Financial Dictionary

Abnormal Return – A return generated over time that's different from what was expected. Can be either higher or lower than predicted based on the expected rate of return.

Accounts Payable Turnover Ratio – One measurement of a company's liquidity that looks at how quickly a company pays off suppliers.

Accumulated Dividend – A dividend from preferred stock that has accumulated on the shareholder's account without being paid out yet.

Affidavit of Loss – An affidavit explaining the loss of a physical security certificate. Contains all related information and can be followed by a letter of indemnity to ask that the security be replaced.

Anti-Dilution – A provision in a convertible security or option that protects the investor from losing money when a company issues stock later at a price lower than the investor originally paid.

Annualized Total Return – One indication of an investment's performance based on an average of the money earned by the investment every year in a set period of time.

Annual Report – A report from a public company or mutual fund made available to shareholders every year. Includes statistics of growth and financial information. Company reports are usually more graphic and impressive than those from mutual funds.

Asset Mix – The blend of assets contained in one portfolio, most often split between stocks, bonds, cash, and real estate.

Authorized Stock – The total number of shares a company is legally allowed to give out, according to its articles of incorporation.

Barometer Stock A stock that is thought to show the general state of the market with its own price pattern.

Bear – An investor who sees the market or the performance of a particular stock as heading in a downward trend. These investors hope to profit from declining prices.

Below the Market – Buying or ordering a security at lower than market price.

Blue Chip – A well-respected, financially sound company that will most likely remain stable during economic downturns and also show steady growth.

Broad-Based Index – A stock index that attempts to show the trends of the overall market. Includes the Dow Jones Industrial Average, the S&P 500, and the AMEX Major Market Index, among others.

Bull – One who sees the market or an individual stock as on an incline and who attempts to profit from increasing prices. A bull investing strategy is also known as a buy and hold strategy.

Buy and Hold – One common investment strategy where the investor holds stocks for a long period of time, even during down periods, with the idea that over the long term, prices will increase on average.

Callable Common Stock – Common stock where the issuer can call it back when it reaches a set price.

Capital Gain – Profit seen when capital asset or security held by a mutual fund rises in price and is sold. Short term and long term capital gains must be claimed on income taxes using special forms.

Capitalization – For corporations, the sum of stock, long-term debt, and retained earnings (aka. Invested capital). Also "market capitalization" or the total of a company's outstanding shares multiplied by the price per share.

Cash Position – One mark of a company's, fund's, or bank's financial strength. The amount of cash a company has on its books at any given time.

Certificated Stock – Stock in a commodity that has been investigated and shown to be of a certain grade.

Commission Broker – A broker whose company pays him for each order he makes on the customer's behalf. Can often result in dishonest brokerage practices that aren't beneficial to the investor.

Common Stock – Stock that gives you ownership in a company. Those who hold common stock get to elect the board of directors and vote on corporate policy according to the number of shares they own.

Debt Load – The amount of a company's debt on the balance sheet. One indication of financial health, especially when compared with assets or equity.

Debt Ratio – A company's debt load divided by a company's total assets. The lower, the better.

Deep Discount Broker – Broker who works for very low commission rates and normally provides fewer services to investors.

Dilution – When earnings per share is reduced as a company issues more shares or converts convertible securities.

Dividend – Distribution of a company's earnings paid to shareholders. Can be listed by dividends per share as a cash amount or by dividend yield by percentage of the current market price. Dividends may be paid in cash or in more stock holdings.

Dollar-Cost Averaging – Also known as the constant dollar plan. Buying a set dollar amount of particular securities regularly, regardless of how much they cost.

Exchange Traded Fund (ETF) – A security that moves with the price of a commodity, an index, or a group of assets like an index fund does, but that is traded on an exchange like stocks are. Common types include commodities ETFs and currency ETFs.

Earnings Per Share – The most important factor in determining the cost of a share. The portion of profit devoted to paying each outstanding common share.

Face Value – The stated value of a security, including a stock or bond. In stocks, it's the original cost noted on the certificate, and in bonds, it's the value the buyer will actually get when it matures.

Formula Investing – An investing strategy where investor follows a particular formula for investment decisions. Can speak to how investors balance a portfolio, decide when and how much to invest, and choose particular securities.

Gross Dividends – Total of all dividends received, including ordinary dividends, nontaxable distributions, and capital-gains distributions.

Gross Earnings – For a company, the cost of goods sold subtracted from total sales over a certain time period.

Growth Fund – A portfolio that seeks capital appreciation rather than dividend payouts.

Growth Stock – Stock from a company who is projected to grow more quickly than the market average. Does not usually pay a dividend because the company reinvests profits.

Index – A way to track the overall performance of an economy or particular securities market. Essentially, an group of securities is listed in a pretend portfolio and tracked for performance. The most important index numbers are percentage changes that show if the market has moved up or down and by how much.

Issue – When a company offer securities in order to raise money – either shares or bonds are issued. Also, the actual stocks or bonds that have been offered on the public market.

Joint Stock Company – Company that is neither a partnership nor a corporation. Stocks are sold on the secondary market, but stockholders have liability for the company's debts.

Large Cap (Big Cap) – Companies like Microsoft, GE, and Wal-Mart that have a market capitalization of over $10 billion.

Limit Order – An order placed with a brokerage to sell or buy a certain number of shares at a certain price or lower. Investor can also limit the amount of time an order is outstanding before it's canceled.

Market Capitalization (Market Cap) – The dollar amount of a company's outstanding shares found by multiplying the current market price of a single share by the number of outstanding shares. Can be used to find the actual size of the company.

Market Price – The price a good or service is currently sold for on the market. Influenced by supply and demand.

Market Share – One indication of a business's size and growth. The percentage that a particular company earns in the total sales of an industry or market, calculated by dividing the company's sales numbers over a certain period by the total industry or market sales in the same period.

Micro Cap – Describes companies whose market capitalizations are between $50 and $300 million.

Mid Cap – Describes companies whose market capitalization is between $2 and $10 billion.

Naked Position – A securities position that isn't hedged from market risk. Has much greater risks but also much greater potential gains.

Nano Cap – Describes small companies whose market capitalization is below $50 million.

Nasdaq – Created in 1971 as the world's first electronic stock market, this computer system tracks the prices of over 5,000 of the most popular stocks.

New York Stock Exchange – One stock exchange in New York City, which is the largest exchange based in equities in the entire world, as calculated through the market capitalization of all available securities.

Ordinary Dividends – Most dividends regularly paid to shareholder's periodically. Must be claimed as ordinary income.

Over-the-Counter (OTC) – Security traded somewhere other than exchanges like TSX, AMEX, and the NYSE. Often traded through a dealer and also called unlisted stock.

Oversold – One technical analysis that says the price of an asset has fallen greatly, which could make it undervalued and a great opportunity for investors.

Penny Stock – Stock that trades for a low price and market capitalization. Not normally traded through the large exchanges. Can have good potential, but are also normally risky.

Perfect Hedge – A hedge where an investor eliminates 100% of the risk from a portfolio. It's difficult to find a truly perfect hedge, and such a hedge also limits growth potential.

Performance-Based Index – An index based on the total amount of dividends and cash paid to shareholders.

Portfolio Weight – The percentage of a portfolio devoted to one type of security, region, position, sector, or even particular security. Normally shown as the dollar value of the security (or group of securities from the same sector, etc.) divided by the total value of the portfolio.

Preferred Dividend – Dividends paid on preferred shares. One advantage of preferred shares is that preferred dividends are paid first in the event that a company cannot pay all shareholders.

Principal Shareholder – The shareholder who owns the majority of a company's shares. Activity of the principal shareholder can be a good indication of the company's success, since this person has the most interest in the company's performance.

Sales Per Share – Also called revenue per share. Calculated by dividing the company's total revenue over a year by the average number of outstanding shares for that year. More active companies will have higher ratios.

SEC Fee – A small fee from the Securities Exchange that is added to the cost of selling equities listed on exchanges. Should be listed as a separate fee, apart from other broker fees and commission payments.

Securities and Exchange Commission (SEC) – A government entity that helps protect investors and regulate the stock market.

Security – Something that represents stocks (ownership in a company), bonds (debt agreements), and derivatives (rights to ownership).

Share Certificate – Written document that shows legal ownership of a certain number of shares. Rarely do modern investors actually take possession of shade certificates.

Shares – Certificates of ownership in an asset or corporation. Owning a share means you get a distribution of the company's profits through dividends and that you can vote in shareholder meetings.

Sheep – An investor who trades based on suggestion and emotion rather than an actual plan. The type of investor you don't want to be.

Short Sell – A stock position where the investor profits in price declines. An investor borrows securities and sells them, knowing they'll have to re-purchase them and return them at a set future date. If prices decline, they pocket the difference between the original sale price and the second sale price.

Small Cap – Stocks with smaller market capitalization, as defined by individual brokerage firms. Normally describes companies with market capitalization of between $300 million and $2 billion.

Stock – Another word for shares, meaning a security that says you own part of a company. Common stock gives dividends and voting rights. Preferred stock gives no voting rights but has a higher claim on dividends, so it the company is liquidated, these shareholders are paid first.

Underperform – An analyst assigns this assessment to a stock, expecting it to do slightly less well than the market in general.

Valuation Analysis – Fundamental analysis that looks at one security's value compared with historical context, group of other investments, or another individual security to try to objectively find the best investments.

Value Averaging – An investment strategy where an investor makes monthly contributions. Each contribution is based on the growth or loss of the previous month, with a goal set for each month.

 

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