Dictionary - Investing Fundamentals
# 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


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

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

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

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

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


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

Acid Test Ratio

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


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 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

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

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

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


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

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

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

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


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 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

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 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

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

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

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

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

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

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

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

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


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

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-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

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

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

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

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

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 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

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 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-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


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


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


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

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

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

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

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

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

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

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


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

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

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 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


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

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

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

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

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 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 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

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

Efficient Frontier

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

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

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

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

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


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

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

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

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

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

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


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

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

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

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


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

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

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


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

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

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

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


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

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


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

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

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


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


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

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

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

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

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


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


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 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 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

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

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


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

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 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 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

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 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

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

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

Lanchester Strategy

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

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

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

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 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 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

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

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

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

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 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

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 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 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 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

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

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


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

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

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 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

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 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 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 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

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


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

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

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

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

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

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

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


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


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

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


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

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 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

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

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

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

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

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-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-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/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

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

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 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

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

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 Domestic Institutional Investor (QDII)

A qualified domestic institutional investor (QDII) is an institution allowed to invest in foreign securities.  China runs one of the most well known QDII programs.There, the China Securities Regulatory Commission allows qualified banks, mutual funds and other investment companies to invest in foreign securities. 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


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


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


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 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

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

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

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

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


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

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

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

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


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 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

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

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

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

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

Sharpe Ratio

The Sharpe ratio is measure of risk.It is named after Stanford professor and Nobel laureate William F. 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 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-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

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

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

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 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

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

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

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


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

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

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

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 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


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

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


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

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

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

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


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


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


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 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


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

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

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

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


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


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

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

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

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

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

Wire Room

In a brokerage firm, a wire room receives customer orders from brokers, sends the orders to the exchanges, and sends back notices of execution.  For instance, let's say John Doe is a broker at Brokerage XYZ. Read more