Delivery price is the price at which the underlying commodity of a futures contract settles upon expiration of the contract. Upon the expiration of a futures contract, the underlying commodity is delivered to the holder in return for a predetermined price -- the delivery price.
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.
A tax anticipation bill is a Treasury bill that matures in fewer than 273 days and is repaid with tax receipts. For example, let's assume that the U.S.
A 10 bagger is a stock that increases in value by at least 10 times its purchase price, or by at least 900%. The term 10 bagger was coined by legendary fund manager Peter Lynch in his best-selling book, "One Up on Wall Street." Any stock that appreciates ten-fold from the date an investor initially purchased it can be referred to as a 10 bagger.Although such investments are a rarity on Wall Street, investors often seek out companies with tremendous growth potential in the hopes of finding the next 10 bagger for their individual portfolios.
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.
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.
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.
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.
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.
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.
The 7-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 7-day period. The formula is: 7-Day Annualized Yield = ((A-B-C)/B) x 365/7 Where: A = The value of an account at the end of the 7-day period B = The value of an account at the beginning of the 7-day period C = A proportional week's worth of fees (if fund fees vary with the size of the account, assume the account is equal to the fund's mean or median account size) Let's assume Company XYZ money market fund needs to calculate its 7-day annualized return.
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.
A shares are a type of mutual fund share.They are distinguished from B Shares and C Shares by their load (fee) structure.
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.
A- and A3 are actually two ratings from different ratings agencies: Standard & Poor's uses the A- rating, and Moody's uses the A3 rating.Both ratings indicate a relatively high level of creditworthiness.
The ABA Bank Index is a composite market index comprised of small retail and community banks. Traded on the Nasdaq, the ABA Bank Index is made up of 440 small banking institutions nationwide.
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.
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.
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.
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.
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.
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.
Above water is a term to describe being financially stable.In accounting, the term often refers to assets whose market value is higher than book value.
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.
Accounting principles govern the rules of accounting and reflect the latest accounting methodologies. Accounting principles govern how accountants calculate and present the details of a company's financial operations, such as net earnings, gross income, and net cash provided by operating activities.These details can be found in such places as quarterly balance sheets or income statements, 10-Q filings, or annual reports. Accounting principles are the bases for the more specific Generally Accepted Accounting Principles (GAAP), which are established and administered by the American Institute of Certified Public Accountants (AICPA) and the Financial Accounting Standards Board (FASB).
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.
Accounts payable (A/P) are amounts owed to suppliers and other creditors for goods and services bought on credit. Let's assume that Company XYZ orders $1,000,000 in widget parts from its supplier and has 60 days to pay for those parts.
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.
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.
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.
The acid-test ratio is a measure of how well a company can meet its short-term financial liabilities. Also known as the quick ratio, the acid-test ratio can be calculated as follows: Acid-Test Ratio = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities A common alternative formula is: Acid-Test Ratio = (Current assets – Inventory) / Current Liabilities The acid-test ratio is a more conservative version of another well-known liquidity metric -- the current ratio.Although the two are similar, the Acid-Test ratio provides a more rigorous assessment of a company's ability to pay its current liabilities.
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).
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.
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.
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.
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.
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).
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
After the bell is a phrase referring to the end of an exchange's daily trading session. Let's say that Company XYZ wants to announce the sudden departure of its CEO and the appointment of the CFO to take her place.
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.
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.
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.
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.
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.
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.
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.
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.
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.
An American Depositary Receipt (ADR) is a certificate that represents shares of a foreign stock owned and issued by a U.S.bank.
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.
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.
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.
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.
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).
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.
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.
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.
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.
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.
Appreciation is an increase in the value of an investment. Let's assume you purchased one share of Company XYZ stock for $5.
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.
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.
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.
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.
The arithmetic mean is the average of a series of numbers. The formula for calculating the arithmetic mean is: Arithmetic mean = (X1 + X2 + X3 + ...
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 + ...
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
A back-stop purchaser buys leftover shares from the underwriter of an equity or rights offering. Company XYZ is going public.
In the finance world, backdating usually refers to the practice of changing the dates of option grants to one that is earlier than the actual grant date in order to place a lower exercise price on the options and thus enhance the potential profits from the exercise of those stock options.The practice sometimes also occurs in the insurance industry, whereby policy issuers make the effective date of a policy (or claim) earlier than the application date in order to obtain a lower premium for the customer (or obtain better claim results).
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.
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.
A backspread is a trading strategy whereby the investor buys a set of options with one strike price and sells a similar set of options with a lower strike price. For example, John Doe wants to adopt a backspread strategy for some Company XYZ calls.
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.
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.
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.
Badwill is essentially damage to a company's reputation. For example, let's assume that Company XYZ becomes aware that one of its factories in the Pacific Northwest is not structurally strong enough to withstand a mild earthquake.Three years after it obtains this information, there is a 6.2-magnitude earthquake.
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.
"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.
"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.
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.
A balance sheet (also called a statement of financial position) is a statement that provides a snapshot of a company’s financial situation at a given date.It reports assets, liabilities, and shareholder’s equity to provide an overview of what a company owns, what it owes, and what is left over for the owners.
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.
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.
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.
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.
The bandwagon effect is when people go along with what everyone else is doing. Let's say Fruit Computers launches a cellphone that is popular with hipsters.
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.
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%.
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.
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.
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.
A basis point is the smallest measure used in quoting yields on fixed income products.Basis points also pertain to interest rates.
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.
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.
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.
A bellwether is a security or indicator that signals the market's direction. Let's assume Company XYZ is an auto manufacturer.
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.
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.
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.
The best ask is the lowest price offered by a stock's market makers.For stocks, the best ask is quoted in dollars.
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.
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.
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.
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.
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.
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.
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.
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.
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%.
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.
Black Tuesday, also known as the Wall Street Crash of 1929, 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, and is widely considered to be one of the causes behind the beginning of The Great Depression.
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.
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.
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.
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.
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.
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.
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.
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%.
A bond fund is a mutual fund or exchange traded fund (ETF) composed of bonds. Bond funds come in many shapes and sizes.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
The Bovespa Index tracks around 50 stocks traded on the São Paulo Stock, Mercantile & Futures Exchange.The term Bovespa is derived from BOlsa de Valores do Estado de São Paulo, the Portugese name for the exchange.
Brady bonds are U.S.Treasury bonds issued by developing countries in an effort to reduce these countries’ external debt.
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).
A broker of record is an insurance agent who manages an insurance policy with a carrier on behalf of a policyholder. Let's assume John Doe buys a whole life insurance policy.
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.
A brokerage fee compensates a broker for executing a transaction.It is usually, but not always, a percentage of the transaction value.
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.
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.
A bull has a positive outlook on an asset class or an entire market.In investing terminology, bull is the opposite of bear.
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.
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.
A bump-up certificate of deposit (CD), also called a step-up CD, is a certificate of deposit that allows the owner to “bump up” the interest rate if rates should rise during the CDs’ holding period.A bump-up CD will typically offer a slightly lower rate than a CD without the option, due to its flexibility.
Burn rate is the amount of time it will take a company to exhaust its capital cushion. Burn rate is usually expressed in terms of cash burned per month, but can be expressed according to any time period the analyst finds useful.Let's assume newly formed Biotech Company ABC has just been granted venture capital (VC) funds to pursue a groundbreaking new drug.
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.
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.
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.
A buydown, also known as paying points, is a way to lower the interest rate on a mortgage. Let's say John Doe wants to borrow $100,000 to buy a house from Jane Smith.
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.
Buzzword Bingo is a game involving business jargon. Buzzword Bingo is a lot like regular bingo, in which a caller draws random numbers and players vie to be the first to match them in a row, column or diagonal on their cards.
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.
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.
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.
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.
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).
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.
A call date is the date after which a bond issuer can redeem a callable bond. Callable bonds usually have a call schedule.
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.
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.
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.
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.
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.
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.
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.
A callable certificate of deposit (callable CD) is a time deposit with a bank or financial institution.But unlike other CDs, callable CDs can be redeemed by the issuer before the maturity date.
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.
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.
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.
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.
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.
A Canadian rollover mortgage is an adjustable-rate mortgage commonly available to homebuyers in Canada. An adjustable-rate mortgage (ARM) is a mortgage in which the interest rate varies.
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.
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.
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.
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.
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.
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.
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.
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.
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).
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
A cash out refinance (also called a cash out refinance loan or cash out refinance mortgage) is a type of mortgage loan that lets you to turn the equity you have in your home into cash, similar to a home equity loan or HELOC.A cash out refinance offers a low-interest way to borrow money for anything, including to pay off credit card debt, make home improvements, go to college, or buy a car. Cash out refinance loans are attractive to homeowners because they can offer annual percentage rates (APRs) that are half as high as credit cards or personal loans, which can save borrowers tens of thousands of dollars in interest charges over several years.
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.
Cash back, or cashback, often refers to the cash benefit paid to a credit card user after a certain amount is charged on their credit card.The cash back reward is offered by card issuers as a loyalty program to encourage the cardholder to use their card more frequently.
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.
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.
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.
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.
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.
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.
The CFA Institute issues the CFA designation.CFA stands for Chartered Financial Analyst.
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.
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.
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.
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.
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.
A clearinghouse is an intermediary between buyers and sellers of financial instruments. Clearinghouses take the opposite position of each side of a trade.
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.
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.
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.
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.
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).
The CNN effect refers to a major negative impact on consumer spending as a result of breaking news. CNN (which was later joined by MSNBC, BBC World News and Fox News) offers minute-by-minute updates on breaking events at home and abroad.
Cockroach theory refers to the notion that unfavorable reports about a company will, once publicized, be followed by similar reports about other companies in the industry. Named in reference to the popularly-held belief that the discovery of one cockroach is likely to indicate the presence of others, cockroach theory is the unofficial name for the widely-accepted notion that one piece of bad news about a company will tease out news of similar circumstances surrounding other companies in the respective industry.
A coinsurance clause in regards to property insurance specifies a minimum percentage of a property's assessed cash or replacement value that it must be insured for (typically 80% or 90%).If the insured property owner does not maintain that level of insurance on the property and there is a claim, the insured may be asked to pay a portion of the claim.
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.
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.
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.
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.
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.
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.
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.
A commodity is a raw material that is bought and sold but is interchangeable with other materials of the same type -- such as oranges or lumber.Companies that produce these goods sell them to the companies that will use them.
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.
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.
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.
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.
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.
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.
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.
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).
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
"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.
Corporate bonds are debt instruments created by companies for the purpose of raising capital.They are called fixed-income securities because they pay a specified amount of interest on a regular basis.
Corporate Social Responsibility, or CSR, is a system of self-regulation for a business to become and remain socially accountable to its customers, employees, peers, and community. Under CSR, a company tracks its effect on the whole community -- economically, environmentally, legally, and culturally -- during its normal course of business.Beyond the community benefits from social responsibility, the business hopes to improve its brand image and thus profitability.
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.
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.
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.
Cost of equity refers to a shareholder's required rate of return on an equity investment.It is the rate of return that could have been earned by putting the same money into a different investment with equal risk.
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.
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).
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.
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.
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.
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.
A coverage ratio divides a company's income or cash flow by a certain expense in order to determine financial solvency. Some of the most common coverage ratios include the fixed-charge coverage ratio, debt service coverage ratio, times interest earned (TIE), and the interest coverage ratio.
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.
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.
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.
The current ratio is the ratio of current assets to current liabilities. The current ratio is a commonly used liquidity ratio that measures a company's ability to pay its current liabilities with its current assets.
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%.
CUSIP stands for "Committee on Uniform Securities Identification Procedures" and refers to a 9-digit alphanumeric code assigned to all security issues approved for trading in the United States and Canada. The American Bankers Association initially developed the CUSIP system in 1967.
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.
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.
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.
A daily trading limit is the maximum gain or loss allowed on a derivative or currency in one trading day. For example, let's say that a forward contract on Company XYZ stock has a trading limit of X.
Dalal Street is slang for the Bombay Stock Exchange. India's Bombay Stock Exchange is located on Dalal Street, as are many financial institutions.
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.
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.
David Ricardo was an English classical economist and one-time member of the country's Parliament who lived from 1772 to 1823.He is the author of The Principles of Political Economy and Taxation and other books.
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.
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.
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.
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.
A day-around order is an order that replaces an order from another day.It is most common in the equities markets.
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.
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.
A death bond is a bond backed by life insurance policies. Let's say Company XYZ is a life-settlement provider.
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.
A death spiral is a kind of loan investors provide to a company in exchange for debt that can convert into stock, typically at below-market share prices. Let's say Company XYZ is running low on cash and needs $1 million in capital.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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).
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
"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.
Investment advisors frequently suggest dollar-cost averaging in their articles and publications, but what does it mean?Why do many advisors believe it is the best strategy?
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.
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.
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.
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.
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.
Downside risk is the probability that an asset will fall in price.It is also the measure of the possible loss from that decline.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Earnest money is a good faith deposit, typically on a house purchase.It is not the same as a down payment.
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.
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.
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.
Earnings season refers to the four times per year when most public companies announce their quarterly and/or annual earnings. Although there are no official dates, earnings seasons usually last about a month and start in mid-January (after the fourth quarter ends in December), mid-April (after the first quarter ends in March), mid-July (after the second quarter ends in June), and mid-October (after the third quarter ends in September).
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.
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.
An easement is a legal right to trespass. Let's say John Doe owns five acres of land.
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.
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.
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.
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.
EE Bonds are one of two types of savings bond sold by the U.S.Treasury (the other is I Bonds).
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.
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.
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.
An 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: 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%.
Different combinations of securities produce different levels of return.The efficient frontier represents the best of these securities combinations -- those that produce the maximum expected return for a given level of risk.
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.
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.
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.
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.
Elves make up a group of analysts and money managers who appeared on the PBS show "Wall Street Week," which was hosted by Louis Rukeyser. "Wall Street Week" aired from 1970 to 2005.
An embargo is a government-instituted prevention of exports to a certain country. In the media world, an embargo is the release of information with the condition that it cannot be published or disseminated before a certain date.
An emerging market economy describes a nation's economy that is progressing toward becoming more advanced, usually by means of rapid growth and industrialization.These countries experience an expanding role both in the world economy and on the political frontier.
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.
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.
Put simply, equity is ownership of an asset of value.Ownership is created when the owner contributes to the financing of the asset purchase.
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.
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.
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.
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.
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).
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.
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.
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.
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.
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.
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.
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.
A eurobank is a financial institution that makes loans and accepts deposits in foreign currencies -- simplifying international trade, transactions and investing. If an American company wants to buy parts from a European company, it can use a eurobank to obtain the proper currency.
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.
Europe, Australasia, Far East (or EAFE) refers to the economically developed regions of the world outside the United States and Canada. The EAFE is a broad market cap-weighted index that was formulated by Morgan Stanley Capital International (MSCI) to represent equity market performance in the developed world beyond North America.
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.
Event risk is the risk of a negative impact on a company's financial position as a result of an unexpected event like a natural disaster, industrial accident or hostile takeover. Occasionally companies face events that unexpectedly impact their ability to operate or their ability to make debt payments.
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.
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.
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.
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.
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.
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).
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.
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.
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.
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.
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).
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.
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.
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.
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.
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.
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.
The Federal Open Market Committee (FOMC) is main policy-making body of the Federal Reserve.The FOMC is responsible for conducting open market operations.
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.
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.
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.
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).
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.
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).
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.
A fixed annuity offers a fixed rate of return, and all its future payments are equal amounts. Assume you'd like to invest in a vehicle that will provide you with guaranteed monthly payments of $1,167 every month for as long as you live after you retire.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
A front-end load is a fee paid to purchase a specific investment.It is expressed as a percentage of the amount invested.
Frontier market describes up-and-coming economies that tend to be smaller and less developed than emerging markets like China and India. Frontier markets have a poor population willing to work to thrust itself into a middle class and, with luck, they also have access to a deep cache of natural resources and an appetite for export dollars.
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.
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.
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).
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.
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.
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.
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.
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.
Gilts are bonds issued by the British government.India's government bonds are also called gilts.
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).
Gnomes of Zurich is a slang, and often derogatory, term referring to Swiss bankers. A gnome is a mythical greedy creature that lives underground and guards money.
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.
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.
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.
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.
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.
A gold fix occurs when the The London Gold Market Fixing Ltd.sets the price of gold.
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.
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.
The Gold Reserve Act of 1934 nationalized gold and fixed the price of gold in terms of U.S.dollars.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
A government bond is debt issued by the government. The Treasury Department usually issues government bonds, typically through an auction process.
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.
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.
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.
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.
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.
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).
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.
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.
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.
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.
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.
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.
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.
In the investing world, the Halloween Massacre occurred in October 2006, when Canada began taxing all income trusts in the country. Many oil companies created income trusts in Canada, and they issued popular high-yield securities.
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.
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).
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.
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.
Hard money is a broad term used in connection with currency and transfer payments. Hard money has two separate meanings.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
High-ratio loans typically have higher interest rates because they are riskier.If the borrower defaults on the loan, the bank might not be able to sell the property for enough to repay the loan.
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.
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.
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%.
A histogram is a visual display of information.It uses bars to show the frequency of an item of data in successive intervals.
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.
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.
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.
Home equity equals the value of a house less the balance owed on the homeowner's mortgage. Let's assume that John Doe pays $200,000 for a house.
A home equity line of credit (or HELOC) is a flexible loan that lets you turn your home's equity into cash whenever you need it, up to a certain amount.A HELOC uses your home as collateral just like a home equity loan or cash out refinance, but works more like a credit card because it's revolving credit. HELOCs are attractive to homeowners needing cash for spending or emergencies because they offer easy accessibility with the repayment flexibility of credit cards, but with annual percentage rates (APRs) that are half as high, potentially saving the borrower hundreds or thousands of dollars in interest charges over time.
A home equity loan (HEL), also called a second mortgage, is a loan secured by the equity in a house.Equity equals the value of the house less the balance owed on the homeowner's mortgage.
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.
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.
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.
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).
An I Bond is one of two types of savings bonds sold by the U.S.Treasury (the other is the EE Bond).
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.
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.
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.
Idle funds are monies that are not invested. Money, like people, must work in order to earn money.
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.
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.
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.
Immediate payment annuities (also called single-premium immediate annuities or SPIAs) are annuities that begin making payments to the owner immediately (within one year of purchase). 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.
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).
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.
In the real estate world, an impound is an account that mortgage companies use 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.Impound accounts are also called escrow accounts.
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.
An inactivity fee is a fee charged by brokerages to clients whose infrequent trading does not satisfy a minimum trading requirement. A brokerage house earns revenue from fees and commissions charged on accounts.
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.
Income elasticity of demand is a measure of how much demand for a good/service changes relative to a change in income, with all other factors remaining the same. The formula for income elasticity is: Income Elasticity = (% change in quantity demanded) / (% change in income) An example of a product with positive income elasticity could be Ferraris.
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).
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.
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.
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.
An index is a statistical aggregate that measures change.In finance, they usually refer to measures of stock market performance or economic performance.
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.
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.
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.
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.
An indexed 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.
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.
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.
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.
Inflation risk, also called purchasing power risk, is the chance that the cash flows from an investment won't be worth as much in the future because of changes in purchasing power due to inflation. For example, $1,000,000 in bonds with a 10% coupon might generate enough interest payments for a retiree to live on, but with an annual 3% inflation rate, every $1,000 produced by the portfolio will only be worth $970 next year and about $940 the year after that.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
The interest coverage ratio, also known as times interest earned, is a measure of how well a company can meet its interest-payment obligations. The interest coverage ratio is also referred to as the times interest earned ratio.
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.
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.
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.
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.
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.
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. What Is Internal Rate of Return Used for?The internal rate of return is used to evaluate projects or investments.
An international banking facility (IBF) is a segregated branch of a domestic bank or financial institution available to only foreign customers. International banking facilities provide a range of lending and multicurrency depository services, but only to foreign residents and institutions.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
The phrase irrational exuberance was coined by Alan Greenspan, chairman of the Federal Reserve, in a December 5, 1996, speech to the American Enterprise Institute.In the speech, Greenspan asked, “How do we know when irrational exuberance has unduly escalated asset values which then become the subject of unexpected and prolonged contractions as they have in Japan over the past decade?
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.
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.
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.
A jackpot is a big winning -- often the largest a competition or event has to offer. Let's say John Doe goes to Las Vegas to get away from his wife for a few days.
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.
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.
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.
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.
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.
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.
John D.Rockefeller (1839-1937) was the founder of Standard Oil Company and became one of the world's wealthiest people. Widely regarded as the richest person in American history, Rockefeller's net worth reached a peak of nearly $340 billion (in today's dollars, adjusted for inflation) in 1913.
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.
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.
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.
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.
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.
The Joseph Effect is a statistical measure that indicates whether certain price movements are part of a long-term trend. The Joseph effect is really a description of the Hurst exponent, which is a measure of how much a series of prices are correlated with each other.
A jumbo CD is a certificate of deposit of $100,000, $1 million or more. Let's say Company XYZ is a retirement fund for a firefighters' union.
A jumbo loan, also called a jumbo mortgage, is a mortgage that exceeds the maximum amount that will be guaranteed by a government-sponsored entity like Fannie Mae. Once a loan is made between from a bank to a home buyer, the loan is typically sold into the secondary market. The largest buyers of these loans in the secondary market are the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), both government-sponsored enterprises created to provide liquidity to banks. Fannie Mae and Freddie Mac follow guidelines for loan terms set by the Office of Federal Housing Enterprise Oversight OFHEO).
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.
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.
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.
Jurisdiction risk is the risk of doing business in another country. Let's assume you are considering purchasing a bond issued by a Canadian company or a bond issued by a Nigerian company.
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.
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.
Kangaroos are slang for Australian stocks. For example, if Company XYZ is an Australian company whose stock trades on the Sydney exchange, it is a kangaroo.
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.
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.
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.
Keynesian economics is a school of thought named after economist John Maynard Keynes. British economist John Maynard Keynes is one of the fathers of modern macroeconomic theory and is widely considered to be one of the three most important economists of all time, along with Adam Smith and Karl Marx.
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.
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.
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.
The Korea Exchange (KRX) is the only securities exchange in South Korea.The KRX is headquartered in the city of Busan.
The Korean Composite Stock Price Index (KOSPI) is the main tracking index in South Korea. The KOSPI Index is comprised of 200 of the largest and most liquid issues traded on the Korean Stock Exchange.
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.
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.
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.
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.
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.
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.
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).
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.
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.
A landlord is an individual who owns real estate that he or she leases to renters. Landlords may own either residential or commercial properties.
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.
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.
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.
The large value transfer system (LVTS) is a wire system in Canada that allows banks to transfer funds among each other. The Bank of Canada and the country's department of finance developed the LVTS, which is now owned by the Canadian Payments Association.
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.
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.
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.
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.
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.
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.
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.
A learning curve is the time it takes to master a concept.It is more of an idea than a chart or other visual representation of learning.
Leasehold improvements make assets more useable and, in many cases, more marketable.Sometimes, landlords will pay for leasehold improvements in order to entice a tenant to rent a space for a long period of time.
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.
In the brokerage world, a leg is an individual component of a multistep trade. Let's say John Doe wants to do an options straddle, which involves buying call and put options with the same expiration date.
Legging out means to unwind part of a transaction. Let's say John Doe conducts an options straddle, which involves buying a call and a put with identical expiration dates.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
In the financial world, to liquidate something means to sell it for cash.Although this sounds harmless, in the corporate world the term often carries a connotation of failure, because it is most often used in discussions about Chapter 7 -- a section of U.S.
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.
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.
A load is a fee paid to purchase or sell a specific investment.It is expressed as a percentage of the amount invested.
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.
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.
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.
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.
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.
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").
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.
Macro risk is the risk that the political activity in a country will affect the operations of foreign companies that do business in that country. For example, let's say the government of the country of Cyprus is facing a fiscal crisis and decides to seize a portion of all the money in bank accounts held in the country.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Managed currency is the opposite of currency whose exchange rate is determined by the amount of supply and demand for the currency in the global marketplace.Most currencies, however, are managed by their central banks to some degree in order to achieve or maintain economic stability.
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.
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.
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.
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.
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).
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.
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.
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.
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.
Market arbitrage is a trading strategy whereby a trader sells a security in one market and buys the same security in another market. The practice of market arbitrage is based on assuming that an asset traded worldwide is priced differently in different markets.
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.
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.
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.
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.
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.
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.
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.
The strong form of market efficiency essentially proclaims that it is impossible to consistently outperform the market, particularly in the short term, because it is impossible to predict stock prices.This may be controversial, but by far the most controversial aspect of maket efficiency is the claim that analysts and professional advisors add little or no value to portfolios, especially mutual fund managers (with the notable exception of those managing funds that take on greater risks), and that professionally managed portfolios do not consistently outperform randomly selected portfolios with equivalent risk characteristics.
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.
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.
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.
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.
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.
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.
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).
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.
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.
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.
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.
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.
A market order is an order to trade a stock at the current market price.If you do not give your broker additional instructions, the trade will automatically be entered as a market order.
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.
"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).
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
A master limited partnership (MLP) is a publicly traded limited partnership.shares of ownership are referred to as units.
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.
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.
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.
This term is a play on the word "McDonalds," which is a global fast-food restaurant chain whose food is usually so consistent that an item from one restaurant is indistinguishable from the same item made in another restaurant.In turn, McMansion implies that a home is fancy but has a generic, mass-produced quality about it.
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.
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.
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.
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.
"Mine" and "yours" are colloquial references to buy and sell transactions. Buy and sell trades are a cornerstone of the capital market.
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.
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).
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.
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.
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.
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.
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.
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.
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.
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.
Mortgage allocations refer to the specific mortgage information given to an MBS buyer by an MBS seller. Mortgage-backed securities (MBS) trade in the secondary market as to-be-announced trades.
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.
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.
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.
A mortgage bond uses a mortgaged property as collateral. A mortgage bond is collateralized by one or several mortgaged properties.
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.
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.
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.
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.
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.
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.
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.
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.
A mortgage rate is the rate of interest a borrower pays on his or her mortgage. Mortgage rates can be either fixed or variable.
A mortgage rate lock is the term in a mortgage contract that stipulates the rate the borrower will pay for the entire duration of the mortgage. When a mortgage originator finds a competitive rate for a borrower, the rate is based on current interest rates.
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.
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.
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.
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.
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.
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.
Mrs.Watanabe, also referred to as "Japanese Housewives," is a slang term for small, retail investors in Japan.
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.
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.
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.
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.
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.
Mutual funds are open-ended investment companies that pool 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. Mutual funds may include investments in stocks, bonds, options, futures, currencies, treasuries and money market securities.
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.
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.
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.
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.
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.
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).
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.
The National Association of REALTORS (NAR) is a trade association for real estate professionals. The NAR has 1 million members in the United States.
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.
The national market system (NMS) is a system that regulates the disclosure and execution of trades across all exchanges. Congress established the National Market System in 1975.
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.
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.
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.
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.
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.
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.
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.
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%.
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.
A negotiable certificate of deposit (NCD) is a certificate of deposit that differs from a conventional CD in that its terms are negotiated with the issuer.Another difference is that it can be sold in the secondary markets before maturity.
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.
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.
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.
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.
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.
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.
Net interest margin securities (NIMS) provide investors with cash flows from securitized mortgages.The first NIMS came into the marketplace in the mid-1990s.
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.
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.
One key indicator of a business success is net operating profit after tax (NOPAT).Considered an “apples-to-apples” measure, NOPAT helps investors determine how well one company is performing versus another in the same industry, regardless of how much debt they use to buy and control assets. Although it may appear to be an arbitrary measurement, every investor searching for a long-term opportunity should look at net operating profit after tax. This comprehensive financial definition has compiled everything you want to know about NOPAT – and how it can help you become a smarter investor. Simply put, net operating profit after tax measures a company’s financial performance without considering the tax savings of debt, since it looks at operating profits exclusive of interest.
Net payoff is the profit or loss on the sale of a good or service after all the costs of producing and selling that good or service have been subtracted. Let's assume investor X wants to sell his house for $700,000.
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.
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.
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.
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.
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.
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.
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).
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.
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.
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.
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.
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).
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.
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.
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.
Non-GAAP earnings (GAAP stands for Generally Accepted Accounting Principles) are measures of profit that don't follow a standard calculation for companies and are not necessarily required in their disclosure.To properly understand non-GAAP earnings, you first need to know what GAAP earnings are and why they are important.
In banking, non-interest income is revenue derived mostly from fees and other activities outside the core activity of lending. For example, let's say Bank XYZ charges customers $25 for bounced checks, $4 to use an out-of-network ATM, and $3 for a paper statement.
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.
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).
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.
The New York Stock Exchange (NYSE) is open Monday through Friday from 9:30 a.m.to 4:00 p.m.
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.
An ocean bill of lading is a receipt and invoice between a carrier and a shipper. For example, let's assume that Company XYZ is in Seattle and it wants to purchase goods from Supplier ABC in China.
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.
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.
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.
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).
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).
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.
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.
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.
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.
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.
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.
The Office of Foreign Assets Control is the entity within the U.S.Treasury Department that creates and enforces trade sanctions.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
The open is the start of a new day, though it is important to note that that doesn't necessarily mean trading hasn't been going on right before the open.After-hours markets remain open as do other exchanges in other countries and time zones, which provides opportunity for the price to change right up until the open in many cases.
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.
The operating expense ratio (OER) is equal to a company's operating expenses divided by its revenues.The measure is very common in real estate analysis, whereby analysts are measuring the costs to operate a piece of property versus the income it generates. OER = Operating Expenses / Revenues Let's assume Company XYZ's operating expenses in 2019 were $2,000,000 and its revenues were $10,000,000.
Operating leverage is the ratio of a company's fixed costs to its variable costs. Here is the formula for operating leverage: Operating Leverage = [Quantity x (Price - Variable Cost per Unit)] / Quantity x (Price - Variable Cost per Unit) - Fixed Operating Cost To see how operating leverage works, let's assume Company XYZ sold 1,000,000 widgets for $12 each.It has $10,000,000 of fixed costs (equipment, salaried personnel, etc.).
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.
Operating ratio is the ratio of operating expenses to net sales.Operating ratio is also a common term in the insurance business, where it refers to an issuer's profit from underwriting and investment activities.
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.
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.
Thanks to an ability to spot undervalued companies and purchase them on the cheap, Buffett has made many people very wealthy over the course of his five-decade career. 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.
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.
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).
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Palladium is a metal used in manufacturing electronics and other items. Palladium is a rare metal that is silvery white.
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.
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.
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.
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.
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.
Par value is the face value of a bond.It is the principal amount that the lender (investor) is lending to the borrower (issuer).
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.
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.
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.
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.
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.
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.
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.
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.
The term "payee" refers to an individual or entity that will receive a payment.It can also be referred to as the beneficiary in situations that pertain to a benefactor. There are a number of examples of payees.
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.
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.
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.
A pegged exchange rate, also known as a fixed exchange rate, is a type of exchange rate in which a currency's value is fixed against either the value of another country's currency or another measure of value, such as gold. Generally, there are two ways in which countries can value their currency in the world market.
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.
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.
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.
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.
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.
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.
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.
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.
Political risk is the risk of financial, market or personnel losses because of political decisions or disruptions.Also known as "geopolitical risk." There are many environmental factors facing business.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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%.
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.
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.
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.
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.
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.
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.
Price tension refers to the presence of a large bid-ask spread. Let's assume you are watching Company XYZ stock.
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.
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.
The price-to-book ratio measures a company's market price in relation to its book value.The ratio denotes how much equity investors are paying for each dollar in net assets.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Property tax is a tax on property -- usually real estate -- as determined by an assessor. Let's assume you own a house.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Quadrix is a system that calculates stock values. The Quadrix system is trademarked by the Horizon Publishing Company.
Quadruple witching refers to the third Friday of every March, June, September and December.On these days, derivatives (e.g.
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.
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.
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.
A qualified pre-retirement survivor annuity (QPSA) is a company-sponsored death benefit that provides the employee's surviving spouse with an annuity payment should the employee die before receiving retirement benefits. For example, let's assume that John works at Company XYZ, which has a pension plan.
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.
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.
A qualified stock option is a type of company share option granted exclusively to employees. It confers an income tax benefit when exercised.
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.
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.
Quantitative trading is an investment strategy based on picking investments solely on mathematical analysis. Let's say John Doe runs the XYZ Fund.
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.
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.
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.
Quid pro quo is a Latin phrase that literally means "something for something." The phrase usually indicates an exchange of goods or services of roughly equivalent value. From a legal perspective, quid pro quo indicates that a good or service has been traded for something of equal value.
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.
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.
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.
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.
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.
Quota can refer to a measure that sets the limits, either minimum or maximum, on a particular activity. Quotas are usually set by government or by an organization of producers of a particular product. For trade quotas, governments set the quota limiting the import of a particular product, restricting the access to the domestic market by an offshore producer, and giving the domestic producers the opportunity to improve their position in the market.
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.
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.
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.
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.
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.
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.
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.
A rate of return is measure of profit as a percentage of investment. Let's say John Doe opens a lemonade stand.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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).
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.
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.
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.
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.
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).
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.
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.
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.
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).
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).
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.
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.
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.
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?
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).
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.
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.
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.
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.
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.
Return of capital (ROC) is a payment from a security to an investor from funds that were not derived from net income. Real estate investment trusts (REITs), mutual funds, master limited partnerships (MLPs) and other investments commonly make returns of capital.
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.
ROI (or return on investment) measures the gain/loss generated by an investment in relation to its initial cost.ROI allows the reader to gauge the efficiency and profitability of an investment and is often used to influence financial decisions, compare a company’s profitability, and analyze investments.
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.
Revaluation refers to the adjustment of the exchange rate of a country's currency. In countries with fixed exchange rate rates, the central bank (i.e.
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.
Revenue per available room, or RevPAR for short, is a ratio commonly used to measure financial performance in the hospitality industry.The metric, which is a function of both room rates and occupancy, is one of the most important gauges of health among hotel operators.
A reverse mortgage is an arrangement whereby a homeowner borrows against his or her home equity and receives regular payments from the lender until the total payments reach a predetermined limit. To qualify for a reverse mortgage, a prospective borrower must be at least 62 years old and own his or her residence.
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.
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.
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.
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.
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.
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.
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.
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.
A round lot is a securities trade for 100 trading units.In stock trading, a round lot is 100 shares.
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.
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.
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).
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.
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).
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.
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.
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.
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.
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.
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.
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.
The S&P Mid-Cap 400 Index tracks a diverse basket of medium-sized U.S.firms.
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.
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).
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.
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.
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.
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.
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.
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.
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.
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.
Samurai Market is slang that refers to the Japanese stock market. People in the United States are the most common users of this term.
Sandbag is slang for lowering expectations. Let's say John Doe is a new employee at Company XYZ.
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.
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.
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.
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.
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).
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.
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.
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.
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.
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.
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.
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.
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).
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.
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.
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.
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.
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.
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.
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).
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.
The Sharpe ratio is measure of risk.It is named after Stanford professor and Nobel laureate William F.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Silicon Valley is the area around San Jose and San Francisco, California that is home to a number of well-known internet, software, and computer companies. Named for silicon, the element from which computer chips are produced, Silicon Valley is located in the area south of San Francisco and is known for its high-tech computer industry.
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.
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.
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.
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.
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.
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.
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.
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.
Speculation is a method of short-term investing whereby traders essentially bet on the direction an asset's price will move. Technically, anyone who buys or shorts a security with the expectation of a favorable price change is a speculator.
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.
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.
A spider (SPDR) is an exchange-traded fund (ETF) that tracks the Standard & Poor's 500 Index.SPDR stands for S&P Depository Receipts.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
The Stock Exchange Daily Official List code is a unique identifier generated by the London Stock Exchange for securities issued in the U.K. Each U.K.-issued security traded on the London Stock Exchange is assigned a distinct code which identifies it on the Stock Exchange Daily Official List (SEDOL).
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.
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.
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.
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.
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.
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.
A stop limit order is a tool that is used to help traders limit their downside risk when buying or selling stocks.To do this, it combines two other types of orders: A stop order initiates a market order to buy or sell a security once it reaches a certain price (the stop price).
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.
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.
The Straits Times Index is Singapore's premier equity index and the most widely used benchmark for the performance of equities traded on the Singapore Stock Exchange. The index is comprised of 55 of the exchange's most valuable firms.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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).
The term swipe fees, also known as interchange fees, refers to the hidden cost paid by merchants to card-issuing banks and credit card companies for processing credit card and debit card transactions. For example, when you use your debit card or credit card at a store or online, there is a hidden fee that is charged by the card-issuing banks to process this transaction.
Synergy occurs when two (or more) agents work together to achieve something that one couldn't have achieved on its own.The simplest concept of synergy is the whole being greater than the sum of its parts. In management, synergies may be created between management teams, resulting in increased capacity and workflow that weren’t possible with independent teams. Synergy is often a major goal during mergers and acquisitions, specifically because two firms may be able to achieve higher profitability than either firm could achieve on its own. In this straightforward example of synergy in business, Company ABC may acquire Company XYZ, a similar firm.
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.
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.
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.
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.
To "take a bath" means to take a large loss. John Doe buys Company XYZ shares at $10.
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.
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.
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.
When trading volume is so high that the ticker quotes are lagging behind to keep up with reporting the trades, we say the tape is late. Let's say that trading volume on the NYSE quintuples one day after the government announces a sweeping tax reform and monetary policy change that prove very beneficial for some companies and very detrimental for other companies.
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.
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.
Tax gain/loss harvesting is a strategy for reducing taxes. John Doe made two major investment transactions this year: 1.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
A tenbagger is a stock that increases by a factor of ten. Let's say Company XYZ is trading at $5 a share.
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.
Also referred to as a time deposit or a certificate of deposit (CD), a term deposit is a type of fixed-term deposit, typically at a banking institution.Term deposits will usually have short-term maturities that can range from a few months to a few years.
The term structure of interest rates, also called the yield curve, is a graph that plots the yields of similar-quality bonds against their maturities, from shortest to longest. The term structure of interest rates shows the various yields that are currently being offered on bonds of different maturities.It enables investors to quickly compare the yields offered on short-term, medium-term and long-term bonds.
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.
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.
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.
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.
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).
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.
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.
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.
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.
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.
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.
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.
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.
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.
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).
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.
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.
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.
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.
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.
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.
Transaction risk is the risk that a company will incur losses in a transaction comprising multiple currencies due to exchange rate movements. Companies often engage in transactions involving more than one currency.
A traveler's check is a certified note issued by a bank that may be used by travelers as a risk-free substitute for paper currency. When individuals travel, particularly abroad, they often need cash to cover certain expenses.
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.
Treasury bonds ("T-Bonds") are long-term, semiannual bonds issued by the U.S.Treasury.
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%.
The Treasury market is where the United States government raises money by issuing debt.The U.S.
Treasury notes, also known as T-notes, are intermediate-term bonds issued by the U.S.Treasury.
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.
TreasuryDirect is the website used by the U.S.Treasury Department to sell Treasury securities directly to investors.
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.
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.
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.
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).
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.
Umberto Agnelli was a well-known chairman of Italian automaker Fiat -- the famous maker of the Fiat and the Ferrari. Born in Lausanne, Switzerland, in 1934, Agnelli was one of seven children.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
An unrealized gain represents the increase in the value of an asset that has not been sold.This concept is often called paper profit.
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.
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.
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.
An unweighted index has components that are not adjusted to reflect importance or certain characteristics. Here is information about five stocks.
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.
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.
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.
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.
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.
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.
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.
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.
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.
The Vanguard Federal Money Market Fund, or VMFXX, is an investment fund offered through Vanguard that invests in U.S.government securities.
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.
A variable annuity is a contract sold by an insurance company.The contract provides the holder with future payments based on the performance of the contract's underlying securities.
A variable-rate certificate of deposit (CD) is a CD with an interest rate that can change. A CD is an investment whereby the investor deposits a certain amount of money with a bank or credit union, which agrees to pay interest on that deposit for the duration of the deposit.
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.
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.
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.
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).
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.
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.
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.
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.
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.
A war bond is a bond issued to finance war. Let's say that Country X attacks Country Y.
Warehouse lending is credit provided to a mortgage lender to fund mortgages until the lender sells them in the secondary market. Let's say John Doe goes to Bank XYZ to borrow $200,000 to buy a house.
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.
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.
A wash occurs when two actions cancel each other out (such as a gain and an equal loss), effectively creating a break-even situation. Let's assume XYZ Company sells $1,000 worth of products.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Often combined with stochastics to detect overbought and oversold conditions, Williams %R -- or %R for short -- is a momentum indicator developed by Larry Williams. While stochastics compares the close of a security/index to its lowest low over a specific time period, Williams %R compares the close to its highest high over a specified period.
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.
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.
A company's working ratio measures its ability to cover its annual expenses. A company's working ratio indicates whether or not it is capable of at least breaking even by dividing its annual expenses by its annual revenues as shown: Working Ratio = Yearly Expenses – (Debt + Depreciation) / Yearly Gross Revenue A company with a ratio of 1 or less is capable of covering its expenses.
The World Bank is an international financial institution dedicated to reducing poverty around the world through capital investment and the facilitation of trade. Based in Washington, D.C., the World Bank is funded and managed by several member countries, with the United States providing the majority of funding and holding the highest percentage of voting power.
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.
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.
Xetra is a trading system owned by the Deutsche Borse (German stock exchange). Started in 1997, about 250 participants (mostly brokerages, dealers, and market makers) in 19 countries use Xetra, which is an electronic trading system for stocks, bonds, warrants, ETFs and other securities.
XRT is an extension to a ticker symbol.It denotes that the security is trading without rights.
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.
Y is a ticker-symbol extension that signifies that a stock is an American Depository Receipt. Issued by U.S.
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.
Yankee bonds are bonds issued in the U.S.bond market by a foreign entity, and they are denominated in U.S.
A Yankee CD is a certificate of deposit issued by a foreign bank in the United States and denominated in U.S.dollars.
In the finance world, yard is slang for one billion.The term comes from the French word milliard, which means one billion.
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.
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.
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.
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).
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.
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.
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.
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.
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.
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%.
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.
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.
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%.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
A zero coupon bond is a bond that makes no periodic interest payments and is sold at a deep discount from face value.The buyer of the bond receives a return by the gradual appreciation of the security, which is redeemed at face value on a specified maturity date.
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.
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.
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.
The ZEW Economic Sentiment is a monthly survey of economic sentiment in Germany.(The acronym stands for Zentrum für Europäische Wirtschaftsforschung GmbH, or Centre for European Economic Research.) The ZEW was founded in 1990 by the German government in conjunction with Mannheim University.