General Investment Glossary

Keeping up with the increasing number of investment products and services in the marketplace today can be confusing. This comprehensive investing glossary is designed to help you understand some of the more common investment and financial terms you may encounter. Your financial advisor can explain these terms more completely and discuss with you those relevant to your situation.

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General Investment Glossary

Absolute Return Index:
A stock index designed to measure absolute returns. The absolute return index is actually a composite index made up of five other indexes. This index is used to compare the absolute returns posted by the hedge fund market as a whole against individual hedge funds.

ADR (American Depositary Receipt):
ADR stands for American Depositary Receipt. An American Depositary Receipt is a physical certificate evidencing ownership in one or several American Depositary Shares (ADS). The terms ADR and ADS can be used interchangeably. An ADS is a U.S. dollar denominated form of equity ownership in a non-U.S. company. For example, Toyota Motor Corp. is a Japanese company listed on the New York Stock Exchange. Some of Toyota's shares are held by a custodian bank in Japan for the direct representation on the NYSE.

It's important to note that some ADSs or ADRs represent more than one share of the actual stock. One "share" of Toyota's ADS on the NYSE gives an investor the rights of two shares of the actual company stock.

After The Bell:
The New York Stock Exchange (NYSE) closes its trading day with the ringing of a bell.

Alligator Spread:
Pricing models and a more efficient market can help reduce the traditional spread on a security, but it is commissions that create the alligator spread, not market inefficiencies. The commissions are dependent on a transaction's brokers. Investors should check the commission schedules carefully to avoid having their profits devoured by the alligator spread.

Alternative Energy ETF:
ETFs focused on alternative energy stocks represent a strong "green" investment, but the space is still in the beginning stages of commercial viability. Investors should expect to see high volatility as certain processes and technology rise to the forefront while others prove to be unsuccessful. Alternative energy has two important tailwinds funding its growth: the limitation of the world's natural resources and higher demand by environmentally conscientious consumers. Examples of ETFs in this space would include stocks from solar energy companies and "clean" fossil fuel production corporations.

Anonymous Trading: Anonymous trades allow the high profile investors to execute transactions without the scrutiny and speculation of the market.

Ask:
The price a seller is willing to accept for a security, also known as the offer price. Along with the price, the ask quote will generally also stipulate the amount of the security willing to be sold at that price.

Asset:
1. A resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit.

2. A balance sheet item representing what a firm owns.

Bear Market:
A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining. As investors anticipate losses in a bear market and selling continues, which contributes to further pessimism. Although figures can vary, for many, a downturn of 20% or more in multiple broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard & Poor's 500 Index (S&P 500), over at least a two-month period, is considered an entry into a bear market.

Bear Market Rally:
Although there are no official guidelines for a bear market rally, it is sometimes defined as an overall market increase of 10-20% during an overall bear market. There are many examples of bear market rallies in modern stock market history, including the bear market rally of the Dow Jones following the stock market crash of 1929, which eventually saw a bottoming out in 1932.

Bid:
An offer made by an investor, a trader or a dealer to buy a security. The bid will stipulate both the price at which the buyer is willing to purchase the security and the quantity to be purchased.

This is the opposite of the ask, which stipulates the price a seller is willing to accept for a security and the quantity of the security to be sold at that price.

Blue-Chip Stock:
A stock of a nationally recognized, well-established and financially sound company that is able to weather economic downturns due to a long record of stable and reliable growth.

Bond Market:
The environment in which the issuance and trading of debt securities occurs. The bond market primarily includes government-issued securities and corporate debt securities, and facilitates the transfer of capital from savers to the issuers or organizations requiring capital for government projects, business expansions and ongoing operations.

Bubble:

1. An economic cycle characterized by rapid expansion followed by a contraction.

2. A surge in equity prices, often more than warranted by the fundamentals and usually in a particular sector, followed by a drastic drop in prices as a massive selloff occurs.

3. A theory that security prices rise above their true value and will continue to do so until prices go into freefall and the bubble bursts.

Bull Market:
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, currencies and commodities.

Buy Down:
A mortgage-financing technique with which the buyer attempts to obtain a lower interest rate for at least the first few years of the mortgage, but possibly its entire life. The builder or seller or the property usually provides payments to the mortgage-lending institution, which, in turn, lowers the buyer's monthly interest rate and therefore monthly payment. The home seller, however, increases the purchase price of the home to compensate for the costs of the buydown agreement.

Buyer's Call:
An agreement between a buyer and seller whereby a commodity purchase occurs at a specific price above a futures contract for an identical grade and quantity

Buyer's Market:
A market condition characterized by an abundance of goods available for sale.

Call:
The period of time between the opening and closing of some future markets wherein the prices are established through an auction process.

Call Option:
An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period.

Clearing House:
An agency or separate corporation of a futures exchange responsible for settling trading accounts, clearing trades, collecting and maintaining margin monies, regulating delivery and reporting trading data. Clearing houses act as third parties to all futures and options contracts - as a buyer to every clearing member seller and a seller to every clearing member buyer.

Click And Mortar:
A type of business model that includes both online and offline operations, which typically include a website and a physical store. A click-and-mortar company can offer customers the benefits of fast, online transactions or traditional, face to face service.

This model is also referred to as "clicks and bricks".

Closing Price:
The final price at which a security is traded on a given trading day. The closing price represents the most up-to-date valuation of a security until trading commences again on the next trading day.

Commodity:
A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often used as inputs in the production of other goods or services. The quality of a given commodity may differ slightly, but it is essentially uniform across producers. When they are traded on an exchange, commodities must also meet specified minimum standards, also known as a basis grade.

Commodity ETF:
Because many commodity ETFs use leverage through the purchase of derivative contracts, they may have large portions of uninvested cash, which is used to purchase Treasury securities or other nearly risk-free assets.

Currency:
A generally accepted form of money, including coins and paper notes, which is issued by a government and circulated within an economy.

Death Spiral:
A type of loan investors give to a company in exchange for convertible debt, which, like convertiblebonds, typically has provisions that allow investors to convert the bonds into stock at below-market prices. This can cause the original shareholders to lose control of the company.

Deficit:
A situation in which liabilities exceed assets, expenditures exceed income, imports exceed exports, or losses exceed profits.

Deliverables:
A project management term for the quantifiable goods or services that will be provided upon the completion of a project. Deliverables can be tangible or intangible parts of the development process, and are often specified functions or characteristics of the project.

Derivatives Time Bomb:
A possibile situation where the financial markets plunge into chaos if the massive derivatives positions owned by hedge funds and the large banks were to move against those parties.

Institutional investors have increasingly used derivatives to either hedge their existing positions, or to speculate on given markets or commodities. The growing popularity of these instruments is both good and bad because although derivatives can be used to mitigate portfolio risk. Institutions that are highly leveraged can suffer huge losses if their positions move against them.

Dividend:
A distribution of a portion of a company’s earnings to shareholders, as decided by its board of directors. It is most often calculated in dollar amount by predetermined dividends per share or in terms of a percent of the current market price.

The Dow Jones Industrial Average:
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq.

Energy ETF:
A broad class of ETFs that includes funds focused on oil and gas exploration, the generation, distribution and retail sale of gas and other refined products, electric utilities and alternative energy production. Energy ETFs may invest in only United States-based companies, globally based energy companies, or a blend of the two.

The offerings within the energy ETF class include replications of the energy-sector stocks found in the S&P 500, U.S. energy producers, global energy producers and funds of a particular sub-sector designation, such as nuclear, coal, gas, etc. The weighting of stocks within these ETFs can be market-cap based, equally-weighted or fundamentally weighted, based on financial metrics like net earnings and dividend yield.

Equity:
Assets that the owner can readily sell for cash. This includes stocks as well as cars and houses with no outstanding debt.

ETF (Exchange-Traded Fund):
A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold.

Exchange Rate
The price of one country's currency expressed in another country's currency. In other words, the rate at which one currency can be exchanged for another. For example, the higher the exchange rate for one euro in terms of one yen, the lower the relative value of the yen.

Export
A function of international trade whereby goods produced in one country are shipped to another country for future sale or trade. The sale of such goods adds to the producing nation's gross output. If used for trade, exports are exchanged for other products or services. Exports are one of the oldest forms of economic transfer, and occur on a large scale between nations that have fewer restrictions on trade, such as tariffs or subsidies.

Extended Trading
Trading conducted on electronic exchanges either after regular trading hours are over or before they begin. Usually such trading is limited in its volume compared to regular trading hours. Pre-market trading in the U.S. markets usually runs between 8am and 9:30am EST, and after-market trading typically runs from 4pm until 6:30pm EST.

Federal Reserve Board - FRB:
The governing body of the Federal Reserve System. The seven members of the board of governors are appointed by the president, subject to confirmation by the Senate.

Foreclosure - FCL:
A situation in which a homeowner is unable to make principal and/or interest payments on his or her mortgage, so the lender, be it a bank or building society, can seize and sell the property as stipulated in the terms of the mortgage contract.

Forex Market:
The Forex Market, made up of banks, commercial companies, central banks, investment management firms, hedge funds, retail forex brokers and investors, is a market in which participants are able to buy, sell, exchange and speculate on currencies. The currency market is considered to be the largest financial market in the world, processing trillions of dollars worth of transactions each day.

Fortune 500:
An annual list of the 500 largest companies in the United States. The list is compiled using the most recent figures for revenue.

Fundamental Analysis:
A method of evaluating a security that attempts to measure its value by examining related economic, financial, quantitative and qualitative factors. The goal with this type of analysis is to produce a value that an investor can compare to the securities current price. This allows them to figure out what kind of position to take with that security, whether it is buy, sell, or hold.

G-8:
Eight of the world's economically leading countries that in a cooperative effort meet periodically to address international economic and monetary issues.

GDP:
The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

Gold Bull:
A slang term for a market or investor who is bullish on gold. A gold bull anticipates the price of gold increasing over the next period of time. A gold bull market is one where the value of gold has a rising trend.

Gold Standard:
A monetary system in which a country's government allows its currency unit to be freely converted into fixed amounts of gold and vice versa. The exchange rate under the gold standard monetary system is determined by the economic difference for an ounce of gold between two currencies. The gold standard was mainly used from 1875 to 1914 and also during the interwar years.

Hedge Fund:
A hedge fund is an aggressively managed portfolio of investments with the goal of making high returns made possible by using advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets. Hedge funds are most often set up as private investment partnerships open to a limited number of investors and require a sizeable initial investment. Investments in hedge funds are illiquid, usually requiring investors to keep their money in the fund for at least a year.

Housing Market Index:
An index of over 300 home builders, which shows the demand for new homes. The index runs from 0-100, so a rating of 50 would mean that demand for new homes was average.

Import:
In reference to international trade, these are goods brought into one country from another.

Index:
A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is an imaginary portfolio of securities representing a particular market or a portion of it. Each index has its own calculation methodology and is usually expressed in terms of a change from a base value. Thus, the percentage change is more important than the actual numeric value.

Inflation:
The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Central banks attempt to stop severe inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a minimum.

Interest Rate:
The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest rates are typically noted on an annual basis, known as the annual percentage rate (APR). The assets borrowed could include, cash, consumer goods, large assets, such as a vehicle or building. Interest is essentially a rental, or leasing charge to the borrower, for the asset's use. In the case of a large asset, like a vehicle or building, the interest rate is sometimes known as the “lease rate”.

When the borrower is a low risk party, they will usually be charged a low interest rate; if the borrower is considered high risk, the interest rate that they are charged will be higher.

IPO (Initial Public Offering):
The first sale of a stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded.

In an IPO, the issuer obtains the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), the best offering price and the time to bring it to market.

Large Capital Funds:
Investment funds that manage money from investors seeking private equity stakes in companies with strong growth potential. These are general known as high risk/ high return opportunities.

Liquid Assets:
An asset from an established market that is easily transferable. It can be converted to cash quickly with minimal impact to the price received. Liquid assets include stocks, foreign exchange markets and government bonds.

Long (or Long Position):
The buying of a security such as a stock, commodity or currency, with the expectation that the asset will rise in value.

Market Index:
An aggregate value produced by combining several stocks or other investment vehicles together and expressing their total values against a base value from a specific date. Market indexes are intended to represent an entire stock market and thus track the market's changes over time.

Market Share:
The percentage of an industry or market's total sales that is earned by a particular company over a specified time period. Market share is calculated by taking the company's sales over the period and dividing it by the total sales of the industry over the same period. This metric is used to give a general idea of the size of a company to its market and its competitors.

Market Value:
1. The current quoted price at which investors buy or sell a share of common stock or a bond at a given time. Also known as "market price".

2. The market capitalization plus the market value of debt. Sometimes referred to as "total market value"..

Monetary Policy:
The actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates. Monetary policy is maintained through actions such as increasing the interest rate, or changing the amount of money banks need to keep in the vault (bank reserves).

NASDAQ:
A computerized system that facilitates trading and provides price quotations on more than 5,000 of the more actively traded over the counter stocks. Created in 1971, the Nasdaq was the world's first electronic stock market.

Stocks on the Nasdaq are traditionally listed under four or five letter ticker symbols. If the company is a transfer from the New York Stock Exchange, the symbol may be comprised of three letters

NYSE:
A stock exchange based in New York City, which is considered the largest equities-based exchange in the world based on total market capitalization of its listed securities. Formerly run as a private organization, the NYSE became a public entity in 2005 following the acquisition of electronic trading exchange Archipelago. The parent company of the New York Stock Exchange is now called NYSE Euronext, following a merger with the European exchange in 2007.

Also known as the "Big Board", the NYSE relied for many years on floor trading only, using the open outcry system. Today, more than half of all NYSE trades are conducted electronically, although floor traders are still used to set pricing and deal in high volume institutional trading.

Option:
A financial derivative that represents a contract sold by one party (option writer) to another party (option holder). The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date).

Options are extremely versatile securities that can be used in many different ways. Traders use options to speculate, which is a relatively risky practice, while hedgers use options to reduce the risk of holding an asset.

Read our detailed Options Trading Guide to take the mystery out of options.

Panic Buying:
High volume buying brought about by sharp price increases.

Panic Selling:
Wide-scale selling of an investment, causing a sharp decline in price. In most instances of panic selling, investors just want to get out of the investment, with little regard for the price at which they sell.

Penny Stock:
A stock that trades at a relatively low price and market capitalization, usually outside of the major market exchanges. These types of stocks are generally considered to be highly speculative and high risk because of their lack of liquidity, large bid-ask spreads, small capitalization and limited following and disclosure. They will often trade over the counter through the OTCBB and pink sheets.

Pink Sheet:
A daily publication compiled by the National Quotation Bureau with bid and ask prices of over-the-counter (OTC) stocks, including the market makers who trade them. Unlike companies on a stock exchange, companies quoted on the pink sheets system do not need to meet minimum requirements or file with the SEC. Pink sheets also refers to OTC trading.

Portfolio:
A grouping of financial assets such as stocks, bonds and cash equivalents, as well as their mutual, exchange-traded and closed-fund counterparts. Portfolios are held directly by investors and/or managed by financial professionals.

Precious Metals:
Metals that are rare and have a high economic value. This value is determined by various factors, including their rarity, uses in industrial processes and use as an investment commodity.

Premium:
Simply, the premium is the price of the option you are buying. A premium can also refer to the monetary credit you get if you are selling an option.

Purchasing Power:
1. The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing power is important because, all else being equal, inflation decreases the amount of goods or services you'd be able to purchase.

2. In investment terms, the dollar amount of credit available to a customer to buy additional securities against the existing marginable securities in the brokerage account

Put:
An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time. The buyer of a put option estimates that the underlying asset will drop below the exercise price before the expiration date.

Put Option:
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. This is the opposite of a call option, which gives the holder the right to buy shares.

Quantitative Easing:
A government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity.

Recession:
A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP); although the National Bureau of Economic Research (NBER) does not necessarily need to see this occur to call a recession. p>

Risk:
The chance that an investment's actual return will be different than expected. This includes the possibility of losing some or all of the original investment. Risk is usually measured by calculating the standard deviation of the historical returns or average returns of a specific investment.

Any person, company, or other institution that owns at least one share in a company.

Risk Tolerance:
The degree of uncertainty that an investor can handle in regard to a negative change in the value of his or her portfolio.

Sec 13F Disclosure Form:
Institutional investment managers who exercise investment discretion over $100 million or more in Section 13(f) securities must report their holdings on Form 13F with the SEC. Form 13F requires disclosure of the names of institutional investment managers, the names of the securities they manage and the class of securities, the CUSIP number, the number of shares owned, and the total market value of each security.

Security:
An instrument representing ownership (stocks), a debt agreement (bonds) or the rights to ownership (derivatives)..

Short (or Short Position):
The sale of a borrowed security, commodity or currency with the expectation that the asset will fall in value.

Short Selling:
The selling of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short sellers assume that they will be able to buy the stock at a lower amount than the price at which they sold short.

Silver ETF:
An exchange-traded fund that invests primarily in raw silver assets, which are held in trust by the fund manager and/or custodian. Typically, silver ETFs are established as grantor trusts, where each share of the ETF represents the specific right to a precise amount of silver, measured in ounces.

Silver ETFs aim to track as closely as possible the spot price of silver on the open market. The first to market was the iShares Silver Trust, managed by Barclays Global Investors and introduced in 2006.

Small Cap:
The "cap" in small-cap refers to the value of the stock's market capitalization. Small-cap stocks are stocks with small market capitalizations. In general, most brokerages define small-cap stocks as companies having a market cap between $300 million and $2 billion. Anything smaller than $300 million is often referred to as a "micro-cap" stock, and companies with market caps larger than $2 billion and less than $10 billion are "mid-cap" stocks. Companies with over $10 billion in market cap are "large-cap" stocks.

Stock:
A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.

Stock Analysis:
Stock analysis is a term that refers to the evaluation of a particular trading instrument, an investment sector or the market as a whole. Stock analysts attempt to determine the future activity of an instrument, sector or market. There are two basic types of stock analysis: fundamental analysis and technical analysis. Fundamental analysis concentrates on data from sources including financial records, economic reports, company assets and market share. Technical analysis focuses on the study of past market action to predict future price movement.

Stock Market:
The market in which shares are issued and traded either through exchanges or over-the-counter markets. Also known as the equity market, it is one of the most vital areas of a market economy as it provides companies with access to capital and investors with a slice of ownership in the company and the potential of gains based on the company's future performance.

Stop-Loss Order:
An order placed with a broker to sell a security when it reaches a certain price. It is designed to limit an investor's loss on a security position.

Technical Indicators:
Technical Indicators predict future price levels, or price direction of securities based upon past performance patterns. Active traders use them due to the fact that they are designed for analyzing short-term price movements.

Trailing Stop:
A stop-loss order set at a percentage level below the market price - for a long position. The price is adjusted as the price fluctuates.

Uptrend:
Describes the price movement of a financial asset when the overall direction is upward. A formal uptrend is when each successive peak and trough is higher than the ones found earlier in the trend.

Volatility:
A statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security.

Yield:
The income return on an investment. This refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment's cost, its current market value or its face value.

Additional investment terms visit Investopedia.

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