Glossary of Terms.

ABC
Elliott wave terminology for a three-wave countertrend price movement. Wave A is the first price wave against the trend of the market. Wave B is a corrective wave to Wave A. Wave C is the final price move to complete the countertrend price move. Elliott wave followers study A and C waves for price ratios based on numbers from the Fibonacci series.

ABC Inventory Control System
A system of dividing a company's inventory into three inventory systems, A, B and C, according to the contribution of each to the company's overall investment in inventory. This system may facilitate the application of more efficient and effective inventory control techniques.

Ability to Service
A borrower's ability to meet principal and interest payments on long-term obligations out of earnings. Also referred to as ability to pay (financial). (See also: Fixed Charge Coverage)

Absorption Account
An account that has been combined with related accounts in the preparation of a financial statement and has lost its separate identity. Also called adjunct account.

Accelerated Fund Transfer
A computer-based electronic fund transfer system for inter-account and intra-account transfers, accounts receivable collections, bill payments and overall financial management.
Acceptance Company Paper
Short-term negotiable debt securities issued by finance companies to fund loans to consumers for items such as cars and appliances.

Account Executive (Securities)
A salesperson employed by a stock exchange member broker/dealer, also known as a registered representative. An individual must have a background in the securities business, pass a series of tests and be registered by the securities commission in the province in which he or she works in order to qualify as a registered representative. The account executive gives advice on buying and selling securities, collecting a percentage of any commission income generated as compensation.

Accounts Payable
Debts of a company for goods or services purchased that must be paid within one year. These debts are listed as a current liability on the company's balance sheet.

Accounts Receivable
Money owed to a company for goods and services it has sold. Payment is expected within one year. This money is listed as a current asset on the company's balance sheet.

Accrual Accounting
A method of reporting income when earned and expenses when incurred, as opposed to reporting income when received and expenses when paid.

Accrued Interest
The interest that has accumulated since the last interest payment up to, but not including, the settlement date and that is added to the contract price of a bond transaction. There are two methods for calculating accrued interest: the 30-day-month (360-day-year) method for corporate and municipal bonds, and the actual-calendar-days (365-day-year) method for government bonds. Income bonds, bonds in default and zero-coupon bonds trade without accrued interest (flat).

Accumulation
An addition to a trader's original market position. The first of three distinct phases in a major trend in which investors are buying.

Acid-test Ratio
A measure of a corporation's liquidity, calculated by adding cash, cash equivalents, and accounts and notes receivable, and dividing the result by total current liabilities. It is a more stringent test of liquidity than current ratio.

Acquisition
A term used to describe one company taking controlling interest in another company.

Acquisition Fee
The total charges and commissions paid by any party in connection with the selection or purchase of property by a direct participation program. Included in the total is any real estate commission, acquisition expense, development fee, selection fee or construction fee of a similar nature. The fee is added to the basis in the asset for the purpose of depreciation and calculating gain or loss.

ADA
Block-structured programming language developed under the guidance of the U.S. Department of Defense to provide a medium for writing real-time, concurrent applications for facilitating program verification.

Add-on Method
A method of paying interest where the interest is added onto the principal at maturity or interest payment dates.

Adjunct Account
An account that has been combined with related accounts in the preparation of a financial statement and has lost its separate identity. Also called absorption account.

Adjusted Basis
The value attributed to an asset or security that reflects any deductions taken on, or capital improvements to, the asset or security. Adjusted basis is used to compute the gain or loss on the sale or other disposition of the asset or security.

Adjusted Futures Price
The cash-price equivalent reflected in the current futures price. This is calculated by taking the futures price times the conversion factor for the particular financial instrument (e.g., bond or note) being delivered.

Adjusted Gross Income (AGI)
Earned income plus net passive income, portfolio income and capital gains.

Adjustment
The process of buying or selling instruments to bring your position delta back to zero.

Ad Valorem Tax
A tax based on the value of real or personal property. Property taxes are the major source of revenues for local governing units. (See also: Mill Rate)

Advance/Decline line
A technical analysis tool representing the total of differences between advances and declines of security prices. The advance/decline line is considered the best indicator of market movement as a whole. (See also: Breadth-of-Market Theory)

Adverse Excursion
The loss attributable to price movement against the position in any one trade.

Affiliated Company
A company with less than 50% of its stock owned by another corporation, or one whose stock, with that of another corporation, is owned by the same controlling interests.

Agent
1. An individual or firm that effects securities transactions for the accounts of others.
2. A person licensed by a state as a life insurance agent.
3. A securities salesperson who represents a broker-dealer or issuer when selling or trying to sell securities to the investing public; this individual is considered an agent whether he or she actually receives or simply solicits orders.

Aggressive Investment Strategy
A method of portfolio allocation and management aimed at achieving maximum return. Aggressive investors place a high percentage of their investable assets in equity securities and a far lower percentage in safer debt securities and cash equivalents, and pursue aggressive policies including margin trading, arbitrage and options trading. Focuses more on increasing the value of the original investment as an investing priority than on price stability or income. As a result, aggressive investments involve more investment risk.

Agreement Among Underwriters
A contract between participating members of an investment banking syndicate. This contract is sometimes called a syndicate contract or purchase group agreement. The agreement appoints the originating investment banker as syndicate manager and agent; appoints additional manager if needed; defines members' proportional liability and agrees to pay each member's share on settlement date; authorizes the manager to form and allocate units to a selling group and agrees to abide by the rules of the selling group agreement; and defines the life of the syndicate which usually runs until 30 days after termination of the selling group, or earlier by mutual consent.

All Ordinaries Index
The major index of Australian stocks. This index represents 280 of the most active listed companies or the majority of the equity capitalization (excluding foreign companies) listed on the Australia Stock Exchange (ASX). Comprised of 23 sub-indices representing various industry categories and summarized market price movements by following changes in the aggregate market values of the companies listed.

Alpha-Beta Trend Channel
The Alpha-Beta Trend Channel study uses the standard deviation of price variation to establish two trend lines, one above and one below the moving average of a price field. This creates a channel (band) where the great majority of price field values will occur.

Alpha
A measure of selection risk (also known as residual risk) of a mutual fund in relation to the market. A positive alpha is the extra return awarded to the investor for taking a risk, instead of accepting the market return. For example, an alpha of 0.4 means the fund outperformed the market-based return estimate by 0.4 %. A -0.6 means a fund's monthly return was 0.6 % less than would have been predicted from the change in the market alone.

Alpha Equation
The alpha of a fund is determined as follows:
[(Sum of y) - ((b)(sum of x))] / n
n = number of observations (36 months)
b = beta of the fund
x = rate of return for the S&P 500
y = rate of return for the fund

American Depository Receipts
Certificates issued by a U.S. Depository Bank, representing foreign shares held by the bank, usually by a branch or correspondent in the country of issue. One ADR may represent a portion of a foreign share, one share or a bundle of shares of a foreign corporation. If the ADRs are 'sponsored,' the corporation provides financial information and other assistance to the bank and may subsidize the administration of the ADRs. 'Unsponsored' ADRs do not receive such assistance. ADRs carry the same currency, political and economic risks as the underlying foreign share; the prices of the two, adjusted for the SDR/ordinary ratio, are kept essentially identical by American Depository Shares (ADS) and are a similar form of certification.

American Stock Exchange (AMEX)
A private, not-for-profit corporation located in New York City that handles approximately one-fifth of all securities trades within the United States.

American Style Option
An option contract that can be exercised at any time between the date of purchase and the expiration date. Most exchange-traded options are American style.

Amortization
1. The paying off of debt in regular installments over a period of time.
2. The ratable deduction of certain capitalized expenditures over a specified period of time.

Analysis of Variance (Anova)
The partitioning of total sum of squares into the sum of squares explained by the model and the remaining sum of squares unexplained.

Analyst
Employee of a brokerage or fund management house who studies companies and makes buy and sell recommendations on their stocks. Most specialize in a specific industry.

Annual Earnings Change (%)
The historical earnings change between the most recently reported fiscal year earnings and the preceding.

Annual Net Profit Margin (%)
The percentage that the company earned from gross sales for the most recently reported fiscal year.

Annual Report
A report issued by a company to its shareholders at the end of the fiscal year. It contains a description of the firm's operations, its balance sheet (including formal financial statements), and income statement. SEC rules require that it be distributed to all shareholders. A more detailed version is called a 10-K.

Annual Return
The simple rate of return earned by an investment for each year.

Annual Sales Change (%)
The percentage change in sales between the most recently reported fiscal year and the preceding.

Annuity
A series of constant payments at uniform time intervals (for example, periodic interest payments on a bond).

Ask
An indication by a trader or a dealer of a willingness to sell a security or a commodity; the price at which an investor can buy from a broker-dealer.

Asset
1. Anything that an individual or a corporation owns.
2. A balance sheet item expressing what a corporation owns.

Asset Allocation
When you divide your money among various types of investments, such as stocks, bonds and short-term investments, you are allocating your assets. The way in which your money is divided is called your asset allocation.

Asset Allocation Fund
A mutual fund that splits its investment assets among stocks, bonds and other vehicles in an attempt to provide a consistent return for the investor.

Asset Stripper
A term to describe a corporate raider who takes over a company planning to sell large assets in order to repay debt. The theory behind this practice is that once assets are sold and debt paid, the raider will be left with valuable assets that are worth more than the original purchase price.

Assign
To make an option seller perform his obligation to assume a short futures position (as a seller of a call option) or a long futures position (as a seller of a put option).

Assignment
The receipt of an exercise notice by an options writer that requires him to sell (in the case of a call) or purchase (in the case of a put) the underlying security at the specified strike price.

Associated Company
A company owned jointly by two or more other companies.

Associated Person (AP)
An individual who solicits orders, customers, or customer funds (or who supervises persons performing such duties) on behalf of a Futures Commission Merchant, an Introducing Broker, a Commodity Trading Adviser, or a Commodity Pool Operator.

Backspread
A spread in which more options are purchased than sold and where all options have the same underlying and expiration date. Backspreads are usually delta neutral.

Back-Testing
A strategy is tested or optimized on historical data and then is applied to new data to see if the results are consistent.

Back-end Load
A commission or sales fee that is charged upon the redemption of mutual fund shares or variable annuity contracts. It declines annually to zero over an extended holding period as described in the prospectus.

Back Office
Brokerage house clerical operations that support, but do not include, the trading of stocks and other securities. Includes all written confirmation and settlement of trades, record keeping and regulatory compliance.

Balance of Payments (BOP)
An international accounting record of all transactions made by one particular country with others during a certain time period; it compares the amount of foreign currency the country has taken in to the amount of its own currency it has paid out.

Balance of Trade
The largest component of a country's balance of payments; it concerns the export and import of merchandise (not services). Debit items include imports, foreign aid, domestic spending abroad and domestic investments abroad. Credit items include exports, foreign spending in the domestic economy and foreign investments in the domestic economy.

Balanced Fund
A mutual fund whose stated investment policy is to have at all times some portion of its investment assets in bonds and preferred stock as well as in common stock in an attempt to provide both growth and income.

Balanced Investment Strategy
A method of portfolio allocation and management aimed at balancing risk and return; a balanced portfolio may combine stocks, bonds, packaged products and cash.

Bank Investment Contracts (BICs)
A negotiated-term deposit issued by a commercial bank.

Bankers' Acceptances
A short-term debt (promissory note) issued by a firm on which a bank guarantees payment. Acceptances are traded at discounts from face value in the secondary market. These instruments have been a popular investment for money market funds.

Banking Group
A group of investment dealers, each of which individually assumes financial responsibility for part of an underwriting of a new issue of securities for a corporation.

Bankrupt
The legal status of an individual or company which is unable to pay its creditors and whose assets are therefore administered for its creditors by a trustee in bankruptcy.

Bar Chart
A chart that graphs the high, low, and settlement prices for a specific trading session over a given period of time.

Basis
The price an investor pays for a security plus any out-of-pocket expenses. It is used to determine capital gains or losses for tax purposes when the stock is sold.

Basis Point
A measure of a bond's yield, equal to 1/100th of 1% of yield. A bond whose yield increases from 5.0% to 5.5% is said to increase by 50 basis points.

Basket Trades
Large transactions made up of a number of different stocks.

Bayes Decision Rule
A rule that states the strategy chosen from those available is that for which the expected value of payoff is the greatest.

Bear
An investor who acts on the belief that a security or the market is falling or is expected to fall. (See also: Bull)

Bear Call Spread
A strategy in which a trader sells a lower strike call and buys a higher strike call to create a trade with limited profit and limited risk.

Bearer Security
A stock or bond that does not have the owner's name recorded in the books of the issuing company or on the security certificate itself. The holder of the certificate is the owner. Interest, dividends or any profits from sales are payable to the holder.

Bear Market
A declining stock market over a prolonged period, usually lasting at least 6 months and normally not more than 18 months. Usually caused by a strong conviction that a weak economy will produce depressed corporate profits. Also, a market in which prices of a certain group of securities are falling or are expected to fall. (See also: Bull Market)

Bear Put Spread
A strategy in which a trader sells a lower strike put and buys a higher strike put to create a trade with limited profit and limited risk.

Bear Spread
Any spread in which a decline in the price of the underlying will increase the value of the spread. Bear spreads can be traded at a debit or credit to the trader. With calls: net credit transaction; maximum loss = difference between the strike prices less credit; maximum gain = credit; requires margin. With puts: net debit transaction; maximum loss = difference between strike prices less the debit; no margin.

Beneficial Owner
The real owner of a security. An investor may have securities registered in the name of a broker, trustee or bank to facilitate transfer or to preserve anonymity, but the investor is the beneficial owner and will receive any dividends, interest or profits from sales.

Benefit/Cost Ratio
For a capital-expenditure project, the ratio of discounted after-tax cash inflows divided by discounted after-tax cash outflows. Projects for which this ratio exceeds 1 show a positive return and are deemed acceptable.

Best Efforts Underwriting
The underwriter agrees to use his or her best efforts to sell a new issue of securities, but does not guarantee to the issuing company that any or all of the issue will be sold. The underwriter acts as an agent for the issuer in distributing the issue to his clients.

Beta
A regression of the estimated coefficient that belongs to a particular variable.

Beta (Coefficient)
A measure of the market/nondiversifiable risk associated with any given security in the market. A ratio of an individual's stock historical returns to the historical returns of the stock market.

Beta (Mutual Funds)
The measure of a fund's risk in relation to the market. A 0.7 means the fund's total return is likely to move up or down 70 % of the market change; 1.3 means total return is likely to move up or down 30 % more than the market.

Beta (Stocks)
Measure of a stock's risk in relation to the market. A 0.7 means a stock price is likely to move up or down 70 % of the market change; 1.3 means the stock is likely to move up or down 30 % more than the market.

Bid
An indication by an investor, a trader or a dealer of a willingness to buy a security or commodity; the price at which an investor can sell to a broker-dealer.

Bid-asked Spread
The difference between bid and offer prices. The term asked is usually used in over the counter trading. The term offered is used in exchange trading. The bid and asked, or offered, prices together comprise a quotation, or quote.

Bid Up
The demand for the asset will drive the price you pay.

Bimodal Distribution
In which observations are displayed as having two distinct peaks.

Block Trade
A trade so large that the normal auction market cannot absorb it in a reasonable time at a reasonable price. In general, 10,000 shares of stock or $200,000 worth of bonds would be considered a block trade.

Blow-off Top
A steep and rapid increase in price followed by a steep and rapid drop in price. This is an indicator seen in charts and used in technical analysis of stock price and market trends.

Blue Chips
A term derived from poker where blue chips in a card game held the most value. Blue chips in the stock market are those stocks that have the most market capitalization of all the stocks in the marketplace.

Blue Chip Stock
This has come to symbolize a stock that has solid value and good security, with a record of continuous dividend payments and other desirable investment attributes.

Blue-sky Laws
The nickname for state regulations governing the securities industry. The term was coined in the early 1900s by a Kansas Supreme Court justice who wanted regulation to protect against speculative schemes that have no more basis than so many feet of blue sky.

Board Lot
The smallest quantity of shares traded on an exchange at standard commission rates.

Board of Directors
1. Individuals elected by stockholders to establish corporate management policies.
2. A board of directors decides, among other issues, if and when dividends will be paid to stockholders.
3. The body that governs the NYSE; it is composed of 20 members who are elected for a term of two years by the NYSE general membership.

Boiler Rooms
Also known as Bucket Shops, these are companies whose sole purpose is to separate you from your money. Boiler rooms use high-pressured sales tactics to sell you penny stocks. They first will call you to offer you an investment newsletter (this is okay, as many creditable firms do this), but a couple of months later you will get a phone call offering you the opportunity of a lifetime. Find out of their company is a member of a recognized regulatory body. The bottom line is this: if they try to sell you a stock without knowing anything about you (i.e., age, assets, risk tolerance, investment goals), hang-up the phone!

Bollinger Bands
Bollinger bands plot trading bands above and below a simple moving average. The standard deviation of closing prices for a period equal to the moving average employed is used to determine the bandwidth. This causes the bands to tighten in quiet markets and loosen in volatile markets. The bands can be used to determine overbought and oversold levels, locate reversal areas, project targets for market moves, and determine appropriate stop levels. The bands are used in conjunction with indicators such as RSI, MACD histogram, CCI and Rate of Change. Divergences between Bollinger bands and other indicators show potential action points. As a general guideline, look for buying opportunities when prices are in the lower band, and selling opportunities when the price activity is in the upper band.

Bond
A debt obligation issued by a government (i.e., Treasury bond) or corporation (i.e., corporate bond) that promises to pay its bondholders periodic interest at a fixed rate (the coupon), and to repay the principal of the loan at maturity (a specified future date). Bonds are usually issued with a par or face value of $1,000, representing the principal or amount of money borrowed. The interest payment is stated on the face of the bond at issue.

Bond Fund
A mutual fund whose investment objective is to provide stable income with a minimal capital risk. It invests in income-producing instruments, which may include corporate, government or municipal bonds. Mutual funds that invest primarily in bonds are also called 'income' funds.

Bond Quote
One of a number of quotations listed in the financial press and most daily newspapers that provide representative bid prices from the previous day's bond market. Quotes for corporate and government bonds are percentages of the bond's face value (usually $1,000). Corporate bonds are quoted in increments of 1/8th. Government bonds are quoted in 1/32nds. Municipal bonds may be quoted on a dollar basis or on a yield-to-maturity basis.

Bond Rating
An evaluation of the possibility of default by a bond issuer, based on an analysis of the issuer's financial condition and profit potential. Bond rating services are provided by, among others, Standard & Poor's, Moody's Investors Service and Fitch Investors Service.

Book Crowd
Members of a stock exchange who trade in infrequently traded bonds. Also referred to as: inactive bond crowd or cabinet crowd.

Book Value
For each common share, it equals the net worth of a firm as shown on the balance sheet, less the par value of outstanding preferred shares, divided by the number of common shares outstanding.

Boolean
Describes a variable that may have one of only two possible values: true or false. Named after George Boole, English logician, who was credited with the invention of 'Boolean logic.'

Bought Deal
An entire issue of new stocks or bonds bought from the issuer by an investment dealer, frequently acting alone, for resale to its clients. The dealer risks its own money in a bought deal, and in the event that the price has to be lowered to sell out the issue, the dealer absorbs the loss.

Box-Jenkins Linear Least Squares
The additive structure of Box-Jenkins models with a polynomial structure. Box-Jenkins Method From G.E.P. Box and G.M. Jenkins, who authored Time Series Analysis: Forecasting and Control. The method refers to the use of autoregressive integrated moving averages (ARIMA), which fit seasonal models and nonseasonal models to a time series.

Box-Jenkins Nonlinear Least Squares
The multiplicative structure of Box-Jenkins models using the Gauss-Newton algorithm with numerical derivatives.

Bozu
Literally 'bald' or 'monk' in Japanese; in candlestick terminology refers to a situation during which a trading cycle opens or closes on a high or low, indicating a victory for the bulls or the bears.

Brain Dead
Refers to companies that continue operations even though they are insolvent and bankrupt. These companies may also be referred to as living dead or zombies.

Bracketing
A trading range market or a price region that is non-trending.

Breadth-of-Market Theory
A technical analysis theory that predicts the strength of the market according to the number of issues that advance or decline in a particular trading day.

Breakaway Gap
When a tradable exits a trading range by trading at price levels that leaves a price area where no trading occurs on a bar chart. Typically, these gaps appear at the completion of important chart formations.

Break-even Point
1. The point at which gains equal losses.
2. The market price that a stock must reach for an option buyer to avoid a loss if he exercises.
3. For a call, it is the strike price plus the premium paid.
4. For a put, it is the strike price minus the premium paid.

Broad-based Index
An index that is designed to reflect the movement of the market as a whole. Examples include the S&P 100, the S&P 500, the AMEX Major Market Index and the Value Line Composite Index.

Broadened Base Earnings
A concept whereby the earnings per share of a company are computed to include a pro rata share of the earnings of all unconsolidated subsidiaries and associated companies.

Broker
1. An individual or firm that charges a fee or commission for executing buy and sell orders submitted by another individual or firm.
2. The role of a firm when it acts as an agent for a customer and charges the customer a commission for its services.

Broker-Dealer (BD)
A person or firm in the business of buying and selling securities. A firm may act as both broker (agent) and dealer (principal) but not in the same transaction.

Broker's Deck
Orders physically held by the floor broker in the trading pit.

Bull
An investor who acts on the belief that a security or the market is rising or is expected to rise. (See also: Bear)

Bull Market
A rising stock market over a prolonged period, usually lasting at least 6 months and normally not more than 18 months. Usually caused by a sound conviction that a strong economy will produce increased corporate profits. Also, a market in which prices of a certain group of securities are rising or are expected to rise. (See also: Bear Market)

Bull Spread
Any spread in which a rise in the price of the underlying will increase the value of the spread. Bull spreads can be traded at a debit or credit to the trader. With calls: net debit transaction; maximum loss = debit; maximum gain = difference between strike prices less the debit; no margin. With puts: net credit transaction; maximum loss = difference between strike prices less credit; maximum gain = credit; requires margin.

Business Cycle
A predictable long-term pattern of alternating periods of economic growth and decline. The cycle passes through four stages: expansion, peak, contraction, and trough.

Butterfly Spread
The sale (purchase) of two identical options, together with the purchase (sale) of one option with an immediately higher strike, and one option with an immediately lower strike. All options must be the same type, have the same underlying and have the same expiration date.

Buy on Close
To buy at the end of a trading session at a price within the closing range.

Buy on Opening
To buy at the beginning of a trading session at a price within the opening range.

Buy Stop Order
An order to buy a security that is entered at a price above the current offering price and that is triggered when the market price touches or goes through the buy stop price.

Calendar Spread
A spread consisting of one long and one short option of the same type with the same exercise price, but which expire in different months. Also, an options strategy that entails buying two options on the same security with different maturities. If the exercise price is the same (a June 50 call and a September 50 call) it is a horizontal spread. If the exercise prices are different (a June 50 call and a September 45 call), it is a diagonal spread. Investors gain or lose as the difference in price narrows or widens.

Call
An option contract giving the holder the right, but not the obligation, to buy a specified amount of an underlying security at a specified price within a specified time (e.g., one contract of IBM Jan $25; you have the right to buy 100 shares of IBM at $25 by the third Friday in January.) The act of exercising a call option.

Call Date
Refers to the date on which a bond may be redeemed before maturity. The investor purchasing a bond should be aware that he or she cannot count on interest on a bond beyond the call date because the issuer may redeem the bond on the call date if it is advantageous for them to do so.

Call Feature (Callable)
A feature that is usually attached to a preferred stock or a convertible bond, where the company that issues the security has the option to call back in all or part of the outstanding securities prior to the scheduled maturity date, and to pay your money to you at a predetermined amount and rate. (See also: Call Provision)

Call Option
Refers to the right, but not the obligation, to buy 100 shares of a particular stock, stock index, or futures at a predetermined price before a preset date in exchange for a paying a premium. The buyer does not have to invest as much money as they would have to in order to buy the stock or futures unless they exercise their call option. The seller of a call option makes extra income and does not have to give up the stock unless the option is exercised by the buyer.

Call Premium
The amount to be paid over and above the face value if the issuing corporation calls a security for redemption before maturity.

Capital
The amount of money you have invested is called capital. When your investing objective is capital preservation, your priority is to try not to lose any money. When your objective is capital growth, your priority is to try to make your initial investment grow in value. Capital also refers to accumulated money or goods available for use in producing more money or goods.

Capital Appreciation
A rise in the market price of an asset.

Capital Asset
All tangible property, including securities, real estate and other property, held for the long-term.

Capital Gain
The profit realized when a capital asset is sold for a higher price than the purchase price. Your costs (when you buy) include the commission you paid your broker and are deducted from the proceeds when you sell. In a mutual fund, capital gains are created when the fund buys and sells securities. These gains are then distributed to shareholders at least annually. Shareholders can also earn capital gains by redeeming their units at higher prices than they originally paid.

Capital Gains Distribution
A distribution to investment company shareholders from net long-term capital gains realized by a regulated investment company on the sale of portfolio securities.

Capital Loss
The loss incurred when a capital asset is sold for a lower price than the purchase price.

Capital Market Line
Line relating expected returns to overall risk for all investments that can be formed by combining the riskless asset with market portfolio in various proportions.

Capital Markets
The places and institutions where long-term securities are traded. Such securities include long-term debt, preferred shares, and common shares.

Capital Stock
The total combined ownership interest of all the stockholders in a corporation as represented by the outstanding common and preferred shares of stock.

Capital Structure
Total dollar amount of all money invested in a company, such as debt, preferred and common shares, contributed surplus and retained earnings of a company. It can also be expressed as a percentage.

Capitalization (Stocks)
Refers to the current value of a corporation's outstanding shares in dollars. Capitalization is determined by multiplying the total number of outstanding shares by the price of the stock. Analysts classify the capitalization of companies as small, medium and large cap corporations and some mutual funds limit themselves to small, medium or large-cap companies for investment purposes.

Capped-style Option
A capped option is an option with an established profit cap or cap price. The cap price is equal to the option's strike price plus a cap interval for a call option or the strike price minus a cap interval for a put option. A capped option is automatically exercised when the underlying security closes at or above (for a call) or at or below (for a put) the option's cap price.

Capping
Placing selling pressure on a stock in an attempt to keep its price low or to move its price lower; this violates the NASD Rules of Fair Practice.

Cash Account
An account in which the customer is required by the SEC's Regulation T to pay in full for securities purchased not later than two days after the standard payment period set by the NASD's Uniform Practice Code.

Cash and Equivalents
The value of assets that can be converted into cash immediately, as reported by a company. Usually includes bank accounts and marketable securities, such as government bonds and Bankers' Acceptances. Cash equivalents on balance sheets include securities (e.g., notes) that mature within ninety days.

Cash Commodity
The actual physical commodity as distinguished from a futures commodity.

Cash Dividend
A dividend paid in cash to a company's shareholders out of the corporation's current earnings or accumulated profits. The amount is normally based on profitability and is taxable as income. A cash distribution may include capital gains and return of capital in addition to the dividend. The board of directors must declare all dividends.

Cash Flow
The money received by a business minus the money paid out. Cash flow is also equal to net income minus depreciation or depletion. In investments, it represents earnings before depreciation amortization and non-cash charges. Sometimes called cash earnings. Cash Flow from operations [called Funds From Operations (FFO) by real estate and other investment trusts] is important because it indicates the ability to pay dividends.

Certificate
The physical piece of paper that is evidence of ownership of a stock.

Change
1.For an option or futures contract, the difference between the current price and the previous day's settlement price.
2. For an index or average, the difference between the current value and the previous day's market close.
3. For a stock or bond quote, the difference between the current price and the last trade of the previous day
Changes in Financial Position
Sources of funds internally provided from operations, which alter a company's cash flow position: depreciation, deferred taxes, etc.

Chicago Board Options Exchange (CBOE)
The largest options exchange in the United States.

Chicago Board of Trade (CBOT)
The oldest commodity exchange in the United States; established in 1886. The exchange lists agricultural commodity futures such as corn, oats and soybeans, in addition to more recent innovations as GNMA mortgages and the NASDAQ 100 Index.

Chinese Wall
A descriptive name for the division within a brokerage firm that prevents insider information from passing from corporate advisers to investment traders, who could make use of the information to reap illicit profits.

 

Class A and B Stock
Names used by companies to distinguish between two classes of common stock. Class A stock may receive cash dividends while Class B may receive stock dividends. There also could be differences in voting rights or in priority of assets. The investor should review the terms of the class designation prior to purchase to understand the rights of that class of stock.

Class of Options
Option contracts of the same type (call or put) and Style (American, European or Capped) that cover the same underlying security.

Clearing House
An institution established separately from the stock exchanges that ensures the payment and delivery of stock between investment dealers in a timely, cost-efficient manner. For example, an investment dealer may execute 10 trades (buys and sells) in the same security on the same day. Through the clearing house, the dealer just settles the difference in the number of shares and the difference in money owed or received.

Close
1. The price of the last transaction for a particular security on a particular day.
2. The mid-price of a closing trading range.

Closing Range
The high and low prices, or bids and offers, recorded during the period designated as the official close.

Commission
A service charge assessed by an agent in return for arranging the purchase or sale of a security. Commissions represent a fixed or percentage charged on the value of a transaction. This money goes to the broker and his/her investment company for providing services. A commission must be fair and reasonable. In 1975, deregulation led to the creation of discount brokers, who charge lower commissions than full service brokers. Full service brokers offer advice and usually have a full staff of analysts who follow specific industries. Discount brokers simply execute a client's order and usually do not offer an opinion on a stock.

Commodity
Any bulk good traded on an exchange or in the cash market; examples include metals, grains and meats.

Commodity Channel Index (CCI)
The CCI is a timing system that is best applied to commodity contracts that have cyclical or seasonal tendencies. CCI does not determine the length of cycles. It is designed to detect when such cycles begin and end through the use of a statistical analysis which incorporates a moving average and a divisor reflecting both the possible and actual trading ranges. Although developed primarily for commodities, the CCI could conceivably be used to analyze stocks as well.

Condor
The sale (purchase) of 2 options with consecutive exercise prices, together with the purchase (sale) of 1 option with an immediately lower exercise price and 1 option with an immediately higher exercise price. This spread can be done as a calendar spread using the same expiration months.

Contract
Unit of trading for a financial or commodity future. Also, actual bilateral agreement between the parties (buyer and seller) of a futures or options on futures transaction as defined by an exchange.

Cover
Buying a security that you had previously sold short.

Covered Call
A term used to describe the situation that exists when an option writer already owns shares and can therefore turn them over to the option buyer, without having to go to the market to purchase them first.

Covered Option
An option contract backed by the shares underlying the option. An option is covered when the person who owns stock sells call options in that stock since if the price goes up, the seller is in a position to deliver the stock to the buyer without going to the market first.

Covered Put
A put option position in which the option writer also is short the corresponding stock or has deposited, in a cash account, cash or cash equivalents equal to the exercise of the option. This limits the option writer's risk because money or stock is already set aside. In the event that the holder of the put option decides to exercise the option, the writer's risk is more limited than it would be on an uncovered or naked put option.

Covered Write
Writing a call against a long position in the underlying stock. By receiving a premium, the writer intends to realize additional return on the underlying common stock or gain some element of protection (limited to the amount of the premium less transaction costs) from a decline in the value of that underlying stock.

Cum Dividend
Literally, 'with dividend.' The buyer of the stock will receive the next dividend payment declared that has not been paid.

Cum Rights
This means 'with rights.' Buyers of shares quoted cum rights are entitled to forthcoming rights.

Cumulative Dividend
This is a feature that allows for unpaid dividends to accumulate if a company has missed a dividend payment. This usually occurs because of financial difficulties. If and when a company is in shape to pay dividends again, it will have to pay all back dividends before it can start again.

Cumulative Preferred
A preferred stock which has a provision that if one or more of its dividends are omitted, these unpaid dividends accumulate and must be paid before any dividends may be paid on the company's common shares.

Cyclical Stock
A stock that is particularly sensitive to swings in economic conditions.