Glossary of terms
You don’t need to have a degree in
finance to join us. In fact, every year we welcome people from
diverse backgrounds. Having said that, some of the information on
this site is quite complex. That’s why we’ve created a glossary. If
you need further explanation of any of the terms you’ve read,
you’ll find it below.
52-week High
The highest price a security reaches over the most recent
52-week (one-year) period.
52-week Low
The lowest price a security reaches over the most recent 52-week
(one-year) period.
A
Annual Report
A description of a company's financial condition and its
performance during the preceding year.
B
Bear Market
A term used to describe markets when prices are falling.
Blue Chips
Companies with long records of profitable growth, dividend
payment, and a reputation for quality management, products and
services. Typically the most highly valued stocks in the
market.
Bond
A security issued by a corporation or a government body. A buyer
(the investor) is lending money to a seller (a corporation or a
government body) in return for regular interest payments and the
eventual repayment of the loan.
Broker
A person who buys, sells and gives advice on stocks, bonds,
mutual funds and other securities.
Bull Market
A term used to describe the market when prices are rising.
Base Rate
Base Rate is quoted off a short-term fluctuating rate such as
LIBOR or Prime Rate. LIBOR denotes the London InterBank Offered
Rate. Prime is an administered rate announced by large banks. Hence
a base rate may be quoted as LIBOR plus say 1%.
Back to
top
C
Close
The final price of a security at the end of the trading day.
Commission
The fee paid to a broker for buying or selling securities on a
customer's behalf.
Compounding
The effect that interest has on a sum of money when the interest
rate is applied to both the initial sum invested as well as the
interest that has already been received on that sum. For example,
if $100 is invested for two years at a 5% interest rate, the
investor will receive $5 the first year and $5.25 the second year.
This is because during the second year the interest rate is applied
to the initial investment ($100) as well as the interest received
from the first year ($5). Because of compounding, each interest
payment is greater than the one prior to it; therefore the rate at
which an investment grows increases over time (assuming compounding
of interest and a fixed interest rate).
Back to
top
D
Day High
The highest price a security reaches in its trading market for
that day.
Day Low
The lowest price a security reaches in its trading market for
that day.
Debt
Money owed that must be repaid.
Diversification
Distributing assets among a variety of securities. By
diversifying, you avoid having all your eggs in one basket, or
having all your money in one type of investment that may not
perform well at a particular time.
Dividend
A distribution of cash (or sometimes stock) made by a company to
its shareholders. More established companies tend to pay dividends
regularly, while newer companies usually reinvest extra cash to
help their businesses grow.
Dow Jones Industrial Average (DJIA)
An average of 30 selected companies whose movements can be used
to indicate how the overall market is doing. Usually "the stock
market is up 30 points" means that the DJIA has risen 30 points
from its previous day's average.
Back to
top
E
Earnings Per Share (EPS)
The amount of company profits attributable to each share of
stock.
Equity
The ownership of a portion of a corporation, or company. Shares
of stock are considered equity in a company because they represent
the shareholders' partial ownership of that company.
Back to
top
F
Federal Reserve System (The Fed)
The Fed is a system of 12 U.S. banks. The duties of The Fed
consist of controlling the amount of money circulating in the
economy.
Fixed Income
A fixed amount of money returned from an investment. An example
of a fixed income investment is a bond, because a bond regularly
pays a fixed amount of money (interest) to its holder until
maturity.
Foreign Exchange
The exchange of one country's currency for another. All foreign
exchange is determined by a rate of exchange, or a ratio valuing
one currency against another.
Back to
top
I
IPO
Abbreviation for "initial public offering." An IPO is a
company's first sale of stock to the public, also referred to as
"going public."
Inflation
The gradual rise in prices of products and services. With a rise
in inflation, a dollar invested or saved today is worth less than
the same dollar yesterday. This is why it is especially troublesome
for investors and people living on their fixed savings.
Interest
Interest is an amount charged as a "fee" for lending money. For
example, if you lend $100 to someone at an interest rate of 6%, you
would expect $6 to be paid in "interest" on a regular basis for as
long as the loan is in effect.
Interest Rates
The amount of money charged as a fee for lending money or the
price of borrowing money.
Investment
The placement of money in a security, with the hope of receiving
back the amount plus additional value over time.
Back to
top
L
Liquidity
The ease with which an asset can be sold and turned into cash. A
house cannot be easily redeemed for cash. A blue chip stock is very
liquid because there are many investors who want to buy or sell
them.
Back to
top
M
Market Value
The number of shares outstanding of a particular stock in the
stock market multiplied by the price per share of that stock as of
that day's closing price.
Maturity Date
The date when a bond is due to be repaid.
Municipal Bond
Bonds issued by state and local governments in order to fund the
building of schools, bridges, highways and other public projects.
Like other bonds, municipal bonds pay interest until their maturity
or redemption date.
Mutual Fund
A company that pools money to invest in stocks, bonds or other
securities on behalf of a group of investors. The fund is managed
by a professional investment manager. Mutual funds offer investors
greater diversification because their portfolios consist of many
different securities.
Back to
top
N
NASDAQ
Abbreviation for National Association of Securities Dealers
Automated Quotation System (also called the OTC, or
Over-the-Counter). Stocks on the NASDAQ are not traded on a
securities exchange. They are traded via computer by brokers for
their own accounts.
NYSE
Abbreviation for the New York Stock Exchange. The NYSE is the
oldest and largest auction market for stocks in the United States.
It is located on Wall Street in New York City.
Back to
top
O
Over-the-Counter (OTC)
Stocks not traded on a securities exchange. OTC stocks are
traded by brokers for their own accounts. Many OTC stocks are
traded in a market called "NASDAQ," which is set up by the National
Association of Securities Dealers (NASD).
Back to
top
P
Portfolio
Holdings of securities by an individual or institution. A
portfolio may include stocks, bonds and other holdings.
Price/Earnings Ratio (P/E Ratio)
A ratio used to gauge the relative value of a security in light
of current market conditions. The ratio is the market price of a
particular security divided by its earnings per share.
Publicly Held
Publicly held companies issue stock to the general public,
therefore the public owns, or holds, a certain percentage of that
company.
Back to
top
R
Recession
When demand in the economy decreases, prices of goods and
services also decrease, resulting in a slowdown of the economy.
When this slowdown becomes a long-term decline, this is known as a
depression.
Redemption
Any of the following: repayment of a bond at or before its
maturity date; repayment of a preferred stock; sale of mutual
shares to the fund.
Return
The amount of money that you receive as a percentage of an
initial investment. For example, if you initially invested $100 in
a one-year investment, and in a year your investment had grown to
$110, the return would be $10, or 10%.
Risk
The chance you take on an investment without knowing its precise
outcome. Usually the investment with the greatest potential return
involves the greatest amount of risk.
Back to
top
S
Savings
Money set aside so that it can be used later.
Secondary Market
The trading market that exists after a security has been sold to
the public by an issuer. The NYSE and NASDAQ are examples of
secondary markets. Individual investors deal primarily in the
secondary market.
Securities and Exchange Commission (SEC)
The regulatory body that oversees the activity of U.S.
securities markets and many of the participants in these markets.
The SEC makes rules governing the markets and these participants,
and also enforces the securities laws when they are broken.
Securities
Instruments of investment. Examples of the most widely known
securities are stocks and bonds.
Shareholder
Someone who owns stock in a particular company is referred to as
a shareholder of that company.
Shares Outstanding
The number of shares of a particular stock that are currently
being traded in the stock market.
Stock Exchanges
The auction markets where stocks are bought and sold by
broker/dealers for other people's accounts. A well-known stock
exchange, the New York Stock Exchange (NYSE), provides a market for
the buying and selling of stocks. NASDAQ, on the other hand, is not
a stock exchange because it is not an auction market. NASDAQ stocks
are dealt "Over-the-Counter" by brokers.
Stock Index
A collection of stocks whose value is a benchmark for the
overall movement of a particular type of stock.
Stock Quote
The price of a stock at which a broker is willing to buy or sell
a specific number of shares.
Stocks
Ownership shares in a corporation. Stockholders share a portion
of the profit the company may make, as well as a portion of the
loss a company may take. If the company grows, the stockholder may
benefit from the rise in the company's stock price.
Back to
top
U
U.S. Government Securities
Investment instruments of United States Government debt. U.S.
Government securities are thought to be the safest investment
because they are backed by the credit of the U.S. Government
itself. This means that government securities are guaranteed by the
U.S. Treasury.
Back to
top
V
Volatility
The up-and-down movement of a security's price over time. The
greater the volatility, the greater the chance of a profit or risk
of a loss in a short period of time.
Volume
The amount of each security traded in a given period of time.
For example, if the volume of XYZ stock was 10,000 yesterday, that
means that 10,000 shares of XYZ stock were traded. Broader volumes,
such as the volume of all the stocks traded on the New York Stock
Exchange, can be used to indicate overall market activity.
Back to
top
Y
Yield
Also known as return. The dividends or interest paid by a
company expressed as a percentage of the current price. A stock
with a current market value of $40 a share paying dividends at the
rate of $3.20 is said to yield 8% ($3.20/$40).