Glossary
Playing the stock market isn’t the easiest thing in the world. Then again, it doesn’t take a rocket scientist to do it either. However, the stock market is another world with a different set of language that is totally incomprehensible to someone who knows nothing about it. There are many different terms that may not make sense and it may seem daunting to the inexperienced player.
Don’t fret. That’s why we’re here. This glossary is aimed to provide you with the common, as well as not-so-common, stock market terminologies so that getting acquainted with the stock market becomes easier. Our goal is to introduce you to the “alien” words and help you understand them by giving you easy-to-comprehend definitions of the listed words.
This glossary is a useful “Stock Market 101” for beginners and definitely a good reference tool for even the experienced players. After all, you can’t possibly remember everything you’ve learned about the stock market, and it’s always good to have a handy source of definitions… like a glossary.
Stock Market Glossary
After-Hours Trading: As the name implies, this pertains to stock trading activities when the major Stock Exchanges are closed.
After Hours Stock Trading : The major financial markets usually have defined hours of operation. However, in order to meet the demand of investors, particularly institutions who wish to hedge their daily activity, most have opened up trading on an after-hours, 24-hours a day trading operation.
The advent of computing technology as the centerpiece of trading makes this possible, accurately matching bids and offers with quantity parameters, making an after-hours trade every bit as easy, and safe, as trades occurring on the standard exchanges.
AMEX: American Stock Exchange. Another US Exchange typically consisting of small to medium cap companies. See AMEX in our US Exchanges section for more information
Annual Report: As the name indicates, it is a yearly report of the company’s financial results for the past fiscal year. The annual report is a Securities and Exchange Commission (SEC) requirement and it goes to the shareholders.
Arbitrage: Refers to the act of taking advantage of a Security’s price difference in two of the markets where it is being traded. For example, if X Company were trading at $50 on the Hong Kong Stock Exchange (HKSE) and $48.50 on the AMEX, the arbitrageur would buy shares on the AMEX and sell them on the HKSE.
Ask Price: This term refers to the price that the buyer is asked to pay when purchasing a stock.
At the Close: The price of the last trade of a stock when the market closes for the day. This price is important in the sense that where a stock closes in its range gives people an idea about the direction and momentum of the stock. (Also see Closing Price)
At-The-Open: Refers to a stock’s trading price when a stock begins trading for the day. It may gap up, gap down, or open where it closed the last time. Where a stock opens can prove deceptive, especially if the stock gaps up or down significantly from the closing price. (See Opening Price)
Automatic Execution: An electronic order to buy and/or sell stocks without the presence or intervention of humans.
Average Daily Share Volume: Computed as follows: Number of shares traded per day, averaged over a period of time, usually one year.
Bear Trap: A deceptive signal indicating that the rising trend of a stock or index has started dropping when in fact it really hasn’t.
Bear Market: This refers to a market that shows long-term, significant decline in market value as shown by market indicators. Basically, in a bear market, there are more sellers than buyers.
Bid Price: This refers to the price offered to you when selling a stock.
Big Board: The New York Stock Exchange. It got its name for being the number one Stock Exchange in the world.
Blue Chips: The big boys. These are large, stable companies that account for a huge value of a certain Index it is listed on.
BSE: Acronym for the Bombay Stock Exchange. India’s oldest Stock Exchange.
Bull Market: This refers to a market that shows long-term, significant growth in value in the stock market as shown by market indicators. The opposite of a bear market, this basically means that there are more buyers than sellers.
Bull Trap: A deceptive signal indicating that the price of a stock or index has reversed to an upward trend, when in fact it hasn’t.
Calendar Effect: Refers to a theory that certain periods in time are likely to produce rises or falls in share prices. Some market analysts use this thery to predict future prices in securities. Examples are the January Effect and the Weekend Effect.
Call Option: A call is an option contract that gives the owner the right to buy a specified amount of security at a fixed price on or before a given date. Call options generally rise in price if the underlying shares fall in price and vice-versa. (Also known as a Call).
Fill-or-Kill Order: An order that has to be executed for the full size of the order when voiced or else cancelled.
Capital Gain: This is any asset that is sold for a profit and is subject to tax. This is divided into two (2) parts, namely, Short-term and Long-term capital gain, respectively.
Closing Price: Also known as At The Close. Basically refers to the price of the last trade of stock when trading stops, or market closes for the day.
Commission: The amount of money paid to a broker for executing a trade based on the dollar amount of the trade or the number of shares traded.
Common Stock: A security that allows equity ownership in a company. Owners of common stocks are allowed to vote on matters like the election of directors. Moreover, they are also given dividend payments of a company’s profits.
Common Stock Prices: The ownership of corporations, both listed and non-listed, is comprised of stock, each share of which represents a portion of equity in the company. For example, if the net equity of a company is $1000 ($5000 worth of assets, minus $4000 in debt), and if there are 10 outstanding shares of stock, then each share would represent $100 of equity.
But is the share worth that much on the market? That depends. Because the market price is nothing other than what someone is willing to sell it for meeting with a price someone is willing to pay for it. That’s the market value of the stock, and it’s what the term “common stock prices” means in the real world.
This is complicated by the fact that there are other forms of stock other than common stock, such as various levels of “preferred” stock, restricted stock and convertible securities. Common stock is what it says, the most common type of equity share available, but not the only kind.
When someone refers to common stock prices, they’re talking about the price for a share of common stock on an exchange or in the open market, which may or may not approximate the percentage of ownership that share represent
Convertible Bond: Refers to a bond or bonds that can be exchanged for shares of stock.
Convertible Securities: Corporations finance themselves in many ways. On the equity side, they issue shares of ownership in the form of stock, which represents a proportionate share of ownership. When a company issues new shares, the proceeds of that sale become part of the company’s assets.
Companies also frequently borrow money, and in many forms. One of those forms is the issuance of bonds, which is nothing other than an instrument representing a loan and it’s terms. Sometimes those terms include an option on the part of the holder to convert the bond into shares of stock, at a defined price and quantity.
For example, if a bond’s face value is $1000 (the most common amount), it might include an option to convert the bond for 1000 shares of stock, which equates to a price of $1 per share. The bondholder then has the option to do that conversion at a time of their choosing, which would depend on the price of the stock in the open market.
If the stock is selling at $2 per share, then it would make sense to convert the bond to 1000 shares, which are instantly worth $2000 in the market.
However, convertible bonds hold a value in the marketplace commensurate with the terms of their conversion value. In this example that bond would probably be worth $2000 in the marketplace, rather than its $1000 face value, irrespective of the rate of interest being paid, which is normally the determinant of the value of a bond in the after-market.
Convertible bonds, then, trade very much like common stock, which is a function of the market’s believe in what the stock will do going forward.
Crash: A sudden, unexpected decline in a particular stock class. Crashes are, more often than not, the end result of sudden price inflation. (Also known as Asset Price Crash)
Day Trade: This is done when you place a buy order and a sell order on the same stock within the very same day.
Daytrader: Someone who engages in daytrading. A daytrader buys and sells securities frequently during the day, ideally ending with no securities in hand at the end of the trading day.
Delayed Opening: Refers to the intentional delay in the start of trading in a stock until the large disparity in buy and sell orders is normalized.
Dividends: Term used for the money or earnings that a company gives back to its share holders.
Dividend Reinvestment Plan (DRIP): A plan which a corporation may implement, allowing investors to collect dividends in shares of stock (usually fractions of shares) instead of cash.
Dotcom bubble: A period of time in the history of the Stock Market in which a speculative bubble occurred when a lot of people started heavily investing on technology and Internet-related stocks. This led to an inflation in price, resulting in the stock market crash of 2000-2002.
Downtick: the sale of a listed stock at a price that is less than its previous sale price. Also called the “minus tick”
Down Trend: Also known as a downward trend. This is occurs when the price of a particular security goes down in value over a relative period of time. An down trend is typically characterized by lower “ups” and lower “lows”.
Dutch Auction: Occurs during an IPO wherein the buyer specifies the amount he’s willing to pay for a certain number of shares.
Earnings: Refers to the company’s profits at the end of the year.
Fiscal Year: This refers to the accounting year for a company. A fiscal year may or may not correspond with a calendar year, depending on how the company operates.
Floor Broker: A participant who handles and executes orders on the trading floor of a stock exchange.
Full Service Broker: A stockbroker/brokerage who offers investment advice, and other services that aren’t usually offered by discount brokers.
Great Depression, The: The longest and most severe economic depression to ever hit the western world. It was a period that began with the Stock Market Crash of 1929 and lasted until the onset of WWII. During this period, unemployment was extremely high and the economic activity was very slow.
Growth Stocks: Refers to the companies with consistent annual earnings and sales growth of 15% or greater.
High Yield: A stock or bond that has the ability to give the investor (you) a high percentage of the investment.
Index: It is the statistical composite that measures changes in financial markets. Indices measure the ups and downs of stock, bond and commodities markets, reflecting market prices and the number of shares outstanding for the companies listed in that index. See Popular Indices for more information.
Insider: Generally, these are the people who have access to inside information about a company or entity that is material to the stock price. Directors, officers and anyone else who owns above 10% outstanding stocks are considered insiders.
Insider Ownership: The number of shares controlled or owned by company insiders.
Insider Trading: This refers to the act of trading in the shares of an business by its directors and officers. Such acts are required to be disclosed before they happen. Otherwise, they are deemed illegal. Knowledge about the actions of a company’s officers, whether buying or selling their own stocks, is always useful but should not be treated as an absolute indicator of a company’s condition.
Investment Scams: While the stock market is highly regulated, the trading of stocks outside of the market is not. Which means, it is a fertile ground for fraudulent schemes and scams that lure investors to the table with promises of a high rate of return that will never materialize.
Investment scams come in a variety of flavors. A ponzi scam is a pooled fund of money from investors that begins to pay out attractive returns, which then lure even more money into the fund. But those returns aren’t derived from the performance of the investments the fund has made, but rather, the payout is from the newly invested funds of new investors.
Other forms of scamming including fraudulent assets and business plans that never existed or are taken off the table once the investor has written the check, and simply exaggerations of expected returns based on so-called insider information otherwise unavailable to the general public, and therefore not yet priced into the market value of the underlying security.
IPO: Abbreviation for Initial Public Offering. This refers to the first time that a company issues shares of stock for sale to the general public. In the world of stock brokers, this event signifies that the company is “going public”.
January Effect: Refers to the idea that stocks, particularly small-cap stocks, historically rise up markedly in price. This starts on the last day of December and ends on the fifth trading day of January.
Large-Cap: Refers to a company with market capitalization exceeding $8 billion.
LEAPS: Abbreviation for Long-term Equity Anticipation Securities. These are are long-term stock or index options whose expirations dates are available for up to three years in the future.
Limit Order: An order which, at the behest of the investor, may be executed only at the specified limit price, or better.
Listed Stock: Refers to stocks that are traded on a major Stock Exchange, like NYSE.
Long-term Capital Gain: If the asset has been held for more than a year at the time that it was sold, the profit is called a long-term capital gain, and subject to over 20% tax.
Margin: The amount of money that a customer must deposit with a broker to secure a loan from that broker in order to buy stocks or other securities. Options are generally not marginable.
Margin Account: A brokerage account that allows an investor to purchase securities on credit and to borrow on securities that are already in the account.
Margin Call: A demand for the client to deposit an amount of money into the margin account of his broker. This happens when the client purchases securities beyond the value of his margin account.
Market Capitalization: This can be obtained by multiplying the number total of outstanding shares issued by the latest stock price.
Market Maker: Market Makers are licensed traders who buy and sell securities (stock and options). They facilitate trade in securities and act as a middleman between brokers. A Market Maker always has a certain security in hand as well as other stocks that are ready to be traded. Market makers make their profit on the difference between the bid and the ask prices, also known as the spread.
Market Order: This is an order for the broker to buy or sell a security at its current trading price.
Index: It is the statistical composite that measures changes in financial markets. Indices measure the ups and downs of stock, bond and commodities markets, reflecting market prices and the number of shares outstanding for the companies listed in that index. See Popular Indices for more information.
Insider: Generally, these are the people who have access to inside information about a company or entity that is material to the stock price. Directors, officers and anyone else who owns above 10% outstanding stocks are considered insiders.
Insider Ownership: The number of shares controlled or owned by company insiders.
Insider Trading: This refers to the act of trading in the shares of an business by its directors and officers. Such acts are required to be disclosed before they happen. Otherwise, they are deemed illegal. Knowledge about the actions of a company’s officers, whether buying or selling their own stocks, is always useful but should not be treated as an absolute indicator of a company’s condition.
Intraday Trading : Not every investor is looking for the long term gain. Some are in it for the short haul – as short as a single day.
An intraday trade is just what it says – a security purchased and then sold (or vice versa if it’s a short sale) on a single given day.
Who would do this? Day traders do it all the time, and by design. While day trading is long past its heyday of the last 1990s, it’s still going on, though on a much smaller and more regulated scale.
Intraday trading also takes place on foreign currency exchanges, too, such as Forex. Even the slightest variation in price creates both buy and sell opportunities in either direction, and savvy investors will always be there to make their play.
The casual investor should enter this realm, however, with great care, because this game moves fast, and the people playing it do so with an intuitive feel borne of experience, and the wounds to show for it.
IPO: Abbreviation for Initial Public Offering. This refers to the first time that a company issues shares of stock for sale to the general public. In the world of stock brokers, this event signifies that the company is “going public”.
January Effect: Refers to the idea that stocks, particularly small-cap stocks, historically rise up markedly in price. This starts on the last day of December and ends on the fifth trading day of January.
Large-Cap: Refers to a company with market capitalization exceeding $8 billion.
LEAPS: Abbreviation for Long-term Equity Anticipation Securities. These are are long-term stock or index options whose expirations dates are available for up to three years in the future.
Limit Order: An order which, at the behest of the investor, may be executed only at the specified limit price, or better.
Listed Stock: Refers to stocks that are traded on a major Stock Exchange, like NYSE.
Long-term Capital Gain: If the asset has been held for more than a year at the time that it was sold, the profit is called a long-term capital gain, and subject to over 20% tax.
Margin: The amount of money that a customer must deposit with a broker to secure a loan from that broker in order to buy stocks or other securities. Options are generally not marginable.
Margin Account: A brokerage account that allows an investor to purchase securities on credit and to borrow on securities that are already in the account.
Margin Call: A demand for the client to deposit an amount of money into the margin account of his broker. This happens when the client purchases securities beyond the value of his margin account.
Market Capitalization: This can be obtained by multiplying the number total of outstanding shares issued by the latest stock price.
Market Maker: Market Makers are licensed traders who buy and sell securities (stock and options). They facilitate trade in securities and act as a middleman between brokers. A Market Maker always has a certain security in hand as well as other stocks that are ready to be traded. Market makers make their profit on the difference between the bid and the ask prices, also known as the spread.
Market Order: This is an order for the broker to buy or sell a security at its current trading price.
Mutual Fund: A Fund that is operated by an investment company where money is raised from shareholders and used to invest in stocks, bonds and other securities.
NASDAQ: Abbreviation for The National Association of Securities Dealers Automated Quotations. A US Stock Exchange that sells a lot of smaller company’s stock and a lot of the technology company’s stocks. See NASDAQ in our US Exchanges section for more information.
No Load: Refers to an executed order (purchases, sales, etc.) with no commissions charged.
NYSE: The New York Stock Exchange. Also known as The big Board. The biggest Stock Exchange in the US. Located in New York. See NYSE in our US Exchanges section for more information.
Odd Lot: Odd lots are what you call a block stock consisting of anything less than 100 shares.
Opening Price: The first price paid the moment trading starts when the stock exchange “opens its trading doors”, usually in the morning. Opening price can be higher or lower than the closing price of the previous day because, almost always, orders are placed overnight, and after stacking up, affect the demand, thus, the opening price. Also known as At The Open.
Option: An optionis a contract that gives the holder the right to buy or sell a specified amount of security (stocks, bonds, futures contracts, etc.) at a fixed price on or before a given date. It is a right, not an obligation.
OTC: Acronym for Over-The-Counter stocks. These are stocks that are not traded on a national securities Exchange.
Overbought: When market prices ascend too steeply at a rapid rate, it is said to be overbought.
Oversold: Direct opposite of Overbought. This refers to the quick and steep descent of market prices.
Portfolio: A group of stocks, mutual funds, or other securities owned by the same individual or organization.
Preferred Stock: A security that gives its holder ownership of a company. Preferred Stock holders do not have the voting rights that Common Stock holders do. They are, however, given priority over common stock holders when it comes to dividend payments, as well as claims on the assets of a company in the event of liquidation.
Much like houses, companies are worth money. They have a certain value, and it comes in two forms – what it’s worth on paper, and what the market says it’s worth (i.e., what someone will actually pay for it).
Like a house, a company is worth it’s assets minus its liabilities. Net equity is represented by shares of stock, the value of which is proportionate to two things: the number of shares outstanding, and the cateory of the share of stock.
One class of stock is known as preferred, because in the event of the distribution of profits through dividends, and also in the event of the distribution of assets upon the sale or liquidation of the company, these shares literally come first, before the common shares can claim rights to any remaining funds.
Preferred shares usually pay a fixed dividend, and thus are traded and treated much like debt instruments in the market. Their price is less dependent on the company’s upside, since that dividend payout will not change, even though the proportionate ownership share will increase according to the increase in the company’s net equity.
Preferred shares are often owned by officers and original investors in a company, allowing them extra protection and rights as the company moves forward. Like common stock, though, they do trade in the open market, but with a completely different and separate pricing formulation based largely on rate of return.
Principal: This is what you call the initial amount you invest in a stock.
Put Option: A put is an option contract that gives the owner the right to sell a specified amount of security at a fixed price on or before a given date. Put options generally rise in price if the underlying shares fall in price and vice-versa. (Also known as a Put)
Quote: Refers to the information on the last trade, as well as current bid and asked prices. : A Fund that is operated by an investment company where money is raised from shareholders and used to invest in stocks, bonds and other securities.
NASDAQ: Abbreviation for The National Association of Securities Dealers Automated Quotations. A US Stock Exchange that sells a lot of smaller company’s stock and a lot of the technology company’s stocks. See NASDAQ in our US Exchanges section for more information.
No Load: Refers to an executed order (purchases, sales, etc.) with no commissions charged.
NYSE: The New York Stock Exchange. Also known as The big Board. The biggest Stock Exchange in the US. Located in New York. See NYSE in our US Exchanges section for more information.
Odd Lot: Odd lots are what you call a block stock consisting of anything less than 100 shares.
Opening Price: The first price paid the moment trading starts when the stock exchange “opens its trading doors”, usually in the morning. Opening price can be higher or lower than the closing price of the previous day because, almost always, orders are placed overnight, and after stacking up, affect the demand, thus, the opening price. Also known as At The Open.
Option: An optionis a contract that gives the holder the right to buy or sell a specified amount of security (stocks, bonds, futures contracts, etc.) at a fixed price on or before a given date. It is a right, not an obligation.
OTC: Acronym for Over-The-Counter stocks. These are stocks that are not traded on a national securities Exchange.
Overbought: When market prices ascend too steeply at a rapid rate, it is said to be overbought.
Oversold: Direct opposite of Overbought. This refers to the quick and steep descent of market prices.
Portfolio: A group of stocks, mutual funds, or other securities owned by the same individual or organization.
Preferred Stock: A security that gives its holder ownership of a company. Preferred Stock holders do not have the voting rights that Common Stock holders do. They are, however, given priority over common stock holders when it comes to dividend payments, as well as claims on the assets of a company in the event of liquidation.
Principal: This is what you call the initial amount you invest in a stock.
Put Option: A put is an option contract that gives the owner the right to sell a specified amount of security at a fixed price on or before a given date. Put options generally rise in price if the underlying shares fall in price and vice-versa. (Also known as a Put)
Quote: Refers to the information on the last trade, as well as current bid and asked prices.
Record date: The last date in which a shareholder must be registered with a company in order for that person to receive a declared dividend or be allowed vote on company matters.
Regular Way Delivery: Unless otherwise specified, securities sold are to be delivered to the buying broker by the selling broker and payment must be made to the selling broker on the third business day after the transaction.
Reverse Stock Split: The opposite effect of a Stock Split. A reverse stock split happens when a company reduces the number of outstanding shares by decreasing the number of available shares and combining their value into the fewer shares, thus increasing the stock’s par value. Example: X Company has 100 shares worth $50 each. It decreases the number of shares by half, resulting in 50 shares worth $100 each.
SEC: Abbreviation for Securities and Exchange Commission. This refers to the regulatory board that supervises the stock markets and the companies being publicly traded. They make sure that everything is transparent and honest.
Settlement: The conclusion of a securities or options transaction wherein the customer pays the broker for securities or options purchased, or delivers securities or options sold and receives from the broker the proceeds of the sale.
Share: A share is a unit of stock. Stocks are commonly bought or sold at 100 share lots or greater. When there are less than 100 stocks, they are considered odd lots. Anything above 5000 shares are called large lots.
Sheep: A slang term referring to investors who, upon observing other investors, buy or sell stocks accordingly. Generally, sheep are followers without the ability to make their own decisions.
Short Interest: This is the number of shares borrowed by short sellers. See Short Selling
Short Selling: This move is done in anticipation of a stock’s decrease in price. In Short selling, you sell a stock you don’t own by having a broker “borrow” the stock from another party. You sell the stock and when it goes down, buy it at the lower price and keep the profit to yourself.
Short-term Capital Gain: If the asset is held for less than one year at the time it was sold, the profit is called short-term capital gain, and the owner is subject to ordinary income tax.
Short-term Investments: Refers to liquid securities such as stocks, bonds, etc
Small-Cap: Refers to a company whose market capitalization is less than $1 billion.
Specialist: A participant of the exchange who trades for their own account or that of their firm’s and is responsible for maintaining a fair and orderly market in whatever issue has been allocated to them by providing bid and ask markets. In addition, specialists also responsible for orders entrusted to them for execution.
Speculative Bubble: Speculative bubbles occur when investors, seeing an upward trend in prices, enter place themselves in a position to participate in the stocks’ profitability. And Just like a bubble that bursts, speculative bubbles are followed by even faster sell-offs once the prices suddenly starts going down. This effect is called a Crash.(Also known as Bubble, Market Bubble, Economic Bubble).
Spread: A strategy involving the simultaneous purchase and sale of two different series of options with different strike prices or expiration months.
Stock: A stock gives you ownership of a company. When you buy a stock, you can consider yourself as having a stake in a particular company. This means that your interests are in line with that of the company’s. After all, both you and the company will be happy when that company does well. Stocks can be divided into two categories, namely Common Stock and Preferred Stock. Stocks are also referred to as Shares.
Stock Beta: A beta is a comparison of a given sample to a larger whole. In the case of a stock price, it’s beta is a statistic that represents its price volatility against that of the entirety of the stock market.
The baseline “equalizing” starting point in the expression of a stock’s beta it he number 1. Or, 1.o. Anything under 1.0 indicates a stock that is less volatile than the market. Anything above 1.0 indicates it is more volatile than the market. A 2.0 beta means the stock is precisely twice as volatile as the market.
In more precise terms, this relates to percentage of price movement. If, in a market that goes up 25% over a given time, a certain stock goes up 50%, then it is twice as volatile as the market, and thus will have a beta of 2.0
The computation is only useful if the data covers a span of time. The greater the number of samples, the more accurate the beta number. Any stock can have a wild day, but it takes a lot to move a beta over time, and thus a fluid beta becomes an accurate representation of the way a given stock behaves.
Stock Broker: A stock broker, acting as agent, traditionally executes orders to buy or sell stocks depending on the client’s instructions. Today’s Stock Brokers offer more services than just buying and selling of stocks. Click on our Stock Brokers section for more information.
Stock Exchange: Not to be confused with the Stock Market. A Stock Exchange is an association with fixed rules and regulations where stockbrokers meet to buy and sell stocks, bonds, securities, and other forms of exchanges. Several Stock Exchanges may operate in a single country, but companies can only be listed and traded under one exchange. For example, The US Stock Market has many Exchanges, the top three being NYSE, NASDAQ, and AMEX, respectively.
Stock Split: A Stock Split refers to the division of the shares of a company’s commons stock which results in an increase in the amount of outstanding shares by the multiple of the split. The end result is that the value of the outstanding shares will be reduced by the multiple of the split. For example, when a stock trading at $500 on the pay date with 1000 shares outstanding splits 2 for 1, the result is 2,000 shares outstanding with a $250 market value.
Straddle: Refers to the simultaneous purchase or sale of both a call and a put with the same expiration month and with the same strike price.
Strangle: Refers to the simultaneous purchase or sale of both a call and a put with the same expiration month and different strike prices.
Strike Price: The stated price per share for which the underlying security may be purchased (in the event of a call) or sold (in the event of a put) by the option holder upon exercise of the option contract.
Swing Trader: An individual who engages in swing trading. A swing trader ideally buys a huge amount of shares, but very few stocks and holds on to them for a few days until a price swing occurs that will allow him to sell his shares at a profit.
Swing Trading: The act of buying and selling of securities (stocks, bonds, etc.) while taking advantage of brief swings during a trend in a particular security’s price.
The Dow: Dow Jones Industrial Average (DJIA). An Index composed of 30 major stocks divided by the price of each stock. See DJIA in our Popular Indices section for more information.
The Market: Another term for The Stock Market. An organized trading of stocks through an exchange or over-the-counter. There is only one stock market per country. When people talk about the Stock Market, they are talking about all the publicly traded stocks in that country. A country’s Stock Market is made up of the different Stock Exchanges that exist within that country.
Tick: A measurement of a stock’s performance during a trading session. It basically refers to a change in the price of a security, either up or down. An up tick is symbolized by a “+”, while a down tick is symbolized by a “-”.
Trade: When brokers engage in the buying and selling of stocks.
Trend: A trend in the market is when a stock is either gaining popularity or losing it.
Trending Market: This means that the price moves in a single direction, meaning no fluctuations, and it usually closes on an extreme for the day. Basically the price either consistently moves up or down.
Trend Trading: A strategy employed by taking advantage of market trends, buying of securities at the start of an up-trend and selling them as soon as the trend reverses its course.
Trend Trader: Someone who engages in the act of trend trading. A trend trader focuses on trends rather than brief price swings or fluctuations. Ideally, a trend trader will hold on to his shares of securities for a long period of time until he recognizes the reverse of a trend, and then start selling as soon as possible.
Up Trend: Also known as an upward trend. This is occurs when the price of a particular security goes up in value over a relative long period of time. An up trend is typically characterized by higher “ups” and higher “lows”.
US Treasury Securities : Like corporations, the U.S. government also borrows money from investors to finance both short and long term needs. Those debt instruments are U.S. Treasury securities, extending from 90 day “t-bills” for one year bonds.
Because all of these instruments trade the in the open market, the value to an investor depends on the rate of return (the net of the coupon value in relation to the price paid) and the amount of time left on the instrument’s term. Companies and individuals alike often use these for very short term investments, as little as one day remaining on the terms, rather than bank deposits.
Entire markets exist for this form of investing, which offer the ultimate in safety because the interest and principle is backed by the full faith and strength of the U.S. government itself. And the face value rate of the new bonds the government issues, which generally reflect the state of the economy, comprise the index base for many adjustable rate mortgages.
Volatile: A market or security is said to be volatile when it tends to vary often and wildly in prices.
Volatility: The measurement of a security’s fluctuation over a given period of time.
Volume: This refers to the number of shares of stock that are traded. The direct relationship between a stock’s increase decrease in price and volume is always be one of the things that in investor must watch constantly monitor.
Warrant: A stock warrant usually allows a trader to purchase one share of stock at a fixed price for a certain period of time.
Write: Another term used that basically means to sell an option. The person selling the option is considered to be the writer.
Wilshire 5000: An Index. Designed to monitor the overall performance of the entire US Stock Market. Go to our Popular Indices section to learn more about this index.
Weekend Effect: A theory on stock market growth which claims that a trader’s optimism normally fades between Friday and Monday.
Y2K: Year 2000. During the years that preceded the year 2000, the Stock Market experienced panic caused by the belief that technology wasn’t sophisticated enough to handle a calendar that would start again at “000″.
Yield: Computed as follows: Stock Price divided by the dividends per share. Basically it is the amount that a stock will pay to its investors.
Zero Coupon Bonds: Not all bonds pay interest. Some bonds are simply worth one of two things: what someone will pay for them, and what they will be worth on the day the bond expires, which is always the face amount of the bond.
The rate of return, therefore, is derived from the discounted price of the bond in the open market, which is totally driven by the amount of time remaining in the bond’s terms, juxtaposed against prevailing interest rates.
If a $1000 bond expires in 10 years, and if the prevailing interest rate in the market is 5%, then the bond will trade at a value that equates to an annual return of 5% per year, or about $500. With each year that passes the bond’s value will increase, because that defines the amount of spread (absolute return) the investor will realize if they hold the bond for the full term.
