A brokerage firm is termed an Agent when it functions on behalf of the client in buying or selling a security. At no point in the transaction does the Agent own the security.
A document that presents the financial performance of a company for the past year. It also includes a narrative by senior management on that performance and what the future strategic plans and tactics are.
The buying and selling of the same security on different markets, at different price points. Given the speed at which financial markets now operate, the practice is a simultaneous buy/sell or sell/buy.
The lowest price at which the owner of a security is willing to sell.
When a options strike price is identical to the price of the underlying security. Options trading activity tends to be high when options are at the money.
The process of purchasing a security in a declining market thereby making the average price decrease as purchases continue.
The price of a security at the beginning of the trading day is used to determine the Day Minimum/Maximum and the price ranges for that day.
Individual investors think the overall stock market is in a prolonged period of declining prices. Bears, like Bulls, drive the market.
The actual owner of the security.
A measurement of the relationship between the price of a stock and the movement of the entire market. The beta of the market is taken as 1. Stocks with a beta of greater than 1 tend to increase more than the market. If a stock has a beta of 1.20, it means that if the market has a movement of 1%, the stock would move by 1.2%.
The highest price a buyer is willing to pay for a stock is the bid. The offer is the price at which an investor sells the stock. The difference between the bid and offer (ask) is the spread.
Blue Chip Stock
Shares of large, well-known companies that have sound finances and that have of a long-term record of paying dividends. Generally, these companies provide low to moderate yield and price volatility.
The standard trading unit of a particular stock on an exchange. Common Board Lot sizes are 50, 100, 500, shares.
A promissory note issued by a company or government entity which is sold to investors. Bonds have a specific interest rate and a specific time period to maturity.
Free shares are given out in proportion to existing shares. A bonus share does not provide additional wealth to shareholders – it merely signifies recapitalization of reserves into equity capital. However, bonus shares usually have a bullish impact on the share price on the exchange.
Dates between which a company keeps its register of shareholders closed for updating prior to payment of dividends or issuance of new shares of stock.
The institution(s) that arrange and manage the ‘book’ of a new public stock offering.
Another name for a stock market. Today it usually refers to the Paris stock exchange or to a non-U.S. stock exchange.
When the price of a stock surpasses its initial previous high (resistance level) or falls below the initial low (support level), it is termed a breakout in technical analysis.
When the stock market as a whole is in a prolonged period of increasing stock prices. Opposite of a bear market. Bulls believe the market is going higher in price overall.
Buy Limit Order
An order to buy a security with a condition that the order will not be executed above a specific stipulated price.
An order to purchase stock but only at the end of the trading day and within the closing price range.
Gives the investor the right but NOT the obligation to buy a particular stock at a specified price within a specific period of time.
The payment for a transaction on the due date. as opposed to carrying the payment forward from one settlement period to another.
Clearing or Settlement Days
Fixed dates made by the exchange in advance for the first and last business days of each clearance. The intervening period is called the settlement period.
Each exchange maintains a clearinghouse to act as the central agency for effecting delivery and settlement of contracts between all members. The days on which members pay or receive the amounts due to them are called pay-in or pay-out days respectively.
A temporary reversal of the market and share prices. A correction could be a reaction (a decrease following a consistent rise in prices) or a rally (an increase following a consistent fall in prices).
The trade price of a security at the end of the trading day. Based on the closing price, the base price at the beginning of the next trading day is calculated.
When a trading member of an exchange enters an order, any other member with an order on the opposite side of the trade is referred to as the counter-party.
Carry Forward Trading
When the settlement of trades is postponed until a future settlement period involving payment of interest is made. It refers to the trading in which the settlement is postponed to the next period of payment. Or when the buyer pays interest on borrowed funds or the ‘backwardation’ charges, in which the short seller pays a charge for borrowing the securities.
This is the right, but NOT the obligation, to purchase shares at a specific price at a specific date in the future. For this right, the buyer pays a premium which would be a fraction of the market price of the stock. The buyer is gambling that the share price will rise above the option (call) price. If this occurs, you can buy the shares and sell them immediately for a profit. If the share price does not rise above the call price, the call is not exercised and expires. All the call buyer has lost is the initial payment made to purchase the call option.
The test to see if a company can meet its financial obligations and conduct business.
The total value of the company in the stock market. This is calculated by multiplying the number of shares outstanding by the company’s share price.
Debt instruments issued by corporations to meet their short-term financial needs. This ‘paper’ is unsecured and has maturities ranging from 15 to 365 days.
The fees charged by brokers for the service of facilitating a security transaction.
Products used for commerce are traded on an authorized exchange or platform. These include agricultural products and natural resources.
The interest rate on a debt security that the issuer promises to pay to the holder until maturity. Usually expressed as a percentage of the face value of the security.
The total purchase or sale amount associated with the transaction. The amount you ‘pay’ or ‘receive’.
Any security is considered to be convertible when it carries the right or option for the holder to at some stage convert it in for another form of security at a fixed price. Convertibles are often bonds or preferred stock which carry the right to be converted into ordinary shares at some date in the future at a specified price.
Debt securities issued by a public company to a lender. The lenders or purchasers of the bonds receive interest at a fixed rate and the promise that your invested capital will be repaid at a certain date in the future.
Capital Asset Pricing Model
A model which describes the relationship between risk and expected return and serves as a model for the pricing of risky securities. CAPM depicts the expected return of a security or a portfolio equals the rate on a risk-free security plus a risk premium. If this expected return does not meet or beat the required return then the investment should not be made.
When a stock price increases or decreases by a certain percentage in a single day it hits the circuit breaker. Once the stock hits the breaker trading in that stock above (or below) that break price is not allowed for the rest of the day.
An order which is valid for the day on which it is entered. If the order is not matched during that day, at the end of the trading day, the order gets canceled automatically.
The buying and selling of securities with the same trading day before the market closes. These investors are called ‘active traders’ or ‘day traders’.
A debt security that is not secured by physical assets or collateral. Debentures are backed only by the general creditworthiness and reputation of the issuer. It is an unsecured form of investment.
A stock that provides a constant dividend and stable earnings even in periods of economic downturn.
The ratio between the change in the price of an asset to the corresponding change in the price of a derivative. Sometimes referred to as the ‘hedge ratio’. It has a range from 0 to 1.
A security whose price is derived from one or more underlying assets. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates, and market indexes.
Reducing your investment risk by purchasing shares in a variety of different companies in different industry sectors.
A portion of a company’s earnings is paid to shareholders, usually on a quarterly or annual basis. Corporations are not obligated to pay dividends.
Annual dividend paid on a share of a stock divided by its current share price.
The lowering of ratings for a stock by analysts, investors, or other market makers.
Earnings Per Share
One of the most important measures of how well a stock is performing. The calculation is pre-tax profit divided by the number of shares outstanding. The EPS provides a pure measure of profitability.
Tangible value imbedded in an investment.
A medium or long-term interest-bearing bond created in the international capital markets. It is denominated in a currency other than that of the place where it is being issued. Eurobonds are issued by governments, other public entities, or multinational companies.
A share of stock is described as ex-bonus when a potential purchaser is not entitled to receive the current bonus, which remains with the seller.
A stock or bond sold without the right of receipt of the next due interest payment.
A share of stock sold without the right to receive the declared dividend payment that is marked as due to the shareholder who was registered as the owner of the stock the day the dividend was declared.
When the broker or agent buys or sells a security and completes the order, the order has been executed.
The amount of money the holder of a security will earn at the time the security matures. Also known as the par value.
An extremely thin spread between the bid and ask prices of a given stock.
Any way to limit your losses on held assets. Normally this is accomplished by taking an offsetting position.
A benchmark that is used as a reference for traders and portfolio managers. Can also refer to a fund that is earmarked or indexed to a specific group of securities and traded as stock on the exchanges.
Initial Public Offering (IPO)
The first sale or offering of a stock by a company to the general public. The U.S. Securities and Exchange Commission oversees IPOs and has strict rules regarding their issuance.
A securities trading platform that is online. Execution of trades takes place through order routing systems, which rout orders to exchange trading systems. Thus traders in any part of the world are able to trade using their broker’s Internet Trading System.
The use of borrowing shares of stock from your broker with the goal of increasing your profit as the shares decrease in price, as you then buy them back for replacement at the lower price.
An order to buy or sell shares of stock at a specified price. The order will be executed only at the specified limit price or better. A limit order sets a minimum price the seller is willing to accept and the maximum price the buyer is willing to pay for it.
Shares of stock that are traded on the stock exchange. The issuer has to pay fees to be listed on the exchange and abide by the regulations of the exchange to maintain its listing.
Allows an investor to borrow money from a broker to purchase investments.
The total value of X Company’s outstanding shares. It is calculated by multiplying all the outstanding shares with the current market price of one share. It determines the company’s wealth.
A stock’s average price-per-share during a specific period of time. Common time frames include 50 and 200-day moving averages.
A pool of money managed by professional money managers who invest in stocks, bonds, futures, and other securities and instruments with the objective of improving their return overall.
A number of shares less than or greater than the Board lot size. If the board lot size is 100 shares, an odd lot would be 80 shares or 110 shares. Odd lots are difficult to trade.
For call options, this means the stock price is below the strike price. For put options, this means the stock price is above the strike price.
Pink Sheet Stocks
Refers to penny stocks (stocks traded at $5 per share or less). Also referred to as ‘over-the-counter’ stocks. These stocks are not listed on the NYSE or Nasdaq.
The collection of investments owned by an investor. The portfolio may contain one stock or many and can include a variety of securities.
Maximum number of futures and options contracts that any individual investor can hold at any given point in time.
The pre-open session refers to the duration of 15 minutes to the opening of the exchange for order taking.
The current price of a stock to its last reported 12 months earnings per share.
Gives the owner the right but NOT the obligation to sell a stock at a stated price within a specific time period. A put option is purchased by investors who believe a stock’s price is going to fall from its current price.
The latest trading price of a stock.
A group of stocks that are in the same industry. Chase Bank and Citi Bank in the Financial sector.
A transferable certificate of ownership of investments in products such as stocks, bonds, etc.
The borrowing of shares of stock from a broker with the promise to return the shares at a future time. If the stock drops in price you return the shares at the lower price and keep the profits. Used most often in volatile markets with sharp upward and downward pricing.
The difference between the bid and ask prices of a stock.
The price at which the holder of an option can buy (call option) or sell (put option) the securities when the option is executed.
A means of increasing the outstanding shares of a company by splitting the existing shares. Usually done to increase the availability of shares in the market – a 2 for 1 split (one share split into two shares).
The price movements of a stock or the market as a whole. Highly volatile stocks are ones with extreme daily up and down prices and wide trading ranges.
The measure of return on investments in terms of percentage. Stock yield is calculated by dividing the current price of a share by the annual dividend paid by the company.