Stocks represent ownership shares, also known as equity shares
Two main ways to make money with stocks: (Dividends)
Dividends: When publicly owned companies are profitable, they can choose to distribute some of those earnings to shareholders by paying a dividend. You can either take the dividends in cash or reinvest them to purchase more shares in the company.
Two main ways to make money with stocks:
When a stock price goes higher than what you paid to buy it, you can sell your shares at a profit. These profits are known as capital gains.
If you sell your stock for a lower price than you paid to buy it, you've incurred a capital loss.
When a stock price goes higher than what you paid to buy it, you can sell your shares at a profit. These profits are known as capital gains.
All publicly traded companies issue common stock. If you hold common stock you're in a position to share in the company's success or feel the lack of it. The issuing company may pay dividends, but it isn't required to do so. If it does, the amount of the dividend isn't guaranteed, and it could be cut or eliminated altogether
Holders of preferred stock, on the other hand, are usually guaranteed a dividend payment and their dividends are always paid out before dividends on common stock. Preferred dividends are fixed. The price of preferred stock doesn't move as much as common stock prices.
Common and Preferred Stock
Another point of difference between common stock and preferred stock has to do with what happens if the company fails. In that event, there's a priority list for a company's obligations, and obligations to preferred stockholders must be met before those to common stockholders. On the other hand, preferred stockholders are lower on the list of investors to be reimbursed than bondholders are.
Classes of Stock (Class A)
Class A shares refer to a classification of common stock that is accompanied by more voting rights than Class B shares, usually given to a company's management team. Since these types of shares carry a higher amount of votes per share, it helps keep control of the company in the hands of senior management. Additionally, class A shares usually provide enhanced benefits to the holder of the shares. Class A shares are not sold to the public and also can't be traded by the holders of the shares
Classes of Stock (Class B)
Class B shares are a classification of common stock that may be accompanied by more or fewer voting rights than Class A shares. lass B shares typically have lower dividend priority than Class A shares.
These descriptors refer to market capitalization, also known as market cap and sometimes shortened to just capitalization. Market cap is one measure of a company's size. More specifically, it's the dollar value of the company, calculated by multiplying the number of outstanding shares by the current market price.
Individual companies are generally classified into an industry based on their largest sources of revenue. The term industry refers to a series of companies that operate in a similar business sphere.
Sector refers to a part of the economy in which a great number of companies can be categorized. A sector is a large section of the economy, such as industrial companies, utility companies, or financial companies.
Defensive stocks are in industries that offer products and services that people need, regardless of how well the overall economy is doing. For example, most people, even in hard times, will continue filling their medical prescriptions, using electricity, and buying groceries. The continuing demand for these necessities can keep certain industries strong even during a weak economic cycle.
Some industries, such as travel and luxury goods, are very sensitive to economic up-and-downs. The stock of companies in these industries, known as cyclicals, may suffer decreased profits and tend to lose market value in times of economic hardship, as people try to cut down on unnecessary expenses.
Growth stocks, as the name implies, are issued by companies that are expanding. Typically, these are young companies in fairly new industries that are rapidly expanding. They can also be companies that have been around for some time but are poised for expansion
Value Stocks (undervalued stocks}
solid investments selling at what seem to be low prices given their history and market share
Sectors of the Economy (4) PRIMARY SECTOR
Primary Sector: This sector deals with the extraction and harvesting of natural resources such as agriculture and mining.
Sectors of the Economy (4) SECONDARY SECTOR
This sector comprises construction, manufacturing, and processing. Basically, this sector comprises industries that relate to the production of finished goods from raw materials.
Sectors of the Economy (4) TERTIARY SECTOR
Retailers, entertainment, and financial companies make up this sector. These companies provide services to consumers.
Sectors of the Economy (4) QUATERNARY SECTOR
The final sector deals with knowledge or intellectual pursuits including research and development (R&D), business, consulting services, and education.
a term used to describe the ability of something to accumulate over time, and is most commonly used when referring to the interest, income or expenses of an individual or business.
when one company purchases most or all of another company's shares to gain control of that company.
Actuaries assess the financial risk of a particular situation, primarily using probability, financial theory and computer science.
An aggressive investment strategy typically refers to a style of portfolio management that attempts to maximize returns by taking a relatively higher degree of risk.
Asset allocation involves dividing your investments among different assets, such as stocks, bonds, and cash. The asset allocation decision is a personal one. The allocation that works best for you changes at different times in your life, depending on how long you have to invest and your ability to tolerate risk
refers to the practice of simultaneously buying and selling an investment in order to profit from a difference in price. Essentially, arbitrage can exist because of inefficiencies in the market, and if an arbitrage is found, it can be a risk-free way to earn a profit.
A bid-ask spread is the amount by which the ask price exceeds the bid price for an asset in the market. The bid-ask spread is essentially the difference between the highest price that a buyer is willing to pay for an asset and the lowest price that a seller is willing to accept
the three main asset classes have been equities (stocks), fixed income (bonds) and cash equivalent or money market instruments.
A bear market is a condition in which securities prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment.
A blue chip is a nationally recognized, well-established, and financially sound company. Blue chips generally sell high-quality, widely accepted products and services. Blue chip companies are known to weather downturns and operate profitably in the face of adverse economic conditions, which helps to contribute to their long record of stable and reliable growth.
a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments.
A brokerage company’s main duty is to act as a middleman that connects buyers and sellers to facilitate a transaction. Brokerage companies typically receive compensation by means of a commission (either a flat fee or a percentage of the amount of the transaction) once the transaction has successfully completed. For example, when a trade order for a stock is executed, an investor pays a transaction fee for the brokerage company's efforts to complete the trade.
a market bubble, a price bubble, a financial bubble, a speculative mania, or a balloon) is a situation in which asset prices appear to be based on implausible or inconsistent views about the future.
A bull market is the condition of a financial market of a group of securities in which prices are rising or are expected to rise. The term "bull market" is most often used to refer to the stock market but can be applied to anything that is traded, such as bonds, real estate, currencies and commodities.
A callable bond is a bond that the issuer may redeem before it reaches the stated maturity date. In essence, a callable bond allows the issuing company to pay off their debt early.
A call can mean two things. It can refer to an option contract giving the owner the right, but not the obligation, to buy a specified amount of an underlying security at a specified price within a specified time. It can also refer to a call auction, a time when buyers set a maximum acceptable price to buy, and sellers set the minimum satisfactory price to sell a security on an exchange.
The four major types of capital include debt, equity, trading, and working capital. To be considered capital, the goods must provide an ongoing service to the business to create wealth. Capital must be combined with labor, the work of individuals who exchange their time and skills for money, to create value.
Capitalism is an economic system in which private individuals or businesses own capital goods. The production of goods and services is based on supply and demand in the general market—known as a market economy
A closed-end fund is a portfolio of pooled assets that raises a fixed amount of capital through an initial public offering (IPO) and then lists shares for trade on a stock exchange.
A commission is a service charge assessed by a broker or investment advisor for providing investment advice or handling purchases and sales of securities for a client.
an investing strategy that prioritizes the preservation of capital over market returns. Conservative investing seeks to protect an investment portfolio's value by investing in lower risk securities such as fixed-income and money market securities, and often blue-chip or large-cap equities.
Convertibles are securities, usually bonds or preferred shares, that can be converted into common stock. Convertibles are most often associated with convertible bonds, which allow bond holders to convert their creditor position to that of an equity holder at an agreed-upon price.
Cyclical stocks and their companies have a direct relationship to the economy
debenture is a type of debt instrument unsecured by collateral. Since debentures have no collateral backing, debentures must rely on the creditworthiness and reputation of the issuer for support. Both corporations and governments frequently issue debentures to raise capital or funds.
defensive investment strategy entails regular portfolio rebalancing to maintain one's intended asset allocation; buying high-quality, short-maturity bonds and blue-chip stocks; diversifying across both sectors and countries; placing stop loss orders; and holding cash and cash equivalents in down markets
Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account for declines in value. Businesses depreciate long-term assets for both tax and accounting purposes.
Dilution occurs when a company issues new stock which results in a decrease of an existing stockholder's ownership percentage of that company. Dilution can also occur when holders of stock options, such as company employees, or holders of other optionable securities exercise their options.
Discretionary investment management is a form of investment management in which buy and sell decisions are made by a portfolio manager or investment counselor for the client's account. The term "discretionary" refers to the fact that investment decisions are made at the portfolio manager's discretion.
diversification is the process of allocating capital in a way that reduces the exposure to any one particular asset or risk. A common path towards diversification is to reduce risk or volatility by investing in a variety of assets.
Dollar cost averaging is a strategy in which an investor places a fixed dollar amount into a given investment (usually common stock) on a regular basis. The investment generally takes place each and every month regardless of what is occurring in the financial markets.
Pump and Dump
Pump and dump refers to an investment scam wherein optimistic, but untrue, statements are publicized about a specific stock in order to artificially increase the price through higher demand.
the system of how money is made and used within a particular country or region. A region's economy is connected with things like how many goods and services are produced and how much money people can spend on these things.
Harry Markowitz (1927- ) is a Nobel Prize winning economist who devised the modern portfolio theory, introduced to academic circles in his article, "Portfolio Selection,
Elasticity is a measure of a variable's sensitivity to a change in another variable. In business and economics, elasticity refers the degree to which individuals, consumers or producers change their demand or the amount supplied in response to price or income changes. It is predominantly used to assess the change in consumer demand as a result of a change in a good or service's price.
An emerging market fund is a fund that invests the majority of its assets in securities from countries classified as emerging. These countries are in an emerging growth phase and offer high potential return with higher risks than developed market countries.
Equilibrium is the state in which market supply and demand balance each other, and as a result, prices become stable. Generally, an over-supply of goods or services causes prices to go down, which results in higher demand. The balancing effect of supply and demand results in a state of equilibrium.
Fiscal policy refers to the use of government spending and tax policies to influence economic conditions, including demand for goods and services, employment, inflation and economic growth.
A fiduciary is a person or organization that acts on behalf of another person or persons to manage assets. Essentially, a fiduciary owes to that other entity the duties of good faith and trust. The highest legal duty of one party to another, being a fiduciary requires being bound ethically to act in the other's best interests.
Foreign portfolio investment
Foreign portfolio investment gives investors an opportunity to engage in international diversification of portfolio assets, which in turn helps achieve a higher risk-adjusted return.
Investment incentive is a government-implemented incentive policy aimed to encourage investors into its domestic market or to promote expansion of existing businesses
What Is Inflation?
Inflation is a quantitative measure of the rate at which the average price level of a basket of selected goods and services in an economy increases over a period of time. It is the constant rise in the general level of prices where a unit of currency buys less than it did in prior periods. Often expressed as a percentage, inflation indicates a decrease in the purchasing power of a nation’s currency.
s an investment strategy that follows the buying and selling decisions of insiders. The primary insiders have information advantage and the proven theory is that they as a group over time will do better than the average investor on the Stock Exchange.
Insolvency is a term for when an individual or organization can no longer meet its financial obligations to its lenders as debts become due. ... Insolvency can arise from poor cash management, a reduction in cash inflow, or an increase in expenses
An institutional investor is an entity which pools money to purchase securities, real property, and other investment assets or originate loans. Institutional investors include banks, insurance companies, pensions, hedge funds, REITs, investment advisors, endowments, and mutual funds.
Interest rate sensitivity is a measure of how much the price of a fixed-income asset will fluctuate as a result of changes in the interest rate environment. Securities that are more sensitive have greater price fluctuations than those with less sensitivity.
The Schedule K-1 is an Internal Revenue Service (IRS) tax form issued annually for an investment in partnership interests. The purpose of the Schedule K-1 is to report each partner's share of the partnership's earnings, losses, deductions, and credits. It serves a similar purpose for tax reporting as one of the various Forms 1099, which report dividend or interest from securities or income from the sale of securities.
Leverage is an investment strategy of using borrowed money—specifically, the use of various financial instruments or borrowed capital—to increase the potential return of an investment. Leverage can also refer to the amount of debt a firm uses to finance assets.
A liability, in general, is an obligation to, or something that you owe somebody else. Liabilities are defined as a company's legal financial debts or obligations that arise during the course of business operations. Liabilities are settled over time through the transfer of economic benefits including money, goods, or services.
Liquidity reflects whether there is a ready market for an asset—the ease of converting it to cash.
Cash is the most liquid of assets
Long term refers to the extended period of time that an asset is held. Depending on the type of security, a long-term asset can be held for as little as one year or for as long as 30 years or more. Generally speaking, long-term investing for individuals is often thought to be in the range of at least seven to ten years of holding time, although there is no absolute rule.
Manipulation is the act of artificially inflating or deflating the price of a security or otherwise influencing the behavior of the market for personal gain. Manipulation is variously called price manipulation, stock manipulation and market manipulation.
Capital markets are venues where savings and investments are channeled between the suppliers who have capital and those who are in need of capital. The entities who have capital include retail and institutional investors while those who seek capital are businesses, governments, and people.
Capital markets are composed of primary and secondary markets. The most common capital markets are the stock market and the bond market.
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot and forward transactions, interest rate and commodity swaps, options, loans and fixed income instruments such as bonds.
A merger is an agreement that unites two existing companies into one new company. There are several types of mergers and also several reasons why companies complete mergers. Mergers and acquisitions are commonly done to expand a company’s reach, expand into new segments, or gain market share. All of these are done to increase shareholder value.
A pure monopoly means a single seller with no competitors. ... Monopoly power is the extent to which a firm can influence and even 'set' the market price or influence the quantity supplied to the market, and also the extent to which conditions of business are influenced by a single firm.
Municipal bonds are loans investors make to local governments. They are issued by cities, states, counties, or other local governments. For that reason, the interest they pay on the bonds is tax-free
A note is a debt security obligating repayment of a loan at a set interest rate in a defined time period. There are numerous types of notes, including Treasury notes, mortgage-backed notes, unsecured notes, municipal notes, bank notes, euro notes, promissory notes, demand notes, convertible notes, and structured notes.
Panic buying is a type of behavior marked by a rapid increase in purchase volume, typically causing the price of a good or security to increase. From a macro perspective, panic buying reduces supply and creates higher demand, leading to higher price inflation. On a micro level (e.g. in investment markets), fear of missing out (FOMO) or buying triggered by a short squeeze can exacerbate panic buying, into a so-called melt-up.
Panic buying, which is often associated with emotion of greed can be contrasted with panic selling, which is associated with fear.
A peak is the highest point between the end of an economic expansion and the start of a contraction in a business cycle. The peak of the cycle refers to the last month before several key economic indicators, such as employment and new housing starts, begin to fall.
Investment performance is the return on an investment portfolio. The investment portfolio can contain a single asset or multiple assets. The investment performance is measured over a specific period of time and in a specific currency.
A security's basis is the purchase price after commissions or other expenses. It is also known as cost basis or tax basis. This figure is used to calculate capital gains or losses when a security is eventually sold.
portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly tradable securities, like real estate, art, and private investments.
Portfolios are held directly by investors and/or managed by financial professionals and money managers. Investors should construct an investment portfolio in accordance with their risk tolerance and investing objectives. Investors can also have multiple portfolios for various purposes. It all depends on one's objectives as an investor.
Capital preservation is a strategy for protecting the money you have available to invest by choosing insured accounts or fixed-income investments that promise return of principal.
Profit is a financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity. Any profit that is gained goes to the business's owners, who may or may not decide to spend it on the business. Profit is calculated as total revenue less total expenses.
A prospectus is a formal document that is required by and filed with the Securities and Exchange Commission (SEC) that provides details about an investment offering for sale to the public.
A proxy is an agent legally authorized to act on behalf of another party or a format that allows an investor to vote without being physically present at the meeting.
A put option is an option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time frame.
A quote is the last price at which a security or commodity traded, meaning the most recent price to which a buyer and seller agreed and at which some amount of the asset was transacted. The bid or ask quotes are the most current prices and quantities at which the shares can be bought or sold. The bid quote shows the price and quantity of which a current buyer is willing to purchase the shares, while the ask shows what a current participant is willing to sell the shares for.
A rally is a period of sustained increases in the prices of stocks, bonds or indexes. This type of price movement can happen during either a bull or a bear market, when it is known as either a bull market rally or a bear market rally, respectively. However, a rally will typically follow a period of flat or declining prices.
An investment grade is a rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such as Standard & Poor's and Moody's, use different designations consisting of upper- and lower-case letters 'A' and 'B' to identify a bond's credit quality rating. 'AAA' and 'AA' (high credit quality) and 'A' and 'BBB' (medium credit quality) are considered investment grade. Credit ratings for bonds below these designations ('BB', 'B', 'CCC', etc.) are considered low credit quality, and are commonly referred to as "
A dividend reinvestment program or dividend reinvestment plan (DRIP) is an equity investment option offered directly from the underlying company. ... Because DRIPs, by their nature, encourage long-term investment rather than active trading, they tend to have a stabilizing influence on stock prices.
revoke, cancel, or repeal (a law, order, or agreement)
The risk–return spectrum (also called the risk–return tradeoff or risk–reward) is the relationship between the amount of return gained on an investment and the amount of risk undertaken in that investment.
Finance: The probability that an actual return on an investment will be lower than the expected return. Financial risk is divided into the following categories: Basic risk, Capital risk, Country risk, Default risk, Delivery risk, Economic risk, Exchange rate risk, Interest rate risk, Liquidity risk, Operations risk, Payment system risk, Political risk, Refinancing risk, Reinvestment risk, Settlement risk, Sovereign risk, and Underwriting risk.
A sale is a transaction between two or more parties in which the buyer receives goods—either tangible or intangible—services, and/or assets in exchange for money or in some cases, other assets paid to a seller. In the financial markets, a sale can also refer to an agreement that a buyer and seller make regarding the price of a security.
Regardless of the context, a sale is essentially a contract between the buyer and seller of the particular good or service in question.
Scarcity is when the means to fulfill ends are limited and costly.
Scarcity is the foundation of the essential problem of economics: the allocation of limited means to fulfill unlimited wants and needs.
The term "security" is a fungible, negotiable financial instrument that holds some type of monetary value. It represents an ownership position in a publicly-traded corporation—via stock—a creditor relationship with a governmental body or a corporation—represented by owning that entity's bond—or rights to ownership as represented by an option.
Securities selection is the process of determining which financial securities are included in a specific portfolio. Proper security selection can generate profits during market upswings and weather losses during market downturns. The process of security selection can be administered on a scheduled basis or when market conditions warrant a change.
Shares are units of ownership interest in a corporation or financial asset that provide for an equal distribution in any profits, if any are declared, in the form of dividends.
A shareholder, also referred to as a stockholder, is any person, company, or institution that owns at least one share of a company's stock (equity). ... If the company does poorly and the price of its stock declines, however, shareholders can lose money
Slump is a slang term for a sharp decline in business activity, trade or market values. Slump is a very flexible term in that is used to describe both a short, sharp decline as well as a more gradual, prolonged period of low activity or value.
Speculate, Speculation, Speculator
A speculative investment is one with a high degree of risk where the focus of the purchaser is on price fluctuations. The investor buys the tradable good (financial instrument) in an attempt to profit from market value changes. We call somebody who makes a speculative investment a speculator.
A stock split is a corporate action in which a company divides its existing shares into multiple shares to boost the liquidity of the shares. Although the number of shares outstanding increases by a specific multiple, the total dollar value of the shares remains the same compared to pre-split amounts, because the split does not add any real value. The most common split ratios are 2-for-1 or 3-for-1, which means that the stockholder will have two or three shares, respectively, for every share held earlier.
The spot market or cash market is a public financial market in which financial instruments or commodities are traded for immediate delivery. Spot markets can operate wherever the infrastructure exists to conduct the transaction.
A provision is a stipulation in a contract, legal document, or law. Often the stipulation requires action by a specific date or within a specified period of time. Provisions are intended to protect the interests of one or both parties in a contract.
Subordinated debt is debt that is repaid after senior debtors are repaid in full.
Subordinated debt is debt that is repaid after senior debtors are repaid in full.
It is riskier as compared to unsubordinated debt and is listed as a long-term liability after unsubordinated debt on the balance sheet
A stock symbol is a unique series of letters assigned to a security for trading purposes. New York Stock Exchange (NYSE) and American Stock Exchange (AMEX) listed stocks have three characters or less. Nasdaq-listed securities have four or five characters. ... Stock symbols are also known as "ticker symbols.
A syndicate is a temporary, professional financial services alliance formed for the purpose of handling a large transaction that would be hard or impossible for the entities involved to handle individually. Syndication allows companies to pool their resources and share risks
A takeover occurs when one company makes a bid to assume control of or acquire another, often by purchasing a majority stake in the target firm. ... A takeover, which merges two companies into one, can bring major operational advantages and improvements to performance and for shareholders.
Tariffs are used to restrict imports by increasing the price of goods and services purchased from another country, making them less attractive to domestic consumers.
The tax-exempt sector is the market that contains investment vehicles exempt from federal taxes. The majority of investments in this sector are municipal bonds, which cannot be taxed because U.S. regulation forbids the federal government from taxing debt assets offered by local and state government agencies.
Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume. technical analysts focus on patterns of price movements, trading signals and various other analytical charting tools to evaluate a security's strength or weakness.
Tendering usually refers to the process whereby governments and financial institutions invite bids for large projects that must be submitted within a finite deadline. The term also refers to the process whereby shareholders submit their shares or securities in response to a takeover offer.
A ticker symbol is an arrangement of characters—usually letters—representing particular securities listed on an exchange or otherwise traded publicly. When a company issues securities to the public marketplace, it selects an available ticker symbol for its securities that investors and traders use to transact orders.
Market timing is the strategy of making buying or selling decisions of financial assets (often stocks) by attempting to predict future market price movements. ... This is an investment strategy based on the outlook for an aggregate market, rather than for a particular financial asset.
Trading involves more frequent transactions, such as the buying and selling of stocks, commodities, currency pairs, or other instruments. The goal is to generate returns that outperform buy-and-hold investing.
Trend following is an investment or trading strategy which tries to take advantage of long, medium or short-term moves that seem to play out in various markets. ... A market "trend" is a tendency of a financial market price to move in a particular direction over time.
Underwriting ensures that an IPO company will raise the amount of capital needed and provides the underwriters with a premium or profit for their services.
Investors benefit from the vetting process that underwriting provides and helps them to make informed investment decisions.
Underwriting is the process through which an individual or institution takes on financial risk for a fee.
Value investing is an investment paradigm that involves buying securities that appear underpriced by some form of fundamental analysis
The velocity of money is the rate at which money is exchanged in an economy. ... The velocity of money is usually measured as a ratio of gross national product (GNP) to a country's total supply of money.
. Become applicable or exercisable. A term mainly used on the context of employee stock ownership or option programs. Employees might be given equity in a firm but they must stay with the firm for a number of years before they are entitled to the full equity. This is a vesting provision.
Stock market volatility is arguably one of the most misunderstood concepts in investing. Simply put, volatility is the range of price change a security experiences over a given period of time. ... Without volatility, there is a lower risk of either.
Volume is the number of shares or contracts traded in a security or an entire market during a given period of time. For every buyer, there is a seller, and each transaction contributes to the count of total volume. That is, when buyers and sellers agree to make a transaction at a certain price, it is considered one transaction. If only five transactions occur in a day, the volume for the day is five.
a warrant is a security that entitles the holder to buy the underlying stock of the issuing company at a fixed price called exercise price until the expiry date. Warrants and options are similar in that the two contractual financial instruments allow the holder special rights to buy securities.
the yield on a security is the amount of cash (in percentage terms) that returns to the owners of the security, in the form of interest or dividends received from it.
A zero-coupon bond is a debt security that doesn't pay interest (a coupon) but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value
American Depository Receipt (ADR)
An American depositary receipt (ADR) is a negotiable certificate issued by a U.S. depository bank representing a specified number of shares—or as little as one share—investment in a foreign company's stock. The ADR trades on markets in the U.S. as any stock would trade.
ADRs represent a feasible, liquid way for U.S. investors to purchase stock in companies abroad.
The excess return of an investment relative to the return of a benchmark index is the investment's alpha.
Assets under management
beta is the measure of relative volatility. It measures the systematic risk of a security or a portfolio in comparison to the market as a whole.
A decentralized market, without a central physical location, where market participants trade with one another through various communication modes such as the telephone, email and proprietary electronic trading systems.
Backtesting is the process of applying a trading strategy or analytical method to historical data to see how accurately the strategy or method would have predicted actual results.
A balance sheet is a financial statement that reports a company's assets, liabilities and shareholders' equity at a specific point in time, and provides a basis for computing rates of return and evaluating its capital structure. It is a financial statement that provides a snapshot of what a company owns and owes, as well as the amount invested by shareholders.
A basket trade is an order to buy or sell a group of securities simultaneously. Basket trading is essential for institutional investors and investment funds who wish to hold a large number of securities in certain proportions
A bearer bond is a bond or debt security issued by a business entity such as a corporation, or a government. As a bearer instrument, it differs from the more common types of investment securities in that it is unregistered—no records are kept of the owner, or the transactions involving ownership.
A benchmark is a standard against which the performance of a security, mutual fund or investment manager can be measured. Generally, broad market and market-segment stock and bond indexes are used for this purpose.
Blue chip stocks
A blue-chip stock is the stock of a large, well-established and financially sound company that has operated for many years. A blue-chip stock typically has a market capitalization in the billions, is generally the market leader or among the top three companies in its sector, and is more often than not a household name
Book entry is a system of tracking ownership of securities where no certificate is given to investors. Several terms are often used interchangeably with "book entry" shares including "paperless shares", "electronic shares", "digital shares", "digital stock certificates", and "uncertificated shares".
A brokered CD is a certificate of deposit sold by a middleman, called a broker. Financial institutions use brokers to market their CDs to help them gain deposits.
The rates on brokered CDs tend to be very competitive because the financial institution is competing directly with other institutions for your deposit.
Bullish investors believe stocks are going up. ... Simply put, "bullish" means that an investor believes that a stock or the overall market will go higher
Comptroller of the Currency
The Office of the Comptroller of the Currency (OCC) is a division of the U.S. Treasury. It regulates and supervises national banks, including domestic branches of foreign banks. The U.S. Treasury created the OCC in 1863 as part of the National Currency Act.
Consumer Price Index (CPI)
The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.
A coupon payment on a bond is the annual interest payment that the bondholder receives from the bond's issue date until it matures. Coupons are normally described in terms of the coupon rate, which is calculated by adding the sum of coupons paid per year and dividing it by the bond's face value.
Current yield is an investment's annual income (interest or dividends) divided by the current price of the security. This measure looks at the current price of a bond instead of its face value.
Day trading is speculation in securities, specifically buying and selling financial instruments within the same trading day, such that all positions are closed before the market closes for the trading day. Traders who trade in this capacity with the motive of profit are therefore speculators.
Depository Trust Company (DTC)
Founded in 1973, the Depository Trust Company is one of the world's largest securities depositories.
The DTC's automated system lowers costs and improves accuracy.
In addition to safekeeping, record-keeping, and clearing services, the DTC provides direct registration, underwriting, reorganization, and proxy and dividend services.
Employee stock ownership plan (ESOP)
Stock Purchase Plan
An employee stock ownership plan (ESOP) is an employee benefit plan that provides a company's workers with an ownership interest in the company. It is also sometimes referred to as a Stock Purchase Plan.
Employee Stock Purchase Plan (ESPP)
When a company declares a dividend, it sets a record date when you must be on the company's books as a shareholder to receive the dividend. ... The ex-dividend date is normally two business days before the record date. If you purchase a stock on or after its ex-dividend date, you will not receive the next dividend payment.
Payment to a financial adviser of a set hourly rate, or an agreed-upon percentage of assets under management, for a financial plan. When the plan is implemented, the adviser may also receive commission on some or all of the investment products purchased, which would be fee-and-commission compensation.
In accounting, FIFO is the acronym for First-In, First-Out. ... Under FIFO, the oldest costs will be the first costs to be removed from the balance sheet account Inventory and will be the first costs to be included in the cost of goods sold on the income statement.
Fill or Kill (FOK)
The purpose of a fill or kill (FOK) order is to ensure that a position is entered at a desired price. Without a fill or kill designation, it might take a prolonged period of time to complete a large order. Because such orders are typically placed for large quantities, prolonged execution of the order has the potential to cause significant changes to a stock's price and causing market disruption. instructs a brokerage to execute a transaction immediately and completely or not at all
A financial advisor is similar to an investment advisor, financial planner, investment manager, or investment consultant. ... Financial advisors often either charge by the hour or they charge the client a percentage of the assets under management.
Investment analysis involves researching and evaluating securities to determine their future performance and their suitability, given an investor's needs, goals and risk tolerance.
Investment analysis can also involve evaluating an overall financial or portfolio strategy.
Types of investment analysis include bottom-up, top-down, fundamental, and technical.
Financial Market (The Stock Market)
The stock market refers to the collection of markets and exchanges where regular activities of buying, selling, and issuance of shares of publicly-held companies take place.
Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy. It is the sister strategy to monetary policy through which a central bank influences a nation's money supply.
Fixed income refers to any type of investment under which the borrower or issuer is obliged to make payments of a fixed amount on a fixed schedule. For example, the borrower may have to pay interest at a fixed rate once a year, and to repay the principal amount on maturity.
A floating rate fund is a fund that invests in financial instruments paying a variable or floating interest rate. A floating rate fund invests in bonds and debt instruments whose interest payments fluctuate with an underlying interest rate level. Typically, a fixed-rate investment will have a stable, predictable income. However, as interest rates rise, fixed-rate investments lag behind the market since their returns remain fixed.
A financial forecast is an estimate of future financial outcomes for a company. Financial forecasts estimate future income and expenses for a business over a period of time, generally the next year.
A foreign bond is a bond issued in a domestic market by a foreign entity in the domestic market's currency as a means of raising capital. For foreign firms doing a large amount of business in the domestic market, issuing foreign bonds, such as bulldog bonds, Matilda bonds and samurai bonds, is a common practice.
(FOREX) refers to the foreign exchange market. It is the over-the-counter market in which the foreign currencies of the world are traded. It is considered the largest and most liquid market in the world.
Full Coupon Bond
A coupon payment on a bond is the annual interest payment that the bondholder receives from the bond's issue date until it matures. ... For example, if a bond has a face value of $1,000 and a coupon rate of 5%, then it pays total coupons of $50 per year. Typically, this will consist of two semi-annual payments of $25 each
Full faith-and-credit obligations
The full faith and credit refers to the full borrowing power of a government which pledges to fulfill its payment obligations in a timely manner. ... The government cannot default on its obligations as it has the power to print more money or increase taxes in order to repay its debt.
Full trading authorization
Trading authorization refers to the level of power entrusted to a broker or agent by a client. Trading authorization dictates what actions an agent may perform, such as buying or selling.
Future value (FV) is the value of a current asset at a specified date in the future based on an assumed rate of growth.
General obligation bonds
A general obligation bond (GO) is a municipal bond backed by the credit and taxing power of the issuing jurisdiction rather than the revenue from a given project. General obligation bonds are issued with the belief that a municipality will be able to repay its debt obligation through taxation or revenue from projects.
A revenue bond is a municipal bond supported by the revenue from a specific project, such as a toll bridge, highway or local stadium. ... Typically, revenue bonds can be issued by any government agency or fund that is managed in the manner of a business, such as entities having both operating revenues and expenses.
Whenever you buy or sell a stock, bond, ETF, or mutual fund, there are two important dates you should always be aware of: the transaction date ('T') and the settlement date. The abbreviations T+1, T+2, and T+3 refer to the settlement dates of security transactions that occur on a transaction date plus one day, plus two days, and plus three days, respectively. 'T' is the transaction date.
Good through/until date order
Good through is a type of limit order used to buy or sell a security or commodity at a certain price for a specified period of time. Typically, a good through order is a stop loss or limit order that remains valid until the expiration date passes unless the order is executed, canceled or amended.
Good 'til cancelled order (GTC)
a good 'til cancelled (GTC) order is an order to buy or sell a security at a specified price which remains in effect until executed or cancelled by the investor.
A government bond or sovereign bond is a bond issued by a national government, generally with a promise to pay periodic interest payments called coupon payments and to repay the face value on the maturity date.
A gray market is an unofficial market where securities are traded. Gray (or “grey”) market trading generally occurs when a stock that has been suspended trades off-market, or when new securities are bought and sold before official trading begins. ... The gray market is an unofficial one, but is not illegal.
A guaranteed bond is a debt security that offers a secondary guarantee that interest and principal payments will be made by a third party, should the issuer default due to reasons such as insolvency or bankruptcy
Held to maturity
Held-to-maturity (HTM) securities are purchased to be owned until maturity. A company's management might invest in a bond that they plan to hold to maturity. As a result, there are different accounting treatments for held-to-maturity securities compared to securities that are to be liquidated in the short term.
A high-yield bond is a high paying bond with a lower credit rating than investment-grade corporate bonds, Treasury bonds and municipal bonds. Because of the higher risk of default, these bonds pay a higher yield than investment grade bonds.
Historical volatility (historical performance)
Historical returns are often associated with the past performance of a security or index. Analysts review historical return data when trying to predict future returns or to estimate how a security might react to a particular situation, such as a drop in consumer demand.
refers to the state of a stock, bond, or other assets that cannot easily be sold or exchanged for cash without a substantial loss in value. Illiquid assets may also be hard to sell quickly because of a lack of ready and willing investors or speculators to purchase the asset.
Incentive Stock Option (ISO)
is a type of employee stock option with a tax benefit that, when exercised, it isn't necessary to pay ordinary income tax. Instead, the options are taxed at a capital gains rate.
is a type of debt security in which only the face value of the bond is promised to be paid to the investor, with any coupon payments paid only if the issuing company has enough earnings to pay for the coupon payment.
is an investment that is considered to provide protection against the decreased purchasing power of a currency that results from the loss of its value due to rising prices (inflation).
Initial Public Offering (IPO)
An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. Public share issuance allows a company to raise capital from public investors. The transition from a private to a public company can be an important time for private investors to fully realize gains from their investment as it typically includes share premiums for current private investors. Meanwhile, it also allows public investors to participate in the offering.
a type of insurance whereby an insurance company guarantees scheduled payments of interest and principal on a bond or other security in the event of a payment default by the issuer of the bond or security.
Joint tenants with right of survivorship (JTWROS)
Joint tenants with right of survivorship (JTWROS) is a type of brokerage account owned by at least two people, where all tenants have an equal right to the account's assets and are afforded survivorship rights in the event of the death of another account holder. The concept also applies to real estate property
Junk bonds are bonds that carry a higher risk of default than most bonds issued by corporations and governments. A bond is a debt or promises to pay investors interest payments and the return of invested principal in exchange for buying the bond.
a benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans. LIBOR, which stands for London Interbank Offered Rate, serves as a globally accepted key benchmark interest rate that indicates borrowing costs between banks.
A limit order is the use of a pre-specified price to buy or sell a security.
Investment instrument (such as stock/shares, bonds) that is officially listed (quoted) on a stock exchange for public trading. Unlisted securities are traded (in the US) in over the counter market
Long Market Position
Investors maintain “long” security positions in the expectation that the stock will rise in value in the future.
the difference between the highest current bid price among dealers in the market for a security and the lower price that a dealer charges a customer. Dealers will sometimes offer lower prices in order to stimulate trading; the idea is to make the money back in extra commissions.
The point in time at which a security's price begins to trend upwards after trending downwards.The lowest level of support in price for a security, index, or market over a given time frame. The security, index, or market is highly unlikely to go below the bottom;
is often defined as a 10% drop in the market from recent highs.
(or a full market cycle) is defined as a period of bull, bear, and bull periods generally lasting 4-5 years.
Making a market" signals a willingness to buy and sell the securities of a defined set of companies to broker-dealer firms that are member firms of that exchange. ... Without market making, there may be insufficient transactions and less overall investment activities
A market order is a buy or sell order to be executed immediately at the current market prices. As long as there are willing sellers and buyers, market orders are filled. Market orders are used when certainty of execution is a priority over the price of execution. A market order is the simplest of the order types.
The market price is the current price at which an asset or service can be bought or sold. The economic theory contends that the market price converges at a point where the forces of supply and demand meet.
the possibility of an investor experiencing losses due to factors that affect the overall performance of the financial markets in which he or she is involved. Market risk, also called "systematic risk," cannot be eliminated through diversification, though it can be hedged against.
is the strategy of making buying or selling decisions of financial assets (often stocks) by attempting to predict future market price movements. The prediction may be based on an outlook of market or economic conditions resulting from technical or fundamental analysis.
is a person or financial firm that manages the securities portfolio of an individual or institutional investor. Typically, a money manager employs people with various expertise ranging from research and selection of investment options to monitoring the assets and deciding when to sell them
Monte Carlo Simulation
model allows researchers to run multiple trials and define all potential outcomes of an event or investment. ... That helps a manager decide whether to proceed with an investment or project.
Mortgage Backed Securities
investments that are secured by mortgages. They're a type of asset-backed security. A security is an investment that is traded on a secondary market. It allows investors to benefit from the mortgage business without ever having to buy or sell an actual home loan.
Municipal Revenue Bond
Revenue bonds are municipal bonds that finance income-producing projects and are secured by a specified revenue source. Typically, revenue bonds can be issued by any government agency or fund that is managed in the manner of a business, such as entities having both operating revenues and expenses.
is the coupon rate on a bond. The nominal yield is the interest rate (to par value) that the bond issuer promises to pay bond purchasers. This rate is fixed, applies to the life of the bond, and is sometimes referred to as nominal rate, coupon yield or coupon rate.
A general obligation bond (GO) is a municipal bond backed by the credit and taxing power of the issuing jurisdiction rather than the revenue from a given project. General obligation bonds are issued with the belief that a municipality will be able to repay its debt obligation through taxation or revenue from projects
Open order (good-till-cancelled, GTC order)
a good 'til cancelled (GTC) order is an order to buy or sell a security at a specified price which remains in effect until executed or cancelled by the investor.
The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings (EPS).
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. Par value for a bond is typically $1,000 or $100
is an individual or firm that charges a fee or commission for executing buy and sell orders submitted by an investor. can also refer to the role of a firm when it acts as an agent for a customer and charges the customer a commission for its services.
execute trades on behalf of a client, but typically don’t provide investment advice.
Full Service Broker
provide execution services as well as tailored investment advice and solutions.
An acquisition occurs when one company buys most or all of another company's shares.
If a firm buys more than 50% of a target company's shares, then it effectively gains control of that company.
An acquisition is often friendly; a takeover can be hostile; a merger creates a brand new entity from two separate companies
The Treasury note, or T-note is issued by the U.S. government when it wants to raise money to fund its debts or undertake new projects for the benefit of the economy. The notes are sold in $100 increments, pay interest in six-month intervals, and pay investors the full face value of the note upon maturity.
An unsecured note is a corporate debt without attached collateral, typically lasting three to 10 years. The interest rate, face value, maturity, and other terms vary.
A promissory note is written documentation of money loaned or owed from one party to another. The loan’s terms, repayment schedule, interest rate, and payment information are included in the note. The borrower, or issuer, signs the note and gives it to the lender, or payee, as proof of the repayment agreement.
A cycle is a wide term referring to trends or patterns that emerge during different market or business environments. ... A market cycle is complete when the S&P 500 is 15% below the highest point or 15% above the lowest point (ending a down market)
Reverse stock splits are the opposite transaction of a stock split, where a company divides, instead of multiplies, the number of shares that stockholders own, raising the market price accordingly.
Fundamentals include the basic qualitative and quantitative information that contributes to the financial or economic well-being and the subsequent financial valuation of a company, security or currency. Where qualitative information includes elements that cannot be directly measured such as management experience, quantitative analysis (QA) uses mathematics and statistics to understand the asset and predict movement.
The goal of investing is to gradually build wealth over an extended period of time through the buying and holding of a portfolio of stocks, baskets of stocks, mutual funds, bonds, and other investment instruments.
when measuring performance, is the actual rate of return of an investment or a pool of investments over a given evaluation period. Total return includes interest, capital gains, dividends and distributions realized over a given period of time.
bearish means that an investor believes a stock will go down, or underperform.
LIFO is the acronym for last-in, first-out, which is a cost flow assumption often used by U.S. corporations in moving costs from inventory to the cost of goods sold. ... LIFO became popular due to inflation and the fact the U.S. income tax rules permit corporations (and other businesses) to use LIFO.
A limit order is an order to buy or sell a stock at a specific price or better.
Buy Limit Order
A buy limit order can only be executed at the limit price or lower,
Sell Limit Order
a sell limit order can only be executed at the limit price or higher.
Stop Limit Order
A stop-limit order is a conditional trade over a set timeframe that combines the features of stop with those of a limit order and is used to mitigate risk. ... The stop-limit order will be executed at a specified price, or better, after a given stop price has been reached
A stop-loss order is an order placed with a broker to sell a security when it reaches a certain price. Stop-loss orders are designed to limit an investor’s loss on a position in a security.
Long Position (Hold Long)
also known as simply long—is the buying of a stock, commodity, or currency with the expectation that it will rise in value. Holding a long position is a bullish view. ... The trader can hold either a long call or a long put option, depending on the outlook for the underlying asset of the option contract.
Short Position (Hold Short)
A short, or a short position, is created when a trader sells a security first with the intention of repurchasing it or covering it later at a lower price.
Two Types of Short Positions (Naked Short) (Covered Short)
Naked Short Naked shorting is the illegal practice of short selling shares that have not been affirmatively determined to exist.
Covered Short A covered short is when a trader borrows the shares from a stock loan department; in return, the trader pays a borrow-rate during the time the short position is in place.
Collateralized Bond Obligation
Collateralized Debt Obligation (CDO)
-- A bond that uses high-yielding junk bonds as collateral.
-- A short-term commercial bond that matures in less than three months.
-- A bond that can be exchanged for other investment securities.
-- The specific promises the bond issuer sets in the contract.
-- A grade assigned to a bond to indicate how risky it is.
-- The specified date when the bond issuer must pay back the investor's principal.
-- Long-term bonds issued by the U.S. Treasury.
A bond rating is a grade given to bonds that indicates their credit quality.
Standard & Poor's
the company issues credit ratings for the debt of public and private companies, and other public borrowers such as governments and governmental entities.
Fitch Ratings is the smallest of the "big three" credit reporting agencies, covering a more limited share of the market than S&P and Moody's, though it has grown with acquisitions and frequently positions itself as a "tie-breaker" when the other two agencies have ratings similar, but not equal, in scale.
refers to the quality of a company's credit. To be considered an investment grade issue, the company must be rated at 'BBB' or higher by Standard and Poor's or Moody's.
also known as cat bonds, are investment securities that work like insurance products for the purpose of reducing the greatest risks associated with insuring catastrophic events, such as major hurricanes and earthquake
The money is guaranteed, plus if you purchase EE savings bonds you do not need to pay taxes on the interest if you use the savings bonds towards education expenses. ou purchase the bond for the amount that you want it to be. In the past, you would purchase the bond for half of the face value amount and it would take about twenty years to mature so you could cash it in for the full value.
the failure to repay a debt including interest or principal on a loan or security. A default can occur when a borrower is unable to make timely payments, misses payments, or avoids or stops making payments. Individuals, businesses, and even countries can fall prey to default if they cannot keep up their debt obligations.
Reinvestment risk is the risk that future cash flows – either coupons (the periodic interest payments on the bond) or the final return of principal – will need to be reinvested in lower-yielding securities.
is a legal entity that develops, registers and sells securities to finance its operations. Issuers may be corporations, investment trusts, or domestic or foreign governments. Issuers are legally responsible for the obligations of the issue and for reporting financial conditions, material developments and any other operational activities as required by the regulations of their jurisdictions.
measures the dispersion of a dataset relative to its mean.
A volatile stock has a high standard deviation, while the deviation of a stable blue-chip stock is usually rather low.
As a downside, it calculates all uncertainty as risk, even when it’s in the investor's favor—such as above average returns.
Passive v Active Investing
Active investing requires a hands-on approach, typically by a portfolio manager or other so-called active participant. Passive investing involves less buying and selling and often results in investors buying index funds or other mutual funds.
Head and Shoulders Pattern
On the technical analysis chart, the Head and shoulders formation occurs when a market trend is in the process of reversal either from a bullish or bearish trend; a characteristic pattern takes shape and is recognized as reversal formation.
An order type that only executes when the full amount of the shares in the order can be executed, otherwise the order doesn’t execute at all. In other words, this order type guarantees there are no partial fills.
A point on a candle stick chart representing a specific time period (a day, an hour, a minute, etc) in which the underlying stock price has moved. Candlesticks will have a body and usually two wicks – one on each end. For a white (could also be green) candlestick, the bottom of the body represents the opening price and the top of the body represents the closing price. For red candlesticks, it is just the other way around. The top and bottom tips of each wick are the day’s highest and lowest price respectively.
Dead Cat Bounce
You’ll need to be a seasoned trader to trade a dead cat bounce. The initial challenge is the stock is often a falling knife, so determining where to pick up some shares is to some extent a gamble. The best approach is to hold off until there is an explosive move in volume, followed by a candlestick reversal pattern. Then take the long position, do not get crazy. Be ready to sell out on the first indication of weakness as the up move will be short lived.
Buy and Hold Strategy
The buy and hold strategy is essentially just what it sounds like: Purchase stocks and then hold them for an extended period of time. The underlying assumption for the buy and hold strategy is that stocks tend to go up in price over extended periods of time. Research supports this trend in a growing capitalist economy and the strategy has made millions rich.
Pre- and After-Markets
after-market and pre-market trading is usually done by very large institutional investors, or “off exchange” by one investor directy to another
The US and Canadian Markets open at 9:30 AM ET (GMT-6:00) and close at 4:00 PM ET. Monday to Friday, with exceptions on National Holidays.
Penny stocks are extremely cheap stocks; so cheap that they usually do not follow the normal market capitalization rules of being listed on major exchanges, so are always traded OTCBB or through Pink Sheets.
Pink sheets refer to a listing service for stocks that trade via over-the-counter (OTC). Stocks listed on the pink sheet are usually small penny stocks that trade for less than five dollars per share.
Dogs of Dow Strategy
A stock investing tactic where you purchase the ten DJIA stocks with the highest dividend yield at the start of each year. At the start of each consecutive year the stock portfolio must be adjusted so that it always holds the 10 highest yielding stocks.