionals must adhere to a code of ethics and professional responsibility, and every applicant must pass a background check before obtaining his or her designation.  Those who obtain the CFP designation usually go on to provide professional financial advice to individuals. Read more

Certified Kingdom Advisor (CKA)

Relatively new to the financial planning and advice sector, a Certified Kingdom Advisor (CKA) is a professional certification for financial advisors who work with clients who take a Christian values based approach to their financial lives.CKA holders integrate their financial advisory practice with a faith-based approach to planning and investing. Read more

CFA Exam

The CFA (Chartered Financial Analyst) exam is a professional qualification exam administered as a requirement to earn the CFA designation.The three levels of the exam are offered annually by CFA Institute to financial and investment professionals.  The CFA exam was first offered in 1963. Read more

CFA Institute

The CFA Institute issues the CFA designation.CFA stands for Chartered Financial Analyst. Read more

Chartered Financial Analyst (CFA)

A Chartered Financial Analyst (CFA) is a highly-respected designation attained by an investment professional who has successfully completed all three parts of the CFA exam.Because it's so difficult to achieve, the CFA designation is considered to be the most respected among investment management professionals around the world.  Chartered Financial Analyst charterholders usually end up working for a broad range of employers, ranging from mutual fund firms to hedge funds to investment banks to brokerage houses to boutique money managers. Read more

Chartered Investment Counselor (CIC)

A Chartered Investment Counselor (CIC) is an individual certified by the Investment Counsel Association.The certification is available to CFA holders who are currently registered as investment advisors. Read more

Chicago Board of Trade (CBOT)

The Chicago Board of Trade (CBOT) is a commodity futures and options exchange.Several dozen types of contracts trade on the CBOT, and the exchange facilitates hundreds of millions of these trades each year. Read more

Chicago Mercantile Exchange (CME)

The Chicago Mercantile Exchange (CME) is a commodities futures and options exchange.Several dozen types of contracts trade on the CME, and the exchange facilitates hundreds of millions of these trades each year. Read more

Class A Shares

Class A shares are either 1) common stocks or 2) preferred stocks that offer enhanced benefits, such as greater voting rights and a higher dividend priority.  For example, let’s say Joe purchases stock in Company XYZ.  If Joe buys class A shares, a single class A share may give Joe six votes instead of one.  It will also place him at the front of the line when dividends are issued.However, if Joe were to buy class B shares, he may receive only one or two votes per share and would be at a lower priority for dividend payments. Read more

Class B Shares

Class B shares are either 1) common stocks or 2) preferred stocks that generally give fewer benefits to shareholders than class A shares. For example, Joe purchases stock in company XYZ.  If Joe buys class B shares, a single class B share gives him two votes.  However, if Joe buys class A shares he receives six votes per share.  Class B shares also have lower dividend priority than class A shares. Read more

Clean Up Call

A clean up call, also known as a calamity call, is a feature of a collateralized mortgage obligation (CMO) that requires the issuer to pay off a portion of the CMO if the underlying mortgages don't generate enough cash to make the principal and interest payments on the CMOs. Let's say Company XYZ has issued $500 million of CMOs that have principal and interest payments of $2 million per month. Read more

Clearinghouse

A clearinghouse is an intermediary between buyers and sellers of financial instruments. Clearinghouses take the opposite position of each side of a trade. Read more

Closed-End Fund (CEF)

A closed end fund (CEF) is a publicly-traded security that offers its shareholders partial ownership in an underlying portfolio of assets. Closed-end funds initially raise capital through an initial public offering. Read more

Closing Bell

The closing bell is a term used to describe the time that an exchange's daily trading session ends. Each trading day, the New York Stock Exchange (NYSE) rings its bell at 4 p.m. Read more

Closing Costs

Closing costs are fees and expenses paid by both the buyer and the seller when a transaction is completed.Closing costs are common expenses in real estate transactions. Read more

Closing Price

A closing price is the trading price of a security at the end of the trading day.In real estate, it is the price at which a piece of property sells. Read more

Closing Quote

A closing quote is the trading price of a security at the end of the trading day. The New York Stock Exchange has the most famous closing bell (so famous that the term has a service mark). Read more

Collateralized Bond Obligation (CBO)

A collateralized bond obligation (CBO) is a bond that uses a variety of high-yield junk bonds as collateral.These bonds are separated, or pooled, into tranches with higher and lower levels of risk. Read more

Collateralized Debt Obligation (CDO)

A collateralized debt obligation (CDO) is a security that repackages individual fixed-income assets into a product that can be chopped into pieces and then sold on the secondary market.They are called collateralized because the assets being packaged -- mortgages, corporate debt, auto loans or credit card debt- - serve as collateral for investors. Read more

Collateralized Mortgage Obligation (CMO)

A collateralized mortgage obligation (CMO) is a fixed income security that uses mortgage-backed securities as collateral.  Like other structured securities, CMOs are subdivided into graduated risk classes, called tranches that vary in degree based on the maturity structure of the mortgages. When an investor purchases a CMO, he or she purchases some class or tranche of the security whose risk depends on the maturity structure of the mortgages backing it. Read more

Commercial Mortgage-Backed Security (CMBS)

A commercial mortgage-backed security (CMBS) is a fixed-income security, typically in the form of a bond, which uses commercial real estate loans as collateral. A CMBS is comprised of numerous commercial mortgages of varying terms and values, such as multi-family dwellings, commercial real estate, etc. Read more

Commercial Paper

Commercial paper is an unsecured and discounted promissory note issued to finance the short-term credit needs of large institutional buyers.Banks, corporations, and foreign governments commonly use this type of funding. Read more

Commercial Real Estate

Commercial real estate is any property that is exclusively used for business activity. Commercial real estate is any non-residential property used for commercial profit-making purposes. Read more

Commission

A commission is a fee paid to an agent as compensation for executing a transaction.It is calculated either as a percentage of the transaction value or as a flat fee. Read more

Commodification

Commodification, also known as "commoditization", refers to a good or service becoming indistinguishable from similar products. To be considered a commodity, an item must satisfy three conditions: 1) it must be standardized and, for agricultural and industrial commodities, in a "raw" state; 2) it must be usable upon delivery; and 3) its price must vary enough to justify creating a market for it. Read more

Commodity

A commodity is a raw material that is interchangeable with other materials of the same type. Investors can participate in the commodities market on the NYMEX. Read more

Commodity Futures Trading Commission (CFTC)

The Commodity Futures Trading Commission (CFTC), was established in 1974 as an independent government agency with the purpose of regulating commodity futures and options markets. The Commodity Futures Trading Commission was established by a government mandate in 1974 to enforce rules stated in the Commodities Exchange Act. Read more

Commodity Index

A commodity index is an index of the prices of items such as wheat, corn, soybeans, coffee, sugar, cocoa, hogs, cotton, cattle, oil, natural gas, aluminum, copper, lead, nickel, zinc, gold and silver. The Goldman Sachs Commodity Index (GSCI) is one of the most popular commodities indexes. Read more

Commodity Market

A commodity market is a place where buyers and sellers can trade any homogenous good in bulk.Grain, precious metals, electricity, oil, beef, orange juice and natural gas are traditional examples of commodities, but foreign currencies, emissions credits, bandwidth, and certain financial instruments are also part of today's commodity markets. Read more

Commodity Parity Price

Commodity parity price refers to the price of a commodity based on a single price or average of prices during a previous span of time. A commodity's parity price is a benchmark price against which its current price may be compared in order to gauge its purchasing power for producers. Read more

Commodity Research Bureau Index (CRB)

The Commodity Research Bureau Index (CRB) tracks the general trend of the commodities markets. The CRB Index gauges the collective price trend of the commodities markets. Read more

Common Stock

Common stock represents ownership interests in corporations. The most prominent characteristics of common stock are that they entitle the shareholder to vote on corporate matters (typically, the shareholder gets one vote for every share he or she owns, though that is not always the case) such as whether the company should acquire another company, who the board members should be and other big decisions. Read more

Composite

A composite is a grouping of securities, indexes or other items. One of the most well-known composites in the finance world is the Dow Jones Composite Average, which is  a price-weighted average of the 65 companies that compose the Dow Jones Industrial Average, the Dow Jones Transportation Average, and the Dow Jones Utility Average. Read more

Composite Index

A composite average is an average of the components of other averages. For example, the Dow Jones Composite Average is a price-weighted index of the companies that compose the Dow Jones Industrial Average (DJIA), the Dow Jones Transportation Average (DJTA) and the Dow Jones Utility Average (DJUA). Read more

Compound

In finance, to compound means to earn interest on principal plus interest that was earned earlier. You have $100 to open a savings account at XYZ Bank on January 1. Read more

Compound Interest

The financial world often refers to compound interest as magic.Compound interest can be thought of as “interest building on interest” which adds to your principal. Read more

Compounding

Compounding is the process of the exponential increase in the value of an investment due to earning interest on both principal and accumulated interest. Let's assume you have $100 to open a savings account at XYZ Bank on January 1. Read more

Condominium

A condominium, often shortened to condo, is a multi-unit property where units are individually owned.Ownership typically includes an interest in common properties, like sidewalks, lobbies, and pools, controlled by the condominium management. Read more

Consensus Estimate

A consensus estimate is a shared prediction of a company's quarterly or annual earnings per share. Securities analysts are tasked with the job of making earnings estimates for the companies they cover. Read more

Construction Loan

Sometimes referred to as a “self build loan,” a construction loan is a loan that is used to finance the construction of a new home or some other type of real estate project.The loan is made to the homebuyer, builder, or developer on a short-term basis to cover the total cost of the construction. Read more

Consumer Cyclical

Consumer cyclical refers to a stock or group of stocks that are affected by changes in the economic cycle. Consumer cyclicals perform well when the economy grows and suffer when the economy stagnates or shrinks. Read more

Contango

Contango occurs when the current futures price of an asset (as quoted in the futures market) is higher than the current spot price of the underlying asset. There is a relationship between the spot price of an asset (its price right now) and the expected spot price on the date when a derivative contract expires. Read more

Contingent Deferred Sales Charge

Also called a back-end load, a contingent deferred sales charge is a fee paid to sell a specific investment.It is expressed as a percentage of the amount invested, and may also be called an exit fee or a redemption charge. Read more

Continuous Auction Method

Also called the Zaraba method, the continuous auction method is a method of trading securities.  In the continuous auction method, which many Japanese exchanges use, the exchange fills orders by matching them with other orders according to the order price and age. Read more

Contrarian

A contrarian is an investor that attempts to profit by deviating from conventional wisdom or "the herd."  Generally, the basic premise behind contrarian investment methods is that the market or "crowd" tends to overreact to information in the short-term, which causes price increases and decreases to be overdone and allows savvy investors to profit.Contrarians zig when everyone else zags. Read more

Conventional Loan

A conventional loan is a mortgage that is not insured or guaranteed by a government agency.Also known as a conventional mortgage, conventional loans are usually fixed-rate loans. Read more

Conversion Ratio

A conversion ratio is the number of one security given for another security (usually a convertible security). For example, convertible preferred stock is preferred stock that holders can exchange for common stock at a set price after a certain date. Read more

Convertible Bond

A convertible bond gives the bondholder the right to convert the bond into a fixed number of shares of common stock in the issuing company. For example, consider a Company XYZ bond with a $1,000 par value that is convertible into Company XYZ common stock. Read more

Convertible Preferred Stock

Convertible preferred stock is preferred stock that holders can exchange for common stock at a set price after a certain date. Let's assume you purchase 100 shares of XYZ Company convertible preferred stock on June 1, 2006. Read more

Convexity

In the bond world, convexity refers to the shape of the yield curve and how sensitive bond prices are to changes in interest rates. The degree to which a bond's price changes when interest rates change is called duration, which often is represented visually by a yield curve. Read more

Cornering the Market

"Cornering the market" refers to the process of acquiring enough shares of a certain security or asset with the intention of illegally manipulating its price. Let's assume you want to profit from cornering the market on Company XYZ. Read more

Corporate Bond

Learn more about corporate bonds and how they differ from purchasing stock in a company. Read more

Correction

A correction refers to a price decline of at least 10% of any security or market index after a temporary increase in market prices. The stock market's value is always rising and falling. Read more

Correlation

Correlation, as used in investing, is a measure of the return performance of two (or more) securities or asset classes relative to each other. Portfolio managers, traders, brokers, and stock analysts use correlation to estimate the effectiveness of diversification to decrease risk and optimize portfolio performance in different market conditions. Correlation is reflected by a statistic known as the correlation coefficient. Read more

Cost Basis

Cost basis refers to the original price of an asset.Cost basis is sometimes called tax basis. Read more

Cost Benefit Analysis

Cost-benefit analysis is used to analyze a potential investment that will impact a business.Whether a company is looking to purchase a new property – or expand its operations – cost benefit analysis is an important part of the decision-making process. Read more

Cost of Equity

Cost of equity is the rate of return required on an equity investment by an investor. Read more

Countercyclical Stock

A countercyclical stock is a stock whose price tends to move in opposition to the overall business cycle.When the market rises, the stock price falls, and when the market falls, the stock price moves higher. Read more

Coupon Bond

A coupon bond, frequently referred to as a "bearer bond," is a bond with a certificate that has small detachable coupons.The coupons entitle the holder to interest payments from the borrower.  Actual coupon bonds are rare today because most bonds are not issued in certificate form; rather, they are registered electronically (although some bondholders still choose to hold paper certificates). Read more

Coupon Equivalent Rate (CER)

The coupon equivalent rate (CER), also known as the bond equivalent yield (BEY), is the effective yield on a zero-coupon bond when calculated as if it paid a coupon. To calculate the coupon equivalent rate, use the following formula: (Spread between current price and face value / current price) x (365 / time to maturity)   note that some versions of the formula use a 365-day year while others use 360-day year. Read more

Coupon Equivalent Yield (CEY)

The coupon equivalent yield is the effective annual interest rate earned on a bond.It is used to understand what the annual return is or would have been on an investment lasing less than one year. Read more

Coupon Rate

In the finance world, the coupon rate is the annual interest paid on the face value of a bond.It is expressed as a percentage. Read more

Covenant

A covenant is a promise a company makes, usually in return for a loan or bond issue. Covenants are most common in lending agreements and bond indentures. Read more

Credit Risk

Credit risk is the chance that a bond issuer will not make the coupon payments or principal repayment to its bondholders.In other words, it is the chance the issuer will default. Read more

Credit Spread

A credit spread is the difference between the yields of two bonds that offer the same coupon and have the same maturity.Since yield reflects the risk of a bond, the credit spread reflects the difference in the risk of two bonds with otherwise similar characteristics. Read more

Cross-Listing

Cross-listing (also known as interlisting or dual listing) is the listing of any security on two or more different exchanges. Let's assume Company XYZ is a Canadian public company that lists its shares on the Toronto Stock Exchange. Read more

Cumulative Dividend

A cumulative dividend is a dividend, usually on preferred shares, that must be paid before any other dividends on any of the issuer's other securities.Preferred stock that does not carry a cumulative dividend is referred to as "straight preferred." Let's assume Company XYZ issues some preferred stock with a $1-per-share cumulative quarterly dividend. Read more

Current Ratio

The current ratio is a commonly-used financial ratio.It tells investors and analysts whether a company is able to pay its current liabilities with its current assets (typically within a 12-month period).  To calculate current ratio, you’ll need the firm’s balance sheet and the following formula:  Let's look at the balance sheet for Company XYZ: We can calculate Company XYZ's current ratio as:  2,000 / 1,000 = 2.0 At the end of 2020, Company XYZ had $2.00 in current assets for every dollar of current liabilities. Read more

Current Yield

Current yield represents the prevailing interest rate that a bond or fixed income security is delivering to its owners. The formula for current yield is defined as follows: CY = Annual interest payment / Current Bond Price For example, let's assume a particular bond is trading at par, or 100 cents on the dollar, and that it pays a coupon rate of 3%. Read more

Custodian

A custodian is an institution or individual that can act as an agent and exercise legal authority over the financial assets of another individual or company. A custodian typically handles a variety of activities, including physically holding equities and bonds, settling purchases and sales, reporting the status of assets, tax compliance and reporting, and management of the client's accounts and transactions. Read more

Cyclical Stock

Cyclical stocks are those that tend to move strongly higher and lower along with the overall business cycle.These stocks represent ownership in companies that are very sensitive to economic fluctuations. Read more

Daily Factor

Daily factor is the amount of yield earned in a day. Recall that yield is the percentage interest an investor would earn if he or she purchased a given bond at its current market price. Read more

Dalal Street

Dalal Street is slang for the Bombay Stock Exchange. India's Bombay Stock Exchange is located on Dalal Street, as are many financial institutions. Read more

Dark Pool Liquidity

Dark pool liquidity refers to the amount of trading activity that occurs directly between parties without the use of an exchange, thereby keeping the transaction private. Dark pool liquidity usually is created by institutions. Read more

Dash to Trash

A dash to trash occurs when investors bid up the price of a security to a point well above the security's reasonable value. For example, let's assume that Company XYZ is a restaurant company that hasn't shown a profit in 10 years, has a weak management team and has little working capital. Read more

Dawn Raid

In the finance world, a dawn raid is the purchase of a large number of shares or securities as soon as the market opens, usually in a takeover effort. Let's say that Company XYZ owns 40% of Company ABC but wants to acquire a controlling interest in Company ABC. Read more

DAX Index

The DAX Index is the most commonly cited benchmark for measuring the returns posted by stocks on the Frankfurt Stock Exchange. Started in 1984, the DAX index is comprised of the 30 largest and most liquid issues traded on the exchange. Read more

Day Order

A day order is an order to buy or sell a security by the end of the day. Let's assume that John Doe wants to buy Company XYZ shares, but he's going to Bermuda for two weeks tomorrow and doesn't want to deal with his broker while he's on vacation. Read more

Day Trader

Day trader is a term applied to a very active securities trader who holds securities for a short period of time.Day traders will often open and close a position within the same day. Read more

Day-Around Order

A day-around order is an order that replaces an order from another day.It is most common in the equities markets. Read more

Day-Count Convention

A day-count convention is a method of counting the days between coupon dates. Let's assume a $1,000 bond from Company XYZ has a 10% coupon, which means it pays out $100 a year. Read more

Dead Cat Bounce

A dead cat bounce refers to a temporary recovery in a stock price or a temporary market rally after a significant downward trend. For example, let's assume the market has been falling over the last ten weeks but there is a broad market rally in week 11. Read more

Death Bond

A death bond is a bond backed by life insurance policies. Let's say Company XYZ is a life-settlement provider. Read more

Death Put

A death put is an option added to a bond that gives the bondholder's estate the right, but not the obligation, to sell the bond back to the issuer at face value if the bondholder dies. Bob buys a bond with a death put for $1,000. Read more

Death Star IPO

A Death Star IPO is a wildly successful IPO.The term is a reference to the Star Wars movies, in which Darth Vader's Death Star battle station could pulverize other planets with a single laser beam. Read more

Debentures

Debentures are bonds that are not secured by specific property or collateral.Instead, they are backed by the full faith and credit of the issuer, and bondholders have a general claim on assets that are not pledged to other debt. Read more

Debt Ratio

A debt ratio is simply a company's total debt divided by its total assets.  Debt Ratio = Total Debt / Total Assets For example, if Company XYZ had $10 million of debt on its balance sheet and $15 million of assets, then Company XYZ's debt ratio is: Debt Ratio = $10,000,000 / $15,000,000 = 0.67 or 67% This means that for every dollar of Company XYZ assets, Company XYZ had $0.67 of debt.A ratio above 1.0 indicates that the company has more debt than assets. Read more

Debt Security

A debt security is an investment in a debt instrument issued by a corporation or government as it borrows money.Commonly, the security, also referred to as a bond or fixed income security, will be issued with a stated face value (amount borrowed), maturity date, and rate of interest.  An issuer, whether a corporation, municipality, state, or nation, will borrow money from investors by issuing or selling debt securities. Read more

Debt Service Coverage Ratio

A company's debt service coverage ratio (DSCR) refers to its ability to meet periodic obligations on outstanding liabilities with respect to its net operating revenue. The debt service coverage ratio (DSCR) measures how effectively a company's operations-generated income is able to cover outstanding debt payments. Read more

Debt to Equity Ratio (D/E)

An essential formula in corporate finance, the debt-to-equity ratio (D/E) is used to measure leverage (or the amount of debt a company has) compared to its shareholder equity.All companies have a debt-to-equity ratio, and while it may seem contrary, investors and analysts actually prefer to see a company with some debt. Read more

Declaration Date

In the income investing world, a declaration date is the date on which a company announces an upcoming dividend payment, usually by issuing a press release a few weeks before the dividend is actually paid. Let's assume you own 100 shares of Company XYZ. Read more

Dedicated Portfolio

A dedicated portfolio is a passively managed portfolio whose cash flows are designed to match the cash flows needed to fulfill a future obligation. A dedicated portfolio is also referred to as a structured portfolio. Read more

Deed

A deed is an ownership document that entitles its holder to specific rights to a property based on a set of explicit conditions. In most cases, a deed establishes proper ownership of a piece of property such as a home or automobile. Read more

Deed of Trust

A deed of trust, most commonly used in real estate transactions, is an agreement between a borrower and a lender that the title to the property purchased by the loan will be held in trust by a neutral third party, a trustee, until the loan is paid in full.Once executed, the document is filed as a public record. Read more

Deep Discount Bond

A deep discount bond is a bond that sells at a price which is 20% or more below the face value of the bond, and carries a low rate of interest during the term of the bond.  The investor purchases the bond at a price that is below face value. Read more

Default Risk

Default risk is the chance that the bond issuer will not make the required coupon payments or principal repayment to its bondholders. Although the definition of default risk may be fairly concrete, measurement of it is not.  Many things can influence an issuer's default risk and in varying degrees. Read more

Defensive Company

A defensive company is a company that does well or at least remains stable during economic contractions and expansions. Defensive companies are most famous for their ability to weather economic dips, but it is important to note that they also tend to ignore economic upswings. Read more

Defensive Stock

A defensive stock is a stock that is either stable or a market outperformer during an economic contraction. Defensive stocks are usually found in industries that produce necessary and often relatively cheap products that consumers cannot go without. Read more

Deferred Interest Bond

A deferred interest bond is a bond which pays interest in full upon maturity. A deferred interest bond, unlike most bonds, does not pay interim (coupon) payments between issuance and maturity. Read more

Delisting

Delisting refers to the removal of a security from active trading.It generally occurs when a company goes private, is bought out, declares bankruptcy or fails to meet listing requirements. Read more

Depository Trust & Clearing Corporation (DTCC)

The Depository Trust & Clearing Corporation (DTCC) is a subsidiary of the National Securities Clearing Corporation (NSCC).The DTCC, established in 1973, settles transactions between buyers and sellers of securities. Read more

Derivative

A derivative is a financial contract with a value that is derived from an underlying asset.Derivatives have no direct value in and of themselves -- their value is based on the expected future price movements of their underlying asset.  Derivatives are often used as an instrument to hedge risk for one party of a contract, while offering the potential for high returns for the other party. Read more

Detachable Warrant

A detachable warrant is a warrant that can be sold separately from the security to which it was originally attached. Warrants are securities that give the holder the right, but not the obligation, to buy a certain number of securities (usually the issuer's common stock) at a certain price before a certain time. Read more

Dilution

Dilution is a reduction in proportional ownership caused when a company issues additional shares. Let's assume you own 100,000 shares of XYZ Company. Read more

Direct Access Trading (DAT)

Direct access trading (DAT) refers to any computerized trading system which connects traders to markets, thereby eliminating the need for a broker. Direct access trading (DAT) encompasses a variety of electronic trading tools and platforms which connect traders with other traders and with the actual markets (e.g. Read more

Discount Broker

A discount broker is a stockbroker who charges a reduced commission to buy and sell shares for clients. Discount brokers are one of two general categories of brokers, the other being full-service brokers. Read more

Discount to Net Asset Value (NAV)

Discount to net asset value (NAV) refers to a situation where shares of a closed-end stock fund are trading at a price lower than the fund’s net asset value per share.For example, a fund could be described as "trading 5% discount to NAV." Discount to NAV (and "premium to NAV") is most often used to describe the price per share of closed-end stock funds. Read more

Discounted Cash Flow (DCF) Analysis

Discounted cash flow (DCF) analysis is the process of calculating the present value of an investment's future cash flows in order to arrive at a current fair value estimate for the investment. The formula for discounted cash flow analysis is: DCF = CF1/(1+r)1 + CF2/(1+r)2 + CF3/(1+r)3 ...+ CFn/(1+r)n Where: CF1 = cash flow in period 1 CF2 = cash flow in period 2 CF3 = cash flow in period 3 CFn = cash flow in period n r = discount rate (also referred to as the required rate of return) To determine a fair value estimate for a stock, first project the amount of operating cash flow the company is likely to produce in the years ahead. Read more

Disposition

Disposition refers to disposing of an asset through sale, assignment, or other transfer method.  When an investor sells stock or bonds in a particular company, the sale is referred to as a disposition of the stock or bonds. Insider trades are reported by a company as the disposition of shares to board members and executives. Read more

Distressed Sale

A distressed sale occurs when a sale must be made under unfavorable conditions for the seller.   In a distressed sale, the seller is affected by unfavorable conditions that force the sale. Read more

Distressed Securities

Distressed securities are financial instruments of a company that are under price pressure due to bankruptcy (Chapter 7), reorganization (Chapter 11), financial turmoil, or other economic trauma. Distressed securities can take the form of stocks, bonds, debt, or other financial instruments. Read more

Diversification

Diversification is a method of portfolio management whereby an investor reduces the volatility (and thus risk) of his or her portfolio by holding a variety of different investments that have low correlations with each other. The basic idea behind diversification is that the good performance of some investments balances or outweighs the negative performance of other investments. Read more

Diversified Common Stock Fund

A diversified common stock fund is a type of mutual fund that invests exclusively in shares of common stock. Diversified common stock funds may comprise any combination of common stocks. Read more

Divestiture

A divestiture or divestment is the reduction of an asset or business through sale, liquidation, exchange, closure, or any other means for financial or ethical reasons.It is the opposite of investment. Read more

Dividend

Dividends are payments from corporate earnings to company shareholders, and they're one way to receive a return from owned shares.A simpler definition for dividends is that they’re a reward for investing your money with a company.  Dividend payments typically take one of two forms:  Cash paid to you (more common)  Additional stocks issued to you (less common, but you can sell and convert to cash) Companies may also offer dividend reinvestment programs (DRIPs). Read more

Dividend Achievers

The term "dividend achievers" is used to describe an elite group of companies that have improved their annual regular dividends for at least 10 consecutive years and meet certain liquidity requirements.  Additional eligibility requirements for dividend achievers include: 1) being listed in the NYSE or Nasdaq and 2) having a minimum average daily cash volume of $500,000 per day for the months of November and December prior to the Index's reconstitution date.  If a company meets these requirements they qualify for the Broad Dividend Achievers Index.They do not have to be on the S&P 500 list to qualify. Read more

Dividend Aristocrats

The term "dividend aristocrats" is used to describe Standard & Poor's (S&P) 500® Index companies that have consistently improved their dividend rates every year for at least 25 consecutive years. Typically, a dividend aristocrat is a large and relatively stable blue-chip company with a healthy balance sheet. Read more

Dividend Capture Strategy

The dividend capture strategy is the act of purchasing a security for its dividend, capturing the dividend, and then selling the security to buy another about to pay a dividend.By doing this, investors can receive a steady stream of dividend income instead of waiting for an individual holding to pay its regular dividend. Read more

Dividend Declaration Date

A dividend declaration date is the date on which a company announces an upcoming dividend payment, usually by issuing a press release a few weeks before the dividend is actually paid. Let's assume you own 100 shares of Company XYZ. Read more

Dividend Discount Model (DDM)

The dividend discount model (DDM) is a method for assessing the present value of a stock based on the growth rate of dividends. The dividend discount model (DDM) seeks to estimate the current value of a given stock on the basis of the spread between projected dividend growth and the associated discount rate. Read more

Dividend ETF

A dividend ETF is a basket of dividend-paying securities that are bundled together into a single security that can be bought and sold like a stock. A dividend ETF usually mimics part or all of a dividend stock index. Read more

Dividend Fund

A dividend fund is a type of mutual fund which invests exclusively in equity shares which pay regular dividends. A dividend fund seeks to provide investors with income from common and preferred shares of stock which yield dividends in cash and stock (in some cases) on a regularly-occurring basis. Read more

Dividend Payable Date

The dividend payable date is the date on which a company pays a dividend to its shareholders of record. Let's assume you own 100 shares of Company XYZ. Read more

Dividend Record Date

A dividend record date is the date on which the company finalizes the list of investors who qualify as "shareholders of record." Investors listed as shareholders of record will receive the firm's dividend payment. Let's assume you own 100 shares of Company XYZ. Read more

Dividend Reinvestment Plan (DRIP)

A dividend reinvestment plan (DRIP) is an arrangement offered by companies to investors wishing to receive additional shares of company stock in lieu of cash dividend payments. In many cases, optimistic investors prefer to gain additional equity in a company rather than receive the cash dividends related to their holdings. Read more

Dividend Yield

Dividend yield is the annual dividend payment shareholders receive from a particular stock shown as a percentage of the stock's price.(Dividends are corporate earnings distributed to company shareholders typically through the two forms of cash or stock.) The formula for dividend yield is: Dividend Yield = Annual Dividend / Current Stock Price For example, let's assume you own 500 shares of Company XYZ, which pays $1.10 per share in annual dividends. Read more

Dogs of the Dow

"Dogs of the Dow" is a stock-picking strategy whereby an investor buys equal amounts of the 10 highest-yielding stocks within the Dow Jones Industrial Average at the beginning of each year.After every year, the investor updates their holdings to reflect the current highest-yielding stocks in the Dow.  The Dogs of the Dow strategy was popularized in 1991 by renowned money manager, Michael O’Higgins, in his book, "Beating the Dow." The Dogs of the Do" strategy is based on the idea that the 30 stocks within the Dow Jones Average are generally strong companies with profitable operations. Read more

Dollar Cost Averaging

Dollar cost averaging doesn't have to be complicated. This financial definition walks you through the DCA formula with realistic examples.  Read more

Dow 30

The Dow 30 is slang for the Dow Jones Industrial Average. The Dow 30 is probably the best-known and most widely followed index in the world. Read more

Dow Jones Industrial Average (DJIA)

The Dow Jones Industrial Average (DJIA), sometimes referred to as simply the Dow, is one of several well-known stock market indices.The DJIA was created by Charles Dow, founder of the Wall Street Journal, to measure the daily stock price movements of 30 large, publicly-owned U.S. Read more

Down Payment

A down payment is the initial payment a borrower puts toward a large purchase, and is usually a specified percentage of the total purchase price.Down payments are typically used for real estate, cars and other big-ticket items that are not usually paid in full at the time of purchase; the remainder of the purchase amount is paid back over time through a loan. Read more

Downgrade

A downgrade is an announcement of an analyst lowering their opinion on the desirability of a company as an investment.It can apply to either debt or equity. Read more

Downside

Downside refers to an investment's potential loss in value. Let's pretend you purchase 100 shares of Company XYZ at $5 per share, for a total investment of $500. Read more

Downside Risk

Downside risk is the probability that an asset will fall in price.It is also the measure of the possible loss from that decline. Read more

Downstream

Downstream refers to the benefits (or costs) that will ultimately result from decisions made today. In finance, a series of investments might be made with the anticipation that at a point in time in the future these efforts will yield a series of returns.  These returns occur after the initial investments.  As a result, they are referred to as downstream benefits.  Similarly, investments can have downstream "costs" as well.   The expectation is that the downstream benefits will outweigh the downstream costs. Read more

Dual Listing

A dual listing occurs when a security (or shares of a company) is listed on more than one stock exchange.It may also be referred to as cross-listing or interlisting. Read more

Dual-Class Ownership

Dual-class ownership is a type of stock structure in which a company issues different classes of stock, each with different privileges. Let's say Company XYZ issues Class A and Class B shares. Read more

Dual-Class Stock

A company has dual-class stock if it has more than one type of stock and the different classes have varying voting rights, dividend payments, or other characteristics. Companies can have several classes of shares. Read more

Due Diligence

Due diligence is the careful, thorough evaluation of a potential investment, whether on a corporate or individual level. For individual investors, due diligence often means studying annual reports, SEC filings, and any other relevant information about a company and its securities. Read more

DuPont Analysis

DuPont analysis examines the return on equity (ROE) analyzing profit margin, total asset turnover, and financial leverage.It was created by the DuPont Corporation in the 1920s. Read more

DuPont Identity

The DuPont identity breaks down return on equity (ROE) into its components -- profit margin, total asset turnover, and financial leverage -- so that each one can be examined in depth. The DuPont identity is also referred to as DuPont analysis. Read more

Duration

A bond’s duration is a measure of the bond’s sensitivity to interest rate changes.Duration may also be thought of as a measurement of interest rate risk.  It's common for new bond investors to confuse the financial term “duration” with the length of time until a bond is repaid. Read more

Dutch Auction

A Dutch auction is a method for pricing shares (often in an initial public offering) whereby the price of the shares offered is lowered until there are enough bids to sell all shares.All the shares are then sold at that price.  The goal of a Dutch auction is the find the optimal price at which to sell a security.  For example, let's assume Company XYZ wants to sell 10 million shares using a Dutch auction. Read more

Dwarf

In the mortgage business, a dwarf is a group of mortgage-backed securities that mature in fewer than 15 years.The Federal National Mortgage Association (FNMA or Fannie Mae) issues dwarves. Read more

Dynamic Asset Allocation

Dynamic asset allocation is an investment strategy whereby an investor makes long-term investments in certain asset classes or securities and periodically buys and sells those securities in order to keep the allocations in their original proportions. Let’s assume you have $100,000 to invest. Read more

E-CBOT

The e-CBOT is an automated trading platform for trading futures on the Chicago Board of Trade (CBOT). The CBOT is a commodities futures and commodities options exchange. Read more

E-Mini

An E-mini is a stock index futures contract that is electronically traded on the Chicago Mercantile Exchange (CME) and is 1/5 the size of a standard stock index futures contract. An E-mini S&P 500 futures contract is valued using the following formula: E-mini S&P 500 contract value = ($50) x (S&P 500 stock index) As the price of the S&P 500 fluctuates, the price of the S&P 500 E-mini futures contract fluctuates as well. Read more

Each Way

Each way refers to a broker's act of earning a commission from both the buyer and the seller in a transaction. Let's say John Doe is a broker for XYZ brokerage. Read more

EAFE Index

EAFE stands for Europe, Australasia, and the Far East -- a region that is considered the most developed outside of North America.The Morgan Stanley Capital International (MSCI) EAFE index is the most common way to track the performance of stocks in the EAFE markets. Read more

Early Amortization

Early amortization refers to the accelerated repayment of bond principal, generally for an asset-backed security (ABS). Early amortization is also referred to as payout events or early calls. Read more

Early Call

An early call refers to the accelerated repayment of bond principal, normally on an asset-backed security (ABS). An early call is also known as early amortization or a "payout event." An early call usually takes place when the number of delinquencies on the loans underlying an ABS suddenly increases. Read more

Earnest Money

Earnest money is a good faith deposit, typically on a house purchase.It is not the same as a down payment. Read more

Earning Assets

Earning assets are assets that generate income like interest or dividends. Typically, earning assets require very little ongoing work from the owner of the assets. Read more

Earnings Announcement

An earnings announcement is a public statement of a company's profits, usually on a quarterly basis. For example, let's say Company XYZ is a public company. Read more

Earnings Call

An earnings call is a public announcement, usually via conference call, of a company's profits, usually on a quarterly basis. Company XYZ is a public company. Read more

Earnings Estimate

An earnings estimate is an estimate of a company's future quarterly or annual profits by a market analyst. Earnings estimates are created by analysts who work for investment research companies. Read more

Earnings Multiplier

The earnings multiplier, also called the price-to-earnings ratio (P/E), is a valuation method used to compare a company’s current share price to its per-share earnings. The market value per share is the current trading price for one share in a company, a relatively straightforward definition. Read more

Earnings Surprise

An earnings surprise in an unexpected difference between a company's actual earnings per share and analysts' expected earnings per share. Let's assume that analysts expect Company XYZ to report $0.05 in earnings per share for the first quarter. Read more

Earnings Yield

The earnings yield is the ratio of a company's last twelve months (LTM) of earnings per share (EPS) to its stock price.It is the inverse of the price-to-earnings (P/E) ratio. Read more

Easement

An easement is a legal right to trespass.  Let's say John Doe owns five acres of land. Read more

Easement in Gross

An easement in gross is a legal right to use another person's land for as long as the owner owns that land or the holder of the easement dies. Let's say John Doe owns five acres of land, which includes a good fishing pond. Read more

Easy-to-Borrow List

An easy-to-borrow list is a brokerage firm's list of securities that are available for shorting.   Short selling involves a three-step trading strategy that seeks to capitalize on an anticipated decline in the price of a security. Read more

Eat Well, Sleep Well

The phrase "eat well, sleep well" refers to the risk-return trade-off that most investors must make. When investors decide which securities to buy, they also make a decision about the risk they are willing to bear. Read more

Eating Stock

Eating stock occurs when a broker/dealer or market maker has to purchase stock because there are not enough buyers. Let's say Company XYZ is an investment bank that is underwriting the initial public offering of ABC Company. Read more

ECN Broker

An ECN broker is a person who uses electronic communications networks to give clients access to buyers and sellers in the currency markets. An ECN broker is sort of like a market maker for currency markets. Read more

EE Bonds

EE Bonds are one of two types of savings bond sold by the U.S.Treasury (the other is I Bonds). Read more

Effective Annual Interest Rate

The effective annual interest rate is the rate of interest an investor earns in a year after accounting for the effects of compounding.  The formula for effective annual interest rate is: (1 + i / n)n - 1 Where:  i = the stated annual interest rate n = the number of compounding periods in one year For example, let’s assume you buy a certificate of deposit with a 12% stated annual interest rate.If the bank compounds the interest every month (that is, 12 times per year), then using this information and the formula above, the effective annual interest rate on the CD is: (1 + .12/12)12 - 1 = .12683 or 12.683% Let’s look at it from another angle. Read more

Effective Duration

Effective duration is a calculation used to approximate the actual, modified duration of a callable bond.It takes into account that future interest rate changes will affect the expected cash flows for a callable bond. Read more

Effective Yield

For bonds, effective yield is an annual rate of return associated with a periodic interest rate. The formula for effective yield is: [1 + (i/n)]n - 1 Where: i = the nominal rate n = the number of payment periods in one year Let's assume you purchase a Company XYZ bond that has a 5% coupon. Read more

Efficient Frontier

Our expert definition of efficient frontier makes it easy to understand this important investing concept.  Read more

Eighthed

To get eighthed is to be outbid or undercut by one-eighth of a dollar (12.5 cents). Let's say Company XYZ is a big pension fund that wants to buy 500,000 shares of ABC Company from the DEF pension fund. Read more

Either-Or Order

An either-or order is a group of limit orders linked together within a brokerage account.If one order is executed, all other linked orders are automatically canceled. Read more

Election Period

An election period is a window of time during which a person can take a certain action.In the bond world, the term refers to the period of time a holder of an extendible or retractable bond can extend or retract a bond. Read more

Electronic Communication Network (ECN)

Commonly known as an ECN, an electronic communication network is a system for trading financial instruments that takes place outside of the markets and is sanctioned by the Securities and Exchange Commission (SEC).An ECN connects buyers and sellers over a network that eliminates the need for an intermediary such as a broker or investment bank. Read more

Emerging Markets Fund

An emerging markets fund is a fund that invests in the securities of companies and governments in developing countries. Emerging markets have lower per-capita incomes, above-average sociopolitical instability, higher unemployment, and lower levels of business or industrial activity relative to the United States; however, they also typically have much higher economic growth rates. Read more

Eminent Domain

Eminent domain is a legal strategy that allows a federal or local government to seize private property for public use.The seizing authority must pay fair market value for the property seized. Read more

Encumbrance

An encumbrance is a limitation on the ownership of a property. In the real estate world, an encumbrance is similar to a lien. Read more

Enterprise Zone

An enterprise zone is a geographical area (often a few blocks or miles in a town) with a 0% tax on gains from the sale of assets and property sold in an enterprise zone. For example, let's say that downtown ABCTown has decayed over the last 10 years. Read more

Equity

Put simply, equity is ownership of an asset of value.Ownership is created when the owner contributes to the financing of the asset purchase. Read more

Equity Financing

Equity financing occurs when a company aims to raise capital by offering investors partial ownership interest in the company.This type of financing allows the company to raise enough funds without taking out loans or incurring any debt. Read more

Equity Fund

An equity fund is an open or closed-end fund that invests primarily in stocks, allowing investors to buy into the fund and thus buy a basket of stocks more easily than they could purchase the individual securities. There are literally thousands of equity funds out there, and each has unique characteristics. Read more

Equity Income Fund

An equity income fund is a mutual fund composed largely of dividend-paying stocks. Equity income funds are made up of a variety of different income investments, but they generally invest in securities from established, creditworthy companies that make consistent dividend payments. Read more

Equity Linked Note (ELN)

An equity linked note (or ELN) is a debt instrument that varies from a standard fixed-income security in that the coupon is built on the return of a single stock, basket of stocks, or equity index, otherwise known as the underlying equity. An ELN is a principal-protected instrument generally intended to return 100% of the original investment at maturity, but deviates from a typical fixed-coupon bond in that its coupon is governed by the appreciation of the underlying equity. Read more

Equity Multiplier

The equity multiplier is a ratio used to determine the financial leverage of a company.  The formula for the equity multiplier is: Equity Multiplier = Total Assets / Total Stockholders' Equity If company ABC has total assets of 20 units and total stockholders' equity of 4 units, its equity multiplier is 5 (20/4).Alternatively, company XYZ has total assets of 10 units and total stockholders' equity of 5 units, its equity multiplier is 2 (10/5). Read more

Equity Risk Premium

The equity risk premium is the difference between the rate of return of a risk-free investment and the geometric mean return of an individual stock over the same time period.Since all investments carry varying degrees of risk, the equity risk premium is a measure of the cost of that risk. Read more

Equity Underwriter

Equity underwriters are usually investment banks with a team of IPO specialists. They help to market, distribute and administer the public issuance of securities. Read more

Equity-Linked Securities (ELKS)

As the name implies, equity-linked securities (ELKS) are hybrid debt securities whose return is connected to an underlying equity (usually a stock).ELKS pay a higher yield than the underlying security and generally mature in one year. Read more

Equivalent Annual Cost (EAC)

Equivalent annual cost (or EAC) is the cost per year of owning, operating, and maintaining an asset over its lifetime. EAC is often used as a tool in capital budget decision making for evaluating investments of unequal lifespans. Read more

Equivalent Taxable Interest Rate

An equivalent taxable interest rate (also called equivalent taxable yield) is the return that is required on a taxable investment to make it equal to the return on a tax-exempt investment.The equivalent taxable interest rate is commonly used when evaluating municipal bond returns. Read more

Escrow

Escrow is a financial arrangement whereby a third party holds funds in safekeeping pending the completion of a contract or other obligation. For example, let's assume a situation where someone is purchasing a home. Read more

Escrow Account

In the real estate world, mortgage companies use escrow accounts to collect property taxes, homeowners insurance, private mortgage insurance and other payments that are required by the homeowner but are not part of principal and interest.Escrow accounts are also called impound accounts. Read more

Escrow Agreement

An escrow agreement is a certificate from an approved bank guaranteeing that an indicated financial security is deposited at that particular bank. John writes a call option for stock in company ABC. Read more

Euro Interbank Offered Rate (EURIBOR)

Euro Interbank Offered Rate (EURIBOR), is the rate at which European banks offer to lend unsecured funds to each other in the euro market. EURIBOR is sponsored by the European Banking Federation which represents some 5,000 banks and by the Financial Markets Association. Read more

Eurobond

A eurobond is a bond denominated in a currency not native to the issuer's home country.Eurobonds are commonly issued by governments, corporations, and international organizations. Read more

European Credit Research Institute (ECRI)

The European Credit Research Institute (ECRI) provides analyses of retail financial services markets within the member states of the European Union. The ECRI is an independent, non-profit research institute founded in 1999 by a group of European banking and financial institutions. Read more

Ex-Dividend Date

Some stocks pay cash (or additional stock) dividends to their investors throughout the year.Also referred to as “ex-date”, the ex-dividend date is important for investors because it determines whether they’re entitled to a dividend.  In order to receive a dividend, you need to be the holder (on record) of a given stock no later than the day before its ex-dividend date. Read more

Excess Return

Excess return, also known as "alpha" or the "abnormal rate of return the portion of a security's or portfolio's return not explained by the overall market's rate of return.Rather, it is generated by the skill of the investor or portfolio manager, and is one of the most widely used measures of risk-adjusted performance. Read more

Exchange-Traded Fund (ETF)

Exchange-traded funds (ETFs) are securities that closely resemble index funds, but can be bought and sold during the day just like common stocks.These investment vehicles allow investors a convenient way to purchase a broad basket of securities in a single transaction. Read more

Exchangeable Bonds

An exchangeable bond gives the holder the option to exchange the bond for the stock of a company other than the issuer (usually a subsidiary) at some future date and under prescribed conditions.This is different from a convertible bond, which gives the holder the option to exchange the bond for other securities (usually stock) offered by the issuer. Read more

Expectations Theory

Expectations theory suggests that the forward rates in current long-term bonds are closely related to the bond market's expectation about future short-term interest rates.  Expectations theory attempts to explain the term structure of interest rates.There are three main types of expectations theories: pure expectations theory, liquidity preference theory and preferred habitat theory. Read more

Expense Ratio

The expense ratio is the recurring management fees for a mutual fund.A fund company charges its fund holders the expense ratio each year (expressed in terms of a percentage of the fund's assets). Read more

Extended Trading

Extended trading is the pre-market or after-market trading that occurs on electronic market exchanges either before or after regular stock market trading hours. In the United States, extended trading occurs between 8:00 a.m. Read more

FAAMG Stocks

FAAMG is an acronym that describes five of the most popular tech stocks whose parent companies have come to influence so many of our purchases and a large part of the market: Facebook, Apple, Amazon, Microsoft, and Google (now called Alphabet).The five stocks all trade on the NASDAQ, which lists more than 3,300 stocks, including many of the more successful tech and growth stocks. Read more

FAANG Stocks

FAANG is an acronym that describes five of the most popular tech stocks whose parent companies have come to influence so many of our purchases and a large part of the market: Facebook, Apple, Amazon, Netflix, and Google (now called Alphabet).The five stocks all trade on the NASDAQ, which lists more than 3,300 stocks, including many of the more successful tech and growth stocks. Read more

Face Value

Face value, also referred to as par value or nominal value, is the value shown on the face of a security certificate, including currency.The concept most commonly applies to stocks and bonds, so it is particularly important to bond and preferred stock investors. Read more

Fade

A fade is an investment strategy devoted to doing the opposite of the prevailing wisdom.In the brokerage sector, it also refers to a dealer's inability or refusal to fill an order at the prevailing bid/ask spread the dealer has published (that is, the dealer "fades" from trading). Read more

Fair Value

Fair value is an estimate of a security's worth on the open market.There is no one way to calculate the fair value for a security, but calculations typically take into account future growth rates, profit margins, and risk factors, among other items.  Let's assume Company XYZ stock currently sells for $20 per share. Read more

Fallen Angel

A fallen angel is a bond which once carried a high rating and displayed exceptional performance, but has since experienced a serious sustained decline in ratings and market demand. For the last five years, the Standard & Poor's agency gave Company XYZ an investment-grade rating of A, meaning it believes XYZ is a quality company with low credit risk. Read more

Falling Knife

A falling knife describes a stock which has experienced a rapid decline in value in a short amount of time.Just like a falling knife, you don't want to catch these companies on their way down. Read more

FANG Stocks

FANG is an acronym that describes the four most popular tech stocks whose parent companies have come to dominate our lives and the market: Facebook, Amazon, Netflix, and Google (now called Alphabet).The four stocks all trade on the NASDAQ, where more than 3,300 corporations list their shares. Read more

Fannie Mae (FNMA)

Fannie Mae (OTC: FNMA) is the nickname for the Federal National Mortgage Association (FNMA).Established in 1938, Fannie Mae's purpose is to create a secondary market for the purchase and sale of mortgages. Read more

Federal Home Loan Mortgage Corporation (Freddie Mac)

The Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac") is a government-sponsored entity that buys certain types of mortgages from banks and uses them to collateralize mortgage-backed securities.Freddie Mac also supplies a variety of periodic housing and mortgage data to the public. Read more

Federal Open Market Committee (FOMC)

The Federal Open Market Committee (FOMC) is main policy-making body of the Federal Reserve.The FOMC is responsible for conducting open market operations. Read more

Fill or Kill (FOK)

Fill or kill (FOK) is a client's instruction to his or her broker to either fill the entire order immediately or to cancel the order. Let's assume you want to purchase 1 million shares of Company XYZ at $20 per share. Read more

Final Maturity Date

A final maturity date is the date upon which all principal and interest must be repaid. Any debt instrument is made of interest and principal components which an issuer is implicitly obligated to repay. Read more

Financial Advisor

A financial advisor is an educated investment professional who helps people and businesses set and meet long-term financial goals. They typically ensure that individuals and businesses are properly insured, saving enough for future needs such as retirement, and will manage the investments of their clients. There are a few types of financial advisors so it's important to understand the differences and how to choose one based on your needs.  Read more

Financial Analyst

A financial analyst gathers and interprets data about securities, companies, corporate strategies, economies, or financial markets.Financial analysts are sometimes called securities analysts, equity analysts, or investment analysts (although there is a distinction among these titles). Read more

Financial Market

A financial market is a location where buyers and sellers meet to exchange goods and services at prices determined by the forces of supply and demand. A financial market may be a physical location or a virtual one over a network (for example, the Internet). Read more

Financial Planner

A financial planner is a credentialed professional who, for a fee, assists individuals and organizations in reaching their financial goals and increasing their net worth through careful investing and money management on the basis of their means and financial status. A financial planner is similar to an investment advisor, investment manager, investment consultant, or financial advisor. Read more

Financial Risk Manager

Issued by the Global Association of Risk Professionals (GARP), the Financial Risk Manager (FRM) designation recognizes individuals who have expert knowledge in the field of financial risk assessment for banks, insurance companies, accounting firms, regulatory agencies, asset and wealth management firms, and other financial institutions.  Candidates must successfully complete a two-part exam that focuses on the primary strategic disciplines of financial risk management which include: market risk, credit risk, operational risk, and investment management.They are expected to understand the concepts and approaches used in financial risk management applications. Read more

Financial Times 100 Index (FTSE)

The Financial Times 100 Index (FTSE), also known as the "footsie," is the most widely used benchmark for the performance of equities traded on the London Stock Exchange.Started in January 1984 with an initial value of 1,000, the index contains the 100 largest U.K.-domiciled companies traded on the London Stock Exchange (based on market capitalization). Read more

Firewall

Firewall refers to the strict separation between banking and brokerage activities within full-service banks, and between depository and brokerage institutions as stipulated by the Glass-Steagall Act of 1933. Prior to the Great Depression, investors would borrow on margin from commercial banks and use the money to purchase stocks. Read more

First-Time Homebuyer

A first-time homebuyer an individual or couple purchasing a home for the first time.The IRS also considers someone who has not owned a home in the past two years to be a first-time homebuyer. Read more

Fixed Income

Fixed income is a category of investments where an investor is lending money to the issuer and receives a fixed interest payment periodically until the investment matures.At maturity, the original principal amount is returned to the investor.  Fixed income investments include U.S. Read more

Fixed Income Security

A fixed income security is an investment that pays regular income in the form of a coupon payment, interest payment or preferred dividend. Fixed income securities provide periodic income payments at an interest or dividend rate known in advance by the holder. Read more

Fixed Rate Certificate of Deposit (CD)

A certificate of deposit (CD) is a savings investment where the investor commits to depositing funds for a set period of time, such as six months, one year, or five years.In exchange for the investor’s commitment of the funds for that time, the issuing bank pays higher interest than for a demand deposit. Read more

Fixed-Rate Capital Securities

Fixed-rate capital securities are fixed income securities that have features of both corporate bonds and preferred stock. Similar to a hybrid security, fixed-rate capital securities have features of both preferred stock and corporate bonds. Read more

Flat Yield Curve

Flat yield curve refers to a yield curve that reflects little or no disparity between short-term and long-term interest rates. A flat yield curve is essentially a horizontal line representing similar yields for short-term and long-term debt securities in the same credit category, as shown below: Under these circumstances, for instance, a bond with a 30-year term would have virtually the same yield as a similarly-rated bond with only a five-year term. Read more

Float

A company's float is an estimate of the number of outstanding shares available for the public to trade. Float, sometimes referred to as free float or "public" float, does not include restricted shares (shares owned by company officers, management, and other various insiders) because it's assumed that those shares are being held on a very long-term basis. Read more

Floor Broker

A floor broker, also known as a pit broker, is a brokerage firm employee who executes orders on the floor of a stock or commodity exchange on behalf of clients. A floor broker receives an order from a client through his or her brokerage firm and trades the security with other brokers on the exchange floor.   Based on interactions with specialists in the specific securities being traded and bidding with other brokers or traders on the floor of the exchange, the floor broker attempts to get the most competitive market rates available for his or her client.  When the floor broker executes a transaction on behalf of the client, he or she notifies the client through the client's registered representative at the floor broker's firm. Read more

Follow-On Offering

A follow-on offering, also called a secondary offering, is a sale of stock by a company or by an existing shareholder of a company that is already publicly held. Let's say Company XYZ is a public company and would like to sell additional shares in order to raise money to build a new factory. Read more

Fool's Gold

Fool's gold is a shiny mineral called pyrite which bears great resemblance to, and is often confused with, real gold. Actually an iron-based mineral, pyrite is known for being yellow and shiny and appearing no different from real gold. Read more

Forced Liquidation

Forced liquidation is the sale of all investments within a customer's margin account by a brokerage firm, usually after the account has failed to meet margin requirements and margin calls. To engage in trading investments on margin, brokerage firms generally require their investing clients to follow the firm's rules on margin requirements. Read more

Foreclosure

Foreclosure occurs when a lender seizes and sells a borrower's collateral after the borrower has failed to repay the lender.The term is most often associated with real estate. Read more

Forever Stock

Forever stock is a term used to describe a stock that you can buy and hold for the rest of your life.  Forever Stocks are high-quality securities that you can count on for strong, steady returns -- year after year -- all while ensuring you get a good night's sleep.You can identify "forever stocks" by following Warren Buffett's simple yet successful investing advice: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." [InvestingAnswers Feature: 50 Warren Buffett Quotes to Inspire Your Investing] These investments typically share three main characteristics: The company enjoys huge (and lasting) advantages over its competitors. Read more

Forward Dividend Yield

A forward dividend yield is a stock's annualized dividend based on its latest declared dividend payment. Forward dividend yields can be calculated in a number of ways, and depending on which way they are calculated, various sources will often list different yields for the exact same security. Read more

Forward Price-to-Earnings Ratio (Forward P/E)

The forward price-to-earnings ratio (forward P/E) is a valuation method used to compare a company’s current share price to its expected per-share earnings. The market value per share is the current trading price for one share in a company, a relatively straightforward definition. Read more

Forward Pricing

Forward pricing is the SEC-mandated policy of processing buy and sell orders for open-ended mutual fund shares at the net asset value (NAV) as of the next market close (not the most recent market close).  For example, let's say you place an order today to buy $100 worth of mutual fund XYZ this morning.Last night, XYZ had a net asset value (NAV) of $10 per share. Read more

Forward Rate

Usually reserved for discussions about Treasuries, the forward rate (also called the forward yield) is the theoretical, expected yield on a bond several months or years from now. The yield curve dictates what today's bond prices are and what today's bond prices should be, but it can also infer what the market believes tomorrow's interest rates will be on Treasuries of varying maturities. Read more

Forward Trading

Forward trading, also called front running, occurs when stockbrokers personally purchase shares of a particular stock while knowing that their firm plans to purchase numerous shares of the same stock.Forward trading is considered unethical and is often illegal. Read more

Foul Weather Fund

A foul weather fund is a mutual fund that outperforms the market during poor market conditions.The goal of the fund is to minimize or benefit from the effects of a downward move in the market. Read more

Free Asset Ratio (FAR)

Free asset ratio refers to the net assets of an insurance company as a percentage of its total assets.  Free assets are the same as net assets, that is, assets that are not obligated to insurance policies. The formula for calculating FAR is: FAR = (Total Assets – Secured Assets) / Total Assets An insurance company must maintain certain financial reserves on hand to cover its obligations to its policyholders. Read more

Free Cash Flow per Share

Free cash flow per share is a measure of how much cash per share a business generates after accounting for capital expenditures like equipment or buildings.Free cash flow is available to be used for expansion, dividends, debt reduction, or other purposes. Read more

Free Float

A company's free float refers to the number of outstanding shares that are available to the public for trade. Free float is sometimes referred to as float or public float. Read more

Front Running

Front running, also called forward trading, occurs when stockbrokers know their firm plans to purchase numerous shares of a particular stock, so they purchase shares of the same stock for themselves.Front running is considered unethical and, many times, is illegal. Read more

Front-End Load

A front-end load is a fee paid to purchase a specific investment.It is expressed as a percentage of the amount invested. Read more

Full-Service Broker

A full-service broker executes trades for clients, but also provides research, advice, retirement planning and tax assistance. There are two general categories of brokers: discount and full-service.  In contrast to a discount broker, who only executes trades for customers, a full-service broker also provides service and expertise in wealth management services -- such as tax assistance, retirement planning and investment advice. Read more

Fully Vested

A person is fully vested when a financial instrument or account becomes wholly owned by the investor. Let's assume John Doe receives options to buy 2,000 shares of Company XYZ, his employer, for $10 a share. Read more

Fund

Fund usually refers to mutual fund, which is an open-ended investment company that pools investors' money into a fund operated by a portfolio manager.This manager then turns around and invests this large pool of shareholder money in a portfolio of various assets or combinations of assets. Read more

Fund Manager

A fund manager is an investment professional who oversees the investments within a portfolio. A fund manager implements the chosen investment strategy by selecting when to buy or sell the assets held in a portfolio. Read more

Fundamental Analysis

Fundamental analysis attempts to understand and predict the intrinsic value of stocks based on an in-depth analysis of various economic, financial, qualitative, and quantitative factors. Fundamental analysis observes numerous elements that affect stock prices such as sales, price to earnings (P/E) ratio, profits, earnings per share (EPS), as well as macroeconomic and industry specific factors. Read more

Funds from Operations (FFO)

Funds from Operations (FFO) is a measure of cash generated by a real estate investment trust (REIT).It is important to note that FFO is not the same as Cash from Operations, which is a key component of the indirect-method cash flow statement. Read more

Funds from Operations Per Share (FFOPS)

Funds from operations per share (FFOPS) is a measure of cash generated by a real estate investment trust (REIT).It is important to note that FFOPS is not the same as Cash from Operations Per Share, which is a key component of the indirect-method cash flow statement. Read more

Funds Settlement

Funds settlement refers to the transfer of funds from buyer to seller and the transfer of an asset's title from seller to buyer. When an investor sends an order to his or her broker, that trade information is sent to a clearinghouse (for example, the National Securities Clearing Corporation). Read more

Futures

Futures are financial contracts giving the buyer an obligation to purchase an asset (and the seller an obligation to sell an asset) at a set price at a future point in time. Futures are also called futures contracts. Read more

Futures Commission Merchant (FCM)

A futures commission merchant (FCM) is a company or individual certified to negotiate the sale and purchase of futures contracts, as well as oversee the delivery of underlying commodities to investors. An FCM has to be certified by the Commodity Futures Trading Commission (CFTC) before being allowed to facilitate the purchase and sale of futures contracts on a futures exchange. Read more

Futures Market

Futures markets are places (exchanges) to buy and sell futures contracts.There are several futures exchanges. Read more

G7 Bond

G7 bonds are generally regarded as less risky than bonds issued by other countries.Accordingly, they are often more liquid than sovereign debt from other countries and are sometimes preferred by conservative income investors who want some international exposure. Read more

Gadfly

A gadfly is a shareholder who publicly criticizes a company's executives at the annual shareholders meeting.  The term gets its name from the insect, which bites and annoys animals (usually livestock). Read more

Gain

A gain, also called a capital gain, is an increase in the value of an investment.It is the difference between the purchase price (the basis) and the sale price of an asset. Read more

Gambler's Fallacy

The gambler's fallacy is a situation in which a gambler believes that a string of past events will change the probability of future events occurring.  Coin flips are the most common example of the gambler's fallacy. Read more

General Obligation Bond

A general obligation bond is a municipal debt issue that is secured by a broad government pledge to use its tax revenues to repay the bond holders. General obligation debt issued by local governments generally requires a pledge of full faith and credit of the local government.  Since a local government's credit is based on tax receipts, it is pledging the receipt of taxes and its ability to levy those taxes in support of the debt.  Local governments are able to secure the receipt of taxes through priority liens on property.  As a result, general obligation bonds, supported by the taxing and lien powers, carry the credit rating of the local government. Read more

Gilts

Gilts are bonds issued by the British government.India's government bonds are also called gilts. Read more

Ginnie Mae (GNMA)

Ginnie Mae is the nickname for the Government National Mortgage Association.Ginnie Mae guarantees the timely payment of interest and principal on certain mortgage-backed securities (MBS). Read more

Glass Steagall Act

The Glass Steagall Act was passed by Congress in 1933.It prohibited commercial banks from conducting brokerage or investment banking activities. Read more

Go Shop Period

A go shop period is a window of time during which public companies can solicit competing purchase offers. Let's say Company XYZ is for sale. Read more

Going Private

The term going private refers to a company's departure from listing shares on any exchange.It is the opposite of going public. Read more

Going Public

Going public refers to a company's first issuance of stock on the open market.In most cases, the offering, called an initial public offering (IPO), makes the company's stock accessible to a large group of public investors for the first time. Read more

Gold Bug

Gold bugs are people who are fans of investing in gold. Gold is generally considered a safe haven against the ravages of inflation and volatile markets. Read more

Gold BUGS Index (HUI)

The AMEX Gold BUGS Index (also known as HUI) is one of two major gold indices that dominate the market.BUGS is an acronym for "Basket of Unhedged Gold Stocks." The index was introduced on March 15, 1996. Read more

Gold Bull

A gold bull is someone who believes the price of gold will go up.  Gold bulls generally consider gold a "safe" hedge against inflation and even against volatile markets.Throughout history, gold has traditionally risen in value when things such as wars, the Great Depression, or high inflation have occurred. Read more

Gold Certificate

A gold certificate is a piece of paper that entitles the bearer to a certain amount of actual gold. From 1863 to 1933, the U.S. Read more

Gold Fix

A gold fix occurs when the The London Gold Market Fixing Ltd.sets the price of gold. Read more

Gold Fund

A gold fund is an exchange-traded fund (ETF) or mutual fund that invests in gold. For example, let's assume that John wants to invest in gold. Read more

Gold Option

A gold option gives the holder the right, but not the obligation, to purchase or sell a specific quantity of gold at a specified strike price on the option's expiration date. Options are derivative instruments, meaning that their prices are derived from the price of another security. Read more

Gold Reserve Act of 1934

The Gold Reserve Act of 1934 nationalized gold and fixed the price of gold in terms of U.S.dollars. Read more

Gold-Silver Ratio

The gold-silver ratio is measure of how many ounces of silver it takes to buy an ounce of gold. The formula for the gold-silver ratio is: Gold-Silver Ratio = Price of Gold per Ounce / Price of Silver per Ounce For example, let's assume that the price of gold is $1,500 an ounce today. Read more

Goldbrick Shares

Goldbrick shares are shares of stock that appear valuable but are actually worthless or worth very little. For example, let's assume that Company XYZ is a tech company with growing revenues but growing losses. Read more

Golden Cross

In the trading world, a golden cross occurs when a stock's short-term moving average rises above its long-term moving average. For example, let's assume that Company XYZ’s 15-day moving average has been about $14 per share. Read more

Goldman Sachs Commodity Index (GSCI)

The Goldman Sachs Commodity Index (GSCI) is a commodities index now owned by Standard & Poor's. S&P acquired the index from Goldman Sachs on February 2, 2007 and renamed it the S&P GSCI. Read more

Good Delivery

Good delivery occurs when all the requirements for transferring title to a security from the seller to the buyer have been met. For example, let's assume John owns 100 shares of Company XYZ. Read more

Good Faith Estimate

A good faith estimate is a written estimate of the fees due at closing for a mortgage. The Real Estate Settlement Procedures Act (RESPA) requires a lender has to provide a written good faith estimate to a borrower within three days of the borrower applying for a mortgage. Read more

Good Faith Money

Good faith money is money a buyer uses to prove to a seller that he or she intends to complete a transaction.In real estate, good faith money is also called earnest money. Read more

Good This Month

Good this month refers to a type of trading order is automatically canceled if it is not filled by the end of the month in which the client makes the order. For example, let's assume an investor wants to sell 100 shares of Company XYZ at $25 per share or better. Read more

Good This Week

Good this week is a type of trade order that is automatically canceled if it is not filled by the end of the week in which the client makes the order. For example, let's assume an investor wants to sell 100 shares of Company XYZ at $25 per share or better. Read more

Good Through

A good through order is a trade order with a deadline.Usually, it is a stop loss or limit order.  Let's assume you want to buy 100 shares of Company XYZ, but you don't want to pay more than $5 per share for the stock. Read more

Good Til Cancelled (GTC)

Good til Cancelled, or GTC, is used to refer to an order to buy or sell a stock at a set price that remains in effect until the investor cancels the order or the trade is completed. When an investor places an order for a trade, he can specify that the order should remain in effect until a specific condition is met. For example, if the investor has a stock priced at $10 per share, but he wants to sell if the stock moves to $15, then the Good til Cancelled order will stand until that condition is met, unless the investor intervenes and cancels the instruction. If the stock reaches $15 per share, under the GTC order, the shares will be sold. Read more

Goodness of Fit

Goodness of fit (also known as a chi-square goodness of fit) is a statistical term referring to how far apart the expected values of a financial model are from the actual values. Goodness of fit is a component of regression analysis, which is a statistical method used in finance and a variety of other fields to make predictions based on observed values. Read more

Goodwill Impairment

Generally, a goodwill impairment occurs when a company A) pays more than book value for a set of assets (the difference is the goodwill), and B) must later adjust the book value of that goodwill. Goodwill is an asset, but it does not amortize or depreciate like other assets. Read more

Goodwill-to-Assets Ratio

The goodwill-to-assets ratio describes the percentage of a firm's total assets that can be explained by the amount of goodwill on the balance sheet.  The formula for the goodwill-to-assets ratio is: Goodwill to Assets = Goodwill / Total Assets For example, let's assume Company XYZ has $5,000,000 of goodwill on its balance sheet.Its total assets are $20,000,000. Read more

Gordon Growth Model

The Gordon Growth Model (GGM) is a version of the dividend discount model (DDM).It is used to calculate the intrinsic value of a stock based on the net present value (NPV) of its future dividends. Read more

Government Bond

A government bond is debt issued by the government. The Treasury Department usually issues government bonds, typically through an auction process. Read more

Graduated Vesting

Graduated vesting occurs when a financial instrument or account becomes wholly owned by an investor over time. Let's assume John Doe is eligible to participate in his company's 401(k) plan. Read more

Grant

In the business world, a grant usually refers to a stock option grant.However, the term can also refer to federal funding for research, business ventures or partnerships. Read more

Grantee

In the legal world, a grantee is a person who receives something. In real estate, a grantee is a person who receives property after a sale or other transfer of title. Read more

Grantor

In the legal world, a grantor is a person or entity creating a trust. A trustee is a person or entity that has a fiduciary duty to another person or entity, called the beneficiary. Read more

Gray Market

In the investing world, a gray market exists when people begin trading shares that have not been issued yet.In the business world, a gray market is the novel but not always illegal process of obtaining goods or services. Read more

Great Depression

The Great Depression is a severe global economic contraction that began in the United States and spread throughout the rest of the world in the 1930s. The United States stock market crash of 1929 is the most famous market crash of all time. Read more

Green Shoe Option

A green shoe option is a clause contained in the underwriting agreement of an initial public offering (IPO).Also known as an over-allotment provision, it allows the underwriting syndicate to buy up to an additional 15% of the shares at the offering price if public demand for the shares exceeds expectations and the stock trades above its offering price. Read more

Greenmail

Greenmail is an acquisition tactic whereby the acquirer attempts to obtain a controlling interest in a target by buying shares at a premium from the target's shareholders. Let's assume an entity that Company XYZ considers unsavory (we'll call it Party X) is attempting to acquire control of Company XYZ by offering to buy shares at a premium from Company XYZ's shareholders. Read more

Gross Interest

Gross interest is the amount of interest an account or investment earns before deducting taxes, fees or other charges.It is expressed as a percentage. Read more

Gross Profit Margin

Gross profit margin is a measure of a company’s profitability, calculated as the gross profit as a percentage of revenue.Gross profit is the amount remaining after deducting the cost of goods sold (COGS) or direct costs of earning revenue from revenue. Read more

Growth At a Reasonable Price (GARP)

Growth at a reasonable price (GARP) is an investment strategy that combines tenets of both growth and value investing by finding companies that show consistent earnings growth but don't sell at overly high valuations.  The term was popularized by legendary investor Peter Lynch. A fundamental formula for finding GARP is the price/earnings growth ratio (PEG). Read more

Growth Company

A growth company is characterized by a rate of growth higher than that of the overall economy. Growth companies generate consistently high levels of earnings, and place greater weight on reinvesting earnings in continued expansion. Read more

Growth Stock

Growth stocks are fast-growing, higher-risk companies.They tend to be young. Read more

Guaranteed Bond

A guaranteed bond is a bond whose interest and principal payments are guaranteed by a third party. An entity that issues a guaranteed bond has solicited a third party (usually a bank, insurance company or another corporation) that agrees to pay the interest and principal payments on the bond should they, the issuer, be unable to make such payments. Read more

Guaranteed Death Benefit

A guaranteed death benefit is a portion of an annuity that allows the investor's beneficiaries to receive a minimum amount of death benefits.  Let's say Jane Doe bought an annuity for $500,000 that has a guaranteed death benefit. Read more

Guaranteed Investment Contract (GIC)

A guaranteed investment contract (GIC) is an agreement between a contract purchaser and an insurance company whereby the insurance company provides a guaranteed rate of return in exchange for keeping a deposit for a fixed period of time.  Let's assume Company XYZ buys a GIC from the ABC Insurance Company on behalf of the employees enrolled in the Company XYZ pension plan.ABC Insurance Company guarantees the return of Company XYZ's original investment and pays either a fixed or variable rate of interest until the end of the contract. Read more

Guidance

In the stock world, guidance refers to public communication from a company regarding earnings expectations. The world of earnings guidance is large and fluid, whereby the management of publicly traded companies issue public estimates about what they expect earnings to be for the coming quarter. Read more

H-Shares

H-shares are shares of Chinese companies that are listed on the Hong Kong Stock Exchange. Hong Kong is a "special administrative region" of China. Read more

Habendum Clause

A habendum clause in a real estate contract transfers ownership of a piece of real estate with no restrictions.It generally pertains to oil and gas leases for pieces of property but can relate to any transfer of property. Read more

Half Stock

A half stock has a par value that is 50% of what is considered normal. Let's assume the par value of a share of preferred stock is usually $100. Read more

Half-Life

In the investing world, a half-life is the halfway point of mortgage repayment. Let's say John Doe borrows $100,000 to buy a house. Read more

Hands-On Investor

A hands-on investor has a substantial interest in a company and chooses to take an active role in its management.It is the opposite of a hands-off investor. Read more

Hang Seng Index (HSI)

The Hang Seng Index is the leading index for shares traded on the Hong Kong Stock Exchange.  Started in 1969, the Hang Seng Index consists of the 45 largest companies that trade on the Hong Kong Stock Exchange, representing about 67% of its total market capitalization.  The index is maintained by a subsidiary of Hang Seng Bank.To qualify for selection to the index, a company must be among those that comprise the top 90% of the total market value of all ordinary shares, as well as those that comprise the top 90% of the total turnover on the Stock Exchange of Hong Kong Limited (SEHK). Read more

Hard Call Protection

Hard call protection is a provision in a callable bond that limits the issuer's ability to exercise the call feature. A callable bond allows the issuer to repay the bond's principal balance before its maturity date with little notice to the holder. Read more

Hard Dollars

Hard dollars are money paid to a broker or investment adviser in return for consultation or investment research.Hard dollars do not include fees related to trading. Read more

Hard Stop

A hard stop is a standing instruction from a brokerage client to sell units of a security if the market price declines to a specific level.It is a generic term that can refer to both a stop-loss order or a stop order. Read more

Hard-Coded Stock

Hard-coded stock has a unique identifier (a "ticker symbol") assigned to it by a registered exchange. Stocks traded on a registered exchange (for example, the New York Stock Exchange) are represented for easy reference by an alphabetic abbreviation. Read more

Hard-to-Borrow List

A hard-to-borrow list outlines the securities that a brokerage house cannot provide to investors for short selling. Similar to goods and services, financial instruments exist in a limited supply, and some are less available than others. Read more

Hardening

Hardening refers to stabilization or steady increases in a price level. Financial instruments and derivatives frequently experience volatile market-price fluctuations. Read more

Harmless Warrant

A harmless warrant is a bond provision that instructs a holder to relinquish the bond to the issuer should the holder purchase another bond from the same company with comparable features. A bond with a harmless warrant, also known as a wedding warrant, requires the holder to return the bond to the issuer if the holder purchases a different bond from the same company that quantitatively resembles the original bond. Read more

Headline Risk

Headline risk is the risk that media coverage of an event will have an adverse effect on a company's stock price. Let's say Company XYZ makes a line of sweets and snacks that are sweetened with the "Sweetums" sugar substitute. Read more

Healthcare Sector

The healthcare sector is the sector of the economy made up of companies that specialize in products and services related to health and medical care. The healthcare sector includes publicly-traded companies that power all dimensions of the healthcare industry. Read more

Heavy

In the investing world, heavy refers to a security whose price can't seem to rise. Let's say Company XYZ has been trading between $12 and $15 a share for the last six months despite two quarters of good earnings. Read more

Hedge

In finance, a hedge is a strategy intended to protect an investment or portfolio against loss.It usually involves buying securities that move in the opposite direction than the asset being protected. Read more

Hedge Accounting

Hedge accounting is a portfolio accounting method that combines the values of both a security and its offsetting hedge instrument. If investors purchase a security that comprises a high level of risk, they may accompany the purchase with an opposing item (usually a derivative, such as an option or future contract) referred to as a hedge. Read more

Hedge Fund

A hedge fund is an investment structure designed to allow management of a private, unregistered portfolio of assets.  The original concept of a hedge fund was to offer plays against the market using short selling, futures, and derivatives.Today, hedge funds follow any number of strategies and cannot be considered a homogenous asset class. Read more

Hedge Fund Manager

A hedge fund manager is an individual responsible for directing all activities associated with the operation of a hedge fund. The role of a hedge fund manager is similar to that of a mutual fund manager. Read more

Hedge-like Mutual Fund

A hedge-like mutual fund is a mutual fund that engages in strategies similar to a hedge fund. Hedge funds are capitalized by and available only to individuals with high net worth. Read more

Hedged Tender

A hedged tender is a strategy used to ensure a profit as a part of a tender offer. A tender offer is a proposition from one investor or company to purchase a number of shares of another company's stock at a higher-than-market price. Read more

Hedgelet

A hedgelet is a binary futures contract whose payoff is conditional upon a specific economic occurrence. A hedgelet is a futures contract which hedges that a specific event (for example, movements in interest rates, commodity prices, or exchange rates) will have occurred on or before the contract's expiration date. Read more

Held at the Opening

There are a lot of reasons a security might be held at the opening: acquisition announcements, order problems or listing violations. Stock exchanges can stop trading at any time, but when they stop a security from trading before the beginning of the trading day, they are holding a security at the opening. Read more

Held-to-Maturity Securities

Held-to-maturity securities refer to debt securities which an investor holds until maturity. When investors purchase debt securities such as bonds, they have two choices: to hold the security until maturity or to sell it at a premium following a relative decline in interest rates. Read more

Herd Instinct

A herd instinct is emotional pressure to agree with other members of a group.The herd instinct results in failures to think critically about an issue, situation or decision. Read more

High Flier

A high flier is stock that has risen very quickly. Let's say Company XYZ rises 45% in five days -- well ahead of the market's rise of 10% over that time. Read more

High Frequency Trading (HFT)

High frequency trading (HFT) is a computerized trading strategy used to exploit fleeting market inefficiencies.These ultra-short-term positions can be in a wide range of assets: stocks, options, futures, currencies, exchange-traded funds (ETFs), and virtually any other asset that can be traded electronically. Read more

High Yield Savings Account

A high yield savings account is a savings account that pays an account holder a higher-than-average interest rate.If the average US savings account offers an interest rate of 1%, for example, then a high yield savings account might offer a 1.75% to 2% or higher interest rate.  A high yield savings account works the same way as a normal savings account, except that it will pay you more interest over time. Read more

High-Income Trigger Securities (HITS)

High-income trigger securities (HITS) are senior unsecured debt securities that pay an annual coupon rate and repay their original principal either in cash or shares, depending on the issuer's stock performance. Let's assume Morgan Stanley issues HITS on Company XYZ that have $10 face values, pay a 10% annual coupon, and mature one year from today. Read more

High-Ratio Loan

A high-ratio loan is a mortgage that has a small down payment. Let's say John Doe wants to buy a $100,000 house. Read more

High-Yield Bond

A high-yield bond is a corporate bond with a credit rating below BBB (also called a junk bond). High-yield bonds are high-risk investments, and for this reason they (and the mutual funds that invest in them) have potential for higher returns than other types of bonds or bond funds. Read more

High-Yield Bond Fund

A high-yield bond fund is a mutual fund that invests in corporate bonds rated below BBB (i.e., high-yield bonds, also called junk bonds). High-yield bonds are high-risk investments, and for this reason they (and the funds that invest in them) have potential for higher returns than other types of bonds or bond funds. Read more

High-Yield Bond Spread

A high-yield bond spread is simply the difference in yield between two high-yield debt securities or, more commonly, two classes of high-yield debt securities. Let's assume that junk bond X is yielding 5%, and junk bond Y is yielding 7%. Read more

Histogram

A histogram is a visual display of information.It uses bars to show the frequency of an item of data in successive intervals. Read more

Holder of Record

A holder of record is the registered owner of a stock, bond or other security. Let's say John Doe buys 100 shares of Company XYZ. Read more

Holding Period

Holding period refers to the time during which an investor holds a given security. The holding period for a security is defined as the elapsed time between the initial date of purchase and the date on which the security was sold. Read more

Holding the Bag

An investor is left "holding the bag" when his or her investment has gone from valuable to worthless or almost worthless. Let's assume that John invests $10,000 in NewCo, Inc. Read more

Home Bias

Home bias is a tendency to invest in companies that reside in the investor's home country. For example, let's say John Doe lives in Canada. Read more

Home Loan

A home loan (or mortgage) is a contract between a borrower and a lender that allows someone to borrow money to buy a house, apartment, condo, or other livable property.A home loan is typically paid back over a term of 10, 15 or 30 years. Read more

Hot IPO

A hot IPO is an IPO for which there is great demand. For example, let's say Company XYZ invents a cure for cancer and patents the invention. Read more

House Poor

House poor is used to describe a homeowner who spends too large a portion of his or her income on home ownership, leaving too little for discretionary spending. Typically, home ownership expenses, including mortgage, insurance, and taxes should comprise no more than 28% of a family's gross income. Read more

Hybrid Security

A hybrid security is a security that has characteristics of one or more asset classes. For example, a convertible bond is a hybrid security because it is a bond that allows the holder to exchange the bond for other securities (usually the issuer's stock). Read more

I Bond

An I Bond is one of two types of savings bonds sold by the U.S.Treasury (the other is the EE Bond). Read more

Icahn Lift

An Icahn Lift is a rise in stock price associated with an investment by famed activist shareholder Carl Icahn. Carl Icahn was a corporate "raider" in the 1980s and made millions buying and selling companies. Read more

Iceberg Order

An iceberg order is a large order that has been split into several smaller orders to conceal the "real" size of the order. Let's assume Company XYZ is a $50 billion pension fund. Read more

Idiosyncratic Risk

Also called unsystematic risk, idiosyncratic risk is price risk associated with a company's particular circumstances. For example, price changes can occur in Company XYZ stock for several reasons. Read more

Idle Funds

Idle funds are monies that are not invested. Money, like people, must work in order to earn money. Read more

Ifo Business Climate Survey

The Ifo Business Climate Survey is a monthly measure of German business activity. The Ifo Business Climate Survey incorporates over 5,000 monthly survey responses from a variety of companies. Read more

Illegal Dividend

An illegal dividend is a dividend declared in violation of a company's charter or state laws.  For example, let's say Company XYZ has $20,000,000 of retained earnings. Read more

Illiquid

Illiquid describes an asset or security that cannot be sold quickly due to a shortage of interested buyers or a lack of an established trading market.Illiquid assets cannot be easily converted into cash without potential for losing a significant percentage of their value. Read more

Immunization

Immunization is a dedicated-portfolio strategy used to manage a portfolio with the goal of making it worth a specific amount at a certain point, usually to fund a future liability. Immunization is one of two kinds of dedicated-portfolio strategies (cash-flow matching is the other). To understand the immunization strategy, first remember that although bond prices fall when interest rates rise, the rate at which the investor can reinvest his coupon payments increases (the opposite is also true: when rates fall, prices rise but the reinvestment rate falls). Read more

Impact Day

An impact day is the day on which a company's secondary offering begins trading. Let's say Company XYZ is a public company and would like to sell additional shares in order to raise money to build a new factory. Read more

Impact Fee

Real estate developers pay an impact fee to cities or other municipalities to offset the town's cost of building the infrastructure to support a private real estate development. Let's say Company XYZ wants to open a new store location at 123 Main Street. Read more

In Play

A stock is in play when it is widely believed to be a takeover target. Let's say Company XYZ has a ton of cash on its balance sheet, and activist investors have been pressuring it for nine months to sell. Read more

In Street Name

Securities are held in street name when the name of the broker, not the individual owner, is listed on the certificate.Almost all securities held in brokerage accounts are held in street name. Read more

Income Deposit Security (IDS)

An income deposit security (IDS), also known as an "enhanced income security," is an exchange-traded security composed of both an issuer's common shares and its subordinated notes. An IDS is a hybrid security that consists of both common stock and a bond rolled into one instrument. Read more

Income Funds

Income funds are mutual funds, ETFs or any other type of fund that seek to generate an income stream for shareholders by investing in securities that offer dividends or interest payments.The funds can hold bonds, preferred stock, common stock or even real estate investment trusts (REITs). Read more

Income Stock

An income stock is a stock in which a taxable payment is declared by a company's board of directors and is given to the shareholders from the current or retained earnings that occur, usually on a quarterly basis. For example, let's say that Company XYZ generated $40 million of cash this quarter. Read more

Income-Oriented ETF

An income-oriented ETF is an exchange-traded fund that pays frequent dividends or interest payments to investors in the ETF. An income-oriented ETF is made up of stocks that typically pay substantial monthly or quarterly dividends and, in some cases, bonds that make higher-than-average interest payments. Read more

Indenture Agreement

An indenture agreement is the formal contract between a bond issuer and the bondholders.It sets forth the details of all the terms and conditions of the bonds, such as the exact day of their maturity, the timing of the interest payments and how they are calculated, and the details of any special features. Read more

Index

An index is a statistical aggregate that measures change.In finance, they usually refer to measures of stock market performance or economic performance. Read more

Index Annuity

An index annuity is an annuity that pays a rate of return corresponding to a particular index, such as the S&P 500 Index. An annuity is a contract whereby an investor makes a lump-sum payment to an insurance company, bank or other financial institution that in return agrees to give the investor either a higher lump-sum payment in the future or a series of guaranteed payments. Read more

Index ETF

Like other ETFs, an index ETF is essentially a passive mutual fund -- similar to traditional index funds -- that allows investors to purchase a basket of securities in a single transaction.An index ETF mimics part or all of an external index. Read more

Index Fund

Index funds are mutual funds that are designed to track the performance of a particular index. When an investor purchases a share of an index fund, he or she is purchasing a share of a portfolio that contains the securities in an underlying index. Read more

Index Hugger

An index hugger is a type of mutual fund whose performance closely tracks a major stock index. An index hugger is also referred to as a closet tracker. Read more

Indexed Certificate of Deposit (CD)

An indexed certificate of deposit (sometimes called a market-linked, equity-linked, or market-indexed CD) is a type of CD that’s based on either a market index, a basket of equities, or a combination of the two.Indexed CDs usually have longer terms than traditional CDs. Read more

Indexing

Indexing is a passive investment strategy that seeks to mimic or exceed the returns of a designated market index or other proxy. The strategy requires an investor to first choose an index to mimic. Read more

Indicated Yield

Indicated yield is the dividend yield on a stock if the most recent dividend is annualized. The formula for indicated yield is:  Indicated Yield = (Most Recent Dividend x Number of Dividend Payments Per year) / Stock Price For example, assume a stock's most recent quarterly dividend was $2 and the stock currently trades at $100. Read more

Inflation Risk

Also known as purchasing power risk, discover how inflation risk is calculated and how securities adjust for it.  Read more

Inflation-Adjusted Return

Inflation eats away at the value of every stream of cash flows, including salaries, pension payments and coupon payments.In many cases, the real interest rates on savings accounts are negative. Read more

Inflation-Indexed Security

Inflation-indexed securities are a form of savings that protects the principal and interest from the erosion of inflation. One of the most significant economic threats to anyone living on a fixed income or a fixed stock of assets is the eroding effects of inflation.  For example, with an inflation rate of 3% per year, a fixed income investment earning 5% per year will yield only 2% earnings in real terms.  Retirees receiving Social Security payments are exposed to inflation on their savings or pensions, even when those payments are adjusted for inflation. Read more

Ingot

The Federal Reserve Bank of New York provides, among other things, gold storage for foreign governments and central banks.This gold is in the form of bars, which allows the bank to weigh it, stack it, and move it easily. Read more

Initial Margin

An initial margin, or initial margin requirement, is the amount an investor must pay in cash for securities before the broker will lend money to that investor to buy more securities.This borrowing gives the investor more purchasing power through leverage, and provides the opportunity to magnify returns (or deepen losses) depending on if the security increases (or decreases) in value. Read more

Initial Public Offering (IPO)

An initial public offering (IPO) refers to the first time a company publicly sells shares of its stock on the open market.It is also known as "going public." The proceeds from the sale of stock shares in an initial public offering provide the issuing company with capital. Read more

Insider Information

Insider information refers to confidential information about a company that has not been publicly disclosed. Given their position, managers and executives within a company are privy to information about a company's operations that is not available to the investing public. Read more

Insider Trading

Insider trading refers to the trading of securities by corporate insiders such as managers or executives.Insider trading can be legal or illegal depending on if the information used to base the trade is public.  Individuals who engage in illegal insider trading attempt to benefit from trades based on information about a company not yet made public. Read more

Institutional Investor

An institutional investor is an organization, rather than an individual, that invests on behalf of the organization's members.  Institutional investors are the biggest component of the so-called "smart money" group.There are generally six types of institutional investors: pension funds, endowment funds, insurance companies, commercial banks, mutual funds and hedge funds. Read more

Institutional Ownership

Institutional ownership refers to the ownership stake in a company that is held by large financial organizations, pension funds, or endowments.Institutions generally purchase large blocks of a company's outstanding shares and can exert considerable influence upon its management. Read more

Institutional Shares

Also called Y shares, institutional shares are mutual fund shares that are available for sale only to institutions. Let's say that the XYZ Mutual Fund invests in a variety of defensive stocks. Read more

Interest Only Strips (IO Strips)

Interest Only Strips (IO Strips) are securities with cash flows based entirely on the monthly payments received from a mortgage pool. Mortgages are paid in two parts, principal and interest. Read more

Interest Rate Ceiling

The term interest rate ceiling typically refers to the maximum lifetime interest rate charged on an adjustable rate mortgage according to the terms of a mortgage contract. A potential homebuyer contracts with a mortgage lender to secure a loan. Read more

Interest Rate Risk

Interest rate risk is the chance that an unexpected change in interest rates will negatively affect the value of an investment. Let's assume you purchase a bond from Company XYZ. Read more

Interest-Only ARM

An interest-only adjustable-rate mortgage (interest-only ARM) is a mortgage in which the borrower only pays the interest on the loan for a set period. There are two parts to an interest-only ARM that differentiate it from traditional mortgages. Read more

Interest-Only Mortgage

An interest-only mortgage is a mortgage in which the borrower only pays the interest on the loan for a set period. In general, an interest-only mortgage means the borrower only pays the interest on the loan for a set period. Read more

Internal Rate of Return | IRR

Internal rate of return (IRR) is the discount rate that makes the net present value of all cash flows (both positive and negative) equal to zero for a specific project or investment.  IRR may also be referred to as the discounted cash flow rate of return (DCFROR).  What Does IRR Tell You About a Project?The internal rate of return is used to evaluate projects or investments. Read more

International Bond

International bonds are debt securities issued by foreign companies or governments and sold domestically. Foreign companies or governments may issue bonds that are securitized and sold to domestic investors in the form of international bonds. Read more

International Bond Funds

International bond funds invest in bonds issued by foreign governments or foreign companies in a variety of markets, industries, and currencies.They allow investors to have an easy way to gain a diverse exposure to foreign securities. Read more

International Fund

International fund usually refers to an investment or mutual fund composed of international bonds and foreign company stocks. A number of the largest families of mutual funds include international funds within their portfolio of products and services to investors.  International funds offer a diverse amount of asset types, including foreign government and corporate bonds, which can act as hedges against currency exchange rate changes.  These international funds also target specific market segments with growth potential. Read more

International Securities Identification Number (ISIN)

An international securities identification number (ISIN) is a universally accepted identifier exclusive to a particular issue of a security. Every legitimate market-traded security issued worldwide is identified with its own unique ISIN. Read more

Intraday

Intraday refers to price movements of a given security over the course of one day of trading.  It is generally used to describe the high and low price of a stock or option during a given trading day or session. The price of any given security fluctuates over the course of a day. Read more

Intrinsic Value

Intrinsic value has two primary connotations in the finance world.In the options-trading world, the term refers to the difference between the option's strike price and the market value of the underlying security. Read more

Inverted Yield Curve

An inverted yield curve, also called a negative yield curve, is a yield curve indicating that short-term yields are higher than long-term yields. Also known as the term structure of interest rates, the yield curve is a graph that plots the yields of similar-quality bonds against their maturities, ranging from shortest to longest. Read more

Investing

Investing is the strategic purchase or sale of assets in order to produce income or capital gains. Investing can involve the purchase or sale of stocks, bonds, mutual funds, interest-bearing accounts, land, derivatives, real estate, artwork, old comic books, jewelry or anything else an investor believes will produce income (usually in the form of interest or rents) or become worth more. Read more

Investment

An investment is an asset that is intended to produce income or capital gains.  Investing is the act of using currently-held money to buy assets in the hopes of appreciation.Investing is a way to build wealth in the future. Read more

Investment Advisor

An investment advisor makes investment recommendations to clients and can also be known as a financial advisor. A investment advisor is similar to a financial planner, investment manager, investment consultant, or financial advisor. Read more

Investment Bank

An investment bank is a financial intermediary that specializes primarily in selling securities and underwriting the issuance of new equity shares to raise capital funds.This is different from a commercial bank, which specializes in deposits and commercial loans. Read more

Investment Banker

The role of an investment banker is to serve as a middle-man between prospective investors and companies that intend to raise capital through the issuance of new stock.Investment bankers are often employed by and represent investment banks. Read more

Investment Banking

Investment banking is a category of financial services that specializes primarily in selling securities and underwriting the issuance of new equity shares to help companies raise capital.Investment banking is different from commercial banking, which specializes in deposits and commercial loans. Read more

Investment Club

Joining an investment club is an excellent way to learn more about investing, and it is not unusual for investment clubs to experience outstanding returns.It is important that members of investment clubs have a long-term outlook, and many clubs have rules or penalties regarding early withdrawals. Read more

Investment Consultant

An investment consultant is an educated investment professional who helps people and businesses set and meet long-term financial goals. An investment consultant is similar to an investment advisor, financial planner, investment manager, or financial advisor. Read more

Investment Grade

Investment grade is a quality designation ascribed by rating agencies to bonds that have little risk of default. Municipal and corporate bonds are rated by credit agencies, such as Standard & Poor's and Moody's, based on the creditworthiness of the issuer. Read more

Investment Management

Investment management has two general definitions, one relating to advisory services and the other relating to corporate finance.In the first instance, a financial advisor or financial services company provides investment management by coordinating and overseeing a client's financial portfolio -- e.g., investments, budgets, accounts, insurance and taxes.  In corporate finance, investment management is the process of ensuring that a company's tangible and intangible assets are maintained, accounted for, and put to their highest and best use. Read more

Investment Manager

An investment manager is an educated investment professional who helps people and businesses set and meet long-term financial goals. A investment manager is similar to an investment advisor, financial planner, investment consultant, or financial advisor. Read more

Investment Property

An investment property is a real estate investment purchased with the intent of earning a return on the money used to purchase the property.The return on the investment can be earned through rental income on the property, a gain on the sale of the property, or both. Read more

Investment Real Estate

Investment real estate refers to any residential structure owned solely for the purpose of generating investment returns, either through rental income or through market value appreciation. Often, an individual may own numerous residential properties and live in only one of them. Read more

Investor

An investor is any person or entity, like a firm or mutual fund, who commits capital with the expectation of receiving financial returns.Individuals use investments in order to increase their money and/or provide an income in the future. Read more

Investor Relations

Investor relations (IR) refers to the function within a public company that is responsible for managing and communicating information to the public pertaining to the company's operations, managerial organization, and financial standing. Public companies manage their investor relations function either through an in-house IR department or by outsourcing to an external investor relations firm that specializes in these activities.  The IR team is responsible for maintaining the company’s most up-to-date information with regard to its products and services. Read more

IPO Lockup

IPO Lockup refers to the period of time after a company initially goes public during which company insiders are not allowed to sell company shares. In an initial public offering (IPO) often receive stock or can exercise options and warrants that have been given during the non-public phase of the company's growth. Read more

iShares

Created by Barclays Global Investors, iShares are a trademarked brand of exchange-traded funds (ETFs). Exchange-traded funds (ETFs) are securities that closely resemble index funds but can be bought and sold during the day just like common stocks. Read more

Issued Shares

Issued shares include all shares that are currently owned by stockholders, company officials, and investors in the public domain.Issued shares do not include shares repurchased by a company. Read more

Issuer

Issuer refers to a legal entity -- i.e., government, corporation, or investment trust -- that develops, registers and sells securities to the investing public in order to finance its operations. The most commonly issued securities are bonds, notes, commercial paper, common stock and preferred stock. Read more

JAJO

JAJO stands for January, April, July, and October -- the four months in which companies are likely to declare dividends.A dividend declaration is an announcement of an upcoming dividend payment, usually via press release a few weeks before the dividend is paid. Read more

January Barometer

The January barometer posits that gains in the S&P 500 index for the month of January predict market gains for the entire year. The January barometer is based on the view held by many in the stock market that the performance of the S&P 500 index between the first and 31st of January reliably forecasts the stock market's performance for that year. Read more

January Effect

The January Effect refers to a pattern exhibited by stocks -- particularly small-cap stocks -- in which they've shown a tendency to rise during the last several trading days in December and then continue to rally throughout the first week of January. Several theories have been put forth to explain why the January Effect occurs. Read more

Japan Credit Rating Agency (JCR)

The Japan Credit Rating Agency (JCR) is a credit rating agency in Japan. Similar to Moody's or Standard & Poor's in the United States, JCR rates debt securities and conducts market, industry and economic research. Read more

Jekyll and Hyde

Jekyll and Hyde is a term to describe volatile corporate earnings. Let's say Company XYZ reports a profit in the first quarter of 5 cents per share. Read more

Jensen's Measure

Jensen's measure is a statistical measurement of the portion of a security's or portfolio's return that is not explained by the market or the security's relationship to the market but rather by the skill of the investor or portfolio manager.It is also called alpha. Read more

Jitney

A jitney is an illegal scheme in which two brokers trade a stock back and forth in order to increase the trading volume and earn commissions.In some circles, a jitney is also scheme in which a broker performs trades for another broker who does not have access to a certain exchange. Read more

Job Lot

A job lot is a commodities futures contract where the underlying commodity is denominated in smaller amounts than a regular futures contract. Commodity futures contracts are agreements between a buyer and a seller to deliver a specific amount of a commodity (for example, precious metals, oil, corn, etc.) on a future date at a predetermined price. Read more

Jobber

Jobber is a slang term for an agent in business, particularly trading. In the broadest sense of the word, a jobber is an individual who makes a living from commissions he/she earns as an agent for transactions between two parties. Read more

Johannesburg Interbank Agreed Rate (JIBAR)

JIBAR is a market indicator and a benchmark for various interest rates in South Africa. JIBAR calculates the average one-month, three-month, six-month, and 12-month rates. Read more

Joint Bond

A joint bond is a bond that is backed by an issuer and one or more additional guarantors. A company that wants to raise capital using bonds may choose to issue joint bonds if it generates low or fluctuating levels of revenue. Read more

Joint Owned Property

Joint owned property is a real estate asset with two or more owners. Given the general magnitude of its cost, real estate is often owned in the name of at least two individuals. Read more

Joint Probability

Joint probability is a type of measure found by calculating the probability of two events happening together.In other words, it’s the probability of event X happening at the same time as event Y, like an intersection of two events. Read more

Joint Stock Company

A joint stock company is a company whose stockholders have the same privileges and responsibilities as an unlimited partnership.  A joint stock company issues shares similar to a public company that trades on a registered exchange.Joint stock holders may buy or sell these shares freely in the market. Read more

Joint Supply

Joint supply is the simultaneous output of two or more products from a single process or material. Products that are generated in joint supply cannot be produced independently from one another. Read more

Joint Tenancy

Joint tenancy is an arrangement in which two or more individuals occupy a property.Participating tenants each share equally in the rights and responsibilities related to the property. Read more

Joint Venture (JV)

A joint venture (JV) is a project or enterprise in which multiple companies or individuals invest.Participants usually share equally in the project's direction and profits. Read more

Jumbo Pool

A jumbo pool is a security backed by mortgages from several issuers. To understand how jumbo pools work, it's important to understand how they're created. Read more

Junior Issue

A junior issue is an issuance of securities that are subordinate to other securities issued by a company.Junior issues can be debt or equity. Read more

Junk Bond

A junk bond is a fixed-income security that is rated below investment grade by one or more of the major bond ratings agencies.  A junk bond works the same as most other bonds: An investor purchases a bond from a bond issuer with the assumption that the money will be paid back when the bond reaches its maturity date.The difference between an "investment grade" bond and a "junk" bond is that the junk bond issuer may not be able to repay the original principal. Read more

Junk Fees

Junk fees appear in mortgage closing documents and usually benefit the loan originator or the lender. Let's say John and Jane Doe buy a house and receive the Truth in Lending Act statement at closing. Read more

Just Compensation

Just compensation is the fair market value that a federal or local government must pay to a property owner in order to seize that private property for public use. Let's say John Doe lives in a house on one acre next to Highway 47. Read more

Kangaroo Bond

Also known as a Matilda bond, a kangaroo bond is a bond issue in the Australian market by a non-Australian company. Let's say Company XYZ is headquartered in San Diego. Read more

Key Money

Key money is money paid to a landlord or property owner in order to reserve a spot as a tenant on the property. Let's say Company XYZ is a restaurant firm that wants to open a location in the new ABC outdoor mall. Read more

Key Rate Duration

Key rate duration is not the same as effective duration.Effective duration is an estimate of a security's sensitivity to a parallel shift in interest rates, meaning that it assumes that interest rates change by the same degree for, say, one-year bonds, five-year bonds, 10-year bonds, and 30-year bonds. Read more

Key Ratio

A key ratio is any financial ratio that is especially important, prevalent, or necessary in analyzing a company's performance in relation to other companies, the industry or the market. Key ratios calculate various pieces of financial data in relation to one another. Read more

Key Reversal

A key reversal is a one-day trading pattern that may signal the reversal of a trend.Other frequently-used names for key reversal include "one-day reversal" and "reversal day." Depending on which way the stock is trending, a key reversal day occurs when: In an uptrend -- prices hit a new high and then close near the previous day's lows. Read more

Kiasu

Kiasu is a Chinese word that roughly translates to "fear of losing out." Kiasu can be found in many aspects of daily life.Some people parent their children with a kiasu philosophy, for example, pushing them to excel and investigating the best educational options for their kids. Read more

Kicker

In the finance world, a kicker is a feature that makes a security more attractive. Often, kickers are equity kickers, which are the right but not the obligation to buy shares of the issuer of a bond. Read more

Kicking the Tires

Kicking the tires refers to researching multiple aspects of a prospective investment in order to become as familiar as possible with the potential risks and rewards. Derived from the practice of outwardly examining the quality of a car by kicking the front tires, kicking the tires of a potential investment refers to learning as much as possible about it. Read more

Kiddie Tax

Kiddie tax is the colloquial term for certain taxes owed on interest, dividends or other investment income earned by children under 17 years old. Let's say John Doe has a son, Jake Doe, who is 16 years old. Read more

Kill

In the trading world, kill refers to half of a fill or kill (FOK) order, which is a client's instruction to his or her broker to either fill an order immediately and completely or cancel the entire order.   Let's assume you want to purchase 1 million shares of Company XYZ at $20 per share. Read more

Korea Exchange (KRX)

The Korea Exchange (KRX) is the only securities exchange in South Korea.The KRX is headquartered in the city of Busan. Read more

Labor-Sponsored Venture Capital Corporations (LSVCC)

Labor-sponsored venture capital corporations (LSVCCs) are Canadian venture capital companies established by labor unions. Labor-sponsored venture capital corporations (LSVCCs) issue labor-sponsored investment funds (LSIFs). Read more

Laddering

Laddering is a bond investment strategy whereby an investor staggers the maturity of  the bonds in his/her portfolio so that the bond proceeds can be reinvested at regular intervals. For example, say you have $75,000 to invest. Read more

Laggard

Laggard describes a stock that fails to perform as well as the overall market or a group of peers. In a broad sense, the term laggard connotes resistance to progress and a persistent pattern of falling behind. Read more

Lanchester Strategy

The Lanchester strategy is a marketing strategy named after Frederick W.Lanchester, who wrote about World War II war strategies. Read more

Land Contract

A land contract is a contract in which the buyer of a property agrees to pay the seller in scheduled installments. A land contract allows the buyer of a property to use it while the seller continues to retain the deed. Read more

Land Flip

A land flip is an act of fraud whereby a group of people buy a piece of land and then profits by continually reselling to each other for more than its actual value. In a land flip, several buyers purchase land for a given price. Read more

Land Lease Option

A land lease option is a section of a lease contract that allows a renter to lengthen his or her use of a piece of land beyond the term specified in the contract. An individual who intends to rent a piece of property may ask the owner to include a land lease option as part of the lease contract. Read more

Land Rehabilitation

Land rehabilitation is the practice of returning a piece of land to the natural state it was in prior to human interference or damage from natural disasters. Land rehabilitation reclaims the natural state of a piece of land by removing buildings and other artificial structures, cleaning up and disposing of nonessential material and toxic chemicals and reintroducing vegetation once the soil has been nutrient fortified. Read more

Land Trust

A land trust is a trust comprised exclusively of real estate assets. A land trust holds one or more properties for the benefit of a designated group or organization (beneficiary). Read more

Land Value

Land value is the overall value of a piece of property. The value of a piece of property includes a number of variables including location, the distance of from commercial and health amenities (for example, shopping centers, hospitals and restaurants), the quality of the school district and enhancements to the property itself. Read more

Landlocked

Landlocked is a term describing a piece of property that has no direct access. Landlocked property is separated from major access ways including streets, canals and public roads. Read more

Landlord

A landlord is an individual who owns real estate that he or she leases to renters. Landlords may own either residential or commercial properties. Read more

Landominium

A landominium is a housing community in which residents own the housing units as well as the land on which they are built. Typically developed as retirement communities, landominiums are usually multiple single-family homes surrounded by a plethora of amenities, including gardens, parks, golf courses and recreation facilities. Read more

Large Cap

Generally speaking, large cap companies have at least $8 billion of market capitalization. Market capitalization refers to the value of a company's outstanding shares. Read more

Large Trader

A large trader is a person or entity that trades more than 2 million shares or $20 million worth of shares in a single day, or 20 million shares or $200 million worth of shares in a single month. Let's say Company XYZ is a pension fund that holds $1 billion of assets for a teachers union. Read more

Large-Value Stock

A large-value stock is a stock whose intrinsic value is greater than its market value. Let's say John Doe is analyzing Company XYZ. Read more

Last-Sale Reporting

Last-sale reporting refers to the submission of trade details in the Nasdaq market. When a broker executes an order for a stock traded on the Nasdaq exchange, he or she must report it to Nasdaq no more than 90 seconds following its completion. Read more

Late-Day Trading

Late-day trading is the practice of illicitly recording trades executed after hours as having occurred prior to the end of market trading. A mutual fund's net asset value (NAV) reflects the value recorded at the close of a given trading day (4 p.m. Read more

Latin Baseball Futures

Latin baseball futures are investments in Dominican, Cuban or other Latin American baseball coaches or academies that train up-and-coming baseball players who could one day obtain multimillion-dollar contracts in the sport. Let's say a group of American baseball fans learns of a talented boy in the Dominican Republic. Read more

Layered Fees

Layered fees are management fees, typically in investment products, that investors pay to financial managers for the same group of assets. Many mutual funds, annuities and investment advisors charge layered fees. Read more

Lead Bank

In the securities industry a lead bank is a company, usually an investment bank, that helps companies introduce their new securities into the market by leading a syndicate of investment banks to issue the securities.  When a company decides it wants to issue stock, bonds, or other publicly traded securities, it hires an underwriter to manage what is a long and sometimes complicated process. Read more

Lead Underwriter

In the securities industry a lead underwriter is a company, usually an investment bank, that helps companies introduce their new securities into the market by leading a syndicate of investment banks to issue the securities. When a company decides it wants to issue stock, bonds, or other publicly traded securities, it hires an underwriter to manage what is a long and sometimes complicated process. Read more

Lease Payments

There are many kinds of leases and thus many ways to calculate and record lease payments.Some allow the lessee to buy the asset at the end of the lease term, some do not, for example. Read more

Leasehold Improvement

A leasehold improvement is a change to a leased asset. For example, let's say Company XYZ is a restaurant company. Read more

Left-Hand Side

The left-hand side of a stock quote is the bid. A bid-ask is a quote that reflects the security’s bid price and its ask price. Read more

Lemming

A lemming is an investor who does whatever the crowd does. A lemming is a short, furry rodent that is noted for its tendency to migrate en masse, regardless of the danger of the location or the stupidity of the move. Read more

Level I Quote

A level I quote is the current best bid and offer for a security that trades on the Nasdaq or over-the-counter markets. Level I quotes do not disclose which market makers are bidding for or offering the security, whether there are limit orders on the security, or the size of potential trades at a particular price. Read more

Level II Quote

A level II quote is a set of real-time trading information, including the best bid/ask prices from market makers, for a security that trades on the Nasdaq or over the counter (OTC) markets. A level II quote for Company XYZ stock would include the real-time bid price, ask price, quote size, price of the last trade, size of the last trade, high price for the day, and low price for the day. Read more

Level III Quote

A level III quote is pricing information made available to registered Nasdaq market makers. A level III quote for Company XYZ stock would include the real-time bid price, ask price, quote size, price of the last trade, size of the last trade, high price for the day and low price for the day. Read more

Level-Load

A level-load is a periodic fee (usually annual) paid by the investor during the time he or she owns the investment.  Level-load mutual funds are often referred to as "C Shares." Level-loads are expressed as a percentage, and they must be disclosed to potential investors in the fund’s prospectus.  Let’s look at an example: Assume you invested $10,000 in the XYZ Company mutual fund, which has a 4% annual level-load.  In the first year the investment grows to $12,000, but you are not ready to sell.  At the end of year one, you pay $480 ($12,000 x .04) to the fund company, leaving you with $11,520 in your account.You the fund for another year and it grows to $14,000.  At the end of year two, you owe 4% of $14,000 ($560) leaving you with $13,440.  This payment structure continues for as long as you own shares in the fund.  The rate of the load is constant (level), but the payment amounts grow as the investment increases in value. Read more

Liability Matching

Liability matching is an investing strategy for investors who need to fund a series of future liabilities. Buy-and-hold and indexing strategies are about generating steady rates of return in a portfolio. Read more

Like-Kind Property

Like-kind property is property that, for tax purposes, is similar in nature to property being sold.Like-kind property is a key component of Section 1031 exchanges, which are real estate transactions in which the buyer and seller effectively swap properties in order to avoid paying capital gains tax on the sale. Read more

Limit Order

Limit orders allow you to set a price at which you want to buy or sell a stock. Unlike market orders, your purchase or sale will go though only when the price reaches the level that you specify. For example, you want to buy ABC Inc. Read more

Limited Liability

Limited liability is limited exposure to financial risk by investors of a company or a partnership.This exposure is usually limited to the individual's investment.  In certain cases where an investor invests his money with a company or partnership, this investor will not be liable for any financial risk beyond what he has invested in the business entity. Read more

Limited Risk

In finance, limited risk describes any investing strategy intended to protect an investment or portfolio against loss.Limiting risk usually involves securities that move in the opposite direction than the asset being protected. Read more

Liquid

Liquid refers to the ability to transfer hard assets to cash or the state of being in a position where one has sufficient cash on hand to accommodate any and all necessary financial obligations. Market liquidity is a financial phrase that describes the possibility of converting an asset to cash within a short period of time with minimal transaction costs while not affecting the price integrity of the asset itself. Read more

Liquid Certificate of Deposit

A liquid CD allows you to withdraw money without penalty before the CD matures.These financial instruments are sometimes known as risk-free or no-penalty CDs.  Traditional CDs typically cannot be cashed out before a certain date, known to investors as the fixed maturity date. Read more

Liquid Market

Liquid market refers to any market in which there are many buyers and sellers present and in which transactions can take place with relative ease and low costs. A liquid market refers to any market which is always available and liquid, or clear and free flowing. Read more

Liquidation Value

Liquidation value refers to the value of a project or investment if it were to be sold or abandoned immediately. Also called abandonment value, the liquidation value of a project or investment is the immediate value in cash that would be generated from liquidating a project or selling an investment.  A project's liquidation value can be an important consideration for a company's capital budget. Read more

Liquidity

Liquidity is the ability to sell an investment at or near its value in a relatively short period of time. Let’s say you take an old painting from the attic to the local filming of Antiques Roadshow. Read more

Listed Security

A listed security is a stock, bond, derivative, ETF, mutual fund, or other security that trades on a national exchange such as the New York Stock exchange or the Nasdaq. The Nasdaq, which stands for the National Association of Securities Dealers Automated Quotation system, is a computerized system for stock trading that does not have a physical trading floor. Read more

Load

A load is a fee paid to purchase or sell a specific investment.It is expressed as a percentage of the amount invested. Read more

Load Fund

A load fund is a mutual fund that carries a fee to purchase or sell its shares.This load is expressed as a percentage of the amount invested. Read more

Locked Market

A locked market, also called a daily trading limit, is the maximum gain or loss allowed on a derivative or currency in one trading day. Let's say a forward contract on Company XYZ stock has a trading limit of X. Read more

London Spot Fix

The London Spot Fix occurs when the members of the London Gold Pool (five banks) have a conference call and set the price per ounce for several metals (gold, platinum, silver and palladium). To perform a fix, the members essentially determine where supply meets demand for all of the buy and sell orders that the banks have on hand. Read more

Long Bond

A long bond is a Treasury bond that is issued for an extended period of time (twenty to thirty years).  The investing public can purchase long bonds from brokers.The desire to obtain these types of long bonds originates from the needs of pension funds and others to hold low-risk securities as a portion of their portfolios. Read more

Long-Term Capital Gain or Loss

A long-term capital gain or loss is the profit or loss on the sale of an investment that has been held for longer than a certain IRS-defined period of time.  Let’s assume you purchase 100 shares of Company XYZ for $1 per share. Read more

Losing Your Shirt

Losing your shirt refers to an investment move resulting in a total loss of all financial assets. Meant to imply a degree of loss serious enough to warrant selling the shirt off your back, "losing your shirt" idiomatically expresses the complete loss of financial assets as a result of an unwise investment. Read more

Lot

A lot is a securities trade for a “standard” number of trading units.In stock trading, a lot is 100 shares (also called a "round lot"). Read more

Macaulay Duration

The Macaulay duration (named after Frederick Macaulay, an economist who developed the concept in 1938) is a measure of a bond's sensitivity to interest rate changes.Technically, duration is the weighed average number of years the investor must hold a bond until the present value of the bond’s cash flows equals the amount paid for the bond. Read more

Main Home

In the tax world, a main home is where a taxpayer has lived for most of the tax year or is the only home the taxpayer owns. For example, let's assume John Doe buys a house in Austin, Texas, for $150,000. Read more

Main Street

Main Street refers collectively to members of the general population who invest in the capital markets. Individuals and businesses that do not work for financial and investment companies are considered part of Main Street. Read more

Maintenance Bond

A maintenance bond is a surety bond for construction projects. For example, let's say Company XYZ is a contracting company hired to build the new ABC office building. Read more

Maintenance Margin

A maintenance margin is a limit after which a brokerage firm can make a margin call. A margin account is a loan from a brokerage firm. Read more

Major Pairs

Major pairs are the four pairs of currencies that are most commonly traded in the foreign exchange markets. The major pairs are Euro/U.S. Read more

Majority Shareholder

A majority shareholder refers to a shareholder who owns over 50% of stock in a company. A single shareholder who maintains ownership of more than 50% of a company's outstanding stock qualifies as a majority shareholder. Read more

Make a Market

Making a market is a process whereby a person or brokerage house that is always prepared to buy and sell securities in order to provide liquidity to the markets. In order to make a market, a brokerage firm must be willing to hold a disproportionately large amount of a given security so that it can satisfy a high volume of market orders in a matter of seconds at competitive prices. Read more

Make Whole Call (Provision)

A make-whole call provision is a call provision attached to a bond, whereby the borrower must make a payment to the lender in an amount equal to the net present value of the coupon payments that the lender will forgo if the borrower pays the bonds off early. Let's say John Doe buys a Company XYZ bond that matures in 20 years but has a make-whole call provision. Read more

Making Home Affordable (MHA)

Making Home Affordable is a government program designed to help homeowners avoid foreclosure. The Making Home Affordable program is actually a collection of several programs: Home Affordable Modification Program (HAMP) Principal Reduction Alternative SM (PRA) Second Lien Modification Program (2MP) FHA Home Affordable Modification Program (FHA-HAMP) USDA’s Special Loan Servicing Veterans Affairs Home Affordable Modification (VA-HAMP) Home Affordable Foreclosure Alternatives Program (HAFA) Second Lien Modification Program for Federal Housing Administration Loans (FHA-2LP) Home Affordable Refinance Program (HARP) FHA Refinance for Borrowers with Negative Equity (FHA Short Refinance) Home Affordable Unemployment Program (UP) Hardest Hit Fund (HHF) These programs have a variety of qualification guidelines and requirements, but in general they seek to lower homeowners' monthly loan payments, lower the interest rate on homeowners' mortgages, and help homeowners adjust the principal balances on their mortgages if necessary. Read more

Managed Account

A managed account is an investment account in which a financial advisor or other kind of money manager is responsible for managing in the best interests of a client or beneficiary. Let's say John Doe opens a managed account with Jane Smith, who is a financial advisor. Read more

Managed Distribution Policy

A managed distribution policy is an issuer's commitment to make a fixed periodic dividend payment.This means investors can buy shares of a security with the confidence that they will receive a reliable distribution instead of a constantly changing payment. Read more

Managed Futures Account

A managed futures account is an alternative asset created and maintained by a commodity trading advisor (CTA).The account invests in commodity futures contracts.  When you buy a managed futures account, in essence you're hiring an expert to buy, sell and manage futures contracts on your behalf.  Managed futures accounts tend to be uncorrelated to either the stock market or bond market. Read more

Managed Futures Fund

A managed futures fund is an alternative asset created and maintained by a commodity trading advisor (CTA).The fund invests in commodity futures contracts.  When you buy a managed futures fund, in essence you're hiring an expert to buy, sell and manage futures contracts on your behalf.  Managed futures funds tend to be uncorrelated to either the stock market or bond market. Read more

Management Buyout (MBO)

A management buyout (MBO) occurs when the current management of a company acquires a controlling interest or the entire interest in a company from existing shareholders. For example, Company XYZ is a publicly traded company where management controls 30% the company's stock and the remaining 70% is stock floated to the public. Read more

Mandatory Convertible

Mandatory Convertibles are hybrid securities (bonds linked to equities) that automatically convert to equity (stock) at a pre-determined date.Common names are PERCS (Preferred Equity Redemption Cumulative Stock) and DECS (Debt Exchangeable for Common Stock or Dividend Enhanced Convertible Securities). Read more

Margin Account

A margin account is a brokerage account that allows investors to borrow money (leverage) from the broker in order to purchase securities. Let's assume you have $2,500 and Company XYZ trades at $5 a share. Read more

Margin Call

A margin call is a brokerage firm's demand that a margin-account client deposit securities or cash into their account in order to bring the account balance up to the minimum maintenance margin requirement. Let's assume you want to buy 1,000 shares of Company XYZ for $5 per share but don't have the $5,000 necessary to do so -- you only have $2,500. Read more

Margin Debt

Margin debt is debt obtained from buying on margin. Buying on margin refers to borrowing from a brokerage firm (through a margin account) to make an investment. Read more

Margin of Safety

Margin of safety is the amount by which a company's shares are trading below their intrinsic value. The formula for margin of safety is: Margin of Safety = 1 - Stock's Current Price / Stock's Intrinsic Value Let's look at an example. Read more

Markdown

Markdown refers to the negative spread between the price a broker charges a client for a security and the highest price at which that security is sold between brokers.It is the opposite of markup. Read more

Market Average

A market average is the general level of prices in a stock market as expressed by a basket of frequently traded stocks. A market average, best exemplified by the Dow Jones Industrial Average (DJIA) and the S&P 500 Index, is based on a basket of stocks, not all the stocks that trade on any given day. Read more

Market Breadth

Market breadth is a ratio that compares the total number of rising stocks to the total number of falling stocks. Market breadth, or stock-market breadth, is used in technical analysis to gauge the general direction of the stock market based on all traded stocks. Read more

Market Capitalization

Market capitalization refers to the value of a company's outstanding shares.  The formula for market capitalization is: Market Capitalization = Current Stock Price x Shares Outstanding It is important to note that market capitalization (sometimes called "market cap") is not the same as equity value, nor is it equal to a company's debt plus its shareholders' equity (although that is sometimes referred to as simply the company's capitalization).Let's assume Company XYZ has 10,000,000 shares outstanding and the current share price is $9. Read more

Market Conversion Price

The market conversion price is the price at which a convertible security is exchanged for common stock. Convertible securities (for example, convertible bonds and convertible preferred stocks) allow holders to exchange them for shares of the issuing company's common stock. Read more

Market Correction

A market correction refers to a price decline of at least 10% of any security or market index following a temporary upswing in market prices. The stock market's value is always rising and falling. Read more

Market Depth

Market depth refers to a security's ability to tolerate the execution of large market orders without having a large effect on the security's price. Also called depth of market, market depth measures the number of units that must be traded before a stock or bond's price moves. Read more

Market Discount

Market discount is the loss in market value sustained by a bond following an increase in interest rates. In the secondary bond market, bond prices move inversely to interest rates. Read more

Market Efficiency

Market efficiency is the degree to which stock prices reflect all available information. In general, there are two kinds of market efficiency. Read more

Market Exposure

Market exposure is the degree to which a portfolio invests in a particular stock or market sector. An investment portfolio is made up of several types of assets (for example, stocks, bonds, real estate, commodities, etc.) consistent with the financial goals of the account holder. Read more

Market Identifier Code (MIC)

A market identifier code (MIC) is a four-letter or digit abbreviation that represents a specific stock market. MICs always begins with the letter "X," followed by a combination of three additional letters and/or numbers. Read more

Market If Touched (MIT)

Market if touched (MIT) is an order that will be executed only if a security reaches (touches) a specific price. Investors place an MIT order with a broker if they wish to delay buying or selling a security until its price becomes more advantageous. Read more

Market Index

A market index is a metric that tracks the performance of a group of stocks.Some indices are designed to indicate the overall performance of the market, while others follow a particular sector. Read more

Market Index Target-Term Security (MITTS)

A market index target-term security (MITTS) is a debt security that offers potential upside based on gains in a market index while limiting downside losses by guaranteeing the initial investment will be returned if the index declines. First conceived by Merrill Lynch, a MITTS is a debt obligation that exposes an investor to upside fluctuations in a stock market index such as the Dow Jones Industrial Average (DJIA) or S&P 500 Index. Read more

Market Indicators

Market indicators are quantitative factors that predict the future behavior of market indices. Market indicators are used in technical analysis to forecast market trends. Read more

Market Letter

A market letter is a publication that offers information and advice about specific market sectors and types of securities. Market letters offer advice to investors interested in investing in a particular market industry or type of security. Read more

Market Maker

A market maker is a person or brokerage house that is always prepared to buy and sell securities in order to provide liquidity to the markets. By holding a disproportionately large number of a given security, a market maker is able to satisfy a high volume of market orders in a matter of seconds at competitive prices. Read more

Market Maker Spread

A market maker spread is the difference between the bid and ask prices offered by a market maker. The market maker spread is calculated by subtracting a market maker's ask price (price at which he/she is willing to sell a security) from the bid price (price at which he/she is willing to purchase a security). Read more

Market Maven

A market maven is a person who keeps abreast of market news and is a successful investor. A market maven is someone who conscientiously absorbs information and news about the financial markets on a continuous basis. Read more

Market Momentum

Market momentum is the perceived strength of a positive or negative change in market prices. Market momentum is the ability of a market to sustain an increase or decrease in prices. Read more

Market Neutral

Market neutral refers to an investing strategy that seeks to generate similar returns regardless of the market climate. An investor or fund manager takes a market neutral position by obtaining both long and short positions in carefully chosen securities. Read more

Market Neutral Fund

A market neutral fund is a mutual fund whose goal is consistent returns in any market climate. A market neutral fund namely generally holds both short and long share positions in specific stocks and it holds stocks that the fund managers view optimistically as well as pessimistically. Read more

Market On Close (MOC)

Market on close (MOC) is a market order that is executed at the latest possible time during a trading session. When a trader receives an MOC from a client, that trader may enter the order as late as he or she believes possible before the close of trading for that day. Read more

Market Overhang

Market overhang refers to a decline in a stock's price driven by expectations that the price will experience further declines. Market overhang is a phenomenon whereby investors put off buying shares of a particular stock based on a widely held belief that the stock's price will continue to decline. Read more

Market Perform

"Market perform" is an expression indicating that a security experiences returns similar to the overall market. A security that investors and analysts describe as "market perform" closely follows the performance of a market indicator, like the Dow Jones Industrial Average (DJIA). Read more

Market Proxy

A market proxy is a variable that theoretically simulates the behavior of the overall market. Analysts and investors use market proxies as part of statistical analyses and portfolio modeling. Read more

Market Psychology

Market psychology refers to the manner in which the market reflects its participants' collective emotional state. Peoples' perceptions of the market directly impact price movements and trends. Read more

Market Risk

Market risk is the fluctuation of returns caused by the macroeconomic factors that affect all risky assets. Market Risk is also referred to as systematic risk or non-diversifiable risk. Read more

Market Sentiment

Market sentiment is the general feeling about the climate of the market as expressed by the direction of market prices. Market sentiment, as the name suggests, describes the outlook of investors in a market. Read more

Market Standoff Agreement

A market standoff agreement restricts the ability of insiders to sell their holdings following an initial public offering (IPO). When a company issues new shares of stock, it contracts a brokerage house to serve as an underwriter. Read more

Market Strategist

A market strategist is an individual who makes investment recommendations based on available market information. A market strategist tries to predict the future market climate as a pretext for buying and selling investments. Read more

Market Swoon

A market swoon is an abrupt fall in the value of a market index. Derived from a term meaning "to faint" or "pass out," market swoon is a vernacular expression that describes a sudden and widespread loss in the value of stocks across an entire market. Read more

Market Timing

Market timing is the practice of buying and selling securities based on economic trends, corporate information, and market factors.  Market timing can also be referred to as tactical asset allocation or active investing.Let's assume you have $100,000 to invest. Read more

Market Value

Market value refers to the current price of an asset, market-traded security, or company.More simply, it’s used to describe the value of these on the market.  Market value may also be referred to as open market valuation.  An asset’s market value is determined by fluctuations in supply and demand. Read more

Market Value Added

Market Value Added is the difference between the capital contributed to the company by bondholders and shareholders and the final market value of the product. The formula used to find market value added is: Market Value Added = Market Value - Capital Invested Increasing MVA or increasing shareholder wealth is the primary goal of any business and the reason for its existence.  For example, if bondholders and shareholders have contributed $1,000,000 to form Company XYZ and during its existence since inception and it is currently listed on the stock exchange with a stock market value of $2,000,000, it can be said that the MVA of the company is $1,000,000. Read more

Market Value of Equity

Market value of equity is the total market value of all of a company's outstanding shares. A company's market value of equity -- also known as market capitalization -- is the current market price of a company's stock multiplied by the number of all outstanding shares in the market. Read more

Market versus Quote (MVQ)

Market versus quote (MVQ) refers to the most recent market price at which a security was either bought or sold with regard to the latest bid and ask prices. MVQ is the difference between the last market price at which a security was bought or sold and the most recent bid and ask prices. Read more

Market-Linked CD

A market-linked certificate of deposit (CD), also called an indexed or equity-linked CD, is a type of CD where the rate of return is based on either a market index, a basket of equities, or a combination of the two.When the market is doing well, so is the return on the CD. Read more

Marketable Securities

Marketable securities are financial instruments that can be sold or converted into cash (at reasonable value) within one year.They are highly liquid investments that are generally issued by businesses to raise funds for operating expenses or expansion. Read more

Markowitz Efficient Set

The Markowitz efficient set, also called the efficient frontier, is a mathematical concept that reflects the combinations or portfolios that generate the maximum expected return for various levels of risk.In 1952, Harry Markowitz set the efficient frontier idea in motion when he published a formal portfolio selection model in The Journal of Finance. Read more

Master Limited Partnership (MLP)

A master limited partnership (MLP) is a publicly traded limited partnership.shares of ownership are referred to as units. Read more

Matilda Bond

Also known as a kangaroo bond, a Matilda bond is a bond issue in the Australian market by a non-Australian company.   Let's say Company XYZ is headquartered in San Diego. Read more

Maturity

Maturity is the date on which a bond or preferred stock issuer must repay the original principal borrowed from a bondholder or shareholder. Let's assume that on January 1, 2000, you purchased an XYZ Company bond that had a 10-year maturity. Read more

Maturity Date

Maturity date refers to the date on which the principal and interest associated with a debt security must be repaid to the holder in its entirety. Debt instruments such as bonds, CDs, and commercial paper are issued with a lifespan that terminates on a specific date, known as the maturity date. Read more

McMansion

A McMansion is a derogatory slang term for a fancy house that looks like all the other houses in the neighborhood or region. Let's say John and Jane Doe buy a house in McMinnville. Read more

Mega Cap

Mega cap is a designation for any company with a market capitalization in excess of $200 billion. The largest companies in the world are referred to as mega caps because of their relative market size and value. Read more

Michael Milken

Coined the "Junk Bond King" during the 1980s, Michael Milken was instrumental in engineering a lucrative junk-bond market before being indicted on numerous counts of securities fraud.After serving a brief prison sentence from 1989 to 1991, he became a philanthropist supporting advances in medical treatments. Read more

Micro Cap

Generally speaking, a micro cap is a company worth between $50 million and $300 million. A company's market capitalization is the market value of all the company's stock. Read more

Mid Cap

A mid cap is generally described as a company with a market capitalization between $2 billion and $10 billion. Market capitalization is a measure of the market value of a company. Read more

Mine and Yours

"Mine" and "yours" are colloquial references to buy and sell transactions. Buy and sell trades are a cornerstone of the capital market. Read more

Mini-Tender

A mini-tender is an offer from an outside buyer for up to 5% of a company's stock. In a traditional tender offer, a company offers to repurchase shares of stock from its investors at a certain price per share. Read more

Minimum Investment

Minimum investment is the least amount of money an investor must invest to take part in a specific investment. Many types of investments have a minimum investment, including mutual funds, certificates of deposit (CDs), unit trusts, limited partnerships and hedge funds. Read more

Minimum Lease Payments

Minimum lease payments are the lowest total amount that a renter can expect to pay during the term of a lease. When a landlord contracts a renter, the renter agrees to pay the landlord a specific periodic amount, or lease rate, for a predetermined amount of time (usually one year). Read more

Minimum Price Contract

A minimum price contract is a futures contract with a price floor. A minimum price contract has a provision that places a lower limit on the price of a futures contract's underlying asset. Read more

Minus Tick

Also known as a downtick, a minus tick occurs when a security sells at a price less than the preceding sale.A minus tick is the opposite of an uptick. Read more

Momentum Fund

A momentum fund invests in companies with a trend of positive earnings or price, expecting a further increase in the price of the stock. Momentum funds evaluate the trends for individual companies in the stock market.  When a momentum fund spots an upward trend in the company's earnings or price, for example, it will buy shares or options in the company, expecting to sell for a profit. Read more

Monday Effect

The Monday effect predicts that performance in equity markets will reflect the trends that were influencing the market toward the end of trading the previous Friday. The reasons for the Monday effect are not well understood. Read more

Money Manager

A money manager is an individual responsible for managing an investment portfolio, providing investment advice and planning portfolio strategies. A money manager buys and sells securities in a portfolio for clients and advises clients about what actions they should take in order to increase their returns. Read more

Money Market Yield

The money market yield is the interest rate earned by investing in highly liquid and short-term securities.It is calculated by adjusting the holding period to its bank year (360 days) equivalence. Read more

Moody's

Moody's Corporation (NYSE:MCO) is a publicly traded financial services company. Moody's Corporation operates two segments: Moody's Investor Service and Moody's Analytics. Read more

Morningstar Risk Rating

The Morningstar risk rating is Morningstar's evaluation of a mutual fund's level of risk. The mutual fund ratings agency Morningstar ascribes a risk rating to each fund it covers. Read more

Mortgage Accelerator

A mortgage accelerator is a type of checking account that allows a borrower to repay a mortgage more quickly using the balance of monthly paychecks as opposed to recurring monthly payments. Common in the United Kingdom and Australia, a mortgage accelerator is a checking account connected directly to a mortgage account. Read more

Mortgage Application

A mortgage application is a document that a prospective property buyer submits to a lender to secure a mortgage.The lender must approve the application before any money is lent. Read more

Mortgage Banker

A mortgage banker is a person or entity who lends mortgages. A mortgage banker may be a sole agent or larger institution that originates mortgages to property buyers in exchange for a commission. Read more

Mortgage Bankers Association (MBA)

The Mortgage Bankers Association (MBA) is a professional organization that represents the property finance industry in the United States. The Mortgage Bankers Association facilitates communication among mortgage bankers and provides ethical standards to ensure transparent and fair mortgage lending throughout the industry. Read more

Mortgage Bond

A mortgage bond uses a mortgaged property as collateral. A mortgage bond is collateralized by one or several mortgaged properties. Read more

Mortgage Broker

A mortgage broker is an agent who connects property buyers with mortgage lenders. A mortgage broker acts as a professional intermediary on a property buyer's behalf. Read more

Mortgage Equity Withdrawal (MEW)

A mortgage equity withdrawal (MEW) is a loan that uses the value of a mortgaged property as collateral. When a property is worth more than is owed on it, it has positive equity. Read more

Mortgage Excess Servicing

Mortgage excess servicing is the percentage remainder of the annual yield on a mortgage-backed security (MBS) once it has been allocated between the holder, the servicer, and the underwriter. The annual yield on an MBS is divided into three components: interest and principal for the holders and fees for the servicer and underwriter. Read more

Mortgage Fallout

Mortgage fallout is the percentage of an originator's mortgages that fail to close. A mortgage originator maintains a number of clients for whom it secures mortgages at competitive rates. Read more

Mortgage Interest

Mortgage interest is the compensation a borrower pays a lender for money used to purchase property. Mortgage interest is the percentage charged on a mortgage that must be paid in addition to the principal. Read more

Mortgage Originator

A mortgage originator is an individual or institution that collaborates with the borrower to complete a mortgage transaction. Mortgage originators facilitate the mortgage application process from the time a prospective borrower expresses interest until the mortgage loan itself has been disbursed. Read more

Mortgage Points

Mortgage points (also called interest rate points or discount points) are fees you can pay to a lender at closing to lower your mortgage's interest rate -- or annual percentage rate (APR).The cost of each point is equal to one percent of the loan amount. Read more

Mortgage Pool

A mortgage pool is a group of mortgages in a mortgage-backed security (MBS). Once a lender completes a mortgage transaction, it generally sells the mortgage to another entity. Read more

Mortgage Rate

A mortgage rate is the rate of interest a borrower pays on his or her mortgage. Mortgage rates can be either fixed or variable. Read more

Mortgage Rate Lock Deposit

A mortgage rate lock deposit is a sum of money that a borrower must pay the lender to lock in a specific interest rate until a borrower's mortgage is approved and given out. When a mortgage originator finds a mortgage rate for a borrower, the offering lender often charges the borrower a fee to hold that rate until his mortgage application has been approved. Read more

Mortgage Rate Lock Float Down

A mortgage rate lock float down is a provision that allows a borrower to obtain a lower rate if interest rates decline during the process of applying for a mortgage. Lenders usually allow those applying for a mortgage to lock in a specific mortgage rate using a mortgage rate lock. Read more

Mortgage Real Estate Investment Trust (mREIT)

Mortgage real estate investment trusts (mREITs) invest in residential mortgages that have been bundled together into securities called mortgage-backed securities (MBS) Unlike a regular real estate investment trust (REIT) that own real estate properties such as shopping centers or medical office buildings, mortgage REITs own no physical property.There are two types of mREITs: non-agency and agency. Read more

Mortgage Servicing Rights (MSR)

Mortgage servicing rights (MSR) is an arrangement by which a third party promises to collect and disseminate mortgage payments in exchange for a fee. Mortgage payments are processed continually over the entire term of a mortgage. Read more

Mortgage Short Sale

A mortgage short sale is the sale of a mortgaged property for less than the remaining value of the mortgage itself. In a weak housing market, it is common for the outstanding mortgage balance on a property to exceed the market value of the property itself. Read more

Mortgage-Backed Securities (MBS)

Mortgage-backed securities (MBS) are securities that represent an interest in a pool of mortgage loans. To understand how MBS work, it's important to understand how they're created. Read more

Mrs. Watanabe

Mrs.Watanabe, also referred to as "Japanese Housewives," is a slang term for small, retail investors in Japan. Read more

Multiple

A multiple is a relative valuation metric used to estimate the value of a stock. Let's look at an example to illustrate the concept. Read more

Municipal Bond

A municipal bond, commonly referred to as a "muni" bond, is a debt security issued by a state or local government. The purchaser of a municipal bond is effectively loaning money to a government entity, which will make a predetermined number of interest and principal payments to the purchaser. Read more

Municipal Bond Fund

A municipal bond fund is a mutual fund that invests primarily in securities issued by municipalities.  Municipal bonds are issued by local or state agencies to raise money for infrastructure projects, such as the construction of a convention center, water treatment facility or regional airport.Generally, these bonds are not subject to federal income taxes. Read more

Municipal Investment Trust (MIT)

Municipal investment trusts (MITs) are entities that hold a stake in numerous municipal bonds and then sell shares to the public that represent an interest in those bonds.When the municipal bonds then pay off interest or mature, the trust passes the income on to their shareholders. Read more

Municipal Securities Rulemaking Board (MSRB)

The Municipal Securities Rulemaking Board (MSRB) regulates municipal bond underwriters and dealers in an attempt to prevent fraud and manipulation in the issuance and trading of municipal bonds.Congress created the MSRB when it passed the Securities Acts Amendments of 1975. Read more

Mutual Fund

A mutual fund is a type of investment that pools funds from many individuals to invest in a wide range of securities, which may include stocks, bonds, and other assets. Read more

Naked Position

Naked position refers to any securities holding which has not been hedged for risk by any accompanying options or futures contracts. A naked position in a given security is exposed entirely to fluctuations in its market price. Read more

Naked Shorting

Naked shorting refers to the practice of shorting units of a given security in advance of ensuring whether or not they can be borrowed. Traders and investors engage in short selling in order to make a profit by leveraging units of a security borrowed from another investor's portfolio. Read more

Nano Caps

A nano cap is a company with the smallest market capitalizations in the market place, typically below $50 million. Market capitalization is a measure of the market value of the outstanding stock of the company in the market place.  It is calculated according to the following formula: [Number of Share Outstanding] X [Stock Price] = Market Capitalization For example, if a company has a share price of $.75 and ten million shares outstanding, it is in the category of nano-cap stock with a market capitalization of $7.5 million. Read more

Nasdaq

Nasdaq, which stands for the National Association of Securities Dealers Automated Quotation system, is a computerized system for stock trading. The Nasdaq does not have a physical trading floor; it is entirely computerized. Read more

Nasdaq 100 Index

The Nasdaq 100 index is one of the most frequently cited "technology" indexes. The Nasdaq 100 Index is composed of the 100 largest stocks (based on market capitalization) traded on the Nasdaq. Read more

Nasdaq Composite Index

The Nasdaq Composite is a broad market index that encompasses about 4,000 issues traded on the NASDAQ National Market.The index first started in February of 1971 with a base value of 100. Read more

National Association of Insurance and Financial Advisors (NAIFA)

The National Association of Insurance and Financial Advisors (NAIFA) is a trade organization for insurance professionals and financial advisors. Founded in 1890, the organization originally was called The National Association of Life Underwriters (NALU). Read more

National Association of Mortgage Brokers (NAMB)

The National Association of Mortgage Brokers (NAMB) is an industry trade group representing mortgage brokers. Founded in 1973, the NAMB's primary objective is to promote ethics and professionalism among mortgage brokers. Read more

National Association of REALTORS (NAR)

The National Association of REALTORS (NAR) is a trade association for real estate professionals. The NAR has 1 million members in the United States. Read more

National Association of Securities Dealers (NASD)

The National Association of Securities Dealers (NASD) was a regulatory organization that oversaw the securities industry.The Financial Industry Regulatory Authority (FINRA) superseded NASD in 2007. Read more

National Best Bid and Offer (NBBO)

The National Best Bid and Offer (NBBO) is the highest bid and lowest offer price quoted on Nasdaq. For example, let's say the following people have buy orders (bids) for Company XYZ (these are the prices people are willing to pay for the stock): 100 shares for $20 per share 50 shares for $20.01 per share 150 shares for $19.79 per share 200 shares for $21 per share The following people have sell orders (offers) for Company XYZ (these are the prices people are willing to accept for their shares): 100 shares for $22 per share 50 shares for $21.50 per share 150 shares for $20.01 per share 200 shares for $21.25 per share The NBBO for Company XYZ is $21.00/$20.01. Read more

Near Money

Near money is a term for highly-liquid assets that are quickly and easily converted into cash.They may also be referred to as cash equivalents.  Examples of Near Money  Examples of near money investments are interest-bearing savings accounts, certificates of deposit, money market accounts, marketable securities, short-term U.S. Read more

Negative Arbitrage

Negative arbitrage occurs when the interest rate a borrower pays on its debt is higher than the interest rate the borrower earns on the money that will be used to repay the debt. For example, let's assume that XYZ City wants to build several new bridges. Read more

Negative Butterfly

Negative butterfly refers to a change in the yield curve whereby medium-term yields change by a greater magnitude than short-term and long-term yields.It is important to note that the negative butterfly is the opposite of the positive butterfly, where medium-term rates change less than the short-term and long-term rates. Read more

Negative Convexity

Negative convexity refers to the shape of a bond's yield curve and the extent to which a bond's price is sensitive to changing interest rates. The degree to which a bond's price changes when interest rates change is called duration, which often is represented visually by a yield curve. Read more

Negative Correlation

Negative correlation describes a relationship in which changes in one variable are associated with opposite changes in another variable. For example, many economists have discovered that people tend to buy more candy and liquor during recessions. Read more

Negative Gearing

Negative gearing is an investment strategy whereby an investor can deduct any shortfall in income from an investment that does not cover the interest expense and maintenance costs associated with owning a particular asset.Not every country allows taxpayers to use negative gearing strategies. Read more

Negative Obligation

In the trading world, negative obligation refers to a stock specialist's responsibility to avoid buying or selling shares for their own accounts in order to match orders.The New York Stock Exchange imposes this rule on its specialists. Read more

Negative Points

For mortgages, negative points are a strategy for qualified borrowers to decrease the amount of cash they need upfront to finance their home.A mortgage company will pay fees and closing costs on the borrower’s behalf (in the form of points) in exchange for a higher interest rate on the mortgage.  Negative points are also known as rebates, yield spread premiums, or no-cost mortgages. Read more

Negative Return

A negative return is a loss on an investment. For example, if an investor buys $1,000 of Company XYZ stock and then sells it for $500, the investor has a negative return of 50%. Read more

Negative Volume Index (NVI)

A negative volume index (NVI) identifies days in which trading volume of a particular security is substantially lower than other days. Mathematically, the NVI compares the day's volatility to its moving average: If V < V-1, then NVI = NVI-1 + ((Px - Px-1) / Px-1) If V > V-1, then NVI = NVI-1 where V = today's trading volume, V-1 = yesterday's trading volume, NVI-1 = yesterday's NVI, Px = today's closing price, and Px-1 = yesterday's closing price. Read more

Net Asset Value (NAV)

Most commonly used in reference to mutual or closed-end funds, net asset value (NAV) measures the value of a fund's assets, minus its liabilities.NAV is typically calculated on a per-share basis. Read more

Net Asset Value Per Share (NAVPS)

In finance, the net asset value per share (NAVPS) is the value of one share of a mutual fund. A fund's NAVPS fluctuates with the value of its underlying investments. Read more

Net Change

Net change refers to the difference in closing price of a stock, bond, mutual fund, ETF or other traded financial instrument from one period to the next. In fundamental analysis, net change is used to analyze stock prices and can be either positive or negative. Read more

Net Debt to Assessed Valuation

Net debt to assessed valuation is a term used in the municipal bond world to compare the value of debt to the value of the issuer's assets purchased or assessed. The formula for net debt to assessed valuation is: Net Debt to Assessed Valuation = (Short-Term Debt + Long-Term Debt - Cash and Cash Equivalents)/Total Property or Asset Taxable Value For example, let's assume that County XYZ has $100 million in short-term debt, $400 million in long-term debt and $10 million in cash and cash equivalents. Read more

Net Debt to Estimated Valuation

Net debt to estimated valuation is a term used in the municipal bond world to compare the value of debt to the market value of the issuer's assets.It is not the same as net debt to assessed valuation. Read more

Net Interest Cost (NIC)

Net interest cost (NIC) is a way to compute the average annual interest expense for a bond issue.  The formula for net interest cost is: Net Interest Cost = (Total Interest Payments + Discount - Premium) / Number of Bond-Year Dollars The "number of bond-year dollars" equals the sum of the product of each year's maturity value and the number of years to its maturity.For example, let's assume Company XYZ wants to calculate the NIC on its most recent bond issue. Read more

Net Interest Margin (NIM)

Net interest margin is the ratio of net interest income to invested assets.  Net interest margin is also known as "net yield on interest-earning assets."  The formula for net interest margin is: Net Interest Margin = (Interest Received - Interest Paid) / Average Invested Assets Net interest margin is always expressed as a percentage.Let's look at an example: Assume John borrows $1,000,000 and uses it to buy bonds of Company XYZ. Read more

Net Interest Margin Securities (NIMS)

Net interest margin securities (NIMS) provide investors with cash flows from securitized mortgages.The first NIMS came into the marketplace in the mid-1990s. Read more

Net Interest Rate Differential

Net interest rate differential is the difference in interest rates associated with two different currencies or two different economic regions. For example, let's assume an investor in Japan puts her Japanese savings in a Japanese bank and earns interest at Japanese interest rates (say 8%). Read more

Net Interest Rate Spread

In banking, the net interest rate spread is the difference between interest earned on loans, securities, and other interest-earning assets and the interest paid on deposits and other interest-bearing liabilities. For example, let's assume XYZ Bank earned a weighted-average interest rate of 5% on its assets and paid a weighted-average interest rate of 3% on its liabilities. Read more

Net Investment Income

Net investment income is what an investment company receives in capital gains, dividends and interest payments, less administrative fees.  The formula for net investment income is: Net Investment Income = Capital Gains + Dividends + Interest Income - Administrative Fees For example, let's assume Fund ABC is reporting its performance results for the year.It has invested in a portfolio of growth stocks, income stocks and corporate bonds. Read more

Net Liquid Assets

Net liquid assets are cash and securities that can be converted to cash quickly, minus current liabilities. The formula for net liquid assets is: Net Liquid Assets = Cash + Marketable Securities - Current Liabilities note that current liabilities are liabilities due within the next 365 days. Read more

Net Long

An investor is net long when he or she has more long positions than short positions for a particular asset, market sector or portfolio.The concept also applies to commodities trading. Read more

Net Present Value Rule

The net present value rule is the idea that investors and managers should only engage in deals, projects or transactions that have positive net present value (NPV).  Using the NPV formula, the net present value rule decides if an acquisition or project is worth it based on the following criteria: If NPV < 0, the project/acquisition will lose the company money and therefore may not be considered.If NPV = 0, the project/acquisition will neither increase nor decrease value of the company and non-monetary benefits may instead be considered before a decision is made. Read more

Net Profits Interest

Net profits interest is the proportion of net profits paid out to a particular investor, according to his or her percentage stake in the company.  Net profits interest is most often used in reference to oil and gas contracts in which the property owners lease the property to a developer or producer in return for a percentage of the proceeds.Let's say that John owns an oil field and wants to lease it to Company ABC, which will then get the oil out. Read more

Net Realizable Value (NRV)

The net realizable value (NRV) of an asset is the money a seller expects to receive for the sale of an asset after deducting the costs of selling or disposing of the asset. Let's assume Company XYZ needs to get rid of a widget maker. Read more

Net Revenue Pledge

A net revenue pledge requires issuers of municipal bonds to use their net revenues (revenue minus expenses) to pay the principal and interest of the municipal bonds before any other use. Let's assume City XYZ issues $10 million of municipal bonds to build a toll road. Read more

Net Short

In finance, net short refers to holding more short positions than long positions in a given security, sector or portfolio.Net short is the opposite of net long. Read more

Net Unrealized Appreciation (NUA)

Net unrealized appreciation (NUA) refers to the difference between the cost of a security or investment and the current market value of that security or investment. Let's assume Jane purchased 100 shares of Company XYZ for $3 per share 20 years ago. Read more

Net Volume

In trading, net volume refers to the difference between a security's uptick volume and its downtick volume. Let's assume that investors bought 4,000,000 shares of Company XYZ today (the uptick volume) and sold 3,000,000 shares today (the downtick volume). Read more

New Home Sales

New Home Sales is an economic indicator released monthly by the United States Census Bureau.The data reflect the number of newly constructed homes purchased in the previous month. Read more

New Issue

A new issue is a never-before-offered security. Let's assume that Company ABC makes a public offering of shares in order to finance its business expansion. Read more

New York Board of Trade (NYBOT)

The New York Board of Trade (NYBOT), founded in 1870, is a physical commodity futures exchange located in New York City.The NYBOT trades options and futures on cotton, sugar, coffee, orange juice, and cocoa, as well as interest rates, market indexes, and currencies. Read more

New York Mercantile Exchange (NYMEX)

The New York Mercantile Exchange (NYMEX), founded in 1872, is the world's largest physical commodity futures exchange, headquartered in lower Manhattan.NYMEX handles trades worth billions of dollars in commodities that are bought and sold on the trading floor, as well as on overnight electronic trading computer systems for future delivery. Read more

New York Stock Exchange (NYSE)

The New York Stock Exchange (NYSE) is the oldest stock exchange in the United States, and it's located on Wall Street in lower Manhattan.It is the world's largest stock exchange by market capitalization of listed companies ($13.39 trillion as of March 2011). Read more

No Load Fund

A no load fund, also called a "no transaction fee mutual fund," is a mutual fund that does not charge a sales commission to investors.shares of no load funds are purchased directly from the fund companies rather than through brokers. Read more

No Penalty CD

A no penalty CD is a type of certificate of deposit.A certificate of deposit, or CD, is a financial product offered by banks and credit unions for personal savings and investing. Read more

Nominal Value

Also referred to as face value or par value, nominal value is the value shown on the face of a security certificate or instrument, including currency.The concept most commonly applies to stocks and bonds but is especially important to bond and preferred stock investors. Read more

Nominee

A nominee is a person or entity that takes possession of securities or other assets for the purpose of making transactions on behalf of the owner of the securities or other assets. For example, let's say that John Doe owns several positions in about 200 companies in his brokerage account. Read more

Non Judicial Foreclosure

A judicial foreclosure occurs when a court allows a lender to seize and sell a borrower's collateral when the borrower has failed to repay the lender.The term is most often associated with real estate. Read more

Noncallable

Noncallable refers to a security that cannot be redeemed by the issuer prior to maturity.  Sometimes, it is referred to as non-redeemable. When a security is issued, it carries a set term (the time at which the bond may be redeemed for the full value) and coupon rate (the interest rate yield on the bond payable to the bond buyer).  Often, bonds are callable, that is, the issuer may decide to retire the bonds earlier than the maturity date.  When this happens, the principal and interest are paid up to the date that the bonds are redeemed.  However, investors may want to lock in a long term investment at a set rate.  To do this, they require that the issuer hold the debt to maturity.  These debts are noncallable. Read more

Nonqualified Option (NQO)

A nonqualified option (NQO) is the right but not the obligation to purchase shares of a company, usually the option holder's employer, for a fixed price by a certain date. Option grants are incentive compensation that encourages employees to focus on doing work that increases the stock price and thus shareholder value, which is the primary objective of all businesses. Read more

Normal Yield Curve

Also called a positive yield curve, a normal yield curve is one in which short-term yields are lower than long-term yields. A yield curve is a graph that plots the yields of similar-quality bonds against their maturities, ranging from shortest to longest. Read more

Notional Principal Amount

The notional principal amount is the total dollar amount used to calculate the interest payments involved in an interest rate swap position. An interest rate swap is a contractual agreement between two parties to exchange interest payments. Read more

Notional Value

Notional value is the total asset value of a hedged position. Consider an interest rate swap, which is a contractual agreement between two parties to exchange interest payments. Read more

Null Hypothesis

The null hypothesis (H0) suggests that there is no statistical significance in a given set of observations.This implies that any kind of deviation or importance you see in a data set is only the result of chance.  This is considered to be true until analytical evidence proves it wrong and replaces it with a different, alternative hypothesis (H1). Read more

Numismatics

People who enjoy numismatics often have rare coins that can be quite valuable.But not all numismatics fans have to have money to keep collections. Read more

NYSE Holidays

The New York Stock Exchange (NYSE) is open Monday through Friday from 9:30 a.m.to 4:00 p.m. Read more

Objective Probability

Objective probability is the chance that a specific thing will occur. For example, let's say John buys a raffle ticket to support a local Girl Scouts troop. Read more

Occupancy Rate

Occupancy rate is the ratio of rental units rented versus the total number in the building, city, state, etc. The formula for occupancy rate is: Occupancy Rate = Units Rented Out / Total Units For example, let's assume that Company XYZ owns an apartment building that has 300 units. Read more

October Effect

The October Effect is the theory that stock prices will fall in the month of October. In general, investors create a self-fulfilling prophecy regarding the October Effect. Read more

Odd Days Interest

Odd days interest refers to interest earned on loans that close on any day other than the standard day the lender requires interest and principal payments. For example, let's assume that John obtains a mortgage from his bank, and the monthly interest and principal payments will be $2,500. Read more

Odd Lot

An odd lot is an order for anything less than 100 shares.This is the opposite of a "round lot," which are orders in multiples of 100 shares. Read more

Odd-Lot Theory

The odd-lot theory states that an increase in odd lot activity is a buy signal in a market. An odd lot is a group of shares that is not a multiple of 100 (100 shares is called a round lot). Read more

Odd-Lotter

An odd-lotter buys securities in odd lots.An odd lot is a group of shares that is not a multiple of 100 (100 shares is called a round lot). Read more

Off Board

The New York Stock Exchange is commonly referred to as the Big Board.Accordingly, "off board" refers to trades of stocks that occur outside major exchanges. Read more

Off-Floor Order

An off-floor order is an investor's request to a broker to buy or sell securities. An off-floor order is what many consider a typical order transaction. Read more

Off-the-Run Treasuries

An off-the-run Treasury is any Treasury bill or note that is not part of the most recent issue of the same maturity. For example, let's assume that in March, the U.S. Read more

Off-the-Run Treasury Yield Curve

An off-the-run Treasury yield curve is a yield curve based on the maturities, prices, and yields of Treasury bills or notes that are not part of the most recent issue of Treasury securities. For example, let's assume that in March, the U.S. Read more

Offering

An offering is the process of issuing new securities for sale to the public. For example, let's say the founders of Company XYZ want to sell half of their shares. Read more

Offering Circular

An offering circular is an abbreviated prospectus. For example, let's assume than Company XYZ wants to conduct an initial public offering (IPO) of its shares. Read more

Offering Memorandum

An offering memorandum is a legal document that discloses the terms, conditions, risks, and other information about a private placement.It is not the same thing as a prospectus (those are for issuances of publicly-traded securities). Read more

Offering Price

An offering price is the price at which a company lists its shares, bonds, or other securities on an exchange. For example, let's say the founders of Company XYZ want to sell half of their shares. Read more

Office Of Federal Housing Enterprise Oversight (OFHEO)

The Office of Federal Housing Enterprise Oversight (OFHEO) is a defunct regulatory body that ensured the financial safety of Freddie Mac and Fannie Mae. Started in 1922 after the passage of the Federal Housing Enterprises Financial Safety and Soundness Act, the OFHEO became part of the Federal Housing Finance Agency (FHFA) in 2008 when President Barack Obama signed the Housing and Economic Recovery Act of 2008. Read more

Offset

An offset is a transaction that cancels out the effects of another transaction. Offsetting transactions are common in options and futures markets. Read more

Offshore Mutual Fund

An offshore mutual fund is a mutual fund based in another country. Offshore mutual funds cannot be sold in the United States unless they comply with American regulations; however, they can invest in U.S. Read more

Oil Refinery

An oil refinery is a factory that turns crude oil into marketable products such as gasoline, jet fuel, lubricants and heating oils.  Refining oil is complicated, but generally the idea is to heat the crude oil, separate it out, and add things to the separated portions to formulate products. Read more

Oil Sands

Also called tar sands, oil sands are areas of the ground that contain a viscous form of oil called bitumen. Alberta, Canada, is famous for its oil sands, which are important sources of oil but require special extraction methods. Read more

Old Lady

In the banking world, Old Lady is a nickname for the Bank of England.The full nickname is "Old Lady of Threadneedle Street." The Bank of England is the United Kingdom's central bank, meaning that it is a bank for banks and works closely with the government's treasury. Read more

One-Cancels-All (OCA)

A One-Cancels-All (OCA) order is a group of limit orders linked together within a brokerage account.If one order is executed, all other linked orders are automatically canceled. Read more

One-Cancels-the-Other Order (OCO)

In trading, a one-cancels-the-other order is an instruction given when placing two orders simultaneously.If one part of an order on a security is executed, then the other part is canceled. Read more

One-Night-Stand Investment

A one-night-stand investment is a security that was supposed to be a long-term investment but is sold after a short time. Let's say John Doe goes to an investing seminar that hypes the stock of a beverage company that sells juice formulations that make wild claims about how they might improve someone's health. Read more

One-Sided Market

One-sided markets can be volatile and very stressful for market makers.Market makers are obligated to facilitate trading in particular stocks even if doing so is inconvenient or less profitable. Read more

One-Way Market

Also called a one-sided market, a one-way market is a market in which market makers only show a bid or an offer price rather than both.In broader terms, the concept refers to situations in which the entire market is strongly heading in a certain direction. Read more

Open

In the stock markets, open refers to the beginning of the trading day or the price of a security at the beginning of the trading day. The New York Stock Exchange has the most famous opening bell. Read more

Open Order

An open order is an instruction to buy or sell securities that has not been executed or cancelled.  Another term used is "backlog order." An order may remain open when an investor places conditions on their transaction, such as a price minimum.   If the condition is not met (e.g.the stock has not yet reached the minimum amount requested by the investor), the order remains "open."   While a market order is executed immediately, an open order may take time to fill or may remain unfilled.  It is important for the investor to monitor market conditions and keep track of their open orders and be sure that each order should remain in effect and be filled over time. Read more

Opening Bell

Opening bell refers to the beginning of the trading day on an exchange.However, in the United States, only the New York Stock Exchange (NYSE) rings an actual bell every day. Read more

Opening Price

In the stock markets, opening price refers to the price of a security at the beginning of the trading day. The New York Stock Exchange has the most famous opening bell. Read more

Operating Cash Flow Ratio

The operating cash flow ratio is cash from operating activities as a percentage of current liabilities in a given period.  Operating cash flow ratio is generally calculated using the following formula: Operating Cash Flow Ratio = Operating Cash Flow / Current Liabilities  The operating cash flow ratio is not the same as the operating cash flow margin or the net income margin, which includes transactions that did not involve actual transfers of money (depreciation is common example of a noncash expense that is included in net income calculations but not in operating cash flow).The operating cash flow ratio is also not the same as EBITDA or free cash flow. Read more

Operating Expense Ratio (OER)

An operating expense ratio (also referred to as OER) is an extremely common real estate analysis.OER measures where analysts measure the costs to operate a piece of property versus the income it generates.  Operating expenses are costs associated with running a business's core operations on a daily basis. Read more

Operating Netback

Operating netback is a measure used in the oil and gas industry to reflect the net profit on oil and gas after royalties, production, and transportation expenses.  The formula for operating netback is: Operating Netback = Price - Royalties - Production - Transportation Let's assume that Company XYZ drills for oil in the Gulf of Mexico.For every barrel of oil it sells, it must pay $5 in royalties, $5 in production costs, and $10 in transportation costs. Read more

Opportunity Cost

Opportunity cost is the return on an investment/opportunity you missed out on, compared to the return on the investment that you chose.To determine what was lost (or gained), opportunity cost may be calculated as a number or a ratio. Read more

Options Backdating

Options backdating occurs when a company grants an option that is dated prior to the date the company granted the option. For example, let's assume Jane Smith is the CEO of Company XYZ. Read more

Oracle of Omaha

Commonly referred to as "The Oracle of Omaha" due to his Nebraska roots, Warren Buffett is widely regarded as the world's most prominent value investor. Buffett caught the investing bug at the University of Nebraska, where he read Benjamin Graham's "The Intelligent Investor." Graham's book advised investors to seek out stocks that trade far below their actual value, that deliver a margin of safety and that sell below their intrinsic value. Read more

Ordinary Dividend

An ordinary dividend is a dividend that is not eligible for capital gains tax. For example, let’s assume that John Doe holds 10,000 shares of Company XYZ stock, which pays $0.20 per year in dividends. Read more

Original Cost

Original cost is the total cost attributed to purchasing an asset. For accounting purposes, it is important to identify the original cost of an asset.  The original cost includes all costs associated with the purchase of an asset and putting it to use, including commissions, transportation, appraisals, and installation.  Original cost is used in valuing any type of asset, including real estate, equipment, or even securities (stocks and bonds). Read more

Orphan Stocks

Orphan stocks is a colloquial term for stocks that analysts and investors seem to disregard. Orphan stocks are stocks that investors and analysts tend to ignore. Read more

Outstanding Shares

Outstanding shares are common stock authorized by the company, issued, purchased and held by investors. Outstanding shares may also be referred to as shares outstanding, or issued shares. Read more

Over the Counter (OTC)

An over the counter security is traded through a dealer network rather than through a centralized, formal exchange (such as the NYSE, Nasdaq, or London Stock Exchange).Assets traded OTC are usually traded by private securities dealers who negotiate directly with buyers and sellers.  The primary reason a stock is traded "over the counter" is because the company may be too small to meet the formal exchange listing requirements. Read more

Over the Counter Market (OTCBB)

The over-the-counter (OTC) market, also known as the over-the-counter bulletin board (OTCBB), is a quotation service offered by the National Association of Securities Dealers (NASD) that provides quote and volume information for securities traded over the counter (that is, securities not listed on the Nasdaq, NYSE, AMEX or other exchanges).The OTC market began operating in June 1990, after the Penny Stock Reform Act of 1990 required the SEC to establish an electronic quotation system for those stocks. Read more

Overvalued

Overvalued describes a security for which the market price is considered too high for its fundamentals.Some metrics used to evaluate whether a security is overvalued are: P/E ratio, growth potential, and balance sheet health. Read more

Overweight

Overweight refers to a given security which has been disproportionately allocated in an investment portfolio relative to a benchmark.It is the opposite of underweight. Read more

Owner Financing

Owner financing is when a seller, usually of a property or a business, provides financing for the purchase directly to the buyer under a for sale by owner situation. Owner financing is also referred to as seller financing or creative financing.[Related: 5 Seller Financing Options for Homebuyers] When arranged under a for sale by owner situation, the sale typically requires a form of down payment (often a percentage of the sales price) and the transaction is facilitated and recorded by a promissory note. Read more

P-Value

The p-value is used in hypothesis testing to determine whether to accept or reject the null hypothesis.It is the smallest level of significance where the null hypothesis can be rejected. Read more

Pacific Exchange (PCX)

The Pacific Exchange (PCX) was a stock exchange based in San Francisco and Los Angeles. Founded in 1882, the PCX used to be a trading floor in San Francisco. Read more

Paid-Up Capital

Paid-up capital, also called "paid-in capital," is a measure of how much money investors have pumped into the company since inception in return for equity.The line item appears on the balance sheet. Read more

Painting the Tape

In the finance world, painting the tape means to trade securities in a manipulative way in order to influence the reported trading data for those securities. Let's say traders A and B want more people to buy the stock of Company XYZ. Read more

Pairoff

A pairoff, also known as "pairing off," occurs when a brokerage firm buys and sells short and long positions that offset one another and then settles those trades in cash. Let's say Brokerage XYZ agrees to sell 100 shares of Company 123 to Brokerage ABC for $15,000. Read more

Pairs Trade

A pairs trade occurs when an investor buys two stocks in the same industry. Let's say John Doe buys shares of Ford and General Motors. Read more

Palladium

Palladium is a metal used in manufacturing electronics and other items. Palladium is a rare metal that is silvery white. Read more

Panic Buying

Panic buying refers to the purchase of a stock immediately after a sudden, substantial price increase. Investors watching the market may jump to buy a stock immediately after a major move in the stock's price, hoping to take advantage of the surge in the price. Read more

Panic Selling

Panic selling is the sudden and widespread selling of a security. Panic selling may occur after a sudden, sharp decline in the price of a security.  Panic selling does not involve an evaluation of the fundamentals of a stock or market conditions.  Rather, it is usually the result of an emotional reaction and fear, causing sellers to want to get out of an investment without regard to the price or cost. Read more

Paper Loss

Paper loss refers to the amount that would be lost on a security if it were sold. Also called a book loss, a paper loss is the not-yet-realized amount lost on a security based on the spread between its current market price and its original purchase price. Read more

Paper Profit

Paper profit refers to the amount you would gain on a security if it were sold. Also called book profit, paper profit is the not-yet-realized amount gained on a security based on the spread between its current market price and its original purchase price. Read more

Paper Trading

Paper trading is simulating market trading (buying and selling).  Investors can practice trading by simulating securities purchases and sales without actually executing transactions with money.  Paper trading can be done using real-time online market simulators, allowing investors to practice placing orders, executing transactions, monitoring market and portfolio activities, all without the risk of losing (or gaining) money. Read more

Par Value

Par value is the face value of a bond.It is the principal amount that the lender (investor) is lending to the borrower (issuer). Read more

Parallel Shift

A parallel shift in the yield curve occurs when the interest rates among bonds (or T-Bills) with different maturity dates change at the same rate. For example, if the yield on a five-year Treasury increases by five basis points, then the yields on all other Treasuries also increase by five basis points. Read more

Pari-Passu

Pari-passu is a latin term that means "at an equal rate or pace." The term is often used in venture capital. Let's assume Company XYZ is looking for $10 million of capital. Read more

Paris Hilton Stock Index

The Paris Hilton Stock Index is a list of companies that benefit from the actions of and associations with Paris Hilton. The index contains the following stocks: News Corporation (NYSE: NWS), which owns her reality TV show The Simple LifeTime Warner (NYSE: TWX), which broadcast her famous interview with Larry King after her jail releaseDaimler AG (NASDAQ: XETRA) , which makes Mercedes-Benz cars.Carl Karcher Restaurants (NYSE: CKR), which owns the Carl's Jr. Read more

Partial Redemption

A partial redemption occurs when an investor withdraws some of a security's value.  Let's say John Doe owns $200,000 of Treasury securities. Read more

Participating Preferred Stock

Participating preferred stock gives stock holders priority over common stock holders for payment of dividends and proceeds from liquidation of a company. The capital stock structure of a company is typically divided into two main groups: common stock (usually ownership by management, employees, and directors with voting rights), and preferred stock. Read more

Pass-Through Security

Pass-through securities receive payments from an intermediary that collects payments from a pool of assets. Mortgage-backed securities (MBS) are some of the most common pass-through securities. Read more

Passive Income

Passive income is income generated from any business activity in which the earner does not participate.When people describe the dream of "getting rich quick" and "striking it big," they are usually describing  a scheme that involves a component of passive income in one form or another. Read more

Passive Investing

Passive investing is a strategy focused on achieving long-term appreciation of portfolio values with limited day-to-day management of the portfolio itself. A passive investor is one who limits on-going buying and selling activities.  A passive investor purchases securities, builds a portfolio, and generally holds the portfolio for the long term. Read more

Passive Loss

A passive loss is a financial loss from rental property, limited partnership or other activities in which the investor is not materially involved. When an investor buys shares in a rental property, for example, in which he or she is not actively involved in the operations, it is considered a passive investment. Read more

Passive Management

Passive management is an investment strategy whereby an investor or financial advisor makes long-term investments in certain securities and is not influenced by short-term market fluctuations.The management style is the opposite of active management. Read more

Pasternak's Normalized Net Asset Value

Pasternak's normalized net asset value (NNAV) allows investors to compare master limited partnership (MLP) funds with each other and with non-MLP closed-end funds. Pasternak's NNAV was created by Carla Pasternak, an income-investing expert at StreetAuthority.com.  Pasternak's NNAV is calculated according to the following formula: Pasternak's NNAV = Net Asset Value + Deferred Tax Liability Investing in MLPs can be incredibly complicated, especially around tax time. Read more

Pay Yourself First

Pay yourself first is a phrase referring to the idea that investors should routinely and automatically put money into savings before spending on anything else. For example, let's assume you bring home $60,000 a year after taxes. Read more

Payment in Kind (PIK) Bonds

A payment in kind (PIK) bond is a bond that pays interest in additional bonds instead of cash. Instead of the returns on a bond being paid in cash, the dividend is returned to the bond buyer in the form of additional principal (more bonds).   Usually, the issuer has the option to deliver more bonds during an initial period, instead of a coupon payment. Read more

Payout Event

A payout event refers to the accelerated repayment of bond principal, usually on an asset-backed security (ABS). A payout event is also referred to as early amortization or early calls. Read more

Payout Ratio

The payout ratio, also known as the dividend payout ratio, is the percentage of a company's earnings paid out to investors as cash dividends. At the end of a specified period, companies will sometimes pay out dividends for every share owned. Read more

Penny Stock

Penny stocks are small-cap equity shares that trade in the over-the-counter market for prices between several cents and ten dollars. Penny stocks are usually issued by small or micro-cap companies to raise capital. Read more

Per Share Basis

Per share basis is a carefully scrutinized metric that is often used as a barometer to gauge a company's profitability per unit of shareholder ownership.In many cases, cash flow per share is one of the most important measures. Read more

Perfect Hedge

In finance, a perfect hedge is an investing strategy intended to protect an investment or portfolio against all losses.It usually involves securities that move in the opposite direction than the asset being protected. Read more

Perpetual Bond

A perpetual bond is a debt with no maturity date.Investors may collect interest from these bonds indefinitely much as they would expect from a dividend-paying stock or preferred stock. Read more

Petrocurrency

Petrocurrency, also commonly referred to as "petrodollars," is cash -- usually U.S.dollars -- resulting from the sale of oil and deposited by oil exporters into foreign (usually American) banks. Read more

Philadelphia Gold and Silver Index

The Philadelphia Gold and Silver Index (Nasdaq: XAU) is traded on the Philadelphia Stock Exchange and is made up of 16 precious metal mining companies. The Philadelphia Gold and Silver Index is made up of gold and silver mining company stocks and is not to be confused with physical gold and silver. Read more

Philadelphia Semiconductor Index (SOX)

The Philadelphia Semiconductor Index, or SOX, is an index created by and traded on the Philadelphia Stock Exchange.It was introduced on December 1, 1993 with a split-adjusted value of 100. Read more

PIIGS

The Eurozone nations of Portugal, Ireland, Italy, Greece and Spain make up a group of financially weak countries often referred to in the financial media by the acronym PIIGS. The Eurozone is made up of 16 different countries that all use a single currency, the Euro. Read more

Pink Sheets

Pink Sheets is a publication compiled daily by the National Quotation Bureau that shows over-the-counter (OTC) stocks' bid and ask prices and the dealers that exchange them.  The companies listed on the pink sheets generally do not meet meet the standards required to trade on formal exchanges (such as the NYSE, Nasdaq, AMEX)  due to their small size or inability to file with the SEC.With a few exceptions, Pink Sheet stocks are small, thinly-traded issues that often carry a great deal of risk. Read more

PMI - Private Mortgage Insurance

Private mortgage insurance (PMI), also called mortgage insurance, is what borrowers must pay on each mortgage payment if they didn't make a 20 percent down payment toward their home loan.The insurance protects the lender financially in case the borrower fails to repay. Read more

Political Risk

Political risk is the potential for financial, market, or personnel losses that occur due to political decisions or disruptions.Political risk is also known as "geopolitical risk." Who Is Affected by Political Risk?  Political risks are faced equally by investors in international businesses and investment fund portfolios. Read more

Ponzi Scheme

A Ponzi scheme is an investment scam that pays existing investors out of money invested by new investors, giving the appearance of earnings and profits where there are none.Ponzi schemes are also known as pyramid schemes. Read more

Pork Bellies

Pork Bellies are a major commodity traded on the Chicago Mercantile Exchange. Pork bellies are a commodity of pork products traded as a futures contract on the Chicago Mercantile Exchange since 1961. Read more

Portfolio Hedging

Portfolio hedging describes a variety of techniques used by investment managers, individual investors and corporations to reduce risk exposure in an investment portfolio.Hedging uses one investment to minimize the negative impact of adverse price swings in another. Read more

Portfolio Management

Portfolio management refers to the professional management of securities and other assets.Also referred to as "asset management" and "wealth management." Portfolio management includes a range of professional services to manage an individual's and company's securities, such as stocks and bonds, and other assets, such as real estate. Read more

Portfolio Manager

A portfolio manager is responsible for investing a fund's assets, overseeing investment strategy and carrying-out day-to-day trading. A portfolio manager manages mutual funds and other investment funds, such as hedge or venture funds.  He or she is usually an experienced investor, broker, fund manager, or trader with general industry knowledge and a track record of results.  Portfolio managers often have a specific investment approach, such as a focus on active or passive investments. Read more

Position Limit

Position limit refers to the ceiling placed on the number of contracts on a single security which may be held by an individual or cooperative group. Determined by the Commodity Futures Trading Commission (CFTC), position limits place an upper limit on the number of contracts which an investor or combined group of investors may hold for a specific security. Read more

Positive Correlation

Positive correlation describes a relationship in which changes in one variable are associated with the same kind of changes in another variable. For example, many economists have discovered that people tend to buy more cars and appliances during economic booms. Read more

Pre-Market Trading

Pre-market trading is the trading that occurs on electronic market exchanges before regular stock market trading hours begin. In the U.S., pre-market trading occurs between 8:00 a.m. Read more

Preferred Shares

Preferred shares represent an ownership stake in a company -- in other words, a claim on its assets and earnings.However, as the term suggests, "preferred" shares carry certain advantages. Read more

Preferred Stock

Like shares of common stock, shares of preferred stock represent an ownership stake in a company -- in other words, a claim on its assets and earnings.However, as the term suggests, "preferred" stock carries certain advantages. Read more

Premium Put Convertible Bond

A premium put convertible bond is a bond that can be redeemed by the investor at premium before its maturity date. Premium put convertible bonds have a feature comparable to a put option that permits the holder to redeem the bond at a premium in advance of maturity date. Read more

Premium to Net Asset Value (NAV)

Premium to net asset value (NAV) refers to a situation where shares of a closed-end stock fund are trading at a price higher than the fund's net asset value per share.For example, a fund could be described as "trading 5% premium to NAV." Premium to NAV (and "discount to NAV") is most often used to describe the price per share of closed-end stock funds. Read more

Prepayment Risk

Prepayment risk is the risk that a borrower will pay off a loan earlier than expected. For example, let's say that John Doe borrows $300,000 to buy a house in Phoenix. Read more

Present Value (PV)

Present value (PV) measures the current value of an amount of money – or a stream of cash flows – that is expected in the future.This value will differ from the cash flows’ nominal value, since time itself affects value. Read more

Preservation of Capital

Preservation of capital is an investment strategy that focuses on preventing any losses of an investment's face value. A preservation of capital is a conservative investment philosophy that invests in very safe securities, such as Treasuries (T-Bills), which will not lose any value and only gain enough to counter the effects of inflation. Read more

Previous Close

Previous close shows what the price of a stock or market index was when the market closed on the previous trading day. Over the course of a day as securities are traded, a stock's price will rise and fall based on any number of factors. Read more

Price Band

A price band is a price floor and a cap between which a seller will let buyers place bids on a security, usually during an initial public offering (IPO) For example, let's say Company XYZ is going to go public.As part of the IPO process, Bank ABC (Company XYZ's investment bank) sets a price band on its shares of $45 to $50 per share. Read more

Price Basing

Price basing is a way to use the prices of futures contracts to determine the retail prices of commodities. Price basing happens all the time in the media when it comes to gasoline prices. Read more

Price Cap Regulation

A price cap regulation places a ceiling on the amount companies in a given industry (typically utilities and telecommunications providers) can charge for services. Price cap regulation typically has four tenets: 1. Read more

Price Change

In the stock market, a price change is the difference in trading prices from one period to the next or the difference between the daily opening and closing prices of a share of stock. For example, let's say Company XYZ shares opened at $25 this morning and closed at $24. Read more

Price Continuity

Price continuity occurs when the number of transactions (volume) does not in and of itself affect a security's price. In trading, buyers offer bid prices and sellers offer asking prices. Read more

Price Efficiency

Price efficiency simply refers to whether the price of a security incorporates all the available information about the security. For example, assume that Company XYZ is a public company trading at $15 per share. Read more

Price Improvement

Price improvement is the often unexpected event of obtaining a better bid or ask price than the price quoted at the time the buy or sell order is made. For example, assume you own 1,000 shares of Company XYZ. Read more

Price Level Adjusted Mortgage (PLAM)

A price level adjusted mortgage (PLAM) is a mortgage with a fixed interest rate but an adjustable principal balance. For example, let's assume you take out a traditional 30-year, $100,000 mortgage at 7%. Read more

Price Multiple

A price multiple is a ratio that combines some measure of a company's performance and the company's stock price. In general, a price multiple ratio looks like this: Price multiple = Price / Performance Metric For example, Company XYZ has revenue of $20,000,000 per year. Read more

Price per Flowing Barrel

Price per flowing barrel is a measure of an oil and gas company's valuation as compared to the number of barrels of oil or gas it produces. The formula used to calculate a company's price per flowing barrel is: Price per Flowing Barrel = (Market Capitalization + Debt - Cash) / Barrels Produced per Day  Let's assume oil company XYZ produces 50,000 barrels per day of oil per day and its market capitalization (shares outstanding x share price) is $45,000,000. Read more

Price Ratchet

A price ratchet is a trigger that changes the price of a security. For example, let's assume that the United States government defaults on interest payments on its Treasury securities. Read more

Price Risk

Price risk is simply the risk that the price of a security will fall. Earnings volatility, unexpected financial performance, pricing changes, and bad management are common factors in price risk. Read more

Price Talk

Price talk refers to discussions about the price of a pending initial public offering (IPO) or upcoming bond issue.  Price talk is usually debate and discussion about what a fair price is for certain new securities.During the process, the issuer's investment bank often "sets" the price talk, meaning that it essentially strongly suggests a price range for the issue. Read more

Price Target

A price target is an analyst's expectation for the future price of a security.  For example, let's assume that the Jones-Smith investment bank provides research reports about Company XYZ stock.The Jones-Smith analyst studies the industry, Company XYZ's competitors, Company XYZ's products and management, etc. Read more

Price Tension

Price tension refers to the presence of a large bid-ask spread. Let's assume you are watching Company XYZ stock. Read more

Price Transparency

Price transparency is the ability to know all of the bid prices, ask prices, and trading quantities for a given stock, good, or service at any point in time. For example, NYSE quotes have limited price transparency. Read more

Price-Earnings Relative

The price-earnings relative is a comparison of a stock's P/E ratio to the cumulative P/E ratio of a related market index. The price-earnings relative considers the P/E of a given stock relative to the P/E ratio for a comparable market index, such as the Dow Jones or S&P 500. Read more

Price-to-Cash Flow Ratio (P/CF)

The price-to-cash flow ratio (P/CF) is used to evaluate the price of a company's stock as compared to the amount of cash flow it generates. The formula for the price-to-cash flow ratio is: Price-to-Cash Flow Ratio = Price per share / (Cash flow / Shares outstanding) For example, let's assume that Company XYZ has a share price of $3 and has 10,000,000 shares outstanding. Read more

Price-to-Earnings Ratio (P/E)

The price-to-earnings ratio (P/E) is a valuation method used to compare a company’s current share price to its per-share earnings. The market value per share is the current trading price for one share in a company, a relatively straightforward definition. Read more

Price-to-Free Cash Flow Ratio (P/FCF)

The price-to-free cash flow ratio (P/FCF) is a valuation method used to compare a company’s current share price to its per-share free cash flow. The formula for the price-to-free cash flow ratio is: Price to Free Cash Flow = Market Capitalization / Free Cash Flow For example, let's assume that Company XYZ has 10,000,000 shares outstanding, which are trading at $3 per share. Read more

Price-to-Innovation-Adjusted Earnings Ratio

The price-to-innovation-adjusted earnings ratio is used to evaluate the price of a company's stock as compared to its earnings when adjusted for the amount the company spends on R&D. The formula for price-to-innovation-adjusted earnings is: Price-to-Innovation-Adjusted Earnings = Price per share / (EPS + R&D per share) For example, let's assume that Company XYZ, a company that designs and manufactures medical devices, earned $10,000,000 in profits last year. Read more

Price-to-Research Ratio

The price-to-research ratio is used to evaluate the price of a company's stock as compared to its ability to generate future profits from new products. The formula for the price-to-research ratio is: Price-to-Research Ratio = Market Capitalization / R&D Expense For example, let's assume that Company XYZ spent $5,000,000 on R&D last year. Read more

Price-to-Sales Ratio (P/S)

The price-to-sales ratio helps determine a stock’s relative valuation.The formula to calculate the P/S ratio is: P/S Ratio = Price Per Share / Annual Net Sales Per Share Let's assume Company XYZ reports net sales of $5,000,000 and it currently has 500,000 shares outstanding. Read more

Price-to-Tangible Book Value Ratio

The price-to-tangible book value ratio measures a company's market price in relation to its tangible book value.The ratio denotes how much investors are paying for each dollar of physical assets. Read more

Price-Weighted Index

A price-weighted index is an index in which the member companies are weighted in proportion to their price per share, rather than by number of shares outstanding, market capitalization or other factors.The Dow Jones Industrial Average (DJIA) is a price-weighted index. Read more

Price/Earnings-to-Growth and Dividend Yield Ratio (PEGY)

The price/earnings-to-growth and dividend yield ratio (PEGY) demonstrates how much the market is willing to pay for earnings growth and dividend yield.By incorporating dividend yield, the PEGY ratio accounts for a companies' inclination (or disinclination) to pay out dividends. Read more

Price/Earnings-to-Growth Ratio (PEG)

The PEG ratio is a derivative of the P/E ratio that takes into account future growth in earnings.  The formula for the PEG ratio is: PEG Ratio = Price-to-Earnings (P/E) Ratio / Annual Earnings Per Share Growth The PEG ratio uses the basic format of the P/E ratio for a numerator and then divides by the potential growth for the stock.The two ratios may seem to be very similar but you can see the obvious difference with a calculation. Read more

Principal-Only STRIPS

Principal-only STRIPS are synthetic zero-coupon bonds that are based on the principal component of Treasury securities. STRIPS stands for Separate Trading of Registered Interest and Principal of Securities. Read more

Private Company

Out of the 18 million businesses in the United States, fewer than 4,000 are publicly listed on a stock exchange.That means private companies remain the default model of conducting business.  So what are they and how do private companies differ from public companies? Read more

Private Equity

Private equity is money for investments made directly in private companies or in public companies that become private. Although some private equity comes from private individuals, most private equity funding comes from private equity firms. Read more

Private-Purpose Bond

A private-purpose bond is a municipal bond that uses a significant amount of its proceeds to fund private activities or benefit private parties. Let's assume Company XYZ wants to open a factory in ABC Town, which is economically depressed, but Company XYZ doesn't have the $100 million necessary to construct the factory. Read more

Privately Held

A privately held company is different from a public company in that its stock is not traded on public exchanges like the New York Stock Exchange, Nasdaq, American Stock Exchange, etc.Instead, shares of privately held companies are offered, owned and traded privately among interested investors. Read more

Pro Rata

Pro rata refers to the proportional distribution of a sum across a number of units. A Latin term meaning "in proportion," pro rata is a method of allocating fractional amounts of something equally among all parts of a whole. Read more

Profit Taking

Profit taking is the act of selling stock to take advantage of a sharp rise in the stock price. Occasionally, investors will sell off their shares in a stock after the stock rises sharply.  It may occur as a result of an event that triggers a rise in the stock or when a stock just follows the broad currents of a bull market.  It may also occur when traders are looking for the opportunity to sell and even a small surge in the market brings new buyers willing to pay sellers' prices. Read more

Profit Warning

A profit warning is a public communication from a company that its earnings will fall below expectations. Profit warnings are part of the large, fluid world of earnings guidance, whereby the management of publicly traded companies issue estimates about what they expect earnings to be for the coming quarter. Read more

Program Trading

Program trading refers to automated trading by investors using computer programs.  Program trading is used by institutional investors for large-volume trades through direct connections with the market's computers.Trades are automatically triggered based on reaching a threshold point on a specific market index, for example. Read more

Property Lien

A property lien is a lender's claim against a piece of real estate that may be legally sold should the borrower fail to repay a loan. When someone takes out a sizeable loan, such as a home mortgage, the lender often requires an asset that can be held as collateral against the loan. Read more

Property Tax

Property tax is a tax on property -- usually real estate -- as determined by an assessor. Let's assume you own a house. Read more

Prospectus

A prospectus is a legal document filed with the Securities Exchange Commission (SEC) to accompany securities or investment offerings for sale.Containing key facts and information about the offering, a prospectus makes investors more aware of the risks of an investment.  A prospectus also protects the company from claims that it didn’t disclose enough information about itself or the securities in question. Read more

Protective Put

An investor employs a protective put strategy when he purchases a put option of a stock of which he already owns shares. A protective put is usually used by an investor who has unrealized gains on a stock. Read more

Protective Stop

A protective stop is a stop-loss order put in place to guard against losses beyond a specific threshold. Investors often have an idea of how much of their investment they're willing to lose. Read more

Public Company

A public company is a company that is permitted to sell its registered securities to the general public.Also referred to as a "publicly-traded company." A public company is a company with securities (equity and debt) owned and traded by the general public through the public capital markets. Read more

Public Limited Company (PLC)

A public limited company is a company which offers equity shares with limited liability to public investors on a registered exchange. More common in the U.K., public limited companies (PLC) offer shares of stock to any interested investor. Read more

Public Offering

A public offering is a process of issuing new securities for sale to the public.   For example, let’s say the founders of Company XYZ want to sell half of their shares. Read more

Public Offering Price (POP)

Public offering price (POP) refers to the price at which shares of a company are issued in an initial public offering (IPO) When a company issues stock for the first time as part of an IPO, the underwriting investment bank is responsible for determining the stock's public offering price (POP).The POP is based on numerous variables including, but not limited to, the stock prices of similarly-valued companies in the same industry, the issuing company's growth potential and the issuing company's current value as expressed by its financial statements. Read more

Public-Purpose Bonds

A public-purpose bond is a municipal bond that is used to fund projects that benefit the general public rather than private groups or individuals.Public-purpose bond contrast with private-purpose bonds, which use a significant amount their proceeds to fund private activities or benefit private parties. Read more

Pump and Dump

Pump and dump refers to an investment scam wherein optimistic, but untrue, statements are publicized about a specific stock in order to artificially increase the price through higher demand. In a pump and dump scenario, an investor or group of investors holding a long position in a low-price, small-cap stock unfoundedly publicize the stock as a promising opportunity. Read more

Pure Yield Pickup Swap

A pure yield pickup swap describes an investing strategy where an investor exchanges lower yield bonds for higher yield bonds. In a pure yield pickup swap, an investor who holds bonds with lower yields purchases higher yield bonds using the proceeds from the sale of the former. Read more

Put Bond

A put bond permits the bond holder to force the issuer to repurchase the security before maturity.  In bond financing, the issuer sells bonds at a coupon rate (i.e., the interest rate payable on the bonds to the bond buyer) for a specific period of time.The issuer knows that they will have the principal and pay interest on the principal for the term of the bonds. Read more

Put/Call Ratio

The put/call ratio is a popular sentiment indicator based upon the trading volumes of put options compared to call options.The ratio attempts to gauge the prevailing level of bullishness or bearishness in the market. Read more

Putable Bond

Putable bonds are bonds that give the holder the right to sell his or her bond to the issuer prior to the bond's maturity date. The bond indenture will stipulate when and how the bond can be sold, and there are often multiple sell dates throughout the life of a putable bond. Read more

Pyramiding

Pyramiding refers to purchasing additional units of a security with unrealized profits on open trades. Investors engage in pyramiding in order to increase their portfolio position using the paper profits from the rising value of open trades in order to purchase additional units of securities. Read more

Q Ratio

The Q ratio is a measure of how overpriced or underpriced the whole stock market is.It is based on Tobin's Q, which measures a firm's assets in relation to its market value. Read more

QQQQ

QQQQ was the ticker for the Nasdaq 100 Index Trust ETF (it is now QQQ). The Nasdaq 100 Index is composed of the 100 largest stocks (based on market capitalization) traded on the Nasdaq. Read more

Quadrix

Quadrix is a system that calculates stock values. The Quadrix system is trademarked by the Horizon Publishing Company. Read more

Quadruple Witching

Quadruple witching (also called "quad witching") refers to the third Friday of every March, June, September and December.On these days, derivatives (e.g. Read more

Qualified Acquisition Cost

A qualified acquisition cost refers to the cost of buying, building, or rebuilding a home.Investors can often withdraw qualified acquisition costs from their IRAs without paying early withdrawal penalties. Read more

Qualified Appraisal

A qualified appraisal is a document that formally describes and estimates the value of a piece of property. Assume that John wants to donate a painting to his favorite charity. Read more

Qualified Appraiser

A qualified appraiser is a person authorized to produce a qualified appraisal.  A qualified appraisal is a document that formally describes the value of a piece of property, usually exceeding $5,000.For example, let's imagine that John wants to donate a painting to his favorite charity. Read more

Qualified Dividend

A qualified dividend is a dividend eligible to incur capital gains tax. For example, let's assume that John owns 10,000 shares of Company XYZ stock, which pays $0.20 per year in dividends. Read more

Qualified Eligible Participant (QEP)

A qualified eligible participant (QEP) is a person who is allowed to trade in investment funds as defined in Rule 4.7 of the Commodity Exchange Act. In order to be a QEP, a person must own at least $2,000,000 of securities and other investments, have an open account with a futures commission merchant for at least six months, have at least $200,000 of initial margin and option premiums for commodity interest transactions and have a portfolio of those investments. Read more

Qualified Exchange Accommodation Arrangements

Qualified exchange accommodation arrangements are a strategy to simplify and assist with real estate exchanges made under Section 1031. For example, let's assume that John wants to sell his commercial property for $600,000. Read more

Qualified Savings Bond

Qualified savings bonds are series EE bonds issued after December 1989.  Series EE savings bonds are bonds guaranteed by the United States government.They pay interest (usually at relatively low rates) and have varying maturities. Read more

Qualified Special Representative Agreement (QSR)

A qualified special representative agreement (QSR) is a National Securities Clearing Corporation (NSCC) agreement that allows one broker-dealer to send a trade to a clearinghouse on behalf of another broker-dealer. For example, let's assume that Brokerage XYZ handles trades for high net-worth clients. Read more

Qualified Stock Option (QSO)

A qualified stock option is a type of company share option granted exclusively to employees. It confers an income tax benefit when exercised. Read more

Qualifying Transaction

A qualifying transaction occurs when a private company issues publicly traded stock in Canada. For example, let's assume Company XYZ is a Canadian company that is privately held. Read more

Quant Fund

A quant fund is typically a mutual fund that picks investments based solely on mathematical analysis. For example, let's say John Doe runs the XYZ Fund. Read more

Quantitative Trading

Quantitative trading is an investment strategy based on picking investments solely on mathematical analysis. Let's say John Doe runs the XYZ Fund. Read more

Quarterly Income Preferred Securities (QUIPS)

Quarterly income preferred securities (QUIPS) are hybrid, preferred-stock-like securities issued by Goldman, Sachs & Co. QUIPS are shares of preferred stock issued by a special purpose foreign or domestic LLC. Read more

Quartile

A quartile is one of four equal parts. For example, if we were to look at all of the closing prices for Company XYZ stock for every day in the last year, the top 25% of those prices would represent the upper quartile of the data. Read more

Quick Ratio

The quick ratio (also known as the acid-test ratio) offers insight into how well a company can meet its short-term obligations.As in chemistry, an acid test provides fast results, showing how quickly a company can convert short term assets to pay short term liabilities. Read more

Quiet Period

The quiet period refers to the waiting period between a company filing a registration statement with the US Securities and Exchange Commission (SEC) and the time when the SEC declares the statement to be effective.This is also referred to as the "waiting period." Under the SEC rules, a company must not release information about its activities and related parties to the public after it makes its SEC registration filing for its initial public offering until the SEC approves the registration for the offering. Read more

Quiet Title

Quiet title is the name of a legal action intended to ensure that the owner of a property is in fact the real owner and that the property has no other ownership claims on it.To do this is known as quieting the title. Read more

Quiet Title Action

Quiet title action is the name of a legal action intended to ensure that the owner of a property is in fact the real owner and that the property has no other ownership claims on it.To do this is called quieting the title. Read more

Quintiles

A quintile is one of five equal parts. For example, if we were to look at all of the closing prices for Company XYZ stock for every day in the last year, the top 20% of those prices would represent the upper quintile of the data. Read more

Quitclaim Deed

A quitclaim deed is a document that transfers interest in a property to another person. For example, let's say John Doe and Jane Doe are married and live in a house that they own together. Read more

Quotation

Quotation is the long form of quote, which refers to stock quote.A stock quote is an estimate of price or a price at which one party is willing to buy or sell a certain number of shares of stock from the other. Read more

Quote

A quote is an estimate of price or a price at which one party is willing to buy or sell from the other.In the trading markets, a quote is the bid and ask price for a security. Read more

Quote Stuffing

Quote stuffing occurs when traders place a lot of buy or sell orders on a security and then cancel them immediately afterward, thereby manipulating the market price of the security.Manipulating the price of shares in order to benefit from the distortions in price is illegal. Read more

Quoted Price

Quoted price refers to stock, bond or other security quotes.A stock quote is an estimate of price or a price at which one party is willing to buy or sell a certain number of shares of stock from the other. Read more

Rally

A rally is a period of hours, days, weeks, months, or sometimes years during which securities prices consistently rise.   Identifying and measuring rallies is both art and science. Read more

Random Walk Theory

The random walk theory states that market and securities prices are random and not influenced by past events.The idea is also referred to as the "weak form efficient-market hypothesis."   Princeton economics professor Burton G. Read more

Rate and Term Refinance

A rate and term refinance occurs when a borrower replaces one mortgage with another mortgage that has a different maturity and interest rate. For example, let's say John Doe bought a house 10 years ago for $250,000. Read more

Rate of Return

A rate of return is measure of profit as a percentage of investment. Let's say John Doe opens a lemonade stand. Read more

Rate Trigger

A rate trigger is a change in interest rates that prompts a bond issuer to call its bonds.   Let's say Company XYZ issued a bond with a 10% coupon rate this  year. Read more

Rating

In personal finance, the term rating commonly refers to a credit rating score issued by the Fair Isaac Corporation (a "FICO score").A person's credit rating indicates how creditworthy he or she is. Read more

Ratio Analysis

Ratio analysis is the exercise of calculating various pieces of financial data in relation to one another. There are dozens of financial ratios out there. Read more

Re-Offer Price

A re-offer price is the price at which an underwriter offers a security to the general public. In order to sell its securities to the public, a company first needs to retain the services of an investment banker to underwrite the issue. Read more

Real Asset

A real asset is a tangible, touchable asset that has value. For example, Company XYZ's factory is a real asset, its fleet of cars are real assets and even its cubicles are real assets. Read more

Real Estate

Real estate refers to land, as well as any physical property or improvements affixed to the land, including houses, buildings, landscaping, fencing, wells, etc. Vacant land and residential lots, plus the houses, outbuildings, decks, trees sewers and fixtures within the boundaries of the property are examples of real estate. Read more

Real Estate Agent

A real estate agent, working on behalf of a licensed real estate broker, is a licensed professional who works on behalf of the buyer and seller of real estate during a sales transaction. A real estate agent, working on behalf of a real estate broker, acts as an intermediary between sellers and buyers. Read more

Real Estate Investment Trust (REIT)

A real estate investment trust (REIT) is a closed-end investment company that owns assets related to real estate such as buildings, land and real estate securities.REITs sell on the major stock market exchanges just like common stock. Read more

Real Estate Owned (REO)

Real estate owned (REO) is a term describing real estate owned by lenders, usually because the lender has foreclosed on the property. Let's say John Doe falls behind on his house payments, and his lender, Bank XYZ, forecloses on the house. Read more

Real Estate Short Sale

A real estate short sale is the sale of property that is worth less than what is owed on it. For example, let's say John Doe buys a house for $500,000. Read more

Real Interest Rate

A real interest rate is an inflation-adjusted interest rate. Let's say John Doe has a bond from Company XYZ that pays a 4% coupon. Read more

Real Property

Real property is anything that is attached to land. For example, Company XYZ's factory, the five-acre lot on which the factory sits and whatever oil, gas or mineral rights that are attached to the land are real property. Read more

Real Rate of Return

A real rate of return is a return on an investment that is adjusted for inflation, taxes or other external factors. Let's say John Doe opens a savings account that offers a 2.5% interest rate (this is called the nominal rate). Read more

Real-Time Quote

A real-time quote is a stock quote that feeds directly from the exchange and does not have a time delay.  A stock quote is an estimate of price or a price at which one party is willing to buy or sell a certain number of shares of stock from the other. Read more

Realized Gain

Realized gains are increases in the value of an asset that has been sold.This concept is the opposite of paper profit -- a paper profit only turns into a realized gain when you actually sell the security. Read more

Realtor

A realtor is a professional designation for a real estate broker who has membership in the National Association of Realtors (or NAR). Real estate agents must be certified members of the NAR in order to bear the title "realtor." Realtors work for real estate agencies affiliated with the NAR and act in a brokerage capacity, bringing together buyers and sellers in the real estate market. Read more

Rebalancing

Rebalancing is the adjustment to an investment portfolio that realigns the investor's holdings with their targeted allocation of assets. Investors often use an asset allocation method in their investment strategies. Read more

Rebate

In stock trading, a rebate occurs when a short seller has taken a short position in a stock that then pays a dividend before the settlement date.The rebate is the dividend that the short seller is required to pay to the owner of the stock.    In short selling, the trader borrows the stock and then sells it, expecting to buy it back and return it to the lender at the settlement date. Read more

Recapture

A recapture occurs when a person or entity takes back an asset from a buyer under certain conditions. Taxing authorities can implement tax recaptures in which the taxing authority requires a taxpayer to pay taxes on previous years of income (usually when the taxpayer took a deduction or tax credit that the taxing authority decides was inappropriate). Read more

Recapture Clause

A recapture clause is language in a contract that allows a person or entity to take back an asset under certain conditions. Let's say John Doe owns the ABC Shopping Center. Read more

Recession Resistant

A stock or other investment is recession resistant when it tends to rise in value when the economy falters (and the markets falter with it).Recession-resistant investments are usually countercyclical, meaning they tend to move in opposition to the overall business cycle. Read more

Recession-Proof

A recession-proof investment does well or at least remains stable during economic contractions. Defensive stocks are the most famous kind of recession-proof investments, because they generally are able to weather economic dips. Read more

Record Date

The record date is the date used to determine the holders of a security who are entitled to receive a dividend or distribution. When a company is preparing to distribute dividends to shareholders, it uses a list of shareholders who are holding the security on a particular date. Read more

Record High

A record high is the highest price a security achieves in a given time period. Let's look at this random chart for Cisco Systems (CSCO). Read more

Record Low

A record low is the lowest price a security achieves in a given time period.   For example, let's look at this random chart for Cicso Systems (CSCO). Read more

Recording Fee

A recording fee is the cost of making a public record of a real estate transaction. Let's say John Doe buys a house from Jane Smith for $300,000 on October 1. Read more

Refunding Protection

Refunding protection is bond provision that keeps an issuer from using cheaper debt to redeem a bond issue before it matures. Let's assume Company XYZ issues $10 million of 10% coupon bonds that mature in 10 years. Read more

Registered Investment Advisor (RIA)

A Registered Investment Advisor (RIA) is an investment manager who is registered with the Securities Exchange Commission (SEC) and who must comply with SEC regulations. An investment manager who is an RIA has not necessarily completed a level of education that qualifies him or her to provide a higher level of service. Read more

Reinvestment Rate

Reinvestment rate is the rate at which an investor can reinvest cash flows from an investment. Put simply, an investor might receive, say, a 6% dividend, but what does he do with that money when he gets it? Read more

Reinvestment Risk

Reinvestment risk is the chance that an investor will not be able to reinvest cash flows from an investment at a rate equal to the investment's current rate of return. For example, consider a Company XYZ bond with a 10% yield to maturity (YTM). Read more

Relevant Risk

Also called systematic risk or non-diversifiable risk, relevant risk is the fluctuation of returns caused by the macroeconomic factors that affect all risky assets.  Diversifiable risk is the risk of something going wrong on the company or industry level, such as mismanagement, labor strikes, production of undesirable products, etc.Relevant risk + Diversifiable risk = Total risk Relevant risk is comprised of the “unknown unknowns” that occur as a result of everyday life. Read more

Reserve Report

A reserve report is filed by companies in the oil and gas industry.It estimates remaining quantities of oil and gas (reserves) expected to be recovered from existing properties. Read more

Residual Income Model

Also called the abnormal earnings valuation model, the residual income model is a method for predicting stock prices. In this theory, every stock is worth the company's book value per share if investors expect the company to earn a "normal" rate of return in the future. Read more

Resistance

In technical trading analysis, resistance is an upper limit in a price channel in which a security’s price tends to stay. Price channels can slope up (indicating bullish sentiment) or down (indicating bearish sentiment); they don’t have to simply go “sideways.” The important geometric characteristic is that the resistance lines and support lines (the opposite of the resistance) are parallel, as shown in this price channel for ChevronTexaco (CVX). Read more

Restricted Stock

Restricted stock is stock that the owner cannot sell immediately or under certain conditions. People usually come to own restricted stock through an IPO or a merger. Read more

Retail Investor

A retail investor is an individual who purchases securities for his or her own personal account rather than for an organization.Retail investors typically trade in much smaller amounts than institutional investors such as mutual funds, pensions, or university endowments. Read more

Retracement

A retracement is a temporary reversal in the movement of a stock's price.  Let's say the stock of company XYZ increased 20% over the course of a day.Anyone who has ever looked at a trend line knows that the price is unlikely to rise continuously throughout the course of the day. Read more

Return of Capital (ROC)

Return of capital happens when an investor receives a portion of their original investment back. Read more

Return on Invested Capital (ROIC)

Return on invested capital (ROIC) is a profitability ratio.It measures the return that an investment generates for those who have provided capital, i.e. Read more

Return on Investment (ROI)

ROI (or return on investment) is a key financial ratio that measures the gain/loss from an investment in relation to the initial investment.  Due to its flexibility and simplicity, ROI is one of the most frequently used profitability metrics.It's extremely useful to gauge the efficiency and profitability of investments. Read more

Return on Total Capital

Return on total capital is a profitability ratio.It is a measure of the return an investment generates for those who contribute capital, i.e. Read more

Revenue Bond

Revenue bonds are municipal bonds that are issued to fund specific projects that generate their own revenue. Let's assume ABC Town wants to build a new toll road, but it doesn't have the money to fund the construction. Read more

Reverse Split

A reverse split is a consolidation of a corporation's shares according to a predetermined ratio. Company XYZ wants to conduct a reverse stock split. Read more

Rising Star

Rising star companies have a low credit rating (often "junk"), but only because they are new to the bond market or still establishing a track record.  A rising star is a relatively new company that doesn't yet have the track record and/or the size to earn an investment-grade rating from a credit rating agency like Standard & Poor's or Moody's.  For example, let's say Company XYZ is a small video gaming company.Company XYZ is profitable, but it needs $10 million right now so it can hire new programmers to expand its line of video games. Read more

Risk Averse

Risk averse is an oft-cited assumption in finance that an investor will always choose the least risky alternative, all things being equal. Modern portfolio theory (MPT), which is the theory behind why diversification works, relies on the assumption that investors are risk averse. Read more

Risk Free Rate of Return

A risk free rate of return, often denoted in formulas as rf,, is the rate of return associated with an asset that has no risk (that is, it provides a guaranteed return).It is also commonly referred to as "risk free return." Treasury bills are the most common example of assets that offer a risk-free rate of return. Read more

Risk Lover

A risk lover is an investor who has a high propensity to engage in risky investments.A risk lover is the opposite of a risk-averse investor. Read more

Risk-Free Asset

A risk-free asset is an asset that provides a virtually guaranteed return.  Treasury bills are the most common example of risk-free assets.Because the U.S. Read more

Road Show

A road show is a presentation made about an investment opportunity usually given by a representative of a company at the offices of potential investors.  Businesses must travel and meet with potential investors, partners and customers to gain their support.One of their key marketing tools is a powerful, succinct presentation of the business case for the product or investment opportunity. Read more

Rolling Returns

Rolling returns are the returns on an investment measured over several periods. The rolling returns on an investment are measured over a discrete number of consecutive periods (usually years) starting with the beginning of the earliest period and finishing with the end of the most recent. Read more

Round Lot

A round lot is a securities trade for 100 trading units.In stock trading, a round lot is 100 shares. Read more

Roy's Safety-First Rule

Roy's safety-first rule is a measure of the minimum returns an investor requires from a portfolio.The formula for Roy's safety-first rule is: Roy's Safety-First Rule = (Expected return for portfolio – Threshold return for portfolio)/Standard deviation of portfolio The mechanics of the formula are simple: Input the investor's minimum required return, the expected return for the portfolio, and the standard deviation for the portfolio. Read more

Royalty Trust

A royalty trust is a type of corporation created to act as the owner of the mineral rights to wells, mines and similar properties.  It exists only to pass income generated from the sale of the property's assets (gold, oil, etc.) to shareholders.No income tax is paid at the corporate level as long as the bulk of income (at least 90%) is passed-through to shareholders in the form of distributions or dividends.  Royalty trusts are most common in the U.S. Read more

Russell 1000 Index

The Russell 1000 Index is designed to track the performance of most major large-cap companies.Though it is not usually cited by individual investors, it is the third most widely used benchmark by money managers (behind the S&P 500 and the Russell 2000). Read more

Russell 2000 Index

The Russell 2000 index measures the performance of the 2,000 smallest companies in the Russell 3000 index.The Frank Russell Company created the index in 1984, and it was one of the first broad benchmarks of the U.S. Read more

Russell 3000 Index

Started in 1984, the Russell 3000 Index attempts to capture the return of the overall market.The index can be subdivided into two segments: the Russell 1000 (consisting of the 1000 largest market-cap companies) and Russell 2000 (consisting of 2000 small-cap companies). Read more

S&P 500 Index

The S&P 500 Index is a diverse index that includes 500 American companies that represent over 70% of the total market capitalization of the U.S.stock market.  First developed in 1923, the index initially contained 233 stocks. Read more

S&P 600 Small Cap Index

The S&P Small-Cap 600 Index consists of 600 small-cap stocks.  A small-cap company is generally defined as a stock with a market capitalization between $300 million and $2 billion.The S&P 600 is not to be confused with the S&P 500, which is composed of large-cap stocks. Read more

S&P Europe 350 Index

The S&P Europe 350 index is made up of 350 individual European company stocks drawn from 17 major European markets and represents approximately 70% of the region's market capitalization. The S&P Europe 350 index is comprised of the S&P Euro, the S&P Euro Plus, and the S&P United Kingdom. Read more

S&P Frontier Broad Market Index

The S&P Frontier Broad Market Index (also known as the S&P Frontier BMI) measures the performance of markets in 34 small countries.The individual country indices that make up the S&P Frontier BMI include all publicly-listed equities that make up more than 80% of the market capitalization available in each market. Read more

S&P Global 1200 Index

The S&P Global 1200 index is comprised of seven indices with stocks from 29 representative countries.The index is used as a benchmark for global equity markets. Read more

S&P Global Broad Market Index

The S&P Global Broad Market Index (also known as the S&P Global BMI) is a widely encompassing, rules-based index that measures global stock market performance. The S&P Global BMI covers approximately 11,000 companies from 46 countries and is converted daily into seven different currency amounts: USD, Euro, GBP, JPY, AUD, CAD and LCL. Read more

S&P Global Equity Index Series

The S&P Global Equity Index series is comprised of three indices: The S&P Frontier Broad Market Index, The S&P Global Broad Market Index and the S&P/IFCI. The S&P Global Equity Index series is designed to include the most liquid and investable stocks in emerging, frontier and developed markets. Read more

S&P Mid-Cap 400 Index

The S&P Mid-Cap 400 Index tracks a diverse basket of medium-sized U.S.firms. Read more

S&P/IFCI Composite

The S&P/IFCI Composite is a liquid and investable leading emerging market index.It is a subset of the S&P Emerging Plus Broad Market Index, with the addition of South Korea. Read more

Safe Asset

A safe asset (usually a physical asset rather than a security) carries a low degree of liability for its owner.In more technical financial terms, safe assets are similar to cash -- they carry little risk of loss (or gain). Read more

Safekeeping Certificate

A safekeeping certificate is a document that proves that a person owns a security or a certificate of deposit (CD). An American Depository Receipt (ADR) is one of the most common forms of safekeeping certificates. Read more

Safety-First Rule

The safety-first rule, also called Roy's safety-first rule, is a measure of the minimum returns an investor requires from a portfolio.The formula for the safety-first rule is: Safety-First Rule = (Expected return for portfolio – Threshold return for portfolio)/Standard deviation of portfolio   The mechanics of the formula are simple: Input the investor's minimum required return, the expected return for the portfolio, and the standard deviation for the portfolio. Read more

Saitori

A saitori is a member of the Tokyo Stock Exchange who matches buy and sell orders. Saitori are similar to specialists in the New York Stock Exchange. Read more

Sales Charge

Also called commission or a load, a sales charge is a fee paid to purchase or sell a specific investment.It is expressed as a percentage of the amount invested. Read more

Sales per Share

The term sales per share represents the portion of a company's revenue that is allocated to each share of common stock.The figure can be calculated simply by dividing sales earned in a given reporting period (usually quarterly or annually) by the total number of shares outstanding during the same term. Read more

Sales to Cash Flow Ratio

The sales to cash flow ratio measures the level of a company's sales against its total cash flow. Expressed on a per-share basis, the sales to cash flow ratio is calculated by dividing a company's sales volume per share in a given period by its per-share cash flow. Read more

Same-Day Substitution

Same-day substitution is the act of withdrawing money from and adding money to a margin account on the same day.   Let's assume you want to buy 500 shares of Company XYZ for $5 per share and 500 shares of Company ABC for $5 per share but don't have the $5,000 necessary to do so -- you only have $2,500. Read more

Samurai Bond

Samurai bonds are corporate bonds issued in Japan by a non-Japanese company.  Samurai bonds are yen-denominated bonds issue in Japan by a foreign company.The bonds are subject to Japanese bond regulations, attracting buyers (i.e., investors) from Japan and provide capital to a foreign issuer. Read more

Samurai Market

Samurai Market is slang that refers to the Japanese stock market. People in the United States are the most common users of this term. Read more

Sandbag

Sandbag is slang for lowering expectations. Let's say John Doe is a new employee at Company XYZ. Read more

Santa Claus Rally

A Santa Claus rally is a surge in the stock market that occurs between Christmas and New year's Day.  Over time, the stock markets have rallied between December 25th and January 1st more often than they have not.There is no clear explanation for this phenomenon; however, it may result from the investment of holiday bonuses, investments made in advance of the closing of the fiscal quarter, or in anticipation of the rise in the markets usually experienced during January each year when business resumes and demands are higher. Read more

Saturday Night Special

Saturday night specials are illegal rules that give preferential treatment to some shareholders and pressure others during tender offers. Let's assume Company XYZ wants to purchase the common shares of Company 123. Read more

Savings Bonds

Savings bonds are bonds sold by the U.S.Treasury. Read more

Scale Order

A scale order is a group of limit orders that have increasing or decreasing prices. Let's say John Doe thinks the price of Company XYZ will fall during the trading day tomorrow, and not all at once. Read more

Scalpers

The term scalpers refers to securities traders who manipulate the market.  Scalpers may also refer to traders who earn relatively small amounts of money from the arbitrage between bid prices and ask prices on securities. In the case of market manipulation, scalpers may buy a security, then recommend the security to investors and take a profit on the difference between their price and the sales price once the market demand raises the price. Read more

Scalping

Scalping is a form of day trading that involves earning small profits on large volumes of securities. A day trader is a very active securities trader who holds securities for a very short time (generally one day or less). Read more

Seasoned Issue

A seasoned issue, also called follow-on offering or secondary offering, is a sale of stock by a company or by an existing shareholder of a company that is already publicly held. Let's say Company XYZ is a public company and would like to sell additional shares in order to raise money to build a new factory. Read more

Seat

A seat is a license to trade on the floor of the New York Stock Exchange, either as an agent for someone else or for his or her own personal accounts (in which case, the person is called a floor trader).  The New York Stock Exchange (NYSE, also known as the Big Board) is the first and most popular stock exchange in the world. Read more

Secondary Offering

A secondary offering refers to a large-scale market sale of a company's shares by a major shareholder. Also called a secondary distribution, a secondary offering is distinguished from an initial public offering (or IPO) in that the proceeds generated by the sale of the shares goes to the shareholder rather than the issuing company. Read more

Sector Rotation

Sector rotation is a strategy based on moving investments across business sectors to take advantage of cyclical trends in the overall economy. The basic idea behind sector rotation is that the economy operates in cycles. Read more

Secular Market

A secular market is a market that is for all intents and purposes captive to broader economic forces or traumas.   Let's say the United States experiences a massive terror attack on its own soil, similar to September 11, 2001. Read more

Securities Investor Protection Corporation (SIPC)

The Securities Investor Protection Corporation (SIPC) is a nonprofit corporation created to insure the assets investors have deposited in brokerage firms.All registered brokers, dealers, members of securities exchanges, and the majority of Financial Industry Regulatory Agency (FINRA) members belong to the SIPC. Read more

Seed Capital

Seed capital is the earliest stage of capital investment for a start-up venture. Startup financing involves several stages of capital formation: seed capital, venture capital, mezzanine or bridge funding, and an initial public offering. Read more

Self-Dealing

Self-dealing is an illegal activity that occurs when a person or entity with fiduciary duty puts his or her own  interests ahead of a client's interests in a transaction. Let's say John Doe owns 500,000 shares of Company XYZ. Read more

Sell Side

Sell side, sometimes called prime brokers, refers to investment firms which sell securities and assets to money management firms and corporate entities.They may be considered intermediaries which both perform research and conduct the actual purchase of securities. Read more

Sell-Off

A sell-off is the rapid selling of a security leading to a sharp decline in its price.  When a substantial number of shareholders sell a specific stock, it is called a sell-off. Generally speaking, prospective buyers sit on the sidelines until the conditions that caused the sell-off to occur are over. Read more

Seller's Market

A seller's market exists when there are more sellers than buyers in the market for a certain good or service. Housing is a common place to find a seller's market. Read more

Separate Trading of Registered Interest and Principal of Securities (STRIPS)

STRIPS stands for Separate Trading of Registered Interest and Principal of Securities.They are securities that represent the separate interest and principal components of Treasuries. Read more

Serial Bonds

Serial bonds (or installment bonds) describes a bond issue that matures in portions over several different dates.  Instead of facing a large lump-sum principal re-payment at maturity, an issuer can opt to spread the principal repayment over several periods. Normally, when a company or government body issues bonds, all of those bonds mature on the same date (that is, the borrower must repay all of the debt on one particular day). Read more

Series 65

Administered by the Financial Industry Regulatory Authority (FINRA) and designed by the North American Securities Administrators Association (NASAA), the Series 65 is an exam and professional license for individuals who wish to serve as investment advisors.  Formally named the Uniform Investment Adviser Law Examination, the Series 65 covers regulations, ethics, laws and professional practice subjects such as portfolio management, retirement planning, and fiduciary responsibilities.The Series 65 is significant in light of the changing financial services landscape with the growth of Registered Investment Advisor (RIA) firms. Read more

Settlement Price

Settlement price refers to the market price of a derivatives contract at the close of a trading day. Also called the closing price, the settlement price is the price at which a derivatives contract settles once a given trading day has ended. Read more

Shadow Banking System

The shadow banking system (or shadow financial system) is a network of financial institutions comprised of non-depository banks -- e.g., investment banks, structured investment vehicles (SIVs), conduits, hedge funds, non-bank financial institutions and money market funds. Shadow banking institutions generally serve as intermediaries between investors and borrowers, providing credit and capital for investors, institutional investors, and corporations, and profiting from fees and/or from the arbitrage in interest rates. Read more

Shadow Pricing

Shadow pricing is the practice of allotting a dollar-value to an abstract commodity for the purpose of cost-benefit analysis. Cost-benefit analysis takes into account abstract commodities (also called intangible assets) not normally purchased or sold in a marketplace. Read more

Shanghai Composite Index (SHCOMP)

The Shanghai Composite Index tracks the biggest and most important public companies in China. The Shanghai Composite Index is similar to the Dow Jones Industrial Average (DJIA) in the U.S. Read more

Share Classes

Share classes refers to the division of a company's equity into different classes, which have different rights. Companies generally set forth the distinguishing features of their share classes in their corporate charter and bylaws. Read more

Share Purchase Right

A share purchase right is an instrument that entitles the holder to purchase a specified number of shares at a specified price. Offered by an issuing company, a share purchase right gives current shareholders the opportunity to purchase a specific quantity of shares at a favorable discount without obligation. Read more

Shareholder Value Added (SVA)

Shareholder value added (SVA) represents a company's worth to shareholders in the absence of liabilities and capital costs. Shareholder value added (SVA) is expressed as a company's capital costs from stock and bond issues subtracted from its net operating profit after tax (NOPAT). Read more

Shareholders Equity

Shareholders equity is a measure of how much of a company's net assets belong to the shareholders. Shareholders equity is found on the balance sheet. Read more

Shares Outstanding

Shares outstanding (or outstanding shares) are the total number of shares currently owned by a company’s shareholders.This number includes the number of shares that the public can buy and sell, as well as restricted shares that require special permission before being traded. Read more

Sharpe Ratio

The Sharpe ratio is measure of risk.It is named after Stanford professor and Nobel laureate William F. Read more

Shelf Offering

A shelf offering is a sale of stock by a company over time. Let's say Company XYZ is a public company and would like to sell shares in order to raise money to build a new factory. Read more

Short Covering

Short covering refers to the practice of purchasing securities to cover an open short position.To close out a position, a trader purchases the same number and type of shares that he sold short. Read more

Short Interest

Short interest is the number of shares or units of a security that have been sold short and not yet covered or repurchased.It is typically expressed as a percentage of the total securities outstanding. Read more

Short Interest Ratio

A short interest ratio is the number of shares or units of a security that have been sold short and not yet covered or repurchased.It is typically expressed as a percentage of the average daily trading volume. Read more

Short Interest Theory

Short interest theory suggests that a high level of short interest indicates an imminent rise in the price of a stock. Short interest theory posits that a high number of outstanding short positions on a stock predicts that a rise in the stock's price is likely to occur in the near future. Read more

Short Sale

In investing, a short sale occurs when an investor sells a stock they don’t own yet.They borrow the stock from a broker-dealer and ideally sell it at a high price. Read more

Short Selling

Short selling is a trading strategy that seeks to capitalize on an anticipated decline in the price of a security. Essentially, a short seller is trying to sell high and buy low. Short selling involves a three-step process. Read more

Short Squeeze

A short squeeze is a situation in which a stock's price increase triggers a rush of buying activity among short sellers.  Short sellers must buy stock to close out their short positions and cut their losses, which results in a further increase in stock prices, which compel still more short sellers to cover their positions.  A short sale reverses the normal buy first/sell second sequence as a way to profit from an anticipated future fall in price. Read more

Short-Term Gain

Short-term gain usually refers to the profit on the sale of an investment that has been held less than a certain IRS-defined period of time. Let’s assume you purchase 100 shares of Company XYZ for $1 per share. Read more

Short-Term Investment

In regards to investing, “short-term” refers to an investment made that can easily be converted to cash in under five years.Usually, these investments are high-quality and very liquid assets or investment vehicles like certificates of deposit, money market accounts, high-yield savings accounts, or Treasury bills. Read more

Simple Interest

Simple interest is a basic formula for calculating how much interest to apply to a principal balance.  Simple Interest Formula: Simple Interest = Interest Rate x Principal Balance For example, let's assume that John Doe puts $1,000 in his savings account.The bank pays 3% per year in interest. Read more

Sinking Fund

A sinking fund is a part of a bond indenture or preferred stock charter that requires the issuer to regularly set money aside in a separate custodial account for the exclusive purpose of redeeming the bonds or shares. To understand how a sinking fund works, let's assume Company XYZ issues $10 million of bonds that mature in 10 years. Read more

Small-Cap Stock

Small-cap stock refers to a company with a market capitalization (calculated by taking a firm's current share price and multiplying that figure by the total number of shares outstanding) near the low end of the publicly traded spectrum. The boundaries that separate these classifications are not clearly defined and can vary according to the source.Generally, though, the term "small-cap" is used to describe companies with market values between $300 million and $2 billion. Read more

Socially Responsible Investment (SRI)

Socially responsible investment (SRI) is an investment strategy that seeks both financial return and social good. Investment strategies are usually focused on returns on investment, seeking to maximize the profits for the investor.  In pursuing a profit-driven strategy, investors seek the highest returns, irrespective of what the company does.   Some investors weigh the social costs of their investments along with profits.  issues, such as environment, consumer protection, human rights, fair trade and diversity, are important guides for socially responsible investors. Read more

Sour Crude

Sour crude is a type of unrefined oil that contains sulfur.  It is difficult to refine and usually fetches a lower price. Crude oil is considered sour when it has more than 0.5% sulfur. Read more

Special Assessment Bonds

Special assessment bonds (also known as special assessment obligations) are municipal bonds that are repaid with taxes assessed on the land that benefits from the improvements financed by the bonds. For example, let's assume ABC Town wants to revamp the sewer system in the XYZ neighborhood, but it does not have the $10 million necessary to do so. Read more

Special Assessment Obligations

Special assessment obligations (also called special assessment bonds) are municipal bonds that are repaid with taxes assessed on the property that benefits from the improvements financed by the bonds. For example, let's assume ABC Town wants to revamp the sewer system in the XYZ neighborhood, but it does not have the $10 million it needs to do so. Read more

Special Dividend

A special dividend, also known as an extra dividend, is a one-time distribution of corporate earnings to company shareholders, which usually stem from exceptional profits during a given quarter or period. Special dividends are typically disbursed in cash and tend to be a greater amount than the company’s standard dividend payment. Read more

Specific Risk

Specific risk is a discrete risk to which only a specific asset or type of asset is exposed.It is the opposite of systematic risk. Read more

Speculation

Speculation is a method of short-term investing where traders essentially bet on the direction that an asset's price will move.Who Is a Speculator?  Technically, a speculator is anyone who buys or shorts securities with the expectation of a favorable price change.    A speculator believes that XYZ Company stock is overpriced, so they may short the stock, wait for the price to fall, and make a tidy profit.  It's possible to speculate on virtually every security, though speculation is especially concentrated in the commodities, futures, and derivatives markets. Read more

Speculation Index

The speculation index measures the volume of trades on the American Stock Exchange (AMEX) versus trade volume on the New York Stock Exchange (NYSE). The AMEX tends to list riskier stocks issued by smaller companies that are starting up or are trying to grow. Read more

Speculator

A speculator is a person or an entity that trades securities essentially as bets that the price will go up or down, and as such, typically has an above-average risk tolerance. Although one can argue that all investment is speculation, an acknowledged speculator will buy or sell a security solely to reap a typically short-term profit from the price movement of that security. Read more

Spider (SPDR)

A spider (SPDR) is an exchange-traded fund (ETF) that tracks the Standard & Poor's 500 Index.SPDR stands for S&P Depository Receipts. Read more

Spinning Top Candle

Spinning tops have small real bodies, and they portray a stock or index plagued by uncertainty.The spinning top has small upper and lower shadows. Read more

Spot Market

Also called the cash market or the physical market, the spot market is where assets are sold for cash and delivered immediately. Spot markets differ from futures markets in that delivery takes place immediately. Read more

Spot Price

The spot price is the current market price at which an asset is bought or sold for immediate payment and delivery.  It is differentiated from the forward price or the futures price, which are prices at which an asset can be bought or sold for delivery in the future. On November 29, 2010, the spot price of gold was $1,367.40 per ounce on the New York Commodities Exchange (COMEX).  That was the price at which one ounce of gold could be purchased at that particular moment in time.  The spot price for a bushel of wheat was about $648 on the same day. Read more

Spot Secondary

A spot secondary is a secondary stock offering that doesn't require the company to register with the Securities and Exchange Commission (SEC). A spot secondary is generally a transaction with just one type of holder -- usually institutional investors -- and so it is not subject to the typical underwriting protocol associated with issuing stock.  Since spot secondary issues avoid the time and costs associated with the normal SEC filing procedure, they are often more quickly distributed and discounted relative to shares sold to the public at large. Read more

Spot Trade

A spot trade is an asset or commodity transacted and delivered immediately. Also called cash trades, spot trades occur in the spot market and are characterized by the immediate or near-immediate delivery of the commodity in question. Read more

Spread Trade

A spread trade occurs when an investor simultaneously buys and sells two related securities that are bundled as a single unit.Each of the transactions is referred to as a "leg." The purpose of a spread trade is to net a profit from the difference in the two legs -- known as the spread. Read more

SSE Composite Index

The SSE Composite Index tracks the largest and most important public companies in China.  The SSE Composite Index is similar to the Dow Jones Industrial Average (DJIA) in the U.S. The SSE Composite Index is one of the most closely-watched global benchmarks. Read more

Standard & Poor's (S&P)

Standard & Poor's (S&P) is a financial services company and a division of The McGraw-Hill Companies, Inc.S&P does business in six main areas: credit ratings, indices, equity research, risk management, investment advisory services, and data services. Read more

Standard Deviation

Standard deviation is a measure of how much an investment's returns can vary from its average return.It is a measure of volatility and, in turn, risk. Read more

Step-Up Bonds

A step-up bond is a bond with a coupon that increases ("steps up"), usually at regular intervals, while the bond is outstanding.Step-up bonds are often issued by government agencies. Read more

Step-Up in Basis

A step-up in basis refers to an increase in the price at which an investment is considered to have been purchased. Let's assume that your uncle purchased 100 shares of Disney in 1970 for $1 per share. Read more

Stochastic Oscillator

The stochastic oscillator is a momentum indicator that shows the location of the current closing price of a security (or index) relative to the high/low range over a set number of periods.The idea behind stochastics is that as the price of a security increases, the closing price will fall closer to the highest point over a given period. Read more

Stock

A stock, also known as equity, is a type of security representing ownership in a corporation. Read more

Stock Dividend

Dividends are a distribution of corporate earnings to shareholders and usually take place in one of two forms -- cash or stock.A stock dividend is the latter of these two kinds of dividends. Read more

Stock Market Index

A stock market index measures the change in the stock prices of the index's components. Let's say we want to measure the performance of the U.S. Read more

Stock Quote

A stock quote is an estimate of price or a price at which one party is willing to buy or sell a certain number of shares of stock from the other.A stock quote consists of a bid price and an ask price. Read more

Stock Return Income Debt Securities (STRIDES)

Stock Return Income Debt Securities (STRIDES) are callable debt securities linked to an underlying stock.STRIDES are similar to callable preferred shares in that they take part in the fluctuation of the underlying stock's price but also provide a fixed payment. Read more

Stock Split

A stock split is a procedure that increases or decreases a corporation's total number of shares outstanding without altering the firm's market value or the proportionate ownership interest of existing shareholders.This action, which requires advance approval from the company's board of directors, usually involves the issuance of additional shares to existing stockholders. Read more

Stock Symbol

A stock symbol -- also known as a ticker symbol -- is a string of letters used to identify a stock, bond, mutual fund, ETF or other security traded on an exchange. When a company goes public or issues securities to the public, it selects an exchange on which those securities will trade and a stock symbol that will identify those securities. Read more

Stockbroker

A stockbroker is a person or a company that acts as an intermediary between buyers and sellers of stocks. Stockbrokers are often paid a commission, which is a percentage of the customer's purchase or sale price, though some receive a flat fee per transaction or a mix of the two. Read more

Stop Limit Order

Stop limit orders can be difficult to understand, but our experts provide the simplest financial definition anywhere.  Read more

Stop Order

A stop order (also called a stop-loss order or stop market order) is a trade order whereby the investor instructs the broker to automatically sell the stock if it drops to a certain price. For example, let's assume that you own 100 shares of Company XYZ stock, for which you have paid $10 per share. Read more

Stop-Loss Order

A stop-loss order (also called a stop order or stop market order) is an order whereby the investor instructs the broker to automatically sell the stock if it drops to a certain price. For example, let's assume that you own 100 shares of Company XYZ stock, for which you have paid $10 per share. Read more

Strategic Asset Allocation

Strategic asset allocation is the practice of realigning a portfolio's asset composition in order to accommodate changes in market climate. Portfolios are made up of different asset classes, with each asset class comprising a certain percentage of the total portfolio (i.e. Read more

Stratified Sampling Approach

A stratified sampling approach is an indexing strategy whereby a fund manager divides an index into different "cells" that represent different characteristics of the index.The fund manager then chooses investments that mimic those cells. Read more

Street Expectation

The street expectation is the commonly-held estimate of a company's future performance by market analysts. Market analysts consider economic conditions, consumer sentiment, research and development, new products, competition, management efficiency and a whole host of other industry-specific factors to establish their expectation. Read more

STRIPS

STRIPS stands for Separate Trading of Registered Interest and Principal of Securities.They are securities that represent the separate interest and principal components of Treasury securities. Read more

Structured Portfolio

A structured portfolio is a type of passively managed portfolio whose cash inflows are designed to meet the cash outflow requirements to fulfill a future obligation. A structured portfolio is also referred to as a dedicated portfolio. Read more

Super Bowl Indicator

The Super Bowl Indicator, also known as the Super Bowl Effect, is a theory that stock prices will fall if the AFC team wins the Super Bowl. The Super Bowl is the final game in the National Football League season. Read more

Surrender Fee

A surrender fee is a fee paid by an annuity investor to withdraw some or all of his or her principal before the annuity's surrender period has expired. An annuity is a contract whereby an investor makes a lump-sum payment to an insurance company, bank or other financial institution that in return agrees to give the investor either a higher lump-sum payment in the future or a series of guaranteed payments. Read more

Surrender Period

The surrender period is the time an investor of annuity must wait until they may take a withdrawal from their annuity without paying a penalty or surrender fee. The surrender period is usually stated in the contractual agreement of the annuity an investor has purchased. Read more

Survivorship Bias

Survivorship bias occurs when companies that no longer exist due to bankruptcy, acquisition, or any other reason are not accounted for when calculating investment returns.  For example, suppose an investor is researching returns on Portfolio XYZ over two consecutive years: 2006 and 2007.In 2006, the portfolio is comprised of Stock A, Bond B, and Mutual Fund C. Read more

Swap Spread

A swap spread is the difference between the fixed rate component of a given swap and the yield on a Treasury item or other fixed-income investment with a similar maturity. Companies engage in swaps in order to benefit from an exchange of comparative interest rate advantage. Read more

Sweep Account

A sweep account is a bank or brokerage account that automatically transfers amounts above a certain threshold into a higher interest-earning investment option.These transfers are made at the close of each business day. Read more

Sweet Crude

Sweet crude is a type of yet-to-be refined oil which contains minimal amounts of impurities. Sweet crude oil meets standards for low levels of contaminants such as sulfur (below one percent). Read more

Syndicate

A syndicate is a group of lenders or underwriters that come together to share or participate in a specific loan or investment. A project may require too large of financial investment for a single lender or require a special type of investor or lender with expertise in a particular asset class. Read more

Synthetic Collateralized Debt Obligation (Synthetic CDO)

A synthetic collateralized debt obligation is a collateralized security which is backed by derivatives such as swaps and options contracts. A synthetic collateralized debt obligation, commonly called a synthetic CDO, seeks to generate income from swap contracts, options, and other non-cash derivatives rather than straightforward debt instruments such as bonds, student loans, or mortgages. Read more

Systematic Risk

Also called market risk or non-diversifiable risk, systematic risk is the fluctuation of returns caused by the macroeconomic factors that affect all risky assets.  Unsystematic risk is the risk that something with go wrong on the company or industry level, such as mismanagement, labor strikes, production of undesirable products, etc. Read more

T+1, T+2, T+3

T+1, T+2 and T+3, as well as other "T+" numbers, refers to the number of days it takes to settle a financial transaction. Funds settlement refers to the transfer of funds from buyer to seller and the transfer of title to an asset from seller to buyer. Read more

Tag-Along Rights

Also called co-sale rights, tag-along rights allow minority shareholders to sell their stakes in a company if a majority shareholder wishes to sell its stake in a company. Let's say Company XYZ is a start-up firm looking for capital. Read more

Tail Risk

Tail risk is the risk that an investment will change by more than three standard deviations from its mean. Standard deviation is a measure of how much an investment's returns can vary from its average return. Read more

Tailgating

Tailgating occurs when a broker buys or sells a security after doing the same for a client. Let's say John Doe is a broker for Jane Smith. Read more

Tainted Alpha

Tainted alpha is the portion of a security's or portfolio's return that is not attributable solely to the skill of the investor or portfolio manager. Alpha is the portion of a security's or portfolio's return that is not explained by the market or the security's relationship to the market but rather by the skill of the investor or portfolio manager. Read more

Take a Bath

To "take a bath" means to take a large loss. John Doe buys Company XYZ shares at $10. Read more

Take a Flier

To take a flier means to invest in a highly risky asset or to try for the first time. John Doe starts his own business. Read more

Takedown

The takedown is the price that an underwriter pays for a new issue. When a company decides it wants to issue stock, bonds or other publicly traded securities, it hires an underwriter to manage what is a long and sometimes complicated process. Read more

Taking the Street

Taking the Street is slang for buying large amounts of stock from institutions so that those sellers have to buy more stock, which drives the price up.  Let's say John Doe has a Gordon Gekko complex and wants to make some money by manipulating the market for Company XYZ stock. Read more

Tape Shredding

Tape shredding occurs when a broker splits a large buy or sell order into a lot of smaller buy or sell orders. Let's say Company XYZ is a huge pension fund with billions of dollars under management. Read more

Target Date Funds

Target date funds are mutual funds designed to target the date of an investor’s goal, such as retirement or college education funding.The strategy of the fund will focus on capital appreciation at the beginning of the cycle and capital preservation as the target date approaches. Read more

Tax Differential View of Dividend Policy

The tax differential view of dividend policy is the idea that capital gains are better than dividends because the tax rate on capital gains is lower than the tax rate on dividends. For example, let's assume that the capital gains tax is 15% and the tax rate on dividends is 28%. Read more

Tax Gain/Loss Harvesting

Tax gain/loss harvesting is a strategy for reducing taxes. John Doe made two major investment transactions this year: 1. Read more

Tax Lien Certificate

A tax lien certificate is written proof that a taxing authority has placed a lien on a piece of property for unpaid property taxes. Let's assume that John owns a house in the country and the annual property taxes are $4,000. Read more

Tax Lien Foreclosure

A tax lien foreclosure occurs when a taxing authority seizes a piece of property after the property owner has failed to pay property taxes due. Let's assume that John owns a house in the country and the annual property taxes are $4,000. Read more

Tax Lot Accounting

Tax lot accounting is a method of record keeping that tracks the cost, purchase date, and sale date for every unit of every security in a portfolio. For example, let's assume that you purchase 50 shares of Company XYZ at $5 a share on January 1. Read more

Tax Roll

A tax roll is a list of taxable property in a city, county, state or other taxing authority. For example, let's assume that the city of Investon has 1,500 residents. Read more

Tax Selling

Tax selling is a strategy used to reduce tax liability. Let's assume that John sold two different stocks that he originally bought five years ago: 1) He sold 1,000 shares of Company XYZ at $25 a share. Read more

Tax Service Fee

A tax service fee is paid by mortgage borrowers to mortgage lenders to ensure that a mortgaged property's property taxes are paid on time. For example, let's assume that John buys a house. Read more

Tax Swap

A tax swap is a strategy that involves selling one investment with capital losses and replacing it with a similar, but not identical, investment. Let's assume that John owns 1,000 shares of Mutual Fund XYZ. Read more

Tax-Efficient Fund

A tax-efficient fund is a mutual fund or ETF that minimizes the fundholder's tax bill in some way. For example, let's say John is in a high tax bracket. Read more

Tax-Exempt Sector

In investing, a tax-exempt sector is a group of financial instruments that pay tax-exempt interest.However, it also refers to nonprofit organizations, which are tax-exempt. Read more

Taxable Bond

A taxable bond is a bond whose interest payments are taxable at the federal, state and/or local level. The purchaser of a taxable bond is, in effect, lending money to a company or other entity that will make a predetermined number of interest and principal payments to the purchaser. Read more

Taxable Equivalent Yield

Taxable equivalent yield (also called equivalent taxable interest rate) is the return that is required on a taxable investment to make it equal to the return on a tax-exempt investment.The taxable equivalent yield is commonly used when evaluating municipal bond returns. Read more

Taxable Preferred Securities

Taxable preferred securities are typically preferred stocks whose dividends are not tax-exempt. Preferred securities (usually called "preferred stocks") have characteristics of both stocks and bonds.  Like shares of common stock, shares of preferred stock represent an ownership stake in a company. Read more

Teaser

A teaser is a document that advertises the potential future sale of a security. The teaser's job is to create demand for a security. Read more

TED Spread

The TED spread was originally calculated as the difference between interest rates on 3-month T-bills and 3-month Eurodollar contracts with identical expiration months.The acronym is derived from the word "Treasuries" and the ticker symbol for Eurodollars, which is ED. Read more

Telephone Booth

In the trading world, a telephone booth refers to a phone bank on the floor of the New York Stock Exchange. When an investor wishes to buy or sell a security listed on the NYSE, she "places a trade" or an "order" by calling her broker or going to her online trading account. Read more

Tenancy at Will

Tenancy at will is a legal term describing an arrangement whereby a tenant occupies a piece of property with the permission of the property owner. Let's say John Doe is a bachelor trying to make it in Hollywood. Read more

Tenants in Common (TIC)

Tenants in common (TIC) describes an ownership status that applies when a property is severally owned by two parties. If two co-owners of a property are tenants in common, they own the property independent of one another. Read more

Tenbagger

A tenbagger is a stock that increases by a factor of ten. Let's say Company XYZ is trading at $5 a share. Read more

Tender Offer

A tender offer is a proposal by an investor to all current shareholders of a publicly traded corporation to tender their shares for sale at a certain price at a certain time.  The prospective acquirer typically offers a higher price per share than the corporation's stock price.This provides shareholders with a greater incentive to unload their shares. Read more

Term Structure of Interest Rates

The term structure of interest rates is a graph that plots the yields of similar-quality bonds against their maturities (from shortest to longest).It is also referred to as the yield curve. Read more

Texas Ratio

The Texas ratio was developed by RBC Capital Markets' banking analyst Gerard Cassidy as a way to predict bank failures during the state's 1980s recession.The ratio is still widely-used throughout the banking industry. Read more

The Big Board

The Big Board, a popular term for the New York Stock Exchange (NYSE), is the oldest stock exchange in the United States.  It's located on Wall Street in lower Manhattan, and is the world's largest stock exchange by market capitalization of listed companies (more than $30 trillion as of 2019). Stocks, bonds, mutual funds, exchange-traded funds (ETFs), and derivatives all trade on the Big Board. Read more

The Wealth Effect

The wealth effect is an increase in consumer spending directly proportional to strong stock portfolio performance. The wealth effect is a behavioral economic theory which posits that consumer spending increases significantly when overall portfolio performance is high. Read more

Thin Market

The opposite of a liquid market, a thin market is characterized by a small number of participants and high price volatility.  The small number of buyers and sellers in a thin market results in low transaction volume and relative illiquidity.Though low in volume, transactions tend to be larger. Read more

Thinly Traded

Thinly traded refers to an investor's inability to sell his or her investment at or near its value in a short amount of time. Things that are thinly traded are essentially illiquid. Read more

Third Market

The third market is an over-the-counter (OTC) market in which brokers and large institutional investors trade exchange-listed securities between one another. The third market is an OTC venue in which brokers and institutional investors (e.g., insurance companies and mutual funds) trade securities listed and publicly traded on a registered exchange (e.g., NYSE or AMEX). Read more

Tick

A tick is a minimum change in the price of a security.Also known as a downtick, a minus tick occurs when a security sells at a price less than the preceding sale. Read more

Tick Test Rules

Also called short sale rules, tick test rules are restrictions on when traders can short a stock. Also known as a minus tick, a downtick occurs when a security sells at a price less than the preceding sale. Read more

Ticker Symbol

A ticker symbol -- also known as a stock symbol -- is a string of letters used to identify a stock, bond, mutual fund, ETF or other security traded on an exchange. When a company goes public or issues securities to the public, it selects an exchange on which those securities will trade and a ticker symbol that will identify those securities. Read more

Ticker Tape

Ticker tape was the paper strip used to transmit stock prices before the use of computers. A typical ticker tape quote has five components: the ticker symbol, shares traded, price, change direction, and change in price. Read more

Timeliness

Timeliness is a ranking criterion of stocks based on the likely price performance of a stock over a short time period – usually less than 12 months. Stocks are ranked on a 1 - 5 scale, with one the highest achievable score. Read more

Title Insurance

Title insurance is a type of insurance policy that protects property owners and their lenders against losses resulting from problems with a property title.It provides coverage for financial costs caused by pre-existing or future property ownership issues. Read more

Tobin's Q Ratio

The Tobin's Q ratio is a measure of firm assets in relation to a firm's market value.The formula for Tobin's Q is: Tobin's Q = Total Market Value of Firm / Total Asset Value of Firm For example, let's say Company XYZ has $40 million of assets, 10 million shares outstanding and a current share price of $3. Read more

Torpedo Stock

A torpedo stock is a stock that rapidly loses market value and follows a downward trend without any sign of recovery. Torpedo stocks are named for the manner in which a ship descends, sinking into the sea following a torpedo attack on its hull. Read more

Total Cost of Ownership (TCO)

Total cost of ownership is an asset's cost to the purchaser in addition to the costs associated with using and maintaining it. Total cost of ownership (TCO) can be best exemplified by owning a home. Read more

Toxic Assets

Toxic assets are assets that have experienced a significant drop in value and lack an active market where they can be sold.Toxic assets are also known as troubled assets. Read more

Toxic Waste

Toxic waste is an idiomatic expression referring to high-risk assets with reputedly low liquidity. Named in reference to the hazardous byproducts of industrial processes, toxic waste frequently describes the riskiest tranches of many collateralized mortgage obligation mortgage obligations (CMOs). Read more

Tracking Error

Tracking error is the difference between a portfolio's returns and the benchmark or index it was meant to mimic or beat.Tracking error is sometimes called active risk. Read more

Tracking Stock

A tracking stock is a security that is issued to track the performance of a wholly-owned subsidiary. A large, diversified company may issue a tracking stock based on one of its wholly-owned subsidiaries. Read more

Trading Below Cash

A company's stock "trades below cash" if its market capitalization is less than the difference between its cash holdings and its liabilities. Trading below cash can be illustrated by a company which holds $1m in cash reserves, has $500k in outstanding liabilities, and has a total market capitalization equal to $400k. Read more

Trailing Stop Loss

A trailing stop loss order (or trailing-stop) is a special type of trade stop order that manages risk and offers profit protection.This exit strategy adjusts the stop price of a stock or stocks by a certain percentage below the market price. Read more

Tranche

A tranche is a “slice” of an investment in pooled securities, commonly debt instruments such as mortgages, that is sold separately to investors.Tranching allows investors to choose to invest in a part of the pool with similar risks and rewards. Read more

Transaction Costs

Transaction costs are fees incurred during the process of buying or selling a good or service.These costs may include brokers' commissions and spreads in the sale and purchase of securities. Read more

Transfer Agent

A transfer agent manages and maintains records of who owns a corporation's or mutual fund's stock or bonds.Most transfer agents are banks or trust companies, although some companies act as their own transfer agents. Read more

Treasury Bill

A Treasury Bill, or T-bill, is short-term debt issued and backed by the full faith and credit of the United States government.These debt obligations are issued in maturities of four, 13 and 26 weeks in various denominations as low as $1,000. Read more

Treasury Bond

Treasury bonds ("T-Bonds") are long-term, semiannual bonds issued by the U.S.Treasury. Read more

Treasury Inflation-Protected Securities (TIPS)

Treasury Inflation-Protected Securities (TIPS) are Treasury bonds that are adjusted to eliminate the effects of inflation on interest and principal payments, as measured by the Consumer Price Index (CPI). Let's assume you purchase a 10-year TIPS for $1,000, and the annual coupon rate is 5%. Read more

Treasury Note

Treasury notes, also known as T-notes, are intermediate-term bonds issued by the U.S.Treasury. Read more

Treasury Stock

Treasury stock is stock repurchased by the issuer and intended for retirement or resale to the public.It represents the difference between the number of shares issued and the number of shares outstanding. Read more

TreasuryDirect

TreasuryDirect is the website used by the U.S.Treasury Department to sell Treasury securities directly to investors. Read more

Trend Analysis

Trend analysis is a technical analysis of the movement of a stock based on past performance. A trend analysis is a method of analysis that allows traders to predict what will happen with a stock in the future. Read more

Triple Witching Hour

On the third Friday of every March, June, September, and December, contracts for stock index futures, stock index options, and stock options all expire at the end of the day.The triple witching hour is the final trading hour on those days. Read more

Troubled Asset Relief Program (TARP)

The Troubled Asset Relief Program (TARP) is a U.S.government program created in an attempt to mitigate the fallout from the subprime mortgage crisis of 2007-2008.  The subprime mortgage crisis came to the forefront of the U.S. Read more

Troubled Assets

Troubled assets are assets that have experienced a significant drop in value and lack an active market where they can be sold.Troubled assets are also known as toxic assets.  The most famous examples of troubled assets are subprime mortgages. Read more

Trust Unit Preferred Shares (TruPS)

Trust preferred shares (TruPS) are preferred shares typically issued by banks.And although they're called "preferred shares," there is a big difference between trust preferred stock and traditional preferred stock (issued by companies). Read more

Trustee

A trustee holds or manages cash, assets or a property title for a beneficiary.The trustee has a fiduciary duty to act in the best interest of the beneficiary. Read more

U.S. Savings Bond

U.S.savings bonds are bonds sold by the U.S. Read more

Unannualized

Unannualized refers to a rate of return or other measure for a period that is not one year. Let's assume Company XYZ stock rises by 2% in one week. Read more

Unchanged

In the stock world, unchanged means that the closing quote at the end of a trading day for a particular stock is the same as the closing price for the stock the day before. For example, let's say that on Monday, Company XYZ closes at $45 a share. Read more

Unconventional Oil

Unconventional oil is crude oil produced by means other than a conventional oil well. Crude, unrefined oil stock is traditionally extracted from underground reservoirs through an oil well. Read more

Underlying Security

An underlying security is an asset that a derivative instrument (e.g.futures, options) derives its value from. Read more

Underperform

The term underperform refers to an analyst recommendation that a stock is expected to do slightly worse than the overall market return. Analysts regularly evaluate and project stock performance. Read more

Underpricing

Underpricing occurs in the finance world when a company prices its shares too low in an initial public offering. When a company decides it wants to issue stock, bonds or other publicly traded securities, it hires an underwriter to manage what is a long and sometimes complicated process. Read more

Undersubscribed

In the securities industry, undersubscribed means that an offering does not have enough buyers. When a company decides it wants to issue stock, bonds or other publicly traded securities, it hires an underwriter to manage what is a long and sometimes complicated process. Read more

Undervalued

Undervalued describes a security for which the market price is considered too low for its fundamentals.Some metrics used to evaluate whether a security is undervalued are P/E ratio, growth potential, balance sheet health, etc. Read more

Underwriting

Underwriting is the process that a lender or other financial service uses to assess the creditworthiness or risk of a potential customer.  Underwriting also refers to an investment banker's process of packaging and selling a security on behalf of a client. Read more

Unencumbered

An encumbrance is a limitation on the ownership of a property.When an asset is unencumbered, there are no limitations on its ownership. Read more

Uninsured Certificate of Deposit (CD)

An uninsured certificate of deposit (CD) is a certificate of deposit that is not covered by depositor’s insurance.Certificates of deposit (CDs) are insured up to the maximum allowable amounts by either the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) insurance if they are issued by U.S. Read more

Unit Investment Trust (UIT)

A unit investment trust is a type of investment fund comprising a fixed portfolio of securities that is sold in units to potential investors similar to a mutual fund. Also called unit trusts or fixed trusts, unit investment trusts are made up of a portfolio whose security assets are fixed and remain unchanged throughout the life of the trust. Read more

Unitholder

A unitholder is an investor who owns the securities of a trust, like a real estate investment trust (REIT) or a master limited partnership (MLP).The securities issued by trusts and MLPs are called units, and investors in units are called unitholders. Read more

Unrealized Gain

An unrealized gain represents the increase in the value of an asset that has not been sold.This concept is often called paper profit. Read more

Unrealized Loss

An unrealized loss is a paper loss from holding an asset that has lost value but has not yet been sold. Unrealized losses are losses in asset value, but not cash value. Read more

Unsponsored American Depository Receipt (ADR)

An Unsponsored American Depository Receipt (ADR), though backed by the common stock of an offshore company, is not directly sanctioned by that company and renders the holder un-entitled to the shareholder benefits that come with a sponsored ADR. An ADR is a financial instrument denominated in U.S. Read more

Unsubscribed

The term unsubscribed describes the portion of the shares in an IPO that are not sold prior to the IPO. Let’s assume Company XYZ is going public. Read more

Unweighted Index

An unweighted index has components that are not adjusted to reflect importance or certain characteristics. Here is information about five stocks. Read more

Upside

Upside refers to an investment's potential future increase in value. For example, you purchase 100 shares of Company XYZ at $5 per share, for a total investment of $500. Read more

Upthrusts

Upthrusts are false breakouts that can trap the unsuspecting trader.Upthrust patterns quickly reverse, with the stock or index then often testing the opposite end of the trading range. Read more

Uptick

Uptick refers to the increase in the market price of a security over the preceding transaction. If a new trading price for a security is higher than the preceding one (even by one cent), the security is on an uptick. Read more

Uptick Rule

Known as Rule 10(a)(1) of the Securities Exchange Act of 1934, the uptick rule allows investors to short a security only at a price higher than the security's last trade. Essentially, a short seller is trying to do the same thing a regular investor is: buy low and sell high. Read more

Uptick Volume

Uptick volume is the number of shares of a particular stock that trades when the price is increasing. Let's assume that in the last hour, Company XYZ stock increased from $15 to $17 per share for 30 minutes. Read more

Vacancy Rate

Vacancy rate is the ratio of rental units not rented versus the total number in the building, city, state, etc. The formula for vacancy rate is: Vacancy rate = Units not rented out / Total units For example, let's assume that Company XYZ owns an apartment building that has 300 units. Read more

Vacation Home

A vacation home is a house that the owner uses only a few days or weeks per year. Let's say John Doe lives in Minneapolis. Read more

Value Averaging

Value averaging is a strategy in which an investor places a variable dollar amount into a given investment (usually common stock) on a regular basis to ensure that the investment grows by a certain dollar amount or percentage over time.The investment generally takes place each and every month regardless of what is occurring in the financial markets. Read more

Value Stock

A value stock is a security that is trading at a lower price than expected given the performance of the company and key performance indicators of the stock itself. A value stock may have a high dividend yield (i.e. Read more

Vanguard Federal Money Market Fund (VMFXX)

The Vanguard Federal Money Market Fund, or VMFXX, is an investment fund offered through Vanguard that invests in U.S.government securities. Read more

Vanguard Prime Money Market Fund (VMMXX)

The Vanguard Prime Money Market Fund, or VMMXX, is an investment fund offered through Vanguard that invests in U.S.government securities and foreign bonds. Read more

Variance

Variance is a statistical measure of how much a set of observations differ from each other.In accounting and financial analysis, variance also refers to how much an actual expense deviates from the budgeted or forecast amount. Read more

Vault Receipt

A vault receipt is a document that proves ownership of gold, silver or other precious metals stored elsewhere. Let's say John Doe purchases gold through a futures contract. Read more

Venture Capital (VC)

Venture capital is money for new, young, and/or small businesses that typically have little or no access to capital markets. There are three general types of venture capital: seed capital, for ideas that have not yet come to market; early-stage capital, for companies in their first or second stages of existence; and expansion-stage financing, for companies that need to grow beyond a certain point to become truly successful. Read more

Venture Capitalist

Venture capitalists provide funding (called venture capital) to start-up companies which they see as promising investments, but which otherwise are unable to obtain business loans.Venture capitalists are active primarily in the technology sector. Read more

Vesting

Vesting occurs when a financial instrument or account becomes wholly owned by an investor. For example, let's assume that John Doe receives options to buy 2,000 shares of Company XYZ, his employer, for $10 a share. Read more

Viager

A viager is a French method of real estate sale whereby the buyer makes a down payment and agrees to make a series of payments for the rest of the seller's life. Let's say John Doe wants to buy a $700,000 house in Paris. Read more

Volatility Index (VIX)

The Volatility Index (VIX) is a contrarian sentiment indicator that helps to determine when there is too much optimism or fear in the market.When sentiment reaches one extreme or the other, the market typically reverses course.  The VIX is based on data collected by the Chicago Board Options Exchange (CBOE). Read more

Volume

Volume represents the total number of securities traded during a certain period of time. Volume records the number of transactions taking place during a period of time. Read more

Wall of Worry

In the finance world, a wall of worry is an increasing amount of negative information about a security or about the market. For example, a wall of worry might be information that the economy's GDP is flat, followed by reports of higher unemployment, followed by increases in foreclosure rates, followed by bankruptcies at several major companies. Read more

Wallflower

Wallflower is slang for a stock that analysts and investors tend to neglect. Usually used to describe individuals who are relegated to the sidelines in social events, in investing, wallflowers are stocks that investors and analysts tend to ignore. Read more

Wallpaper

Wallpaper is slang for a security with minimal to no market value. Once a security becomes worthless, its hard documentation (for example, its stock certificate) no longer has any practical function. Read more

Walrasian Market

In a Walrasian market, buy and sell orders are grouped together and then executed at specific times, rather than executed one by one continuously. Let's assume that the following buy orders for Company XYZ stock are received: Buy 1,000 shares @ $4.25 Buy 500 shares @ $4.00 Buy 700 shares @ $4.50 Buy 500 shares @ $4.25 Sell 1,000 shares @ $4.25 Sell 500 shares @ $4.00 Sell 700 shares @ $4.50 Sell 500 shares @ $4.25 In a Walrasian market, the buy orders are grouped together and executed at a price and time that will clear most of those orders. Read more

War Bond

A war bond is a bond issued to finance war. Let's say that Country X attacks Country Y. Read more

Warehouse Receipt

A warehouse receipt is a piece of paper promising that a specific quantity and quality of a particular asset is in a given location. Let's say John Doe buys a coffee futures contract. Read more

Warehousing

Warehousing is the process of accumulating shares in a company for the purpose of eventually acquiring the firm. Let's say the John Doe Hedge Fund is thinking about acquiring a controlling interest in Company XYZ next year. Read more

Warrant

Warrants are securities that give the holder the right, but not the obligation, to buy a certain number of securities (usually the issuer's common stock) at a certain price before a certain time.Warrants are not the same as call options or stock purchase rights. Read more

Warrant Coverage

Warrant coverage is an agreement to provide warrants to a shareholder. Warrants are securities that give the holder the right, but not the obligation, to buy a certain number of securities (usually the issuer's common stock) at a certain price before a certain time. Read more

Warranty Deed

A warranty deed is a real estate document which states that the owner owns the purchased property free and clear of any outstanding mortgages, liens, or other types of encumbrances against it.  A general warranty deed legally transfers property from one individual or business to another (in most cases for real estate).They’re usually put in place when a grantee is looking to secure financing for mortgage or title insurance.  Grantor vs. Read more

Wash Sale

A wash sale occurs when an investor sells a security at a loss but then purchases the same or a substantially similar security within 30 days of the sale. Let's assume an investor owns 100 shares of XYZ Company and sells these shares on May 1 for a $1,000 loss. Read more

Wash Trading

Wash trading occurs when an investor sells a security at a loss, then purchases the same or a substantially similar security within 30 days of the sale. Let's assume an investor owns 100 shares of XYZ Company and sells these shares on May 1 for a $1,000 loss. Read more

Wash-Out Round

A wash-out round is a round of financing that dilutes the original shareholders so much that their voting power is essentially "washed out." For example, let's assume that John starts Company XYZ, which makes a novel new product for wine-lovers.John receives a massive order from Macy's, but in order to make the product and turn a huge profit, he needs $1.5 million to buy equipment and hire five new people. Read more

Wasting Asset

A wasting asset is a property or security that has a limited life and loses value over its life.  Assets have a useful life, usually based on the period of time that they have productive capacity.As the asset is used, it depreciates, eventually having little or no residual value. Read more

Watch List

A watch list is a list of securities that regulators, brokerages, research firms, or other entities are interested in monitoring. Watch lists can be good or bad. Read more

Water ETF

A water ETF is an exchange-traded fund that invests in water-related companies. An exchange-traded fund (ETF) allow investors to purchase a basket of securities in a single transaction. Read more

Watered Stock

Watered stock is stock that is issued at a price far higher than the value of the issuer's assets. In technical terms, watered stock exists when the following is true: Stock price x Shares outstanding > Net assets (or in some cases, capital invested) For example, if the founders of Company XYZ invested $10 million in the company and then decided to take the company public by selling 50 million shares priced at $3 (a $150 million market capitalization), analysts might say that Company XYZ is issuing watered stock. Read more

Wave

In investing, a wave is a pattern found in stock prices, technology, consumer trends or other areas.In technical analysis, the term often refers to Elliot Wave Theory. Read more

Weak Hands

In futures trading, weak hands are investors who do not intend to take delivery of the underlying asset.In currency trading, weak hands are investors who tend to follow traditional trading rules, thus making their trading predictable.  Futures contracts give the buyer an obligation to purchase an asset (and the seller an obligation to sell an asset) at a set price at a future point in time.  Food production companies are likely to take delivery of the corn, wheat or other underlying commodity when they trade futures contracts. Read more

Weak Sister

A weak sister is a security, economy or operating unit that performs worse than all the others. Let's say John Doe's portfolio contains five stocks: Company A, Company B, Company C, Company D and Company E. Read more

Wedding Warrant

A wedding warrant is a bond provision that requires the holder of a bond to relinquish the bond to the issuer if the holder purchases another bond with similar features from the same company. A bond with a wedding warrant, also known as a harmless warrant, requires the holder to return the bond to the issuer if the holder purchases another bond from the same company that quantitatively resembles the original bond. Read more

Weekend Effect

The weekend effect is a theory that stock prices rise on Monday and fall on Friday. The idea behind the weekend effect is that companies tend to release bad news on Fridays, when the market has the weekend to digest the news and not react as negatively on Monday. Read more

Weighted

Weighted refers to the mathematical practice of adjusting the components of an index to reflect the importance of certain characteristics. Here is information about five stocks. Read more

Weighted Average

Weighted average refers to the mathematical practice of adjusting the components of an average to reflect the importance of certain characteristics. Here is information about five stocks. Read more

Weighted Average Market Capitalization

Weighted Average Market Capitalization refers to a stock market index in which larger companies (i.e.with higher market capitalization) have more influence on the index's performance. Read more

Weighted Average Maturity (WAM)

Weighted average maturity or WAM is the weighted average amount of time until the securities in a portfolio mature.The higher the WAM, the longer it takes for all of the holdings in the portfolio to mature. Read more

Whipsaw

A trader is said to be "whipsawed" when the price of a security suddenly moves in the opposite direction of a trade that he just placed.  For instance, if a trader buys shares of Apple at $250/share, and over the course of the day the price drops to $230, the trader has been whipsawed.  This usually occurs in a volatile market when traders are subjected to high risk.Short-term traders can be whipsawed often, but long term traders are likely to see better results over a longer time horizon. Read more

Whisper Number

A whisper number is an unofficial, unpublished earnings per share (EPS) forecast for a public company.It is not the same as a consensus estimate. Read more

Wholly Owned Subsidiary

A wholly owned subsidiary is a subsidiary company whose parent company owns 100% of the company's outstanding common stock.  In a wholly owned subsidiary, the parent company owns all of the shares of the company and there are no minority shareholders. The subsidiary continues to operate with the permission of the parent company. Read more

Widow and Orphan Stock

Widow and orphan stocks are low-risk securities that pay high dividends.  Widow and orphan stocks typically maintain their dividend payments to shareholders even through difficult financial times, especially in bear market conditions. Such stocks do not grow substantially in value, but they offer a reliable, low risk investment opportunity. Read more

Wildcat Drilling

Wildcat drilling is the process of looking for oil and natural gas wells in non-typical areas. Drilling oil and gas wells can be a good opportunity for risk-tolerant investors, particularly if the field where the new well is to be drilled has consistently produced oil or gas or both in the past and is expected to continue. Read more

Wilshire 5000 Index

The Wilshire 5000 Index is considered the "total market index." Designed to track the value of the entire stock market, the index was started in 1974 by Wilshire Associates soon after computers made the daily computation of such a large index possible.The index includes a majority of the common stocks, REITs, and limited partnership shares, traded primarily through NASDAQ OMX or NYSE Euronext or the American Stock Exchange. Read more

X

X is an extension to a ticker symbol.It denotes that the security is a mutual fund. Read more

XD

XD is a symbol to indicate that a security is trading ex-dividend. The ex-dividend date is the day on which all shares bought and sold no longer come attached with the right to receive the most recently declared dividend. Read more

XDIS

XDIS is a symbol to indicate that a security is trading ex-dividend (or ex-distribution, as the abbreviation suggests). The ex-dividend date is the day on which all shares bought and sold no longer come attached with the right to receive the most recently declared dividend. Read more

XRT

XRT is an extension to a ticker symbol.It denotes that the security is trading without rights. Read more

XW

XW is a ticker-symbol extension that signifies that a stock is trading ex-warrant. Warrants are securities that give the holder the right, but not the obligation, to buy a certain number of securities (usually the issuer's common stock) at a certain price before a certain time. Read more

Y

Y is a ticker-symbol extension that signifies that a stock is an American Depository Receipt. Issued by U.S. Read more

Y Shares

Also called institutional shares, Y shares are mutual fund shares that are available for sale only to institutions.  For example, let's say that the XYZ Mutual Fund invests in a variety of defensive stocks. Read more

Yankee Bonds

Yankee bonds are bonds issued in the U.S.bond market by a foreign entity, and they are denominated in U.S. Read more

Yankee Market

Yankee Market is slang for the U.S.stock market. Read more

Yellow Sheets

Similar to the Pink Sheets, the Yellow Sheets are information about the prices of corporate bonds traded on the over-the-counter market (that is, bonds not listed on the mainstream exchanges). The Yellow Sheets disseminate information to market data vendor terminals and websites to subscribing customers. Read more

Yield

Yield refers to the cash return to the owner of a security or investment.  In general, yield is calculated as follows: Periodic Cash Distributions / Total Cost of Investment = Yield The term yield may refer to slightly different aspects of a return for variable types of investments.For example, a yield on bonds, such as the coupon yield is the annual interest paid on the principal amount of the bond. Read more

Yield Advantage

Yield advantage is the difference between yields on two different securities issued by the same company.It is the additional amount an investor can expect to earn if he or she chooses one security over another. Read more

Yield Basis

Yield basis refers to the act of quoting bond prices in terms of yield percentages rather than in dollars. Let's assume Company XYZ has $20,000,000 in bonds outstanding that pay 5% interest per year (or $50 per $1,000 bond). Read more

Yield Burning

Yield burning is the illegal practice of excessively marking up municipal and/or Treasury bonds in order to complete a bond offering. Let's assume interest rates have come down and City XYZ wants to refinance some outstanding municipal bonds. Read more

Yield Curve

The yield curve, also known as the "term structure of interest rates," is a graph that plots the yields of similar-quality bonds against their maturities, ranging from shortest to longest.(Note that the chart does not plot coupon rates against a range of maturities -- that's called a spot curve.) The yield curve shows the various yields that are currently being offered on bonds of different maturities. Read more

Yield Curve Risk

Yield curve risk refers to the probability that the yield curve will shift in a manner that affects the values of securities tied to interest rates -- particularly, bonds. Also known as the term structure of interest rates, the yield curve is a graph that plots the yields of similar-quality bonds against their maturities, ranging from shortest to longest. Read more

Yield Elbow

A yield elbow is the highest point on the yield curve. Also known as the term structure of interest rates, the yield curve is a graph that plots the yields of similar-quality bonds against their maturities, ranging from shortest to longest. Read more

Yield Equivalence

The yield equivalence is the yield a taxable investment would have to offer to equal the tax-free yield on a municipal bond.The formula to calculate yield equivalence for a taxable security is: Yield equivalence = Taxable Yield x (1 - Tax Rate) The formula to calculate yield equivalence for a tax-exempt security is: Yield Equivalence = Tax-Exempt Yield / (1 - Tax Rate) Let's assume an investor is trying to decide whether to invest in the bonds of Company XYZ or in municipal bonds issued by City ABC. Read more

Yield Maintenance

Yield maintenance is a kind of prepayment fee that borrowers pay to banks to reimburse them for the loss of interest resulting from the prepayment of a loan.  The formula for the yield maintenance premium is: Yield Maintenance = Present Value of Remaining Payments on the Mortgage x (Interest Rate - Treasury Rate) note that the Treasury rate should be for bonds of the same duration as the mortgage in question.Let's assume John takes out a $1,000,000 mortgage from ABC Bank at 7%. Read more

Yield on Cost (YOC)

Yield on cost (YOC) is an investment's annual dividend divided by the original purchase price of the investment. To calculate yield on cost, divide the annual dividend by the per-share price you initially paid. Read more

Yield Pickup

Yield pickup is the increase in yield an investor gets by selling one bond and buying another one with a higher yield. Let's assume Jane owns a bond issued by Company XYZ with a 5% yield. Read more

Yield Spread

Yield spread is the difference in yield between two securities or, more commonly, two classes of securities. Let's assume that Bond X is yielding 5% and Bond Y is yielding 7%. Read more

Yield Tilt Index Fund

A yield tilt index fund is a mutual fund that mirrors a specific stock index but gives extra weight to stocks within the index that offer high dividend yields. Let's assume the XYZ mutual fund is a yield tilt index fund. Read more

Yield to Average Life

The yield to average life is the yield on a security based on the security's average maturity rather than the maturity date of the issue.The concept is usually applied to bonds with sinking funds, which are often retired early and thus have shorter lives than their maturity dates suggest. Read more

Yield to Call (YTC)

Yield to call is a measure of the yield of a bond if you were to hold it until the call date. To understand yield to call, one must first understand that the price of a bond is equal to the present value of its future cash flows, as calculated by the following formula: where: P = price of the bond n = number of periods C = coupon payment r = required rate of return on this investment F = principal at maturity t = time period when payment is to be received   To calculate the yield to call, the investor then uses a financial calculator or software to find out what percentage rate (r) will make the present value of the bond's cash flows equal to today's selling price. Read more

Yield to Maturity (YTM)

Also referred to as book yield and redemption yield, yield to maturity (YTM) is the total return that’s anticipated on a bond or other fixed-price security.The YTM is based on the assumption that the investor will purchase a bond and hold it until maturity. Read more

Yield to Worst (YTW)

Yield to worst (YTW) is the lowest yield an investor can expect when investing in a callable bond. The concept is best illustrated with an example. Read more

Yield-Based Option

A yield-based option is a financial instrument that gives the owner the right but not the obligation to purchase a debt security.The value of the yield-based option depends on the difference between the strike price, expressed as a percentage, and the yield on the debt security. Read more

Yield-Spread Premium

Also known as negative points, yield-spread premiums are rebates lenders pay to mortgage brokers or borrowers.Yield-spread premiums are a percentage of the principal. Read more

Yo-Yo

Yo-yo is slang describing volatility in the market. In a mathematical sense, standard deviation is a measure of how much an investment's returns can vary from its average return. Read more

Z

Z is an extension to a ticker symbol.It denotes that the security is either a special class of preferred stock, a stub security, represents a limited partnership interest or is a special class of warrants. Read more

Z-Bond

A Z-bond is a bond representing the last tranche of a bond that relies on payments from underlying securities. To understand how Z-bonds work, it's important to understand how they're created. Read more

Z-share

Z-shares are shares of mutual funds for the employees of those mutual funds. For example, let's say John Doe works in the human resources department of the XYZ Fund Co. Read more

Z-Tranche

A Z-tranche is the last tranche of a bond that relies on payments from underlying securities. To understand how Z-tranches work, it's important to understand how they're created. Read more

Zero Beta Portfolio

A zero-beta portfolio is a portfolio built with zero systematic risk. The investments comprised in a zero-beta portfolio are chosen in such a way that the portfolio's value does not fluctuate as a result of market movements. Read more

Zero Coupon Bond

A zero coupon bond is a bond that makes no periodic interest payments and therefore is sold at a deep discount from its face value. Read more

Zero Minus Tick

Also called a zero downtick, a zero minus tick is a trade that occurs at the same price as the trade preceding it but lower than the last trade at a different price.A zero minus tick is the opposite of a zero plus tick. Read more

Zero Plus Tick

Also called a zero uptick, a zero plus tick is a trade that occurs at the same price as the trade preceding it but higher than the last trade at a different price.A zero plus tick is the opposite of a zero minus tick. Read more

Zero-Lot-Line House

A zero-lot-line house is a house whose structure goes right up the edge of the property line. Let's say John Doe buys a tiny tenth-of-an-acre lot and decides to build a house on it. Read more

Zoning Ordinance

A zoning ordinance is a rule regarding how people can use land and buildings within a certain area. Zoning ordinances typically delineate acceptable areas within a town for residential construction, commercial construction, industrial construction and agricultural space. Read more