Account: A collection of investments, either taxable or
tax-deferred. Account can be real (contains investments actually owned) or model
(hypothetical). Account type can be brokerage, mutual fund, or other (a mutual fund can be
an account if the fund is purchased directly from fund company or it can be an investment
within an account, if purchased through a broker). Legally, accounts are set up as taxable
or tax deferred. The legal owner of an account can be an individual, joint , corporate,
custodian, estate, or trust. See Real Taxable Accounts, Joint Accounts, and Real
Account Description: Information that
includes Account Type, Tax-deferred, Tax Method, and Account Note. These items are
primarily used to classify accounts for tax purposes.
Account Note: Descriptive text about an account
that you can enter for your information, such as "for College."
Accrual Method: Accounting method where
income and expenses are recorded when items are booked or billed. Contrast with a more
common method, cash method, where income and expenses are logged from the time cash is
actually spent or received.
Accrued Interest: Interest earned but not yet paid. For most
taxpayers, tax is due in year accrued interest is paid. When buying a bond, buyer pays
seller any interest accrued since the last payment date. When the buyer eventually sells
the bond, the new buyer pays any accrued interest. The accrued interest is subject to
taxes for the seller, but reduces the tax liability for the buyer. For example, if a bond
buyer paid $30 accrued interest to a seller, then received $150 interest for the rest of
the year, the buyer needs to pay taxes on $150 - $30 = $120.
ADR/ADS: Stands for American Depository Receipts or Shares.
These financial instruments allow stock in a foreign corporation to be traded on a U.S.
stock exchange in U.S. currency by representing the actual shares from the native
Advances/Declines: Advances are the number of issues on the
New York Stock Exchange that have risen in price since the previous trading day's closing
price. Declines represent those that have fallen in price. Sometimes the advances and
declines are expressed as a ratio and plotted as a line graph. A rising A/D line indicates
that the market has good breadth (a majority of issues are rising in price) and that a
rising trend is more likely to be sustainable.
After Tax Real Rate of Return: The percentage gain on an
investment, account, or portfolio after taxes and inflation have been deducted. Note that
the after tax real rate of return for money market mutual funds is frequently less than
zero, so you should use these accounts only as temporary cash accounts.
All or None Order: In brokerage, order instruction,
particularly for large orders, to execute the total quantity or none.
Annual Report: Written report to shareholders summarizing
the past fiscal year's financial results and news items of importance about products, law
suits, board members, etc. Prospective shareholders should also review the annual report
because it provides important balance sheet information.
Annualized Return: Projects the year to date return over a full 12
month calendar year. Most useful for projecting return for money market funds, CDs, and
bonds. Annualized return for equities can be misleading if YTD return is high and covers a
short period of time. See Total Return.
Annuity: An insurance product that pays an income benefit on
a specific date, for a specific time, or for the lifetime of the person(s) receiving the
annuity (the annuitant). A fixed annuity guarantees fixed payments with a constant rate of
return. A variable annuity's value fluctuates with that of the assets that are backing it.
There is no guaranteed rate of return for a variable annuity; the annuitant bears the
investment risk and receives the return actually earned on invested assets less charges
assessed by the insurance company.
Arbitrage: A financial transaction where an arbitrageur
(arb) simultaneously purchases in one market and sells in another where there is a slight
price differential. Often it is a full hedge, and therefore, a risk-free transaction. Arbs
play an important role in keeping markets liquid and efficient.
Ask Price: The price a seller is willing to
accept for the security; also called the offer price.
Asset: Something of value that you own.
Appreciating assets, such as stocks, have the potential of increasing in value and/or
producing income. Depreciating assets, such as a car, lose value over time. Assets minus
liabilities (what you owe) equals net worth.
Asset Allocation: The process
of deciding what kinds of assets you want to own, and the percentage of each. Dividing
your investment portfolio among the major asset categories. As conditions change, the
percent allotted to each asset category changes.
Asset Classes: Appreciating
assets are put into 7 asset classes: maximum capital gain equity, long-term equity,
international equity, U.S. government bond, corporate bond, precious metals, and cash.
Average Annual Return: The
cumulative return divided by the number of years of the life of the investment or account,
with the compounding effect factored in. In reverse, the average annual return times a
given number of years equals the cumulative return for that time frame. AAR is used to
compare returns of two or more investments of unequal track records.
Average Daily Volume: The
consolidated trading volume for all exchanges averaged for the last 20 trading days.
Average Cost: The
average price plus commission.
Average Price: The
total cost less total commission of all lots you own of a particular security divided by
the total number of shares owned.
Average Proceed: The
sum of net amounts received from all short open lots divided by the total number of shares
short for that security. Average proceeds is for short investments what average cost is
for long investments.
Baby Bond: One sold at face amount less than $1,000 to
make it attractive to smaller investors. See Bond.
Balance Sheet: The
firms financial statement that provides a picture of its assets, debts, and net
worth at a specific point in time.
Balanced Equities: A
mutual fund whose holdings are split fairly evenly between stocks and bonds. Balanced
funds can change their asset allocation according to market conditions. Balanced funds
seek a relatively steady return.
Bank Information: Descriptive
information about a given bank. A view in the CDs and Money Markets database that
displays: Minimum Deposit, City, State, Phone, Out-of-state Indicator.
Basis: An accounting
term that refers to the cost of an asset including all adjustments and improvements. For
tax purposes, it is the amount you subtract from the net sale price to determine the
realized gain or loss. For example, if you paid $150,000 for your home, but added a porch
for $25,000, your basis is now $175,000. You have stepped-up the basis.
Basis Point: The
smallest measure used in quoting yields and interest rates. One basis point equals .01%,
so a 100 basis point move in a U.S. Treasury bond yield is 1%.
Bearer Certificate: A
security whose owner is not registered on the books of the issuer and which is, therefore,
payable to the person possessing the certificate. A bearer bond has coupons attached,
which the bondholder sends in or presents on the interest date for payment. Bearer stock
certificates are negotiable without endorsement.
Beta: A measure of a stocks risk
relative to the market, usually the Standard & Poors 500 index. The
markets beta is always 1.0: a beta higher than 1.0 indicates that, on average, when
the market rises, the stock will rise to a greater extent and when the market falls, the
stock will fall to a greater extent. A beta lower than 1.0 indicates that, on average, the
stock will move to a lesser extent then the market. The higher the beta, the greater the
Bid price: The price a
buyer is willing to pay for a security at this time.
Block Trade: Usually, a trade of
10,000 shares or more. For bonds, a $200,000 face amount or more. Block trades are often
executed through a special section of a brokerage firm called the Block Desk. Using the
Block Desk may result in a better price.
Blue Chip Stock: Stock of larger, well known companies.
Bond: A debt security that represents the obligation of the
issuer to pay interest to the creditor or bond holder and return the principal at
maturity. Bonds backed by collateral are termed secured while those that are not secured
are called debentures. A sinking fund bond obligates the issuer to set aside some of its
earnings to retire bonds periodically. A bond is usually identified by its maturity date
and its coupon rate, which is the interest rate stated on the bond. The price of the bond
is equal to its face value when issued, which is called the par price. After that, the
price fluctuates in the market. Bonds selling above original price are selling at a
premium to par while those selling below original price are selling at a discount to par.
Prices vary inversely with interest rates, as the prices of old bonds must adjust so that
their current yield will stay competitive with those of newly issued bonds. A bond does
not represent ownership. See Baby Bond, Callable, Junk Bond, Municipal Bond, US Gov't
Issues, Zero Coupon Bond, Convertible Bond, Corporate Bond.
Bond Type: The bond pays fixed interest amounts over its term. The
bond price, however, can change as prevailing market interest rates change over time. Zero
coupon bonds, or zeroes, do not pay interest. They are sold at deep discount to their par
value, which is returned at maturity. Interest is internally compounded to produce the
stated yield to maturity. With floating rate, the interest rate paid on the bond can
change as prevailing market interest rates change.
Book Value Per Share: The accounting value
of a share of common stock. It is determined by dividing the net worth of the company
(common stock plus retained earnings) by the number of shares outstanding.
Broker/Dealer: In the broadest sense, an agent who facilitates
trades between a buyer and a seller and receives a commission for his services. Dealers
buy and sell for their own account and keep their own inventory of securities on which
they can profit or incur losses. Most stock brokerage firms really act as brokers and
dealers. Brokers are also classed as Full Service or Discount, the former using a
commission-based sales force and the latter using salaried brokers only.
Broker Call Rate: Interest rate at which brokerage firms borrow
from banks to finance their clients' security positions.
Business: Describes the primary product or service offered by a
Buy(s): A transaction type for the purchase of a security. A buy
creates an open lot which is part of a holding of a given security that you currently own.
Buy-to-Cover: A transaction type that is a closing transaction for
a short sell and which creates a closed lot.
Buying Power: Value of margin eligible securities that may be
purchased in a margin account. Determined by doubling the sum of the cash held in the
brokerage account and the loan value of margined securities.
Call Option: A
call option gives the owner the right, but not the obligation, to buy the underlying stock
at a given price (the strike price) by a given time (the expiration date). The owner of
the call is speculating that the underlying stock will go up in value, hence, increasing
the value of the option. The purpose can be to speculate with the option (hope it goes up
and sell for a profit), to invest in the underlying stock at a locked in price if the
stock price goes high enough, or to generate income. Each option contract equals 100
shares of stock. For example, an AAA MAR 65 call, would give the owner the right to buy
100 shares of AAA at $65 (strike price) per share between now and the third Friday in
March (expiration date).
Callable: A security
redeemable by the issuer before the scheduled maturity. The issuer must pay the holder a
premium price if the security is retired early. Most Corporate and Municipal Bonds are
callable. US Government issues are generally not callable. They are called when interest
rates fall so significantly that the bond issuer can save money by floating new bonds at
the lower rate. The first call date is the date to or after which a specific call price
will be offered by the issuer, usually a premium price to par, as an incentive to the
bondholder to redeem the bond.
Canceled Order: A buy
or sell order that is canceled before it has been executed. In most cases, a Limit Order
can be can be canceled at any time as long as it has not been executed. A Market Order may
only be canceled if the order is placed after market hours and is then canceled before the
market opens the following day.
Capital Gain: An
increase in the value of a capital asset such as common stock. If the assets is sold, the
gain is a "realized" capital gain. A capital gain may be short-term (one year or
less) or long-term (more than one year).
Capital Stock: Amount
of money or property contributed by stockholders to be used as the financial foundation
for the corporation. It includes all classes of common and preferred stock.
Cash Account: Orders
placed in a cash account are settled on a cash basis, meaning that cleared funds must be
in the account within three (3) business days to cover purchases.
Cash Flow: Net income
plus depreciation and other non-cash charges. A strong cash flow is important for covering
interest payments, particularly for highly leveraged companies.
Cash Flow per Share:
Earnings after taxes plus depreciation, on a per share basis. A measure of a forms
Cash/Share: The amount
of cash divided by total number of common stock shares outstanding for a given stock. A
corporation with a high cash/share amount relative to the current price per share is said
to be "cash rich" and may be considered low risk or undervalued.
Cash Market: A market
in which security or commodity transactions occur within a few days of the trade date.
Also called the spot market. The opposite is the futures market, where transactions are
completed at a specified future date, price, and quantity, which is determined in the
present. Stock, bond, and mutual funds trade in the cash market.
Cash Percent: The
percentage of a given mutual fund's total assets invested in cash and equivalents. A high
cash percent is usually good in a declining market but can result in under performance in
a rising market.
CD Rate: The current
interest rate for a given CD (certificate of deposit).
Certificate of Deposit: Investment
created by banks, which pays stated interest at either fixed or variable rates. If sold
directly by banks, principal is returned at maturity subject only to penalties for early
cashing in. If sold through brokers (called Broker CDs), principal value can vary like
with bonds, and early cashing in can fetch a principal lower than amount paid.
Change (in NAV): The
change in the net asset value since the close of the previous trading day. Negative values
means the mutual fund has dropped in price; positive values means the mutual fund has
appreciated in price.
Class A/Class B Shares: Shares
of stock issued by the same company but having some difference, such as voting rights, or
a dividend preference or participation.
computerized facility that compares and reconciles both sides of a brokerage trade.
Closed to New Accounts: The
mutual fund is currently closed to new investors. To be sure, call the mutual fund for the
Closing Commission: The
commission deducted from the proceeds before calculating realized gain or loss. It is the
fee charged by your broker to execute your trade. It may be a composite of several fees
Closing Price: The
market price you receive when you sell or buy-to-cover your security.
Commercial Paper: Unsecured
short-term debt, usually from 2 to 270 days, issued by banks and corporations, which is
generally safe and flexible. It is usually a major component of money market fund
Commission: Brokers fee for buying or selling
securities. May be a composite of several fees & charges. Commission is taken
into account when calculating realized gain or loss. The buy, or opening commission, is
added to the cost basis and the sell, or closing commission, is deducted from the proceeds
before calculating realized gain or loss, therefore commissions reduce taxable gains and
increase losses. Total commission is the sum of both buy and sell commission. Commission
rates take into account the quantity of the purchase, the unit price of the security (low
priced stocks may have higher commission rates), and the type of investment (options have
Common Shares: Represents the total number of common shares
outstanding, excluding treasury stock (stock issued but re-acquired by the company through
Common Stock: A security issued by a corporation that represents
partial ownership. Ownership may also be shares with Preferred Stock, which has
prior claim on any dividends to be paid and, in the event of liquidation, to the
distribution of the corporation's assets. Common stockholders assume the primary risk if
business is poor, and realize greater gains in the event of success. They also elect the
board of directors that controls the company.
Compounding: The ability of an assets to generate earnings that
are then reinvested and generate their own earnings (earning on earnings).
Confirmation: A written
notification from a broker to a client specifying the details of a securities' transaction
Conversion Price: The
price at which convertible securities, such as bonds and preferred stock, can be converted
into common stock at a set conversion ratio. For example, if the conversion ratio is 25 to
1, and you own a $1000 face value convertible bond, then the conversion price is $40 per
share. The conversion value is the value of 25 shares at the current price per share. If
you assume $32 per share, then the current value is 25 x $32 = $800. In this example, it
is clearly better not to convert.
Convertible Bond: A
debt security that is exchangeable for a set number of shares of another type of security,
usually common stock, at a predetermined price. See Bond.
Corporate Bond: A debt
security investment in obligations of U.S. corporations. Corporate bonds are taxable and
have a specific maturity date. They are often traded on major exchanges. See Bond.
Covered Calls: A
covered call seller or writer is an investor who owns a stock and sells a call option
against it to generate additional income, which comes from the premium received for
selling the option. If things work out right for the writer, the stock price will stay
below the strike price and the writer will retain both the premium and the stock. However,
if the stock price rises enough, the stock will be called away by the call buyer who has
exercised the option and now gets the stock and pays the writer the strike price . Whether
the writer makes a profit or loss on the stock that is called away depends on the purchase
price (the cost basis). See Call Option.
Credit Balance: For
cash accounts, it is the uninvested money in your account. In a margin account, it is the
money on deposit against a short position.
Current P/E Ratio: The
ratio of current price divided by last two quarters earnings per share (EPS) plus next two
estimated quarters EPS. See Price/Earnings Ratio.
CUSIP Number: An industry code
which uniquely identifies nearly all traded stocks and bonds.
Current Ratio: Current assets, including cash, accounts receivable
and inventory, divided by the current liabilities, including all short-term debt. A rough
measure of financial risk: the smaller current assets relative to current liabilities the
greater the risk of credit failure.
Current Yield: Annual income (interest or dividends) divided by
the current price of the security. For stocks, this is the same as the dividend
yield. A measure in percentage terms of how much income you can derive from the
security. Of great importance to fixed income investors and of minimal importance to