Investment Term Glossary

All or None (AON) – A type of order where the client wants the entire order executed or none of it. (2) A type of best efforts underwriting in which the issuer will only sell the entire amount, not just a part.

American Depository Receipt (ADR) – A security issued by a U.S. bank in place of the foreign shares held in trust by that bank, thereby facilitating the trading of foreign shares in U.S. markets.

American Stock Exchange (AMEX) – The second largest stock exchange in the United States, located in the financial district of New York City. (Formerly known as the Curb Exchange from its origin in a Manhattan street).

Ask Price – The price at which a person is ready to sell. Opposed to bid, the price at which one is ready to buy.

Auction market – The system of trading securities through brokers or agents on an exchange such as the New York Stock Exchange. Buyers compete with other buyers while sellers compete with other sellers for the most advantageous price.

Averages – Various ways of measuring the trend of securities prices. One of the most popular is the Dow Jones average of 30 industrial stocks listed on the New York Stock Exchange. The prices of the 30 stocks are totaled and then divided by a divisor which is intended to compensate for past stock splits and stock dividends and which is changed from time to time.  As a result, point changes in the average have only the vaguest relationship to dollar price changes in the stocks included in the average.  Other Dow Jones averages are the Transportation (20 stock), Utilities (15 stocks), and the composite (65 stocks).

Bid price – Often referred to as a quotation or quote. The bid is the highest price anyone has declared that he wants to pay for a security at a given time and the asked is the lowest price anyone is willing to sell at the same time.

Bond – Basically an IOU or promissory note of a corporation, municipality, or the U.S. Government. They are usually issued in multiples of $1,000 or 5,000. A bond is evidence of a debt on which the issuer usually promises to pay the bondholder a specified amount of interest for a specified length of time and to repay the loan on the expiration date. In every case, a bond represents debt. Its holder is a creditor of the issuer.

Bull – One who believes the market will rise.

Buy – Purchase of a stock/option/mutual fund or other investment to hold ownership in the company.

Buy limit order – is placed below the current market price of the security.

Buy stop-limit order – A buy stop-limit order is always placed above the current market price of the security. It is used to limit the loss (or protect a profit) on a short position. Once activated, it becomes a buy limit order

Buy stop order – A buy stop order is always placed above the current market price. It is typically used to limit a loss or protect a profit on a short sale.

Buy to close – A person reduces or eliminates a short position by repurchasing an equivalent contract.

Buy to cover – Buying stock to return stock previously borrowed to make delivery on a short sale.

Buy to open – A person creates or increases a long position by the purchases of an option.

Buying Power – The amount of securities which could be purchased in a margin account by using the SMA.

Call – (1) An option in which the holder has the right to buy a fixed amount of the underlying security at a stated price within a specified period of time. (2) To redeem a bond before maturity.

Callable – A bond issue, all or part of which may be redeemed before maturity by the issuer under specified conditions,. The term also applies to preferred shares that may be redeemed by the issuing corporation.

Common stock – (1) Securities which represent an ownership interest in a corporation. If the company has also issued preferred stock, both common and preferred have ownership rights. Common stockholders assume the greater risk, but generally exercise the greater control and may gain the greater reward in the form of dividends and capital appreciation. The terms common stock and capital stock are often used interchangeably when the company has no preferred stock. (2) Accounting measure, carried at par value on the books of the company. Common stock plus capital surplus represent the shareholder’s initial investment in the company.

Covered – Refers to a short option position in which the investor has another investment position which will meet the obligation of the option contract. A covered short call involves owning the underlying security or a security convertible into the underlying security. A covered put requires cash or a short stock position.

Day order – An order to buy or sell which, if not executed, expires at the end of the trading day on which it was entered.

Delivery – The physical act of exchanging securities and monies on settlement date. The industry has established rules regarding the condition of the securities which are considered in good “deliverable form”.

Dividend – The payments designated by the Board of Directors to be distributed pro rata among the shares outstanding. On preferred shares, it is generally a fixed amount. On common shares, the dividend varies with the fortunes of the company and the amount of cash on hand and may be omitted if business is poor or the directors determine to withhold earnings to invest in plant and equipment. Sometimes a company will pay a dividends out of past earnings even if it is not currently operating at a profit.

Either/Or (EO) – a combination of a buy limit and a buy stop or a sell stop and a sell limit – if order is partly filled, reduce both sides by that amount.

Exchange – (1) A centralized location where security or commodity transactions take place. (2) To switch from one mutual fund to another at little or no cost. See: Family of Funds. (3) An offer made by a corporation to replace on type of security with another.

Ex-dividend – A synonym for “without dividend”. The buyer of a stock selling ex-dividend does not receive the recently declared dividend. Every dividend is payable on a fixed date to all shareholders recorded on the books of the company as of a specific date of record. For example, a dividend may be declared as payable to holders of record on the books of the company on a given Friday. Since three business days are allowed for delivery of stock in a “regular way” transaction on the New York Stock Exchange would declare the stock “ex-dividend” as of the opening of the market on the preceding Wednesday (two business days prior to the record date). That means anyone who bought it on and after Wednesday would not be entitled to that dividend. When stocks go ex-dividend, the stock tables include the symbol “x” following the name.

Fill or Kill (FOK) – Immediately executed a transaction in its entirety, or cancel completely.

Fourth Market – direct institutional trading – Institutional Network – Instinct.

Good till cancelled order or (GTC) Open order – An order to buy or to sell which remains in effect until it is either executed or cancelled.
Holding Period – The time period that an investor has owned a security. It commences on the day after the purchase (day after trade date) and ends on the day of the sale (trade date). It determines whether a gain or loss is considered short-term or long-term.
Immediate or cancel – immediately fill as much of the order as possible in one trade and cancel the remainder.

Index – (1) A statistical yardstick expressed in terms of percentages of a base year or years. For instance, the Federal Reserve Board’s index of industrial production is based on 1967 as 100. An index is not an average. (2) Statistical measure of a group of stocks such as the S & P 500. The indices can be broad based (which cover a wide range of companies and mirror the “market” as a whole) or narrow based (which consist of securities from a particular industry).

Initial Public Offering (IPO) – The first public issue of stock from a company which has not been publicity traded before.

IRA – Individual Retirement Account. A pension plan with major tax advantages. Any worker with earned income can begin an IRA and contribute up to $2,000 annually. An IRA permits investment through intermediaries like mutual funds, insurance companies, and banks or directly in stocks and bonds through stock brokers.

Joint Tenants (JT) – An account with two owners. (1) “WROS”: With Rights of Survivorship. In the event of the death of one party, the survivor receives total ownership. (2) “TIC”: Tenants in Common: In the event of the death of one party, the survivor receives one half of the account, the other half goes to the deceased’s estate.

Keogh Plan – Tax advantaged personal retirement program that can be established by a self-employed individual. Currently, annual contributions to a plan can be up to $30,000. Such contributions and reinvestments are not taxed as they accumulate but will be when withdrawn (presumably at retirement when taxable income may be less).

Limit order – An order to buy or sell a stated amount of a security at a specified price or at a better price
For example: A customer places an order to buy 100 shares of ABC stock at 50. The order may not be executed unless the stock can be purchased at $50 or below. If the order was to sell 100 shares at 50, it could not be filled unless the sale price was $50 or above.

Listed Market – NYSE, AMEX, regional exchanges – auction market ( specialist )

List security – The stock of a company which is traded on a securities or other property into cash. (2) The dissolution of a company, with cash remaining after sale of its assets and payment of all indebtedness being distributed to the shareholders.

Maintenance call – Minimum equity required to be kept in a margin account. Current NASD/NYSE maintenance requirements are 25% in a long account and 30% in a short account.

Margin – (1) Profit e.g.”Gross Margin” (2) “On Margin”: To use credit to finance securities transactions (3) “Account”: An account established by a broker-dealer to extend credit (4) “Dept”: The area of brokerage operations supervising the extension of credit.

Margin call – A demand upon a customer to deposit money or securities with the broker. A Reg T margin call is sent when a purchase is made and a maintenance margin call is sent when equity falls below specific levels. See: Maintenance Requirements, and Regulation T.

Market index – (1) A statistical yardstick expressed in terms of percentages of a base year or years. For instance, the Federal Reserve Board’s index of industrial production is based on 1967 as 100. An index is not an average. (2) Statistical measure of a group of stocks such as the S & P 500. The indices can be broad based (which cover a wide range of companies and mirror the “market” as a whole) or narrow based (which consist of securities from a particular industry).

Market order – A order to buy or sell a stated amount of a security at the most advantageous price obtainable after the order is entered.

Municipal Bond – A bond issued by a state or a political subdivision, such as county, city, town or village. The term also designates bonds issued by state agencies and authorities. In general, federal incomes taxes and state and local income taxes within the state of issue.

Mutual fund – A type of investment company that offers for sale or has outstanding securities which it has issued and which are redeemable on demand by the fund at current net asset value. All owners in the fund share in the gains or losses of the fund.

NASD – The National Association of Securities Dealers-an association of brokers and dealers in the over-the-counter securities business. NASD is dedicated to “adopt, administer, and enforce rules of fair practice… and in general to promote just and equitable principles of trade for the protection of investors”.

NASDAQ – An automated information network which provides brokers and dealers with price quotations on securities traded over-the-counter. NASDAQ is an acronym for National Association of Securities Dealers Automated Quotations. The system has three levels. Level I shows individual market maker’s quotes. Level III is used by market makers to enter their quotes into the system.

New York Stock Exchange (NYSE) – The largest organized securities market in the United States, founded in 1792. The exchange itself does not buy, sell, own, or set the prices of stocks traded there. The prices are determined by public supply and demand. The Exchange is not-for-profit corporation of 1,366 individual members, governed by a Board of Directors consisting of 10 public representatives, 10 Exchange members or allied members, and a full-time paid chairman and president. Also known as the Big Board.

Not Held (NH) – when a customer instructs a registered representative to buy or sell a specific amount of a security, but grants to the floor broker discretion concerning time and price – never on the Specialist’s book.

Odd-Lot order – An amount of stock less than the established unit of trading ( round lot ): from 1 to 99 shares for the great majority of issues. 1 to 9 for certain inactive stocks.

Option – A right to buy (call) or sell (put) a fixed amount of a given stock at a specified price within a limited period of time. The purchaser hopes that the stock’s price will go up (if he bought a call or down (if he bought a put) by an amount sufficient to provide a profit when he sells the option. If the stock price holds steady or moves in the opposite direction, the price paid for the option is lost entirely. Individuals may write (sell) as well as purchase options

Options clearing corporation (OCC) – The OCC is the organization through which the various options exchanges clear their trades. It supervises the listing of options and guarantees performance on option contracts.

Over-the-Counter Market (OTC) – unlisted – negotiated market ( market makers ).

Price-Earnings Ratio (P/E ratio) – A popular way to compare stocks selling at various price levels. The PE ratio is the price of a share of stock divided by earnings per share for a twelve-month periods. For example, a stock selling for $50 per share and earning $5 per share is said to be selling at a price-earning ration of 10.

Primary Market –  New Issues are always initially sold OTC ( Over-the-counter ).

Prospectus – The official selling circular that must be given to purchasers of new securities registered with the Securities and Exchange Commission. It highlights the much longer Registration Statement   filed with the Commission. It warns that the issue has not been approved (or disapproved) by the Commission and discloses such material information as the issuer’s   property and business, the nature of the security offered, use of proceeds, issuer’s competition and prospects, management’s experience, history , and remuneration and certified financial statements. A preliminary version of the prospectus, used by brokers to obtain indications of interest from investors, is called a red herring. This is because of a front-page notice (printed in red ink) that the preliminary prospectus is “subject to completion or amendment” and “shall not constitute and offer to sell..”

Quote – The highest bid to buy and the lowest offer to sell a security in a given market at a given time. If you ask your broker for a “quote” on a stock, he may come back with something like “451/4 to 451/2.” This means that $45.25 is the highest price any buyer wanted to pay and that $45.50 was the lowest price which any seller would take at the same time. A market maker is obligated to purchase or sell a minimum quantity if the quote is “firm”. A nominal quote is one in which the market maker is not obligated to trade at the prices quoted.

Regulation T – The federal regulation governing the amount of credit which may be advanced by brokers and dealers to customers for the purchase of securities.

Round Lot – A unit of trading or a multiple thereof.  On the NYSE the unit of trading is generally 100 shares in stocks and $1,000 or $5,000 par value in the case of bonds.  In some inactive stocks, the unit of trading is 10 shares.

Secondary distribution – Also known as a secondary offering. The redistribution of a block of stock some time after it has been sold by the issuing company. The sale is handled off the NYSE by a securities firm or group of firms and the share are usually offered at a fixed price which is related to the current market price of the stock. Usually the block is a large one, such as might be involved in the settlement of an estate. The security may be listed or unlisted.

Secondary Market – The trading in existing or outstanding securities (vs. new issues).  Secondary market transactions take place on exchanges or over the counter.

Securities and exchange commission (SEC) – The Securities and Exchange Commission, established by Congress to help protect investors. The SEC administers the Securities Act of 1933, the Securities Exchange Act of 1934, the Securities Act Amendments of 1975, the Trust indenture Act, the Investment Company Act, the Investment Advisers Act, and the Public Utility Holding Company Act.

Securities investor protection corporation (SIPC) – A nonprofit membership corporation created by an act of congress to protect clients of brokerage firms that are forced into bankruptcy. Membership is composed of all brokers and dealers registered under the Securities Exchange Act of 1934, all members of national securities exchanges, and most NASD members. SIPC provides customers of these firms protection of up to $500,000 of coverage for their cash and securities held by the firm.

Sell – Selling of the stake of ownership in a stock/option/mutual fund.

Sell limit order – is placed above the current market price of the security.

Sell stop-limit order – A sell stop-limit order is always placed below the current market price of the security. It is used to limit the loss (or protect a profit) on a long position. Once activated, it becomes a sell limit order.

Sell stop order – A sell stop order is always placed below the current market price of the security. It is typically used to limit a loss or protect a profit on a long stock position.

Sell to close – A person eliminates or reduces a long position by selling an equivalent contract.

Sell to open – A person creates or adds to a short position by selling an option.

Short Sale – When selling short, a customer is selling securities which he does not own.  He anticipates that the market price of the stock will decline and he can then purchase the stock (cover his short position) at a lower price and thus make a profit. Since the customer has sold stock which he does not own, the brokerage firm must lend him the stock.

Spread – (1) The difference between the bid and offer price of a security. (2) The difference between the public offering price of a new issue and the proceeds received by the issuer; the “underlying spread”. (3) The purchase and sale of puts or calls on the same underlying security with different expirations and /or strike prices. (4) The difference in the premium paid and premium received in an option spread position (#3 above).

Standard & Poor’s 500 Index (S & P 500) – A composite index consisting of 500 stocks. It consists of four other indexes: S & P Industrial (400 stocks), S & P Transportation (20 stocks), S & P Utilities (40 stocks), and S & p Financial (40 stocks).

Stock ahead – Sometimes an investor who has entered an order to buy or sell a stock at a certain price will see a transactions at that price reported on the ticker tape while his own order has not been executed. The reason is that other buy and sell orders at the same price came in to the specialist ahead of his and had priority.

Stop-Limit order – A stop-limit order is similar to a stop order in that a stop price will activate the order. However, , once activated, the stop-limit order becomes a buy limit or sell limit order and can only be executed at a specified price or better. It is a combination of both the stop order and the limit order.

Stop Order – (1) An order to buy at a price above or sell at a price below the current market. Stop buy orders are generally used to limit loss or protect unrealized profit on a short sale. Stop sell orders  are generally used to protect unrealized profit or limit loss on a holding. A stop order or beyond the specified price and, thus, may not necessarily be executed at that price. (2) Notice sent by the SEC which prevents an offering of a new issue.

The Floor of the Exchange:
Floor broker ( Commission broker ) – trades for customer of member firm
Specialist – conducts the auction as broker or dealer
Maintains a fair and orderly market by matching up buyers and sellers according to the Rules of the Exchanger – parity, priority, precedence Stopping stock – Guaranteeing a price for a public order.

Third Market – a listed security trading OTC ( over-the-counter )

Trade Date – Day on which a transaction is executed.

Uncovered – Refers to a short option position in which the investor does not currently have another investment position which will meet the obligation of the option contract (vs. covered). Also known as “naked”.

Volume – The number of shares traded in a security or an entire market during a given period. Volume is usually considered on a daily basis and a daily average is computed for longer periods.

Warrant – A certificate giving the holder the right to purchase securities at a stipulated price within a specified time limit or perpetually. Sometimes a warrant is offered with securities as an inducement to buy.

Yield – Also known as return. The dividends or interest paid by a company expressed as a percentage of the current price. A stock with a current market value of $40 a share paying dividends at the rate of $3.20 is said to return 8 percent ($3.20-:$40.00). May also refer to yield to maturity.

Zero-Coupon Bonds – A bond sold at a substantial discount which does not pay periodic interest.


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