Commerce Division of Securities : Glossary  
 

The glossary is a list of defined terms often used in literature and other materials regarding saving and investing. Please keep in mind that the definitions contained in this list are general definitions and that the list was prepared by the Ohio Division of Securities to provide general information.

This general information should not be construed as legal advice and is not a substitute for a thorough review of any relevant statutory provisions in Ohio or in other jurisdictions.

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12b-1 FeeA number of load and no-load mutual funds levy 12b-1 fees on the value of your mutual fund account to offset the fund's promotional and marketing expenses. These asset-based fees, which get their name from the Securities and Exchange Commission (SEC) ruling that describes them, typically amount to somewhere between 0.5% and 1% annually of the net assets in the fund. A fund that charges 12b-1 fees must detail those expenses, along with other fees it imposes, in its prospectus. http://www.securities.state.oh.us/Information/II2.html
Account BalanceYour account balance is the amount of money you have in one of your financial accounts. For example, your bank account balance refers to the amount of money in your bank accounts. Your account balance can also be the amount of money outstanding on one of your financial accounts. Your credit card balance, for example, refers to the amount of money you owe a credit card company.
Account StatementA record of transactions and their effect on account balances over a specified period of time, for a given account. A bank account statement lists the debits and credits that took place over the relevant time period, while a brokerage account statement lists the long positions and short positions, purchases and sales, and other transactions. Understanding Brokerage Account Statements
Accredited InvestorA term used by the SEC under Regulation D to define investors that are financially sophisticated and have a lesser need for the protections provided by certain government regulations.
Accrued InterestInterest that has been earned on a financial instrument but not received.
AcquisitionIf a company buys another company outright, or accumulates enough shares to take a controlling interest, the deal is described as an acquisition. The acquiring company's motive may be to expand the scope of its products and services, to make itself a major player in its sector, or to fend off being taken over itself.
Administrative ActionAn action taken by an administrative agency, such as the Ohio Division of Securities. Administrative actions may consist of suspension or revocation of licensure or a cease and desist order.
Advance-Decline (A-D) lineThe advance-decline line graphs the ratio of stocks that have risen in value — the advancers — to stocks that have fallen in value — the decliners — over a particular trading period. The direction and steepness of the A-D line gives you a general idea of the direction of the market. For example, a noticeable upward trend, which is created when there are more advancers than decliners, indicates a growing market. A downward slope indicates a market in retreat. At times, however, there may be no clear trend in either direction.
AdvancerStocks that have gained, or increased, in value over a particular period are described as advancers. If more stocks advance than decline — or lose value — over the course of a trading day, the financial press reports that advancers led decliners.
Affiliated PersonGenerally, any person directly or indirectly, controlling, controlled by, or under common control with, another person.
Affinity FraudInvestment scams that prey upon members of identifiable groups, including religious, elderly, ethnic, and professional groups. The fraudsters who promote affinity scams may be or purport to be group members, or enlist respected leaders within a group to spread the word about an investment deal. In addition, fraudsters are increasingly using the Internet to target groups with e-mail spams. These scams exploit the trust and friendship that exist in groups of people who have something in common. Because of the tight-knit structure of many groups, it is usually more difficult for regulators or law enforcement officials to detect an affinity scam. Victims of such scams often fail to notify authorities or pursue their legal remedies, but are more likely to try to work things out within the group. http://www.securities.state.oh.us/Information/Affinity.pdf; http://www.securities.state.oh.us/Information/PreyingOnTheFaithful.pdf
After-Hours MarketSecurities, such as stocks and bonds, may change hands on organized markets and exchanges after regular business hours, in what is known as the after-hours market. These electronic transactions explain why a security may open for trading at a different price from the one it closed at the day before.
Aggressive-Growth FundGenerally these mutual funds buy stock in companies that show rapid growth potential, including start-up companies and those in hot sectors. While these funds and the companies they invest in can increase significantly in value, they are also among the most volatile. Their values may rise much higher — and fall much lower — than the overall stock market or the mutual funds that invest in the broader market. http://www.securities.state.oh.us/Information/II2.html
All or None Order (AON)When a trading order is marked AON, the broker who is handling the order must either fill the whole order or not fill it at all. However, the order isn't canceled unless it is also marked FOK, or “fill or kill.”
AlphaA stock's alpha is an analyst's estimate of its potential price increase based on the rate at which the company's earnings are growing and other aspects of the company's current performance. For example, if a stock has an alpha of 1.15, that means the analyst expects a 15% price increase in a year when stock prices in general are flat.
American Stock Exchange (AMEX)The second-largest floor-based stock exchange in the U.S. after the New York Stock Exchange (NYSE), the AMEX operates a central auction market in stocks (including a large number of overseas stocks), exchange-traded funds (ETFs), and derivatives, including options on many NYSE-traded and over-the-counter (OTC) stocks.
AnalystA financial analyst tracks the performance of a number of companies or industries, evaluates their potential value as investments, and makes recommendations to buy, sell, or hold specific securities. When the most highly respected analysts express a strong opinion about a stock, there is often an immediate impact on that stock's price as investors rush to follow the advice.
Annual Percentage Rate (APR)A loan's APR is what credit is costing you each year, expressed as a percentage of the loan amount. The APR includes most of a loan's up-front fees as well as the annual interest rate, so it gives a more accurate picture of the cost of borrowing than the interest rate alone. For example, the APR on a car loan or a mortgage, which shows the actual interest you pay, is usually higher than the nominal, or named, rate you're quoted for the loan.
Annual Percentage Yield (APY)Annual percentage yield is the amount you earn on an interest-bearing investment in a year, expressed as a percentage. For example, if you earn $60 on a $1,000 certificate of deposit (CD) between January 1 and December 31, your APY is 6%. When the APY is the same as the interest rate that is being paid on an investment, you are earning simple interest. But when the APY is higher than the interest rate, the interest is being compounded, which means you are earning interest on your accumulating interest.
Annual ReportBy law, each publicly held corporation must provide its shareholders with an annual report showing its income and balance sheet. In most cases, it contains not only financial details but also a message from the chairman, a description of the company's operations, and an overview of its achievements. Most annual reports are glossy affairs that also serve as marketing pieces. Copies are generally available from the company's investor relations office, and annual reports may even appear on the company's website. The company's 10-K report is a more comprehensive look at its finances.
AnnuitantAn annuitant is a person who receives income from an annuity. You're the annuitant if you take distributions from an individual retirement annuity (IRA) or from an individual annuity you buy with after-tax income. If your beneficiary receives annuity income after your death, he or she becomes the annuitant. It's also possible to buy an annuity naming someone other than the buyer — a disabled child, for example — as annuitant.
AnnuityOriginally, an annuity was simply an annual payment — hence the name. Over time, annuity has come to refer to different kinds of payments, investments, and financial products. Most commonly, an annuity describes the amount you receive from your pension each year, usually in monthly installments. But, in fact, annuity also refers to the annual income you receive from any source, as well as the source itself. For example, some tax-deferred retirement savings plans are called annuities.
ArbitrageArbitrage is the technique of simultaneously buying a security at a lower price in one market and selling it at a higher price in another market to make a profit on the difference between the prices. Although the price difference may be very small, arbitrageurs, or arbs, trade huge amounts, so they can make sizable profits. But the strategy, which depends on split-second timing, can also backfire if interest rates or prices move in unanticipated ways.
ArbitrationAn informal hearing or meeting held regarding a dispute that is judged by an arbitrator. Arbitrations are an alternative to litigation and are considered non-appealable.
AskThe ask price (a shortening of asked price) is the price at which a market maker or broker offers to sell a security or commodity. The price another market maker or broker is willing to pay for that security is called the bid price, and the difference between the two prices is called the spread.
AssetAssets are everything you own that has any monetary value, plus any money you have or are owed. They include money in your checking account, your stocks, bonds, and mutual funds, your equity in real estate, the value of your life insurance policy, and any personal property that people would pay to own. When you figure your net worth, you subtract the amount you owe, or your liabilities, from your assets.
Asset AllocationAsset allocation is a strategy, advocated by modern portfolio theory, for maximizing gains while minimizing risks in your investment portfolio. Specifically, asset allocation means dividing your assets among different broad categories of investments, including stocks, bonds, and cash. An asset allocation model — specifically the percentages of your portfolio allocated to each investment category — that's appropriate for you depends on many factors, such as how much time you have to invest, your tolerance for risk, the direction of interest rates, and the market outlook.
Asset-Backed BondThese bonds, also known as asset-backed securities, are backed by loans or by money owed to a company for merchandise or services purchased on credit. For example, an asset-backed bond is created when a securities firm bundles some type of debt, such as mortgages or car loans, and sells investors the right to receive the payments that consumers make on those loans.
At the MoneyAt the money is another way of saying at the current price. Options whose exercise price is the same or almost the same as the current market price of the underlying stock or futures contract are considered at the money.
Auction MarketAuction market trading, also known as open outcry, is the way the major stock and commodity exchanges, such as the New York Stock Exchange (NYSE) and the Chicago Board of Trade (CBOT), have traditionally handled buying and selling. Buyers compete against buyers, and sellers against sellers, to get the best price.
AuditAn audit is a professional, independent examination of a company's financial statements and accounting documents according to generally accepted accounting principles.
Average Annual YieldThis figure, expressed as a percentage, is your average yearly income on an investment. You can calculate the average annual yield by adding all the income you received on an investment and dividing that amount by the number of years the money was invested. So if you receive $60 interest on a $1,000 bond each year, the average annual yield is 6% ($600 ÷ $1,000 = 0.06, or 6%).
Average Daily BalanceThe interest you owe on your credit card or earn on a saving account may be calculated using the average daily balance. When a credit card company uses this method, it divides the balance you owe each day by the number of days in your billing cycle and multiplies the result by the finance charge to determine what you owe for the day. When a bank or credit union calculates what you've earned, it divides the amount in your account at the end of each day by the number of days in the period and multiplies the result by the interest rate.
Baby BondBonds whose par values are less than $1,000 are often described as baby bonds, or, in the case of municipal bonds, as mini-munis. Small companies that may not be able to attract institutional investors, such as banks and mutual fund companies, may offer smaller-denomination bonds to raise cash from individual investors. Some municipalities also use baby bonds to foster involvement in government activities by making it possible for more people to invest.
Back-End LoadSome mutual funds impose a load, or sales charge, when you sell or redeem shares in the fund. That's called a back-end load, or a contingent deferred sales load. Typically, the charge, which is a percentage of the value of the assets you have in the fund, applies only during the first few years you own your shares. In most cases, too, the percentage you pay declines each year during that period and then is dropped. http://www.securities.state.oh.us/Information/II2.html
Balance of TradeThe difference between the value of a country's imports and exports during a specific period of time is called the balance of trade. If a country exports more than it imports, it has a surplus, or favorable balance of trade. A trade deficit, or unfavorable balance, occurs when a country imports more than it exports.
Balance SheetA financial statement showing all of the company’s assets, liabilities and shareholders' equity as at a particular point in time.
Balanced FundBalanced funds are mutual funds that invest in a combination of common stock and bonds to meet their dual investment goal of seeking a strong return while minimizing risk. In a surging stock market, a balanced fund is unlikely to perform as well as a fund invested solely in stocks. But in a downturn, it may to produce a stronger return than a stock fund, since losses in its equity investments may be offset by a stronger performance in its fixed-income investments. Balanced funds also generally produce more income than straight stock funds. http://www.securities.state.oh.us/Information/II2.html
Barbell StrategyWhen you use a barbell strategy you buy bonds with widely separated maturity dates, some short-term and others long-term, but none with intermediate terms. That buying pattern creates the shape that gives the strategy its name. The goal of a barbell strategy is to earn more interest than intermediate-term bonds would provide without taking more risk. You may find it especially appealing in periods when you're not sure whether interest rates are going down — which might be a reason to buy long-term bonds — or going up — which might be a reason to buy short-term bonds. Instead, you balance your interest-rate risk by buying some of each maturity.
BasisBasis is the total cost of buying an investment or other asset, including the price, commissions, and other charges. If you sell the asset, you subtract the basis from the selling price to determine your capital gain or capital loss. If you give the asset away and the recipient sells it, the basis is the same amount that you would have used had you sold. But if you leave the asset in your will, the person receives it at a step up in basis, which means the basis of the asset is reset to its market value as of the time of your death. When your investment is in real estate, basis is generally described as cost basis.
Basis PointYields on bonds, notes, and other fixed-income investments fluctuate regularly, typically changing only within hundredths of a percentage point. These small variations are measured in basis points, or gradations of 0.01%, or one-hundredth of a percent, with 100 basis points equaling 1%. For example, when the yield on a bond changes from 6.72% to 6.65%, it has dropped 7 basis points. The term is also used to describe small changes in the interest rates charged for mortgages or other loans, and to indicate your percentage of ownership in certain kinds of investments, where each basis point equals 0.01% of the whole investment.
Bear MarketA bear market is sometimes described as a period of falling securities prices and sometimes, more specifically, as the point at which prices have fallen 20% or more from a high. A bear market in stocks is triggered by investors selling off shares because they anticipate worsening economic conditions and falling profits. A bear market in bonds is usually brought on by rising interest rates.
Bearer BondUnlike most bonds issued in the U.S. since 1983, which are registered electronically, a bearer bond is a certificate that states the security's par value and the rate at which its interest will be paid. The bond may come with detachable coupons that must be presented to the issuer to receive the interest payments, which explains why a bond's interest rate is often referred to as its coupon rate. A bearer bond isn't registered, and there's no record of ownership, which means it can be sold or redeemed by the person or organization that holds it. Similarly, whoever presents a coupon is entitled to an interest payment.
BellwetherA market bellwether is a security whose changing price is considered a signal that the market is changing direction.
BenchmarkA stock market benchmark is an index or average whose movement is considered a general indicator of the direction of the overall market, against which investors and financial professionals often gauge their market expectations and judge the performance of individual stocks or market sectors.
Beneficial OwnerWhen you own stocks in street name, the brokerage firm has title to the stocks but you are the beneficial owner, or the person who actually benefits from owning the stock. The same is true when a bank or other custodian actually owns the mutual funds in your retirement account, but the assets are yours.
BidThe bid is the price a market maker or broker is willing to pay for a security, such as a stock or bond, at a particular time.
Big BoardThe Big Board is the nickname of the New York Stock Exchange (NYSE), the oldest and largest stock exchange in the U.S. and the largest in the world. Common and preferred stock, bonds, warrants, and rights are all traded on the Big Board, which dates back to 1792.
Blind TrustWhen a third party, such as an investment adviser or other trustee, has complete control of the assets held in a trust, it is called a blind trust. Elected officials often set up blind trusts to reassure the public that political decisions are not being made for personal financial benefit, since the officials have given up control over how their investments are being managed, or even what those investments are.
Block TradeWhen at least 10,000 shares of stock or bonds valued at $200,000 or more are bought or sold in a single transaction, it is called a block trade. Institutional investors, including mutual funds and pension funds, typically trade in this volume, and most individual investors do not.
Blue Chip StockBlue chip stocks are the common stock of large, well-regarded U.S. companies. Blue chips, which take their name from the most valuable poker chips and in the U.K. are known as alpha stocks, have a reputation for quality products and services and a long-established record of earning profits and paying dividends regardless of the economic climate. Mutual funds that invest in blue chip stocks are known as blue chip funds.
Board LotA standard number of shares for trading transactions. This number varies with the price level of the security. Usually, a board lot is 100 shares when the price of the stock is equal or greater than $1.00.
Boiler RoomA “boiler room” is used to describe the rented office space in which con artists work to “turn up the heat” on their potential victims. Characteristics of boiler room scams are:
  1. Calling people in other cities in order to hinder prosecution;
  2. Trading information among con artists;
  3. Training their salespeople to have an answer to every possible objection;
  4. Offering sales pitches with slick talk about little or no risk;
  5. Demanding immediate action;
  6. Refusing to give an address so the potential victim could contact them;
  7. Avoiding the U.S. Mail;
  8. Stalling suspicious investors; and
  9. Pulling a disappearing act.
http://www.securities.state.oh.us/Information/II4.html; http://www.securities.state.oh.us/Information/BoilerRoom.aspx
BondBonds are debt securities issued by corporations and governments. Bonds are, in fact, loans that you and other investors make to the issuers in return for the promise of being paid interest, usually but not always at a fixed rate. The issuer also promises to repay the debt on time and in full. Because most bonds pay interest on a regular basis, they are also described as fixed-income investments. http://www.securities.state.oh.us/Information/Promissorynote.pdf
Bond FundBond mutual funds invest in bonds to produce income. Unlike individual bonds, bond funds have no fixed maturity date and no guaranteed interest rate. Nor do they promise to return your principal. Their appeal is that you can usually invest a much smaller amount of money than you would need to buy a portfolio of bonds on your own, making it easier to diversify your fixed-income investments. http://www.securities.state.oh.us/Information/II2.html
Bond RatingIndependent agencies, such as Standard & Poor's (S&P) and Moody's Investors Service, assess the likelihood that bond issuers — whether corporations or governments — are likely to default on their loans or interest payments. Ratings systems differ from one agency to another but usually have at least 10 categories, ranging from a high of AAA (or Aaa) to a low of D. Bonds ranked BBB (or Baa) or higher are considered investment-grade bonds.
Bond SwapIn a bond swap, you buy one bond and sell another at the same time. You might do a swap for several reasons, such as selling one bond at a loss at year's end to get a tax write-off while buying another to keep the same portion of your portfolio allocated to bonds. You might also sell a bond with a lower rating to buy one with a higher rating, or you might sell a bond that's close to its maturity date so you can put the money into a bond that won't mature for several years.
Book ValueBook value is the net asset value (NAV) of a company's stocks and bonds. Finding the NAV involves subtracting the company's short- and long-term liabilities from its assets to find net assets, and then dividing by the number of shares of common stock, preferred stock, or bonds to get the NAV per share or per bond.
Book-Entry SecurityBook-entry securities are electronic versions of stock and bond certificates. Instead of printing a certificate and mailing it to you, the issuing company records the details of your purchase in its computer files. When you sell the security, the records are updated, deleting you as an owner and adding the purchaser. That means you don't have to keep track of paper documents, and they can't be lost or stolen. The Depository Trust & Clearing Corporation (DTCC) acts as a clearinghouse for book-entry securities.
Bottom FishingInvestors using a bottom-fishing strategy look for stocks that they consider undervalued because the prices are low. The logic of bottom fishing is that stock prices sometimes fall further than a company's actual financial situation warrants, especially in the aftermath of bad news, and can rebound dramatically, providing a healthy profit.
Bottom-Up InvestingWhen you use a bottom-up investing strategy, you focus on the potential of individual stocks, bonds, and other investments. Using this approach, for example, means you pay less attention to the economy as a whole, or to the prospects of the industry a company is in, than you do to the company itself. In making decisions based on bottom-up investing, you read research reports, examine the company's financial stability, and evaluate what you know about its products and services in great detail.
BreakoutStock prices fluctuate constantly, but each stock typically moves within a fairly narrow range. That means the stock's average price changes gradually, if at all. But sometimes a stock's price breaks out of its limits, and jumps or tumbles suddenly. Usually the breakout is fueled by a particular event. The company may realize a commercial success, such as a drug company discovering a new cure. Or a breakout may reflect a financial development, such as a new alliance with a successful partner.
BreakpointMutual funds that charge a percentage of the amount you invest as a front-end load, or sales charge, when you buy shares may reduce that percentage if you make a large investment. The dollar amount at which the reduction applies is known as a breakpoint.
Broker or StockbrokerA broker acts as an intermediary between a buyer and a seller. The buyer and seller may both be individuals or one may be an individual and the other a business or other institution. A stockbroker works for a brokerage firm, and acts as an agent, handling client orders to buy or sell stocks, bonds, commodities, and options in return for a commission. Brokers are licensed in the state where they work and must be registered on the exchange or market where they work. Brokers must establish their competency and “good business repute” in order to obtain licensure in Ohio. http://www.securities.state.oh.us/Information/Stockbroker.pdf; http://www.securities.state.oh.us/Information/Select.pdf
Broker-DealerBroker-dealers have a dual financial role. As brokers, they act on buy and sell orders from clients. As dealers, they buy and sell securities for their brokerage firm's account. The securities a firm owns may be sold to the firm's clients, sometimes at a more favorable price than if those securities had to be purchased in the open market. They may also be sold to other firms wanting to fulfill a client's buy order. Or the securities a dealer buys may become part of the firm's own investment portfolio. http://www.securities.state.oh.us/Information/CheckBef.pdf
Brokerage AccountTo buy and sell securities through a broker-dealer or other financial services firm, you establish an account, generally known as a brokerage account, with that firm.
Bull MarketA prolonged period when stock prices as a whole are moving upward is called a bull market, although the rate at which those increases occur can vary widely from bull market to bull market. So can the length of time a bull market lasts. Well-known bull markets began in 1923, 1949, 1982, and 1990.
Buy and HoldBuy-and-hold investors take a long-term view of investing, keeping a bond from date of issue to date of maturity and holding onto shares of a stock through bull and bear markets. Advocates of this approach claim that it is the only effective way to realize long-term goals.
BuybackWhen a company purchases shares of its own publicly traded stock or its own bonds in the open market, it's called a buyback. The most common reason a company buys back its stock is to make the stock more attractive to investors by increasing its earnings per share. While the actual earnings stay the same, the earnings per share increase because the number of shares has been reduced.
CallIn the bond markets, a call is an issuer's right to redeem bonds it has sold before the date they mature. In a related use of the term, when a bank makes a secured loan, it reserves the right to demand full repayment of the loan — referred to as calling the loan — should the borrower default on interest payments. However, when the term is used in connection with options, a call is the right to buy the underlying investment at a specific price by a specific date.
Call OptionBuying a call option gives you the right to buy a fixed quantity of the underlying investment at a specified price, called the strike price, within a specified time period. For example, you might buy a call option on 100 shares of a stock if you expect the market price to increase but prefer not to tie up your money by making the actual purchase. If the price of the stock goes up, you can exercise the option and buy at less than the market price. But if the price doesn't change or it drops, you can simply let the option expire. In contrast, you can sell a call option, which is known as writing a call. That gives the buyer the right to buy the underlying investment from you at the strike price before the option expires. If you write a call, you are obliged to sell if the option is exercised.
CallableA right of a company of preferred shares or bonds to repurchase, or "call" those securities at a stated price. Also known as redeemable securities.
Callable BondA callable bond can be redeemed by the issuer before it matures if that provision is included in the terms of the bond agreement, or deed of trust. Bonds are typically called when interest rates fall, and issuers can save money by paying off existing debt and offering new bonds at lower rates. If a bond is called, the issuer may pay the bondholder a premium, or an amount above the par value of the bond.
CapA cap is a ceiling, or the highest level to which something can go. For example, an interest rate cap limits the amount by which an interest rate can be increased over a specific period of time. A typical cap on an adjustable rate mortgage (ARM) limits interest rate increases to two percentage points annually and six percentage points over the term of the loan. In a different example, the cap on your annual contribution to an individual retirement account (IRA) is $3,000 for 2002, 2003, and 2004 unless you're older than 50. In that case, the cap is $3,500.
CapitalCapital is any asset that is used to generate income or make a long-term investment. For example, the money you use to buy shares in a mutual fund is considered capital. So is the money you use to make a down payment on a house. Businesses use capital, which is often money from loans or earnings, for reinvestment, expansion, and acquisitions.
Capital AppreciationAny increase in a capital asset's fair market value is called capital appreciation. For example, if a stock increases in value from $30 a share to $60 a share, it shows capital appreciation. Some stock mutual funds that invest for aggressive growth are called capital appreciation funds.
Capital GainWhen you sell an asset at a higher price than you paid for it, the difference is your capital gain. For example, if you buy 100 shares of stock for $20 a share and sell them for $30 a share, you realize a capital gain of $10 a share, or $1,000 in total. If you own the stock for more than a year before selling it, you have a long-term capital gain. If you hold the stock for less than a year, you have a short-term capital gain.
Capital Gains DistributionWhen mutual fund companies sell investments that have increased in value, the profits, or capital gains, are passed on to their shareholders as capital gains distributions. These distributions are made on a regular schedule, often at the end of the year and are taxable at your regular rate unless the funds are held in a tax-deferred or tax-free account. Most funds offer the option of automatically reinvesting all or part of your capital gains distributions to buy more shares.
Capital LossWhen you sell an asset for less than you paid for it, the difference between the two prices is your capital loss. For example, if you buy 100 shares of stock at $30 a share and sell when the price has dropped to $20 a share, you will realize a capital loss of $10 a share, or $1,000.
Capital MarketThe physical and electronic markets where equity and debt securities are traded, as well as the commodities exchanges and the over-the-counter (OTC) markets, are called capital markets.
Capital PreservationCapital 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. The downside of capital preservation over the long term is that by avoiding the potential risks of equity investing, you exposure yourself to inflation risk. That’s the case because your investments are unlikely to increase enough in value to offset the gradual loss of purchasing power that’s a result of even moderate inflation.
Capital StockThe shares of a company, both common and preferred.
CapitalizeThe recording of an expenditure as an asset rather than an expense which is then written off over time.
Cash EquivalentLow-risk investments, such as money market funds or short-term certificates of deposit (CDs), are considered cash equivalents. The Financial Accounting Standards Board (FASB), which is responsible for establishing national accounting standards, defines cash equivalents as highly liquid securities with maturities of less than three months. Liquid securities typically are those that can be sold easily with little or no loss of value.
Cash MarketIn a cash market, also known as a spot market, buyers pay the current market price for securities, currency, or commodities "on the spot," just as you would pay cash for groceries or other consumer products. Ownership is transferred promptly, and payment is made upon delivery. A cash market is the opposite of a futures market, where commodities or financial products are scheduled for delivery and payment at a set price at a specified time in the future.
Cease and Desist OrderAn administrative order issued by a regulatory agency such as the Division of Securities requiring a person or persons that have violated the Ohio Securities Act to stop or “cease and desist” their unlawful behavior.
Central Registration Depository (CRD)An online, nationwide database containing information regarding the employment, qualification, and disciplinary histories of more than 400,000 securities industry professionals. The CRD is maintained by the Financial Industry Regulatory Authority (FINRA) and is available to securities regulators and the public.
Certificate of Deposit (CD)CDs are deposit accounts offered by banks and insured by the Federal Deposit Insurance Corporation (FDIC) up to a certain specified amounts. You generally earn compound interest at a fixed rate, which is determined by the current interest rate and the CD's term, which can range from a week to several years.
ChurningIf a broker buys and sells securities in your investment account at an excessive rate, it's known as churning. One indication that your account is being churned is that you end up paying more in commissions than you earn on your investments. Churning is illegal but is often hard to prove.
Circuit BreakerAfter the stock market crash of 1987, stock and commodities exchanges established a system of trigger-point rules, known as circuit breakers, to temporarily restrict trading in stocks, stock options, and stock index futures when prices fall too far, too fast. Currently, trading on the New York Stock Exchange (NYSE) is halted when the market, measured by the Dow Jones Industrial Average (DJIA), drops 10% any time before 2:30 p.m., sooner if the drop is 20%. But trading could resume, depending on the time of day the loss occurs. However, if the DJIA drops 30% at any point in the day, trading ends for the day. The actual number of points the DJIA would need to drop to hit the trigger is set four times a year, at the end of each quarter, based on the average value of the DJIA in the previous month.

The only time the circuit breakers have been triggered was on October 27, 1997, when the DJIA fell 554 points, or 7.2%, and the shut-down level was lower. In fact, the DJIA has dropped as much as 10% in a single day only three times in its history.

ClearinghouseClearing corporations, or clearinghouses, provide operational support for brokerage firms and exchanges, and help ensure the integrity of securities trading in the U.S. and other open markets. For example, when an order to buy or sell securities, futures, or options has been filled, the clearinghouse compares the details of the trade, delivers the product to the buyer, and ensures that payment is made to settle the transaction.
Closed-End FundA fund company that issues a fixed number of shares. Its shares are not redeemable, but are bought and sold on stock exchanges or the over-the-counter market. Supply and demand determines the price of the closed-end fund. http://www.securities.state.oh.us/Information/II2.html
Closely HeldA closely held corporation is one in which a handful of investors, often the people who founded the company or members of the founders' families, own a majority of the outstanding stock.
Closing PriceThe closing price of a stock, bond, option, or futures contract is the last trading price before the exchange or market on which it is traded closes for the day. With after-hours trading, however, the opening price at the start of the next trading day may be different from the closing price the day before. When a security is valued as part of an estate or charitable gift, its value is set at the closing price on the day of the valuation of the estate.
Commercial PaperTo help meet their immediate needs for cash, banks and corporations sometimes issue unsecured, short-term debt instruments known as commercial paper. Commercial paper can be a good place for investors — institutional investors in particular — to park cash temporarily. That's because commercial paper is liquid and essentially risk-free, since it is typically issued by profitable, long-established organizations.
CommissionSecurities brokers and other sales agents charge a commission, or sales charge on each transaction. With traditional, full-service brokers, the charge is usually a percentage of the total cost of the trade, though some brokers may offer favorable rates to heavy traders.

Online brokerage firms, on the other hand, usually charge a flat fee for each transaction, regardless of the value of the trade. The flat fee may have certain limits, however, such as the number of shares being traded at one time. http://www.securities.state.oh.us/Information/10_Tips_Final.pdf

Committee on Uniform Securities Identifying Procedures (CUSIP)The Committee on Uniform Securities Procedures (CUSIP) assigns codes and numbers to all U.S. exchange-traded securities. The CUSIP identification number is used to track the securities when they are bought and sold. You'll find the CUSIP number on a confirmation statement from your broker, for example, and on the face of a stock certificate.
CommodityCommodities are bulk goods and raw materials, such as grains, metals, livestock, oil, cotton, coffee, sugar, and cocoa, that are used to produce consumer products. The term also describes financial products, such as currency or stock and bond indexes, that are the raw materials of trade. Commodities are bought and sold on the cash market, and they are traded on the futures exchanges in the form of futures contracts. Commodity prices are driven by supply and demand: When a commodity is plentiful — tomatoes in August, for example — prices are comparatively low. When a commodity is scarce because of a bad crop or because it is out of season, the price will generally be higher. http://www.securities.state.oh.us/Information/Commodity.aspx
Commodity Futures Trading Commission (CFTC)The CFTC is an independent agency that regulates the U.S. commodity futures and options markets. The agency's five commissioners, who are appointed by the U.S. President for staggered five-year terms, are responsible for maintaining fair and orderly markets, enforcing market regulations, and protecting customers from fraudulent or abusive trading practices. Commodity exchanges also regulate themselves, but any new rules they want to introduce, or any changes they want to make to existing rules, must be approved by the CFTC before they go into effect. http://www.cftc.gov/cftc/cftchome.htm
Common StockWhen you own common stock, you own shares in a corporation. Your shares represent ownership in the corporation and give you the right to vote for company's board of directors and benefit from its success through dividend payments or increases in share value. Unlike holders of preferred stock, you are not guaranteed dividend payments. However, common stock has historically produced a stronger long-term total return than any other investment category through a combination of dividend payments and increases in value (known as capital appreciation).
Competitive TraderA competitive trader, also known as a registered competitive trader or a floor trader, buys and sells stocks for his or her own account on the floor of an exchange, such as the New York Stock Exchange (NYSE). Traders must follow very specific rules governing when they can buy and sell. But since they trade in large volumes and do not pay commissions on their transactions, they are able to profit from even small differences in the price they pay and the price they get when they sell.
Composite TradingComposite trading figures report the price changes, closing prices, and the total daily trading volume for stocks, warrants, and options listed on the New York Stock Exchange (NYSE) or the American Stock Exchange (AMEX). In addition, the NYSE total also includes transactions on regional exchanges such as those in Boston, Chicago, and the Pacific Exchange in California. Since trading continues on some of those exchanges after the close of business in New York, the composite figures give a comprehensive picture of the day's activities.
Compound InterestWhen the interest you earn on an investment is added to form the new base on which future interest accumulates, it is said to be compound interest. Without compounding, you earn simple interest, and your investment doesn't grow as quickly. For example, if you earn 10% compounded interest on $100 every year for five years, you'll have $110 after one year, $121 after two years, $133.10 after three years, and $161.05 after five years — for total growth of 61.1% on your investment. With simple interest, you would have earned $10 a year for five years, for $150, or 50% growth. The $11.05 difference is the effect of compounding. Compound interest earnings are reported as annual percentage yield (APY), though the compounding can be figured annually, monthly, or daily.
ConfirmationWhen you buy or sell a stock, your brokerage firm will send you a document showing what you bought or sold, the price, the trade and settlement date, and the commission. You'll also receive a confirmation when you buy or sell a bond, and to reaffirm orders you place, such as a good till canceled order to buy or sell a certain stock. In addition, activity in your trading account, such as stock splits, spinoffs, or mergers will trigger a confirmation notice.
Conscience FundIf you prefer to invest in companies whose business practices are in keeping with your social, political, religious, or environmental values, you can buy mutual funds described as socially responsible, or conscience funds. Each fund explains principles it follows in its prospectus and describes the screens, or criteria, it uses to identify its investments.
Consumer Confidence IndexReleased each month by the Conference Board, an independent business research organization, the Consumer Confidence Index measures how a representative sample of 5,000 U.S. households feel about the current state of the economy, and what they anticipate the future will bring. The survey focuses specifically on the participants' impressions of business conditions and the job market.

Economic observers and policymakers follow the index because when consumer attitudes are positive — because they think the economy is growing and they have a sense of job security — they are more likely to spend money, which contributes to the very economic growth they anticipate. But if consumers are worried about their jobs, they may spend less, contributing to an economic slowdown.

Consumer Price Index (CPI)The consumer price index (CPI) is a monthly gauge of inflation that measures changes in the prices of basic goods and services, such as housing, food, clothing, transportation, medical care, and education. Compiled monthly by the U.S. Bureau of Labor Statistics, the CPI — often incorrectly referred to as the cost-of-living index — is used as a benchmark for making adjustments in Social Security payments, wages, pensions, and tax brackets to keep them in tune with the buying power of the dollar.
Contingent Deferred Sales LoadSome mutual funds impose a sales charge, called a back-end load or contingent deferred sales load, when you sell shares in the fund within a certain period of time after you buy them. That period, which might be as short as a few months or as long as several years, is determined by the fund. The charge is a percentage of the amount of the investment you're liquidating and may be the same — say 1% — during the entire period it applies, or it might begin at a higher percentage and decline each year until it disappears entirely, typically over five to seven years. Information about the charge and how long it's levied is provided in the fund's prospectus. http://www.securities.state.oh.us/Information/II2.html
Convertible BondConvertible bonds are corporate bonds that you can convert into common stock of the company that issues them rather than redeeming them for cash when they mature. The details governing the conversion, such as the price of the stock, are set when the bonds are issued. These bonds have a double appeal for investors concerned about volatility and high stock prices: Their prices go up if stock prices go up but usually drop less than the underlying stock price if that price should fall. And while convertible bonds typically provide lower yields than regular bonds, they provide higher yields than the underlying stock. You can buy convertibles through a broker or choose a mutual fund that invests in them.
Cornering the MarketIf someone tries to buy up as much of a particular investment as possible in order to control its price, that investor is trying to corner the market. Not only is it difficult to make this strategy work in a complex economic environment, but the practice is illegal in U.S. markets.
Corporate BondCorporate bonds are debt securities issued by publicly held corporations to raise money for expansion or other business needs. Corporate bonds typically pay a higher rate of interest than federal or municipal government bonds but the interest you earn is generally taxable. You may be able to buy corporate bonds at issue through brokers, usually at a par value of $1,000 per bond, though you may have to buy more than one. You can buy bonds on the secondary market at their current market price, which may be higher or lower than par. You may also invest in a mutual fund that specializes in corporate bonds.
CorrectionA correction is a drop — usually a sudden and substantial one of 10% or more — in the price of an individual stock, bond, commodity, index, or the market as a whole. When a market correction is greater than 10% and the prices do not begin to recover promptly, some analysts point to the correction as the beginning of a bear market.
Cost basisThe cost basis is the original price of an asset — usually the purchase price plus commissions — which you use to calculate capital gains and capital losses, depreciation, and return on investment.
CouponOriginally, bonds were issued with detachable coupons, which you clipped and presented to the issuer or the issuer's agent — typically a bank or brokerage firm — to collect your interest payment. They're also known as bearer bonds because the bearer of the coupon is entitled to the interest.

Although most new bonds are electronically registered rather than issued in certificate form, the term coupon has stuck as a synonym for interest in phrases like the coupon rate. When interest accumulates rather than being paid during the bond's term, the bond is known as a zero coupon.

Covered OptionWhen you sell options on stocks that you own, they're known as covered options. That means, at the very worst, if someone exercises the option, you can turn over the stocks you own to meet your obligation to sell.

One appeal of selling a covered option is that you collect the premium and don't risk unexpected losses caused by having to buy the stock at market price in order to meet your obligation to sell. Selling options is also a technique for receiving income from stocks that pay few or no dividends.

CrashA crash is a sudden, steep drop in stock prices. The downward spiral is intensified as more and more investors, seeing the bottom falling out of the market, try to sell their holdings before these investments lose all their value.

The two great U.S. crashes of the 20th century, in 1929 and 1987, had very different consequences. The first was followed by a period of economic stagnation and severe depression. The second had a much briefer impact. While some investors suffered huge losses in 1987, recovery was well underway within three months. In the aftermath of each of these crashes, the federal government instituted a number of changes designed to reduce the impact of future crashes.

CreditCredit generally refers to the ability of a person or organization to borrow money, as well as the arrangements that are made for repaying the loan and the terms of the repayment schedule. If you are well qualified to obtain a loan, you are said to be credit-worthy. Credit is also used to mean positive cash entries in an account. For example, your bank account may be credited with interest. In this sense, credit is the opposite of debit, which means money is taken from your account.
Credit RatingYour credit rating is an independent statistical evaluation of your ability to repay debt based on your borrowing and repayment history. Credit grantors use a point system to evaluate your credit history, sometimes on a scale of 0 to 9, or 9 to 0, but in other cases on a scale of 300 to 900.

If you always pay your bills on time, you are more likely to have good credit and therefore may receive favorable terms on a loan or credit card, such as relatively low interest rates. If your credit rating is poor because you have paid bills late or have defaulted on a loan, you are likely to get less favorable terms or may be denied credit altogether.

A corporation's credit rating is an assessment of whether it will be able to meet its obligations to bond holders and other investors. Credit rating systems for corporations generally range from AAA or Aaa at the high end to D (for default) at the low end.

Credit ReportA credit report is a summary of your financial history, which potential lenders use to help them evaluate whether you are a good credit risk and the likelihood that you will default on a loan. The three major agencies — Experian, Equifax, and Transunion — collect certain types of information about you, primarily your use of credit and information in the public record, to create these records and sell that information to qualified recipients.

You have a right to see your credit history if you have been turned down for a loan. You may also question any information the credit reporting agency has about you and ask that errors be corrected. If the information isn't changed following your request, you have the right to attach a comment or explanation, which must be sent out with future reports.

Cumulative Preferred SharesPreferred shares which state that if a dividend is not paid in any year, the unpaid dividend will cumulate and be paid before any dividends may be paid on common shares.
Cumulative VotingWith this method of voting for a corporation's board of directors, you may cast the total number of votes you're entitled to (generally one for each share of company stock you own times the number of directors to be elected) any way you choose. For example, you can either split your votes equally among the nominees, or you can cast all of them for a single candidate. Cumulative voting is designed to give individual stockholders greater influence in shaping the board than they would ordinarily have if their votes had to be spread among all the candidates, as is the case with statutory voting.
Currency TradingThe global currency market, where roughly $1.5 trillion a day changes hands, is by far the largest financial market in the world. Banks, other financial institutions, and multinational corporations buy and sell currencies in enormous quantities to handle the demands of international trade. In some cases, traders seek profits from minor fluctuations in exchange rates or speculate on currency fluctuations.
Current AssetsCash and assets which could be converted into cash within a year.
Current LiabilitiesA debt which is normally due within a year.
Current YieldExpressed as a percentage, current yield is a measure of your actual rate of return on an investment. If you own a bond, current yield is calculated by dividing the coupon rate by the purchase price and multiplying by 1,000. For example, if you paid $800 for a bond with a coupon rate of 10%, the current yield is 12.5%. If you paid $1,200, the current yield would be 8.33%. And if you paid par, or $1,000, the current yield would be 10%, the same as the coupon rate. If you own a stock, the current yield is the annual dividend divided by its market price.
Custodial AccountIf you want to make investments for a minor, or transfer property you already own to that person, you can open a custodial account with a bank, brokerage firm, or mutual fund company. You name an adult custodian for the account — either yourself or someone else — who is responsible for managing the account until the child reaches the age of majority (18 or 21, depending on the state and the type of account you choose). At that point, the child has the legal right to control the account and use the assets as he or she chooses.
CustodianA custodian is an organization, such as a bank, brokerage firm, or mutual fund company, that's responsible for the assets of a 401(k) plan, mutual fund, or IRA. The custodian invests as you direct, but has no fiduciary responsibility for the way the money is invested. In other cases, a custodian may be a person who is responsible for making financial decisions on behalf of a minor child or disabled adult.
Cyclical StockCyclical stocks tend to rise in value during an upturn in the economy and fall during a downturn. They usually include stocks in industries that flourish in good times, including airlines, automobiles, and travel and leisure. In contrast, stocks in industries that provide necessities such as food, electricity, gas, and health care products, or those that provide services that reduce the expenses of other companies, tend to be more price-stable. Those stocks are sometimes called countercyclicals.
Daily Trading LimitThe daily trading limit is the most that the price of a futures or options contract can rise or fall in a single session before trading in that contract is stopped for the day. Trading limits are designed to protect investors from wild price fluctuations and the potential for major losses. They're comparable to the circuit breakers established by stock exchanges to suspend trading when prices fall by a specific percentage.
Date of MaturityThe date of maturity, or maturity date, is the day on which a bond's term ends, and its issuer repays the principal and makes the final interest payment. When the phrase is used in connection with mortgages or other personal loans, the date of maturity is the day your last payment is due and your debt is repaid.
Day OrderA day order is an instruction you give to your broker to buy or sell a security at a particular price before the end of the trading day. The order expires if it isn't filled. In contrast, a good till canceled (GTC) order remains on the broker's books until its filled or the brokerage firm's time limit expires.
Day TraderWhen you buy and sell an investment within a very short time, sometimes as short as a few minutes or perhaps a few hours, you're considered a day trader. The strategy is to take advantage of rapid price changes to make money quickly. In the past, professional investors did most of the day trading, but as online trading has gained popularity, many more individuals, usually referred to as electronic day traders, do it as well.

The risk is that a day trader can lose money as well as make it, since no one can predict how or when prices will change. That risk is compounded by the fact that technology does not always keep pace with investors' orders, so a trader might authorize a sell at one price but have to wait for the order to be executed as the price drops even further. In addition, the trader pays transaction costs on each buy and sell order. Gains must offset those costs if the trader is going to come out ahead.

DealerDealers, also known as principals, trade securities for their own investment accounts or for the account of the brokerage firms where they work. Securities purchased for a particular firm's account may, in turn, be sold by the firm's brokers to investors who are clients of the firm. As a result, the term broker-dealer is frequently used to describe people or firms that handle both types of transactions. http://www.securities.state.oh.us/Information/CheckBef.pdf; http://www.securities.state.oh.us/Information/Stockbroker.pdf; http://www.securities.state.oh.us/Information/Select.pdf
DebentureA debenture is an unsecured bond. Most bonds issued by large corporations are, in fact, debentures, which are backed by the corporation's reputation rather than secured by any collateral, such as the company's buildings or its inventory. Although debentures sound riskier than secured bonds, they generally aren't, since they are usually issued by well-established companies with good credit ratings.
DebitA debit is the opposite of a credit. For example, a debit can be an account balance representing money you owe a lender, or it can be the amount you owe your broker for securities you have bought on margin. A debit card differs from a credit card, since it allows you to take money out of your bank account electronically, either as cash or as an on-the-spot payment to a merchant, rather than borrowing the money from the card issuer.
DebtA debt is an obligation to repay an amount you owe. Debt securities, such as bonds, notes, and commercial paper, are all forms of debt that bind the issuing organization, such as a corporation, bank, government, or government agency, to repay the holder of the security. Debts are also known as liabilities. http://www.securities.state.oh.us/Information/Promissorynote.pdf
Debt SecurityDebt securities are interest-paying bonds that are issued by governments or corporations. Debt securities generally pay a fixed rate of interest over a fixed time period in exchange for the use of the principal. That principal, or par value, is repaid at maturity. U.S. Treasury bills, corporate bonds, commercial paper, and mortgage-backed bonds are examples of debt securities. http://www.securities.state.oh.us/Information/Promissorynote.pdf
Debt-to-Equity RatioYou find a company's debt-to-equity ratio by dividing its total long-term debt by its total assets minus its total debt. You can find these figures in the company's income statement, provided in its annual report. The ratio indicates the extent to which a company is leveraged, or financed by credit. A higher ratio is a sign of greater leverage, which may mean a fast-growing company or one that is overextended.

Average ratios vary significantly from one industry to another, so what is high for one company may be normal for another company in a different industry. From an investor's perspective, the higher the ratio, the greater the risk you take in investing in the company. But your potential return may be greater as well if the company uses the debt to expand to its sales and earnings.

Decimal PricingU.S. stocks and derivatives linked to stocks trade in decimals, or dollars and cents. That means that the spread between the bid and ask prices can be as small as one cent. The switch to decimal trading, which was completed in 2001, was the final stage of a conversion from trading in eighths, or increments of 12.5 cents. Trading in eighths originated in the 16th century, when North American settlers cut European coins into eight pieces to use as currency. In an intermediary phase during the 1990s, trading was handled in sixteenths, or increments of 6.25 cents.
DeclinerStocks that have dropped, or fallen, in value over a particular period are described as decliners. If more stocks decline than advance, or go up in value, over the course of a trading day, the financial press reports that decliners led advancers. The indexes that track the market may decline as well. If decliners dominate for a period of time, the market may also be described as bearish.
Deep Discount BondDeep discount bonds are originally issued with a par value, or face value, of $1,000. But they decline in value by at least 20% — $800 or less — typically because interest rates have increased, or because people believe the company may have difficulty making the interest payment or repaying the principal. As a result, investors will no longer pay full price for the bond. Deep discount bonds are different from original issue discount bonds, which are sold at less than par value and accumulate interest until maturity, when they can be redeemed for par value. Zero coupon bonds are an example of original issue discount bonds.
DefaultA corporation or government is in default if it fails to meet the interest payments on debt securities it has issued or does not repay the principal at maturity. When the issuer defaults, the bondholders may try to recover what they're owed by making claims against the issuer's assets. There's an elaborate hierarchy for determining the order in which the claimants are paid.

Similarly, if you fail to pay principal and interest that you owe on a loan, you are in default. The lender may attempt to recover the loss by claiming any property of yours that was offered as collateral, or security for the loan, or by taking other legal measures.

Defensive SecurityDefensive securities tend to remain more stable in value than the overall market, especially when prices in general are falling. Defensive securities include stocks in companies whose products or services are always in demand, such as food, pharmaceuticals, and utilities, and are not as price-sensitive to changes in the economy as other stocks. Defensive securities may also be known as countercyclicals.
Deferred AnnuityUnlike an immediate annuity, which starts paying you income right after you buy, a deferred annuity contract allows you to accumulate tax-deferred earnings during the term of the contract and sometimes add assets to your contract over time. Your deferred annuity earnings can be either fixed or variable, depending on the way your money is invested. Deferred annuities are designed primarily as retirement savings accounts, so you may owe a penalty if you withdraw earnings before you reach age 59 1/2.
Delivery DateThe delivery date, also known as the settlement date, is the day on which a stock, option, or bond trade must be settled, or finalized. For stocks, it is three business days after the trade date, or T+3, and for listed options and government securities, it's one day after the trade date, or T+1. (The settlement date for stocks is scheduled to change to T+1 in June 2005.)

If you're the seller, you turn over the security by the delivery date. But, in fact, most deliveries are electronic, since an increasing number of securities are registered in street name and held by your broker. And if you're the buyer, you pay the purchase price either through a margin account or by ensuring there is enough cash in your brokerage account to cover the transaction. You may send a check, arrange an electronic transfer, or ask your broker to sell investments you already own.

Depository Trust and Clearing Corporation (DTCC)The DTCC is the world's largest securities depository, holding trillions of dollars in assets for the members of the financial industry that own the corporation. It is also a national clearinghouse for the settlement of corporate and municipal securities transactions. The DTCC, a member of the Federal Reserve System, was created in 1999 as a holding company with two primary subsidiaries, the Depository Trust Company (DTC) and the National Securities Clearing Corporation (NSCC).
DepreciationCertain assets, such as buildings and equipment, depreciate, or decline in value, over time. You can amortize, or write off, the cost of such an asset over its estimated useful life, thereby reducing your taxable income without reducing the cash you have on hand.
DepressionA depression is a severe and prolonged downturn in the economy. Prices fall, reducing purchasing power. There tends to be high unemployment, lower productivity, shrinking wages, and general economic pessimism. Since the Great Depression following the stock market crash of 1929, the governments and central banks of major industrialized countries have carefully monitored their economies and adjusted their economic policies to try to prevent another financial crisis of this magnitude.
DerivativeDerivatives are hybrid investments, such as futures contracts, options, and mortgage-backed securities, whose value is based on the value of an underlying investment. For example, the changing value of a crude oil futures contract depends on the upward or downward movement of oil prices. Certain investors, called hedgers, are interested in the underlying investment. For example, a baking company might buy wheat futures to help estimate the cost of producing its bread in the months to come. Other investors, called speculators, are concerned with the profit to be made by buying and selling the contract at the most opportune time. Derivatives are traded on exchanges, over-the-counter (OTC), and in private transactions.
DevaluationDevaluation is a deliberate decision by a government or central bank to reduce the value of its own currency in relation to the currencies of other countries. Governments often opt for devaluation when there is a large current account deficit, which may occur when a country is importing far more than it is exporting. When a nation devalues its currency, the goods it imports and the overseas debts it must repay become more expensive. But its exports become less expensive for overseas buyers. These competitive prices often stimulate higher sales and help to reduce the deficit.
Diluted Earnings Per ShareIn addition to reporting earnings per share, corporations must report diluted earnings per share to account for the possible, though unlikely, occurrence that all outstanding warrants and stock options are exercised, and all convertible bonds and preferred shares are exchanged for common stock. Diluted earnings actually report the smallest potential earnings per common share that a company could have based on its current earnings. In theory, at least, knowing the diluted earnings could influence how much you would be willing to pay for the stock.
DilutionIf a company issues new stock, the earnings per share and the book value per share decline. This happens because earnings per share and book value per share are calculated by dividing the total earnings or book value by number of existing shares. The larger the number of shares, the lower the value of each share. Lower earnings per share may trigger a selloff in the stock, lowering its price. That's one reason a company may choose to issue bonds rather than new stock to raise additional capital.
DirectorA person elected by a company’s shareholders to set and manage the company's overall policies. The Directors appoint officers such as the President to manage the day to day operations of the company.
DisclosureGenerally, a disclosure document explains how a financial product or offering works, the terms to which you must agree in order to buy it or use it, and, in some cases, the risks you assume in making such a purchase.
DiscountWhen bonds or preferred stocks sell for less than their face value, they are said to be selling at a discount.
Discount BondA bond whose value is less than its face amount.
Discount BrokerA stockbroker who charges a smaller commission than brokers with full service brokerages, but provides no investment advice. The broker merely takes and executes your orders.
Discount Brokerage FirmDiscount brokerage firms charge lower commissions than full-service brokerage firms when they execute investors' buy and sell orders but may provide fewer services to their clients. For example, they may not offer investment advice or maintain independent research departments.
Discount PointSome lenders require you to prepay a portion of the interest due on your mortgage as a condition of approving the loan. They set the amount due at one or more discount points, with each discount point equal to 1% of the mortgage loan principal. For instance, if you must pay one point on a $100,000 mortgage, you owe $1,000. From your perspective, the advantages of paying discount points are that your long-term interest rate is lowered slightly for each point you pay, and prepaid interest is tax deductible. The advantage, from the lenders’ point of view, is that they collect some of their interest earnings up front.
Discount RateThe discount rate is the interest rate charged by the Federal Reserve on loans it makes to banks and other financial institutions. The discount rate becomes the base interest rate for most consumer borrowing as well, since a bank generally uses the rate it pays to borrow — the discount rate — as a benchmark for the interest it charges on the loans it makes. For example, when the discount rate increases, the interest rate lenders charge on home mortgages and other loans increases as well. And when the discount rate decreases, the cost of consumer borrowing generally decreases as well.
DiversificationDiversification is an investment strategy in which you spread your investment dollars among different markets, sectors, industries, and securities. The goal of the strategy is to protect the value of your overall portfolio in case a single security or market sector takes a serious downturn and drops in price. Studies indicate that diversification can help insulate your investments against market and management risks without sacrificing the level of return you want. Finding the diversification mix that's right for you depends on your age, your assets, your tolerance for risk, and your investment goals.
DividendCorporations may pay out part of their earnings as dividends to you and other shareholders as a return on your investment. Stock dividends, which are often paid quarterly, are usually in the form of cash, but may be additional shares or scrip. You may be able to reinvest dividends to buy additional shares if the company offers a dividend reinvestment program (DRIP). Dividends are ordinarily taxable unless you own the investment through a tax-deferred account, such as an employer sponsored retirement plan or individual retirement account (IRA).
Dividend Reinvestment Plan (DRIP)Many publicly held companies allow shareholders to reinvest their dividends in the company's stock, as well as purchase additional shares of the stock through dividend reinvestment plans, or DRIPs. Enrolling in a DRIP enables you to build your investment gradually, taking advantage of dollar cost averaging and usually paying only a minimal transaction fee for each purchase. Many DRIPs will also buy back shares at any time you want to sell, in most cases for a minimal sales charge.
Dividend YieldIf you own dividend-paying stocks, you figure the current dividend yield on your investment by dividing the dividend being paid on each share by the share's current market price. For example, if a stock whose market price is $35 pays a dividend of 75 cents per share, the dividend yield is 2.14% ($0.75 ÷ $35 = .0214, or 2.14%). Yields for all dividend-paying stocks are reported regularly in newspaper stock tables and on financial websites.

Dividend yield, which increases as the price per share drops and drops as the share price increases, does not tell you what you're earning based on your original investment or the income you can expect to earn in the future. However, some investors seeking current income or following a particular investment strategy look for high-yielding stocks.

Dollar Cost AveragingAdding a fixed amount of money on a regular schedule to an investment, such as a mutual fund or a dividend reinvestment plan (DRIP), is called dollar cost averaging, or a constant dollar plan. Since the share price of the investment fluctuates, you buy fewer shares when the share price is higher and more shares when the price is lower. The advantage of this type of formula investing is that, over time, the average price you pay per share is lower than the actual average price per share. But to get the most from this approach, you have to invest regularly, including during prolonged downturns when the prices of the investment drop. Otherwise you are buying only at the higher prices. Despite its advantages, dollar cost averaging does not guarantee a profit and doesn't protect you from losses in a falling market.
Dow Jones 65 Composite AverageThis composite of three Dow Jones averages — the Dow Jones Industrial Average (DJIA), the Dow Jones Transportation Average, and the Dow Jones Utility Average — tracks the stock performance of 65 companies in two major market sectors and the benchmark DJIA.
Dow Jones Industrial Average (DJIA)The Dow Jones Industrial Average (DJIA), sometimes referred to as the Dow, is the best known and most widely followed market indicator in the world. It tracks the performance of 30 blue chip U.S. stocks. Though it is called an average, it is actually a price-weighted index, which means the gains and losses of the highest priced stocks are counted more heavily than gains and losses of lower priced stocks.

Quoted in points, not dollars, the DJIA is computed by totaling the weighted prices of the 30 stocks and dividing by a number that is regularly adjusted for stock splits, spin-offs, and other changes in the stocks being tracked. The companies that make up the DJIA are changed from time to time. For example, in 1999 Microsoft, Intel, SBC Communications, and Home Depot were added and four other companies were dropped. The changes were widely interpreted as a reflection of the emerging or declining impact of a specific company or type of company on the economy as a whole.

Down PaymentA down payment is the percentage of the total cost of real property that you pay in cash as part of a real estate transaction. It's the difference between the selling price and the amount of money you borrow to buy the property. For example, you might make a down payment of $20,000 to buy property selling for $200,000 and take a $180,000 mortgage. With a conventional mortgage, you're generally expected to make a down payment of 10% to 20%. But you may qualify for a mortgage that requires a smaller down payment, perhaps as little as 3%. The upside of needing to put down less money upfront is that you may be able to buy sooner. But the downside is that your mortgage payments will be larger because you must borrow more.
DowntickWhen a security sells at a lower price than its previous sale price, the drop in value is called a downtick. For example, if a stock that had been trading at 25 sells at 24.95 the next time it trades, the 5 cent drop is a downtick.
Early WithdrawalIf you withdraw assets from a fixed-term investment, such as a certificate of deposit (CD), before it matures, or from an individual retirement account (IRA) or tax-deferred retirement savings plan before you turn 59 1/2, it is generally considered an early withdrawal.
Earned IncomeYour earned income is pay you receive for work you perform, such as salaries, wages, tips, and professional fees. Your earned income is included in your adjusted gross income (AGI), along with unearned income from interest, dividends, and capital gains. If you have earned income, you're eligible to contribute to an individual retirement account (IRA).
Earnings Per ShareObtained by dividing the net income of the company by the number of outstanding common shares.
Earnings StatementA financial statement showing the income and expenses of the corporation for a specific period of time. Also known as profit and loss statement or an income statement.
Earnings SurpriseIf a company's earnings are higher, or lower, than Wall Street financial analysts are expecting, it's a surprise. There's typically an impact, sometimes a dramatic one, on the price of the company's stock. That is, higher-than-expected earnings tend to send the stock price higher, and lower-than-expected profits tend to drive the price down. And the analysts, having been surprised once, generally anticipate similar surprises in the upcoming quarters.
Economic IndicatorEconomic indicators are statistical measurements of current business conditions. Changes in leading indicators, including those that track factory orders, stock prices, the money supply, and consumer confidence, forecast short-term economic strength or weakness. In contrast, lagging indicators, such as business spending, bank interest rates, and unemployment figures, move up or down in the wake of changes in the economy.
Efficient MarketWhen the information that investors need to make investment decisions is widely available, thoroughly analyzed, and regularly used, as is the case with securities traded on the major U.S. stock markets, the result is an efficient market. Conversely, an inefficient market is one in which there is limited information available for making rational investment decisions.
Efficient Market TheoryProponents of the efficient market theory believe that a stock's current price accurately reflects what investors know about the stock, and further that you can't predict a stock's future price based on its past performance. Their conclusion, which is contested by other experts, is that it's not possible for an individual or institutional investor to outperform the market as a whole. Index funds, which are designed to match, rather than beat, the performance of a particular market segment, are in part an outgrowth of efficient market theory.
Electronic Communications Network (ECN)An ECN is an alternative securities trading system that collects, displays, and executes orders electronically without a middleman (such as a specialist or market maker). Trading on an ECN allows institutional and individual investors to buy and sell anonymously. Further, ECNs facilitate extended, or after-hours, trading.
Emerging MarketCountries in the process of building market-based economies are broadly referred to as emerging markets, though there are major differences among the countries included in this category.
Emerging-Markets FundEmerging-markets mutual funds invest primarily in the securities of countries in the process of building a market-based economy. Some funds specialize in the markets of a certain region, such as Latin America or Southeast Asia. Others invest in a global cross-section of countries and regions. http://www.securities.state.oh.us/Information/II2.html
Enhanced Index FundUnlike an index fund, which strives to mirror the performance of a particular index by owning all of the stocks in the index, an enhanced index fund chooses selectively among the stocks in a particular index in order to produce a slightly higher return. The goal is to narrowly beat the index by anywhere from a fraction of a percent to two percentage points but not more, since a wider spread would classify the enhanced fund as an actively managed mutual fund rather than an index fund.
EquityIn the broadest sense, equity means ownership. If you own stock, you have equity in, or own a portion — however small — of the company that issued the stock. Having equity is the opposite of owning a bond or commercial paper, which is a debt the company must repay to you.
Equity FundEquity mutual funds invest primarily in stocks. The stocks a fund buys — whether in small, up-and-coming companies or large, well-established firms — depends on the fund's investment objectives and management style. The general approach is implied by the fund's name or the category to which it belongs, such as large-cap growth or small-cap value. However, a fund's manager may have the flexibility to invest more broadly to meet the fund's objectives. http://www.securities.state.oh.us/Information/II2.html
Equivalent Taxable YieldAlthough tax-exempt municipal bonds generally pay interest at a lower rate than taxable corporate bonds, agency bonds, and Treasurys, they may actually provide a higher yield, especially if you are in the higher federal income tax brackets. That's because a certain percentage of your taxable yield disappears to pay the tax that's due.
EscrowWhen someone else holds assets of yours, such as money, securities, real estate, or even a deed, until the terms of a contract or an agreement are fulfilled, your assets are said to be held in escrow. The person or organization that holds the assets is the escrow agent, and the account in which they are held is an escrow account.
Escrowed SharesShares which are entitled to vote and received dividends but which cannot be sold while being held in escrow without the approval from the applicable securities commission.
Ex-DividendAn ex-dividend period exists between the announcement and the subsequent payment of a dividend on a stock or mutual fund. Any investors who buy in the ex-dividend period, which may run from a week to a month or more, are not entitled to the dividend.
ExchangeAn exchange is a physical location for trading securities. Trading is handled, at least in part, by an open outcry or dual auction system. However, most exchanges handle an increasing number of trades electronically.
ExerciseWhen you act on a buying or selling opportunity that you have been granted under the terms of a contract, you are said to exercise a right. Typical contracts include the right to exchange stock options for stock, buy stock at a specific price, or buy or sell the security or other product underlying an option at a specific price called the exercise price. For example, if you buy a call option giving you the right to buy shares of a stock at $50 a share, and the market price jumps to $60 a share, you would be likely to exercise your option to buy at the lower price.
Exercise PriceAn option's exercise price, also called the strike price, is the price at which you can buy or sell the stock or other financial product that underlies that option. While the exercise price is set by the exchange on which the option trades and remains constant for the life of the option, the market value of the underlying investment rises and falls continuously during the period in response to market demand.
Expense RatioAn expense ratio is the percentage of a mutual fund's or variable annuity's total assets deducted to cover operating and management expenses, including employee salaries, custodial and transfer fees, distribution, marketing, and other costs of offering the fund or contract — though not trading costs or commissions. For example, if you own shares in a fund with a 1.25% expense ratio, your annual share is $1.25 for every $100 in your account, or $12.50 on an account valued at $1,000.
Expiration DateYou must exercise an option before its expiration date, or it expires worthless. Options are available in three-, six- and nine-month contracts, and always expire on the Saturday following the third Friday of the month in which they come due. For example, if you buy a September option, you can exercise it any time until the end of trading on the third Friday in September.
Extra DividendA dividend declared and paid in addition to a regular dividend.
Face ValueThe value of the security as it appears on the certificate or instrument. Also known as the “par value”, “denomination”, and “nominal value”. The death benefit of a life insurance policy, which is the amount the beneficiary receives when the insured person dies, is also known as the policy's face value. http://www.securities.state.oh.us/Information/II2.html
Fair Market ValueFair market value is the price you would have to pay to buy a particular asset or service on the open market. The concept of fair market value assumes that both buyer and seller are reasonably well informed of market conditions, that neither is under undue pressure to buy or sell, and that neither intends to defraud the other.
Fallen AngelThese corporate or government bonds were investment-grade when they were issued but have been downgraded by a rating service, such as Moody's Investors Service or Standard & Poor's (S&P). Downgrading may occur if the issuer's financial situation weakens, or if the rating service anticipates financial problems that could lead to default. The term is sometimes used more generically, to refer to stocks or other securities that are out of favor with investors.
Federal Deposit Insurance Corporation (FDIC)Established by the federal government in 1933 after the bank failures of the Great Depression, the FDIC guarantees deposits in member banks and thrift institutions for up $100,000 per depositor per bank. If the bank fails, the government will protect your money up to the established limits. http://www.fdic.gov/
Federal FundsWhen banks have more cash available than they're required to hold in their reserve accounts, they can deposit the money in a Federal Reserve bank or lend it to another bank overnight. That money is called federal funds, and the interest rate at which the banks lend to each other is called the federal funds rate.
FiduciaryA fiduciary is an individual or organization legally responsible for holding or investing assets on behalf of someone else, usually called the beneficiary. The assets must be managed in the best interests of the beneficiary, not for the personal gain of the fiduciary. However, the term acting responsibly can be broadly interpreted, and may mean preserving principal to some fiduciaries and producing reasonable growth to others. Executors, trustees, guardians, and agents with powers of attorney are examples of individuals with fiduciary responsibility.
Fill or Kill (FOK)If an investor places an FOK order, it means the broker must cancel the order if it can't be filled immediately. Usually the instruction is given when an investor wants to place a large trade at a particular price.
Financial FutureWhen a futures contract is linked to a financial product, such as a stock index, Treasury notes, or a currency, the contract is described as a financial future.
Financial Industry Regulatory Authority (FINRA)This regulatory entity was Created in July 2007 through the consolidation of NASD, or National Association of Securities Dealers, and the member regulation, enforcement and arbitration functions of the New York Stock Exchange. FINRA is a self-regulating securities industry association that was established in 1938 to protect the interests of investors. The FINRA derives its authority from the Securities and Exchange Commission. FINRA sets standards and establishes rules for the way the Nasdaq Stock Market and FINRA members, including more than 5,000 firms and 650,000 people operate. FINRA has the authority to discipline members who violate the association's regulations. FINRA works to resolve complaints investors file against brokerage firms. http://www.finra.org
Financial InstitutionBanks, credit unions, savings banks, and saving and loan associations that collect money and put it into assets such as stocks, bonds, bank deposits, or loans, rather than into tangible property such as real estate or an automobile, is considered a financial institution.
Financial InstrumentA financial instrument is a physical or electronic document that has intrinsic monetary value or transfers value. For example, cash is a financial instrument, as is a check.
Financial PlanEveryone should have some type of financial plan which encompasses their financial goals – short term or long term, their tolerance for risk, their values, and lastly, a method to save and invest money that is reasonable and manageable. Then, all you need to do is stick to the plan! http://www.com.state.oh.us/press/display.asp?ID=293
Financial PlannerA financial planner evaluates your personal finances and helps you develop a financial plan to meet both your immediate needs and your long-term goals. http://www.securities.state.oh.us/Information/advisorABC.aspx
Financial PyramidMany investors structure their portfolios in the form of a financial pyramid. The base of the pyramid is made up of nonvolatile, liquid assets. The next level includes securities that provide both income and long-term capital growth. At the third level, a smaller portion of the portfolio is allocated to more volatile investments with higher potential returns and greater risk. And at the top level, the smallest percentage of the overall portfolio is invested in ventures that have the highest potential return but also pose the greatest investment risk. This strategic approach gives you the potential to realize significant returns if some of your speculative investments succeed without risking more than you can afford to lose.
Firm QuoteA firm quote is a bid or ask price for a round lot of a security — 100 shares of stock, for example — that a market maker will honor without further negotiation. For example, if the market maker posts an ask price of $42.50, an order to buy at that price will be filled from the market maker's inventory.
Fixed AnnuityTo guarantee you'll have regular income, particularly in retirement, you can buy a fixed annuity contract issued by a life insurance company. You pay the required premium, either in a lump sum or over a period of time.

The insurance company invests its assets, including your premium, so the will have money available to pay you a fixed rate of return beginning at a time you select. The issuer of the annuity contract assumes the risk that you could outlive your life expectancy and therefore collect income over a longer period than anticipated.

A fixed annuity differs from a variable annuity, which does not guarantee your rate of return or the amount of your future income but allows you to allocate your premium among a group of investment accounts and provides the possibility of earning a higher rate of return.

Fixed AssetsAssets of a long-term nature, such as land and buildings that will not be converted into cash within a year.
Fixed LiabilityAny corporate liability that will not be required to be paid within a year.
Fixed-Income InvestmentFixed-income investments, such as government, corporate, and municipal bonds, preferred stock, and guaranteed investment contracts (GICs), pay interest or dividends on a regular schedule. In addition, bonds promise return of your principal when the bond matures.

A portfolio heavy with fixed-income investments may not provide the protection you need against the effects of inflation, since the rates of return on these securities are generally lower over the long term than the return on more volatile investments, such as common stock. Nonetheless, fixed-income securities provide diversification in a well-balanced investment portfolio and may be a useful source of income.

FloatIn investment terms, a float is the number of outstanding shares a corporation has available for trading. If there is a small float, stock prices tend to be volatile, since one large trade could significantly affect the availability and therefore the price of these stocks. If there is a large float, stock prices tend to be more stable.

In banking, the float is the period that elapses from the time you write a check until it clears your account. The same term also refers to the time lag between your depositing a check in the bank and the day the funds become available for use. For example, if you deposit a check on Monday, and you can withdraw the cash on Friday, the float is four days. When you write a check, the float works to your advantage. When you deposit a check, the float works to the bank's advantage.

In a credit account, float is the amount of time between the date you charge a purchase and the date the payment is due. If you have paid your previous bill in full and on time, you don't owe a finance charge on the amount of the purchase during the float.

Floating an IssueWhen a corporation or public agency offers new stocks or bonds to the public, making the offering is called floating an issue. In the case of stocks, the securities may be an initial public offering (IPO) or additional issues of a company that has already gone public. In that case, they're called secondary offerings.
Floating RateA debt security whose interest rate is adjusted on a regular schedule to reflect changing money market rates is said to have a floating rate. These securities, typically five-year notes, are offered at a rate lower than comparable fixed-rate notes but help protect against declining prices in a period of rising interest rates.
Floor BrokerFloor brokers are members of a stock or commodities exchange who handle client orders that are sent to the floor of the exchange from the trading department or order room of the brokerage firms they work for. When a transaction is completed, the floor broker relays that information back to the firm, and the client is notified.
Floor TraderUnlike floor brokers who fill client orders, floor traders buy and sell stocks or commodities for their own accounts on the floor of an exchange. Floor traders don't pay commissions, which means they can make a profit on even small price differences. But they must still abide by trading rules established by the exchange. One of those rules is that client orders take precedence over floor traders' orders.
Foreign Exchange (FOREX)Any type of financial instrument that is used to make payments between countries is considered foreign exchange. The list of instruments includes electronic transactions, paper currency, checks, and signed, written orders called bills of exchange.
Formula InvestingWhen you invest on a schedule, as you do when you dollar cost average, or make investments to maintain a predetermined asset allocation, you're using a technique known as formula investing. One appeal of this approach, for investors who follow it, is that it eliminates having to agonize over when to buy or sell. It also encourages regular investing. But it does not guarantee your portfolio will grow in value or that you won't lose money.
Forward ContractBuying foreign currency, government securities, or other commodities to be delivered and paid for on a specific future date is called a forward contract. Such a contract specifies that the price to be paid is the spot, or market, price, on the day the contract was arranged, rather than the market price on the delivery date, which is the day the contract is to be settled.
Forward Price-to-Earnings (Forward P/E)Stock analysts calculate a forward price-to-earnings ratio (forward P/E) by dividing a stock's current price by estimated future earnings per share.
Fractional ShareIf you reinvest your dividends or invest a fixed dollar amount in a stock dividend reinvestment plan (DRIP) or mutual fund, the amount may not be enough to buy a full share, or there may be money left over after buying one or more full shares. The excess amount buys a fractional share, a unit that is less than one whole share. In a DRIP, a fractional share gives you credit toward the purchase of a full share. With a mutual fund, in contrast, the fractional share is included in your account value.
FraudGenerally, for purposes of Ohio securities law, any device, scheme, or artifice to defraud or to obtain money or property by means of any false pretense, representation or promise. See Revised Code 1707.01(J).
Freddie MacFreddie Mac is a shareholder-owned corporation that was chartered in 1970 to increase the supply of mortgage money that lenders are able to make available to homebuyers. To do its job, Freddie Mac buys mortgages from banks and other lenders, packages them as securities, and sells the securities to investors. The money it raises by selling these bonds pays for purchasing the mortgages. Lenders use the money they realize from selling mortgages to Freddie to make additional loans.

Lenders must be approved in order to participate in the program. Loans must meet Freddie Mac qualifications to be eligible for purchase. To facilitate the lending process, Freddie Mac provides lenders with an automated underwriting tool to help them evaluate mortgage applications.

Freddie Mac guarantees the securities it issues, but the bonds aren't federal debts and aren't federally guaranteed. Like its sister corporation Fannie Mae, Freddie Mac shares are traded on the New York Stock Exchange (NYSE).

Front-End LoadWhen you purchase shares of a mutual fund or annuity, you may have to pay a load, or sales charge. If you pay the charge when you make the purchase, it's called a front-end load. Some mutual funds identify shares purchased with a front-end load as Class A shares. http://www.securities.state.oh.us/Information/II2.html
FrontrunningIf you buy or sell a stock, stock option, or other investment because you know that an upcoming transaction is likely to affect the market price of the investment, you're frontrunning.

Because frontrunning, sometimes known as forward trading, relies on information that isn't available to the general public, it's considered unethical in certain circumstances. One example is a broker-dealer who trades at a better price for a personal account than for a client's account. But on the commodities markets, where frontrunning is called dual trading, it's an accepted practice.

Full-Service Brokerage FirmFull-service brokerage firms usually offer their clients a range of services in addition to executing their buy and sell orders. For example, the firm may provide investment advice, help in developing a financial plan, or strategies for meeting financial goals. Firms usually have access to full-time research departments and investment analysts, who provide information the firm shares with clients. However, in exchange for providing these services, these firms tend to charge higher commissions and fees than discount brokerage firms or firms that operate exclusively online. However, some full-service firms offer online services and reduce their fees for transactions handled though a client's online account.
Fully Diluted SharesThe number of shares of common stock that would be outstanding if all convertible securities were converted to common shares.
Fund FamilyA fund family is a group of mutual funds issued by a single investment company, bank, or other financial institution. The various funds within the family have different investment objectives, such as growth or income. If you invest in several funds in a no-load family, you can transfer assets from one fund to another by phone or online, usually without a fee. However, unless you own the funds in a tax-deferred or tax-free account, you will owe capital gains taxes on any profit you make from selling fund shares that have increased in value even if the money is reinvested in another fund. Similarly, if the shares have lost value when you sell, you’ll have a capital loss.
Fund NetworkFund networks, sometimes called fund supermarkets, offer access to thousands of different mutual funds from many of the major fund families. Investing through a fund network can make it easier for you to diversify your portfolio, or spread your assets among a variety of investments, since you have access to all the funds through one account. And you can usually — although not always — transfer assets from one fund family in the network to another without a fee although capital gains taxes may be due if the shares of the fund you’re leaving have increased in value.
Futures ContractA futures contract obligates you to buy or sell a specified quantity of the underlying commodity, stock index, security, or currency for a specific price at a specific date in the future. But you can offset your contract and get out of your obligation by buying or selling an opposing contract before the settlement date.

Futures contracts provide some investors, called hedgers, a measure of protection from price volatility on the open market. For example, wine manufacturers are protected when a bad crop pushes grape prices up on the spot market, provided they have a futures contract to buy the grapes at a lower price. Similarly, grape growers are protected if prices drop dramatically — if, for example, there's a surplus caused by a bumper crop — provided they have a contract to sell that sets the price at a higher level.

Unlike hedgers, speculators use futures contracts to seek profits on price changes. For example, speculators can make (or lose) money, no matter what happens to the grapes, depending on what they paid for the futures contract and what they must pay to offset it.

Futures ExchangeTraditionally, futures contracts and options on those contracts have been bought and sold on a futures exchange, or trading floor, in a defined physical space. In the U.S., for example, there are futures exchanges in Chicago, Kansas City, Minneapolis, and New York. As electronic trading of these products expands, however, buying and selling doesn't always occur on the floor of an exchange, so the term is also used to describe the activity of trading futures contacts.
GainerStocks that increase in value over the course of the trading day are described as gainers or advancers. Those that increase the most in relation to their opening price are called percentage gainers (or percentage winners), while stocks that go up the greatest number of points are called net gainers (or dollar winners). On a day that the stock market indexes go up, there are typically more gainers than there are losers or laggards — stocks that have lost value. And on a day where there's little change, there are likely to be similar numbers of gainers and losers.
General Obligation (GO) BondMunicipal general obligation (GO) bonds are repaid out of general revenues. They're considered somewhat less risky, and therefore pay slightly lower rates, than the same municipality's revenue bonds, which are backed by income from a specific project or agency. A municipality's general revenues come from the taxes it is able to raise and money it can borrow. Those powers are sometimes described as its full faith and credit.
Gilt-Edged SecurityWhen applied to bonds, the term gilt-edged is the equivalent of describing a stock as a blue chip. Both terms mean that the issuing corporation has a long, strong record for meeting its financial obligations to its investors, including making interest and dividend payments on time and redeeming bonds on schedule.
Global Depositary Receipt (GDR)In order to raise money in more than one market, some corporations sell their stock on markets in countries other than the one where they have their headquarters. To do it, they issue global depositary receipts (GDRs) in the currency of the country where the stock is trading.
Global FundGlobal, or world, mutual funds invest in U.S. securities as well as those of other countries. In that way, they differ from international funds, which invest only in non-U.S. markets. Although global funds may keep as much as 75% of their assets invested in the U.S., fund managers are able to take advantage of opportunities they see in a variety of overseas markets. http://www.securities.state.oh.us/Information/II2.html
Go LongWhen you go long, you buy a security or other financial product that you intend to hold for a period of time or one that you expect to increase in value so that you can sell it at a profit. Going long is the opposite of going short, which means you sell an investment, usually because you expect it to decline in value in the near future. If you're buying and selling futures contracts, you go long when you enter a contract to buy and you go short when you enter a contract to sell.
Go PublicA corporation goes public when it issues shares of its stock in the open market for the first time, in what is known as an initial public offering (IPO). That means that at least some of the shares will be held by members of the public rather than exclusively by the investors who founded and funded the corporation initially.
Go ShortWhen you go short, you either enter a futures contract to sell, or you borrow shares of stock from your broker, sell the borrowed shares at their current market price, and pocket the money, minus commission. The reason you go short with a stock, which is also known as selling short, is because you expect the stock's price to decline in the near future. If it does, you can buy shares at the lower price and return the number you borrowed, plus interest, to your broker.
Good Business ReputeIn order to obtain a license to sell securities in Ohio or a license to give advice in Ohio about investing in securities, the applicant must establish his or her minimum competency AND the Division must be able to affirmatively find the existence of “good business repute.” In making a determination of the existence of “good business repute,” the Division must consider a variety of factors as listed in Ohio Administrative Code 1301:6-3-19(D)E.
Good Till Canceled (GTC)If you want to buy or sell a security at a specific price, you can ask your broker to issue a good till canceled (GTC) order. When the security reaches the price you've indicated, the broker will execute the trade. This order stays in effect until it is filled, you cancel it, or the brokerage firm's time limit on GTC orders expires. A GTC, also called an open order, is the opposite of a day order, which is automatically canceled at the end of the trading day if it isn't filled.
Good WillWhen analysts estimate the value of a corporation, they look first at the value of its tangible assets, or what it owns. But they also look at its “good will,” a term that covers the intangible value of its reputation, its satisfied clients, and its productive work force — factors that are considered evidence of the corporation's potential to produce strong earnings.
Government BondThe term government bond is used to describe all types of debt securities issued by the federal government, such as U.S. Treasury bills, notes, and zero coupon STRIPS.
Green FundA mutual fund that makes investments based on a commitment to environmental principles may be described as a green fund. The term is also used more broadly to describe any socially responsible fund.
GrowthInvestment growth is an increase in the value of an investment over time. Unlike investments that produce income, those that are designed for growth don't necessarily provide you with a regular source of cash. A growth company is more likely to reinvest its profits to build its business. If the company prospers, however, its stock typically increases in value. Stocks, stock mutual funds, and real estate may all be classified as growth investments, but some stocks and mutual funds emphasize growth more than others. In the case of a mutual fund, the term is often part of the fund's name and defines its investment style.
Growth and Income FundThese mutual funds invest in securities that provide a combination of growth and income. These funds generally funnel most of their assets into common stocks of well-established companies that pay regular dividends and increase in value at a regular, if modest, rate. Some or all of the balance may be in high-rated bonds. http://www.securities.state.oh.us/Information/II2.html
Growth StocksShares of companies whose earnings are expected to increase at an above-average rate. Growth stocks are sometimes identified by their high price/earnings ratios and low yield.
Guaranteed Investment Certificates (GICs)A deposit instrument paying a predetermined rate of interest for a specified term, available from banks, trust companies and other financial institutions.
HedgeA transaction intended to reduce the risk of loss from price fluctuations.
Hedge FundHedge funds are private investment partnerships open to institutions and wealthy individual investors. These funds pursue returns through a number of alternative investment strategies, including hedging against market downturns by holding both long and short positions, investing in derivatives, using arbitrage, and speculating on mergers and acquisitions.
HedgerHedgers in the futures market try to offset potential price changes in the spot market by buying or selling a futures contract. In general, they are either producers or users of the commodity or financial product underlying that contract. Their goal is to protect their profit or limit their expenses. For example, a cereal manufacturer may want to hedge against rising wheat prices by buying a futures contract that promises delivery of September wheat at a specified price. If, in August, the crop is destroyed, and the spot price increases, the manufacturer can take delivery of the wheat at the contract price, which will probably be lower than the market price. Or the manufacturer can trade the contract for more than the purchase price and use the extra cash to offset the higher spot price of wheat.
High-Yield BondLow-rated bonds pose greater risk of default than higher-rated bonds. As a result, their issuers must pay investors a higher rate of interest to offset that risk, and the higher rate, in turn, provides a higher yield. Bonds that fit that description are called high-yield bonds, but may also be described, somewhat more graphically, as junk bonds.
Hot IssueIf a newly issued security rises steeply in price after its initial public offering (IPO) because of intense investor demand, it is considered a hot issue.
HotlineIn Ohio, call the Investor Protection Hotline at 1-800-788-1194 to obtain investor education information, information on your securities professional, or to file a complaint.
In the MoneyYou are in the money when you own an option with a strike price that's close enough to the current market price to allow you to exercise the option at a profit.
Incentive Stock Option (ISO)This compensation plan, created by the Economic Recovery Tax Act of 1981 (ERTA), lets executives receive options to purchase company stock at a deep discount and exercise those options free of income tax until they sell the shares.
Income AnnuityAn income annuity, sometimes called an immediate annuity, pays an annual income, usually in monthly installments. The amount you receive is determined by the purchase price of the contract, your age (and the age of your joint annuitant if you name one), the term over which the annuity will be paid, and the specific details of the contract.

You might buy an income annuity with assets from your 401(k) plan, or your plan may buy an income annuity on your behalf. In that case, the annuity provider guarantees an income that will satisfy your minimum required distribution.

Income FundIncome funds are mutual funds whose investment objective is to produce current income rather than long-term growth, typically by investing in bonds. The amount of income a fund may generate is related to the risk posed by the investments that the fund makes. A fund that buys lower-grade bonds will often pay more income than a fund buying investment-grade bonds. But under certain market conditions, the riskier fund may pay less or put your principal, or investment amount, at risk. http://www.securities.state.oh.us/Information/II2.html
Income in Respect of a DecedentAny income your beneficiary receives after your death that would have gone to you if you were still alive is described as income in respect of a decedent. One example is the income your beneficiary gets as a minimum required distribution from your 401(k) or IRA. In this case, your beneficiary pays tax on that income at his or her ordinary rate, as you would have.
IndexAn index reports changes, usually expressed as a percentage, in a specific financial market, in a number of related markets, or in an economy as a whole. Each index — and there are a large number of them — measures the market or economy it tracks from a specific starting point, which might be as recent as the previous day or many years in the past.

A market index may be calculated arithmetically or geometrically. That's one reason two indexes tracking similar markets may report different numbers. Further, some indexes are weighted and others are not. Weighting means giving more significance to some elements in the index than to others. For example, a market capitalization index weighs price changes in larger company stock prices more than price changes in smaller company stock. http://www.securities.state.oh.us/Information/II2.html

Index FundAn index mutual fund is designed to mirror the performance of a stock or bond index, such as Standard & Poor's 500-stock Index (S&P 500) or the Russell 2000 Index. To do that, the fund purchases all of the securities included in the index, or a representative sample of them and adds or sells investments only when the securities in the index are changed.

Each index fund aims to keep pace with its underlying index, not outperform it. This strategy can produce strong returns during a bull market, when the index reflects increasing prices. But it may produce disappointing returns during economic downturns, when an actively managed fund might take advantage of investment opportunities where and when they arise.

Because the typical index fund's broad based portfolio is not actively managed, most index funds have lower-than-average management costs and smaller expense ratios. However, not all index funds, even those tracking the same index, provide the same level of performance. http://www.securities.state.oh.us/Information/II2.html

Index OptionIndex options give investors the opportunity to hedge their portfolios or speculate on gains or losses in an industry group or a broader segment of the market. Since changes in an index are difficult to predict, index options tend to be volatile. And the more time there is until an index option expires, the more volatile the option tends to be.
Inefficient MarketWhen a market is described as inefficient, it means that investors do not know enough about the securities in that market to make informed decisions about what to buy or the price to pay. Markets in emerging nations may be inefficient, since few analysts follow the securities being traded there. Similarly, there can be inefficient markets for stocks in new companies, particularly those in new industries.
Inflation-Adjusted ReturnInflation-adjusted return is what you earn on an investment after accounting for the impact of inflation. For example, if you earn 7% on a bond during a period when the inflation rate averages 3%, your inflation-adjusted return is 4%. Inflation-adjusted return is also known as real return. Since inflation diminishes the buying power of your money, it's important that the rate of return on your overall investment portfolio be greater than the rate of inflation. That way, your money grows rather than shrinks in value over time.
Inflation-Indexed SecurityBonds and notes that promise your return will be higher than the rate of inflation if you hold them until maturity are known as inflation-indexed securities. Mutual funds that invest in these bonds and notes are described as inflation-indexed funds.
Initial Public Offering (IPO)When a company reaches a certain stage in its growth, it may decide to issue stock, or go public, with an initial public offering (IPO). The goal may be to raise capital, to provide liquidity for the existing shareholders, or a number of other reasons. Any company planning an IPO must register its offering with the Securities and Exchange Commission (SEC) and state securities regulators. In most cases, the company works with an investment bank, which underwrites the offering. That means buying all the shares at a set price and reselling them to the public with the expectation of making a profit.
Insider TradingWhen the management of a publicly held company, or members of its board of directors, or anyone else who holds more than 10% of the company, buys or sells its shares, the transaction is considered insider trading. This type of trading is perfectly legal, provided it's based on information available to the public. But insider trading is illegal if the buy or sell decision is based on knowledge of corporate developments, such as an executive change, an earnings report, or an acquisition or a takeover that has not yet been made public.
Institutional InvestorInstitutional investors buy and sell securities in large volume, typically 10,000 or more shares of stock, or $200,000 or more worth of bonds, in a single transaction. In most cases, the investors are organizations with large portfolios, such as mutual funds, banks, university endowment funds, insurance companies, pension funds, and labor unions. Institutional investors may trade their own assets, or assets that they are managing for other people.
Insured BondAn insured bond is a municipal bond whose interest and principal payments are guaranteed. Insurance not only protects municipal bondholders against default by a bond issuer, but also protects bonds against the possibility of downgrading by ratings agencies, which can decrease the market value of a bond. Insured bonds generally offer a slightly lower rate of interest than uninsured bonds.
Intermarket Trading System (ITS)The Intermarket Trading System (ITS) is a video-computer link between members of the National Market System (NMS), which was created in 1975 to carry out a congressional mandate to increase competition in securities trading. It connects National Association of Securities Dealers (NASD) market makers, and New York Stock Exchange (NYSE), American Stock Exchange (AMEX), and regional exchange specialists who make a market in the same security. The electronic system displays bid and ask prices for securities in each of the markets so that brokers are able to trade in the market where they can get the best price.
Intermediate-Term BondIntermediate-term bonds mature in two to ten years from the date of issue. Typically, the interest on these bonds is greater than that on short-term bonds of similar quality but less than that on comparably rated long-term bonds. The rule of thumb on bond interest is that the longer the term, the higher the interest the issuer must pay to attract investors.
International FundThis type of mutual fund invests in stocks, bonds, or cash equivalents that are traded in overseas markets, or in indexes that track international markets. Like other funds, an international fund has an investment objective and strategy, and poses some level of risk, including the risk that currency fluctuations can significantly affect the value of the fund.
Investment AdviserIn general, an investment adviser is a person who: (1) for compensation, (2) is engaged in the business of, (3) providing advice, making recommendations, issuing reports or furnishing analyses regarding securities, either directly or through publications. A person must satisfy all three of these elements in order to be an “investment adviser.” Either a natural person or a business entity can be an investment adviser. http://www.securities.state.oh.us/Information/advisorABC.aspx
Investment Adviser Registration Depository (IARD)An online, nationwide database containing information regarding the employment, qualification, and disciplinary histories of investment advisers and investment adviser representatives. The IARD is maintained by the National Association of Securities Dealers, Inc. and is available to securities regulators and the public. http://www.iard.com
Investment Adviser RepresentativeIn general, an investment adviser representative is a natural person who gives advice on behalf of an investment adviser to a certain minimum number of natural person clients through regular meetings or communications. http://www.securities.state.oh.us/Information/advisorABC.aspx
Investment BankAn investment bank is a financial institution that helps companies take new bond or stock issues to market, usually acting as the intermediary between the issuer and investors. Investment banks may underwrite the securities, for example, by buying all the available shares at a set price and then reselling them to the public. Or the banks may act as agents for the issuer and take a commission on the securities they sell.
Investment ClubIf you're part of an investment club, you and the other members jointly choose the investments the club makes and decide on the amount each of you will contribute to the club's account. Among the reasons that clubs are popular is that they allow investors to commit only modest amounts, share in a diversified portfolio, and benefit from each other's research.
Investment CompanyAn investment company is a firm that offers open-end funds, called mutual funds, closed-end funds, sometimes called investment trusts, or exchange traded funds to the public. http://www.securities.state.oh.us/Information/II2.html
Investment ObjectiveAn investment objective is a financial goal that helps determine the type of investments you make. For example, if you want to provide a source of regular income, you might select a portfolio of high-rated bonds and dividend-paying stocks. Each mutual fund describes its investment objective in its prospectus, along with the strategy the fund manager follows to meet that objective. Mutual fund investors often look for funds whose stated objectives are compatible with their own goals.
Investment-GradeMost U.S. corporate and municipal bonds are rated by independent services such as Moody's Investors Service and Standard & Poor's (S&P). The ratings are based on a number of criteria, including the likelihood that the corporation or agency issuing the bond will be able to make interest payments and repay the principal in full and on time. The four categories of bonds rated BBB and higher by S&P or Baa and higher by Moody's are considered investment grade. That means their issuers are likely to meet their obligations, exposing bondholders to minimal default risk.
IssueWhen a corporation offers a stock or bond for sale, or a government offers a bond, the security is known as an issue, and the company or government is the issuer.
Issued SharesThe number of shares of a company that are outstanding (held in someone other than the company’s name).
IssuerA person who issues and distributes its own securities.
Junk BondA high yield bond, rated BB or lower, that has a high risk of defaulting.
Large-Capitalization (Large-Cap) StockThe stocks of companies with market capitalizations of $5 billion or more are known as large-cap stocks. Market capitalization is figured by multiplying the number of existing shares by the current share price. Mutual funds that invest in this type of stock are known as large-cap funds. Large-cap stocks, which are tracked by Standard & Poor's 500-stock Index (S&P 500), are generally considered less volatile than stocks in smaller companies, in part because they have larger reserves to carry them through economic downturns. However, market capitalization is always in flux. Today's large-cap stock can become a small-cap stock if the share price plunges either in a general market downturn or as a result of internal problems. And the opposite is true as well, as the fairly recent growth of many of the country's largest companies demonstrates.
Late TradingLate trading typically involves investors buying shares of mutual funds they believe will rise the next day, based on information learned after 4 p.m. In such cases, investors are supposed to be charged a higher, next-day share price. Instead, with the help of a broker willing to break the law, late traders get the same-day lower price, enabling them to grab an easy and quick profit by selling the next day.
Level LoadSome mutual funds impose a recurring sales charge, called a level load, each year you own the fund rather than charging you to buy or sell shares. The level-load rate is generally lower than the rate the funds charge for front- or back-end loads. But the total amount you pay over time with a level load can be substantially more than a one-time charge, especially if you own the fund for a number of years. If a fund company offers you a choice of the way you prefer to pay, level-load funds are identified as Class C shares to distinguish them from front-end loads (Class A shares) and back-end loads (Class B shares).
LeverageLeverage is an investment technique in which you use a small amount of your own money to make an investment of much larger value. In that way, leverage gives you significant financial power. For example, if you borrow 90% of the cost of a home, you are using the leverage to buy a much more expensive property than you could have afforded by paying cash. And if you sell the property for more than you borrowed, the profit is entirely yours. Buying stock on margin is a type of leveraging, as is buying a futures contract or an option. Leveraging can be very risky, however, if the investment doesn't perform as you anticipate. At the very least, you risk losing your own money and must repay any money you borrowed. And with some leveraged investments, you could be responsible for even larger losses if the value of the underlying product drops significantly.
Leveraged BuyoutA leveraged buyout occurs when a group of investors using borrowed money, often raised with junk bonds or other kinds of debt, takes control of a company.
Life Settlement InterestThe entire or fractionalized interest in an insurance policy or benefit that is subject to an agreement to purchase, sell, assign, transfer, devise or bequest, any portion of the death benefit ownership in return for consideration or any other thing of value that is less than the expected death benefit. Also known as a “viatical.”
Lifecycle FundA lifecycle fund, sometimes called a fund of funds, is a package of individual mutual funds that a fund company puts together to help investors meet their objectives without having to select portfolios of funds on their own.
Limit OrderWhen you give your broker an order to buy or sell a stock when it reaches a certain price or better, it is called a limit order. For example, if you place a limit order to buy a certain stock at $25 a share when its current market price is $28 a share, your broker will not buy the stock until its share price is $25 or lower.
Limited PartnershipA limited partnership includes a general partner and a number of limited partners, that invests in a venture, such as real estate development or oil exploration, for financial gain. The arrangement can be public, which means you can buy into the partnership through a brokerage firm, or private. What makes it a limited partnership is that everyone but the general partner has limited liability. The most they can lose is the amount they invest.
Liquid AssetLiquid assets include cash, money in bank accounts, and investments that can be converted readily to cash with little loss of value. Money market mutual funds and U.S. Treasury bills are often described as liquid assets.
LiquidityIf you can convert an investment easily and quickly to cash, with little or no loss of value, you have liquidity.
Listed SecurityA listed security is a stock or bond that is traded on an organized exchange, such as the New York Stock Exchange (NYSE), or stock market, such as the Nasdaq Stock Market (Nasdaq). Being listed has advantages, including being part of an orderly and widely reported trading process that helps insure fairness and liquidity. To be listed, the security must qualify by meeting the requirements of the exchange or market where it wishes to be traded. For example, a stock typically must have a minimum market capitalization, a minimum number of existing shares, and a minimum per share price.
LoadIf you buy a mutual fund through a broker or other financial adviser, you often pay a sales charge or commission, also called a load. If the charge is levied when you purchase the shares, it's called a front-end load. If you pay when you sell shares, it's called a back-end load. And with a level load, you pay a percentage of your investment amount each year you own the fund. http://www.securities.state.oh.us/Information/II2.html
Loan NoteA loan note is a promissory agreement describing the terms of a loan and committing the signers to live up to those terms. For example, a mortgage loan note lists, among other things, the principal balance, the agreed-on interest rate, the discount points, a payment schedule and due date, and the penalties for violating the terms of the loan.
LongSignifies ownership of securities. If a person is long 100 shares of Microsoft shares, he has 100 shares of Microsoft.
Long PositionHaving a long position in a stock or bond means you have the right to collect the dividends or interest the security pays, the right to sell it or give it away when you wish, and the right to keep any profits if you do sell. The term long position is also used to describe stocks or bonds you own that are held by your brokerage firm in street name.
Long-Term DebtDebt that becomes due after more than one year.
Long-Term Equity Anticipation Security (LEAPS)These long-term options on stocks have expiration dates of two to five years rather than the shorter terms of most stock options. The advantage, from an investment perspective, is that you have more time for the price movement you anticipate to actually occur. However, LEAPS are available in fewer stocks than standard options are.
Long-Term Gain (or Loss)When you sell a capital asset, such as a security or real estate, that you have owned for more than a year, any money you make on the sale is considered a long-term capital gain. If you lose money on the sale, you have a long-term capital loss.
LoserStocks whose market prices drop the most during the trading day are described, rather bluntly, as “losers.” The stocks that lose the most value relative to their opening price are called percentage losers, and the stocks that lose the greatest number of points are called net losers or dollar losers.
Make a MarketA dealer who specializes in a specific security, such as a bond or stock, is said to make a market in the security. That means the dealer is ready to buy or sell the bond, or at least one round lot of the stock, at its publicly quoted price. Other dealers regularly turn to a market maker when they want to buy or sell that particular security. The overall effect of having multiple marketmakers in a particular security, which is typical of electronic markets such as the Nasdaq Stock Market (Nasdaq), is greater liquidity in the marketplace and, ideally, more competitive prices.
Managed AccountA managed account is a portfolio of stocks or bonds owned by an individual investor. The account has a professional investment manager who makes buy and sell decisions. Each managed account has an investment objective, and each manager oversees multiple individual accounts invested to meet the same objective.
Managed FundManagers of actively managed investment companies, or mutual funds, buy and sell investments to achieve a particular goal, such as providing a certain level of return or beating a relevant benchmark.
Management FeeA management fee is the percentage of your account value that an investment company or manager charges to handle your account. For example, if you invest in mutual funds offered through your 401(k), you'll pay management fees to the company that sponsors the funds.
ManipulationBuying or selling a security to create a false impression of active trading or to raise or lower prices to induce the purchase or sale by others. The practice of manipulating a stock is illegal.
MarginThe amount paid by an investor when he uses credit to buy a security, the balance being loaned by his broker.
Margin AccountIf you use a margin account to buy on margin or sell short, you pay interest on what you borrow but don't have to repay the loan until you sell the stock — ideally, at a large enough profit to cover the interest. If the value of the stock that you bought on margin or sold short declines, and you don't have enough assets in your account to cover the margin requirement, you may get a margin call from your broker.
Margin CallBuying on margin or selling short can be potentially profitable but also potentially risky. To protect themselves, brokers issue a margin call if your margin account falls below the required maintenance level or a specific percentage of its original value. The New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASD) set that requirement at 25%, and some brokerage firms make it 30%. You could get a margin call, for example, if the market price of the stock you bought on margin drops significantly. If you get a margin call, you must deposit additional money to meet the call, bringing the balance of the account back up to the margin required. Otherwise, your stock may be sold at a loss, and your broker repaid in full.

For example, if you buy 200 shares at $80 a share on margin, their value is $16,000. If the price drops to $20 a share, their value will be $4,000, which is below 30% of the original value. To meet your margin call, you would have to deposit an additional $800 to bring your account value up to $4,800, or 30% of $16,000.

You might get a margin call in other situations as well, such as when you sell stock short or when you day trade, if the value of your account drops below the required maintenance. If you purchase a futures contract with a percentage of the value of the contract, and the value of the contract drops, you will also get a margin call to add enough cash or securities to your account to bring it back to the required level.

Mark to the MarketWhen an investment is marked to the market, its value is adjusted to reflect the current market price. In the case of mutual funds, for example, marking to the market means that a fund's net asset value (NAV) is recalculated each day based on the closing prices of the fund's underlying investments.
MarkdownA markdown is the difference between the market price of a security and the price you receive if you sell that security to a broker-dealer in the over-the-counter (OTC) market. A markdown is comparable to the commission you would pay for selling the security through your broker, though the cost of the markdown, unlike a broker's commission, is not stated separately on a confirmation statement. A markdown is determined, in part, by the demand for securities of a certain type in the marketplace, since a broker-dealer may charge a smaller markdown if the security can be resold at a favorable markup. The term markdown also refers more generally to a price reduction on retail products and certain securities that a seller wants to unload and will sell at less than the original offering price.
MarketTraditionally, a securities market has been a place — such as the New York Stock Exchange (NYSE) — where securities are bought and sold. But in the age of electronic trading, the term market is also used to describe the organized activity of buying and selling securities, even if those transactions do not occur at a specific location. In that sense, the Nasdaq National Market (Nasdaq), the Nasdaq Small-Cap Market, and electronic communications networks (ECNs) are considered stock markets.
Market CapitalizationMarket capitalization is a measure of the value of a company, calculated by multiplying the number of existing shares, or shares the company has issued, by the current price per share. For example, a company with 100 million shares of stock with a current market value of $25 a share would have a market capitalization of $2.5 billion.
Market IndexA composite of stocks reflecting the market such as the Dow Jones.
Market MakerA dealer in an electronic market, such as the Nasdaq Stock Market (Nasdaq), who is prepared to buy or sell a specific security — such as a bond or at least one round lot of a stock — at its publicly quoted price, is called a market maker. Typically, there are several market makers in each security. On the floor of an exchange, such as the New York Stock Exchange (NYSE), however, the dealer who handles buying and selling a particular stock is called a specialist, and there is only one specialist in each stock. Brokerage firms that maintain an inventory of a particular security to sell to their own clients, or to brokers at other firms for resale, are also called market makers.
Market OrderAn order to purchase or sell stock at a current prices.
Market PriceA security's market price is the price at which it is currently selling on the exchange, market, or electronic communications network (ECN) where it is traded. A good indication of the market price of a stock selling on the New York Stock Exchange (NYSE) or the Nasdaq Stock Market (Nasdaq) is the last transaction price that's been reported.
Market TimingThis trading strategy aims for quick profits by taking advantage of short-term changes in securities prices. Market timers, sometimes known as day traders, trade electronically, trying to buy low and sell high by taking advantage of second-to-second or minute-to-minute changes in the financial marketplace, such as a forecast on interest rates or a sell-off in a particular market sector.
Market ValueThe market value of a stock or bond is the current price at which that security is trading. In a more general sense, if an item has not been priced for sale, its fair market value is the amount a buyer and seller agree upon, assuming that both know what the item is worth and neither is being forced to complete the transaction.
MarkupWhen you buy securities over-the-counter (OTC) from a broker-dealer's inventory, you pay a markup, typically a percentage of the selling price, over and above the amount it cost the broker-dealer to purchase the security. The amount of this markup, or spread, depends in part on the demand for that security or others like it. For example, if investors are buying up certain types of bonds, a broker-dealer may increase the markup for bonds in that category.
MaturityThe date on which bond becomes due and must be repaid or redeemed.
Maturity DateA bond comes due on its maturity date. On that date, the full face value of the bond (and sometimes the final interest payment) must be paid in full to the bondholder. Certificates of deposit (CDs) also have maturity dates on which you may withdraw the principal and interest without penalty or roll over the money into a new CD.
MergerWhen two or more independent companies pool their businesses by exchanging common stock, and the resulting single company continues to function, the combination is described as a merger.
Micro-Cap StockA micro-cap stock is one with a smaller market capitalization — sometimes much smaller — than stocks described as small-caps. (Market capitalization is figured by multiplying the current market value by the number of existing shares.) The cut-off for deciding that a stock belongs in one category or the other is arbitrary, though the capitalization thresholds currently being suggested for micro-caps range from $50 million to $150 million.

Micro-caps are not only the smallest of the publicly traded corporations, but they are also the most volatile, in part because they lack the reserves that may allow a larger company to weather rough periods. And, because there are generally relatively few shares of a micro-cap company in the market, a large transaction may affect the stock's price more noticeably than a similar transaction would affect the stock price of a larger company that had many more shares in the market. http://www.securities.state.oh.us/Information/II5.html

Mid-Capitalization (Mid-Cap) StockA mid-cap stock is issued by a corporation whose market capitalization is between $500 million and $5 billion.
Minority InterestAll shareholders whose combined shares represent less than half of the total existing shares issued by a corporation have a minority interest in that corporation. In fact, in many cases, the combined holdings of the minority shareholders are considerably less than half. In either case, it is difficult for minority shareholders, under normal circumstances, to have any real influence on corporate policy.
Momentum InvestingMomentum investing is essentially the opposite of contrarian investing. A momentum investor focuses on stocks that are rising in price, and avoids stocks that are falling in price or that are perceived to be undervalued. The logic is that when a pattern of growth has been established, the growth will continue.
Money Market FundMoney market mutual funds invest in stable, short-term debt securities, such as commercial paper, government bonds, and certificates of deposit (CDs), and try to maintain the value of each share in the fund at $1. Most funds offer check-writing privileges that do not trigger gains or losses, as writing a check against the value of a stock or bond fund would.

Tax-free money market funds invest in short-term municipal bonds and other tax-exempt debt. With a single-state fund, investors who reside in the state that issues the bonds the fund buys can enjoy triple tax-free earnings, which means they owe no local, state, or federal income tax on their interest earnings. While taxable funds offer a slightly higher yield than tax-free funds, you must pay income tax on all earnings distributions.

Unlike bank money market accounts, money market funds are not insured by the Federal Deposit Insurance Corporation (FDIC). However, since they are considered securities at most brokerage firms, they may be insured by the Securities Investor Protection Corporation (SIPC) against the bankruptcy of the firm. In addition, some funds offer private insurance comparable to FDIC coverage. http://www.securities.state.oh.us/Information/II2.html

Moody's Investors Service, Inc.Moody's is a financial services company best known for rating bonds, common stocks, and other investments, including commercial paper, municipal short-term bonds, preferred stocks, and annuity contracts. Its bond rating system, which assigns a grade from Aaa through C3 based on the financial condition of the issuer, has become a world standard.
Mortgage-Backed SecurityMortgage-backed securities are sold by a government agency such Ginnie Mae — the Government National Mortgage Association — or by publicly held corporations such as Fannie Mae and Freddie Mac. The bonds are created when the sponsor buys up mortgages from lenders and packages them for sale to the public. The money raised by selling the bonds is used to buy additional mortgages, making more money available to lend.
Moving AverageA moving average of securities prices is an average that is recomputed regularly by adding the most recent price and dropping the oldest one. For example, if you looked at a 365-day moving average on the morning of June 30, the most recent price to be included would be for June 29, and the oldest one would be for June 30 of the previous year. The next day, the most recent price would be for June 30, and the oldest one for the previous July 1.
Moving-Average ChartA chart setting out the trend of a stock's average price over a period of time calculated by adding up the market prices of the stock over a number of days and then dividing by that same number of days.
MultipleA stock's multiple is its price-to-earnings ratio (P/E). It's figured by dividing the market price of the stock by its earnings — either the actual earnings for the past four quarters (called a trailing P/E) or actual figures for the past two quarters plus an analyst's projection for the next two (called a forward P/E). Investors use the multiple as a way to assess whether the price they are paying for the stock is justified by its earnings potential. The higher the multiple they are willing to accept, the higher their expectations for the stock. However, some experts point out that when the multiple is too high, it's almost impossible for the stock to meet investors' expectations.
Municipal Bond (Muni)Munis are debt securities issued by state or local governments or their agencies to finance general governmental activities or special projects, such as the construction of highways or hospitals. The interest on a muni is usually exempt from federal income taxes, and is also exempt from state and local income taxes, provided you live in the state where it was issued. Any capital gains you realize from selling a muni are taxable. Although munis generally pay interest at a lower rate than similarly rated commercial of the same term, they appeal to investors in the highest tax brackets, who benefit most from the tax-exempt income.
Municipal Bond FundMunicipal bond mutual funds invest in municipal bonds. Earnings from these funds are always free of federal income tax for all shareholders in the fund.
Mutual FundGenerally, a mutual fund is a professionally managed investment that sells shares to investors and pools the capital it raises to purchase stocks, bonds, or money market securities, depending on the investment objectives of the fund. The fund will also buy any shares an investor wishes to redeem, or sell back. Because most mutual funds hold a large number of securities, they offer investors the opportunity to diversify, as well as the benefits of portfolio management. Load funds — those that charge sales fees — are sold through brokers or other financial advisors. No-load funds, which don't charge sales fees (but may pass on other marketing expenses to shareholders through 12b-1 fees) are sold directly to investors. All mutual funds charge management fees, though at different rates, and they may also levy other fees and charges. Details of a fund's objective, management, and expenses are spelled out in its prospectus. Make sure you request a copy of a mutual fund’s Statement of Additional Information (also known as Part B to the prospectus or SAI). http://www.securities.state.oh.us/Information/II2.html
Naked OptionWhen you write, or sell, a call option but don't own the underlying instrument, such as a stock, the option you're writing is described as naked. Because you collect a premium when you sell the option, you can make a profit if the underlying instrument performs as you expect, and the option isn't exercised. The risk you run, however, is that the option holder will exercise the option, and you'll have to buy the instrument at the market price in order to meet your obligation to sell. If that price has moved in the opposite direction from the one you expected — specifically if it has gone up instead of remaining steady or going down — buying could cost you a substantial amount of money, and you could have a net loss.
NASDAQNASDAQ, or the National Association of Securities Dealers Automated Quotation system, is a computerized stock trading network that allows brokers to get price quotations for stocks being traded electronically or sold on the floor of a stock exchange.
Nasdaq Composite IndexThis index tracks the prices of all of the securities traded on the Nasdaq Stock Market (Nasdaq), which in one way makes it a broader measure of market activity than the Dow Jones Industrial Average (DJIA) or Standard & Poor's 500-stock Index (S&P 500). On the other hand, since so many computer, biotechnology, and telecommunications companies are listed on the Nasdaq, the movement of the index is heavily influenced by what's happening in those sectors. The index is market capitalization weighted, which means that companies whose market values are higher exert greater influence on the index. Market capitalization, or value, is computed by multiplying the total number of existing shares by the most recent sales price. So, for example, if a stock with 1 million shares increases $3 in value, it has a greater impact on the changing value of the index than a stock that also increases $3 in value but has only 500,000 shares. The index is updated throughout the trading day.
Nasdaq Stock Market (Nasdaq)The Nasdaq Stock Market is the world's oldest and largest electronic stock market. It has two divisions, the National Market and the Small-Cap Market. The most active stock market in the nation, the Nasdaq lists many emerging companies as well as some industry giants, especially in computers, technology, and telecommunications. Stocks traded on the National Market must meet specific listing criteria for market capitalization and trading activity. Listing requirements for the Small-Cap Market, which specializes in smaller, newer companies, are less stringent.
National Association of Securities Dealers (NASD)NASD is a self-regulating securities industry association that was established in 1938 to protect the interests of investors. The NASD derives its authority from the Securities and Exchange Commission. Through its subsidiary, NASD Regulation, Inc., it sets standards and establishes rules for the way the Nasdaq Stock Market and NASD members, including more than 5,000 firms and 650,000 people, operate. NASDR has the authority to discipline members who violate the association's regulations. Another subsidiary, NASD Dispute Resolution, Inc., works to resolves complaints investors file against brokerage firms. The NASD is now known as FINRA or Financial Industry Regulatory Authority. http://www.finra.org
National Association of Securities Dealers AutomatNASDAQ is a computerized stock trading network that allows brokers to get price quotations for stocks being traded electronically or sold on the floor of a stock exchange.
National Market System (NMS)The NMS links all the major stock markets in the U.S. and was developed to foster competition among them. Its electronic Intermarket Trading System (ITS) displays current bid and ask prices for stocks on each of those markets so that brokers can execute trades on any market where a stock is listed. Brokers can often get a better price or a faster turnaround on one market than on another, depending on the volume of trading or the size of the trade.
National Quotation BureauEvery trading day, this subscription service publishes bid and ask prices for over-the-counter (OTC) stocks and bonds that don't meet the listing requirements of the Nasdaq National Market (Nasdaq) or the Nasdaq Small-Cap Market. The Bureau gathers its information from market makers in these securities and prints the stock data on distinctively colored paper: pink sheets for stocks and yellow sheets for bonds. The same information, updated continuously throughout the trading day, is available electronically on the NQB website.
Net Asset Value (NAV)The NAV is the dollar value of one share of a mutual fund. It is calculated by totaling the value of all the fund's holdings and dividing by the number of outstanding shares. That means the NAV changes regularly, though day-to-day changes are usually small.
Net ChangeEach trading day, the difference between the closing price of a stock, bond, or mutual fund, or the last price of a commodity contract, and the closing price on the previous day is reported as net change, sometimes simply as change. When a stock has gained in value, the positive net change is expressed with a plus sign and a number, such as +0.50, meaning that the price was up 50 cents from the previous trading day. On days that a stock falls, the negative net change is expressed with a minus sign and a number, such as -1, meaning that the price was a dollar lower. You can find net change information in the financial pages of newspapers and on financial websites.
Net WorthA corporation's net worth, also known as shareholder's equity, is figured by adding retained earnings, which is the amount left after dividends are paid, to the money in the corporation's capital accounts, and then subtracting all of its short- and long-term debt. Net worth figures are included in the corporation's 10-K and annual reports.

To figure your own net worth, you add the value of the assets you own (securities, personal property, real estate) and then subtract your liabilities, or what you owe in loans and other obligations. If your assets are larger than your liabilities, you have a positive net worth. But if your liabilities outweigh your assets, you have a negative net worth.

New IssueWhen a stock or bond is offered for sale for the first time, it's considered a new issue. New issues can be the result of an initial public offering (IPO), when a private company goes public, or they can be additional, or secondary, offerings from a company that's already public. For example, a public company may sell bonds from time to time to raise capital. Each time a new bond is offered, it's considered a new issue.
New York Stock Exchange (NYSE)The NYSE is the largest equity exchange in the world. Founded in 1792, it adopted its constitution in 1817 and its current name in 1863. The NYSE has a global market capitalization of over $15 trillion. Common and preferred stock, bonds, warrants, and rights are all traded on the NYSE, which is also known as the Big Board.
New York Stock Exchange Composite IndexThis index tracks the market value of all the common stocks listed on the New York Stock Exchange (NYSE). The index is market capitalization weighted, which means that companies with the greatest market value, based on their most recent market prices multiplied by the number of their existing shares, have a greater impact on the movement of the index than companies with fewer shares or lower prices.
No Par ValueA share that has no stated face value.
No-Load FundA mutual fund that does not levy a charge or a fee for buying or selling its units. Just because a fund does not carry a load does not mean there are no fees. http://www.securities.state.oh.us/Information/II2.html
Non-CallableWhen a bond is non-callable, the issuer cannot redeem it before the stated maturity date. Some bonds have call protection for their full term, and others for a fixed period — often 10 years. The appeal of a non-callable bond is that the issuer will pay interest at the stated coupon rate for the bond's full term. In contrast, if a bond is called, you receive a lump-sum repayment of principal, which you must reinvestment.
Non-Competitive BidInvestors who can't or don't wish to meet the minimum purchase requirements for competitive bidding on Treasury bills or notes may enter a non-competitive bid, also known as a non-competitive tender. You can invest as little as $1,000 or as much as $1 million in each new issue through Treasury Direct, a system that allows you to buy government securities without going through a bank or a brokerage firm. The Treasury sells T-bills, for example, to all buyers whose bids arrive by the weekly deadline, for a price equal to what competitive bidders pay for that week's issue.
Non-CumulativeA preferred dividend that does not accrue if not paid in any year.
Nonbank BanksNonbank banks, also called limited-service banks, offer some but not all of the services of a traditional commercial bank. They are typically owned by companies, including bank holding companies, insurance companies, brokerage firms, and retail stores, that want to provide financial services without being limited by the regulations that govern traditional banks, such as restrictions on interstate and branch banking.

Many of the nonbanks themselves, however, are insured by the Federal Deposit Insurance Corporation (FDIC) and are subject to the same reserve requirements and examinations as regular banks. Opponents of nonbanks believe they drain financial resources away from small towns to big cities in other states and undermine the nation's decentralized banking system.

North American Securities Administrators Association (NASAA)NASAA is on organization whose membership consists of government securities regulators and whose mission is investor protection. www.nasaa.org
NoteA note is a debt security that promises to pay interest during the term that the issuer has use of the money, and to repay the principal on or before the maturity date. http://www.securities.state.oh.us/Information/Promissorynote.pdf
Notice FilerA person who submits a filing to a state securities regulator only for the purpose of notifying the regulator of the notice filer’s presence in the state. A notice filer does not seek “approval” to conduct business.
Notice of Opportunity For a Hearing (NOH)A Notice of Opportunity for Hearing (NOH) details allegations by the Division against a person for violation(s) of the Ohio Securities Act and gives the person notice of the right to an administrative hearing before a final order is issued.
Odd LotThe purchase or sale of stocks in quantities of fewer than 100 shares is considered an odd lot. If you buy or sell odd lots, you may pay a slightly higher commission than someone trading round lots, or multiples of 100.
Offering PriceWhen a security, such as a stock, is offered for sale to the public for the first time, or a publicly traded company issues new shares, the initial price per share is set by the underwriter. That price is known as the offering price or the public offering price. When the stock begins to trade, its market price may be higher or lower than the offering price. In the case of open-end mutual funds, the offering price is the price per share of the fund that you pay when you buy. If it's a no-load fund, a back-end load Class B fund, or a level-load Class C fund, the offering price and the net asset value (NAV) are the same. If it's a front-end load Class A fund, the sales charge is added to the NAV to arrive at the offering price.
Offshore FundAn offshore fund is a mutual fund that’s sponsored by a financial institution that’s based outside the U.S. Unless the fund meets all of the regulatory requirements imposed on domestically sponsored funds, it can’t be sold in the U.S. However, an offshore fund — and there are approximately four times as many of them as there are U.S.-based funds — may be sponsored by an overseas branch of a U.S. institution, may invest in U.S. businesses, and may be denominated, or offered for sale, in U.S. dollars.
Online Brokerage FirmTo buy and sell securities over the Internet, you can set up an account with an online brokerage firm. The firm executes your orders and confirms them electronically, though you may have to mail the firm a check to settle your transaction. Some online firms are divisions of traditional brokerage firms, while others operate exclusively in cyberspace. Most of them charge much smaller commissions than conventional firms, and most provide extensive investment information, including regularly updated market news, on their websites.
Online TradingIf you trade online, you use a computer and an Internet connection to place your buy and sell orders with an online brokerage firm. While the orders you give online are executed while the markets are open, you have the option of placing orders at your convenience, outside of normal trading hours. While online trading may become even more common in the future, especially if after-hours trading and electronic communications networks (ECNs) gain popularity, there are a number of issues to be resolved. These include, for example, the responsibility of online brokerage firms to monitor trades by inexperienced or over-zealous investors to prevent major losses resulting from inappropriate buy and sell decisions, the need to keep and provide accurate records of all trades, and difficulties associated with communicating trades electronically including computer’s freezing, locking up, or otherwise experiencing difficulties during a transaction. http://www.securities.state.oh.us/Information/10_Tips_Final.pdf; http://www.securities.state.oh.us/Information/CyberFraud.aspx
Open MarketIn an open market, any investor with the money to pay for securities is able to buy those securities. U.S. markets, for example, are open to all buyers. In contrast, a closed market may restrict investment to citizens of the country where the market is located. Closed markets may also limit the sale of securities to overseas investors, or forbid the sale of securities in specific industries to those investors. In some countries, for example, overseas investors may not own more than 49% of any company, while in others, overseas investors may not invest in banks or other financial services companies.
Open OrderAn order to a broker to buy or sell shares that is good until it is canceled or executed.
Open OutcryExchange-based commodities traders may shout out their buy and sell orders. When someone who shouts an offer to buy and someone who shouts an order to sell name the same price, a deal is struck, and the trade is recorded. This interaction is described as open outcry.
Open-End FundAn open-end mutual fund that is constantly issuing and redeeming its units thereby having a varying number of outstanding units each day. Most mutual funds are open-ended. http://www.securities.state.oh.us/Information/II2.html
OpeningThe first transaction in each security or commodity when trading begins for the day occurs at what's known as its opening, or opening price. Sometimes the opening price on one day is the same as the closing price the night before. But that's not always the case, especially with stocks or contracts that are actively traded in the after-hours markets.
OptionBuying an option gives you the right to buy or sell a specific financial instrument at a specific price, called the strike price, during a preset period of time. In the U.S., you can buy or sell options on individual stocks, stock indexes, futures contracts, currencies, and Treasury security interest rates.
Option ChainOption chains are charts showing the latest price quotes for all of the contracts on a particular stock option as well as the most recent quote for the underlying stock. Because all of this information is available in one place, option chains allow you to assess the market for a particular option quickly and easily. They're a popular feature of online trading and financial information sites.
Option PremiumWhen you buy an option, you pay the seller a non-refundable amount, known as the option premium, for the right to exercise that option before it expires. If you sell an option, you receive a premium from the buyer.
Options Clearing Corporation (OCC)The Options Clearing Corporation issues all exchange-listed securities options and handles the processing, delivery, and settlement of all options transactions. The OCC, which is responsible for maintaining a fair and orderly market in options, is overseen by the Securities and Exchange Commission (SEC) and is jointly owned by each of the four exchanges that trade options: The American Stock Exchange, the Chicago Board Options Exchange, the Pacific Exchange, and the Philadelphia Stock Exchange.
Original Issue DiscountA bond or other debt security that is issued at less than par value but redeemed for full par value at maturity is an original issue discount.

The appeal, from an investor's perspective, is being able to invest less up front while anticipating full repayment later on. Issuers like these securities as well because they don't have to pay periodic interest. Instead, the interest accrues during the term of the bond so that the total interest when combined with the principal equals the full par value at maturity. Zero coupon bonds are a popular type of original issue discount security.

OTC Bulletin Board (OTCBB)During the trading day, the electronic OTC bulletin board (OTCBB) provides continuously updated real-time bid and ask prices, volume information, and last-sale prices for U.S. and overseas stocks, warrants, unit investment trusts, American Depositary Receipts (ADRs), and Direct Participation Programs (DPPs) that are not listed on an organized market but are being traded over-the-counter (OTC). Approximately 3,600 companies are tracked on the OTCBB.
Out of the MoneyIn the options market, you are out of the money when the market price of an instrument on which you hold an option is not close to the strike price. In the case of call options — which you buy when you think the price is going up — you're out of the money when the price is below the strike price. And in the case of put options — which you buy when you think the price of the underlying instrument is going down — you're out of the money when the price is higher than the strike price.
Outstanding SharesThe number of shares of stock that a corporation has issued are described as its outstanding or existing shares.
Over-the-Counter (OTC)Stocks trade over-the-counter (OTC) when they are not listed on an organized stock exchange, such as the New York Stock Exchange (NYSE), or electronic stock market, such as the Nasdaq Stock Market (Nasdaq). Government and municipal bonds (munis) are also traded OTC. In actual practice, OTC trading is handled by broker-dealers using telephone and computer networks.
Over-the-Counter MarketA securities market established for securities not listed on stock exchanges.
OverboughtWhen a stock, or a securities market as a whole, rises so steeply in price that technical analysts think that buyers are unlikely to push the price up further, the analysts consider the stock or the market to be overbought. For these analysts, an overbought market is a warning sign that a correction — or rapid price drop — is likely to occur.
OversoldA stock, a market sector, or an entire market may be described as oversold if it drops suddenly and dramatically in price, despite the fact that the country's economic outlook remains positive. For technical analysts, an oversold market is poised for a price rise, since there would be few sellers left to push the price down further.
OvervaluationA stock whose price seems unjustifiably high based on standard measures, such as its earnings history, is considered overvalued. One indication of overvaluation is a price-to-earnings ratio (P/E) significantly higher than average for the market as a whole or for the industry of which the corporation is a part. The consequence of overvaluation is usually a drop in the stock's price — sometimes a rather dramatic one.
Paper ProfitAn unrealized profit on a security still held. The profit only becomes realized with the security is sold.
Par ValueThe face value of a bond, preferred shares or common shares. Also known as the denomination or face value.
Pass-Through SecurityWhen institutions such as Fannie Mae or Freddie Mac buy mortgages from lenders and package them as securities for resale to investors, they create pass-through securities. The regular payments of interest and return of principal on the original loans are funneled, or passed through, to the investors by the banks that made the loans and the institution that packaged them for sale.
Payout RatioA payout ratio is the percentage of a company's net earnings that is distributed to its shareholders as dividends.
Penny StockStocks that trade for less than $1 a share are often described as penny stocks. Penny stocks change hands over-the-counter (OTC) and tend to be extremely volatile. Their prices may spike up one day and drop dramatically the next, reflecting the unsettled nature of the companies that issue them and the relatively small number of shares in the marketplace. While some penny stocks may produce big returns over the long term, many turn out to be worthless. Institutional investors tend to avoid penny stocks, and brokerage firms typically warn individual investors of the risks involved before handling transactions in these stocks. However, penny stocks are sometimes marketed aggressively to unsuspecting investors.
Piggy Back WarrantsA second series of warrants acquired by holders on exercise of warrants sold as part of a unit.
Pink SheetPink Sheets LLC is a centralized information network that provides current prices and other financial information in both print and electronic formats to the over-the-counter (OTC) securities markets. Its Electronic Quotation Service reports real-time OTC equities and bonds quotations to market makers and brokers, and its website provides a broad range of historical and current data. The name derives from the pink paper on which the National Quotation Bureau originally printed information on OTC stocks. Comparable information on OTC bonds was printed on yellow paper.
Ponzi SchemeA “Ponzi” scheme works on the “rob Peter-to-pay-Paul” principle. In other words, money from new investors is used to pay off earlier investors until the entire scheme collapses from lack of funds. Characteristics of Ponzi schemes include:
  1. Promises of large returns on investments;
  2. “Can’t lose” promises; and
  3. Payments made to early investors to “prove” the scheme is legitimate. These early investors “sing the praises” of the seemingly legitimate scheme and are known as “songbirds.”
PortfolioIf you own more than one security, you have an investment portfolio. You build the portfolio by buying additional stocks, bonds, mutual funds, or other investments. Your goal is to increase the portfolio's value by selecting investments that you believe will go up in price. You can reduce your investment risk by creating a diversified portfolio that includes enough different types, or classes, of securities so that at least some of them may produce strong returns in any economic climate.
Portfolio TurnoverPortfolio turnover is the rate at which a mutual fund manager buys or sells securities in a fund, or an individual investor buys and sells securities in a brokerage account. A rapid turnover rate, which frequently signals a strategy of capitalizing on opportunities to sell at a profit, has the potential downside of generating short-term capital gains. That means the gains are usually taxable as ordinary income rather than at the lower long-term capital gains rate. Rapid turnover may also generate higher trading costs, which can reduce the total return on a fund or brokerage account. As a result, you may want to weigh the potential gains of rapid turnover against the costs, both in your own buy and sell decisions and in your selection of mutual funds. You can find information on a fund's turnover rate in the fund's prospectus.
Positive Yield CurveWhen the interest rate on a long-term bond is higher than the interest rate on a shorter-term bond of the same quality, the relationship between the two, called the yield curve, is positive. That's the norm, since if you're tying up your money for an extended period, you want to earn more than someone who is investing for just a few months. When the reverse is true, and interest rates on short-term investments are higher than the rates on long-term investments, the yield is negative, or inverted. That typically occurs if inflation spikes after a period of relatively stable growth or if the economic outlook is uncertain.
Preferred StockSome corporations issue preferred as well as common stock. Preferred stocks can be attractive because they often pay a fixed dividend on a regular schedule, and their share prices tend to remain stable. They also take precedence over common stocks if the issuing corporation liquidates, or sells, its assets to repay its creditors and investors. What preferred stock doesn't generally offer is the opportunity to share in the corporation's potential for increased profits, which are reflected in higher prices for the common stock and sometimes an increased dividend payment. One category of preferred shares, called convertible preferred shares, can be exchanged for a specific number of common shares at an agreed-upon price, similar to the way that a convertible bond can be exchanged for common stock.
PremiumWhen used in connection with investments, the term premium usually describes the amount you pay for a security over its stated value, or the amount you collect over the stated value when you sell. For example, if you sell a bond with a face value of $1,000 for $1,200, you collect a premium of $200.
PrerefundingWhen a corporation plans to redeem a callable bond on the first date the bond can be called, it typically issues a second bond and invests the income it receives from that sale in safe investments, such as US Treasury notes. The specific securities are chosen because their maturity dates correspond to the date on which the company will need the money to redeem the first bond. This process is called prerefunding, and the bond to be called is identified as a prerefunded bond.
Price, 52 Week HighThe highest price the stock traded at in the last 12 months.
Price, 52 Week LowThe lowest price the stock traded at in the last 12 months.
Price-to-Earnings Ratio (P/E)The P/E is the relationship between a company's earnings and its share price, and is calculated by dividing the current price per share by the earnings per share. A stock's P/E, also known as its multiple, gives you a sense of what you are paying for a stock in relation to its earning power. For example, a stock with a P/E of 30 is trading at a price 30 times higher than its earnings, while one with a P/E of 15 is trading at 15 times its earnings.
Primary MarketIf you buy stocks, bonds, futures contracts, or options when they are initially offered for sale, and the money you spend goes to the issuer, you are buying in the primary market. In contrast, if you buy a security that's already on the market, and the amount you pay goes to an investor who is selling the security, you're buying in the secondary market.
Prime Bank Fraud Some con artists lure innocent investors with the promise of astronomical profits and the chance to be part of an exclusive, international investing program. These fraudulent schemes involve the purported issuance, trading, or use of so-called "prime" bank, "prime" European bank or "prime" world bank financial instruments, or other "high yield investment programs" ("HYIP"s). The con artists who promote these schemes often use the word "prime" – or a synonymous phrase, such as "top fifty world banks" – to cloak their programs with an air of legitimacy. They seek to mislead investors by suggesting that well regarded and financially sound institutions participate in these bogus programs. But prime bank and other related schemes have no connection whatsoever to the world's leading financial institutions or to banks with the word "prime" in their names. http://www.com.state.oh.us/press1/02releases/sc0117.htm
PrincipalPrincipal can refer to an amount of money you invest, the face amount of a bond, or the balance you owe on a debt, aside from the interest. The principal is also a person for whom a broker carries out a trade, or a person who executes a trade on his or her own behalf.
Private CorporationA corporation which does not offer it shares stock for public sale and only traded or sold privately.
Private PlacementSale of securities to a relatively small number of qualified individuals or institutions who intend to hold the securities for investment purposes.
PrivatizationPrivatization is the conversion of a government-run enterprise to one that is privately owned and operated. The conversion is made by selling shares to individual or institutional investors.
Profit TakingSelling a stock to take a profit.
Program TradingNormally used by institutional investors and arbitrageurs, program trading is the purchase or sale of a basket, or group, of 15 or more stocks with the combined value of $1 million at the same time. In some cases, programmed trades are triggered automatically when prices hit predetermined levels.
Promissory NotePromissory notes are a form of debt that is similar to a loan or even an IOU. Promissory notes are securities. Unfortunately, many scams involve promissory notes and Ohioans have lost millions of dollars to con artists selling promissory notes. Promissory notes can be a legitimate investment, but remember: there is a risk. Companies issue these notes to finance any aspect of their business, from launching new products to repaying more expensive debt. In return for the loan, companies agree to pay investors a fixed return over a set period of time. http://www.securities.state.oh.us/Information/Promissorynote.pdf
Proprietary FundProprietary mutual funds are offered for sale by the financial institution — such as a bank, investment company, or brokerage firm — that sponsors the funds. Characteristically, the funds' names include the name of the institution. For example, a hypothetical bank called Last Bank might offer a Last Bank Growth Fund or a Last Bank Capital Appreciation Fund. Some institutions market only their proprietary funds, while others offer both their own funds and funds sponsored by others.
ProspectusGenerally, a prospectus is a formal written offer to sell stock to the public and is designed to help investors make informed investment decisions. It is created by, or on behalf of, the issuer. The prospectus sets forth the business strategies, financial background, products, services, and management of the issuing company, as well as information about how the proceeds from the sale of the securities will be used.
ProxyWritten authorization given by a shareholder to someone else who need not be a shareholder to represent him and vote his shares at a shareholders’ meeting.
Public CompanyThe stock of a public company is owned and traded by individual and institutional investors. In contrast, in a privately held company, the stock is held by company founders, employees, and sometimes venture capitalists. Many privately held companies eventually go public to help raise capital to finance growth.
Pump and Dump"Pump and dump" schemes, also known as "hype and dump manipulation," involve the touting of a company's stock through false and misleading statements to the marketplace. After pumping up the reputation or investment worthy “value” of the stock, fraudsters make huge profits by selling their cheap stock into the market.

Pump and dump schemes often occur on the Internet where it is common to see messages posted that urge readers to buy a stock quickly or to sell before the price goes down, or a telemarketer will call using the same sort of pitch. Often the promoters will claim to have "inside" information about an impending development or to use an "infallible" combination of economic and stock market data to pick stocks. In reality, they may be company insiders or paid promoters who stand to gain by selling their shares after the stock price is "pumped" up by the buying frenzy they create. Once these fraudsters "dump" their shares and stop hyping the stock, the price typically falls, and investors lose their money. http://www.securities.state.oh.us/Information/II5.html

Put OptionThe right given to a buyer to sell stock at a specified price within a specified period of time
Pyramid SchemePyramid schemes operate on the principle that each member of a group will receive a profit or “cut” for recruiting others to join the scheme. The hallmark of an illegitimate sales service or pyramid scheme is that participants receive payment for recruiting a new member rather than for selling products.
Qualitative AnalysisWhen a securities analyst evaluates intangible factors, such as the integrity and experience of a company's management, the positioning of its products and services, or the appeal of its marketing campaign, that seem likely to influence future performance, the approach is described as qualitative analysis. While this type of evaluation is more subjective than quantitative analysis — which looks at statistical data — advocates of this approach believe that success or failure in the corporate world is often driven as much by qualitative factors as by financial data.
Quantitative AnalysisWhen a securities analyst focuses on a corporation's financial data in order to project potential future performance, the process is called quantitative analysis. This methodology involves looking at profit-and-loss statements, sales and earnings histories, and the statistical state of the economy rather than at more subjective factors such as management experience, employee attitudes, and brand recognition. While some people feel that quantitative analysis by itself gives an incomplete picture of a company's prospects, advocates tend to believe that numbers tell the whole story.
QuarterThe financial world splits up its calendar into four quarters, each three months long. If January to March is the first quarter, April to June is the second quarter, and so on, though a company's first quarter does not have to begin in January. The Securities and Exchange Commission (SEC) requires all publicly held U.S. companies to publish a quarterly report, officially known as Form 10-Q, describing their financial results for the quarter. These reports and the predictions that market analysts make about them often have an impact on a company's stock price.
Quasi-Public CorporationIn the U.S., quasi-public corporations have links to the federal government although they are technically in the private sector. That means that their managers and executives work for the corporation, not the government. And, in many cases, you can buy stock in a quasi-public corporation, expecting to share in its profits. Many quasi-public corporations were originally federal agencies that have been privatized. Among the best known are Fannie Mae, Freddie Mac, and Sallie Mae. They securitize consumer loans and sell them in the secondary market. The U.S. Postal Service is also a quasi-public corporation, as is the Tennessee Valley Authority (TVA).
QubesThe Nasdaq National Market (Nasdaq) sells shares in a unit investment trust (UIT) that tracks the Nasdaq 100 Stock Index. This market capitalization weighted index includes the largest 100 companies trading on the Nasdaq, most of them technology companies, and is adjusted quarterly to keep it focused on the strongest performers. The name Qubes comes from the UIT's trading symbol: QQQ. Qubes resemble Standard & Poor's Depositary Receipts (SPDRs), which reflect the performance of the Standard & Poor's 500-stock Index (S&P 500) and the Diamonds Trust (DIA), which tracks the Dow Jones Industrial Average (DJIA). These investments are sometimes grouped together as exchange-traded funds.
Quotation (Quote)On a stock market, a quotation combines the highest bid to buy, and the lowest offer to sell, a stock. For example, if the quotation on Daveco stock is "20 to 20.07," it means that the highest price that's been offered is $20, and the lowest price that any seller wants to take is $20.07.
RallyAn improvement in the market following a decline; the opposite of a reaction.
RangeThe high and low prices, or high and low bids and offers, recorded during a specified time (i.e. daily, weekly, yearly).
Rate of ReturnThe rate of return is your annual income on an investment. With a stock, this income is calculated as dividend yield, or your annual dividend divided by the price you paid for the stock. In the case of bonds, return is the yield, or the annual interest you receive, divided by the price you paid for the bond. For example, if you paid $900 for a bond with a par value of $1,000 that pays 6% interest, your rate of return is $60 divided by $900, or 6.67%.
Rating ServiceA rating service, such as Moody's or Standard & Poor's, evaluates bond issuers to determine the level of risk they pose to would-be investors. Though each rating service focuses on somewhat different criteria in making its evaluation, the assessments tend to agree on which investments pose the least risk and which pose the most.
ReactionA decline in the market following a price upswing. The opposite of rally.
Real Estate Investment Trust (REIT)REITs are publicly traded companies that pool investors' capital to invest in a variety of real estate ventures, such as apartment and office buildings, shopping centers, medical facilities, industrial buildings, and hotels. After a REIT has raised its investment capital, it trades on a stock market just as a closed-end mutual fund does.
Real Rate of ReturnThe rate of return on an investment minus the rate of inflation gives you a real rate of return. For example, if you are earning 6% interest on a bond in a period when inflation is running at 2%, your real rate of return is 4%, which is large enough to increase your buying power. But if inflation were at 4%, your real rate of return would be only 2%.
Realized GainWhen you sell an investment for more than you paid, you have a realized gain. For example, if you buy a stock for $20 a share and sell it for $35 a share, you have a realized gain of $15 a share. In contrast, if the price of the stock increases, and you don't sell, your gain is unrealized, or a paper profit. Realizing your gains means you lock in any increase in value, which could potentially disappear if you continued to hold the investment. But it also means you may owe tax on that profit unless the investment is tax exempt or you hold it in a tax-deferred account when you sell. In the latter case, you can postpone paying the tax until you begin withdrawing from the account.
RecissionGenerally, with regard to transactions involving securities, the right of a purchaser to cancel or void a transaction upon certain non-compliant acts by the selling party.
Record DateTo be paid a stock dividend, you must own the stock on the day that the corporation's board of directors names as the record date, also known as the date of record. For example, if a company declares a dividend of 50 cents a share payable on September 1 to shareholders of record as of August 10, you have to own the shares on August 10 to be entitled to the dividend. Any shares bought between the record date and the day on which the dividend is paid are ex-dividend, which means those new owners will get no dividend for the period.
Red HerringWhen a security is offered to the public for the first time, the underwriter prepares a preliminary prospectus, called a “red herring.” While the name may refer to the parts of the document printed in red ink, the implication is that the document is an attempt to present the company in the best possible light. Although the preliminary prospectus contains important information about the company, its offerings, financial projections, and investment risk, it is frequently revised before the final version is issued.
RedemptionWhen a fixed-income investment matures, and you get your investment amount back, the repayment is known as redemption. Bonds are usually redeemed at par, or face value (traditionally $1,000 per bond). However, if a bond issuer calls the bond, or pays it off before maturity, you may be paid a premium, or a certain dollar amount over par, to compensate you for lost interest. You can redeem, or liquidate, mutual fund shares at any time. The fund buys them back at their net asset value (NAV), which is the dollar value of one share in the fund. In order to discourage quick shifting of assets among mutual funds, many funds charge a redemption fee if you take your money out of the fund within a limited period after you invest.
Redemption FeeSome open-end mutual funds impose a redemption fee when you sell shares in the fund, often during a specific (and sometimes brief) period of time after you purchase those shares. The fee is usually a percentage of the value of the shares you sell, but it may also be a flat fee, or fixed amount. The purpose of the fee is to prevent large-scale withdrawals from the fund in response to changes in the financial markets, which might require the fund manager to sell holdings at a loss in order to meet the fund's obligation to buy back your shares.
Regional ExchangeStock exchanges in cities other than New York are called regional exchanges. They list both regional stocks (which may or may not be listed on the New York exchanges) as well as stocks that are listed in New York.
Registered BondWhen a bond is registered, the name of the owner and the particulars of the bond are recorded by the issuer or the issuer's agent. When registered bonds are issued in certificate form, a bond can be sold only if the owner endorses the certificate, or signs it over to someone else. In contrast, bearer bonds are considered the property of whoever holds them, since there is no record of ownership. However, bonds are increasingly registered electronically, so there are no certificates to endorse. Instead, you authorize the transaction over the phone or by computer.
Restrictive SharesShares which have all rights of common shares except the right to vote.
Retained EarningsThe accumulated profits of a company. Any loss in any year will go toward reducing retained earnings shown on the balance sheet.
RetractableBonds or preferred shares that allow the holder to require the issuer to redeem the bonds or shares before the maturity date.
ReturnYour return is the profit you make on your investments, usually expressed as an annual percentage. That lets you compare the return of different investments or investments you have held for different periods of time.
Return on InvestmentYour return on investment is the profit you make on the sale of a security or other asset divided by the amount of your investment, expressed as an annual percentage rate. For example, if you invested $5,000 and got $7,500 back after two years, your annual return on investment would be 25%. To get that result, you divide the $2,500 gain by your $5,000 investment, and then divide the 50% gain by 2.
Revenue BondRevenue bonds are municipal bonds issued to finance public projects, such as airports and roadways. The bonds are backed by revenue to be generated by the project.
Reverse Stock SplitIf a company's stock is trading at a low price, the company may decide to reduce the number of existing shares and increase their price by consolidating the shares. For example, a 1-for-2 reverse stock split halves the number of existing shares and doubles the price. In that case, if you hold 100 shares of a stock selling at $5 a share, for a combined value of $500, in a 1-for-2 reverse stock split, you would own 50 shares valued at $10 a share, which would still give you a combined value of $500. Stocks may be reverse split in any ratio the company chooses. Reverse splits are generally used to ensure that a stock will continue to meet listing requirements on the market where it is traded or to encourage purchases by institutional investors, who may not buy stocks priced below a specific point.
Rights Options granted to shareholders to purchase additional shares directly from the company.
Rights OfferingIn a rights offering, also known as a subscription right, a company offers existing shareholders the opportunity to buy additional shares of company stock at a discount, or less than the price at which those shares will be offered to the public. You don't have to buy the additional shares, and you can transfer your rights to someone else if you prefer. But buying helps you maintain the same percentage of ownership you had in the company before the new shares were issued rather than having that percentage diluted.
RiskGenerally, the greater the risk you take in making an investment, the greater your return should be if the investment succeeds. For example, investing in a startup company carries substantial risk, since there is no guarantee that it will be profitable. http://www.securities.state.oh.us/Information/II1.html; http://www.securities.state.oh.us/Information/Think.aspx; http://www.securities.state.oh.us/Information/BillofRights.aspx
Risk ToleranceA person’s ability to endure market price swings in an investment.
Risk-Free ReturnWhen you buy a U.S. Treasury bill that matures in 13 weeks, you're making a risk-free investment in the sense that there's virtually no chance of losing your principal (since the bill is backed by the U.S. government) and no threat from inflation (since the term is so short).
RolloverIf you move your assets from one investment to another, it's called a rollover. For example, if you move money from one individual retirement account (IRA) to another IRA, that transaction is a rollover. Similarly, when a bond or certificate of deposit (CD) matures, you can roll over the assets into another bond or time deposit. In the same vein, if you move money from a qualified retirement plan into an IRA, you create a rollover IRA.
Round LotA round lot is the normal trading unit for stocks and bonds on an organized securities exchange or market. For example, on the New York Stock Exchange (NYSE), shares traded in multiples of 100 are typically considered round lots, as are bonds with par values of $1,000 and $5,000. If you trade fewer shares of stock — called odd lots — you may have to pay a higher brokerage commission.
Sales ChargeA sales charge is the fee you pay to buy shares of a load mutual fund or other investment purchased through a financial adviser. The charge is typically figured as a percentage of the amount you invest. As the size of your investment increases, the rate at which you pay the sales charge may decrease. Each dollar amount at which there is a corresponding reduction in the charge is known as a breakpoint. For example, the rate may drop from 4.5% to 4.25% with an investment of $25,000. The sales charge may be imposed as a front-end load when you buy (also known as a Class A share), as a back-end load when you sell (also known as a Class B share), or as a level load each year you own the fund (also known as a Class C share).
Sallie MaeThis corporation purchases student loans from various lenders, such as banks, and packages the loans as bonds, or as short-term or medium-term notes. After issue, these debt securities trade on the secondary market. Sallie Mae guarantees repayment of the bonds and notes, and uses the money it raises through the sale of these securities to provide additional loan money for post-secondary school students. Sallie Mae also arranges financing for state student loan agencies. Its shares trade on the New York Stock Exchange (NYSE).
ScalpTo trade on the market for small gains. Scalping normally involves buying and selling a position quickly, usually within the same day, hour or even a few minutes.
SCOR FilingA question and answer format prospectus for small corporate offering registrations. The Form U-7 is used for this type of filing, although in Ohio, the Form U-7 cannot be made as a stand alone filing.
ScreenIn searching for stocks that meet certain investment criteria, you may screen a large sample to identify one or more to invest in. You can also establish a screen, which is a set of criteria against which you measure stocks (or other investments) to find those that meet your criteria.
ScripScrip is a certificate or receipt that represents something of value but has no intrinsic value. For example, after a corporate stock split or spin-off, a company might issue scrip representing a fractional share of stock for each existing share you own. On or before a specific date, you can convert the value they represent into full shares. What's essential is that the issuer and the recipient must agree on the value that the scrip represents.
SeatThe term for membership on a stock exchange.
Secondary MarketWhen stocks and bonds are bought and sold after the date they are first issued, they trade on what's known as the secondary market. The issuer, or company that offers the stock or bond, receives no proceeds from these secondary trades, as it does when it issues these securities the first time in the primary market.
SectorA sector is a group of stocks, often in one industry. The performance of any single stock in a sector can be measured against the performance of the sector as a whole, showing where that stock ranks in relation to its peers.
Sector FundAlso called specialty or specialized funds, sector mutual funds concentrate their investments in a single segment of an industry, such as biotechnology, natural resources, utilities, or regional banks.
Secured BondThe issuer of a bond or other debt security may guarantee, or secure, the bond by pledging, or assigning, collateral to investors. If the issuer defaults, the investors may take possession of the collateral. A mortgage-backed bond is an example of a secured security, since the underlying mortgages can be foreclosed and the properties sold to recover some or all of the amount of the bond. Holders of secured bonds are at the top of the pecking order if an issuer misses an interest payment or defaults on repayment of principal.
Securities and Exchange Commission (SEC)The SEC is an independent federal agency that oversees and regulates the securities industry in the U.S. The SEC requires registration or exemption from registration of all securities offered in interstate commerce, and requires licensure or exemption from licensure of securities professionals. Established by Congress in 1934, the SEC works to protect investors from misleading or fraudulent practices, including insider trading. The SEC and state regulators work together to help provide a safe marketplace for investors. http://www.sec.gov
Securities Investor Protection Corporation (SIPC)The SIPC is a non-profit corporation created by Congress to insure investors against losses caused by the failure of a brokerage firm. Through the SIPC, assets in your brokerage account are insured up to $500,000 (including up to $100,000 in cash), but only against losses that result from the brokerage firm going bankrupt, not against market losses caused by trading decisions or other causes. All brokers and dealers registered with the Securities and Exchange Commission (SEC) are required to be SIPC members. http://www.sipc.org/
SecuritizationSecuritization is the process of pooling various types of debt — mortgages, car loans, or credit card debt — and packaging that debt as bonds, which are then sold to investors. These bonds may also be known as asset-backed securities because the interest and return of principal they promise are based on the value of the underlying assets. Those assets could be the property, such as cars or homes purchased with the original loans, or accounts receivable, which are monies owed to the lender.
SecurityGenerally, a security represents an ownership interest in a company or is evidence of some type of indebtedness. Securities can encompass many types of investment vehicles, but are most commonly thought of as stocks or bonds. In Ohio, see the definition in Revised Code 1707.01(B).
Self-Regulatory Organization (SRO)All securities and commodities exchanges in the U.S. are self-regulatory organizations (SROs). So is the National Association of Securities Dealers (NASD), whose members operate in the Nasdaq and over-the-counter (OTC) markets, and the Municipal Securities Rulemaking Board, which oversees municipal bond trading. These bodies establish the standards under which their members conduct business, monitor the way that business is conducted, and enforce their own rules.
Sell ShortSelling short is a trading strategy that takes advantage of an anticipated drop in a stock's price. To sell short, you borrow shares from your broker, sell them, and keep the proceeds until the stock price drops. If it does, you then buy back the shares at a lower price, return the borrowed shares to your broker (plus interest and commission), and pocket the difference. Suppose, for example, you sell short 100 shares of stock priced at $10 a share. When the price drops, you buy 100 shares at $7.50 a share, give them back to your broker, and keep the $2.50-per-share profit (minus commission). Of course, if the share price rises instead of falls, you may have to buy back the shares at a higher price and suffer the loss.
Sell-OffA sell-off is a period of intense selling of securities and commodities triggered by declining prices. Sell-offs — sometimes called dumping — usually cause prices to plummet even more sharply.
Senior BondSenior bonds offer slightly lower interest rates than other types of bonds (such as subordinated bonds) because they are considered less risky. If a bond issuer defaults, or runs into difficulty paying off debt, holders of senior bonds get priority in receiving whatever monies are available.
Settlement DateThe settlement date is the date by which a securities transaction must be finalized. Depending on the type of trade, it's either the date when the buyer must pay the broker for securities purchased, or the date by which the seller must deliver the sold securities and receive the proceeds from them.
Share ClassSome stocks and certain mutual funds subdivide their shares into classes or groups to designate their special characteristics. For example, the differences between Class A shares and Class B shares of stock may focus on voting rights, resale rights, or other provisions that limit the power of certain shareholders. In the case of mutual funds, class designations indicate the way that sales charges, or loads, are levied. Class A shares have front-end loads, Class B shares have back-end loads, also called contingent deferred sales charges, and Class C shares have level loads.
ShareholderIf you own stock in a corporation or other entity, you are a shareholder of that corporation or entity. You're considered a majority shareholder if you (alone or in combination with other shareholders) own more than half the company's outstanding shares, which allows you to control the outcome of a corporate vote.
Shareholders' EquityThe amount of a corporation's assets belonging to its shareholders calculated by taking total assets and subtracting total liabilities. Total shareholders’ equity divided by the number of outstanding shares will be the shareholders’ equity per share.
Short InterestShort interest is the total number of shares of a particular stock that investors have sold short in anticipation of a decline in the share price and have not yet repurchased.
Short PositionIf you sell stock short and have not yet repurchased shares to replace the ones you borrowed, you are said to have a short position in that stock. Similarly, if you buy a futures contract that commits you to sell a commodity at a specific price at some date in the future, you have a short position in that commodity.
Short SellingThe sale of security which the seller does not own. The sale is made in the belief that the stock price will fall at which point the seller will buy to cover his short sale.
Simple InterestIf you earn simple interest on money you deposit in a bank or use to purchase a certificate of deposit (CD), the interest is figured on the amount of your principal alone. For example, if you had $1,000 in an account that paid 5% simple interest for five years, you'd earn $50 a year ($1,000 x .05 = $50) and have $1,250 at the end of five years. In contrast, if you had been earning compound interest, you'd have $1,276.29 at the end of five years, since the interest you earned each year, as well as your principal, would have earned interest.
Sinking FundTo ensure there’s money on hand to redeem a bond or preferred stock issue, a corporation may establish a separate custodial account, called a sinking fund, to which it adds money on a regular basis. Or, the corporation may be required to establish such a fund to fulfill the terms of its issue. The existence of the fund allows the corporation to present its investments as safer than those issued by a corporation without comparable assets.
Small Order Execution System (SOES)The small order execution system automatically executes and clears trades in Nasdaq securities at market makers' best displayed prices in response to buy and sell orders placed through order-entry firms. The negotiation-free transactions include small market orders and limit orders in set quantities between 100 and 1,000 shares. The SOES, which is designed to give individual investors open access to trading in a volatile market, was mandated by the Securities and Exchange Commission (SEC) after the stock market crash of 1987, when many small investors found themselves unable to sell their stocks as prices plummeted because they could not reach their brokers by telephone.
Small-Capitalization (Small-Cap) StockShares of relatively small publicly traded corporations, with a total market value, or capitalization, of less than $500 million, are typically considered small-capitalization, or small-cap, stocks.
Soft MarketA soft market, also known as a buyer's market, is one in which supply exceeds demand. In the financial world, the term often refers to a time in which there are more stocks or bonds for sale than there are customers eager to buy them. The lack of interest creates a wide spread, or gap, between the prices being asked for securities and the prices being bid. As a result, trading is often sluggish.
SolicitorAny person who, directly or indirectly, solicits any client for, or refers any client to, an investment adviser or investment adviser representative.
Song BirdAn investor who “sings the praises” of a specific investment opportunity. Con artists may start a scam – maybe a Ponzi Scheme – and make payments or returns on investment to some initial participants. These initial investors are (initially) happy with their investment returns and “sing the praises” of the investment.
Special SituationAn undervalued stock that one or more analysts expects to increase in price in the very near future because of an anticipated — and welcome — change within the company is known as a special situation. That change could be the introduction of a major new product, a corporate restructuring, or anything else that has the potential to increase earnings. In some cases, the fact that a stock is identified as a special situation creates a flurry of investor interest and actually helps drive the price up even before the change has had time to take effect. A stock that is extremely volatile over the short term because of important recent news about the company, such as a takeover or spin-off, is also described as a special situation.
SpeculatorWhen you invest in futures contracts or buy or sell options strictly to take advantage of anticipated price changes and have no interest in buying or selling the underlying investment, you're a speculator.
Spin-OffIn a spin-off, a company sets up one of its existing subsidiaries or divisions as a separate company. Shareholders of the parent company receive stock in the new company in addition to the stock they hold in the parent based on an evaluation established for the new entity.

The motives for spin-offs vary. In some cases, a company may want to refocus its core businesses, shedding those that it sees as unrelated. Or it may want to set up a company to capitalize on investor interest. In other cases, a corporation may face regulatory hurdles in expanding its business and spin off a unit to be in compliance.

SpoofingSome market analysts maintain that the increased volatility in stock markets may be the result of spoofing, or phantom bids. Here's how spoofing works. Traders who own shares of a certain stock place an anonymous buy order for a large number of shares of the stock through an electronic communications network (ECN). Then they cancel, or withdraw, the order seconds later. As soon as the order is placed, however, the price jumps. That’s because investors following the market closely enter their own orders to buy what seems to be a hot stock and drive up the price. When the price rises, the spoofer sells shares at the higher price, and gets out of the market in that stock. Investors who bought what they thought was a hot stock may be left with a substantial loss if the price quickly drops back to its pre-spoof price.
Spot MarketCommodities and foreign currencies are traded for immediate delivery and payment on the spot market, also known as a cash market. The term refers to the fact that the full cash price is paid "on the spot," or within a short period of time.
SpreadIn the most general sense, a spread is the difference between two similar measures. In the stock market, for example, the spread is the difference between the highest price offered and the lowest price asked.
Standard & Poor's (S&P)Standard & Poor's is an investment services company that rates bonds, stocks, commercial paper, and insurance companies. It also compiles stock market indexes and publishes a broad range of reports, guides, and handbooks on financial topics. The S&P 500-stock Index is one of the key measures of stock market performance and is also the benchmark for a large number of stock index funds.
Standard DeviationStandard deviation is a statistical measurement of how far a variable quantity, such as the price of a stock, moves above or below its average value. The wider the range, which means the greater the standard deviation, the riskier an investment is considered to be.
StartupWhile any new company could be considered a startup, the description is usually applied to aggressive young companies that are actively courting private financing from venture capitalists, including wealthy individuals and investment companies. In many cases, the startups plan to use the cash infusion to prepare for an initial public offering (IPO). http://www.securities.state.oh.us/Information/SB.pdf
Statement of Additional Information (SAI)The SAI or Part B to a mutual fund prospectus contains a great deal of information about the fund’s investment restrictions, objectives and philosophy. Although a copy of a mutual fund prospectus must be provided to an investor prior to the consummation of a sale, the investor must ask for a copy of the SAI – it will not be automatically provided to the investor. The SAI also includes the fund’s audited financial statements, a list of securities in the fund’s portfolio at the end of its fiscal year, a list of the fund’s officers and directors, and other important information. Sometimes the SAI will elaborate on information in the prospectus, but frequently it contains important information that does not appear in the prospectus at all.
Statute of LimitationsA statute assigning a certain time after which rights cannot be enforced by legal action or offenses cannot be punished. In Ohio, investors should review Revised Code 1707.28.
Statutory VotingWhen shareholders vote for candidates nominated to serve on a company's board of directors, they usually cast their ballots using statutory voting. Under that system, each shareholder gets one vote for each share of stock he or she owns, and may cast that number of votes for or against each candidate. For example, if you owned 100 shares, and there were three candidates, you could cast 100 votes for each of them. That means the shareholders owning greater numbers of shares have greater influence on the outcome of the election.

In cumulative voting, on the other hand, a shareholder may cast the total number of his or her votes — one vote for every share of stock multiplied by the number of candidates for the board — for or against a single nominee, divide them between two nominees, cast an equal number of shares for each candidate, or any other combination. For example, if you owned 100 shares, and there were three candidates, you could cast 300 votes for one of them and ignore the others. With this system, people owning a smaller number of shares can concentrate on one or two candidates. That means they may have a better chance of influencing the makeup of the board.

StockStock is an equity investment that represents part ownership in a company.
Stock CertificateA stock certificate is a paper document that represents ownership in a corporation. In the past, when you bought stock, you got a certificate that listed your name as owner, and showed the number of shares and other relevant information. When you sold the stock, you endorsed the certificate and sent it to your broker. Stock certificates are being phased out, however, and replaced by electronic records. That means you don't have to safeguard the certificates, and can sell shares by giving an order over the phone or online. The chief objection that's been raised to the new system is largely nostalgic and aesthetic, since the certificates, with their finely engraved borders and images, are distinctive and often beautiful. The primary question the Division receives about stock certificates is, “Does my old or antique stock certificate have any value?” The Division directs inquirers to the Division of Unclaimed Funds (http://www.com.ohio.gov/unfd/) and the Ohio Secretary of State’s online Database Search (http://www.sos.state.oh.us/sos/busiserv/index.html) for possible information relating to these questions.
Stock DividendA dividend paid in shares of stock as a substitute for cash.
Stock OptionA stock option is contract that gives the buyer the right to buy or sell a specific stock at a preset price during a certain time period and obligates the seller to buy or sell the stock if the option is exercised. If an option isn't exercised within the set period, it expires.

Stock options are also a form of employee compensation that gives employees — often corporate executives — the right to buy shares in the company at or below market price. If the stock price rises, and an employee has a substantial number of options, the rewards can be extremely handsome. However, if the stock price falls, the options can be worthless. Often, there are time limits governing when employees can exercise their options and when they can sell the stock.

Stock SplitWhen a company wants to make its shares more attractive and affordable to a greater number of investors, it may authorize a stock split to create more shares selling at a lower price. A 2-for-1 stock split, for example, doubles the number of existing shares and halves the price. If you own 100 shares of a stock selling at $50 a share, for a total value of $5,000, and the company's directors authorize a 2-for-1 split, you would own 200 shares priced at $25, with the same total value of $5,000.
StockbrokerA broker who buys and sells stocks and other securities for his customers for a commission. In Ohio, the term of art is a “securities salesperson.” http://www.securities.state.oh.us/Information/Select.pdf
StockholderA owner of shares of stock; also referred to as shareholder.
Stop OrderYou can issue a stop order, which instructs your broker to buy or sell a security once it trades at a certain price, called the stop price. Stop orders are entered below the current price if you are selling and above the current price if you are buying. For example, if you owned a stock currently trading at $35 a share that you feared might drop in price, you could issue a stop order to sell if the price dropped to $30 a share to protect yourself against a larger loss. Once the stop price is reached, your order becomes a market order. If the price drops very quickly, and other orders have been placed before yours, the stock could actually end up selling for less than $30. You can give a stop order as a day order or as a good till canceled (GTC) order.
Stop PriceWhen you give an order to buy or sell a stock or other security once it has reached a certain price, the price you name is known as the stop price. When you ask your broker to buy, your stop price is higher than the current market price. When you're selling, the stop price is lower than the current price.

In either case, once the stop price has been reached, your broker will execute the order even if a flurry of trading drives the stock's price up or down quickly. That might mean you end up paying more than the stop price if you're buying or get less than the stop price if you're selling.

Stop-Limit OrderAn order placed with a stockbroker to buy or sell at a certain price or better during a limited period of time
Stop-Loss OrderAn order placed with a stockbroker to buy or sell a designated stock once a designated price has been reached (This order limits the amount an investor can lose on that investment.)
StraddleA straddle is an options-buying strategy that lets you profit from the potential price changes of a particular stock, stock index, or commodities futures contract, without actually speculating on whether the price will move up or down. To use a straddle, you buy an equal number of put options (to sell a particular underlying instrument) and call options (to buy the same underlying instrument) at the same strike price. On or before the expiration date, at a point at which your potential profit on one half of the straddle outweighs your potential loss on the other half, you can exercise, or offset, the options, making more on one than you lose on the other. That spread, or difference in price, minus what the options cost you, is your profit.

Although straddling costs more than buying puts or calls alone, you may increase your chance of making money (and reduce your chances of losing money) by hedging your investment in this way.

Straddle OrderAn order to buy and sell an equal number of puts and calls - each with the same underlying interest and having the same exercise price and expiry date.
StrangleA strangle is an options-buying strategy in which you buy an equal number of put options (to sell) and call options (to buy) on the same underlying stock, stock index, or commodities futures contract at different strike prices that are equally out of the money — that is, above and below the current market price of the underlying financial instrument. A strangle is essentially a bet that the stock will be valued somewhere between the two strike prices so you can exercise your options before they expire, realizing a greater profit on one of them than you lose on the other. If the value of the underlying stock moves dramatically toward either strike price, you stand to benefit. If not, the strategy has not paid off.
Street NameIf you have a brokerage account, you can either have your stocks registered in your own name or in the name of the brokerage firm, which is called street name. The advantage of having your stocks registered in street name is that shares can be traded more easily. That's because you don't have to sign and deliver the stock certificates before a sale can be completed. In addition, having your broker hold your stocks in street name is often safer because it reduces the risk of losing or misplacing the certificates.
Strike PriceThe strike price, also called the exercise price, is the price at which you can buy the stock or other financial instrument underlying an option. While the strike price is set by the exchange on which the option trades, and does not change for the life of the option, the price of the underlying instrument rises and falls, depending on supply and demand. As a result, the underlying instrument might reach price that would make buying at the strike price a good deal, or it might not. If not, you simply let the option expire.
Strip BondsDescribes bonds whose interest coupons have been removed. The holder of the strip bond is entitled to its par value at maturity, but not the annual interest payments.
STRIPSSTRIPS, an acronym for “separate trading of registered interest and principal of securities”, are special issues of U.S. Treasury zero coupon bonds. The bonds are prestripped, which means that the Treasury separates the issue into the principal and a series of individual interest payments, and then offers each of those parts separately as a zero coupon security.
Stub StockWhen a company has a negative net worth as a result of being bought out or going bankrupt, it may convert some of the bonds it has issued into shares of common stock. Perhaps because each share is worth only a portion of the original bond’s value, this new stock is known as stub stock. The issuing company’s financial instability makes stub stock a volatile investment. But if the company regains its strength, stub stock can increase dramatically in value.
SubclassEach asset class — stocks, bonds, and cash equivalents — is made up of different types, or subclasses, of investments. For example, some of the subclasses of bonds are U.S. Treasury bonds, mortgage-backed agency bonds, corporate bonds, and high-yield bonds. Similarly, some of the subclasses of stocks are large-, medium-, and small-company stocks, blue chip stocks, growth and value stocks, and income stocks. Because different subclasses of investments perform differently, carry different risks, and may go up and down in value at different times, it's important to diversify your portfolio among different subclasses of investments within each asset class.
Subordinated DebtSubordinated debt generally refers to debt securities that have a weaker claim for repayment than unsubordinated debt, should the issuer default on its obligations. In fact, there are also levels of subordinated debt, with senior subordinated debt having a higher claim to repayment than junior subordinated debt.
Subscription RightBefore a company offers a new issue of securities to the public, it may offer existing shareholders the opportunity to buy shares of the issue at a discounted price. That's known as a subscription right, or a rights offering. Usually you receive one right for every share you already own, although the number of rights you need to buy a share may vary. Rights are transferable, and may be bought and sold on the secondary market. They expire quickly — generally within a month — so you typically must act promptly to take advantage of the offer.
Surrender FeeAlso known as contingent deferred sales load, a surrender fee is the sales charge you may owe if you withdraw money from an annuity or mutual fund within a certain time period. The surrender fee is calculated as a percentage of your initial investment, not on any earnings in your account. The percentage charged usually declines the longer you hold the account. For instance, the surrender fee may be 5% the first year, 4% the following year, and so on, until it no longer applies.
SwapWhen you swap or exchange securities, you sell one security and buy a comparable one almost simultaneously. Swapping enables you to change the maturity or the quality of the holdings in your portfolio. You can also use swaps to realize a capital loss for tax purposes by selling securities that have gone down in value since you purchased them. More complex swaps, including interest rate swaps and currency swaps, are used by corporations doing business in more than one country to protect themselves against sudden, dramatic shifts in currency exchange rates or interest rates.
Systematic RiskSystematic risk, also known as market risk, is the risk that's inherent in, or characteristic of, a particular type or class of security, such as stocks or bonds, as opposed to the risks posed by an individual security of that type. For example, the prices of existing bonds characteristically drop when interest rates go up. So a systematic or market risk of owning bonds is that you would probably realize less than the par value of a bond if you sold it in the secondary market after a jump in interest rates. That loss of value, however, would not reflect whether or not the individual bond was a good credit risk.
Tax DeferralTax deferral means postponing income tax that would otherwise be due on employment or investment earnings until some point in the future, often when you retire. A big advantage of tax deferral is that earnings may compound more quickly, since no money is being taken out of the account to pay taxes.
Tax-Efficient FundsWhen a mutual fund minimizes the income earnings and capital gains it distributes to its shareholders, it may be described as a tax-efficient fund. In general, the smaller a fund's turnover, or the buying and selling it does, the more tax-efficient it has the potential to be. That's one reason why index funds, which buy and sell investments only when the composition of the index they track changes, are generally tax-efficient.
Tax-ExemptSome investments are tax-exempt, which means you don't have to pay income tax on the earnings they produce. For example, the interest you receive on a municipal bond is generally exempt from federal income tax, and also exempt from state and local income tax if you live in the state where the bond was issued. (However, if you sell the bond before maturity, any capital gain is taxable.)
Technical AnalysisAn aid to predict future stock prices based on historical trends of trading volume, price changes and other market indicators.
Tender OfferWhen a corporation offers to buy outstanding shares of another company, called the target company, at a price higher than the market price, it is called a tender offer. The tender is usually part of a bid to take over the target company.
Thin MarketA thin market is one where securities trade infrequently. The term can refer to an entire securities market (such as one in an emerging nation), a specific class of securities (such as micro-cap stocks), or an individual security.
TickA tick is the minimum movement by which the price of a security, option, or index changes. With stocks, a tick may be little as one cent. With US Treasury securities, the smallest increment is 1/32 of a point, or 31.25 cents, and with corporate and municipal bonds, it's 1/8 of a point, or $1.25. An uptick represents an increase in price, and a downtick a drop in price.
Ticker (Tape)While the stock markets are in session, there is a running record of trading activity in each individual stock. Today's computerized system, still referred to as the ticker or ticker tape, actually replaces the scrolling paper tape of the past.
Ticker SymbolA ticker symbol, also known as a stock symbol, is a unique string of letters that identifies a particular stock on one of two electronic tapes that report market transactions. The consolidated tape includes companies that trade on the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), regional exchanges and other markets, such as Instinet. A second tape includes companies that trade on the Nasdaq Stock Market. Most corporations have a say in what their symbol will be, and many choose one that's clearly linked to their name, such as IBM or AMZN for Amazon.com.
Total ReturnTotal return is your annual gain or loss on an equity or debt investment. It includes reinvested dividends or interest, plus any change in the market value of the investment. When total return is expressed as a percentage, it's figured by dividing the increase in value, plus dividends or interest, by the original purchase price. On bonds you hold to maturity, however, your total return is the same as your yield to maturity (YTM).
Trade DateThe trade date is the day on which you buy or sell a security, option, or futures contract. The settlement date occurs one or more days after the trade date, depending on the type of security that you're trading. The terms T+1 and T+3 are used to indicate the number of days you have to settle — one day in the case of government securities and options, and three days in the case of stocks.
TraderTraders, also known as competitive or floor traders, are people who buy and sell securities for their own accounts. They don't pay commissions, so they can profit on small differences in price, but they must abide by the rules established by the exchange or market on which they trade. The term trader also describes people who execute trades at brokerage firms, asset management firms, and mutual fund companies.
Trading FloorThe trading floor is the active trading area of a stock exchange, such as the New York Stock Exchange (NYSE). Securities are traded auction-style on an exchange trading floor. That means the prices are set by competitive bidding between brokers representing buyers and brokers representing sellers, following a series of clearly established exchange rules.
Trading VolumeTrading volume is a measure of the number of stocks, bonds, futures contracts, options, or other investments that are sold in a specific period of time, such as a day. The volume of trades is often linked to volatility in the market, since as more investors buy and sell, prices are apt to rise and fall more rapidly. The financial media regularly report the trading volume in different markets.
TransparencyTransparency is a measure of how much information you have about the markets where you invest and the corporations whose stocks or bonds you buy.
Treasury Bill (T-bill)Treasury bills are short-term government debt securities with a maturity date of 4, 13, or 26 weeks. The 13- and 26-week bills are sold weekly by competitive auction to institutional investors, and to individual investors through Treasury Direct for the same price paid by the competitive bidders. You buy T-bills at a discount to the face value of $1,000 per bill, but the bill is redeemed at maturity for the full face value. The difference between what you pay and the $1,000 you get back is your interest. That interest is federally taxable but exempt from state and local tax.

Because they are highly liquid short-term investments issued by the U.S. government, Treasury bills are often described as risk-free investments.

Treasury BondTreasury bonds are long-term government debt securities with a maturity date of 10 to 30 years that were issued until 2001 in denominations of $1,000. Existing bonds continue to trade in the secondary market but no new bonds are being issued. While interest on Treasury bonds is federally taxable, it is exempt from state and local taxes. Treasury bonds are considered among the most secure investment in the world, since they are backed by the federal government.
Treasury NoteLike U.S. Treasury bills, Treasury notes are debt securities issued by the U.S. government and backed by its full faith and credit. They are available at issue through Treasury Direct in denominations of $1,000 to $1 million and are traded in the secondary market after issue.
Treasury SharesAuthorized but unissued stock of a corporation or previously issued shares that have been re-acquired by the corporation.
Triple WitchingOnce every quarter — on the third Friday of March, June, September, and December — options, index options, and futures contracts expire on the same day in the U.S. In the past, when they expired at the same hour of the day, trading could be extremely volatile. But in recent years, the timing has been adjusted so that they expire at different times throughout the day, somewhat reducing the potential frenzy of trading.
TrustWhen you create a trust, you transfer money and/or other assets to the trust. You give up ownership of those assets in order to accomplish a specific financial goal or goals, such as protecting assets from estate taxes, simplifying the transfer of property, or making provision for a minor or other dependents.
Turnover RatioA mutual fund's turnover ratio measures the percentage of holdings that the fund sells, or turns over, in a year.
UndervaluationAny stock that trades at a lower price than the issuing company's reputation, earnings outlook, or financial situation would seem to merit is considered undervalued. Undervaluation may occur when a company loses market appeal, if it hasn't kept pace with its competitors, or if there are management problems. Some investors concentrate on identifying and investing in undervalued stocks, sometimes called simply value stocks, drawn by their bargain prices.
UnderwaterYou’re underwater when your stock options are out of the money. That means the strike price of a call option is higher than the stock’s market price or the strike price of a put option is lower than the market price. Although you can technically be underwater with both call and put options, the term is used primarily to describe a situation that occurs when options you’ve received as part of an employee compensation package are currently worthless. For example, if you have options on your company stock with a strike price of $50, and the stock is currently trading at $30, you’re $20 underwater on each option. You can see how the next step may be drowning — financially speaking, of course.
UnderwriterAn underwriter, typically an investment banker, buys an entire new securities issue from the company or government offering it, and resells the issue as individual stocks or bonds to the public. Part of the underwriter's job is to weigh the risks involved in taking on the financial responsibility of finding buyers against the profit to be made on the difference between the price paid for the issue and the amount it will generate. Typically, a number of bankers join forces as a purchase group, or syndicate, to spread the risk around and to reach the widest possible market.
Unit Investment Trust (UIT)A UIT may be a fixed portfolio of bonds with specific maturity dates, a portfolio of income-producing stocks, or, a portfolio of all of the securities included in a particular index.
Unit of TradingWhen you buy stocks, bonds, options and commodities futures, it's typical to buy in a particular volume or for a particular dollar value, called a round lot or a unit of trading. For example, stocks are usually traded in lots of 100 shares and bonds in multiples of $1,000. However you can buy an odd lot, which is more or fewer shares or bonds, at any time. The drawback is that the commission on an odd lot may be more than the commission on a round lot.
Unlisted SecurityA security, such as a stock, is unlisted when it cannot meet the listing requirements of any of the organized exchanges or markets. The stock can be traded over-the-counter (OTC), however, and its price and volume may be tracked in the Pink Sheets or on the OTC Bulletin Board (OTCBB).
Unrealized GainWhen you own an investment that has increased in value, your gain is unrealized until you sell and take your profit.
Unrealized LossIf the market price of a security you own drops below the amount you paid for it, you have an unrealized loss. The loss remains unrealized as long as you don't sell the security while the price is down.
Unsecured BondWhen a bond isn't backed by collateral or security of some kind, such as a mortgage, that can be used to repay the bondholders if the bond issuer defaults, the bond is described as unsecured. However, most unsecured bonds pose little risk of default, since the companies that issue them are usually financially sound. Unsecured bonds are also known as debentures.
Unsecured DebtBonds that are not backed by assets of a company, but by only the company’s credit worthiness.
UptickAn uptick is the smallest possible incremental increase in a security's price, which, for stocks, is one cent. So when there's an uptick in a stock selling at 40 cents, the new price is 41 cents.
ValuationValuation is the process of estimating the value, or worth, of an asset or investment.
Value FundWhen a mutual fund manager buys primarily undervalued stocks for the fund's portfolio with the expectation that these stocks will increase in value, that fund is described as a value fund. A value fund may be limited to stocks of a certain size, such as those included in a small-cap value fund, or it may include undervalued stocks with different levels of capitalization.
Value StockValue stocks, also known as undervalued stocks, trade at a lower price than the company's reputation, earnings outlook, or financial situation would seem to merit. Investors who seek them out expect the company's fortunes to turn around, and the price of the stock to increase accordingly.
Variable AnnuityGenerally, a contract or annuity under which an insurance company promises to pay a variable sum of money either in a lump sum or periodically for life or other specified period.

Unlike a conventional IRA, the money you put into an annuity is not deductible from your taxes. And also unlike an IRA, you may put as much money into an annuity as you wish.

A variable annuity is especially attractive to a person who makes lots of money and is trying, perhaps late in the game, to save aggressively for retirement. Most experts agree that young people should fully fund IRA plans and any company 401(k) plans before turning to variable annuities.

Venture CapitalVenture capital is financing provided by wealthy independent investors, banks, and financing companies to help new businesses get started, reach the next level of growth, or go public. In return for the money they put up, also called risk capital, the investors may play a role in the company's management as well as receive some combination of equity, profits, or royalties. Some venture capital also goes into bankrupt companies to help them turn around, or to companies that the management wants to take private by buying up all of the outstanding shares.
ViaticalThe entire or fractionalized interest in an insurance policy or benefit that is subject to an agreement to purchase, sell, assigns, transfer, devise or bequest, an portion of the death benefit ownership in return for consideration or any other thing of value that is less than the expected death benefit.
VolatilityVolatility indicates how much and how quickly the value of an investment, market, or market sector changes. For example, stocks of small, newer companies are usually more volatile than those of established, blue chip companies because their values tend to rise and fall very sharply over short periods of time. The volatility of a stock relative to the overall market is known as its beta, and the volatility triggered by internal factors, regardless of the market, is known as a stock's alpha.
VolumeVolume is the number of shares traded in a company's stock or in an entire market over a specified period, typically a day. Unusual market activity, either higher or lower than average, is typically the result of some external event. But unusual activity in an individual stock reflects new information about that stock or the stock's sector.
Voting RightInvestors who own shares of a common stock or shares in a mutual fund typically have voting rights, which allow them to participate in the election of boards of directors. These shareholders can also vote for or against certain propositions put forward by management or by other stockholders. In contrast, investors who own preferred shares or corporate bonds have no voting rights.
Vulture FundLike the scavenging bird of prey that lends its name to the fund, a vulture fund seeks out depressed or endangered investments. Many vulture funds focus on real estate, but others invest in bonds that have been downgraded or are in default and other high-risk securities. The strategy behind vulture investing is that such troubled securities have the potential to provide a large return eventually, in spite of their current vulnerable position. Most vulture funds are limited partnerships, but some are retail mutual funds that are open to individual investors.
WarrantFor a small fee, you can purchase a warrant that allows you to buy a company's stock at a fixed price. The warrant is valid for a specific period of time, often for several years. Sometimes there is no expiration date. For example, a warrant priced at $1 per share might guarantee you the right to buy a certain stock at $10 within the next 10 years. If the price goes up to $15, you can exercise, or use, your warrant, save $4 per share, and resell the security at a profit. If the price of the stock falls over the life of the warrant, however, the warrant becomes worthless.
Weighted Stock IndexIn weighted stock indexes, price changes in some stocks have a much greater impact than price changes in others in computing the direction of the overall index. By contrast, in an unweighted index, prices changes in all the stocks have an equal impact.
Wire HouseNational brokerage firms with multiple branches used to have an advantage over smaller firms because they were linked by private wire networks that enabled them to transmit important news about the financial markets almost instantaneously. Although the Internet now makes it possible for all firms — and even individual investors — to have access to high-speed electronic data, the largest brokerage firms are still referred to as wire houses because of the technological edge they once enjoyed.
Wire RoomThe wire room is the back office of a brokerage firm. People who work there send the buy or sell orders that come in from brokers to the firm's trading department or floor traders. The wire room also gets notifications when the transactions are completed and sends those notifications back to the brokers who took the orders.
Working CapitalWorking capital is the money that allows a corporation to function by providing cash to pay the bills and keep operations humming. Some working capital is provided by earnings, but corporations can also get infusions of working capital by borrowing money, issuing bonds, and selling stock.
World FundU.S.-based mutual funds that invest in securities from a number of countries, including the U.S., are known as world funds or global funds. Unlike international funds that buy only in overseas markets, world funds may keep as much as 75% of their investment portfolio in U.S. stocks or bonds.
Wrap AccountA wrap account is a professionally managed investment plan in which all expenses, including brokerage commissions, management fees, and administrative costs, are "wrapped" into a single annual charge, usually amounting to 2% to 3% of the value of the assets in the account.
WriterIn the options market, a writer is someone who sells put and call options, an activity known as writing a call or writing a put. Unlike the buyer of an option, who can let the option expire, a seller must go through with a trade if the party holding the option wants to exercise it.
YieldYield is the rate of return on an investment, paid in dividends or interest and expressed as a percent. Yield is usually calculated by dividing the amount you receive annually in dividends or interest by the amount you spent to buy the investment.
Yield CurveThe relationship among the yields of bonds of the same quality but different maturities.
Yield to MaturityThe annual rate of return an investor would receive if a bond were held until maturity.
Zero Coupon BondA bond that pays no interest but is sold at a discount of its face value. At maturity the holder will receive the face value.
Zero SumA zero-sum market is one in which one investor's profit mirrors another investor's loss. For every dollar one person makes, someone else loses a dollar. Commodities and options markets are examples of zero-sum markets.