Financial Terms - Brooks Financial Services

A

10-K: A public corporation's detailed business report that is required to be filed with the SEC yearly.
12b-1 fees: A fee (typically less than 1 percent) charged by some funds to cover operating and marketing expenses. Information about 12b-1 fees is disclosed in a fund's prospectus and can reduce shareholders' returns over time.
401(k) plan: A defined-contribution retirement plan offered as an employee benefit by a company. It allows the contributor to set aside pre-tax income into a pool that is then invested in securities. Early withdrawals (prior to age 59 1/2) may be subject to a 10% IRS penalty.
403(b) plan: A defined-contribution retirement plan offered as an employee benefit by a qualifying non-profit organization. It allows the contributor to set aside pre-tax income into a pool that is then invested in securities. Early withdrawals (prior to age 59 1/2) may be subject to a 10% IRS penalty.
Accrued interest: Interest earned (but not yet paid) on a bond or fixed income security since the last interest payment.
Acquisition: The process by which a larger company, through stock purchase or exchange, gains control of a smaller company.
All or none: A type of order that requires the order be executed completely or not at all.
Alternative minimum tax (AMT): A congress-created tax plan that targets high-income individuals who take advantage of deductions, credits, and exemptions.
American Depositary Receipt (ADR): Stock or securities in a foreign company issued by a U.S. bank or trust. ADRs allow U.S. investors to trade in foreign companies without an international investment account.
American Stock Exchange (AMEX): Stock exchange in the United States for equities, bonds, options, and derivative securities located in New York City.
Amortization: Eliminating a debt (principle and interest) over time, in installments.
Annual report: A corporation's yearly, formal financial statement. Reports describe corporate assets, liabilities, revenues, expenses, and earnings, as well as analysis and messages from officers. In accordance with SEC regulations, annual reports are distributed to all company stockholders.
Annuity: An insurance product that pays an income benefit on a specific date, for a specific term, or for the lifetime of the person(s) receiving the annuity. Annuities are long-term investment vehicles designed for retirement purposes. Early withdrawals may be subject to surrender charges. Withdrawals are subject to ordinary income tax, and if taken prior to age 59 1/2, a 10 percent IRS penalty may also apply. Fixed annuities are not insured nor guaranteed by the FDIC. All guarantees are backed by the claims-paying ability of the issuing company.
Arbitrage: The simultaneous purchase of a security in one market and the sale of it or a derivative product in another market to profit from price differentials between the two markets.
Ask (ask price): The lowest price a dealer or trader will accept to sell stock. Also the quoted offer at which an investor can buy stock. This is sometimes called the offer price.
Assets: Property with financial value that can be used as payment of a debt.
Asset Allocation: Deciding how funds should be allocated among different types of securities.
Asset class: An investment category, e.g., stock, real property, metals, etc.
Auction market: Stock exchanges, like the New York Stock Exchange and the American Stock Exchange are auction markets where buyers and sellers meet through a specialist.
Average: A mathematical method used to measure securities prices trends or other market behaviors. The Dow Jones Industrial Average adds the prices of 30 stocks and then divides that total by a divisor

B

Balance sheet: A condensed summary of a company's assets, liabilities, and capital as of a specific date.
Basis point: The smallest measure used for quoting yields in the bond market. One hundred basis points equals one point of bond yield. Interest rates also employ basis points, e.g., an interest rate of 5% is 50 basis points greater than 4.5%.
Bear: Someone who believes a market will decline.
Bear market: A bear market is one in which prices are declining.
Bearer bond: An older type of bond sometimes called a coupon bond. Bearer bonds are unregistered and negotiable, and are payable via coupons to the person who has physical possession of the bond document. The owner's name is not registered on the issuer's books.
Beneficiary: Person or legal entity named to receive benefits in a will, trust, insurance policy, or other contract.
Bid (bid price): This is the quoted bid at which a Market Maker is willing to buy a stock.
Bid-ask spread: The difference between the price at which a Market Maker is willing to buy a security (bid), and the price at which the firm is willing to sell it (ask). The spread narrows or widens according to the supply and demand for the security being traded.
Block Trade: A purchase or sale of a large quantity of stock, generally 10,000 shares or more.
Blue chip: Popular name for any large, national, well-known company with solid, high-quality management and a history of profitability.
Bond: A long term promissory note in which the issuer agrees to pay the owner the amount of the face value on a future date and to pay interest at a specified rate at regular intervals.
Book value: Companies determine their stock book value by adding all assets, and subtracting all debts and liabilities. They then divide that total by the number of outstanding common shares to calculate the book value per common share. Book value and market value are not always equivalent.
Broker: An individual or firm who acts as an intermediary between buyer and seller, usually charging a commission.
Brokers' loans: Capital borrowed by brokers. Brokers use this money to help finance inventories of stock, underwrite new corporate and municipal securities issues, help finance a brokerage's own investments, and finance customer margin accounts.
Bull: Someone who believes a market will rise.
Bull market: A bull market is one in which prices are high or rising.
Buy: To purchase a security; take a long position.
Buy in: To cover, offset, or close out a short position.
Buy limit order: A conditional trading order that tell a broker to purchase a security only at a designated price or lower. Limit orders become market orders when they reach the specified limit.
Buy on close: To buy at the end of a trading session at a price within the closing range.
Buy on margin: Purchasing securities either partly or entirely on credit, using the shares themselves as collateral.
Buy on opening: To buy at the beginning of a trading session at a price within the opening range.
Buy-and-hold strategy: An investor purchases securities and holds them (without selling) for a long period of time (five or more years), regardless of trends or fluctuations in the share price.
Buy-side Trader: An individual, such as a pension or mutual fund portfolio manager, who affects trades for an institutional investor.

C

Call option: An option contract that gives the holder the right (but not the obligation) to buy a security at a specified price on or before a specific date.
Callable: Bonds that can be redeemed by their issuing corporation before the maturity date. Also applies to preferred shares that can be redeemed by the issuing corporation.
Cap: The upper limit on the interest rate of a floating-rate note or an adjustable mortgage.
Capital gain/loss: The difference between the net sales price of a capital asset (investment or real estate) and its net cost. If the sales price is higher, you have a gain. If it's lower, you have a loss.
Capital stock: Stock shares (common and preferred) issued by a company to raise capital.
Capitalization: The debt and/or equity mix that fund a firm's assets. Total amount of a company's issued securities.
Cash flow: Often used as an indication of financial strength, cash flow is the amount of cash generated (and used) by a company during a specific time period. Earnings before depreciation, amortization, and non-cash charges.
Cash sale: A market transaction that specifies delivery of securities the same day they are purchased.
Certificate: A formal (usually engraved) document that serves as proof of stock ownership in a company.
Certificate of deposit (CD): Money market instrument issued by a bank that indicates a specific sum of money has been deposited. CDs bear a maturity date, a specific interest rate, and a duration of up to five years. Traditional CDs typically feature a penalty for early withdrawal.
Clearing house: An exchange component that confirms and settles securities trades.
Collateral: Assets offered to secure credit.
Commercial paper: A short-term, unsecured loan typically issued by companies with high credit ratings (and therefore relatively low risk) for financing internal accounts.
Commission: Fees paid to a broker for executing a trade based on the number of shares traded or the dollar amount of the trade.
Commission broker: A broker who acts as an agent for a particular brokerage house and who buys and sells securities for that brokerage and its clients on a commission basis.
Common stock: A class of securities representing ownership and control in a corporation and that may pay dividends as well as appreciate in value.
Community property assets: Property that spouses own jointly (usually acquired during the marriage). Community property laws vary from state to state.
Conglomerate: A large corporation that has acquired several other firms engaged in different industries.
Consolidated balance sheet: A comprehensive balance sheet that shows the financial health of a company and all its subsidiaries.
Consumer price index (CPI): A monthly measure of U.S. inflation that charts the prices of consumer goods and services. The CPI is also called the cost of living index.
Convertible Bond: A bond that can be exchanges at the option of the holder into preferred or common stock at a preset ratio.
Correspondent: A financial organization that acts as a proxy for another similar organization that lacks direct access to certain places or markets.
Coupon bond: An unregistered debt instrument payable to the holder via detachable coupons.
Coverdell education savings account (ESA): A replacement for the education IRA, an ESA is a trust or custodial account designed to help parents fund qualified education expenses for their children. Account contributions are taxed, although earnings used for qualified expenses are not. Ask your financial advisor for benefits and restrictions.
Cumulative voting: A voting method in which participants receive as many votes as there are open board positions. This gives minority shareholders more say by allowing them to cast all their votes (if desired) for a single candidate. Cumulative voting is required under the corporate laws of some states and is permitted in most others.
Current assets: Cash or assets that can be converted to cash at short notice (usually within one year), e.g., cash, government bonds, accounts receivable, etc.
Current liabilities: Short-term debts owed by a company.
Current return: An investment's present earnings or rate of return.
Custodial fees: Fees charged by an institution that holds securities in safekeeping for an investor.

D

Day order: An order to buy or sell securities that automatically expires if not executed on the day it is entered.
Dealer: Any person or company in the business of buying and selling securities for his or her own account, through a broker or otherwise.
Debenture: An unsecured debt secured by general credit (the borrower's integrity), not by collateral. The debenture agreement is called an indenture.
Debit balance: Debit balances are monies owed to a broker/dealer by a customer generally resulting from the customer's purchase of securities.
Debt: Money borrowed.
Default: Failure to make timely payments on a debt.
Deficit: An excess of liabilities over assets, losses over profits, or expenditures over income.
Depository Trust Company (DTC): The world's largest central securities depository. The DTC settles trades in municipal, mortgage-backed, and corporate securities.
Depreciation: A decrease in the value of an asset.
Dilution: When company shares increase in quantity, causing the value of each share to decrease.
Director: Person elected by shareholders to serve on the board of directors.
Discount: How much a security sells below its par value.
Disability insurance: An insurance product that only pays benefits if the policyholder, as a result of illness or injury, can no longer work.
Discount rate: The interest rate that the Federal Reserve charges banks and broker/dealers to borrow money.
Discretionary account: An account empowering a broker or adviser to buy and sell without the client's prior knowledge and consent.
Diversification: A risk-reducing investment strategy that combines different securities and assets (stocks, bonds, cash, etc.) unlikely to move, price-wise, in the same direction at the same time.
Dividend: Distributions to stockholder of cash or stock declared by the company's board of directors.
Dollar-cost-averaging: A strategy of buying securities at regular intervals with a fixed dollar amount per interval.
Dow Jones industrial average: The best-known U.S. index of stocks containing 30 companies that trade on the NYSE.
Downgrade: A negative change in buy/sell/hold ratings for a security.
Down tick: A transaction executed at a price lower than the preceding transaction in that secutiry or a new quote registered at a lower price than the preceding quote in that security.

E

Earnings: Net income for a company.
Earnings before interest and taxes (EBIT): A company's earning power
Earnings per share (EPS): A company's profit divided by its number of outstanding shares.
Effective rate: A debt security's yield calculated from the purchase price.
Employee stock ownership plan (ESOP): A company contributes to a trust fund that buys stocks on behalf of employees.
Equity: The ownership interest of stockholders in a company. Also, the excess of the market value of securities over debit balance in a margin account.
Estate taxes: A tax on the estate of a deceased person before it transfers to heirs or entities owed by the estate.
Eurodollar: U.S. currency in a European bank or other institution outside the U.S.
Exchange: A marketplace where agents trade shares and options. Principle U.S. stock exchanges are the New York Stock Exchange (NYSE), American Stock Exchange (AMEX), and the National Association of Securities Dealers (NASDAQ).
Ex-dividend: A security that does not carry the right to recently declared dividends.
Execution: Completing an order to buy or sell securities.
Expense ratio: Operating costs, including management fees, expressed as a percentage of a fund's average net assets for a given time period.
Extra: A dividend that is paid in addition to a firm's 'regular' quarterly dividend.

F

Face value: The nominal dollar amount assigned to a security by the issuing institution or company.
Factor: A financial institution that buys a firm's accounts receivables and collects the debt.
Factoring: Sale of a firm's accounts receivables to a factor.
Federal Deposit Insurance Corporation (FDIC): A federal institution that insures bank deposits.
Federal Home Loan Mortgage Corporation (Freddie Mac or FHLMC): Established by congress in 1970, the corporation buys qualified mortgage loans from originating institutions. It converts the loans to securities, which it then sells to investors. The U.S. government does not back the corporation's securities.
Federal National Mortgage Association (Fannie Mae or FNMA): Like Freddie Mac the congressionally chartered corporation (1938) buys qualified mortgage loans from originating institutions. It converts the loans to securities, which it then sells to investors. The U.S. government does not back the corporation's securities.
Fill: The price at which a broker executes a trade order.
Fill or kill order: A trade order that is canceled unless executed within a specified time period.
FINRA: Conducts the regulatory oversight of more than 5,000 securities firms and 666,000 registered representatives. It is responsible for rule writing, firm examination, enforcement and arbitration and mediation functions, along with all functions that were previously overseen solely by NASD, including market regulation under contract for NASDAQ, the American Stock Exchange, the International Securities Exchange and the Chicago Climate Exchange.
Fiscal year: A corporation or institution's accounting year (often different from a calendar year).
Fixed annuities: Annuity contracts in which the issuing institution pays a fixed dollar amount per period.
Floating rate note: a debt instrument that may pay interest at a variable (instead of fixed) rate.
Floor: The area of an exchange where trading occurs.
Floor broker: A licensed agent who is paid a commission for executing orders for clearing members or their customers.
Floor trader: An agent who generally trades only for his/her own account, for an account under his/her control, or who has such a trade made for him/her. Sometimes called a 'local.'
Formula investing: A collective name for a variety of different investment strategies that suggest following strict rules rather than emotional decisions (e.g., dollar cost averaging).
Free and open market: A market in which the forces of supply and demand operate unhindered.
Funds: Money or assets that can be converted to money. An investment company that sells shares and invests in securities issued by publicly traded companies.
Fund family: Set of funds with different investment objectives offered by one investment management company.
Funded debt: Long-term loans, obligations, or debt instruments, usually accompanied by interest payments.

G

General mortgage bond: A bond secured by a property mortgage.
General partner: A partner who has unlimited liability for the obligations of the partnership.
General partnership: A partnership arrangement in which all partners are general partners.
Gilt-edged: Securities from high-quality, blue chip companies are said to be 'gilt-edged.'
Gold standard: A monetary system in which currencies are defined in terms of their gold content. The U.S. abandoned the gold standard in 1971.
Good delivery: A designation that a security meets all requirements to be transferred to the buyer.
Good 'til canceled (GTC) or open order: A trading order that is good until the investor cancels it. Brokerages usually set a limit of 30 to 60 days, after which the GTC expires if not reinstated.
Government bonds: A high-grade debt instrument sold by the U.S. Government.
Gross domestic product (GDP): Market value of goods and services produced over time including the income of foreign corporations and foreign residents working in the U.S., but excluding the income of U.S. residents and corporations overseas.
Gross national product (GNP): Measure of an economy's total income. Equal to GDP plus income abroad accruing to domestic residents minus income generated in domestic market accruing to non-residents.
Gross profit margin: Gross profit divided by sales, which is equal to each sales dollar left over after paying for the cost of good sold.
Growth stock: Stock of a company that is growing (earnings, revenue, etc.) faster than its industry.

H

Hedge fund: A fund (usually used by wealthy accredited individuals and institutions) that employs a variety of aggressive techniques to enhance returns. Hedge funds typically collect a percentage of fund profits.
High price: The highest intraday price of a stock over the past 52 weeks, adjusted for any stock splits.
Holding company: A company that controls, through voting stock, another firm(s).
Host security: The security to which a warrant is attached.
Hypothecation: Pledging of securities or other assets as collateral to secure a loan, such as a debit balance in a margin account.

I

Income bond: A debt instrument that promises to repay principal, but only pay interest when earned by the issuing institution.
Income fund: A conservative mutual fund that seeks to return current income as its primary objective rather than emphasizing growth.
Income statement: A statement showing a company's revenues, expenses, and income over a specified period of time.
Income stock: Common stock with a history of high dividend yield.
Indenture: A written agreement describing the terms of a debenture, e.g., interest rate, maturity date, etc.
Independent broker: Exchange member who executes orders for other, temporarily busier brokers.
Index: Statistical measure (not an average) of specific securities' value.
Index and option market (IOM): A division of the Chicago Mercantile Exchange (CME) established in 1982 for trading stock index products and options.
Inflation: The value of a currency decreasing as prices of goods and services increase over time.
Initial public offering (IPO): A company's first sale of stock to the public. Companies making an IPO are seeking outside equity capital and a public market for their stock.
Institutional investor: A bank, mutual fund, pension fund, or other corporate entity that trades securities in large volumes.
Instruments: Any financial security, e.g., stock, bond, Treasury bill, mortgages, etc.
Interest: The price paid to lenders for borrowing money. Also, a share or title in property.
Intermarket Trading System (ITS): A computer system that interconnects competing exchange markets for the purpose of choosing the best market. It is operated by Securities Automation Corporation (SAC).
International fund: A mutual fund that invests primarily in securities of companies domiciled outside the U.S.
Interrogation device: Any machine that displays market information.
Inventory: Securities bought and held by a broker or dealer for resale.
Investment: Using money for the purchase of a financial product or item of value in the expectation of future profit.
Investor: A person who buys or sells securities for his or her own account or the account of others.
Investor relations: A corporate department that communicates with shareholders.
Investment bank: A financial institution that acts as a middleman (underwriter) between the corporation issuing stocks and bonds, and the public.
Individual retirement account (IRA): Special account that invests savings and defers taxes until money is withdrawn.
Issue: A particular financial asset or the act of distributing securities.
Issuer: A corporation that has distributed to the public securities registered with the Securities Exchange Commission.

J

Joint account: An agreement between two or more organizations to share risk and responsibility in purchasing or underwriting securities.
Jumbo loan: A loan larger than the lending limits set by Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation). Jumbos usually carry a higher interest rate than conforming loans.
Junk bond: A risky bond with a speculative credit rating of BB (Standard & Poor's) or Ba (Moody's) or lower. Junk bonds offer investors higher yields than those of financially sound companies, but with substantially higher risk.
Junior debt: Debt whose holders have a claim on the firm's assets only after senior debtholder's claims are satisfied.

K

L

Last split: After a stock split, the number of shares distributed for each share held, and the date of the distribution.
Leading economic indicators: A set of ten economic indicators that tend to rise or fall before the rest of the economy. Indicators include building permits, stock prices, real money supply, and vendor performance.
Lease: A long-term rental agreement, or a form of secured long-term debt.
Lessee: A person or organization that leases an asset from another.
Lessor: A person or organization that leases an asset to another.
Leverage: The use of fixed-rate debt financing to try to boost an investment's rate of return.
Leveraged buyout (LBO): A strategy used to take a public corporation private financed through the use of debt funds (bank loans and bonds).
Liabilities: Claims against a corporation.
Limit order: An order to buy or sell a security at a customer's specified price or customer's order to buy or sell a specified number of shares of a security at a specific price.
Line of credit: A borrower receives a specified amount of unsecured credit for a specified period of time.
Liquidation: The process of selling off assets and paying creditors and shareholders after terminating a firm's business. Converting securities or property into cash.
Liquidity: The liquidity of a stock is the ease with which the market can absorb volume buying or selling without dramatic fluctuation in price.
Listed stock: A stock traded on an exchange.
Load: A sales charge associated with some mutual funds.
Locked in: Because of capital gains tax consequences, an investor does not sell a profitable investment.
Long: Stock ownership. One who has ownership of securities is in a 'long position.'

M

Management fee: An investment advisory fee paid by a mutual fund's manager for services. Many registered investment advisors also charge fees for accounts under management or for advisory services.
Margin: An account in which a customer purchases securities on credit extended by a broker/dealer.
Margin call: A demand upon an investor for additional funds because of adverse price movement in a security.
Market index: A statistical collection that measures and quantifies a specific market's price changes over specific time periods.
Market order: An order to buy or sell a stated amount of a security at the best possible price at the time the order is received in the market place.
Market price: A security's price as determined by willing buyers and willing sellers in an open market.
Market value: The market value of a security is the last-sale price multiplied by total shares outstanding. It is calculated throughout the trading day and is related to the total value of the index.
Maturity: The date on which a bond's interest is required to be repaid.
Mean: A type of mathematical average. It's derived by dividing a sum by the number of values that make up the sum.
Member corporation: A brokerage corporation with one officer or employee who is also a member of the NYSE.
Member firm: A brokerage partnership with one officer or employee who is also a member of the NYSE.
Member organization: Member firms and member corporations.
Merger: Any combination of two or more companies.
Modern portfolio theory: Investment strategy based on risk-return trade-offs and efficient diversification.
Money market fund: A low-risk mutual fund that invests only in short-term securities, such as bankers' acceptances, commercial paper, repurchase agreements, and government treasury bills. The fund's goal is principal preservation with modest dividends. Money market funds are neither insured nor guaranteed by the FDIC or any other government agency. Although the fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the fund.
Mortgage: A loan secured by the collateral of some specified real estate property. Mortgages require the borrower to make a predetermined series of payments.
Mortgage bond: A high-grade bond secured by a mortgage.
Moving average: The average of security prices calculated in a period as short as a few days or as a long as a few years. As each new variable is included in calculating the average, the last variable of the series drops off.
Municipal bonds: Bonds issued by states, cities, counties and towns to fund public capital projects like roads, schools, sanitation facilities, bridges, as well as operating budgets. These bonds are exempt from federal taxation and from state and local taxes for the investors who reside in the state where the bond is issued.
Mutual fund: A pool of money invested by an investment company in a number of securities like stocks, bonds, or government securities. Each mutual fund is different in it's make-up and philosophy. Because most mutual funds invest in a large number of securities, they offer investors the benefit of diversification which can help reduce market risk.

N

NASD: See FINRA.
Nasdaq: National Association of Securities Dealers Automatic Quotation System. An electronic quotation system that provides price quotations to market participants.
Negotiable: A security that can be transferred or sold as a form of payment.
Net asset value (NAV): A single mutual fund share's price.
Net change: The difference between today's last trade and the previous day's last trade.
Net income: A company's revenue minus costs. Also called 'the bottom line,' earnings, or net profit.
Net worth: Common stockholder's equity, consisting of common stock, surplus, and retained earnings.
New issue: Securities being offered to the public for the first time, subject to the rules of the Securities and Exchange Commission.
New York Stock Exchange (NYSE): Located on Wall Street and founded in 1792, it is the oldest and largest exchange in the U.S.
No-load mutual fund: A mutual fund without upfront sales charges or distribution fees. However, no-load funds still incur management fees and 12b-1 fees.
Nonrecourse debt: Debt for which the borrower is not personally liable.
Noncumulative: A class of preferred stock that does not accrue unpaid dividends.
Nonqualified assets: Any assets subject to taxes.
Nonrefundable: A bond indenture condition that restricts a bond from being refunded.
Note: A debt security with an initial maturity of more than one year, and less than 10 years.
NYSE Composite Index: A weighted index of all NYSE common stocks.

O

Odd Lot: Trading order for less than 100 shares.
Off-board: A listed stock transaction not completed on a national exchange or an OTC transaction of an unlisted transaction.
Offer: The lowest price that any person will sell a security.
Open order: An order to buy or sell a security that remains in effect until it is either cancelled by the customer or executed.
Open position: A net long or short position whose value will change with a price change.
Open-end fund: An investment company (a mutual fund) that sells new shares to the public and redeems its outstanding shares on demand.
Option: An instrument that gives the owner the right to buy or sell a specified number of shares of a specified stock at a specified price within a specified period of time. A Call option allows the buyer to purchase the underlying stock at any time up to the expiration date of the contract. A Put option allows the buyer to sell the underlying stock at any time up to the expiration date of the contract.
Over the counter (OTC): A market for securities not listed on an exchange, as well as the principal bond market.
Overbought: An analytical term for a stock that is too expensive.
Oversold: An analytical term for a stock that is underpriced.

P

Paper profit (loss): A profit (or loss) that has not yet been realized because the security is still held.
Par: A security's dollar amount, as stipulated by the issuing institution. Par value for a bond is the face (maturity) value.
Participating preferred: Preferred stock that pays an additional dividend (participating dividend) based on common stock dividend payments.
Penny stocks: A highly speculative stock selling for less than five dollars per share.
Point: A unit of financial measurement. Stock points are one dollar per share. Debt instrument points are one percent of face value. Loan or mortgage points are one percent of the loan amount.
Portfolio: An individual or institution's collection of assets (financial and/or real).
Position: The number of securities contracts either owned (long) or owed (short).
Preferred stock: A security that usually pays a fixed dividend and that gives the holder a claim on corporate earnings and assets that is superior to that of holders of common stock.
Premium: Amount paid for a stock above its par value.
Price-to-earnings ratio: Common measure of a stock's price. Determined by dividing the current stock price by current earnings per share (adjusted for stock splits) for one year. If a stock is trading at $20 per share and is earning $2 per share, its P/E ratio is 10.
Primary distribution: Another term for initial public offering (IPO).
Prime rate: A commercial bank's lowest interest rate, charged to their most credit-worthy customers.
Principal: The total amount of money being borrowed or loaned. The person affected by a broker's actions.
Privatization: The act of returning government-owned or
Probate: The review of a will by a legal authority to determine validity, as well as the process of distributing a deceased person's property to heirs.
Product cycle: The time needed to bring new and/or improved products to the market.
Profit-taking: When investors sells stocks that have appreciated since purchase to realize profits. Typically followed by a market downturn.
Program trading: Trades based on directions issued from computer applications and executed automatically.
Prospectus: A formal written offer to sell securities that sets forth the plan for a proposed business enterprise, or the facts concerning an existing one that an investor needs to make an informed decision.
Proxy: Written power of attorney given by a shareholder of a corporation, authorizing someone to vote on his or her behalf at corporate meetings.
Proxy statement: Material information required by the Securities and Exchange Commission to be given to a corporation's stockholders as a prerequisite to solicitation of votes. It is required for any issuer subject to the provisions of the Securities Exchange Act of 1934.
Public offering: The sale of registered securities in the public market through an underwriter.
Put: An option granting the right (but not the obligation) to sell a security at a specified price on or before a specific date.
Put price: The price at which an asset will be sold if a put option is exercised. Also called the strike price.

Q

Qualified assets: Tax-advantaged assets.
Quick ratio: Indicator of a company's financial health. Calculated by taking current assets minus inventories, divided by current liabilities. Ratio provides information regarding the firm's liquidity and ability to meet its obligations.
Quote: The bid or offer price at which a security is trading at any given time.

R

Rally: Also known as a recovery. An upward movement in prices.
Range: A security's high and low transaction prices (or high and low bids and offers) for a specific period.
Rating: An evaluation of credit quality. Moody's, Standard & Poor's, and Fitch Investors Service issue ratings to companies used by investors and analysts.
Real Estate Investment Trust (REIT): A real estate investment trust, similar to a mutual fund as it trades as a stock on an exchange, but invests in real estate or loans secured by real estate. REIT units fluctuate in value, and redemption can be less than the original amount invested. There are special risks associated with real estate investments, including illiquidity. The investment objectives may not be attained.
Record date: Date by which a shareholder must officially own shares in order to be entitled to a dividend.
Redemption price: Price at which a bond is redeemable before the maturity date.
Red herring: Industry jargon for a preliminary prospectus issued by underwriters or issuers to gauge interest in a prospective offering. It receives its name from the warning printed in red, that information in the document is incomplete or subject to change before the issue.
Refinancing: Using a new loan to pay off an existing loan using the same collateral. Done to take advantage of interest rates, lengthen the loan's term, or both.
Registered bond: A bond issued in the name of the owner. Nontransferable without the owner's endorsement.
Registered representative: An employee of a NASD member firm who gives advice on which securities to buy and sell and who collects a percentage of the commission income he or she generates.*
Registered trader: An exchange member who executes trades for his or her own account.
Registration: A company's filing of securities with the SEC for public offering.
Regulation A: The securities regulation that exempts small public offerings (valued at less than $1.5 million) from most SEC registration requirements.
Regulation D: Securities and Exchange Commission (SEC) regulation governing private placement exemptions. Reg D allows usually smaller companies to raise capital through the sale of equity or debt securities without having to register their securities with the SEC.
Regulation M: Federal regulation requiring member banks to hold reserves against their net borrowings from their foreign branches over a 28-day averaging period. Reg M has also required member banks to hold reserves against Eurodollars lent by their foreign branches to domestic corporations for domestic purposes.
Regulation Q: Federal regulation imposing caps on the rates that banks may pay on savings and time deposits. Currently time deposits with a denomination of $100,000 or more are exempt from Reg Q.
Regulation T: Federal regulation restricting credit amount advanced to customers by brokers/dealers for margin accounts.
Regulation U: Federal regulation restricting credit amount advanced to customers by banks for the purchase of listed stocks.
Reverse stock split: A reduction in the number of shares (but not the value of shares) held by shareholders. Shareholders maintain the same percentage of equity in the corporation as before the split.
Risk: Degree of uncertainty of return on an asset.
Roll over: To reinvest funds received from a maturing security into a new issue of the same or a similar security. Also, a tax-advantaged reinvestment of funds from a qualified retirement plan into an IRA or other qualified plan.
Roth accounts: An IRA or 401(k) retirement account created by congress in 1997. Savings to these accounts grow tax-free, but contributions are made on a pre-tax basis.
Round lot: A trading order unit usually in some multiple of 100 shares.

S

Scale order: An order to trade a security, to be executed in pieces at pre-determined price levels.
Seat: Exchange membership.
SEC: Created by an act of Congress in 1934, the Securities and Exchange Commission regulates the securities industry and protects investors from fraudulent practices.
Secondary distribution: Sale of a block of listed or unlisted securities after it has originally been sold by the issuer.
Sector: A group of securities that are similar (e.g., maturity, type, rating, industry, etc).
Securities Industry Automation Corporation (SIAC): An independent entity that provides automation, data, clearing, and communications for exchanges.
Securities Investor Protection Corporation (SIPC): A non-profit corporation established by Congress to insure assets in customer accounts (up to $500,000 or $100,000 in cash) in the event of a brokerage bankruptcy, but not against investment losses. To learn more, go to www.sipc.org
Security: An investment instrument defined by the Securities Exchange Act of 1934 as 'Any note, stock, treasury stock, bond, debenture, certificate of interest or participation in any profit-sharing agreement or in any oil, gas, or other mineral royalty or lease, any collateral trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit, for a security, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or in general, any instrument commonly known as a 'security'; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, or warrant or right to subscribe to or purchase, any of the foregoing; but shall not include currency or any note, draft, bill of exchange, or banker's acceptance which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited.
Sell limit order: Conditional trading order that instructs an agent to sell a security at the designated price or higher. Limit orders become market orders when they reach the specified limit and execute at the market price, not the specified limit price.
Seller's option: A seller's right to select a date of a security's delivery, within limits prescribed by a contract (usually from not less than two business days to not more than 60 days).
Selling short: Borrowing a security from a broker and selling it, hoping the price will go down. Eventually, the borrower must buy the stock back on the open market to repay the broker.
Serial bond: A corporate bond arranged so that specified principal amounts become due on specified dates.
Settlement: When payment is made for an executed trade and the security is delivered.
Shares: Certificates or book entries representing ownership in a corporation.
Short: An investor who has sold a contract to establish a market position and who has not yet closed out this position through an offsetting purchase. Opposite of a long position.
Short sale: Selling a security that the seller does not own, but is committed to repurchasing eventually (profiting from an expected decline in the security's price).
Speculation: Investing with high risk when principal safety is secondary to quick gains.
Speculator: An investor who attempts to anticipate (and profit from) market price changes, assuming a large amount of risk in the process.
Spin-off: An independent company created from an existing division of another firm by selling or distributing new shares in the spin-off.
Split: An increase in the number of shares (but not the value of shares) held by shareholders. Shareholders maintain the same percentage of equity in the corporation as before the split.
Spread: 1) The gap between bid and ask prices; 2) The simultaneous purchase and sale of separate contracts for the same asset for delivery in different months; 3) Difference between the price at which an underwriter buys an issue from a firm and the price at which that underwriter sells it to the public; 4) The price an issuer pays above a benchmark fixed-income yield to borrow money.
Standard deviation: Measures the fluctuation of returns around the arithmetic average return of the investment. The higher the standard deviation, the greater the variable (and the risk) of the investment return.
Stock: Ownership of a corporation, represented by shares, which in turn represent a piece of that corporation's assets and earnings.
Stock exchange: A formal organization, approved and regulated by the SEC, made up of members who use the exchange to trade certain common stocks.
Stock dividend: Payment of a dividend in shares of stock rather than cash.
Stockholder of record: Registered holder of an issuer's securities.
Stock ticker symbols: Lettered symbols (up to four letters per symbol) assigned to securities and mutual funds trading on U.S. exchanges.
Stop limit order: A stop order that designates a price limit. In contrast to the stop order (which becomes a market order once the stop is reached), the stop limit order becomes a limit order once the stop is reached.
Stop order: An order to buy or sell at the market when a definite price is reached, either above (on a buy) or below (on a sell) the price that prevailed when the order was given. Stop orders become market orders when they reach the specified limit and execute at the market price, not the specified limit price.
Street: Brokers, dealers, underwriters, and other knowledgeable members of the financial community.
Strike price: The stated price per share for which underlying stock may be purchased (in the case of a call) or sold (in the case of a put) by the option holder upon exercise of the option contract.
Structured settlement: An agreement to settle a lawsuit involving specific payments made over a period of time.
Sweep account: Account in which a brokerage firm takes all the excess available funds at the close of each business day and invests them on behalf of the firm.
Syndicate: A group of brokerage firms that act jointly, temporarily, to loan money in a bank credit or to underwrite a new issue of bonds.

T

Takeover: Transfer of control of a firm from one group of shareholders to another group.
Tax-deferred retirement plans: Employee-sponsored and other plans that allow contributions and earnings to be made and accumulate tax-free until they are paid out as benefits. Withdrawals are subject to ordinary income tax and may be subject to a 10 percent tax penalty if taken prior to age 59 1/2 .
Tender offer: General offer made publicly and directly to a firm's shareholders to buy their stock at a price well above the current market price.
Tenancy in common: A form of joint property agreement without right of survivorship.
Term life insurance: A contract that provides a death benefit but no cash accumulation or investment component.
Third market: OTC trading of exchange-listed securities by non-exchange member brokers.
Tick: Minimum change in a security's price, either up or down.
Ticker: A scrolling, constantly updated list of current or recent security prices and/or volume.
Time horizon: The length of time an investor hold an asset.
Trade: A verbal or electronic transaction involving one party buying a security from another. Settlement occurs one to three days later.
Trader: People who take a position in securities with the objective of making profits.
Transfer: 1) A change of asset ownership; 2) Moving funds between accounts.
Transfer agent: Person employed by a firm to maintain shareholder information.
Treasury bonds: Debts issued by the U.S. Treasury with maturities of 10 years or more.
Treasury stock: Common stock repurchased and held by the company.
Turnover rate: Annual share volume expressed as a percentage of total listed shares on an exchange.

U

Underperform: When a security is expected to appreciate at a slower rate than the rest of the market.
Underwriter: A firm (usually an investment bank) that buys an issue of securities from a company and resells it to investors.
Unit investment trust: Money invested in a portfolio whose composition is fixed for the life of the fund. These trusts can trade at a loss.
Universal life: A whole-life insurance product whose investment component pays a competitive interest rate rather than the below-market crediting rate. Universal life insurance policies' cash values are supported by the insurance company's general account. Universal variable life cash values are supported by the insurance company's separate account based on the selection of the investment option. Variable life insurance is offered by prospectus only. The prospectus contains details including charges and expenses. Please read the prospectus carefully before purchasing a policy. Life insurance policies contain exclusions, limitations, reduction of benefits and terms for keeping them in force. Insurance policies are the contractual obligation of the issuing insurance company.
Unlisted stock: A security not listed on an exchange. An OTC security.
Uptick: A term used to describe a transaction that took place at a higher price than the preceding transaction involving the same security.

V

Value-added tax: Method of indirect taxation whereby a tax is levied at each stage of production on the value added at that specific stage.
Variable annuity: Annuity contracts in which the issuer pays a periodic amount linked to the investment performance of the underlying portfolio.
Variable life insurance policy: A whole-life insurance product that provides a death benefit dependent on the insured's portfolio market value at the time of death. Variable life insurance is offered by prospectus only. The prospectus contains details including charges and expenses. Please read the prospectus carefully before purchasing a policy. Life insurance policies contain exclusions, limitations, reduction of benefits and terms for keeping them in force. Insurance policies are the contractual obligation of the issuing insurance company.
Venture capital: An investment in a start-up business that the investor perceives as having growth prospects but lacking access to capital markets.
Volume: Daily number of shares of a security that change hands between a buyer and seller.
Voting right: The stockholders' right to vote on matters that are put to a vote of security holders.

W

Warehousing: The interim period from the time a loan closes to its subsequent marketing to capital market investors.
Warrants: Securities entitling the holder to buy a proportionate amount of stock at some specified future date at a specified price, usually one higher than the current market.
Watch list: A list of securities selected for special attention by a brokerage, exchange, or regulatory organization. Firms on the watch list are often takeover targets, companies planning to issue new shares, or stocks that show unusual activity.
When issued: A transaction conditional on a security that has been authorized, but not yet issued.
Whole life insurance: A contract with both insurance and investment components. It pays off a stated amount upon the insured's death; and it accumulates a cash value that the policyholder can redeem or borrow against.
Will: A legal document that specifies how a person wishes his or her property to be distributed after death.
Wire house: A firm operating a private wire to its own branch offices or to other firms, clearing agents houses, or brokerage houses.
Working capital: The difference in current assets and current liabilities.
Write-down: Decreasing the book value of an asset if its book value is overstated compared to current market values.

X

Y

Yield: The percentage rate of return paid on a stock in the form of dividends. The effective rate of interest paid on a bond or debt.
Yield ratio: The quotient of two bond yields.
Yield to maturity: The percentage rate of return paid on a bond, note, or other fixed income security if you buy and hold it until its maturity date.

Z

Zero coupon bond: A bond with no coupons (i.e., pays no interest) that an issuer sells at a deep discount, which matures at its face value.