HARVEST INTERNATIONAL | Hicfx.com | Glossary
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The act of an option holder in electing not to exercise or offset an option.

Acceptance Company Paper
Short-term negotiable debt securities issued by finance companies to fund loans to consumers for items such as cars and appliances.

Accommodation Trading
Noncompetitive trading entered into by a trader, usually to assist another with illegal trades.

Accounts Payable
Debts of a company for goods or services purchased that must be paid within one year. These debts are listed as a current liability on the company’s balance sheet.

Accounts Receivable
Money owed to a company for goods and services it has sold. Payment is expected within one year. This money is listed as a current asset on the company’s balance sheet.

Accreted Interest
The difference between par value of a zero coupon security and purchase price. Also called original issue discount. Yearly accreted interest is the amount of accreted interest “earned” each year that you hold a zero coupon investment.

Accrued Interest
The amount of interest that the buyer owes the seller on transactions involving fixed income securities, such as most bonds and notes.

The physical or cash commodity, as distinguished from commodity futures contracts. Also see Cash and Spot Commodity.

Actual EPS, CPS, or DPS
Reported annual Earnings Per Share (EPS -Trailing 12 months), cash flow (CPS) or Dividends Per Share (DPS) for a company for the fiscal year indicated. For companies which report on a quarterly basis, this information will contain the sum of the actual earnings, cash flow or dividends for the previous four quarters. For companies that report semi-annually, the field will contain the sum of the previous two semi-annual actuals.

Add-on Method
A method of paying interest where the interest is added onto the principal at maturity or interest payment dates.

The process of buying or selling instruments to bring your position delta back to zero and increase profits.

Adjusted Futures Price
The cash-price equivalent reflected in the current futures price. This is calculated by taking the futures price times the conversion factor for the particular financial instrument (e.g., bond or note) being delivered.

Advanced Option
Multiple option strategy. See Spread Order, Straddle, Strangle, Buy/Write, Sell/Write, and Unwind.

Affiliated Company
A company with less than 50% of its stock owned by another corporation, or one whose stock, with that of another corporation, is owned by the same controlling interests.

After Hours Trading
Participation by Market Makers and ECNs is strictly voluntary and as a result may offer less liquidity and inferior prices. Stock prices may also move more quickly in this environment. Investors who anticipate trading during these times are strongly advised to use limit orders.

Agency Security
Any of the bills, notes, and bonds issued by agencies of the federal government.

An investment dealer operates as an agent when it acts on behalf of a buyer or a seller, and does not itself own title to the securities at any time during the transactions.

The principle under which all futures positions owned or controlled by one trader (or group of traders acting in concert) are combined to determine reporting status and speculative limit compliance.

The discounts (premiums) allowed for grades or locations of a commodity lower (higher) than the par (or basis) grade or location specified in the futures contract. See Differentials.

All Ordinaries Index
The major index of Australian stocks. This index represents 280 of the most active listed companies or the majority of the equity capitalization (excluding foreign companies) listed on the Australia Stock Exchange (ASX).

All or None (AON)
A type of order where the client wants the entire order executed or none of it.

American Depository Receipt (ADR)
A security, created by a U.S. bank, that evidences ownership to a specified number of shares of a foreign security held in a depositary in the issuing company’s country of domicile. The certificate, transfer, and settlement practices for ADRs are identical to those for U.S. securities. U.S. investors often prefer ADRs to direct purchase of foreign shares because of the ready availability of price information, lower transaction costs, and timely dividend distribution.

American Stock Exchange (AMEX)
Located at 86 Trinity Place, New York, NY; a major stock and option exchange.

American Style Option
An option contract that can be exercised at any time between the date of purchase and the expiration date. Most exchange-traded options are American style.

AMEX Composite (XAX)
The AMEX Composite Index – (XAX) the American Stock Exchange introduced a new AMEX Composite Index with a new ticker symbol, XAX, on January 2, 1997. The XAX is a market capitalization-weighted, price appreciation index, and replaces the AMEX Market Value Index (XAM) which, since its inception, has been calculated on a “total return basis” to include the reinvestment of dividends paid by AMEX companies. The new AMEX Composite Index is more comparable with other major indexes, which reflect only the price appreciation of their respective components.

An accounting term indicating the appointment of an incurred expense over the life of an asset. For example, if a three-year magazine subscription (an expense) is paid in year one, it should be “amortized” (or “spread out”) over the three-year life of the subscription (the asset).

A person with expertise in evaluating financial investments; he or she performs investment research and makes recommendations to institutional and retail investors to buy, sell, or hold; most analysts specialize in a single industry or business sector.

Annual Report
A formal presentation of the corporation’s financial statements that is sent to its registered stockholders. If shares are registered in the nominee name (in the care of the brokerage firm), the proxy department has to obtain copies of the report and mail them to the beneficial owners (clients).

A contract with an insurance company in which the individual makes either lump-sum or periodic payments to the insurance company and in return receives a lifetime income (usually guaranteed).

See All or None.

The increase in value of an asset.

Approved Delivery Facility
Any bank, stockyard, mill, store, house, plant, elevator or other depository that is authorized by an exchange for the delivery of commodities tendered on futures contracts.

Simultaneous purchase of cash commodities or futures in one market against the sale of cash commodities or futures in the same or a different market to profit from a discrepancy in prices. Also includes some aspects of hedging. See Spread, Switch.

An individual or company that takes advantage of momentary disparities in prices between markets which enables them to lock in profits because the selling price is higher than the buying price.

A method of settling a dispute by utilizing an impartial individual or individuals. All exchanges and securities associations have adopted a Code of Arbitration through which all disputes between firms, employees and firms, and firms and clearing corporations are settled.

Interest or dividends which were not paid when due and are still owed.

Ask (Asked Price)
The lowest round lot price at which a broker will offer for sale a security on an exchange or over-the-counter market.

Ask to Bid
Market maker or ECN went from offering (selling) the stock at the inside market offer to bidding (buying) at the inside market bid.

Asian Option
An option whose payoff depends on the average price of the underlying asset during some portion of the life of the option.

A term used to describe any trade processed not on the actual trade date, but “as of” the actual trade date.

Goods available to pay debts. Anything owned by an individual or corporation, any possessions that have value in an exchange.

Asset Allocation Funds
Asset Allocation Funds attempt to manage your returns by using different asset allocation strategies, depending on current economic conditions. Their investment policies allow wide variances in the percentages of stocks, bonds and cash that they can hold as they try to advantageously “time” the market.

Action of the option holder (buyer) requiring the option seller (writer) to complete the terms of the option contract. The writer would be required to either buy stock from the holder or deliver stock to the holder.

The receipt of an exercise notice by an option writer (seller) that obligates him to sell (in the case of a call) or purchase (in the case of a put) the underlying security at the specified strike price.

Assignable Contract
One which allows the holder to convey his rights to a third party. Exchange-traded contracts are not assignable

Associated Company
A company owned jointly by two or more other companies.

Associated Person
A person associated with any futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator or leverage transaction merchant as a partner, officer, employee, consultant, or agent. Also, any person occupying a similar status or performing similar functions, in any capacity that involves: (a) the solicitation or acceptance of customers orders, discretionary accounts, or participation in a commodity pool (other than in a clerical capacity); or (b) the supervision of any person or persons so engaged.

A quadratic curve fit is made between the IV values and the strike prices for all the call options for a stock for a given expiration month. Likewise a curve fit is done for the puts. The option IV assigned for that option series fit is the constant coefficient of the polynomial. This constant coefficient is the point in the quadratic curve fit where the slope is zero and the option polynomial “smile” is at a minimum. This option series IV is usually very close to the IV of the close price of the stock because the weights in the polynomial curve fit emphasize the At the Money (ATM) strikes. This option series IV is referred to as the ATM IV in the Optionetics option trade ranker tool.

An order to buy or sell a futures contract at whatever price is obtainable when the order reaches the trading floor. Also called a Market Order.

Refers to options in which the underlying stock is trading at the same price as the option strike price.

At-the-Opening Order
An order which specifies execution at the opening of the market or else it is canceled.

The issuance of new Treasury bills, notes, and bonds at stated intervals by the Federal Reserve.

Auction Market
A market where buyers and sellers enter simultaneous bids and offers such as the New York Stock Exchange.

Verifying the accuracy of accounting and financial records by a member of the Institute of Chartered Accountants. In some provinces Certified General Accountants and Certified Management Accountants may also act as company auditors.

Audit Trail
The record of trading information identifying for example, the brokers participating in each transaction, the firms clearing the trade, the terms and time of the trade, and, ultimately and when applicable, the customers involved.

Authorized Shares
The number of shares a company is legally allowed to sell.

Automatic Exercise
The automatic exercise of an in-the-money option at expiration by the clearing firm.

Also known as an index, a mathematical computation that indicates the value of a number of securities as a group. The three most popular averages are the Dow Jones Industrial Average (DJI), Standard & Poor’s (S&P) 500, and the New York Stock Exchange Composite. The average, which may be market-weighted, share-weighted, or price-weighted, indicates performance.

Average Coupon
The dollar-weighted average interest rate, expressed as a percentage of face value, paid on the securities held by a bond portfolio.

Average Down
To buy more of a security at a lower price, thereby reducing the holder’s average cost. (Average Up: to buy more at a higher price.)

Average Daily Share Volume
The number of shares traded per day, averaged over a period of time, usually one year.

Average Maturity
The average time to maturity of securities held by a mutual fund. Changes in interest rates have greater impact on funds with longer average life.

Averages and Indexes or Indices
Statistical tools that measure the state of the stock market or the economy, based on the performance of stocks, bonds or other components. The Dow Jones Industrial Average and the TSE 300 Composite Index are well-known examples.

Baby Bond
Bond with a face value of less than $1,000.

Fixing the price of a commodity for which the commitment to purchase has been made in advance. The buyer can fix the price relative to any monthly or periodic delivery using the futures markets.

Back Months
The futures or options on futures months being traded that are furthest from expiration.

Balanced Funds
These funds are combinations of stocks, bonds and money market securities. The characteristics of the fund depend on the allocation of the fund’s securities among the various investments. These allocations are typically held fairly constant over time.

Balance of Payment
A summary of the international transactions of a country over a period of time including commodity and service transactions, and gold movements.

Balance Sheet
An accounting statement reflecting the firm’s financial condition in terms of assets, liabilities, and net worth (ownership). In a balance sheet, Assets = Liabilities + Net Worth

In some serial bond issues a balloon is an extra-large amount that may mature in the final year of the series.

Bankers’ Acceptance
A type of short-term negotiable debt instrument issued by a non-financial corporation, such as Ford or General Motors, but guaranteed as to principal and interest by its bank. The guarantee reduces risk and therefore results in a higher issue price and consequent lower yield.

Banking Group
A group of investment dealers, each of which individually assumes financial responsibility for part of an underwriting of a new issue of securities for a corporation.

The legal status of an individual or company which is unable to pay its creditors and whose assets are therefore administered for its creditors by a trustee in bankruptcy.

Bar Chart
A chart that graphs the high, low, and settlement prices for a specific trading session over a given period of time.

The difference between the spot or cash price of a commodity and the price of the nearest futures contract for the same or a related commodity. Basis is usually computed in relation to the futures contract next to expire and may reflect different time periods, product forms, qualifies, or locations.

Basis Grade
The grade of a commodity used as the standard, or par grade of a futures contract.

Basis Points
A relationship between a bond’s price and a yield subdivided into hundredths. One hundred basis points equals 1 percent interest yield.

Basis Price
A method of pricing municipal bonds, T bills, and certain other instruments. It is an expression of yield to maturity.

Basis Quote
Offer or sale of a cash commodity in terms of the difference above or below a futures price (e.g., 10 cents over December corn).

Basis Risk
The risk associated with an unexpected widening or narrowing of basis between the time a hedging position is established and the time that it is lifted.

One who expects a decline in prices. The opposite of “bull.” A news item is considered bearish if it is expected to bring lower prices.

Bear Spread
The simultaneous purchase and sale of two futures contracts in the same or related commodities with the intention of profiting from a decline in prices but at the same time limiting the potential loss if this expectation is wrong. In the agricultural products, this is accomplished by selling a nearby delivery and buying a deferred delivery

Bear Vertical Spread
A strategy employed when an investor expects a decline in a commodity price but at the same time seeks to limit the potential loss if this expectation is wrong. This Spread requires the simultaneous purchase and sale of options of the same class and expiration date but different strike prices. For example, if call options are spread, the purchased option must have a higher exercise price than the sold option.

Bear Market
A market in which prices are generally declining.

Bear Put Spread
A strategy in which a trader sells a lower strike put and buys a higher strike put to create a trade with limited profit and limited risk. A fall in the price of the underlying increases the value of the spread.
Net debit transaction;
Maximum loss = difference between strike prices less the debit; no margin.

Bearer Stocks/Shares
Securities for which no register of ownership is kept by the company. A bearer certificate has an intrinsic value. Dividends are not received automatically from the company but must be claimed by removing and returning “coupons” attached to the certificate.

Beginning Net Asset Value
The market value of a fund share on a predetermined start date.

Beneficial Owner
The owner of a security who is entitled to all the benefits associated with ownership. Customers’ securities are often registered in the name of the brokerage firm or central depository rather than in the name of the customer. Even so, the customer remains the real or beneficial owner.

Best Efforts Underwriting
The underwriter agrees to use his or her best efforts to sell a new issue of securities, but does not guarantee to the issuing company that any or all of the issue will be sold. The underwriter acts as an agent for the issuer in distributing the issue to his clients.

A measure of the volatility of a stock relative to the overall market. A beta of less than one indicates lower risk than the market; a beta of more than one indicates higher risk than the market. Nasdaq.com uses the S&P 500 as the underlying index to measure the overall market for beta.

Beta (Beta Coefficient)
A measure of the variability of rate of return or value of a stock or portfolio compared to that of the overall market.

The highest price anyone has declared that they want to pay for a security at a given time.

Bid and Asked
The bid (the highest price a buyer is prepared to pay for a trading asset) and the asked (the lowest price acceptable to a prospective seller of the same security) together comprise a quotation, or quote.

Bid-asked Spread
The difference between bid and asked prices constitute the bid-asked spread.

Bid Price
The price at which a buyer is willing to buy an option or stock.

Bid to Ask
Market maker or ECN went from bidding (buying) at the inside market bid to offering (selling) at the inside market offer.

Bid Up
Demand for an asset drives up the price paid by buyers.

Blackboard Trading
The practice of selling commodities from a blackboard on a wall of a commodity exchange.

Black-Scholes Model
An option pricing formula initially derived by F. Black and M. Scholes for securities options and later refined by Black for options on futures.

Blended Investment Style:
An investment strategy with attributes of both the growth style and the value style of investing.

Block Trade
A trade so large (for example, 10,000 shares of stock or $200,000 worth of bonds) that the normal auction market cannot absorb it in a reasonable time at a reasonable price.

Blow-Off Top
A steep and rapid increase in price followed by a steep and rapid drop in price. This indicator is often used in technical analysis.

Blue Chip
A term used to describe the common stocks of corporations with the strongest of reputations. (In poker, the blue chip is usually assigned the highest money value.)

Blue Sky
A slang term for laws various Canadian provinces and American states have enacted to protect the public against securities frauds. The term “blue skyed” indicates that a new issue has been cleared by a securities commission and may be sold to the public.

Board Broker System
A system of trading in which an individual member of an exchange (or a nominee of the member) is designated as a Board Broker for a particular commodity with the responsibility of executing orders left with him by other members on the floor, providing price quotations, and maintaining orderliness in the trading crowd. A Board Broker may not trade for his own account or the account of an affiliated organization. Also see Free Crowd System and Specialist System.

Board Lot
The smallest quantity of shares traded on an exchange at standard commission rates.

Board of Trade
Any exchange or association, whether incorporated or unincorporated, 6f persons who are engaged in the business of buying or selling any commodity or receiving the same for sale on consignment

Board Order
See Market-if-Touched Order.

Boiler Room
An enterprise which often is operated out of inexpensive, low-rent quarters (hence the term “boiler room”) that uses high-pressure sales tactics (generally over the telephone) and possibly false or misleading information to solicit generally unsophisticated investors.

Financial instruments representing debt obligations issued by the government or corporations traded in the futures market. A bond promises to pay its holders periodic interest at a fixed rate (the coupon), and to repay the principal of the loan at maturity. Bonds are issued with a par or face value of $1,000. Bonds are traded based upon their interest rates – if the bond pays more interest than available elsewhere, its worth increases.

Bond Fund
Type of mutual fund that invests in bond and preferred stocks with the idea of providing a stable income with a minimum of risk.

Book Entry
Electronic record of ownership of Treasury and agency securities, as opposed to receipt of a security’s certificate.

Book Entry Securities:
Electronically recorded securities that include each creditor’s name, address, Social Security or tax identification number, and dollar amount loaned, (I.e., no certificates are issued to bond holders, instead the transfer agent electronically credits interest payments to each creditor’s bank account on a designated date).

Book Transfer
A series of accounting or bookkeeping entries used to settle a series of cash market transactions.

Book Value
A value computed by subtracting the total liabilities from the value of all assets on the balance sheet, then dividing by the number of common shares. This is an accounting term that has no relation to the securities market value.

Booking the Basis
A forward pricing sales arrangement in which the cash price is determined either by the buyer or seller within a specified time. At that time, the previously agreed basis is applied to the then-current futures quotation.

Bought Deal
An entire issue of new stocks or bonds bought from the issuer by an investment dealer, frequently acting alone, for resale to its clients. The dealer risks its own money in a bought deal, and in the event that the price has to be lowered to sell out the issue, the dealer absorbs the loss.

A sudden rebound in the market (or a stock) typified by a strong upward move directly after a strong down move.

Box Transaction
An option position in which the holder has established a long call and a short put at one strike price and a short call and a long put at another strike price, all of which are in the same contract month in the same commodity.

Box Spread
A type of option arbitrage in which both a bull spread and a bear spread are established for a near-riskless position. One spread is established using put options and the other is established using calls. The spread may both be debit spreads (call bull spread vs. put bear spread) or both credit spreads (call bear spread vs. put bull spread).

Breadth of the Market
A measurement of the number of issues that advance or decline on a particular trading day.

Break-Even Point
The stock price (or prices) at which a particular strategy neither makes nor loses money. It generally pertains to the result at the expiration date of the options involved in the strategy. A “dynamic” break-even point is one that changes as time passes.

A rapid and sharp price decline.

Break-even (Options)
The point at which gains equal losses. The market price that a stock or future must reach for an option to avoid loss if exercised.
For a call, the break-even equals the strike price plus the premium paid.
For a put, the break-even equals the strike price minus the premium paid.

A rise in the price of an underlying instrument above its resistance level or a drop below the support level.

A purchase of shares in an open-end investment company mutual fund that is large enough to entitle the buyer to a lower sales charge. A series of breakpoints is established by the fund, at each of which the charge is reduced.

Generally referring to an index, it indicates that the index is composed of a sufficient number of stocks or of stocks in a variety of industry groups.

Broadened Base Earnings
A concept whereby the earnings per share of a company are computed to include a pro rata share of the earnings of all unconsolidated subsidiaries and associated companies.

Broad-based Index
An index designed to reflect the movement of the market as a whole. (For example, the S&P 100, the S&P 500, and the AMEX Major Market Index).

(1) An individual who buys or sells securities for customers (a stockbroker).
(2) On an exchange, one who executes public orders on an agency basis (a floor broker or commission house broker).
(3) As a slang term, a firm that executes orders for others (a brokerage firm).

Broker Association
Two or more exchange members who
(1) share responsibility for executing customer orders,
(2) have access to each others unfilled customer order’s as a result of common employment or other types of relationships, or
(3) share profits or losses associated with their brokerage or trading activity.

Brokerage Firm
A partnership or corporation that is in business to provide security services for a general marketplace.

Bucket Shop
A brokerage enterprise which “hooks”(i.e. takes the opposite side of) a customer”s order without actually having it executed on an exchange.

Directly or indirectly taking the opposite side of a customer’s order into the broker’s own account or into an account in which the broker has an interest without open and competitive execution of the order on an exchange.

A rapid advance in prices

One who expects a rise in prices. The opposite of “bear”. A news item is considered bullish if it portends higher prices.

Bull Call Spread
A strategy in which a trader buys a lower strike call and sells a higher strike call to create a trade with limited profit and limited risk. A rise in the price of the underlying increases the value of the spread.
Net debit transaction;
Maximum loss = debit;
Maximum gain = difference between strike prices less the debit;
no margin.

Bull Market
A market in which prices are generally rising.

Term used to describe rising security prices.

Bull Put Spread
A strategy in which a trader sells a higher strike put and buys a lower strike put to create a trade with limited profit and limited risk. A rise in the price of the underlying increases the value of the spread. Net credit transaction; Maximum loss = difference between strike prices less credit; Maximum gain = credit; requires margin.

Bull Spread
The simultaneous purchase and sale of two futures contracts in the same or related commodities with the intention of profiting from a rise in prices but at the same time limiting the potential loss if this expectation is ‘wrong. In the agricultural commodities, this is accomplished by buying the nearby delivery and selling the deferred.

Bull Vertical Spread
A strategy used when an investor expects that the price of a commodity will go up but at the same time seeks to limit the potential loss should this judgment be in error. This strategy involves the simultaneous purchase and sale of options of the same class and expiration date but different strike prices. For example, if call options are spread, the purchased option must have a lower exercise price than the sold option.

Bars or ingots of precious metals, usually cast in standardized sizes.

A market in which prices have a tendency to rise easily with a considerable show of strength.

Business Day
A day on which the exchanges are open for business.

Butterfly Spread
A three-legged spread in futures or options. In the options spread, the options have the same expiration date but differ in strike prices. For example, a butterfly spread in soybean call options might consist of two short calls at a $6.00 strike price, one long call at a $6.50 strike price, and one long call at a $5.50 strike price.

Buy IV Sell IV
Many options are spreads that have a buy option leg and a sell option leg. Buy IV is the implied volatility of the option leg with a buy component. Sell IV is the implied volatility of the option leg with a sell component.

Buy (or Sell) On Close
To buy (or sell) at the end of the trading session within the closing price range.

Buy (or Sell) On Opening
To buy (or sell) at the beginning of a trading session within the opening price range.

Buy Stop Order
An order to purchase a security entered at a price above the current offering price triggered when the market hits a specified price.

A market participant who takes a long future position or buys an option. An option buyer is also called a taker, holder, or owner.

Buyer’s Call
See Call.

Buyer’s Market
A condition of the market in which there is an abundance of goods available and hence buyers can afford to be selective and may be able to buy at less than the price that had previously prevailed. See Seller Market.

Buying Hedge (or Long Hedge)
A condition of the market in which there is an abundance of goods available and hence buyers can afford to be selective and may be able to buy at less than the price that had previously prevailed. See Seller’s Market.

When the seller of a security fails to deliver the security, the buyer purchases the security on the open market and charges any loss to the seller’s account.

An advanced option order that combines the purchase of an equity and the sale of a call option on the same underlying security.

Buyer’s Option (Contract)
A settlement that calls for delivery and payment according to the number of days specified by the buyer.

Buying Power
In a margin account, the maximum dollar amount of securities that the client can purchase or sell short without having to deposit additional funds.

CAC 40 Index
A broad-based index of 40 common stocks on the Paris Bourse.

C & F
“Cost and Freight” paid to a point of destination and included in the price quoted.

Cost, insurance and freight paid to a point of destination and included in the price quoted.

Calendar spread
The sale of an option with a nearby expiration against the purchase of an option with the same strike price, but a more distant expiration. The loss is limited to the net premium paid, while the maximum profit possible depends on the time value of the distant option when the nearby expires. The strategy takes advantage of time value differentials during periods of relatively flat prices.

The period at market opening or closing during which futures contract prices are established by auction.

Call Date
The date on which and after which selected issues of Treasury bonds can be redeemed before maturity.

Call Loan
A loan which may be terminated or “called” at any time by the lender. The loan is then immediately payable, with any accrued interest, by the borrower to the lender. These loans are used to finance purchases of securities and exclude personal loans extended by banks to its customers.

Call Option
A contract that entitles the buyer/taker to buy a fixed quantity of a commodity at a stipulated basis or striking price at any time up to the expiration of the option. The buyer pays a premium to the seller/grantor for this contract. A call option is bought with the expectation of a rise in prices. See Put Option .

Call Premium
The amount a call option costs.

Call Protection
The degree of security that an investor has against a bond being redeemed. Practically, the number of years between today and the call date.

Call Rule
An exchange regulation under which an official bid price for a cash commodity is competitively established at the close of each day’s trading. It holds until the next opening of the exchange.

Another term for “exercised” when the option is a call. The writer of a call must deliver the indicated underlying commodity when the option is exercised or called.

Call Spread
Client buys a call and sells a call on the same security but with different expiration dates, different exercise prices, or both.

A securities feature that allows the issuer to retire the issue when desired. Should the issue be called, the issuer usually pays a premium.

Callable Bonds
Treasury bonds that can be redeemed by Uncle Sam five years before maturity.

The amount of money an individual or business has available.

Capital Gain
A trading profit. Trading gains that occur in one year or less are short-term capital gains; those that occur in periods longer than one year are long-term capital gains. Short-term and long-term capital gains are treated differently for tax purposes.

Capital Gains Distribution
Payments to mutual fund shareholders of profits from the sale of securities in a fund’s portfolio. Capital gains distributions (if any) are usually made annually.

Capital Loss
A trading loss. Losses are long- or short-term as are gains. See Capital Gain.

Capital Stock
The common and preferred stock of a company.

The total dollar value of all common stock, preferred stock, and bonds issued by a corporation.

Capital Market
This market brings together all the providers and users of capital, all the financial products, like stocks and bonds which make the transfer of capital possible, and all the people and organizations which support the process.

Capitalization-Weighted Index
A stock index which is computed by adding the capitalization (float times price) of each individual stock in the index, and then dividing by the divisor. The stocks with the largest market values have the heaviest weighting in the index.

Effecting commodity or security transactions shortly prior to an option’s expiration date by depressing or preventing a rise in the price of the commodity or security so that previously written call options will expire worthless and the premium received therefrom will be protected.

Capped-style Option
An option with an established profit cap or cap price.

Carrying Broker
A member of a commodity exchange, usually a futures commission merchant, through whom another broker or customer elects to clear all or part of its trades.

Carrying Charges
Cost of storing a physical commodity or holding a financial instrument over a period of time. Includes insurance, storage, and interest on the invested funds as well as other incidental costs. It is a carrying charge market when there are higher futures prices for each successive contract maturity. If the carrying charge is adequate to reimburse the holder, it is called a “full charge”.Also see Negative Carry, Positive Carry and Contango.

Carrying charges
The cost of storing a physical commodity, consisting of interest on the invested funds, insurance, storage fees, and other incidental costs. Carrying costs are usually reflected in the difference between futures prices for different delivery months. When futures prices for deferred contract maturities are higher than for nearby maturities, it is a carrying charge market. A full carrying charge market reimburses the owner of the physical commodity for its storage until the delivery date

Carrying Cost
The interest expense on a debit balance created by establishing a position.

The portion of existing supplies remaining from a prior production period

Cash (CDs, Savings Accounts, Treasury Bills):
These investments provide safety of principal and scheduled returns (if held to maturity) and are ideal for short-term objectives and liquidity needs. Because of their relatively low after-tax returns, they are susceptible to inflation risk for longer term investment needs.

Cash Account
A customer account in which all securities purchased must be paid for in full.

Referring to an option or future that is settled in cash when exercised or assigned. No physical entity, either stock or commodity, is received or delivered.

Cash Commodity
The physical or actual commodity as distinguished from the futures contract. Sometimes called Spot Commodity or Actuals.

Cash commodity/cash market
The actual or physical commodity. The market in which the physical commodity is traded, as opposed to the futures market, where contracts for future delivery of the physical commodity are traded. See also Actuals

Cash Contract
A sales agreement for either immediate or future delivery of the actual product.

Cash Dividend
Dividends that corporations pay on a per-share basis to stockholders from their earnings.

Cash Flow
Amount of total payments, interest and occasionally principal received as current income from Treasury and agency securities.

Cash Transaction
A settlement on the same day as the trade date.

Cash market
A market in which goods are purchased either immediately for cash, as in a cash and carry contract, or where they are contracted for presently, with delivery occurring at the time of payment. All terms of the contract are negotiated between the buyer and seller.

Cash Market
The market for the cash commodity (as contrasted to a futures contract), taking the form of: (1) an organized, self-regulated central market (e.g., a commodity exchange); (2) a decentralized over-the-counter market; or (3) a local organization, such as a grain elevator or meat processor, which provides a market for a small region.

Cash price
The cost of a good or service when purchased for cash. In commodity trading, the cash price is the cost of buying the physical commodity on the current day in the spot market, rather than buying contracts in the futures market

Cash Price
The price in the marketplace for actual cash or spot commodities to be delivered via customary market channels

Cash Settlement
A method of settling certain futures or option contracts whereby the seller (or short) pays the buyer (or long) the cash value of the commodity traded according to a procedure specified in the contract. Instead of having the actuals delivered, cash is transferred upon settlement

Cashiering Department
Brokerage firm department that is responsible for receiving and delivering securities and money to and from other firms and clients.

See Chicago Board Options Exchange.

See Commodity Credit Corporation .

See Chicago Board of Trade.

See Certificate of Deposit.

See Commodity Exchange Authority.

Central Bank
A body established by a national government to regulate currency and monetary policy on a national and international level. In Indonesia it is the Bank of Indonesia. In the United States it is the Federal Reserve Board and in the United Kingdom it is the Bank of England.

The physical document evidencing ownership (a share of stock) or debt (a bond).

Certificate of Deposit (CD)
A negotiable certificate that evidences a time deposit of funds with a bank.

Certificated or Certified Stocks
Stocks of a commodity that have been inspected and found to be of a quality deliverable against futures contracts, stored at the delivery points designated as regular or acceptable for delivery by the commodity exchange. In grain called stocks in deliverable position. See Deliverable Stocks.

Certificated stock
Stocks of a physical commodity that have been inspected by the exchange and found to be acceptable for delivery on a futures contract. They are stored at designated delivery points.

Cancel Former Order.

See Commodity Futures Trading Commission.

The difference between the current price and the price of the previous day of a security.

A clearing member of both the Mid-America Commodity Exchange and another futures exchange who, for a fee, will assume the opposite side of a transaction on the MCE by taking a spread position between the MCE and another futures exchange which trades an identical, but larger, contract. Through this service, the changer provides liquidity for the MCE and an economical mechanism for arbitrage between the two markets.

When technicians analyze the futures markets, they employ graphs and charts to plot the price movements, volume, open interest, or other statistical indicators of price movement. See also Technical analysis and Bar chart.

Technical trader who reacts to signals read from graphs of price movements

Colloquialism implying that a commodity is underpriced.

Usually refers to the selection of bonds deliverable against the expiring bond futures contract.

Chicago Board Options Exchange (CBOE)
Listed option trading was originated by this marketplace on April 26, 1973.

Chicago Board of Trade (CBT)
A major commodity exchange located 141 East Jackson Boulevard, Chicago IL.

Chicago Mercantile Exchange (CME)
The second largest futures exchange in the United States. Originally formed in 1874 as the Chicago Produce Exchange, the “Chicago Merc” was primarily a perishable agricultural products market (butter, eggs, poultry, etc.). The name was changed in 1919, and since then the CME has been an innovator in the industry. The CME trades financial futures, options, and stock index futures contracts. The CME is the largest exchange for futures contracts in live commodities, foreign currencies, and Eurodollars. Foreign currencies contracts traded include: German Mark, Canadian Dollar, French Franc, Swiss Franc, Mexican Peso, British Pound, Australian Dollar, and Japanese Yen. Futures contracts on the S&P 500, Nikkei 250, Major Market Index, and S&P 100 Stock Indexes and options on many of the their futures contracts are also traded at the CME. The CME is located at 30 S. Wacker Dr., Chicago, IL 60606.

Chooser Option
An option which is transacted at the present but which at some prespecified future date is chosen to be either a put or a call option.

Excessive trading of an account by broker with control of the account for the purpose of generating commissions while disregarding the interests of the customer.

Circuit Breaker
A system of trading halts and price limits on equities and derivative markets designed to provide a cooling-off period during large, intraday market declines. The first known use of the term circuit breaker in this context was in the Report of the Presidential Task Force on Market Mechanisms (January 1988), which recommended that circuit breakers he adopted following the market break of October 1987.

Options of the same type – all calls or all puts on the same security.

Class of Options
Option contracts of the same type (call or put), style and underlying security.

The process by which a clearinghouse maintains records of all trades and settles margin flow on a daily mark-to-market basis for its clearing member.

The procedure through which the clearing house or association becomes buyer to each seller of a futures contract, and seller to each buyer, and assumes responsibility for protecting buyers and sellers from financial loss by assuring performance on each contract

Clearing Corporations
A central reception and distribution center operated for its members who are made up of various brokerage firms. Many offer automated systems that expedite comparison procedures. Among these are NSCC (National Securities Clearing Corp.) and OCC (Options Clearing Corporation).

Clearing House
An adjunct to, or division of, a commodity exchange through which transactions executed on the floor of the exchange are settled. Also charged with assuring the proper conduct of the exchange’s delivery procedures and the adequate financing of the trading.

Clearing House Comparison (CHC)
A form used to submit trades to NSCC that have missed the normal entry methods. Such trades enter the system on the third business day of the trade cycle.

Clearing Margin
Financial safeguards to ensure that clearing members (usually companies or corporations) perform on their customers’ open futures and options contracts. Clearing margins are distinct from customer margins that individual buyers and sellers of futures and options contracts are required to deposit with brokers. See Customer Margin.

Clearing Member
A member of the Clearing House or Association. All trades of a non-clearing member must be registered and eventually settled through a clearing member.

Clearing Price
See Settlement Price.

A strategy for arranging bonds so that they all mature in the same year.

Close, The
The period at the end of the trading Session officially designated by the exchange during which all transactions are considered made “at the close “.

Closed End Fund
A fund whose offering of shares is closed. That is, once the initial offering is completed, the fund stops offering its shares. The value of the shares is then determined by supply and demand, rather than by calculation of net asset value.

Closed-end Investment Company
This is a company which uses its capital to invest in other companies. Shares in a closed-end investment company are bought and sold on the stock market and the company’s capital remains relatively unchanged.

Closing Purchase
A transaction to eliminate a short position.

Closing Sale
A transaction in which the seller’s intention is to reduce or eliminate a long position in a given series of options

Closing Price (or Range)
The price (or price range) recorded in trading that takes place in the final moments of a day’s trade that are officially designated as the “close “.

Liquidating an existing long or short futures or option position with an equal and opposite transaction. Also known as Offset.

Closing Range
A range of prices at which buy and sell transactions took place during the market close.

Closing Transaction
The transaction executed to close an option contract. The holder would sell to close while the writer would buy to close.

An asset pledged to support a loan. The loan value of marginable securities; generally used to finance the writing of uncovered options.

Collateral Trust Bond
A debt instrument issued by one corporation and backed by the securities of another corporation.

A position long or short different types of options on the same stock with different strike prices and/or expiration dates. Any position involving both put and call options that is not a straddle.

Combination Order
In listed options trading, an order to simultaneously buy a call and sell a put or to buy a put and sell a call on the same underlying security. Also called a Combo Order.

Comfort Letter
A letter filed with the applicable securities commissions by a company’s auditor when submitting unsigned financial statements for use in a prospectus. The letter says that the final format of the statements should not be materially different from those attached to the letter. The letter is required because the auditor does not sign the report until the final prospectus is prepared for distribution. The signing is done after the securities commissions have reviewed the prospectus and any required changes have been made.

An entity involved in the production, processing, or merchandising of a commodity.

Commercial Grain Stocks
Domestic grain in store in public and private elevators at important markets and grain afloat in vessels or barges in harbors of lakes and seaboard ports.

Commercial Paper
A short-term debt instrument issued by corporations. Its rate of interest is set at issuance and can be realized only if held to maturity.

The amount charged by a firm on an agency transaction.

Commission House Broker
A floor broker who is employed by a brokerage house to execute orders on the exchange floor for the firm and its customers.

See Open Interest.

An article of commerce or a product that can be used for commerce. In a narrow sense, products traded on an authorized commodity exchange. The types of commodities include agricultural products, metals, petroleum, foreign currencies, and financial instruments and index, to name a few.

Commodity Credit Corporation
A government-owned corporation established in 1933 to assist American agriculture. Major operations include price support programs, foreign sales, and export credit programs for agricultural commodities.

Commodity Exchange Authority
A regulatory agency of the U.S. Department of Agriculture established to administer the Commodity Exchange Act prior to 1975; the forerunner of the Commodity Futures Trading Commission

Commodity Exchange Commission
A commission consisting of the Secretary of Agriculture, Secretary of Commerce, and the Attorney General, charged with responsibility for administering the Commodity Exchange Act prior to 1975.

Commodity Futures Trading Commission (CFTC)
The Federal regulatory agency established by the CFTC Act of 1974 to administer the Commodity Exchange Act.

Commodity Pool
An enterprise in which funds contributed by a number of persons are combined for the purpose of trading futures contracts or commodity options.

Commodity Pool Operator (CPO)
Individuals or firms in businesses similar to investment trusts or syndicates that solicit or accept funds, securities or property for the purpose of trading commodity futures contracts or commodity options.

Commodity Price Index
Index or average, which may be weighted, of selected commodity prices, intended to be representative of the markets in general or a specific subset of commodities (for example, grains or livestock).

Commodity Trading Advisor (CTA)
Individuals or firms that, for pay, issue analyses or reports concerning commodities, including the advisability of trading in commodity futures or options.

Commodity-linked Bond
A bond in which payment to the investor is dependent on the price level of such commodities as crude oil, gold, or silver at maturity

Commodity Funds
These funds invest in commodities and commodity futures and options. They are extremely volatile and should be considered speculative investments, although some investors use these funds for inflation hedges.

Common Stock
A security, issued in shares, that represents ownership of a corporation. Common stockholders may vote for the management and receive dividends after all other obligations of the corporation are satisfied.

Company and Industry Risk
Market valuations of companies that have publicly traded securities are based upon expectations of the company’s and its industry’s future performance. As these expectations change over time, market values will adjust accordingly.

The process by which two contra brokerage firms in a trade agree to the terms of the transaction. Comparison can be either through a clearing corporation or on a trade-for-trade basis (that is, ex the clearing corporation).

Competitive Tender
A method of purchasing new issues of Treasury bills, notes, and bonds in which the investor specifies the yield, and accordingly the price, he or she requires to purchase the security.

Computerized Trading System:
A Jakarta Futures Exchange computerized surveillance program that pinpoints in any trade the traders, the contract, the quantity, the price, and time of execution to the nearest minute.

The sale or purchase of 2 options with consecutive exercise prices, together with the sale or purchase of 1 option with an immediately lower exercise price and 1 option with an immediately higher exercise price.

(1) A market situation in which shorts attempting to cover their positions are unable to find an adequate supply of contracts provided by longs willing to liquidate or by new sellers willing to enter the market, except at sharply higher prices;
(2) in technical analysis, a period of time characterized by repetitious and limited price fluctuations.

A company directly or indirectly operating in a variety of industries, usually unrelated to each other. Conglomerates often acquire outside companies through the exchange of their own shares for the shares of the majority owners of the outside companies.

A trade notice, issued to customers of brokerage firms, that serves as written notice of the trade, giving price, security description, settlement money, trade and settlement dates, plus other pertinent information.

Consent to Loan Agreement
An agreement margin customers must sign to authorize the brokerage firm to lend the customer’s securities to itself or other firms.

Consensus Rating
The average of analysts recommendations for a single entity. As many brokers have different ratings systems, their recommendations must be standardized so that a consensus can be calculated. The I/B/E/S ratings are calculated using a standard set of recommendations, maintained by I/B/E/S, each with an assigned numeric value:
•1. Strong Buy
•2. Buy
•3. Hold
•4. Underperform
•5. Sell
Each recommendation received from the analysts is mapped to one of the I/B/E/S standard ratings. Assigning a numeric value to the broker text enables I/B/E/S to calculate a consensus recommendation. This consensus recommendation appears as the mean (average) of the assigned values.

The money value of a transaction (number of shares multiplied by the price) before adding commission.

A shipment made by a producer or dealer to an agent elsewhere with the understanding that the commodities in question will be cared for or sold at the highest obtainable price. Title to the merchandise shipped on consignment rests with the shipper until the goods are disposed of according to agreement

Constant-Dollar Investment
Securities such as savings accounts and money market funds that do not fluctuate in price.

Consumer Price Index (CPI)
A measure of price changes in consumer goods and services. This index is used to identify periods of economic inflation or deflation.

Market situation in which prices in succeeding delivery months are progressively higher than in the nearest delivery month; the opposite of “backwardation”.

Contingent Order
An order which can be executed only if another event occurs; i.e. “sell Oct 45 call 7.25 with stock 52 or lower”.

(l) A term of references describing a unit of trading for a commodity future or option; (2) An agreement to buy or sell a specified commodity, detailing the amount and grade of the product and the date on which the contract will mature and become deliverable.

Contract Grades
Those grades of a commodity which have been officially approved by an exchange as deliverable in settlement of a futures contract.

Contract Market
(1) A board of trade or exchange designated by the Commodity Futures Trading Commission to trade futures or options under the Commodity Exchange Act; (2) Sometimes the futures contract itself (e.g., corn is a contract market).

Contract Month
See Delivery Month

Contract Unit
The actual amount of a commodity represented in a contract.

Contractual Plan
A type of accumulation plan in which an investor in mutual funds makes a firm commitment to invest a given amount of money over a given time.

Control Persons
A director, officer or other affiliate of the issuer or a stockholder who owns at least 10% of any class of outstanding stock.

Control Securities
Securities owned by one of those parties mentioned in Control Person

Controlled Account
Any account for which trading is directed by someone other than the owner. Also called a Managed Account or a Discretionary Account.

The tendency for prices of physicals and futures to approach one another, usually during the delivery month. Also called a “narrowing of the basis “.

When trading options on futures contracts, a position created by selling a call option, buying a put option, and buying the underlying futures contract, where the options have the same strike price and the same expiration.

Conversion Arbitrage
A riskless transaction in which the arbitrageur buys the underlying security, buys a put, and sells a call. The options have the same terms.

Conversion Factor
A factor used to equate the price of T-bond and T-note futures contracts with the various cash T-bonds and T-notes eligible for delivery. This factor is based on the relationship of the cash-instrument coupon to the required 8 percent deliverable grade of a futures contract as well as taking into account the cash instrument’s maturity or call.

Convertible Issue (Bond)
A securities feature that permits the issue holder to convert to another issue, usually common stock. This privilege can be used only once. The preferred stock or bond holder can convert from that issue to another, but not back.

Convertible Preferred Stock
A preferred stock that may be converted into common stock of the same company at specific prices or rates.

Convertible Security
A security that is convertible into another security. Generally, a convertible bond or convertible preferred stock is convertible into the underlying stock of the same corporation. The rate at which the shares of the bond or preferred stock are convertible into the common is called the conversion ratio.

Convertible Zero
As it applies to the Treasury sector, a stripped Treasury zero that converts into a current income obligation five years before maturity.

Cooling-Off Period
The period, usually 20 days, between the filing of the registration statement on a new issue with the SEC and the effective date of the offering.

Co-Partnership Account
An account in which the individuals may act on behalf of the partnership as a whole.

(1) To corner is to secure such relative control of a commodity or security that its price can be manipulated;
(2) In the extreme situation, obtaining contracts requiring delivery of more commodities or securities than are available for delivery.

Corn-Hog Ratio
See Feed Ratio

A business organization under the law with certain rights and responsibilities in which the worth is divided into shares of stock.

Corporate Resolution
A document stating that the corporation’s board of directors has authorized a particular individual to act on behalf of the corporation. This document is necessary when the corporation opens a cash or margin account.

A sudden decline in the price of a security after a period of market strength.

Cost of Tender
Total of various charges incurred when a commodity is certified and delivered on a futures contract.

Counter-Trend Trading
In technical analysis, the method by which a trader takes a position contrary to the current market direction in anticipation of a change in that direction.

(1) On Bearer Stocks, the detachable part of the certificate exchangeable for dividends.
(2) Denotes the rate of interest on a fixed interest security – a 10% coupon pays interest of 10% a year on the nominal value of the stock.

Coupon (Coupon Rate)
A fixed dollar amount of interest payable per annum, stated as a percentage of principal value, usually payable in semiannual installments.

Coupon Yield
Also called nominal yield. A bond’s coupon payment divided by par value.

The total net profit a company has available for distribution as dividend, divided by the amount actually paid gives the number of times that the dividend is covered. To buy back as a closing transaction an option that was initially written.

A written option is considered to be covered if the writer also has an opposing market position on a share-for-share basis in the underlying security. That is, a short call is covered if the underlying stock is owned, and a short put is covered (for margin purposes) if the underlying stock is also short in the account. In addition, a short call is covered if the account is also long another call on the same security, with a striking price equal to or less than the striking price of the short call. A short put is covered if there is also a long put in the account with a striking price equal to or greater than the striking price of the short put.

Covered Call
A call option that is sold against stock owned by the writer of the call.
Covered Call Option Writing
A strategy in which one sells call options while simultaneously owning an equivalent position in the underlying security or strategy in which one sells put options and simultaneously is short an equivalent position in the underlying security.

Covered Put
A put option that is sold by the owner of a put of the same class with an equal or longer expiration date and an equal or higher exercise price.

Covered Put Write
A strategy in which one sells put options and simultaneously is short an equal number of shares of the underlying security.

Covered Straddle
An option strategy in which one call and one put with the same strike price and expiration are written against 100 shares of the underlying stock. In actuality, this is not a “covered” strategy because asignment on the short put would require purchase of stock on margin. This method is also known as a covered combination.

Covered Straddle Write
The term used to describe the strategy in which an investor owns the underlying security and also writes a straddle on that security. This is not really a covered position.

Money received in an account. A credit transaction is one in which the net sale proceeds are larger than the net buy proceeds (cost), thereby bringing money into the account.

Credit Agreement
Outlines the conditions of credit arrangement between the broker and customer concerning a margin account.

Credit Balance
The funds available to a client in a cash or margin account. In a short sale, this balance represents the customer’s liability.

Credit Risk
This risk usually relates to bond investments and refers to the financial soundness of the firm which issued the bonds. The higher the credit rating, the lower the expected return from interest payments because of the very high likelihood of receiving interest and principal back. (This helps most of us sleep well at night!) The lower the credit rating, the higher the bond return needs to be to attract investors, and the more uncertainty involved in collecting both interest and principal. For firms with high credit risk, and especially for bond issues in default, the principal value of the bonds can fluctuate greatly based on perceived changes in the firm’s ability to repay the bondholders.

Credit Spread
The difference in value between 2 options, where the value of the short position exceeds the value of the long position.

Crop (Marketing) Year
The time span from harvest to harvest for agricultural commodities. The crop marketing year varies slightly with each ag commodity, but it tends to begin at harvest and end before the next year’s harvest, e.g., the marketing year for soybeans begins September 1 and ends August 31. The futures contract month of November represents the first major new-crop marketing month, and the contract month of July represents the last major old-crop marketing month for soybeans.

Crop Reports
Reports compiled by the U.S. Department of Agriculture on various ag commodities that are released throughout the year. Information in the reports includes estimates on planted acreage, yield, and expected production, as well as comparison of production from previous years.

Hedging a cash commodity using a different but related futures contract when there is no futures contract for the cash commodity being hedged and the cash and futures markets follow similar price trends (e.g., using soybean meal futures to hedge fish meal).

Cross Rate
The current exchange rate between differing currencies.

Crush Spread
The purchase of soybean futures and the simultaneous sale of soybean oil and meal futures. See Reverse Crush.

Cum Dividend
This means “with dividend.” Buyers of shares quoted cum dividend are entitled to an upcoming already-declared dividend.

Cum Rights
This means “with rights.” Buyers of shares quoted cum rights are entitled to forthcoming rights.

Cumulative Preferred
A preferred stock feature that entitles the holder to the later payment of dividends that were not paid when due. The dividends are, in this sense, “cumulative.” The dividends accumulate and must be paid (along with present dividends) before common stockholders may receive any dividends.

Current Assets
Cash and assets such as accounts receivable and inventories, which in the normal course of business can be converted into cash within a year. Current assets are found on the company’s balance sheet.

Current Liabilities
Money owed to the company and due to be paid within a year, such as accounts payable. Current liabilities are found on the company’s balance sheet.

Current Ratio or Working Capital Ratio
Current assets of a business divided by current liabilities, thus measuring how much the value of current assets exceeds its liabilities. This is one of the tests to determine how much cash a company has on hand to cover its current liabilities.

Current Income
Cash-in-hand payments received from interest and dividends.

Current Maturity
The number of years until a bond matures, regardless of its original maturity when issued.

Current Return or Yield
The annual income from an investment expressed as a percentage of the investment’s current value. On stock, this is calculated by dividing yearly dividends by the market price of the security. On bonds, this is calculated by dividing yearly interest by current price. For example, if the income is $50 a year on an investment with a value of $1,000, the current yield is 5%.

Currency Risk
Investments traded in foreign markets or which pay interest or dividends in foreign currencies entail the risk of declines in the currency’s value relative to the U.S. dollar. Some investment managers attempt to manage this risk with various hedging techniques. These are not consistently effective, but diversification into many major currencies can help limit this risk.

Current Yield
A bond’s coupon payment divided by its market price.

CUSIP (The Committee on Uniform Security Identification Procedure) –
An inter-industry security coding service. Each type of security has its own unique CUSIP number.

The person or institution responsible for protecting the property of another.

Customer (Account) Statement
Sometimes referred to as month-end statement. This is a statement of the customer’s positions and activity. It must be sent out quarterly, but if there is monthly activity in the account, it is sent out monthly.

Customer Margin
Within the futures industry, financial guarantees required of both buyers and sellers of futures contracts and sellers of options contracts to ensure fulfilling of contract obligations. FCMs are responsible for overseeing customer margin accounts. Margins are determined on the basis of market risk and contract value. Also referred to as performance-bond margin. See Clearing Margin.

The expiration dates applicable to various classes of options. There are three cycles: January/April/July/October, February/May/August/November, and March/June/September/ December.

Cyclical Stock
Stock in an industry that is particularly sensitive to swings in economic conditions, such as mining or forestry.

Daily Range
The difference between the high and low price of a security in one trading day.

Daily Trading Limit:
The maximum price range set by the exchange cash day for a contract.

Date of Record
The date on which a shareholder must officially own shares in order to be entitled to a dividend.

Dated Date
The first day that interest starts to accrue on newly issued bonds.

Day Order
An order that, if not executed on the day it is entered, expires at the close of that day’s trading.

Day Trade
The buying and selling of the same security on the same day.

Day Trading
An approach to trading in which the same position is entered and exited within one day.

See Delivery Balance Order.

A firm that functions as a market maker and that, as such, positions the security to buy and sell versus the public and/or brokerage community.

Dealer option
A put or call on a physical good written by a firm dealing in the underlying cash commodity. A dealer option does not originate on, nor is it subject to the rules of an exchange.

A certificate of indebtedness of a government or company backed only by the general credit of the issuer and unsecured by property or assets.

Debenture Bond
A debt that is issued by a corporation and that is backed or secured by the good name of the issuing company.

Debit Spread
The difference in value between 2 options, where the value of the long position exceeds the value of the short position.

Debt to Equity Ratio
Long-term debt divided by shareholders’ equity, showing relationship between long-term funds provided by creditors and funds provided by shareholders; high ratio may indicate high risk, low ratio may indicate low risk.

Debt instruments
1) Generally, legal IOUs created when one person borrows money from (becomes indebted to) another person; 2) Any commercial paper, bank CDs, bills, bonds, etc.; 3) A document evidencing a loan or debt. Debt instruments such as T-Bills and T-Bonds are traded on the CME and CBOT, respectively

An expense, or money paid out from an account. A debit transaction is one in which the net cost is greater than the net sale proceeds.

Debit Balance
The amount of loan in a margin account.

Debit Spread
The difference in value between 2 options, where the value of the long position exceeds the value of the short position.

All orders in a floor broker’:s possession that have not yet been executed

Deed of Trust
The trust agreement drawn up when a corporation plans to issue bonds or other debt securities. It includes such items as assets, interest payments, maturity dates, etc. Also, see indenture.

Deep in-the-money
An option is “deep in-the money” when it is so far in-the-money that it is unlikely to go out-of-the-money prior to expiration. It is an arbitrary term and can be used to describe different options by different people

Deep out-of-the-money
Used to describe an option that is unlikely to go into-the-money prior to expiration. An arbitrary term

Deemed Disposition
Under certain circumstances, taxation rules state that a transfer of property has occurred, even without a purchase or sale. For example, there is a deemed disposition on death or emigration from Canada.

An issuer’s failure to pay accreted interest when a zero coupon issue matures. Treasury securities are considered default-free.

Defensive Stock
Stock of a company with continuous dividend payments, which has demonstrated relatively stable earnings despite poor economic conditions.

Deferred Annuity
An annuity plan in which payments are to be made at some set date in the future.

Deferred delivery:
Futures trading in distant delivery months. The more distant month(s) in which futures trading is taking place, as distinguished from the nearby (delivery) month.

Deferred pricing:
A method of pricing where a producer sells his commodity now and buys a futures contract to benefit from an expected price increase. Although some people call this hedging, the producer is actually speculating that he can make more money by selling the cash commodity and buying a futures contract than by storing the commodity and selling it later. (If the commodity has been sold, what could he be hedging against?)

Deficiency Letter
A securities commission letter sent to a company that has submitted a preliminary prospectus on a planned new issue of the company’s securities. The letter poses any questions the commission wants answered, and outlines any recommendations for changes to the prospectus. When all points raised in the letter are resolved, the issue’s final prospectus may be filed.

A financial situation for an individual, company or government where expenses exceed income.

Delayed Time
Quotes from a data service provider which are delayed up to 20 minutes from real time quotes.

The removal of a security’s listing on a stock exchange. This is done when the security no longer exists, the company is bankrupt, the public distribution of the security has dropped to an unacceptably low level, or the company has failed to comply with the terms of its listing agreement.

To take securities from an individual or firm and transfer them to another individual or firm. A call writer who is assigned must deliver stock to the call holder who exercised. A put holder who exercises must deliver stock to the put writer who is assigned.

Delivery Balance Order (DBO)
An order issued by the clearing corporation to any firm that, after the day’s trades are netted, has delivery or sale position remaining. The order defines what is to be delivered to whom.

Delivery month
The month during which a futures contract expires, and delivery is made on that contract.

Delivery notice
Notification of delivery by the clearinghouse to the buyer. Such notice is initiated by the seller in the form of a “Notice of Intention to Deliver.”

Delivery point
The location approved by an exchange for tendering and accepting goods deliverable according to the terms of a futures contract.

The transportation of a physical commodity (actuals or cash) to a specified destination in fulfillment of a futures contract.

Delivery Versus Payment (DVP)
Settlement of security transactions used by institutional customers. Certificates are delivered to a bank designated by the customer whereupon the bank makes payment on delivery.

The amount by which the price of an option changes for every dollar move in the underlying instrument.

An options strategy protecting an option against price changes in the option’s underlying instrument by balancing the overall position delta to zero.

Delta Neutral
A position arranged by selecting a calculated ratio of short and long positions that balance out to an overall position delta of zero.

Delta Position
A measure of option or underlying securities delta.

The correlation factor between a futures price fluctuation and the change in premium for the option on that futures contract. Delta changes from moment to moment as the option premium changes.

Delta Spread
A ratio spread that is established as a neutral position by utilizing the deltas of the options involved. The neutral ratio is determined by dividing the delta of the purchased option by the delta of the written option.

The desire to purchase economic goods or services (and the financial ability to do so) at the market price constitutes demand. When many purchasers demand a good at the market price, their combined purchasing power constitutes “demand.” As this combined demand increases or decreases, other things remaining constant, the price of the good tends to rise or fall.

Demand, Law of:
The relationship between product demand and price.

A central location for keeping securities on deposit.

Depository Trust Company (DTC)
A corporation, owned by banks and brokerage firms, that holds securities, arranges for their receipt and delivery, and arranges for the payments in settlement.

Refers to the consumption of natural resources which are part of a company’s assets. Since oil, mining and gas companies deal in products that cannot be replenished, depletion reduces the company’s natural assets over a specified time period. The recording of depletion is a bookkeeping entry similar to depreciation and does not involve the expenditure of cash.

Systematic charges made against earnings to write-off the cost of an asset over its estimated useful life because of wear and tear through use, action of the elements, or obsolescence. It is a bookkeeping entry and does not represent any cash outlay nor are any funds earmarked for the purpose. It reduces the company’s fixed assets to zero over a specified time period.

A financial instrument whose characteristics and value are based on the characteristics and value of another financial instrument or product.

Derivative security
A financial security whose value is determined in part from the value and characteristics of another security, the underlying security.

Derivative Zeros
Zero coupon bonds created by stripping coupon and principal payments from a U.S. Treasury Security.

Designated Order Turnaround (DOT)
An order routing and execution reporting system of the NYSE.

Diagonal Spread
A spread of the same class of options but with different exercise prices and different expiration dates.

The fraction of a point added to the purchase price or subtracted from the sale price of odd lot orders. The charge represents compensation to the dealer/specialist for executing the odd lot order. Price differences between classes, grades, and delivery locations of various stocks of the same commodity.

Reducing the actual or potential earnings per share by issuing more shares or giving options to obtain more.

Direct or Indirect Holdings
These are the holdings of an individual or company in other companies. For example, company A owns 500,000 shares of company B’s 1,000,000 outstanding shares. Company A therefore has a 50% direct interest in company B. Company B, in turn, owns 300,000 of company C’s outstanding 500,000 shares. Company B therefore has a 60% direct interest in company C. Company A (by virtue of its 50% direct interest in company B) has a 30% indirect interest in company C.

Direct hedge
When the hedger has (or needs) the commodity (grade, etc.) specified for delivery in the futures contract, he is “direct hedging.” When he does not have the specified commodity, he is cross hedging

A corporate board member elected by stockholders.

Disaster Out Clause
A clause in an underwriting agreement allowing the underwriter to cancel the agreement, should a law, event or major financial occurrence transpire that adversely affects financial markets in general or the issuer in particular.

Disclaimer Clause
Securities commissions require that all prospectuses carry a disclaimer on the front page stating that the securities commission itself has in no way approved the merits of the securities being offered for sale.

When the market price of a newly issued security is lower than the issue price.

Discount Arbitrage
A riskless arbitrage in which a discount option is purchased and an opposite position is taken in the underlying security. The arbitrageur may either buy a call at a discount and simultaneously sell the underlying security (basic call arbitrage) or may buy a put at a discount and simultaneously buy the underlying security (basic put arbitrage).

Discount rate
The interest rate charged by the Federal Reserve to its member banks (banks which belong to the Federal Reserve System) for funds they borrow. This rate has a direct bearing on the interest rates banks charge their customers. When the discount rate is increased, the banks must raise the rates they charge to cover their increased cost of borrowing. Likewise, when the discount rate is lowered, banks are able to charge lower interest rates on their loans.

Discount Brokers
Brokerage firms that offer lower commission rates than full service brokers, but do not offer services such as advice, research and portfolio planning.

Discount Method
A method of paying interest by issuing a security at less than par and repaying par value at maturity. The difference between the higher par value and the lower purchase price is the interest.

Freedom given to the floor broker by an investor to use his judgment regarding the execution of an order. Discretion can be limited, as in the case of a limit order that gives the floor broker.125 or.25 point from the stated limit price to use his judgment in executing the order. Discretion can also be unlimited, as in the case of a market-not-held order.

Discretionary Account
A client account in which the account executive is permitted to buy and sell securities for the client without the client’s prior permission. The opening of such an account requires the special permission of the firm’s management.

Distribution Date
Date on which the payout of realized capital gains on securities in the fund portfolio occurred.

District Business Conduct Committee (DBCC)
Part of the NASD that investigates, reviews, and renders a verdict on customer complaints or other industry improprieties.

When 2 or more averages or indices fail to show confirming trends.

A portion of a corporation’s assets paid to stockholders on a per-share basis. Preferred stock is supposed to pay a regular and prescribed dividend amount. Common stock pays varying amounts when declared.

A mathematical quantity used to compute an index. It is initially an arbitrary number that reduces the index value to a small, workable number. Thereafter, the divisor is adjusted for stock splits (price-weighted index) or additional issues of stock (capitalization-weighted index).

DJIA (Dow Jones Industrial Average)
The Dow Jones Industrial Average index – (DJIA) is a price-weighted average of 30 actively traded blue chip stocks, primarily industrials but including American Express Co. and American Telephone and Telegraph Co. Prepared and published by Dow Jones & co., it is the oldest and most widely quoted of all the market indicators. The components, which change from time to time, represent between 15% and 20% of the market value of NYSE stocks. The DJIA is calculated by adding the closing prices of the component stocks and using a divisor that is adjusted for splits and stock dividends equal to 10% or more of the market value of an issue as well as substitutions and mergers. The average is quoted in points, not in dollars.

Dollar Cost Averaging
An investment method used in mutual funds by which clients invest the same dollar amount periodically. Because mutual funds permit the buying of fractional shares, all of the investor’s payment is used in the acquisition of fund shares.

Foreign securities that pay interest and principal in U.S. dollars.

Double Taxation
Corporations pay taxes on revenue before paying dividends. The dividends, in the hands of the stockholder, are taxed again as ordinary income. Hence “double” taxation.

Dow Theory
A theory of market analysis baseä!upon the peræîsmance of the Dow Jones Industrial and Transportation Averages. The theory is that the market is in a basic upward trend if one of these averages advances above a previous important high, accompanied or followed by a similar advance in the other. When both averages dip below previous important lows, this is regarded as confirmation of a basic downward trend.

A channel of downward price movement.

Downstairs Trader
A trader who operates on the floor of an exchange and who “trades” positions against the public market. See also Upstairs Trader.

Down off Bid
Market maker or ECN no longer bidding (buying) for stock at market bid.

The potential for prices to decrease.

Downside Protection
Generally used in connection with covered call writing, this is the cushion against loss, in case of a price decline by the underlying security, that is afforded by the written call option. Alternatively, it may be expressed in terms of the distance the stock could fall before the total position becomes a loss (an amount equal to the option premium), or it can be expressed as percentage of the current stock price.

Downside Risk
The potential risk one takes if prices decrease in directional trading.

Down to Ask
Market maker or ECN lowers offering to sell stock at market offer.

A listed equity trade whose price is lower than that of the last different sale.

DNR (Do Not Reduce)
An instruction that informs the order handling personnel not to reduce the price of the order by the amount of dividends, if and when paid by the corporation. DNR is placed on buy limit, sell stop and sell stop limit GTC orders.

Draft Prospectus
A prospectus prepared for internal use and discussion by the company issuing securities and the underwriters. It is not for outside distribution and shows only basic data on the company with little final detail about the terms of the planned underwriting. It is not a legal document and does not have to be drawn up strictly to securities commission standards. It is an earlier version of a preliminary prospectus and cannot be used in offering the security.

Due Diligence Meeting
The last meeting between corporate officials and underwriters prior to the issuance of the security. At the meeting, the content of the prospectus is discussed, and relevant parts of the underwriting are put into place.

This is a measure of the dollar-weighted average time until receipt of all cash payments from a fixed-income security expressed in years. “Macauley duration” is simply the average time to receipt of all the scheduled interest and principal payments on a bond. “Modified duration” adjusts the Macauley duration to accurately measure how much a bond’s price can be expected to fall if interest rates rise by a certain percentage, or vice versa.

For option strategies, describing analyses made during the course of changing security prices and during the passage of time. This is as opposed to an analysis made at expiration of the options used in the strategy. A dynamic break-even point is one that changes as time passes. A dynamic follow-up action is one that will change as either the security price changes or the option price changes or time passes.

Each Way
The commission made by a broker for the purchase and sale sides of a trade.

Early Exercise (assignment)
The exercise or assignment of an option contract before its expiration date.

Earnings Growth Rate:
This is a measure of the earnings growth record of a stock or of the average stock in a portfolio. This average number is usually weighted so that larger positions in the portfolio count proportionately more than lesser positions (“dollar-weighted”). Stocks with losses and those that lack a five-year track record are usually excluded from this calculation.

Earnings or Income Statement
A financial statement which shows a company’s revenues and expenditures resulting in either a profit or a loss during a financial period.

Earnings Per Share (EPS)
EPS represents the portion of a company’s profit allocated to each outstanding share of common stock. Net income (reported or estimated) for a period of time is divided by the total number of shares outstanding during that period.

Earnings Report
A corporate financial statement that reports and nets out all earning and expenses to a profit or loss. It is therefore sometimes referred to as the profit and loss (P&L) statement.

The application of statistical and mathematical methods in the field of economics to test and quantify economic theories and the solutions to economic problems.

Economic good
That which is scarce and useful to mankind.

Economy of scale
A lower cost per unit produced, achieved through large-scale production. The lower cost can result from better tools of production, greater discounts on purchased supplies, production of by-products, and/or equipment or labor used at production levels closer to capacity. A large cattle feeding operation may be able to benefit from economies such as lower unit feed costs, increased mechanization, and lower unit veterinary costs .

EE Savings Bond
A zero coupon bond issued directly by the Treasury in par values ranging from $5 to $10,000. Purchased at half of par, EE savings bonds mature in 12 years and are eligible for extended maturity.

Effective Date
The first date after the cooling-off period of a new issue that the security can be offered.

Because of futures contracts’ standardization of terms, large numbers of traders from all walks of life may trade futures, thus allowing prices to be determined readily (it is more likely that someone will want a contract at any given price). The more readily prices are discovered, the more efficient are the markets

A term used to describe the effects price, supply, and demand have on one another for a particular commodity. A commodity is said to have elastic demand when a price change affects the demand for that commodity; it has supply elasticity when a change in price causes a change in the production of the commodity. A commodity has inelastic supply or demand when they are unaffected by a change in price.

Electronic Data Gathering, Analysis and Retrieval (EDGAR)
An electronic system implemented by the SEC that is used by companies to transmit all documents required to be filed with the SEC in relation to corporate offerings and ongoing disclosure obligations. EDGAR became fully operational mid-1995.

End of Day
The close of the trading day when market prices settle.

Ending Net Asset Value
The market value of a fund share on a predetermined end date.

Signature on the back of a stock certificate of the person whose name appears on the face of the same. Makes the certificate negotiable.

EPS Rank
An Investor’s Business Daily list of companies ranked from 0 to 100 by the strength of each company’s earnings per share.

A price level in a sideways market equal-distance from the resistance and support levels.

Equilibrium Price
The market price at which the quantity supplied of a commodity equals the quantity demanded.

Equipment Trust Bonds
Debt instruments that are issued by some corporations that are backed by “rolling stock” (such as airplanes or locomotives and freight cars).

The portion in an account that reflects the customer’s ownership interest. The value of a futures trading account with all open positions valued at the going market price.

Equity Options
Options on shares of an individual common stock.

Equity Stock Funds
Equity funds carry substantial opportunity for higher returns along with substantial risks of widely varying returns. There are no guarantees of future values or earnings. The scope of the funds includes Conservative (high-quality, blue-chip stocks paying dividends), Index (match market returns), Aggressive (growth companies not paying dividends and/or turn-around companies), Sector (focusing on specific industries, which reduces diversification), International (good quality foreign companies, but subject to currency risk in addition to the other sources of risk), International Sectors (focusing on specific countries or blocks of countries, for example, European Equity Fund), and Emerging Market (stocks of companies in developing non-established countries, such as the Pacific-Rim Emerging Growth Fund, subject to substantial risks including currency and liquidity of the markets). Equity funds historically have been the best long-term inflation hedge available among mutual funds, but they typically suffer along with other financial assets at times when inflation rates are increasing rapidly.

Escrowed or Pooled Shares
Outstanding shares of a company which, while entitled to vote and receive dividends, may not be bought or sold unless special approval is obtained. This technique is commonly used by mining and oil companies when treasury shares (authorized but unissued shares) are issued for new properties. Shares can be released from escrow (freed to be bought and sold) only with the permission of applicable authorities such as the stock exchange and/or the provincial securities commission.

Escrow Receipt
A receipt issued by a bank in order to verify that a customer (who has written a call) in fact owns the stock and therefore the call is considered covered.

Estate Planning
The process of planning the transfer of all personal assets at death to chosen beneficiaries.

A long-term loan issued in a currency other than that of the country or market in which it is issued. Interest is paid without the deduction of tax.

Dollars deposited in foreign banks, with the futures contract reflecting the rates offered between US banks and foreign banks.

Eurodollar CDs
Certificates of deposit held in U.S. dollars by European, British, and Eastern depository institutions and available to U.S. investors.

Eurodollar Time Deposits
U.S. dollars on deposit outside the United States, either with a foreign bank or a subsidiary of a U.S. bank. The interest paid for these dollar deposits generally is higher than that for funds deposited in U.S. banks because the foreign banks are riskier_they will not be supported or nationalized by the U.S. government upon default. Furthermore, they may pay higher rates of interest because they are not regulated by the U.S. government.

European Style Option
An option contract that can only be exercised on the expiration date.

European Exercise
A feature of an option that stipulates that the option may only be exercised at its expiration. Therefore, there can be no early assignment with this type of option.

European Terms
A method of quoting exchange rates, which measures the amount of foreign currency needed to buy one U.S. dollar, i.e., foreign currency unit per dollar. See Reciprocal of European Terms

Even up
To close out, liquidate, or cover an open position.

Excess Equity
Equity in a margin account above that which is required by Regulation T.

The process whereby a stock’s price is reduced when a dividend is paid. The ex-dividend date (ex-date) is the date on which the price reduction takes place. Investors who own stock on the ex-date will receive the dividend, and those who are short stock must pay out the dividend.

Ex Rights
This means “without rights.” Buyers of shares quoted ex rights are not entitled to forthcoming rights.

Exchange rates
The price of foreign currencies. If it costs $.42 to buy one Swiss Franc, the exchange rate is .4200. As one currency is inflated faster or slower than the other, the exchange rate will change, reflecting the change in relative value. The currency being inflated faster is said to be becoming weaker because more of it must be exchanged for the same amount of the other currency. As a currency becomes weaker, exports are encouraged because others can buy more with their relatively stronger currencies.

An association of persons who participate in the business of buying or selling futures contracts or futures options. A forum or place where traders (members) gather to buy or sell economic goods. There are 9 domestic futures exchanges currently operating as non-profit member organizations. See also Board of trade or Contract market.

When a call purchaser takes delivery of the underlying long futures position, or when a put purchaser takes delivery of the underlying short futures position. Only option buyers may “exercise” their options; option sellers have a passive position.

Exempt List
Large professional buyers of securities, mostly financial institutions, that are offered a portion of a new issue by one member of the banking group, on behalf of the whole syndicate.

Exempt Market
An unregulated market for sophisticated participants in government bonds, corporate issues and commercial paper. A prospectus is not required to raise money privately from these private investors (largely institutions, but also individual investors) and registration of the issue with a securities commission is not needed.

Ex-Dividend Date
The first day on which the purchaser of the security is not entitled to the dividend. It is also the day that the price of the security drops to the next highest fraction of the dividend amount.

The process of completing an order to buy or sell securities.

Implementing an option’s right to buy or sell the underlying security.

Execution Broker ($2.00 Broker)
Broker who owns memberships on various exchanges and executes trades on the exchanges for other brokers — execution only services on listed exchanges. The name of the clearing broker is “given up” when each trade is executed to industry clearance facilities and the trade is reported back to the introducing firm for the customer and street side processing. The charge for this service used to be $2.00 — thus the name “$2.00 Broker.”

Exercise Limit
The limit on the number of contracts which a holder can exercise in a fixed period of time. Set by the appropriate option exchange, it is designed to prevent an investor or group of investors from “cornering” the market in a stock.

Exercise Price
The price per share the holder or owner of a call option would pay to buy the stock from the writer or the price the holder would receive should he sell the stock to the writer when exercising an option. See also Strike Price.

Exercise settlement amount
The difference between the exercise price of the option and the exercise settlement value of the index on the day an exercise notice is tendered, multiplied by the index multiplier.

A person appointed by the last will of the deceased to carry out the provisions of the will.

Expected Profit
The stock price is randomly projected into the future using the stock’s 20-day statistical (historical) volatility (SV) in the Optionetics option trade ranker tool. The stock price projection stops at the expiration of the earlist expiring option leg. The stock price future statistical distribution at option expiration is used to compute possible profits and losses. Expected Profit is the predicted profits minus the predicted losses expressed in total dollars.

Expected Return
A rather complex mathematical analysis involving statistical distribution of stock prices, it is the return which an investor might expect to make on an investment if he were to make exactly the same investment many times throughout history.

Expanded Traded Hours
Additional trading hours of specific futures and options contracts at the Jakarta Futures Exchange that overlap with business hours in other time zones.

Expiration date
The final date when an option may be exercised. Many options expire on a specified date during the month prior to the delivery month for the underlying futures contract.

An option is a wasting asset; i.e., it has a limited life, usually nine months. At the end of its life, it either becomes worthless (if it is at-the-money or out-of-the-money), or is automatically exercised for the amount by which it is in-the-money.

Ex-pit transactions
Occurring outside the futures exchange trading pits. This includes cash transactions, the delivery process, and the changing of brokerage firms while maintaining open positions. All other transactions involving futures contracts must occur in the trading pits through open outcry.

The day on which an option contract becomes void.

Expiration cycle
An expiration cycle relates to the dates on which options on a particular underlying security expire. A given option, other than LEAPS®, will be assigned to one of three cycles, the January cycle, the February cycle or the March cycle.

Expiration date
The day on which an option contract becomes void. The expiration date for listed stock options is the Saturday after the third Friday of the expiration month. Holders of options should indicate their desire to exercise, if they wish to do so, by this date.

Expiration time
The time of day by which all exercise notices must be received on the expiration date. Technically, the expiration time is currently 5:00PM on the expiration date, but public holders of option contracts must indicate their desire to exercise no later than 5:30PM on the business day preceding the expiration date. The times are Eastern Time.

Expiration Month
The month in which an option or futures contract ceases to exist (expires).

An opportunity that can yield large profits with usually a limited risk in a short amount of time.

Ex-Rights Date
The date after which stocks are traded without subscription rights.

Extended Maturity
A provision whereby a bond continues to pay interest beyond its stated maturity.

Short for “extra dividend.” A dividend in the form of either stock or cash in addition to the regular common dividend the company usually pays to shareholders. Also referred to as a special dividend.

Extrinsic Value
The price of an option less its intrinsic value. An out-of-the money option’s worth consists of nothing but extrinsic or time value.

Ex-Warrants Date
The date after which stocks are traded without buyers being entitled to warrants which are to be distributed.

Face Value
The debt (or loan) amount that appears on the face of the certificate and that the issuer must pay at maturity.

The process of providing a market for a security. Normally, this refers to bids and offers made for large blocks of securities, such as those traded by institutions. Listed options may be used to offset part of the risk assumed by the trader who is facilitating the large block order.

A decimal between 0 and 1 that represents the amount of mortgages remaining in a pool of mortgage-backed securities.

Factor Book
A tabular presentation that shows relevant information about factors, value of remaining mortgages, and interest rates on mortgage-backed securities.

Factor Table
A table used to compute the outstanding principal on Pass-Throughs — Ginnie Maes, Freddie Macs and Fannie Maes.

Selling a rising price or buying a falling price.

Short for failed deliveries. It is the failure to deliver a security on the settlement date, or the date agreed upon when the trade was done.

Fair Market Value
The value of an asset under normal conditions.

Fair Values
The theoretical value of what an option should be worth usually generated by an option pricing model such as the Black-Scholes option pricing model.

Family of Funds
Group of mutual funds managed by the same investment management company. Each fund typically has a different objective; one may be a growth-oriented stock fund, whereas another may be a bond fund or money market fund. Shareholders in one of the funds can usually switch their money into any of the family’s other funds, sometimes at no charge. Family of funds with no sales charges are called no load families. Those with sales charges are called load families.

Fannie Mae
Nickname for the Federal National Mortgage Association and the mortgage-backed securities it issues.

Farmer Mac
Nickname for the Federal Agricultural Corporation and the securities it issues.

Fast Market
A stock with so much volume that the order entry systems have difficulty processing all of the orders.

Federal Farm Credit System
Established by Congress to provide credit to farms and farm-related enterprises. The FFCS is also an issuer of agency securities.

Federal Funds
Member bank deposits at the Federal Reserve; these funds are loaned by member banks to other member banks.

Federal Funds Rate
The rate of interest charged for the use of federal funds.

Federal Reserve Board
A board of Directors comprised of seven members which directs the federal banking system, is appointed by the President of the United States and confirmed by the Senate. The functions of the board include formulating and executing monetary policy, overseeing the Federal Reserve Banks, and regulating and supervising member banks. Monetary policy is implemented through the purchase or sale of securities, and by raising or lowering the discount rate—the interest rate at which banks borrow from the Federal Reserve.

Federal Reserve System
The nation’s central monetary authority and the Treasury Department’s agent for selling new issues of Treasury bills, notes, and bonds.

Fee-Based Accounts
Client accounts in which the investment dealer does not charge commissions, but charges a fee based on the value of the investor’s account instead.

Abbreviation for the Federal Housing Administration. The FHA is also an issuer of agency securities.

FHA Experience
An estimate of the average life of a pool of mortgage-backed securities in relation to experience tables developed by the Federal Housing Administration.

A person legally appointed in the P&S department.

An executed order.

Fill Order
An order that must be filled or canceled immediately.

Fill or Kill (FOK)
An order that requires execution of the entire quantity immediately. If not, the order is canceled.

Final Dividend
The dividend paid by a company at the end of its financial year, recommended by the directors but authorized by the shareholders at the company’s annual general meeting.

Final Prospectus
The prospectus which supersedes the preliminary prospectus and is accepted for filing by the applicable provincial securities commissions. The final prospectus shows all required information pertinent to a new issue and a copy must be given to each buyer of the new issue.

Finance or Acceptance Company Paper
Short-term negotiable debt securities similar to commercial paper, but issued by finance companies.

Financial futures
Include interest rate futures, currency futures, and index futures. The financial futures market currently is the fastest growing of all the futures markets.

Financial Analysis Auditing Compliance Tracking System (FACTS)
The National Futures Association’s computerized system of maintaining financial records of its member firms and monitoring their financial conditions.

Financial Instrument
There are two basic types:
(1) a debt instrument, which is a loan with an agreement to pay back funds with interest;
(2) an equity security, which is share or stock in a company.

Financial Intermediary
An institution such as a bank, life insurance company, credit union or mutual fund company which receives cash and invests it on behalf of the suppliers of the cash.

Firm Bid – Firm Offer
A firm bid is an undertaking to buy a specified amount of securities at a specified price for a specified period of time, unless released from this obligation by the seller. A firm offer is an undertaking to sell a specified amount of securities at a specified price for a specified period of time, unless released from this obligation by the buyer.

First-In-First-Out (FIFO)
A method of valuing inventory which assumes that the first items bought are also the first items used or sold.

First notice day
Notice of intention to deliver a commodity in fulfillment of an expiring futures contract can be given to the clearinghouse by a seller (and assigned by the clearinghouse to a buyer) no earlier than the first notice day. First notice days differ depending on the commodity

Financing Corporation
An agency created to assist the S&L industry by retailing securities to the public. Also the nickname for its securities.

Fiscal Agent
The authority who is responsible for issuing new securities of federal agencies.

Fiscal Policy
The policy pursued by the federal government to direct the economy through taxation and the level and allocation of government spending.

Fiscal Year
The twelve-month period during which a business maintains its financial records. Since this cycle does not have to coincide with the calendar year, it is known as the fiscal year.

Fixed Annuity
Insurance company guarantees dollar amount of payments to the annuitant for the period covered under the contract.

Fixed Delta
A delta figure that does not change with the change in the underlying. A futures contract has a fixed delta of plus or minus 100.

Fixed Asset
A tangible long-term asset such as land, buildings or machinery, held for use rather than for processing or resale. Fixed assets are found on a company’s balance sheet.

Fixed Charge
A company’s expenses, such as debt interest, which it must pay and which are deducted from income before income taxes are calculated.

Fixed Income Securities
Securities that generate a predictable stream of interest or dividend income, such as bonds, debentures and preferred shares.

A bond trading without accrued interest is said to be trading “flat.”

FLEX Options
Exchange traded equity or index options, where the investor can specify within certain limits, the terms of the options, such as exercise price, expiration date, exercise type, and settlement calculation.

The number of shares outstanding of a particular common stock.

Floor Broker
An exchange member who, as such, is permitted to conduct business on the exchange floor.

Floor Ticket
A summary of the information on an order ticket.

Floor trader
Exchange members present on the exchange floor to make trades on their own behalf. They may be referred to as scalpers or locals.

The occasion on which a company’s shares are offered on the market for the first time.

Flower Bond
A specially identified series of Treasury bonds accepted at full par in payment of estate taxes.

A variation in the market price of a security.

See Fill Or Kill.

Forex Market
An over-the-counter market where buyers and sellers conduct foreign exchange business by telephone and other means of communication. Also referred to as foreign exchange market.

Formula Investing
These are investment strategies. One formula involves shifting funds from common shares to preferred shares or bonds as the stock market rises above a predetermined point

Forward contract
A contract entered into by two parties who agree to the future purchase or sale of a specified commodity. This differs from a futures contract in that the participants in a forward contract are contracting directly with each other, rather than through a clearing corporation. The terms of a forward contract are negotiated between the buyer and seller, while exchanges set the terms of futures contracts.

Forward pricing
The practice of locking in a price in the future, either by entering into a cash forward contract or a futures contract. In a cash forward contract, the parties usually intend to tender and accept the commodity, while futures contracts are generally offset, with a cash transaction occurring after offset.

Fourth Market
Trading directly between institutional investors on a system named Instinet.

Freddie Mac
Nickname for the Federal Home Mortgage Association and the mortgage-backed securities it issues.

Free market
A market place where individuals can act in their own best interest, free from outside forces (freedom means freedom from government) restricting their choices, or regulating or subsidizing product prices. Free market also refers to the political system where the means of production are owned by free, non-regulated individuals

Free Stock
Loanable securities; that is, securities that can be used for loan or hypothecation. These securities are stock in a margin account that represents the debit balance.

Front Month
The first expiration month in a series of months.

Frozen Account
An account in which all purchases must be paid for in cash in advance for a period of 90 days because of failure to make timely or proper payment in the past.

FT Index
Refers to the Financial Times Industrial Ordinary Share Index, also known as the “30 Share Index.” This started in 1935 at 100, and is based on the prices of 30 leading industrial and commercial shares. They are chosen to be representative of British industry, rather than of the Exchange. Government stocks, banks and insurance companies are not included. The Index is calculated hourly during the day with a “closing index” at 4:30 p.m.

FT-SE 100 Share Index
Popularly known as “Footsie”; an index of 100 leading UK shares listed on the London Stock Exchange providing a minute-by-minute picture of how share prices are moving. It started on January 3, 1984 with the base number of 1,000. Also forms the basis of a contract in the London Traded Options Market (LTOM) and the London International Financial Futures Exchange (LIFFE).

FT-SE Eurotrack 200 Index
Denominated in ECUs, this comprises the stocks of the FT-SE 100 Index plus the constituents of the FT-SE Eurotrack 100 Index. The UK component is weighted to ensure that the 200 Index closely tracks the major benchmark indices. It started on Monday, February 25, 1991 with a base value of 1,000 as at close of business on Friday, October 26, 1990.

Full carrying Charge Market
When the difference between futures contract month prices equals the full cost of carrying (storing) the commodity from one delivery period to the next. Carrying charges include insurance, interest, and storage

Fully Diluted Earnings Per Share
Earnings per common share calculated on the assumption that all convertible securities are converted into common shares, such as convertible preferred shares, convertible debentures, stock options (under employee stock-option plans) and warrants.

Full Membership (JFX)
A Jakarta Futures Exchange membership that allows an individual to trade all futures and options contracts listed by the exchange.

Full Trading Authorization
Owner of the account gives power to another person to buy, sell and make withdrawals from the account.

Fully Disclosed
All customer accounts of the Introducing Broker are introduced to another Broker/Dealer who clears the customers’ trades. This second broker is called a Clearing Broker. The names and addresses of the customer accounts are “fully disclosed” to the Clearing Broker whose name is also disclosed to the customers on the statements and confirmations. The Clearing Broker does all the bookkeeping involved in settling the trades and keeping the customer accounts in proper form.

Fully Paid
Applied to new issues, when the total amount payable in relation to the new shares has been paid to the company.

Fundamental analysis
The study of specific factors, such as weather, wars, discoveries, and changes in government policy, which influence supply and demand and, consequently, prices in the market place.

Funded Debt
All outstanding bonds, debentures, notes and similar debt instruments of a company payable after one year.

Fund Exchange
Ability to shift a mutual fund investment from one fund to another sponsored by the same mutual fund family.

Fund Family
An investment management company that offers several types of mutual funds.

All contracts covering the purchase and sale of financial instruments or physical commodities for future delivery. These orders are transacted on a commodity futures exchange.

Futures Contract
Agreement to buy or sell a set number of shares of a commodity or financial instruments in a designated future month at a price agreed upon by the buyer and seller.

Futures Commission Merchant (FCM)
An individual or organization accepting orders to buy or sell futures contracts or futures options, and accepting payment for his services. FCMs must be registered with the CFTC and the NFA, and maintain a minimum capitalization of $300,000.

Futures Industry Association (FIA)
The futures industrys national trade association. They lobbied in favor of establishing a second layer of bureaucracy for the futures industry (NFA).

Futures Exchange
A central marketplace with established rules and regulations where buyers and sellers meet to trade futures and options on futures contracts.

One who seeks profit by taking noncalculated or man-made risks. If one flips a coin to determine his course of action, he is gambling as to the outcome. If one bets on the horses, the outcome of a sports event, or some other man-made event, he is gambling. A gambler is distinguished from a speculator in that a speculator could profit from price change if he knew enough about the supply and demand factors used to determine price. He also trades economic goods, thus benefitting mankind.

The degree by which the delta changes with respect to changes in the underlying instrument’s price.

A term used by technicians to describe a jump or drop in prices; i.e., prices skipped a trading range. Gaps are usually filled at a later date.

A company’s debts expressed as a percentage of its equity capital. High gearing means debts are high in relation to equity capital.

General Obligation (GO) Bond
A municipal bond whose issuer’s ability to pay back principal and interest is based on its full taxing power.

General Mortgage Bond
A bond which is secured by a blanket mortgage on the company’s property, but which is usually subordinated to one or more other mortgage bonds.

Geometric index
An index in which a 1% change in the price of any two stocks comprising the index impacts on it equally. The Value Line Average index is composed of 1,700 stocks and is a geometric index.

Ginnie Mae
Nickname for the Government National Mortgage Association and the mortgage-backed securities it issues.

A customer “give-up” is a trade executed by one broker for the client of another broker and then “given-up” to the regular broker; e.g., a floor broker with discretion must have another broker execute the trade.

Global Funds
These funds combine both U.S. and foreign securities. A Global Bond Fund includes both U.S. and foreign company and government bonds. A Global Government Bond Fund has only U.S. and foreign government securities. Global Equity Funds contain both U.S. and foreign equity securities and are subject to many sources of investment risk and currency risk. Both international and global funds have a unique characteristic which can enhance long-term portfolio returns: most international equity and bond markets are not fully correlated with the U.S. markets, and in some cases, very little correlation is exhibited. Because of this, modest percentages of international exposure can actually reduce the total risk of your entire portfolio, and can at times provide increased returns. When investing in international and global funds, it is important to understand how much of the historical returns have been due to the securities’ performance versus how much was due to currency changes.

A global after-hours electronic trading system.

See Government National Mortgage Association.

Going Ahead
Unethical brokerage activity whereby the broker trades first for his or her own account before filling the customer’s order(s).

Go Long
To buy securities, options or futures.

Gold – GOX
The CBOE Gold Index – (GOX) is an equal-dollar-weighted index composed of 10 companies involved primarily in gold mining and production. The index is re-balanced after the close of business on expiration Friday on the March quarterly cycle.

Good Delivery
Securities delivered to the broker from the seller that are properly endorsed and in proper order to be delivered to the buyer.

Good-Til-Canceled (open) Order (GTC)
An order that does not expire at the end of the day it is entered. Instead, it remains in force until it is either executed or canceled. Ameritrade cancels all GTC orders at the end of the next month after the order has been placed.

Goodwill is an intangible asset of a company. The buyer of a business is often willing to pay for the “good name” of the business in addition to the value of its assets. Goodwill appears on the balance sheet as the excess of the amount paid for the shares over their net asset value.

Go Short
To sell securities, options or futures.

Government Bond
Debt security issued by the U.S. Government.

Government National Mortgage Association (GNMA)
A government corporation that provides primary mortgages through bond issuances. Its securities are called Ginnie Maes.

Grain Terminal
Large grain elevator facility with the capacity to ship grain by rail and/or barge to domestic or foreign markets.

Someone who assumes the obligation, not the right, to buy (for a put) or sell (for a call) the underlying futures contract or commodity at the strike price. See also Writer

Gross Domestic Product
The value of all final goods and services produced by an economy over a particular time period, normally a year.

Gross National Product
Gross Domestic Product plus the income accruing to domestic residents as a result of investments abroad less income earned in domestic markets accruing to foreigners abroad.

Gross Processing Margin
The difference between the cost of soybeans and the combined sales income of the processed soybean oil and meal.

Growth Investment Style
Investment orientation that focuses on stocks of companies with proven records of earnings growth, and is typically willing to “pay up” for stocks of companies with the best records and prospects.

Growth Stock
Stock of a company in a new industry or of a company participating in an emerging industry.

See Good-til-Canceled (Open) Order.

Guarantee fund
One of two funds established for the protection of customers’ monies; the clearing members contribute a percentage of their gross revenues to the guarantee fund. See also Surplus fund.

Guaranteed Investment Certificates (GICs)
A deposit instrument most commonly available from trust companies or banks requiring a minimum investment at a predetermined rate of interest for a stated term, i.e. one year, five years, etc. Generally non-redeemable and non-transferable prior to maturity, but there can be exceptions.

Someone who manages securities in a minor’s account or someone who handles the affairs of an incompetent person.

Guided account
An account that has a planned trading strategy and is directed by either a CTA or a FCM. The customer is advised on specific trading positions, which he must approve before an order may be entered. These accounts often require a minimum initial investment, and may use only a predetermined portion of the investment at any particular time. Not to be confused with a discretionary account.

A strangle where the call and the put are in-the-money.

Hammering the Market
The intense selling of stocks by speculators who think the market is about to drop because they think prices are inflated.

To reduce the risk in one security by taking an offsetting position in a related security.

Hedge ratio
The relationship between the number of contracts required for a direct hedge and the number of contracts required to hedge in a specific situation. The concept of hedging is to match the size of a positive cash flow from a gaining futures position with the expected negative cash flow created by unfavorable cash market price movements. If the expected cash flow from a $1 million face-value T-Bill futures contract is one-half as large as the expected cash market loss on a $1 million face-value instrument being hedged (for whatever reason), then two futures contracts are needed to hedge each $1 million of face value. The hedge ratio is 2:1. Hedge ratios are used frequently when hedging with futures options, interest rate futures, and stock index futures, to aid in matching expected cash flows. Generally, the hedge ratio between the number of futures options required and the number of futures contracts is 1: 1. For interest rate and stock index futures, the ratios may vary depending on the correlation between price movement of the assets being hedged and the futures contracts or options used to hedge them. Most agricultural hedge ratios are 1: 1.

Hedge Funds (Leveraged Funds)
Hedge funds are speculative funds which make large bets on market movements. They utilize borrowed money to substantially leverage their returns (and losses), often at a factor of ten to one, or more. They purchase exotic securities and also take substantial short positions when they think the market or a particular sector of the market will go down. Such funds are extremely risky and are suitable for high-wealth investors only.

One who hedges; one who attempts to transfer the risk of price change by taking an opposite and equal position in the futures or futures option market from that position held in the cash market.

Transferring the risk of loss due to adverse price movement through the purchase or sale of contracts in the futures markets. The position in the futures market is a substitute for the future purchase or sale of the physical commodity in the cash market. If the commodity will be bought, the futures contract is purchased (long hedge); if the commodity will be sold, the futures contract is sold (short hedge).

A situation where a security is temporarily not available for trading (e.g. Market Makers are not allowed to display quotes).

HH Savings Bonds
A savings bond that pays semiannual coupon interest, unlike EE savings bonds.

The top price paid for a commodity or its option in a given time period, usually a day or the life of a contract

High IV
This is the highest ATM IV found over a historical time period for the stock. The period chosen is a 6 month period.

High and Low
Refers to the high and low transactions prices that occur each trading day.

High Flyer
A speculative high-priced stock that moves up and down sharply over a short period of time.

High-tech Stock
Refers to the stock of companies involved in high-technology industries, such as computers, biotechnology, robotics, electronics, and semiconductors.

Historic Volatility
A measurement of how much a contract’s price has fluctuated over a period of time in the past; usually calculated by taking a stand’ard deviation of price changes over a time period.

Hit the Bid
This is the term used for when traders sell to the current posted bid.

Hog/Corn Ratio
The relationship of feeding costs to the dollar value of hogs. It is measured by dividing the price of hogs ($/hundredweight) by the price of corn ($/bushel). When corn prices are high relative to pork prices, fewer units of corn equal the dollar value of 100 pounds of pork. Conversely, when corn prices are low in relation to pork prices, more units of corn are required to equal the value of 100 pounds of pork. See Feed Ratio.

One who purchases an option.

Holding Company
A company that owns the securities of another company, usually with voting control.

Horizontal Spread
An option strategy in which the options have the same striking price, but different expiration dates.

House Maintenance Call
Demand to the customer for additional funds from the brokerage firm because the equity in the customer’s margin account has fallen below the minimum amount allowed by the firm.

House Requirement
The minimum amount of equity brokerage firms require margin clients to maintain in the account.

A brokerage firm’s pledging of margin securities at a bank to secure the funds necessary to carry an account’s debit balance.

Illiquid Market
Market which has no volume that subsequently creates a lot of slippage due to lack of trading volume.

Immediate-or-Cancel (IOC)
An instruction on an order that requires execution of as many lots as can be filled immediately, and the rest canceled.

Implied Volatility
A measure of the volatility of the underlying stock, it is determined by using option prices currently existing in the market at the time rather than using historical data on the price changes of the underlying stock.

The purchase and sale of the same security within a short period of time, usually a day, week or month. An in-and-out trader is more interested in profiting from day-to-day price fluctuations than in receiving dividends or long-term growth.

Income Bonds
Bonds issued when the ability of the issuing company to pay interest is questioned. They are speculative instruments that pay high rates of interest.

Income Stock
A common stock that pays, or is expected to pay, an attractive dividend to shareholders. Usually stock from a more mature company that does not expect expansion or growth

Income Stream
A strategy of arranging bonds so that they produce a consistent series of payments.

Incremental Return Concept
A strategy of covered call writing in which the investor is striving to earn an additional return from option writing against a stock position which he (she) has targeted to sell — possibly at substantially higher prices.

The terms of a corporate bond. Also known as deed of trust, it appears on the face of the bond certificate.

A specialized average. Stock indexes may be calculated by establishing a base against which the current value of the stocks, commodities, bonds, etc., will change; for example, the S&P 500 index uses the 1941 – 1943 market value of the 500 stocks as a base of 10.

Index Options
Call options and put options on indexes of stocks are designed to reflect and fluctuate with market conditions. Index options allow investors to trade in a specific industry group or market without having to buy all the stocks individually.

Industrial Revenue (ID Revenue, ID Revs, or Industrial Rev) Bond
A form of municipal bond whose issuer’s ability to pay interest and principal is based on revenue earned from an industrial complex.

A statistic attempting to quantify the change in supply or demand for a good, given a certain price change. The more inelastic demand (characteristic of necessities), the less effect a change in price has on demand for the good. The more inelastic supply, the less supply changes when the price does.

The creation of money by monetary authorities. In more popular usage, the creation of money that visibly raises goods prices and lowers the purchasing power of money. It may be creeping, trotting, or galloping, depending on the rate of money creation by the authorities. It may take the form of “simple inflation,” in which case the proceeds of the new money issues accrue to the government for deficit spending; or it may appear as “credit expansion,” in which case the authorities channel the newly created money into the loan market. Both forms are inflation in the broader sense

Inflation Risk (Purchasing Power Risk)
When putting your portfolio together and when making adjustments and revisions, there is an overriding risk that you must consider in order to maintain or increase your standard of living. Inflation does not touch your principal value, but it does steal your future purchasing power. A portfolio that is intended for longer range needs, but is entirely invested in low risk/low reward investments, can actually provide you with less purchasing power (especially after taxes) at the end of the period than at the beginning, even though you minimized all of the other sources of risk along the way. Always review your results in terms of after-inflation (and after-tax) returns, especially for your long-term objectives (like retirement) which are at the most risk from inflation.

Initial margin
When a customer establishes a position, he is required to make a minimum initial margin deposit to assure the performance of his obligations. Futures margin is earnest money or a performance bond

Inside Ask
The lowest price at which someone is willing to sell a security.

Inside Bid
The highest price at which someone is willing to buy a security.

Inside Market
The highest bid and the lowest offer prices among all competing Market Makers in a Nasdaq security, i.e., the best bid and offer prices.

Person with nonpublic information on a corporation. Directors, officers and stockholders owning more than 10% of any one class of stock are usually considered insiders.

Insider Dealing
The purchase or sale of shares by someone who possesses “inside” information about the company; i.e., information on the company’s performance and prospects which has not yet been made available to the market as a whole and which, if available, might affect the share price.

Insider Report
A report of all transactions in the shares of a company made by those considered to be insiders of the company. It is submitted each month to the provincial securities commissions and allows the administrators to monitor trading by such people to ensure regulations are not violated.

Installment Debentures
A bond or debenture issue in which a predetermined amount of the principal becomes due and payable each year. Also called a serial bond or debenture. This is popular as a municipal financing vehicle.

Installment Receipts
A new issue of stock sold with the obligation that buyers will pay the issue price in a series of installment payments instead of one lump sum payment. This is also known as partially paid shares. The buyer usually pays a deposit upon settlement, perhaps one-half the issue price of the shares, with the balance to be paid in one year.

Institutional Clients
The sales department of a securities firm serves two categories of clients. The institutional segment deals with banks, insurance companies, trust companies, pension fund managers and large corporations. The retail branch deals with individual investors.

Intangible Asset
An asset which has no physical substance, such as goodwill, patents, trademarks and copyrights.

Interest is one of the components of carrying charges; i.e., the cost of the money needed to finance the commodity’s purchase or storage. The market rate of interest can also be used to establish an opportunity cost for the funds that are tied up in any investment.

Interest rate futures
Futures contracts traded on long-term and short-term financial instruments: U.S. Treasury bills and bonds and Eurodollar Time Deposits. More recently, futures contracts have developed for German, Italian, and Japanese government bonds, to name a few

Interest Rate
The charge for the privilege of borrowing money, usually expressed as an annual percentage rate.

Interest Rate Driven
Refers to a point in the business cycle when interest rates are declining and bond prices are rising.

Interest Rate Risk
The prospect that Treasury and agency securities will decline in price if economy-wide interest rates rise.

Interest Rate Risk
Investors in bonds and bond funds must be acutely aware of the risk associated with interest rate changes. When interest rates rise, the values of outstanding bonds fall, and vice versa. In a rising rate environment, while you are receiving monthly bond interest payments as scheduled, your total returns may be eroding because of declining principal values. This is especially true with longer term holdings. Longer term bond issues (for example, 30-year Treasury Bonds) are much more sensitive to interest rate changes than short- or intermediate-term issues.

Interim Certificates
When a new issue of a security is marketed, temporary certificates, called interim certificates, are sometimes delivered. These are later exchanged for permanent or definitive certificates.

Interim Dividend
A dividend declared part way through a company’s financial year, authorized solely by the directors.

Intermediate-Term Bonds
Those maturing five to ten years after original issue.

A spread in the same commodity, but on different markets. An example of an inter-market spread would be buying a wheat contract on the Chicago Board of Trade, and simultaneously selling a wheat contract on the Kansas City Board of Trade.

Inter-market Analysis
Observing the price movement of one market for the purpose of evaluating a different market.

Intercommodity Spread
The purchase of a given delivery month of one futures market and the simultaneous sale of the same delivery month of a different, but related, futures market.

Interdelivery Spread
The purchase of one delivery month of a given futures contract and simultaneous sale of another delivery month of the same commodity on the same exchange. Also referred to as an intramarket or calendar spread.

Inter-market Spread
A spread consisting of opposing positions in instruments with two different markets.

A spread within a market. An example of an intra-market spread is buying a corn contract in the nearby month and selling a corn contract on the same exchange in a distant month

Intrinsic value
The amount an option is in the-money, calculated by taking the difference between the strike price and the market price of the underlying futures contract when the option is “in-the-money.” A COMEX 350 gold futures call has an intrinsic value of $10 if the underlying gold futures contract is at $360/ounce

Introducing Broker (IB)
An individual or firm who can perform all the functions of a broker except one. An IB is not permitted to accept money, securities, or property from a customer. An IB must be registered with the CFTC, and conduct its business through an FCM on a fully disclosed basis.

Used to describe options that the holder would profit from exercising. Call options are in-the-money when the underlying security’s value is greater than the option’s strike price. Put options are in-the-money when the underlying security’s value is less than the option’s strike price.

In-the-Money Option
A “call” option is in-the-money if the strike price is less than the market price of the underlying security. A “put” option is in-the-money if the strike price is greater than the market price of the underlying security

Intrinsic Value
The amount by which a market is in-the-money. Out-of-the-money options have no intrinsic value. Calls = underlying -strike price. Puts = strike price – underlying.

An organization, probably very large, engaged in professional investing in securities. Normally a bank, insurance company, or mutual fund.

Inverse Relationship
Two or more markets which act totally opposite of one another producing negative correlations.

Any purchase of an asset to increase future income.

Investment Advisor
This is a person employed by an investment dealer who provides investment advice to clients and executes trades on their behalf in securities and other investment products. Investment advisors must attain set educational qualifications, follow certain rules and regulations and be registered by the securities commission in the province in which he or she works.

Investment Counsellor
A specialist in the investment industry paid by fee to provide advice and research to investors with larger sized accounts.

Investment Dealer
This refers to securities firms which employ investment advisors to work with retail and institutional clients and has underwriting, trading and research departments.

Inverted market
A futures market in which near-month contracts are selling at prices that are higher than those for deferred months. An inverted market is characteristic of a short-term supply shortage. The notable exceptions are interest rate futures, which are inverted when the distant contracts are at a premium to near month contracts.

Investment Banker
See underwriter.

Investment Trust
Company whose sole business consists of buying, selling and holding shares.

Invisible Supply
Uncounted stocks of a commodity in the hands of wholesalers, manufacturers, and producers that cannot e identified accurately; stocks outside commercial channels but theoretically available to the market.

IPO Date
The date that the security started publicly trading.

IRA – Individual Retirement Accounts
A tax-deferred retirement plan created by the U.S. government.

Iron Butterfly
The combination of a long (short) straddle and a short (long) strangle. All options must have the same underlying and have the same expiration.

(1) The process by which a new security is brought to market.
(2) Any security.

Issue Date
Month and day that a security is initially issued.

Issued Stock
Stock sold to the public.

Jakarta Futures Exchange Trading Systems, a computerized futures trading held in Jakarta Futures Exchange. With the system will eliminate some posibilities of error that often occur in Open Out Cry systems.

Jakarta Futures Exchange
The Futures Exchenge company located in Jakarta which the futures trading held

The execution and clearing of orders by one member of a stock exchange for the account of another member. For example, investment dealer A is a small firm whose volume of business is not sufficient to maintain a trader on the exchange. Instead it gives its orders to investment dealer B for execution and pays a reduced percentage of the normal commission.

Joint Account
An account with two or more individuals acting as co-owners.

Joint Tenants with Rights of Survivorship (JTWROS)
A joint account which allows the remaining tenant(s) to retain the deceased tenant’s interest in the account.

Junior Bond Issue
A corporate bond issue, the collateral for which has been pledged as security for other more senior debt issues, and therefore ranks behind these prior claims.

Junior Debt
One or more junior bond issues.

Kansas City Board of Trade (KCBT)
The first verifiable futures exchange in the United States (1856) was incorporated in 1973. Contracts on wheat and grain sorghum have been traded there for many years. The KCBT was the first exchange to introduce stock index futures (the Value Line Average); they also have an option on that futures contract. They are located at 4800 Main St., Suite 303, Kansas City, MO 64112.

Keogh Plan
Tax-deferred retirement plan for a self-employed and unincorporated person or a person who has earned extra income aside from regular employment through personal services.

Lagging Indicators
Market indicators showing the general direction of the economy and confirming or denying the trend implied by the leading indicators. Also referred to as concurrent indicators.

Last Sale Reporting
An electronic entry by NASD Members to The Nasdaq Stock Market of the price and the number of shares involved in a transaction in a Nasdaq security. The trade reported must be submitted to Nasdaq with 90 seconds of the execution of the trade.

Last trading day
The last day on which a futures contract is traded.

Law of demand
Demand exhibits a direct relationship to price. If all other factors remain constant, an increase in demand leads to an increased price, while a decrease in demand leads to a decreased price.

Law of supply
Supply exhibits an inverse relationship to price. If all other factors hold constant, an increase in supply causes a decreased price, while a decrease in supply causes an increased price

Long-term Equity Anticipation Securities, or LEAPS®, are long-term stock or index options. LEAPS®, like all options, are available in two types, calls and puts, with expiration dates up to three years in the future.

Leading Indicators
Market indicators that signal the state of the economy for the coming months. Some of the leading indicators include:
average manufacturing workweek, initial claims for unemployment insurance, orders for consumer goods and material, percentage of companies reporting slower deliveries, change in manufacturers’ unfilled orders for durable goods, plant and equipment orders, new building permits, index of consumer expectations, change in material prices, prices of stocks, change in money supply.

One side of a spread.

Legal Transfer
A type of transfer that requires legal documentation in addition to the normal forms. Usually in the name of a deceased person, a trust, or other third party.

Lehman Aggregate Bond Index
This is a composite index of the Lehman Brothers Government/Corporate, Mortgage-Backed and Asset-Backed indexes. It includes fixed-rate debt issues rated investment grade or higher by Moody’s, S&P, or Fitch. All issues have at least one year to maturity and an outstanding par value of at least $100 million for U.S. government issues and $50 million for all others. All returns are market-value weighted inclusive of accrued interest. The modified duration of this index is currently about 4.6 years.

Letter of acknowledgment
A form received with a Disclosure Document intended for the customer’s signature upon reading and understanding the Disclosure Document. The FCM is required to maintain all letters of acknowledgment on file. It may also be known as a Third Party Account Controllers form

Letter of Guarantee
A letter from a bank to a brokerage firm which states that a customer (who has written a call option) does indeed own the underlying stock and the bank will guarantee delivery if the call is assigned. Thus the call can be considered covered. Not all brokerage firms accept letters of guarantee. Also: letter issued to O.C.C. by member firms covering a guarantee of any trades made by one of its customers, (a trader or broker on the exchange floor).

Letter of Renunciation
This applies to a rights issue and is the form attached to an Allotment Letter which is completed should the original holder wish to pass his entitlement to someone else or to renounce his rights absolutely.

The increment a stock moves in (this differs for each stock). Easily visible as the price difference between underlying bids or offers.

The control of a larger sum of money with a smaller amount. By accepting the liability to purchase or deliver the total value of a futures contract, a smaller sum (margin) may be used as earnest money to guarantee performance. If prices move favorably, a large return on the margin can be earned from the leverage. Conversely, a loss can also be large, relative to the margin, due to the leverage.

Leveraged Buy Out (LBO)
A takeover financed to a large degree by debt that is secured, serviced and repaid through the cash flow and assets of the acquired company. Typically, an LBO is financed predominantly by bank debt and low quality bonds, and to a minimum degree by equity. Its extreme leverage makes an LBO dependent upon a stable economy and stable interest rates, as well as a stable cash flow from the acquired company for its success.

Any claim against the corporation, including accounts payable, salaries payable, and bonds.

This is the claim against property pledged or mortgaged to secure performance of an obligation.

In relation to dealing instructions, a restriction set on an order to buy or sell, specifying the minimum selling or maximum buying price. See Price limit, Position limit, and Variable limit.

Limit move
The increase or decrease of a price by the maximum amount allowed for any one trading session. Price limits are established by the exchanges, and approved by the CFTC. They vary from contract to contract

Limit Order
Sets the highest price the customer is willing to pay for a buy order, or the lowest price the customer is willing to accept for a sell order. Buy orders may be executed at or below the limit price, but never higher. Sell orders may be executed at or above the limit price, but never lower.

Limit Up, Limit Down
Commodity exchange restrictions on the maximum upward or downward movements permitted in the price for a commodity during any trading session day.

Limited Liability
When “limited” is at the end of a Canadian company’s name, the company’s shareholders’ responsibility for the debts of the company is limited to the amount of money they paid to buy the shares. In contrast, ownership of a company by a sole proprietor or partnership carries unlimited personal legal responsibility for debts incurred by the business.

Limited risk spread
A bull spread in a market where the price difference between the two contract months covers the full carrying charges. The risk is limited because the probability of the distant month price moving to a premium greater than full carrying charges is minimal.

Limited risk
A concept often used to describe the option buyer’s position. Because the option buyer’s loss can be no greater than the premium he pays for the option, his risk of loss is limited.

Limited Tax Bond
A municipal bond whose ability to pay back principal and interest is based on special tax.

Limited Trading Authorization
An account in which the customer gives the power to buy and sell only in his account to another person.

The ability to buy (sell) contracts on one exchange (such as the Chicago Mercantile Exchange ) and later sell (buy) them on another exchange (such as the Singapore International Monetary Exchange.)

Refers to closing an open futures position. For an open long, this would be selling the contract. For a short position, it would be buying the contract back (short covering, or covering his short).

(1) Closing out a position.
(2) An action taken by the margin department when a client hasn’t paid for a purchase.

The characteristic of a market that enables investors to buy and sell securities easily.

Liquidity Data Bank®
A computerized profile of CBOT market activity, used by technical traders to analyze price trends and develop trading strategies. There is a specialized display of daily volume data and time distribution of prices for every commodity traded on the Jakarta Futures Exchange.

Listed Options
An option that trades on a national option exchange.

Listed Securities
Securities that trade on a national exchange.

Listed Stock
Stock that has qualified for trading on an exchange.

The sales charge on the purchase of the shares of some open-end mutual funds.

Load Fund
Mutual Fund that is sold for a sales charge by a brokerage firm or other sales representative. Such funds may be stock, bond or commodity funds, with conservative or aggressive objectives.

Loan Consent Agreement
An agreement whereby the customer gives the brokerage firm permission to lend his securities.

Loan Market Value
Value of securities in customer’s account.

Loan Rate
The amount lent per unit of a commodity to farmers.

Loan Stock
Stock bearing a fixed rate of interest. Unlike a Debenture, loan stocks may be unsecured.

Loan Value
The amount of money, expressed as a percentage of market value, that the customer may borrow from the firm.

The floor traders who trade primarily for their own accounts. Although “locals” are speculators, they provide the liquidity needed by hedgers to transfer the risk of price change.

Locked Market
A market where trading has been halted because prices have reached their daily trading limit.

Lognormal Distribution
A statistical distribution that is often applied to the movement of stock prices. It is a convenient and logical distribution because it implies that stock prices can theoretically rise forever but cannot fall below zero.

Long hedge
A hedger who is short the cash (needs the cash commodity) buys a futures contract to hedge his future needs. By buying a futures contract when he is short the cash, he is entering a long hedge. A long hedge is also known as a substitute purchase or an anticipatory hedge.

One who has purchased futures contracts or the cash commodity, but has not taken any action to offset his position. Also, purchasing a futures contract. A trader with a long position hopes to profit from a price increase

Long Position
(1) In a customer’s account, securities that are either fully paid for (a cash account) or partially paid for (a margin account).
(2) Any position on the firm’s security records that has a debit balance.

Long-Term Bonds
Bonds that mature in more than ten years.

Long-Term Gain
A gain on the sale of a capital asset where the holding period was twelve months or more and the profit was subject to the long term capital gains tax.

A person who owns the physical commodity and hedges his position with a short futures position is said to be long-the-basis. He profits from the basis becoming more positive (stronger); for example, if a farmer sold a January soybean futures contract at $6.00 with the cash market at $5.80, the basis is -.20. If he repurchased the January contract later at $5.50 when the cash price was $5.40, the basis would then be -.10. The long-the-basis hedger profited from the 10› increase in basis.

The smallest price paid during the day or over the life of the contract.

Low IV
This is the lowest ATM IV found over a historical time period for the stock. The period chosen is a 6 month period.

Low Risk Investing
A trade which is hedged for purposes of limiting price loss as opposed to a directional trade where loss is unlimited.

Maintenance Call
See House Maintenance Call.

Maintenance margin
The minimum level at which the equity in a futures account must be maintained. If the equity in an account falls below this level, a margin call will be issued, and funds must be added to bring the account back to the initial margin level. The maintenance margin level generally is 75% of the initial margin requirement.

Major Trend
Underlying price trend prevailing in a market despite temporary declines or rallies.

Make a Market
Refers to brokerage firms that buy and sell a particular over-the-counter stock for their own accounts at their own risk.

Management Company
The group of individuals responsible for managing a mutual fund’s portfolio.

Managed Account
This is similar to a discretionary account where a client has given specific written authorization to a partner, director or qualified portfolio manager of an investment dealer to select securities and execute trades, but on a continuing basis and for a fee. Managed accounts can be solicited whereas discretionary accounts are opened as a matter of convenience to clients who are ill or out of the country.

Managed Futures
Represents an industry comprised of professional money mangers known as commodity trading advisors who manage client assets on a discretionary basis, using global futures markets as an investment medium.

The illegal practice of buying or selling a security for the purpose of creating a false or misleading appearance of active trading, or for the purpose of raising or depressing the price to induce purchases or sales by others.

Purchasing Treasury and agency securities with money borrowed from a bank or brokerage. Margin in futures is a performance bond or “earnest money.” Margin money is deposited by both buyers and sellers of futures contracts, as well as sellers of futures options. See Initial margin.

Margin Account
An account in which the firm lends the customer money on purchases or securities on short sales. Customers must have enough equity in the account to pay for purchases by the third business day after trade or meet obligations that may be incurred immediately.

Margin Call
A demand upon a customer to deposit money or securities with the broker when the value of the securities purchased on margin falls.

Margin Department
The department of a brokerage firm that computes the balance their clients need to keep in order to avoid maintenance and margin calls.

Margin Requirement
The percentage of investment that may be financed using borrowed capital.

Margin Requirements (Options)
The amount of cash an uncovered (naked) option writer is required to deposit and maintain to cover his daily position price changes.

A specific asset, security or commodity that is traded at an exchange.

Process by which security position values are brought up to their current value. The customer may request the excess equity, or the firm may call for the deposit of additional funds. Either request is a “mark” to the market.

Marked to Market
At the end of each business day the open positions carried in an account held at a brokerage firm are credited or debited funds based on the settlement price of the open positions that day.

Market Basket
A portfolio of common stocks whose performance is intended to simulate the performance of a specific index.

Market Capitalization (MCAP)
Price per share multiplied by the total number of shares outstanding; also the market’s total valuation of a public company.

Market Category
The market it trades on, either Nasdaq National Market(NNM) or Nasdaq SmallCap Market (SCM).

Market Close
An electronic entry by NASD Members to The Nasdaq Stock Market of the regular trading day’s last reported trade. Investors may trade during the regular trading session from 9:30am – 4:00pm. Trades must be submitted to Nasdaq within 90 seconds of the execution of the trade by an NASD Member Firm.

Market Indicators
A variety of indices that give a value and usually a net daily change of a specific market.

Market Makers
The NASD member firms that use their own capital, research, retail and/or systems resources to represent a stock and compete with each other to buy and sell the stocks they represent. There are over 500 member firms that act as Nasdaq Market Makers. One of the major differences between The Nasdaq Stock Market and other major markets in the U.S. is Nasdaq’s structure of competing Market Makers. Each Market Maker competes for customer order flow by displaying buy and sell quotations for a guaranteed number of shares. Once an order is received, the Market Maker will immediately purchase for or sell from its own inventory, or seek the other side of the trade until it is executed, often in a matter of seconds.

Market Maker Spread
The difference between the price at which a Market Maker is willing to buy a security and the price at which the firm is willing to sell it i.e., the difference between a Market Maker’s bid and ask for a given security. Since each Market Maker positions itself to either buy or sell inventory at any given time, each individual Market Maker spread is not indicative of the market as a whole.

Market Not Held
Type of market order usually for a sizable amount of stock that gives the floor broker discretion with respect to price and/or timing on execution.

Market Order
An order that is executed as quickly as possible at the best price available. During market hours, this means orders for widely traded securities will usually execute at or close to the current quotation. Buy orders should execute at or close to the “ask” price and Sell orders should execute at or close to the “bid” price. This type of order may yield an undesirable execution price and should therefore be used only when necessary.

Market on Close
An order specification that requires the broker to get the best price available on the close of trading, usually during the last five minutes of trading.

Market Order
An order to buy or sell securities at the current market. The order will be filled as long as there is a market for the security.

Market Price
The most recent price at which a security transaction took place.

Market Price Reporting and Information Systems
The Jakarta Futures Exchange’s computerized price-reporting system.

Market Reporter
A person employed by the exchange and located in or near the trading pit who records prices as they occur during trading.

Market-if-touched order (MIT)
They are similar to stop orders in two ways:
1) They are activated when the price reaches the order level;
2) They become market orders once they are activated; however, MIT orders are used differently from stop orders.
A buy MIT order is placed below the current market price, and establishes a long position or closes a short position. A sell MIT order is placed above the current market price, and establishes a short position or closes a long position

Market-share weighted index
An index where the impact of a stock price change depends upon the market-share that stock controls. For example, a stock with a large market share, such as IBM with over 600 million shares outstanding, would have a greater impact on a market-share weighted index than a stock with a small market-share, such as Foster Wheeler, with approximately 34 million shares outstanding.

Market Value
The price at which investors buy or sell a share of common stock or a bond at a given time. Market value is determined by the interaction between buyers and sellers.

Market-value weighted index
A stock index in which each stock is weighted by market value. A change in the price of any stock will influence the index in proportion to the stock’s respective market value. The weighting of each stock is determined by multiplying the number of shares outstanding by the stock’s market price per share; therefore, a high-priced stock with a large number of shares outstanding has more impact than a low-priced stock with only a few shares outstanding. The S&P 500 is a value weighted index.

Market Risk
The values of marketable securities fluctuate every day. Sometimes these changes in value have nothing to do with the real “value” of the investment but instead are influenced by a variety of unrelated events such as political changes, congressional actions, U.S. and foreign activities, or a psychological swing in the market “mood”.

Market Surveillance
The department responsible for investigating and preventing abusive, manipulative, or illegal trading practices on The Nasdaq Stock Market. Considerable resources are devoted to surveilling The Nasdaq Stock Market. A vast array of sophisticated automated systems reviews each trade and price quotation on an on-line, real-time basis. Off-line computer-based analyses are conducted to evaluate trading patterns on a monthly, weekly and daily basis.

Whenever any of these automated systems indicate unusual price or volume in a stock, Nasdaq Market Surveillance analysts determine if this was the result of legitimate market forces or perhaps a violation of rules. Among other things, analysts review press releases, review historical trading activity, interview brokers, Market Makers, and Nasdaq-listed company officials. Market Surveillance continues its inquiries until unusual movements are adequately explained.

If legitimate market forces were at work the case is closed without action. If it appears rule violations have occurred, a disciplinary action is initiated. Where corporate insiders or members of the investing public are involved in a potential violation, the case will be referred to the SEC

Market Value
The market price; the price at which buyers and sellers trade similar items in an open marketplace. The current market price of a security as indicated by the latest trade recorded.

To debit or credit on a daily basis a margin account based on the close of that day’s trading session. In this way, buyers an sellers are protected against the possibility of contract default.

Marry a Put
Form of hedging done by buying the stock and buying a put on the same day.

Married Put and Stock
The simultaneous purchase of stock and the corresponding number of put options. This is a limited risk strategy during the life of the puts because the stock can be sold at the strike price of the puts.

Married Put Strategy
A put and stock are considered to be married if they are bought on the same day, and the position is designated at that time as a hedge.

Material Change
A change in the affairs of a company that is expected to have a significant effect on the market value of its securities share ownership of the company that could affect control, or the acquisition or disposition of any securities in another company. A material change must be reported to the applicable self-regulatory organization.

The period during which a futures contract can be settled by delivery of the actuals; i.e., the period between the first notice day and the last trading day. Also, the due date for financial instruments

Maturity (Bonds)
•Average Maturity: The dollar-weighted average length of time until bonds held by the portfolio reach maturity and are repaid. In general, the longer the average maturity, the more a portfolio’s share price will fluctuate in response to changes in market interest rates.
•Short: Maturity of 4 years or less.
•Intermediate: Maturity of 4 to 10 years.
•Long: Maturity more than 10 years.

Maturity Date
The date on which the principal amount of a bond is to be paid in full.

Max Loss
The maximum amount of losses possible from the option trade in the Optionetics option trade ranker tool.

Max Profit
The maximum amount of net profit possible from the option trade in the Optionetics option trade ranker tool.

Medium-Term Bond or Debenture
A bond or debenture which matures in more than three years, but less than 10.

An individual who owns a membership (a seat) on an exchange.

Member Firm
A partnership or corporation that owns a membership on an exchange.

The combination of two or more companies into one through the exchange of stock.

MidAmerica Commodity Exchange (MACE)
Founded in 1868, it was incorporated as the Chicago Open Board of Trade in 1880, and changed its name to MidAmerica Commodity Exchange in 1972. The MidAm is known for its mini-contracts. It has contracts with a smaller commodity quantity deliverable in grains, currencies, metals, interest rate futures, and the meats. It also has options for many of its futures contracts. The MidAm was recently purchased by the Chicago Board of Trade and is located at 141 W. Jackson Blvd., Chicago, IL 60604.

Mid-cap Stocks
Usually solidly established medium growth firms with less than 100 billion in assets. They provide better growth potential than blue-chip stocks, but do not offer as wide a variety of investment attributes.

Minimum price fluctuation
The smallest allowable fluctuation in a futures price or futures option premium

Auctions of Treasury securities occurring in March, June, September, and December.

Minimum Maintenance
Established by the exchanges’ margin rules, the level to which the equity in an account may fall before the client must deposit additional equity. It is expressed as a percentage relationship between debit balance and equity or between market value and equity.

Minneapolis Grain Exchange (MGE)
The largest organized cash grain market in the world, founded in 1881, has futures contracts in wheat, high fructose corn syrup, and oats, as well as options on their wheat futures contract. The MGE is located at 400 S. 4th St., Minneapolis, MN 55415.

Minority Interest
This appears on consolidated financial statements where the parent company’s figures are combined with those of its subsidiaries. Even if the parent company owns less than 100% of a subsidiary’s stock, all of the subsidiary’s assets and liabilities are combined in the consolidated financial statements. To compensate, the part not owned by the parent company is minority interest and is shown as a liability on the balance sheet and deducted in the earnings statement.

Minus Tick
An execution price below the previous sale.

A model value for the option quote is the Bjerksund and Stensland Approximation of the Black-Scholes “fair” value of the option based on the estimated IV from the stock’s other options.

Model Profit
The Optionetics option trade ranker tool software uses an option mathematical model ( the Bjerksund Stensland American option model) to fairly price the option. The Optionetics software computes what the profit of the option strategy would be using the mathematical model option prices. The profit value is called the Model Profit. If this “model profit”, when the trade is formed, is close to the profit of 0.0 ( a new trade should start with no profit ) then we are confident the option data being used for the trade is good. Model profits that exceed $200 likely are caused by incorrect option data.

When a market continues in the same direction for a certain time frame, the market is said to have momentum.

Momentum Indicator
A technical indicator utilizing price and volume statistics for predicting the strength or weakness of a current market.

Momentum Trading
Investing with (or against) the momentum of the market in hopes of profiting from it.

Monetary Policy
A policy followed by the government through the its central bank for controlling credit and the money supply in the economy. The policy will vary according to the anti-inflationary or job-creating results the government primarily desires to achieve.

Money Market
That part of the capital market in which short-term financial obligations are bought and sold. These include government treasury bills, short term government bonds, commercial paper, bankers’ acceptances and guaranteed investment certificates. Longer term securities, when their term shortens to three years, are also traded in the money market.

Money Market Fund
Open-ended mutual fund that invests in commercial paper, banker’s acceptances, repurchase agreements, government securities, certificates of deposit, and other highly liquid and safe securities, and pays money market rates of interest. The fund’s net asset value remains a constant $1 a share, only the interest rate goes up or down.

Money Market Instruments
Short-term debt instruments (such as U.S. Treasury bills, commercial paper, and banker’s acceptances) that reflect current interest rates and that, because of their short life, do not respond to interest rate changes as longer-term instruments do.

Money Supply
The amount of money in the economy, consisting primarily of currency in circulation plus deposits in banks:
•M-1–U.S. money supply consisting of currency held by the public, traveler’s checks, checking account funds, NOW and super- NOW accounts, automatic transfer service accounts, and balances in credit unions.
•M-2–U.S. money supply consisting M-1 plus savings and small time deposits (less than $100,000) at depository institutions, overnight repurchase agreements at commercial banks, and money market mutual fund accounts.
•M-3–U.S. money supply consisting of M-2 plus large time deposits ($100,000 or more) at depository institutions, repurchase agreements with maturities longer than one day at commercial
banks, and institutional money market accounts.

Monthly statement
An account record for each month of activity in a futures and/or futures options account. Quarterly statements are required for inactive accounts.

Mortgage-Backed Securities
A collection of mortgages bundled into a single security and retailed to private or institutional investors as a single security.

Mortgage Bond
A debt instrument issued by a corporation and secured by real estate owned by the corporation (such as factories or office buildings).

Moving average
An average of prices for a specified number of days. If it is a three (3) day moving average, for example, the first three days’ prices are averaged (1,2,3), followed by the next three days’ average price (2,3,4), and so on. Moving averages are used by technicians to spot changes in trends.

Moving-Average Charts
A statistical price analysis method of recognizing different price trends. A moving average is calculated by adding the prices for a predetermined number of days and then dividing by the number of days.

Short for municipal bond.

Municipal Bond
A long-term debt instrument issued by a state or local government. It usually carries a fixed rate of interest, which is paid semiannually.

Municipal Note
A short-term debt instrument of a state or local government. Most popular are revenue, bond, and tax anticipation notes.

Municipal Securities Rule Making Board (MSRB)
Establishes rules and regulations to be followed in the trading, dealings and customer relationships concerned in municipal securities.

Mutual Fund
A pooling of many investors’ money for specific investment purposes. The fund is managed by a management company, which is responsible for adhering to the purpose of the fund.

Naked Call
Occurs when an investor sells a call(s) without owning the underlying securities and is not selling to close out a position.

Naked Option
An option written (sold) without an underlying hedge position.

Naked Position
A securities position not hedged from market risk.

Generally referring to an index, it indicates that the index is composed of only a few stocks, generally in a specific industry group.

Narrowing the Spread
The closing spread between the bid and asked prices of a security as a result of bidding and offering.

NASD (National Association of Security Dealers)
A self-regulating authority whose jurisdiction includes the over-the-counter market.

NASDAQ (National Association of Securities Dealers Automated Quote System)
A communication network used to store and access quotations for qualified over-the-counter securities.

NASDAQ Composite Index
The Nasdaq Composite Index measures all Nasdaq domestic and non-U.S. based common stocks listed on The Nasdaq Stock Market. The Index is market-value weighted. This means that each company’s security affects the Index in proportion to it’s market value. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.

NASDAQ National Market Securities
The Nasdaq National Market consists of over 3,000 companies that have a national or international shareholder base, have applied for listing, meet stringent financial requirements and agree to specific corporate governance standards. To list initially, companies are required to have significant net tangible assets or operating income, a minimum public float of 500,000 shares, at least 400 shareholders, and a bid price of at least $5. The Nasdaq National Market operates from 9:30 A.M. to 4:00 P.M. EST, with extended trading in SelectNet from 8:00 A.M. to 9:30 A.M. EST and from 4:00 P.M. and 5:15 P.M. EST.

NASDAQ SmallCap Market Securities
The Nasdaq SmallCap Market comprises of over 1,400 companies that want the sponsorship of Market Makers, have applied for listing and meet specific and financial requirements. Once a company is approved and listed on this market, Market Makers are able to quote and trade the company’s securities through a sophisticated electronic trading and surveillance system. The Nasdaq SmallCap Market operates from 9:30 A.M. to 4:00 P.M. EST., with extended trading in SelectNet from 8:00 A.M. to 9:30 A.M. EST and from between 4:00 P.M. and 5:15 P.M. EST.

NASDAQ SmallCap Market Securities
The Nasdaq-100 Index includes 100 of the largest non-financial domestic companies listed on the Nasdaq National Market tier of The Nasdaq Stock Market. Launched in January 1985, each security in the Index is proportionately represented by its market capitalization in relation to the total market value of the Index.

The Index reflects Nasdaq’s largest growth companies across major industry groups. All index components have a minimum market capitalization of $500 million, and an average daily trading volume of at least 100,000 shares.

The number of securities in the Nasdaq-100 index makes it an effective vehicle for arbitrageurs and securities traders. In October 1993, the Nasdaq-100 Index began trading on the Chicago Board Options Exchange. On April 10, 1996 the Chicago Mercantile Exchange began trading futures and futures options on the Nasdaq-100 Index.

National Association of Security Dealers (NASD)
A self-regulating authority whose jurisdiction includes the over-the-counter market. The NASD operates under the authority granted it by the 1938 Maloney Act Amendment to the Securities Exchange Act of 1934.

National Futures Association (NFA)
A “registered futures association” authorized by the CFTC in 1982 that requires membership for FCMs, their agents and associates, CTAs, and CPOs. This is a self-regulatory group for the futures industry similar to the National Association of Securities Dealers, Inc. in the securities industry.

National Securities Clearing Corporation (NSCC)
A major clearing corporation offering many services to the brokerage community, including comparison of NYSE, AMEX, and over-the-counter transactions.

The futures contract month with the earliest delivery period. Also referred to as spot month.

An option with a strike price close to the current price of the underlying tradable.

Negative Pledge Provision
A protective provision written into the trust deed of a company’s debenture issue, providing that no subsequent mortgage bond issue may be secured by all or part of the company’s assets, unless at the same time the company’s debentures are similarly secured.

A feature of a security that enables the owner to transfer ownership or title. A non-negotiable instrument has no value.

Net Asset Value (NAV)
The difference between today’s last trade and the previous day’s last trade. The difference between today’s closing Net Asset Value (NAV) and the previous day’s closing Net Asset Value (NAV).

Net Change
The daily change from time frame to time frame. For example, the change from the close of yesterday to the close of today.

Net Earnings
That part of a company’s profits remaining after all expenses and taxes have been paid and out of which dividends may be paid.

Net position
The difference between total open long and open short positions in any one or all combined futures contract months held by an individual.

Net Profit
The overall profit of a trade.

Describing an opinion that is neither bearish nor bullish. Neutral option strategies are generally designed to perform best if there is little or no net change in the price of the underlying stock or index.

New Income
Income after all expenses and taxes have been deducted, and used in calculating a variety of profitability and stock performance measures.

New Issue
A company coming to the market for the first time or issuing additional shares.

New Shares
Shares newly issued by a company; these shares can usually be transferred on Renounceable Documents.

New York Cotton Exchange (NYCE)
Founded in 1870, the state charter restricts trading to cotton, thus associate memberships have been established to trade other items such as orange juice, the U.S. dollar index, 5 year T-Notes, and options on the futures contracts. They are located at 4 World Trade Center, New York, NY 10048. See also New York Futures Exchange

New York Futures Exchange (NYFE)
Began as a subsidiary of the New York Stock Exchange. Today, the NYFE is a division of the New York Cotton Exchange and trades stock index futures contracts based on the New York Stock Exchange Composite (NYSEC) Index, and the Kravitz Roberts Commodity Research Bureau (KR-CRB) Index. They also have an option on the NYSEC index and the KR-CRB index. The NYFE is located at 4 World Trade Center, New York, NY 10048.

New York Mercantile Exchange (NYME)
Founded in 1872 to trade cheese, butter, and eggs, it changed its emphasis to cover futures contracts for platinum, palladium, and energy (crude oil, gasoline, etc.), as well as options on most of their contracts. They are located at 4 World Trade Center, NewYork, NY 10048.

New York Stock Exchange (NYSE)
Located at 11 Wall Street, New York, New York, a primary market for buying and selling the securities of major corporations.

Nil Paid
A new issue of shares, usually as the result of a rights issue on which no payment has yet been made.

No-Load Fund
Mutual Fund offered by an open end investment company that imposes no sales charge (load) on its shareholders. Investors buy shares in no-load funds directly from the fund companies, rather than through a broker as is done in load funds. Many no-load fund families allow switching of assets between stock, bond, and money market funds. The listing of the price of a no-load fund in the newspaper is accompanied by the designation NL. The net asset value, market price and offer prices of this type of fund are exactly the same, since there is no sales charge.

Nominal price (or nominal quotation)
The price quotation calculated for futures or options for a period during which no actual trading occurred. These quotations are usually calculated by averaging the bid and asked prices.

Nominal Yield
The interest rate stated on the face of the bond.

Nominee Name
Name in which a security is registered and held in trust on behalf of the beneficial owner.

A note or bond that cannot be called prior to maturity. Many Treasury and most agency securities are noncallable.

Noncompetitive Tender
A method of purchasing Treasury bills, notes, and bonds directly from the Federal Reserve at the average price during an auction of new securities.

Noncumulative Preferred Stock
A type of preferred stock that does not pay back dividends to its holders.

Non-Equity Option
An option whose underlying entity is not common stock; typically refers to options on physical commodities and index options.

Normal market
The deferred months’ prices for futures contracts are normally higher than the nearby months’ to reflect the costs of carrying a contract from now until the distant delivery date. Thus, a “normal market,” for non-interest rate futures contracts, exists when the distant months are at a premium to the nearby months. For interest rate futures, just the opposite is true. The yield curve dictates that a “normal market” for interest rate futures occurs when the nearby months are at a premium to the distant months.

Not Held (NH)
An indication on an order that the execution does not depend on time; the broker or trader should take whatever time is necessary to ensure a good execution.

The general name for a Treasury or agency security with an initial maturity of fewer than 10 years.

Notice Day
The second day of the three-day delivery process when the clearing corporation matches the buyer with the oldest reported long position to the delivering seller and notifies both parties. See First Notice Day.

Notice Period
The time during which the buyer of a futures contract can be called upon to accept delivery. Typically, the 3 to 6 weeks preceding the expiration of the contract.

Notice of intention to deliver
During the delivery month for a futures contract, the seller initiates the delivery process by submitting a “notice of intention to deliver” to the clearinghouse, which, in turn, notifies the oldest outstanding long of the seller’s intentions. If the long does not offset his position, he will be called upon to accept delivery of the goods.

NSCC (National Securities Clearing Corporation)
A major clearing corporation offering many services to the brokerage community, including comparison of NYSE, AMEX, and over-the-counter transactions.

New York Stock Exchange

NYSE Maintenance Requirement
This is the minimum amount of equity that the margin customer must have in his account. However, since the house requirements are usually higher, it is the house maintenance that is used.

OCC (Options Clearing Corporation)
A clearing corporation owned jointly by the exchanges dealing in listed options. OCC is the central or main clearing corporation for listed options. Options traded on any SEC-regulated exchange can be settled through OCC.

OCC Prospectus
A prospectus published by the OCC and available to option traders upon request. It contains information on trading options and the risks involved.

This term, pronounced as three separate letters, is Wall Street shorthand for Standard & Poor’s 100 stock index.

Odds is the predicted profits divided by the predicted losses obtained by projecting the stock price randomly into the future using the Statistical Volatility (SV). The prediction stops at the expiration of the earlist expiring option leg.

Odd Lot
A quantity of securities that is smaller than the standard unit of trading, which is usually 100 shares.

The price at which the market maker will sell shares to investors. To show the desire to sell a futures contract at an established price.

Offer Down
The change of the offer of the market related to a downward price movement at that specific time.

Offer for Sale
A method of bringing a company to the market. The public can apply for shares directly at a fixed price. A prospectus containing details of the sale must be printed in a national newspaper.

Offer Price
The price at which the market maker will sell shares to investors.

Off-floor Trader
A trader who does not trade on the actual floor of an organized futures of stock exchange.

This term refers to transactions made over-the-counter in unlisted securities, or, in a special situation, to a transaction involving a block of listed stock which is not executed on a recognized stock exchange.

To liquidate a futures position by entering an equivalent but opposite transaction. To offset a long position, a sale is made; to offset a short position, a purchase is made.

Offsetting positions
1) Taking an equal and opposite futures position to a position held in the cash market. The offsetting futures position constitutes a hedge;
2) Taking an equal and opposite futures position to another futures position, known as a spread or straddle;
3) Buying a futures contract previously sold, or selling a futures contract previously bought, to eliminate the obligation to make or take delivery of a commodity.

When trading futures options, an identical option must be bought or sold to offset a position.

Eliminating the obligation to make or take delivery of a commodity by liquidating a purchase or covering a sale of futures. This is affected by taking an equal and opposite position: either a sale to offset a previous purchase, or a purchase to offset a previous sale in the same commodity, with the same delivery date. If an investor bought an August gold contract on the COMEX, he would offset this obligation by selling an August gold contract on the COMEX. To offset an option, the same option must be bought or sold; i.e., a call or a put with the same strike price and expiration month

Omnibus account
An account carried by one Futures Commission Merchant (FCM) with another. The transactions of two or more individual accounts are combined in this type of account. The identities of the individual account holders are not disclosed to the holding FCM. A brokerage firm may have an omnibus account including all its customers with its clearing firm.

One Cancels Other (OCO)
A qualifier used when multiple orders are entered and the execution of one order cancels a second or alternate order.

Organization of Petroleum Exporting Countries, emerged as the major petroleum pricing power in 1973, when the ownership of oil production in the Middle East transferred from the operating companies to the governments of the producing countries or to their national oil companies. Members are: Algeria, Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.

Open-End Fund
A mutual fund that makes a continuous offering of its shares and stands ready to buy its shares upon surrender by the shareholders. The share value is determined by net asset value of the fund.

Open-End Management Company
A management company that is constantly issuing new shares.

Open-End or Mutual Fund Investment Company
This is a company which uses its capital to invest in other companies. Open-end, or mutual funds, sell their own new shares to investors, buy back their old shares, and are not listed for trading on a stock exchange. Open-end funds get their name because their capitalization is not fixed and they normally issue more shares as people want them.

Open interest:
For futures, the total number of contracts not yet liquidated by offset or delivery; i.e., the number of contracts outstanding. Open interest is determined by counting the number of transactions on the market (either the total contracts bought or sold, but not both). For futures options, the number of calls or puts outstanding; each type of option has its own open interest figure.

Opening Transaction
Refers to a customer either buying or selling an option contract to open a new position.

Open Market Operation
The buying and selling of government securities–Treasury bills, notes, and bonds—by the Federal Reserve.

Open Order
An order to buy or sell a security at a specified price, valid until executed or canceled.

Open outcry
Oral bids and offers made in the trading rings, or pits. “Open outcry” is required for trading futures and futures options contracts to assure arms-length transactions. This method also assures the buyer and seller that the best available price is obtained.

Opening Purchase
A transaction in which the purchaser’s intention is to create or increase a long position in a given series of options.

Opening Sale
A transaction in which the seller’s intention is to create or increase a short position in a given series of options.

Open Trades
A current trades that is still held active in a customer’s account.

Open trade equity
The gain or loss on open positions that has not been realized.

1) The first price of the day for a contract on a securities or futures exchange. Futures exchanges post opening ranges for daily trading. Due to the fast-moving operation of futures markets, this range of closely related prices allows market participants to fill contracts at any price within the range, rather than be restricted to one price. The daily prices that are published are approximate medians of the opening range;
2) When markets are in session, or contracts are being traded, the markets are said to be “open.”

Opening Call
A period at the opening of a futures market in which the price for each contract is established by outcry.

Opening range
Upon opening of the market, the range of prices at which transactions occurred. All orders to buy and sell on the opening are filled within the opening range.

Opportunity cost
The price paid for not investing in a different investment. It is the income lost from missed opportunities. Had the money not been invested in land, earning 5%, it could have been invested in T-Bills, earning 10%. The 5% difference is an opportunity cost.

Option contract
A unilateral contract giving the buyer the right, but not the obligation, to buy or sell a commodity, or a futures contract, at a specified price within a certain time period. It is unilateral because only one party (the buyer) has the right to demand performance on the contract. If the buyer exercises his right, the seller (writer or grantor) must fulfill his obligation at the strike price, regardless of the current market price of the asset.

Option seller
See Grantor and Writer.

Option Adjustments
Changes made in the terms of an option contract on ex-dividend date when the underlying stock pays a cash or stock dividend or when there is a stock split, etc.

Option Agreement
The agreement the customer must sign to trade options in which the customer agrees to abide by the rules of the listed option exchanges.

Option Class
The group of options, put or call, with the same underlying security.

Options Clearing Corporation (OCC)
A clearing corporation owned jointly by the exchanges dealing in listed options. OCC is the central or main clearing corporation for listed options. Options traded on any SEC-regulated exchange can be settled through OCC.

Option Premium
This is the price of an option.

Option Pricing Curve
A graphical representation of the projected price of an option at a fixed point in time. It reflects the amount of time value premium in the option for various stock prices, as well. The curve is generated by using a mathematical model. The delta (or hedge ratio) is the slope of a tangent line to the curve at a fixed stock price.

Option Writer
The seller of either a call or put option.

Option Series
The group of options having the same strike price, expiration date, and unit of trading on the same underlying stock.

Option Spread
The simultaneous purchase and sale of one or more options contracts, futures, and/or cash positions.

1) In business and trade, making a request to deliver, sell, receive, or purchase goods or services;
2) In the securities and futures trade, instructions to a broker on how to buy or sell. The most common orders in futures markets are market orders and limit orders.

Order Book Official (OBO)
An employee of certain exchanges who executes limit orders on behalf of the membership.

Order Department
The department within a brokerage firm that is responsible for sending the customers’ orders to the proper market for execution.

Order Flow
The volume of orders being bought or sold on the exchanges.

Ordinary Shares
The most common form of share. Holders receive dividends which vary in amount in accordance with the profitability of the company and recommendations of the directors. The holders are the owners of the company. Also known as Common Stock.

Original Issue Zeros
Zero-coupon securities originally issued by a corporation, government, or governmental subdivision as zeros. A zero-coupon security not created by severing interest and principal payments from a preexisting bond.

Original Margin
The amount a futures market participant must deposit into his margin account at the time he places an order to buy or sell a futures contract. Also referred to as initial margin.

OTC Bulletin Board
An electronic service that provides selected quotes on over-the-counter stocks.

OTC Options
Options created by OTC firms.

Options with no intrinsic value such as a call when the market price is below the strike price of the call or a put when the market price is above the strike price of the put.

A technician’s term to describe a market in which the price has risen relatively quickly—too quickly to be justified by the underlying fundamental factors.

A technical description for a market in which prices have dropped faster than the underlying fundamental factors would suggest.

Over-The-Counter Market (OTC)
Comprised of a network of telephone and telecommunication systems over which unlisted securities and other issues trade.

Overlying Order
The offer or offers that are listed on the Nasdaq Level II market but are not the best (lowest) offer price.

A term used to describe a security or option whose current price is not justified. Describing a security trading at a higher price than it logically should. Normally associated with the results of option price predictions by mathematical models. If an option is trading in the market for a higher price than the model indicates, the option is said to be overvalued.

Pacific Clearing Corporation (PCC)
The clearing corporation of the Pacific Stock Exchange.

Pacific Stock Exchange (PSE)
This exchange operates in San Francisco and Los Angeles.

A short-term negotiable debt security or promise to pay.

Paper Profit
A profit on a security which has not been taken. Paper profits become realized profits only when the security is sold. A paper loss is the opposite to this. An example of a paper profit would be the purchase of ABC at $25. It is now trading at $27, so the paper profit is $2 per share.

Paper Trading
The ability to simulate a trade without actually putting up the money for the purpose of gaining additional trading experience.

Face value; the nominal value of a security.

Par Value
A value that a corporation assigns to its security for bookkeeping purposes.

Pari Passu
This means “in equal proportion.” It usually refers to equally ranking issues of a company’s preferred shares.

Describing an in-the-money option trading for its intrinsic value; that is, an option trading at parity with the underlying stock. Also used as a point of reference – an option is sometimes said to be trading at a half-point over parity or at a quarter-point under parity. An option trading under parity is a discount option.

Participating Feature
This applies to some preferred stocks which, in addition to a fixed rate of dividend, also share in the earnings of the company and may receive additional dividends over and above their specified dividend rate.

Participating Preferred
Preferred stock whose holders may “participate” with the common shareholders in any dividends paid over and above those normally paid to common and preferred stockholders.

Pass-Through Security
Instrument representing an interest in a pool of mortgages. Pass-throughs pay interest and principal on a monthly basis.

Payment-In-Kind Program
A government program in which farmers who comply with a voluntary acreage-control program and set aside an additional percentage of acreage specified by the government receive certificates that can be redeemed for government-owned stocks of grain.

Performance Bond Margin
The amount of money deposited by both buyer and seller of a futures contract or an options seller to ensure performance of the term of the contract. Margin in commodities is not a payment of equity or down payment on the commodity itself, but rather it is a security deposit. See Customer Margin and Clearing Margin

Penalty Bid
A Syndicate Penalty Bid can be displayed on the Nasdaq System during the period of a registered public offering of a security. Such a bid may be entered by the managing underwriter or a member of the underwriting group acting on its behalf, and is intended to facilitate the offering by stabilizing the price of the security during the distribution period. This activity is permissible under SEC Rule 10b-7.

Penny Stocks
Extremely low-priced securities that trade over the counter.

PEPS (Personal Equity Plans)
These allow investment in a number of shares and carry various tax benefits, including the receipt of dividends without paying income tax on the income and sales free from capital gains tax on the profit.

Perceived Risk
The theoretical risk of a trade in a specific time frame.

Performance Based
A system of compensation in which a broker receives fees based on their performance in the marketplace

Phantom Interest
The yearly accreted interest that a zero-coupon security is presumed to pay each year you hold it even though payment of interest isn’t made until the zero matures.

Philadelphia Stock Exchange (PHLX)
An equities and options exchange located in Philadelphia.

Physical Option
An option whose underlying security is a physical commodity that is not stock or futures. The physical commodity itself (a currency, treasury debt issue, commodity) – underlies that option contract.

Piggy Back Warrants
Some warrants entitle the holder to acquire shares plus additional warrants at a later date. The warrants that are received upon the exercise of the initial warrants are known as piggy back warrants.

Pink Sheets
Daily publication providing dealer names and quotes on penny stocks. It is actually printed on pink paper.

Percentage in points, smallest nominal currency price movement.

The area on the trading floor of an exchange where futures trading takes place. The area is described as a “pit” because it is octagonal with steps descending into the center. Traders stand on the various steps, which designate the contract month they are trading. When viewed from above, the trading area looks like a pit.

Pit broker
A person on the exchange floor who trades futures contracts for others in the pits. See also Floor broker.

Pit trader
See Floor trader.

Plus-Tick Rule
SEC rule that states that no short sale may be made when the last trade on the security was a minus tick.

A price movement of one full increment. For example, a stock rises one point when its price goes from 23 to 24. Points apply to security prices. In the case of shares, one point indicates $1.00 per share. For bonds, , one point means 1% of par value. Commodities differ from market to market.

Point and figure chart
A graphic representation of price movement using vertical rows of “x”s to indicate significant up ticks and “o”s to reflect down ticks. Such charts do not reveal minute price fluctuations, only trends once they have established themselves.

Point balance
Prepared by an FCM, a point balance is a statement indicating profit or loss on all open contracts by computing them to an official closing or settlement price.

Point Spread
The price movement required for a security to go from one “full point” level to another (i.e. stock goes up or down $1).

Poison Pill
A corporate provision to combat hostile takeovers. When triggered, the poison pill allows shareholders to acquire additional shares at below market price, thereby increasing the number of shares outstanding and making the takeover prohibitively expensive. Such plans are relatively new in corporate Canada and are the subject of some controversy regarding whom they are designed to protect

Pooling of Interest
This occurs when a company issues treasury shares for the assets of another company so that the latter becomes a division or subsidiary of the acquiring company. Subsequent accounts of the parent company are set up to include the retained earnings and assets at book value (subject to certain adjustments) of the acquired company.

The different securities owned in an account of client.

Position Limits
The maximum number of option contracts that may be held on the same side of the market for a particular security. The number may vary depending on the security.

Position trader
A trader who establishes a position (either by purchasing or selling) and holds it for an extended period of time.

Open contracts indicating an interest in the market, be it short or long.

Position Delta
The sum of all positive and negative deltas in a hedged position.

Power of attorney
An agreement establishing an agent-principal relationship. The “power of attorney” grants the agent authority to act on the principal’s behalf under certain designated circumstances. In the futures industry, a power of attorney must be in writing and is valid until revoked or terminated.

Preemptive Right
A right, sometimes required by the issuer’s corporate charter, by which current owners must be given the opportunity to maintain their percentage ownership if additional shares of the same class are issued. Additional shares of the soon-to-be issued security are offered to current owners in proportion to their holders before the issue can be offered to others. Usually one right is issued for each outstanding share. The rights are used to subscribe to the additional shares at a predetermined cash amount.

Preference Shares
These are normally fixed-income shares whose holders have the right to receive dividends before ordinary shareholders but after debenture and loan stockholders have received their interest.

Preferred Stock
Stock that represents ownership in the issuing corporation and that has prior claim on dividends. In the case of bankruptcy, preferred stock has a claim on assets ahead of common stockholders. The expected dividend is part of the issue’s description.

(1) If the market price of a new security is higher than the issue price, the difference is the premium. If it is lower, the difference is called the Discount.
(2) The cost of purchasing or selling a traded option.
(3) The additional payment allowed by exchange regulation for delivery of higher-than-required standards or grades of a commodity against a futures contract.
(4) In speaking of price relationships between different delivery months of a given commodity, one is said to be “trading at a premium” over another when its price is greater than that of the other.
(5) In financial instruments, the dollar amount by which a security trades above its principal value.

Premium Bond
A note or bond selling at a price above par.

Price Discovery
The generation of information about “future” cash market prices through the futures markets.

Price discovery mechanism
The method by which the price for a particular shipment of a commodity is determined. Factors taken into account include quality, delivery point, and the size of the shipment. For example, if the price of corn is $3.50 per bushel on the CBOT, the local price of corn per bushel can be discovered by taking into consideration the distance from Chicago that corn would have to be shipped, the difference in quality between local and Chicago corn, and the amount of corn to be transported. Once these factors are considered, both the buyer and seller can arrive at a reasonable price for their area.

Price limit
The maximum price rise or decline permitted by an exchange in its commodities. The limit varies from commodity to commodity and may change depending on price volatility (variable price limits). Not all exchanges have limits; those that do set their limits relative to the prior day’s settlement, for example, the CBOT may set its limit at 10› for corn. On day 2, corn may trade up or down 10› from the previous day’s close of $3.00 per bushel; i.e., up to $3.10 or down to $2.90 per bushel.

Price/Earnings Ratio
For a stock, this is the ratio of the current price relative to the current year’s earnings per share. For a fund it is the dollar-weighted average of the price/earnings ratios of the stocks in the fund’s portfolio.

Price Spread
A spread in which the two options have the same expiration date but have different exercise or strike price.

Price weighted index
A stock index weighted by adding the price of 1 share of each stock included in the index, and dividing this sum by a constant divisor. The divisor is changed when a stock split or stock dividend occurs because these affect the stock prices. The MMI is a price weighted index.

A fixed value of something. Prices are usually expressed in monetary terms. In a free market, prices are set as a result of the interaction of supply and demand in a market; when demand for a product increases and supply remains constant, the price tends to decline. Conversely, when the supply increases and demand remains constant, the price tends to decline; if supply decreases and demand remains constant, prices tend to rise. Today’s markets are not purely competitive; prices are affected by government controls and supports that create artificial supplies and demand, and inhibit free trade, thus making price predictions more difficult for those not privileged with inside government information.

Primary markets
The principal market for the purchase and sale of physical commodities

Primary Dealer
Any of 40 firms recognized by the Treasury Department as eligible to bid on Treasury and agency securities when they are initially issued and to make a market for secondary buyers.

Primary Market
(1) The initial offering of certain debt issues.
(2) The main exchanges for equity trading.

Prime Rate
Interest rate charged by major banks to their most creditworthy customers.

(1)A brokerage firm when it acts as a dealer and marks up a purchase price or marks down a sale price when reporting the execution.
(2)The initial purchase price of a bond on which interest is earned.

Principal Orders
Refers to activity by a broker/dealer when buying or selling for its own account and risk.

Prior Preferred
A preferred stock which in the liquidation of the issuing company would rank ahead of other classes of preferred shares as to asset and dividend entitlement.

Private Company
A company which is not a public company and does not offer its shares to the general public.

Private Placement
An issue that is offered to a single or a few investors as opposed to being publicly offered.

Conversion of a state run company to public limited company status often accompanied by a sale of its shares to the public.

Probability of Profit
Probability of Profit is the probability that the predicted stock price falls within the option trade’s profit zones. The predicted stock price distribution is computed by projecting the stock price randomly into the future using the SV. The prediction stops at the expiration of the earlist expiring option leg.

Probate Price
The price used to assess the value of shares for inheritance tax purposes. Calculated on the “quarter up” principle. That is, instead of taking the Mid Price in the Official List, the difference between the two prices (bid and offer) given under “quotation” is divided by four, and the result added to the lower of the two prices.

Profit Graph
A graphical representation of the potential outcomes of a strategy. Dollars of profit or loss are graphed on the vertical axis, and various stock prices are graphed on the horizontal axis. Results may be depicted at any point in time, although the graph usually depicts the results at expiration of the options involved in the strategy.

Profit Range
The range within which a particular position makes a profit. Generally used in reference to strategies that have two break-even points – an upside break-even and a downside break-even. The price range between the two break-even points would be the profit range.

Profit Table
A table of results of a particular strategy at some point in time. This is usually a tabular compilation of the data drawn on a profit graph.

Pro Forma
When a new issue is being planned for distribution, the corporation issuing the security must tell the suppliers of the new capital how they intend on spending the money received from the sale of the securities. The corporation publishes a pro forma balance sheet which integrates the new pool of money into their current operation. This shows the shareholders how the corporation would have spent the money if they had it on the day the pro forma balance sheet was created.

Program Trading
A sophisticated computerized trading strategy whereby a portfolio manager attempts to earn a profit from the price spreads between a portfolio of equities similar or identical to those underlying a designated stock index, e.g. the Standard & Poor’s 500 Index, and the price at which futures contracts (or their options) on the index trade in financial futures markets.

Pro Rata
This means “in proportion to.” For example, a dividend is a pro rata payment because the amount of dividend each shareholder receives is in proportion to the number of shares he or she owns.

A document that explains the terms of a new security offering — the officers, the outside public accounting firms, the legal opinion, and so on. Must be given to any customer who purchases new corporate and certain muni issues.

Protected Strategy
A position that has limited risk. A protected short sale (short stock, long call) has limited risk, as does a protected straddle write (short straddle, long out-of-the-money combination).

A form and a process for voting via the mail, permitting stockholders to vote on key corporate issues without having to attend the actual meeting.

Proxy Fight
An attempt by a dissident group to take over the management of a corporation. The group sends proxies electing them to the board; the current management sends proxies favoring them. The shareholders cast their votes by selecting one proxy or the other.

Prudent Portfolio Rule
In some provinces the law requires that a trustee may only invest in a security if it is one which an ordinary prudent person would buy if he or she were investing for the benefit of other people for whom he or she felt morally bound to provide. Some provinces apply both this rule and the rule under legal investment, where a list of specific securities has been designated.

Public Book (of orders)
The orders to buy or sell, entered by the public, that are generally away from the current market. The order book official or specialist keeps the public book. Market-Makers on the CBOE can see the highest bid and lowest offer at any time. The specialist’s book is closed (only he knows at what price and in what quantity the nearest public orders are).

Public Limited Company (PLC)
A public company limited by shares and having a share capital, and which may offer shares for purchase by the general public. Only PLC’s may qualify for listing or trading on the USM on the London Stock Exchange.

Public Market
The listed exchanges through which zero-coupon investments can be purchased and sold.

Public Offering Date
The first day the new issue is offered to the public, on or shortly after the effective date.

A raised structure adjacent to, or in the center of, the pit or ring at a futures exchange where market reporters, employed by the exchange, record price changes as they occur in the trading pit.

Purchase Price
The amount paid to purchase a Treasury or agency obligation.

Purchase and sale statement
A form required to be sent to a customer when a position is closed; it must describe the trade, show profit or loss and the commission.

Anyone who enters the market as a buyer of a good, service, futures contract, call, or put.

Purchase Fund
A fund set up by a company to retire, through purchases in the market, a specified amount of its outstanding preferred shares or debt. Purchases are made at or below a stipulated price.

Pure hedging
A technique used by a hedger who holds his futures or option position without exiting and re-entering the position until the cash commodity is sold. Pure hedging also is known as conservative or true hedging, and is used largely by inexperienced traders wary of price fluctuation, but interested in achieving a target price.

During a stock split, a push-out occurs when new shares are forwarded directly to the registered holders of old share certificates, without the holders having to surrender these old shares. Both old and new shares have equal value.

An option contract that gives the holder the right to sell the underlying security at a specified price for a certain fixed period of time.

Put Option
An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time. The put option buyer hopes the price of the shares will drop by a specific date w hile the put option seller (or writer) hopes that the price of the shares will rise, remain stable, or drop by an amount less than their profit on the premium by the specified date.

Purchasing additional contracts with the profits earned on open positions.

Quality (Bonds)
•Average quality: An indicator of credit risk, this is the dollar-weighted average of the credit ratings assigned to a portfolio’s holdings by credit-rating agencies. Agencies assign credit ratings after appraising an issuer’s ability to meet its obligations.
•High quality: Ratings of AAA and AA.
•Medium quality: Ratings less than AA but greater than or equal to BBB.
•Low quality: Ratings below BBB.

Quarterly Refunding
Auctions of Treasury notes and bonds occurring in May, August, November, and February.

Quarterly Report (10 Q)
A report, which public companies are required to file quarterly with the SEC, that provides unaudited financial information and other selected material.

An order that must be filled as soon as it reaches the trading floor at the price specified, or be canceled immediately.

The current bid price and the current ask price of a security.

The highest bid and lowest offer on a given security at a particular time.

Quoted Price
Refers to the price at which the last sale and purchase of a particular security or commodity took place.

An upward price movement. See Recovery.

The high and low prices for the day for a security.

The alphabetical designation attesting to the investment quality of a bond. Treasury and agency securities are AAA-rated, said to be “investment grade.”

RATS (Registered Certificates of Accrual on Treasury Securities)
Another trade name for derivative zeros backed by U.S. Treasury obligations.

Ratio Backspread
A delta neutral spread where an uneven amount of contracts are bought and sold with a ratio less than 2 to 3. Optimally no net credit or net debit occurs.

Ratio Calendar Combination
A strategy consisting of a simultaneous position of a ratio calendar spread using calls and a similar position using puts, where the striking price of the calls is greater than the striking price of the puts.

Ratio Calendar Spread
Selling more near-term options than longer-term ones purchased, all with the same strike; either puts or calls.

Ratio Call Spread
A bearish or stable strategy in which a trader buys 2 higher strike calls and sell1 lower strike call. This strategy offers limited risk and unlimited profit potential.

Ratio Put Spread
A bullish or stable strategy ion which a trader buys 1 higher strike put and sells two lower strike puts. This strategy offers limited risk and unlimited profit potential.

Ratio Spread
Constructed with either puts or calls, the strategy consists of buying a certain amount of options and then selling a larger quantity of more out-of-the-money options.

Ratio Strategy
A strategy in which one has an unequal number of long securities and short securities. Normally, it implies a preponderance of short options over either long options or long stock.

Ratio Write
Selling of call options in a ratio higher than 1 to 1 against the stock that is owned.

Ratio writing
When an investor writes more than one option to hedge an underlying futures contract. These options usually are written for different delivery months. Ratio writing expands the profit potential of the investor’s option position. Example: an investor would be ratio writing if he is long one August gold contract and he sells (writes) two gold calls, one for February delivery, the other for August.

A temporary price weakness in a security following a price upswing.

Real Estate Investment Trust (REIT)
An investment vehicle that invests funds on behalf of its investors in real estate-related investments such as construction loans, mortgages, land and real estate company securities.

Real Interest Rate
The nominal rate of interest minus the percentage change in the Consumer Price Index, or the rate of inflation.

Data received from a quote service as the prices change.

Real-Time Trade Reporting
A requirement imposed on Market Makers (and in some instances, non-Market Makers) to report each trade immediately after completion of the transaction. Stocks traded on The Nasdaq Stock Market are subject to real-time trade reporting within 90 seconds of execution.

Receiver’s Certificate
A certificate issued when a company is in financial trouble. Its purpose is to provide the company with funds to complete processing cycles so that more money can be obtained through its liquidation.

Record Date
The day that an individual must be the owner of record to be entitled to an upcoming dividend.

Reciprocal of European Terms
One method of quoting exchange rates, which measured the U.S. dollar value of one foreign currency unit, i.e., U.S. dollars per foreign units. See European Terms.

Rising prices following a decline.

Red Herring
The preliminary prospectus. The name comes from the advisory that is printed on the face of the prospectus in red ink.

The retiring of a debt instrument by paying cash.

Redemption Date
The date on which a security (usually a fixed interest stock), is due to be repaid by the issuer at its full face value. The year is included in the title of the security; the actual redemption date is that on which the last interest is due to be paid.

Redemption Notice
A notice that a corporation or a municipality is calling or redeeming a certain issue of bonds.

The retiring of a debt instrument by issuing a new debt instrument.

Reg T Excess
In a margin account, the amount by which the loan value exceeds the debit balance.

Registered Bond
A bond on which the owner’s name appears on the certificate.

Registered Commodity Representative (RCR)
A person registered with the exchange(s) and the CFTC who is responsible for soliciting business, “knowing” his/her customers, collecting margins, submitting orders, and recommending and executing trades for customers. A registered commodity representative is sometimes called a “broker” or “account executive.

Registered Form
The recording of a security’s ownership on the issuer’s central ledger. Anyone delivering the security must prove that he or she is, in fact, the person to whom the securities is registered.

Registered to Principal Only
A feature of a bond whose ownership is recorded on a central ledger and whose interest payments are made only when coupons are detached and cashed in. Payments are not automatically sent to the owner.

Registered Security
A security recorded on the books of a company in the name of the owner. It can only be transferred when the securities certificate is endorsed in that name and the certificate is forwarded to the transfer agent. Registered debt securities may be registered as to principal only or fully registered. In the case of fully registered debt securities, interest is paid by cheque rather than by coupons attached to the certificate.

Registered Trader
A member of an exchange who is responsible for adding “liquidity” to the marketplace by purchasing or selling assigned securities from his or her inventory. Also known as competitive market makers or option principal members.

A commercial bank or trust company that controls the issuance of securities.

Registration Statement
Document filed with the Securities and Exchange Commission (SEC) explaining an impending issue and pertinent data about the issuer. Based on the information provided, the SEC either permits or prevents the issue from being offered.

Regular Way
Settlement on the 3rd business day following the trade date.

Regular Way Contract
The first contract sheet received from NSCC that contains compared, uncompared, and advisory data.

Regular Way Delivery
A type of settlement calling for delivery on the third business day after trade dates for stocks, corporate bonds, municipals. For government bonds and options, delivery is the first business day after trade.

Regulations (CFTC)
The guidelines, rules, and regulations adopted and enforced by the Commodity Futures Trading Commission (the CFTC is a federal regulatory agency established in 1974) in administration of the Commodity Exchange Act.

Regulation A
A regulation governing the issuance of new securities.

Regulation T (Reg T)
A federal regulation that governs the lending of money by brokerage firms to its customers.

Reinvestment Opportunity
Ability to reinvest interest and principal paid by income securities.

Reinvestment Rate
Rate of interest earned by reinvesting interest payments rather than consuming them as current income.

Reinvestment Risk
The prospect that securities will not be able to pay higher rates of interest when general interest rates rise or retain previous levels of interest when general interest rates fall.

Relative Strength
A stock’s price movement over the past year as compared to a market index.

Relative Strength Index (RSI)
An indicator used to identify price tops and bottoms.

Renounceable Documents
Temporary evidence of ownership, of which there are four main types. When a company offers shares to the public, it sends an Allotment Letter to the successful applicants; if it makes a rights issue, it sends a Provisional Allotment Letter to its shareholders, or in the case of a capitalization issue, a Renounceable Certificate. All of these are in effect bearer securities and are valuable. Each includes full instructions on what the holder should do if he wishes to have the newly-issued shares registered in his name or if he wishes to renounce them in favor of somebody else.

Parties that are wronged during a futures or options transaction may be awarded compensation through the CFTC’s claims procedure. This compensation is known as reparations because it “repairs” the wronged party.

Reportable positions
Positions where the reporting level has been exceeded. See also Reporting level.

Reporting level
An arbitrary number of contracts held by a trader that must be reported to the CFTC and the exchange. Reporting levels apply to all traders; hedgers, speculators, and spreaders alike. Once a trader has enough contracts to exceed the reporting level, he has a “special account,” and must report any changes in his positions.

Repurchase Agreement (Repo)
An agreement used to finance certain government and money market inventory positions. The brokerage firm sells securities to the financing organization with the agreement that the firm will repurchase them in the short-term future.

Reserve Requirements
The minimum amount of cash and liquid assets as a percentage of demand deposits and time deposits that member banks of the Federal Reserve are required to maintain.

A term in technical analysis indicating a price area higher than the current stock price where an abundance of supply exists for the stock and therefore the stock may have trouble rising through the price.

Restricted Account
As defined by Regulation T, a margin account in which the debit balance exceeds the loan value.

Restricted Securities
Unregistered securities acquired in a transaction that does not involve a public offering.

Retained Earnings
Net profits kept to accumulate in a business after dividends are paid.

The right of a futures contract holder, who has received a notice of intention to deliver from the clearinghouse, to offer the notice for sale on the open market, thus offsetting his obligation to take delivery under the contract. This opportunity is only available for some commodities and only within a certain period of time.

Retention Requirement
The amount that must be retained in a restricted margin account if anything is to be withdrawn.

A feature which can be included in a new debt issue or preferred share which grants the holder the option, under specified conditions, to redeem the security on a stated date. This date would be prior to maturity in the case of a debt issue.

Return of Capital
A distribution of cash resulting from depreciation tax savings, the sale of a capital asset or of securities in a portfolio, or any other transaction unrelated to retained earnings.

Return on Equity
A measure of the net income that a firm is able to earn as a percent of stockholders’ investment.

Return (on investment)
The percentage profit that one makes, or might make, on his investment.

Return if Exercised
The return that a covered call writer would make if the underlying stock were called away.

Return on Total Assets
A measure of the net income that a firm’s management is able to earn with the firm’s total assets.

Revenue Anticipation Note (RAN)
A short-term debt instrument that is issued by municipalities and that is to be paid off by future (anticipated) revenue.

Revenue Bond
A municipal bond whose issuer’s ability to pay interest and principal is based on revenue earned from a specific project.

Reversal Arbitrage
A riskless arbitrage that involves selling the stock short, writing a put, and buying a call. The options have the same terms.

Reverse Crush Spread
The sale of soybean futures and the simultaneous purchase of soybean oil and meal futures. See Crush Spread.

Reverse Split
The exchange of a greater number of a company’s shares for a lesser number. For example, exchanging three shares for one. This results in a higher share price and less shares outstanding. This is also called a consolidation or a negative split.

Reversal Stop
A stop that, when hit, is a signal to reverse the current trading position, i.e., from long to short. Also known as stop and reverse.

Reward-Risk Ratio
The mathematical relationship between the maximum potential risk and maximum potential reward of a trade.

The expected change in an option?s theoretical value for a 1 percent change in interest rates.

Priced higher than expected.

A certificate showing that the stockholder has the privilege of purchasing new securities in proportion to the number of shares he owns before the general public.

Right of Rescission
The right of a purchaser of a new issue to withdraw from the purchase agreement within the specific province’s applicable time limits if the prospectus contained an untrue statement or omitted a material fact.

Right of Withdrawal
The right of a purchaser of a new issue to withdraw from the purchase agreement within two business days after receiving the prospectus.

Rights Issue
An invitation to existing shareholders to purchase additional shares in the company

Rights Offering
An offering that gives each shareholder a chance to exercise his preemptive rights.

Rights Arbitrage
The simultaneous purchase and sale of different securities in anticipation of a merger or tender offer.

A designated area on the exchange floor where traders and brokers stand while executing trades. Instead of rings, some exchanges use pits.

The potential financial loss inherent in the investment.

Risk Arbitrage
A form of arbitrage that has some risk associated with it. Commonly refers to potential takeover situations where the arbitrageur buys the stock of the company about to be taken over and sells the stock of the company that is effecting the takeover.

Risk Graph
A graphic representation of risk and reward on a given trade as prices change.

Risk disclosure document
A document outlining the risks involved in futures trading. The document includes statements to the effect that: you may lose your entire investment; you may find it impossible to liquidate a position under certain market conditions; spread positions may not be less risky than simple “long” or “short” positions; the use of leverage can lead to large losses as well as large profits; stop-loss orders may not limit your losses; managed commodity accounts are subject to substantial management and advisory charges. There is a separate risk disclosure document for options which warns of the risks of loss in options trading. This statement includes a description of commodity options, margin requirements, commissions, profit potential, definitions of various terms, and a statement of the elements of the purchase price.

Risk Manager
A person who manages risk of trades in a portfolio by hedging their trades.

Risk Profile
A graphic determination of risk on a trade. This would include the profit and loss of a trade at any given point for any given time frame.

RNS (Regulatory News Service)
A service operated by the Exchange, in its role as competent authority for listing, which ensures that price-sensitive information from listed and USM companies is collected and then disseminated to all RNS subscribers at the same time.

Rolling hedge
Changing a futures hedge from one contract month to another. Rolling a short hedge may be advisable when more time is needed to complete the cash transaction to avoid delivery on the futures contract. Hedge rolling may also be considered to keep the hedge in the less active, more distant months, thus reducing the likelihood of swift price movements and the resulting margin calls

Roll Down
Close out options at one strike and simultaneously open other options at a lower strike.

Roll Forward (Out)
Close-out options at a near-term expiration date and open options at a longer-term expiration date.

A follow-up action in which the strategist closes options currently in the position and opens other options with different terms, on the same underlying stock.

Roll Up
Close out options at a lower strike and open options at a higher strike.

Roth IRA
An individual retirement fund. Contributions are not tax deductible, but withdrawals are tax exempt if an individual has been in the plan at least five years and is at least 59-1/2. Income limits and additional rules apply.

Round Lot
A standard trading unit. In common stocks, 100 shares make up a round lot. A round lot of bonds in the over-the-counter market is 5 bonds.

Round turn
A complete futures transaction (both entry and exit); for example, a sale and covering purchase, or a purchase and liquidating sale. Commissions are usually charged on a “round-turn” basis.

Rule 144
Rule that governs the sale of control and restricted securities.

Rules of Fair Practice
Part of the NASD rules that govern the dealings of firms with the public.

Messengers who rush orders received by phone clerks to brokers for execution in the pit.

Running Stops
Something which when quoted, floor traders use to move the market. When stops are bunched together, traders may move the market in order to activate stop orders and propel the market further.

Sales Charge
The amount added to the net asset value of a mutual fund to determine the offering price.

Sallie Mae
Nickname for the Student Loan Marketing Association and the securities it issues.

Same-Day Substitution
The buying of one security and the selling of another security, usually of equal value, on the same day.

A floor trader who buys and sells quickly to take advantage of small price fluctuations. Usually a scalper is ready to buy at the bid and sell at the asked price, providing liquidity to the market. The term “scalper” is used because these traders attempt to “scalp” a small amount on a trade.

A certificate exchangeable for cash before a specified date, after which it may have no value. Usually issued for fractions of shares in connection with a stock dividend or split or in a reorganization of a company. For example, a one-for-three stock dividend would result in many shareholders being entitled to a fraction of a share (1/3 or 2/3) for which scrip would be issued instead of an actual stock certificate.

The traditional term for membership on a stock exchange. An investment dealer would buy a seat on the exchange and one employee would be designated as the seat holder.

The Securities and Exchange Commission, a federal body established by the United States Congress as a national U.S. regulatory authority. In Indonesia, it is BAPEPAM-LK.

Secondary Distribution or Secondary Offering
The redistribution of a block of stock after it has been initially sold by the issuing company. Usually a large block of shares is involved (e.g. from the settlement of an estate) and these are offered to the public at a fixed price, set in relationship to the stock’s market price.

Secondary Market
The market in which securities are traded after the initial (or primary) offering. Gauged by the number of issues traded. The over-the-counter market is the largest secondary market.

Common or preferred stock; a bond of a corporation, government, or quasi- government body.

General name for all stocks and shares of all types. In common usage, stocks are fixed interest securities and shares are the rest, though strictly speaking, the distinction is that stocks are denominated in money terms.

Securities Industry Automated Corporation (SIAC)
The computer facility and trade processing company for NYSE, AMEX, NSCC, and PCC.

Securities Investor Protection Corporation (SIPC)
Non-profit organization consisting of members of the securities industry who support it on an assessment basis. If a member should fail, that member’s customers are protected up to a maximum of $500,000, including up to $100,000 in cash.

Segregated account
An account separate from brokerage firm accounts. Segregated accounts hold customer funds so that if a brokerage house becomes insolvent, the customers’ funds will be readily recognizable and will not be tied up in litigation for extended periods of time.

The isolation of securities that the firm may not use for hypothecation or loan. The securities, which must be “locked up” by the firm, represent fully paid-for securities or the portion of a margin account in excess of loanable securities.

Selective hedging
The technique of hedging where the futures or option position may be lifted and re-entered numerous times before the cash market transaction takes place. A hedge “locks-in” a target price to minimize risk. Lifting the hedge lifts the risk protection (increasing the possibility of loss), but also allows the potential for gain.

Self-Regulatory Organizations (SROs)
Many important rules governing securities industry practices and standards in Indonesia are set by the self-regulatory organizations, which include the BAPPEBTI.

Sell stop order
See Stop orders.

Selling hedge
See Short hedge

Selling Group
Investment dealerswho assist a banking group in marketing a new issue of securities in order to obtain wide distribution. These dealers do not assume financial responsibility for the underwriting of the issue as the banking group does.

An advanced option order that combines the short selling of an equity and the selling of a put option on the same underlying stock.

Seller’s Option
A settlement that calls for delivery and payment according to the number of days specified by the seller.

Occurs when a contract brokerage firm’s client incurs a margin or maintenance call and does not settle the balance by settlement date. The firm then sells the securities at the best price available and the buyer is held liable for the price and costs.

Senior Bond Issue
A corporate bond issue which has priority over other bonds as to its claim on the company’s assets and earnings. An example is a first mortgage bond.

Senior Debt
A senior debt issue ranks before other issues in terms of claims on assets in the event of a company break-up. For example, senior bonds rank before junior bonds, which rank before senior debentures, which rank before junior debentures, etc.

Serial Bonds
An issue of bonds that matures over a period of years.

Serial Maturity
Type of bond maturity in which part of the issue matures at different times until the whole issue has matured.

Refers to options with the same underlying security, same expiration date, same exercise price and the same type.

Settled Inventory
The portion of a trader’s position that the firm has paid for and maintains. This is the portion that must be financed.

Settlement Date
The day when a transaction is to be completed. On this day, the buyer is to pay and the seller is to deliver. Settlement is normally 3 business days on listed equities and 1 business day on listed options.

Settlement Date Inventory
The total of all positions in a security on settlement date, including fault, transfer, fails and elsewhere.

Settlement price
Established by the clearinghouse from the closing range of prices (the last 30 seconds of the day). The settlement price is used to determine the next day’s allowable trading range, and to settle all accounts between clearing members for each contract month. Margin calls and invoice prices for deliveries are determined from the settlement prices. In addition to this, settlement prices are used to determine account values and determine margins for open positions

The clearinghouse practice of adjusting all futures accounts daily according to gain or loss from price movement is generally called settlement.

SFA (The Securities and Futures Authority, previously known as The Securities Association)
The Self-Regulating Organization responsible for regulating the conduct of brokers and dealers in securities, options and futures, including most member firms of the Exchange.

Shareholder or Stockholder
Someone who owns preferred or common shares of a company.

Shareholders’ Equity
Ownership interest of common and preferred stockholders in a company. It is also the difference between the assets and liabilities of a company, which is sometimes called net worth, or just “equity.”

Shareholder of Record
A shareholder whose name is registered in the records of a company whose shares he or she holds. Dividend payments and rights issues are announced as being payable to shareholders of record.

Shares or Stocks
These two terms are used interchangeably. Certificates representing ownership in a corporation and the appropriate claim on the corporation’s earnings and assets.

Short Account
Account in which the customer has sold short securities. Before a customer may sell short, a margin account must be opened.

Short covering
Buying by shorts to liquidate existing positions.

Short Exempt
A phrase used to describe a short sale that is exempt from the short sale rules. For example, buying a convertible preferred, submitting conversion instructions, and selling the common stock before the stock is received.

Short hedge
When a hedger has a long cash position (is holding an inventory or growing a crop) he enters a short hedge by selling a futures contract. A sell or short hedge is also known as a substitute sale.

Someone who has sold actuals or futures contracts, and has not yet offset the sale; the act of selling the actuals or futures contracts, absent any offset.

Short Interest
The total number of shares of a security that have been sold short by customers and securities firms that have not been repurchased to settle short positions in the market.

Short Position
(1) A position in a customer’s account in which the customer either owes the firm securities or has some other obligation to meet.
(2) Any position on the firm’s security records having a credit balance.

Short Sale
The sale of securities that are not owned or that are not intended for delivery. The short seller “borrows” the stock to make delivery with the intent to buy it back at a later date at a lower price.

Short Sale Rule
You cannot short sell a stock at or below the bid if the last bid tick was a downtick. A downtick is defined by Nasdaq as the condition when the current bid is lower than the previous bid. The simplest way to tell if you can short sell a stock is to get a quote on it (see “market maker quote boxes” later in this guide) and look at the bid tick symbol just to the right of the stock symbol. If it is a down arrow, you cannot short sell the stock at or below the bid. If it is an up arrow, you can short sell the stock at the bid or higher. The red down arrows and green up arrows in your Ticker window also tell you if the last movement was a down tick or up tick.

When a person or firm needs to buy a commodity in the future, he can protect himself against price increases by making a substitute purchase in the futures market. The risk this person now faces is the risk of a change in basis (cash price – futures price). This hedger is said to be short-the-basis because he will profit if the basis becomes more negative (weaker); for example, if a hedger buys a corn futures contract at 325› when cash corn is 312›, the basis is -.13. If this hedge is lifted with futures at 320› and cash at 300›, the basis is -.20, and the hedger has profited by the $.07 decrease in basis.

Short-Term Bonds
Bonds which mature within five years.

Short-Term Gain
The profit realized from the sale of securities or other capital assets held twelve months or less.

SIC Code
Standard Industrial Classification (SIC) code. A numbering system established by the Office of Management and Budget that identifies companies by industry. It is used to promote the comparability of economic statistics from various facets of the U.S. economy.

A market with a narrow price range; i.e., little upward or downward price movement

The number of shares available in a quote. For example, if the quote and size on a stock is 9-3/8 to 9-1/2 3×5, it means that the bid is 9-3/8, the offer is 9-1/2, 300 shares are bid, and 500 shares are offered.

Small Cap
Companies with market capitalizations in the $250 million to $1.5 billion range are considered “small cap”. Earnings for these companies often are expected to grow faster than earnings of the overall market which, in turn, could increase the stocks’ share prices.

S&P 500
The Standard and Poor 500 index – ($SPX), more formally known as the S&P 500 Composite Stock Price Index, is a european-style, capitalization-weighted index (shares outstanding multiplied by stock price) of 500 stocks that are traded on the New York Stock Exchange, American Stock Exchange and Nasdaq National Market. The advantage of “cap-weighting” is that each company’s influence on index performance is directly proportional to its relative market value. It is this characteristic that makes the S&P 500 such a valuable tool for measuring the performance of actual portfolios.

S&P 400
This market value-weighted index consists of 400 widely held stocks. These are primarily stocks in the middle capitalization range ($1.5 billion to $7.5 billion market value). Any midcap stocks already included in the S&P 500 are excluded from this index, which was started on December 31, 1990.

Special account
An account which has a reportable position in either futures or futures options. See also Reporting level.

A member of certain SEC-regulated exchanges who must make a market in assigned securities. Specialists also act as two-dollar brokers in executing orders entrusted to them.

An attempt to profit from commodity price changes through the purchase and/or sale of commodity futures. In the process, the speculator assumes the risk that the hedger is transferring, and provides liquidity in the market.

One who buys and sells stocks, land, etc., risking his capital with the goal of earning a profit from price changes. In contrast to gamblers, speculators understand and evaluate existing market risks on the basis of data and experience, while gamblers are those who seek out man-made risks or “invest” in a roll of the dice.

Spin Off
Giving stock dividend in another CUSIP, usually a subsidiary.

Split Fund
A mutual fund or unit trust that contains Treasury securities and other types of investments.

The market in which commodities are available for immediate delivery. It also refers to the cash market price of a specific commodity.

The difference between the bid and offer sides of a quote.

Spread Order
An advanced option order that combines the purchase and sale of two puts or two calls on the same underlying security.

Spread Strategy
Any option position having both long options and short options of the same type on the same underlying security.

The simultaneous buying and selling of two related markets in the expectation that a profit will be made when the position is offset. Examples include: buying one futures contract and selling another futures contract of the same commodity but different delivery month; buying and selling the same delivery month of the same commodity on different futures exchanges; buying a given delivery month of one futures market and selling the same delivery month of a different, but related, futures market.

Standard Deviation
This statistical measure represents the degree of fluctuations in historical returns. The higher the standard deviation, the greater the volatility of returns. It is calculated using historical period returns to determine a range of returns around a mean. For example, a fund with an average annual return of 10% and a standard deviation of 5 would have provided a return between 5 and 15% about 68% of the time. Standard deviation, a historical measure, should not be used to predict fund performance.

Static Return
The return that an investor would make on a particular position if the underlying stock were unchanged in price at the expiration of the options in the position.

Statement of Material Facts
A document presenting the relevant facts about a company and compiled in connection with an underwriting or secondary distribution of its shares. It is used only when the shares underwritten or distributed are listed on a recognized stock exchange and takes the place of a prospectus in such cases.

Steer/Corn Ratio
The relationship of cattle prices to feeding costs. It is measured by dividing the price of cattle ($/hundredweight) by the price of corn ($/bushel). When corn prices are high relative to cattle prices, fewer units of corn equal the dollar value of 100 pounds of cattle. Conversely, when corn prices are low in relation to cattle prices, more units of corn are required to equal the value of 100 pounds of beef. See Feed Ratio.

A security that represents ownership in a corporation and that is issued in “shares”.

Stock Ahead
Refers to a limit order that has not been executed because of other orders at the same limit that were entered earlier.

Stock Consolidation
The opposite of a stock split. A number of existing shares are combined into a smaller number of shares, ie. turning every three shares into one.

Stock Dividends
A dividend paid by corporations from retained earnings in the form of stock. The corporation declares the dividend as a percentage of shares outstanding.

Stock Index
An indicator used to measure and report value changes in a selected group of stocks. How a particular stock index tracks the market depends on its composition–the sampling of stocks, the weighing of individual stocks, and the method of averaging used to establish an index.

Stock index futures
Based on stock market indexes, including Standard and Poor’s 500, Value Line, NYSE Composite, Nikkei 225, the Major Market Index, and the Over-the-Counter Index, these instruments are used by investors concerned with price changes in a large number of stocks, or with major long-term trends in the stock market indexes. Stock index futures are settled in cash and are generally quoted in ticks of .05. To determine the contract value, the quote is generally multiplied by $500.

Stock Market
A market in which shares of stock are bought and sold.

Stock Power
A form that may be endorsed in lieu of endorsing the back of the stock certificate.

Stock Record
A ledger on which all security movements and positions are recorded. The record is usually in two formats: One shows movements of the security the previous day and the other shows the current security positions.

Stock Splits
The exchange of existing shares of stock for more newly issued shares from the same corporation. Since the number of shares outstanding increase, the price per share goes down. Splits do not increase or decrease the capitalization of the company, just redistributes it over more shares. The effect is the adjustment to the trading price.

Stock Symbol
A unique four- or five-letter symbol assigned to a Nasdaq security. If a fifth letter appears, it identifies the issue as other than a single issue of common stock or capital stock. The letter “C” as a fifth character in a security symbol, indicates that the issuer has been granted a continuance in Nasdaq under and exception to the qualification standards for a limited period.

Stockholder’s Equity
Company’s net worth. Total liabilities are subtracted from the total assets to arrive at this figure.

Stop Limit Order
This order is similar to a stop order, but it becomes a limit order instead of a market order when the price is reached or passed. Buy stop limit orders are entered above the current market; sell stops are extended below it.

Stop Order
A memorandum order that becomes a market order when the price is reached or passed. Buy stops are entered above the current market price; sell stops are entered below it.

Stopped out
When a stop order is activated and a position is offset, the trader has been “stopped out.”

The cost to store commodities from one delivery month to another. Storage is one of the “carrying charges” associated with futures

Simultaneous long or short positions of puts and calls having the same underlying security and same strike price.

An option strategy that refers to writing a call and a put with different strike prices on the same underlying security.

With respect to option investments, a preconceived, logical plan of position selection and follow-up action.

Street Certificate or “Street Name”
Most people who own securities today do not physically have possession of the stock or bond certificates. Their securities are kept on their behalf by their investment dealer, which is called keeping securities in “street name.” All interest payments and dividends are passed onto the client by crediting their account with the dealer.

Strike (Exercise) Price
The price at which an option can be exercised. For example, the owner of a call ABC April 40 can call in (buy) 100 shares of ABC at 40; the strike price is 40.

Striking Price Interval
The distance between striking prices on a particular underlying security. Normally, the interval is 2.50 points for stocks under $25, 5 points for stocks selling over $25 per share, and 10 points (or greater) is acceptable for stocks over $200 per share. There are, however, exceptions to this general guideline.

Strip Bonds or Zero Coupon Bonds
Usually high quality federal or provincial government bonds originally issued in bearer form, where some or all of the interest coupons have been detached. The bond principal and any remaining coupons trade separately from the strip of detached coupons, both at substantial discounts from par.

Stripped Debentures
Debentures which have been separated from other securities, such as warrants, which were originally issued together as a unit.

Strong basis
A relatively small difference between cash prices and futures prices. A strong basis also can be called a “narrow basis,” or a “more positive basis”: for example, a strong basis usually occurs in grains in the spring before harvest when supplies are low. Buyers must raise their bids to buy. As the cash prices rise, relative to futures prices, the basis strengthens. A strong basis indicates a good selling market, but a poor buying market.

Subject Quote
A quote given to indicate the current market status but is not to be taken as a firm ask or bid.

Subject Bid, Subject Offer
A bid or offer made for a security that indicates the buyer’s interest, in the case of a bid, or the seller’s interest, in the case of an offer, but does not commit the buyer or seller to the purchase or sale of the security at that price or time.

Subordinated Debenture
A debenture whose claim to interest and principal of the corporation comes after those of regular debentures and other debt securities.

Subscription Right
A stockholder’s right to maintain his proportionate ownership in the company by being given the opportunity to buy newly issued stock before the general public.

A company which is controlled by another company, usually by owning the majority of the first company’s shares.

A requirement that any investing strategy fall within the financial means and investment objectives of an investor.

Describing a strategy or trading philosophy in which the investor is operating in accordance with his (her) financial means and investment objectives.

Summary suspension
Occurs when a member fails to pay NFA levied fines after seven days written notice. One may also be summarily suspended from membership (and trading) when the President and the NFA Board of Directors or Executive Committee have reason to believe that summary suspension is necessary (an emergency) to protect the futures industry, customers, NFA members, etc. Notice of such action is given to the CFTC. NFA members are prohibited from conducting futures-related business while under suspension or with a suspended firm.

Supplemental Contract
A contract issued by the clearing corporation that includes the total of the regular way contract, adjustments made through advisories, and adds by seller processing.

Support Level
A price at which a particular stock may tend to stop its momentum when moving downward. This type of technical indicator exists for varying reasons and is specific to each individual stock.

The quantity of a good available to meet demand. Supply consists of inventories from previous production, current production, and expected future production. Because resources are scarce, supply creates demand. Only price must be determined.

A horizontal price range where price hovers due to buying pressure before attempting a downward move.

Contributed surplus is a balance sheet figure which originates from sources other than earnings, such as the initial sale of stock above par value. Earned surplus, or retained earnings, is the amount of accumulated earnings retained in the business after the payment of all expenses and dividends.

Surplus fund
A fund established by an exchange for the protection of customers’ monies; a portion of all clearing fees are set aside for this fund.

Surprise (Earnings Surprise)
A company earnings report that differs(either positively or negatively) from what analysts were expecting (consensus forecast). This often causes movement in the stock’s price.

The end of the evening session for specific futures and options markets traded at the Jakarta Futures Exchange.

A contract to buy and sell currencies with spot (cash and carry) or forward contracts. The contract provides for the buying and selling to occur at different times; thus, each party acquires a currency it needs for a predetermined period of time at a predetermined price, and locks in a sales price for the currency as well

A feature included in the terms of a new issue of debt or preferred shares to make the issue more attractive to initial investors. Examples of sweeteners include warrants, or convertible, extendible or retractable features.

Selling one security and buying another.

A dramatic reversal in either the market or a trader’s profit/loss.

Letters used to designate which futures or options price and which contract month is desired. Symbols are used to access quotes from various quote systems.

A group of investment dealers who underwrite and distribute a new issue of securities or a large block of an outstanding issue.

Syndicate Bid
A Syndicate Bid can be entered in the Nasdaq System to stabilize the price of a Nasdaq security prior to the effective date of a registered secondary offering. This activity is permissible under SEC Rule 10b-7.

Synthetic position
A hedging strategy combining futures and futures options for price protection and increased profit potential; for example, by buying a put option and selling (writing) a call option, a trader can construct a position that is similar to a short futures position. This position is known as a synthetic short futures position, and shows a profit if the futures prices decline, and receives margin calls if prices rise. Synthetic positions are a form of arbitrage.

Synthetic Put
A strategy equivalent in risk to purchasing a put option where an investor sells stock short and buys a call.

Synthetic Stock
An option strategy that is equivalent to the underlying stock. A long call and a short put is synthetic long stock. A long put and a short call is synthetic short stock.

Systematic risk
The risk affecting a market in general; for example, if the government’s monetary and fiscal policies create inflation, price levels rise, affecting the entire market in much the same way, thus creating a systematic risk. Stock index futures can be used to substantially reduce systematic risk. Compare with unsystematic risk

Common term for a government treasury bill, which is a short-term government debt issue.

The acquisition of control over a corporation by another company, which normally ousts the current management. The takeover can occur by means of a proxy fight or the acquisition of a controlling quantity of common stock.

The Exchange’s computerized settlement system.

Target Fund
A mutual fund containing bonds that mature in a single year, giving the entire fund a terminal maturity in that year.

Tax Anticipation Bill
Short-term security similar to a T bill that is accepted at par in payment of corporate federal taxes.

Tax Anticipation Note
A municipal note issued in anticipation of revenues from a future tax.

Tax Exempt Bonds
Municipal securities (whose interest is free from federal income tax).

Tax Bracket
Although income tax is paid by most wage or income earners, the rate of income tax paid increases as income exceeds certain amounts, called brackets.

Tax Credit
Tax credits reduce taxes payable to the same extent for all taxpayers, regardless of their income level and marginal tax rate. Deductions from taxable income, however, are more valuable as your income and tax rate increases.

Tax Shelter
This is an investment that offers tax savings in some form, such as immediate deductions, credits or income deferral.

Technical analysis
Technical analysis uses charts to examine changes in price patterns, volume of trading, open interest, and rates of change to predict and profit from trends. Someone who follows technical rules (called a technician) believes that prices will anticipate changes in fundamentals

One who uses technical analysis to forecast price movements.

Tenants In Common
A joint account in which the death of one of the owners would cause his/her share of the account to be retained by his/her estate.

Tender Offer
The offer made by one company or individual for shares of another company. The offer may be in the form of cash or securities.

The components, elements, or parts of an agreement. The “terms” of a futures contract include: which commodity, its quality, the quantity, the time and place of delivery, and its price. All the terms of futures and futures option contracts are standardized by the exchange, except for price, which is determined through “open-outcry” in the exchanges’ trading pits

Term Deposit Receipt
A deposit instrument most commonly available from chartered banks requiring a minimum investment at a predetermined rate of interest for a stated term. The interest rate varies according to the amount invested and the term to maturity, but is competitive with comparable alternative investments. A reduced interest rate usually applies if funds are withdrawn prior to maturity.

Term Maturity
Bonds of an issue all mature on the same date.

Term Structure of Interest Rates
A graph representing the yield to maturity of Treasury securities at identified years of maturity.

Theoretical Value
The price of an option, or a combination of options, as computed by a mathematical model.

A measure of the rate of change in an option’s theoretical value for a one-unit change in time to the option’s expiration date.

Thin Market
A market in which there are comparatively few bids to buy or offers to sell, or both. The phrase may apply to a single security or to the entire stock market. In a thin market, price fluctuations between transactions are usually larger than when the market is liquid. A thin market in a particular stock may reflect lack of interest in that issue, or a limited supply of the stock.

The minimum allowable price fluctuation (up or down) for a futures contract. Different contracts have different size ticks. Ticks can be stated in terms of price per unit of measure, or in dollars and cents. See also Point.

Tier Level
The maximum share size that Nasdaq allows to occur for a singular trade in the SOES system. Also referred to as “Tier Size” and “SM Level”.

Time Decay
A term used to describe how the theoretical value of an option “erodes” or reduces with the passage of time.

Time Limit Order
A customer order that designates the time during which it can be executed.

Part of the order-routing process in which the time of day is stamped on an order. An order is time-stamped when it is (1) received on the trading floor, and (2) completed.

Time value
The premium of an out-of-the money option reflecting the probability that an option will move into-the-money before expiration constitutes the time value of the option. There also may be some time value in the premium of an in-the-money option, which reflects the probability of the option moving further into the money. To determine the time value of an in-the-money option, subtract the amount by which the option is in-the-money (intrinsic value) from the total premium.

Time Value Premium
The amount by which an option’s total premium exceeds its intrinsic value.

Timely Disclosure
The obligation for companies to promptly release to the news media any favorable or unfavorable corporate information which is of a material nature. This obligation is imposed by the securities administrators on companies. Broad dissemination of this news allows all investors to trade the company’s securities with the same knowledge about the company as insiders.

Total Holdings
This is simply the number of individual securities included in a portfolio. It is an indicator of diversification. The more separate issues and sectors a portfolio holds, the less susceptible it is to a price decline stemming from the problems of a particular issue or sector.

Total Return
This return measure represents the percentage change, over a specified time period, in a fund’s value, with the ending value adjusted to account for the reinvestment of all distributions of dividends and capital gains as received.

Total Return Concept
A covered call writing strategy in which one views the potential profit of the strategy as the sum of capital gains, dividends, and option premium income, rather than viewing each one of the three separately.

Tracking Error
The amount of difference between the performance of a specific portfolio of stocks and a broad-based index with which they are being compared.

Trade Balance
The difference between a nation’s imports and exports of merchandise.

Trade Confirmation
Written verification and information concerning a transaction that is sent to the customer on or before the first business day following the trade date.

Trade Date
The day a trade occurs.

Traded Options
Transferable Options with the right to buy and sell a standardized amount of a security at a fixed price within a specified period.

An investor or professional who makes frequent purchases and sales.

Trading Authorization
Written permission for one to trade in another’s account.

Trading Halt
Suspension of trading in a security while material news from the issuer is being spread. A trading halt gives all investors equal opportunity to hear the news and make any appropriate trade decisions.

Trading Limit
The exchange-imposed maximum daily price change that a futures contract or futures option contract can undergo.

Trading range
The prices between the high and the low for a specific time period (day, week, life of the contract).

The process by which securities are reregistered to new owners. The old securities are canceled and new ones issued to the new registrants.

Transfer Agent
A commercial bank that retains the names and addresses of registered securities owners and that reregisters traded securities to the name of the new owners.

Treasury Bills
Obligations issued by the Department of the Treasury maturing in 13, 26, or 52 weeks.

Treasury Bill/Option Strategy
(90/10 strategy) a method of investment in which one places approximately 90% of his funds in risk-free, interest-bearing assets such as Treasury bills, and buys options with the remainder of his assets.

Treasury Bond
Long-term (10 to 30 years), fixed interest government debt security.

Treasury Direct
The program through which investors may purchase new issues of Treasury bills, notes, and bonds directly from the Federal Reserve.

Treasury Note
Medium-term (1 to 10 years), fixed interest government debt security.

Treasury Shares
Authorized but un-issued stock of a company, or previously issued shares that have been re-acquired by the corporation.

A significant price movement in one direction or another. Trends may go either up or down.

Trust Indenture
Written agreement between a corporation and its debt issue holders stating interest rates, maturity dates, collateral, etc.

1.Usually a trust company appointed by the company to protect the security behind the company’s bonds and to make certain that all covenants of the trust deed relating to the bonds are honored.
2.A person who holds property and securities in trust for another person.

Two-Dollar Broker
An exchange member who executes orders from other member firms and charges a fee for each execution.

Two Sided Market
The obligation imposed by the NASD that Nasdaq Market Makers make both firm bids and firm asks in each security in which they make a market.

Refers to an option being either a put or a call.

Unamortized Bond Discount
The difference between the face value of a bond and the proceeds received from sale of the bond by the issuing company less whatever portion has been amortized (written off to expense as recorded periodically on the Profit and Loss Statement). A corporation has two choices at the time the bond is issued: the discount plus costs related to the issue (such as printing, legal, registration, etc.) can be absorbed immediately as an expense; or the total discount and expenses can be treated as a deferred charge, recorded as an asset and written off over the life of the bonds. The amount still to be expensed at any point is the unamortized bond discount.

Unamortized Premiums on Investments
The portion of the amount by which the price paid for a security exceeded its par value or market value. A premium paid in acquiring an investment is an intangible asset and conservative accounting practice dictates it be written off to expense over an appropriate time period.

Refers to the variability of outcomes associated with a specific event or project. Uncertainty is used in a statistical sense when a decision maker has no historical information from which to develop a probability distribution.

Uncovered Call
A short call option position in which the writer does not own shares of underlying stock represented by his option contracts. Also called a “naked” call, it is much riskier for the writer than a covered call, where the writer owns the underlying stock. If the buyer of a call exercises the option to call, the writer would be forced to buy the stock at market price.

Uncovered Call Writing
A short call option position in which the writer does not own an equivalent position in the underlying security represented by his option contracts.

Uncovered Option
Refers to a short option that is not fully collateralized. A short call position is uncovered if the writer does not have long stock to deliver or does not own another call on the same security with a lower or same strike price and with a longer or same time of expiration. Also known as a naked option.

Uncovered Put
A short put option position in which the writer does not have a corresponding short stock position or has not deposited, in a cash account, cash or cash equivalents equal to the exercise value of the put. Also called naked puts, the writer has pledged to buy the stock at a certain price if the buyer of the options chooses to exercise it. The nature of uncovered options means the writer’s risk is unlimited.

Uncovered Put Writing
A short put option position in which the writer does not have a corresponding short position in the underlying security or has not deposited, in a cash account, cash or cash equivalents equal to the exercise value of the put.

Uncovered Writer
A seller or writer who has sold stock or a stock option contract for stock that he or she does not own. Also referred to as a naked writer.

The security on which options are being bought or sold.

Underlying Bid
The bid or bids that are listed in the Level II Nasdaq market but are not the best (highest) bid price.

Underlying futures contract
The futures contract covered by an option; for example, a 300 Dec. corn call’s underlying futures contract is the December corn futures contract

Underlying Instrument
A trading instrument subject to purchase upon exercise.

Underlying Futures Contract
The specific futures contract that is bought or sold by exercising an option.

Underlying Security
The security on which options are being bought or sold.

Refers to a security selling below the value the market value analysts believe it is worth, or below its liquidation value. Stock may be undervalued because of bad press about that sector of an industry or because of a company’s history of erratic earnings, etc. Fundamental analysts spot companies that are undervalued so their clients can buy before stocks become fully valued. Undervalued companies may become targets of takeovers become assets can be acquired cheaply.

Underwriter (Securities)
Refers to the investment banker who alone or as a member of an underwriting group or syndicate agrees to purchase a new issue of securities from an issuer and distribute them to its investors, making a profit on the underwriting spread.

Underwriter (Investment Banker)
In a municipal underwriting, a brokerage firm or bank that acts as a conduit by taking the new issue from the municipality and reselling it. In a corporate offering, the underwriter must be a brokerage firm.

The process by which investment bankers bring new issues to the market.

Underwriting Manager
(1) In a negotiated underwriting, the investment banker whose client is the corporation wanting to bring out a new issue.
(2) In a competitive underwriting, the lead firm in a group that is competing with other group(s) for a new issue.

Underwriting Spread
Refers to the difference between the amount paid to an issuer of securities in a primary distribution and the public offering price. The amount of the spread varies widely depending upon the size of the issue, financial strength of the issuer, type of security involved, status of the security and the type of commitment made by the investment bankers.

Undigested Securities
Newly issued bonds and stock that remain undistributed because there is insufficient public demand at the offering price units. A package of different financial securities (such as shares, bonds, or warrants) that are issued together and have to be bought as a unit.

Uniform Gift to Minors Accounts (UGMA)
A method of securities ownership whereby parents or other relatives may contribute cash or securities to children. Portions of returns generated by the securities are taxed at the children’s tax bracket instead of parents’ presumably higher bracket.

Uniform Practice Code
Part of the NASD rules that govern the dealing of firms with each other.

At issuance, a “package” of securities, such as a bond and warrant, which become separable at a later date.

Unit Investment Trust
An investment company organized under a trust indenture that sells interest in its portfolio in terms of redeemable securities.

Unit of Trading
The minimum quantity or amount allowed when trading a security. The normal minimum for common stock is 1 round lot or 100 shares. The normal minimum for options is one contract (which normally covers 100 shares of stock).

Unit Trust
Similar to a mutual fund. A portfolio of securities, including mortgage-backed securities, offered by a brokerage or mutual fund.

Involving only one variable.

A stock not listed on a stock exchange but traded on the Over-The-Counter market.

Unlisted Securities
Refers to securities that are not listed on an organized exchange, such as the American Stock Exchange or the NY Stock Exchange. Unlisted securities are traded in over-the-counter markets.

Unlisted Securities Market (USM)
The Exchange’s market for medium-sized companies which do not qualify for, or do not wish to have a full listing.

Unlisted Security
(1) A security which has not been admitted to the Stock Exchange’s Daily Official List. Usually the issuer will be an unlisted company, but not always; it is not uncommon for a company to apply for its Ordinary Shares to be listed but not its loan stocks, or vice versa.
(2) A security traded on the USM.

Unlisted Trading
The trading of securities not listed on an organized exchange but traded on that exchange as an accommodation to the exchange’s members. An exchange wanting to trade unlisted securities must file an application with the Securities Commission and make the necessary information available to the investing public.

Unsystematic risk
The risk of price change for an individual stock, commodity, or industry. Anything from an oil discovery to a change in management could affect this sort of risk. Unsystematic risks are reduced or eliminated through diversification of holdings, not by hedging with index futures. Compare with systematic risk.

An advanced option order that is used with the intention of closing an existing Buy/Write or Sell/Write position.

The potential for prices to move up. Also the potential risk taken on a directional trade.

Occurs when price moves above a pivot top and a widespread reversal ensues as follows:
1. Two previous closes are reversed
2. Close is below pivot top
3. Close is below opening and mid-range
4. Daily price range is greater than the previous day’s range.

A subjective measure of value or satisfaction. Measures an individual’s relative value or preference for a particular outcome or event in relation to another. In finance, it is usually associated with measuring a decision-maker’s preferences regarding monetary gains or losses.

A listed equity trade at a price that is higher than that of the last sale.

A channel of upward price movement

U.S. Treasury Bill (T Bill)
The shortest-term instrument issued by the federal government. The maturities of these discounted issues do not exceed one year at issuance, with three-month (90-day) or six-month (180-day) paper being very common.

U.S. Treasury Bond (T Bond)
The longest-term debt of the federal government, issued in coupon form for period of 10 to 30 years.

U.S. Treasury Note
Government-debt security with a coupon and original maturity of one to 10 years.

The placing of a value or worth on an asset. Real estate and bonds are given valuations by analysts who recommend whether the asset is worth buying or selling at the current price.

Valuation (Stock)
The value or worth of a corporation’s stock based on the outlook for earnings and market value of assets on the balance sheet as determined by stock analysts. Stock valuation is expressed in terms of price/earnings (P/E) ratios. A corporation with a high P/E ratio is said to have a high valuation, while a low P/E ratio stock is said to have a low valuation.

Valuation Account
An allowance, created by a charge to expenses, in order to provide for changes in the value of a company’s assets. Also referred to as a valuation reserve. Allowance for bad debts, unamortized bond discount, and accumulated depreciation are commonly used valuation accounts.

The importance placed on something by an individual. Value is subjective and may change according to the circumstances. Something that may be valued highly at one time may be valued less at another time.

Value Area
The price range on the CBOT Market Profile in which approximately 70% of the day’s trades occur.

Value Change
A change in a stock price adjusted for the number of outstanding shares of that stock so that a group of stocks, or index, adjusted in this manner is equally weighted.

Value Investment Style
This investment style focuses on stocks that are believed to be undervalued in price relative to the underlying companies’ intrinsic values and will eventually be recognized by the market.

Value-Weighted Index
A market average such as Standard & Poor’s 500 Index that takes into account the market value of each security rather than calculating a straight price average.

Variable Delta
A delta that can change due to the change of an underlying asset or a change in time expiration of an option.

Variable-Length Moving Average
A moving average where the number of periods selected for smoothing is based on a volatility measurement of price. Typically, the standard deviation of price is used to measure price volatility. The more volatile the price is, the shorter the number of periods used is for smoothing.

Variable limits
Most exchanges set limits on the maximum daily price movement of some of the futures contracts traded on their floors. They also retain the right to expand these limits if the price moves up- or down-limit for one, two, or three trading days in a row. If the limits automatically change after repeated limit moves, they are known as variable limits.

Variation margin call
A margin call from the clearinghouse to a clearing member. These margin calls are issued when the clearing member’s margin has been reduced substantially by unfavorable price moves. The variation margin call must be met within one hour.

Variable Ratio Write
An option strategy in which the investor owns 100 shares of the underlying security and writes two call options against it, each option having a different striking price.

A measure of the rate of change in an option’s theoretical value for a one-unit change in the volatility assumption. Greek term for the amount by which the price of an option changes when the volatility changes. Also referred to as the volatility.

Venture Capital
Unsecured term funds provided to a non-public firm by an outsider, often in start-up situations. Typically, venture capital financing entails relatively high risk. Consequently, venture capitalists look for high potential returns.

Venture Company
A company in the early stage of its development. Also referred to as a “start-up” company.

Vertical Merger
A term used to describe the combining of a company and customer, or company and supplier.

Vertical spreads
Also known as a price spread, is constructed with options having the same expiration months. This can be done with either calls or puts. See Bear call spread, Bull call spread, Bear put spread, and Bull put spread

A market which often is subject to wide price fluctuations is said to be volatile. This volatility is often due to a lack of liquidity.

The degree of price fluctuation for a given asset, rate, or index; usually expressed as a variance or standard deviation.

Volatility (Bonds)
The measure of a bond’s exposure to price fluctuations within a short-term period. In general, the longer a security’s maturity, the greater its price volatility. A measure of risk based on standard deviation in fund performance over 3 years.

Volatility (Options)
Measure of the amount by which an underlying is expected to fluctuate in a given period of time. Volatility is used as a primary determinant in the valuation of options premiums and time value. There are two basic kinds of volatility: implied and historical (statistical). Implied volatility is calculated by using an option-pricing model (Black-Scholes for stocks and indices and Black for futures). Historical volatility is calculated by using the standard deviation of underlying asset price changes from close to close trading going back 21 to 23 days.

Volatility Skew
The theory that options that are deeply out-of-the-money tend to have higher implied volatility levels that at-the-money options. Volatility skews measure and account for the limitations found in most options pricing models and uses it to give traders an edge in estimating an option’s worth.

Total volume in each stock reported to The Nasdaq Stock Market from NASD members and exchanges trading Nasdaq securities between the hours of 8:00 A.M. and 5:15 P.M. EST.

Volume Price Trend (VPT)
A running sum of the day’s total volume is added if the market closes positive or subtracted if the market closes lower.

Voting Right
The right of a stockholder to vote for members of the board of directors and on matters of corporate policy-particularly the issuance of senior securities, stock splits and substantial changes in the corporation’s business. A variation of this right is extended to variable annuity contract holders and mutual fund shareholders, who may vote on material policy issues.

Voting Trust
The deposit of shares with a trustee to gain long-term corporate control.

Waiting Period (Securities)
Refers to a period of time before something goes into effect. For instance, there is a waiting period between the filing of registration statements and the time when securities may be offered to sale to the public.

Wall Street (General)
A general term used to describe the investment community, such as “Wall Street likes the prospects for that company” or “Wall Street does not like the prospects for that company.” Sometimes known as “the Street.”

Wall Street (Specific)
Refers to the financial district at the lower end of Manhattan in New York City where the New York and American Stock Exchanges and numerous brokerage company are headquartered.

Refers to stock that has been neglected by research analysts. A stock may be a wallflower if it is too small or has disappointed investors in the past. Wallflower stock tends to trade at low price/earnings ratios. If researchers re-discover the stock and start recommending it, the price and price/earnings ratio may be boosted significantly. Investors purchasing stock at the neglected wallflower stage can reap a high return on investment if the stock is rediscovered. Also known as an orphaned stock and refers to worthless securities. The implication is that certificates of stocks and bonds that have defaulted or gone bankrupts have no other use than as wallpaper. There may, however, be some value in the worthless certificates themselves for collectors of such certificates who prize rare or historically significant certificates. The practice of collecting such certificates is known as scripophily.

Wanted for Cash
A ticker tape announcement that a bidder will pay cash the same day for a specified block of securities. Cash trades are executed for delivery and settlement at the time the transaction is made.

War Chest
A fund of liquid assets (cash) that is set aside by a corporation to pay for a takeover or to defend against a takeover by buying back stock or paying for legal fees to mount a defense or taking other defensive measures.

Warehouse Receipt
Document guaranteeing the existence and availability of a given quantity and quality of a commodity in storage; commonly used as the instrument of transfer of ownership in both cash and futures transactions.

A security that allows the owner to purchase the issuing corporation’s stock for a certain price over stated period. That period could be 10 or 20 years, and the price of the conversion is much higher than the current price of stock issue. A warrant is usually issued with another security, such as one warranty plus one bond, both of which form on unit.

A contract between a purchaser and seller in which the seller documents the conditions under which repairs or other remedies will be made at no cost to the purchaser if problems arise within a specified period of time with the item(s) purchased.

Wash sales
An illegal process in which simultaneous purchases and sales are made in the same commodity futures contract, on the same exchange, and in the same month. No actual position is taken, although it appears that trades have been made. It is hoped that the apparent activity will induce legitimate trades, thus increasing trading volume and commissions.

Wasting asset
A term often used to describe an option because of its limited life. Shortly before its expiration, an out-of-the-money option has only time value, which declines rapidly. For an in-the-money option, only intrinsic value is left upon expiration. For futures options, this is either automatically exercised or cashed out. At the end of its life, an option that has no intrinsic value becomes worthless; i.e., it wastes away

Wasting Asset (Fixed)
Refers to a fixed asset, other than land, that has a limited useful life and is therefore subject to depreciation.

Wasting Asset (Securities)
An asset that has a limited life and thus, decreases in value (depreciates) over time. Also applied to consumed assets, such as gas, and termed “depletion.” For instance, an option contract is a wasting asset because the chances of a favorable move in the underlying stock diminishes as the contract approaches expiration, therefore reducing the value of the option.

Watch List
A list of securities singled out for special surveillance by a brokerage firm, exchange, or other regulatory body in order to spot irregularities. Companies on a watch list may be there because of takeover rumors or unusually heavy trading.

Watered Stock
Refers to stock representing ownership of overvalued assets. This is a condition that exists in overcapitalized corporations with a total work less than their invested capital. Watered stock may result from gifts of stock, operating losses, excessive stock dividends or inflated accounting values. A company would need to increase assets without increasing outstanding shares; reduce outstanding shares without reducing assets; increase retained earnings; or adjust accounting values of assets or stock in order to fix a watered stock position.

In Elliott wave theory, a sustained move by a market’s price in one direction as determined by the reversal points that initiated and terminated it.

Wave Cycle
An impulse wave followed by a correction wave, the impulse wave being made up of five smaller, numbered waves of alternating direction designated 1, 2, 3, 4 and 5, and the correction wave being composed of 3 smaller alternating waves designated a, b, and c.

Weak basis
A relatively large difference between cash prices and futures prices. A weak basis also can be called a “wide basis,” or a “more negative basis”: for example, a weak basis usually occurs in grains at harvest time when supplies are abundant. Buyers can lower their bids to buy. As the cash prices decline, relative to futures prices, the basis weakens (gets wider). A weak basis indicates a poor selling market, but a good buying market

Weak Hands
A term referring to people who believe that declining markets will decline further because traders with long positions are not bona fide hedgers and will not accept delivery but will sell before maturity to reduce their risk.

Weak Market
A market with a general declining trend in prices and a preponderance of sellers over buyers.

Wealth Maximization
A strategy of maximizing the value of the shareholder’s or owner’s investment in a company, measured by the market value of the company’s shares.

WEBS – World Equity Benchmark Shares
WEBS Index Shares represent a new approach to international investing, offering passive index management and facilitating targeted portfolio exposure. There’s a WEBS Index Series for each of 17 countries. Each WEBS Index Series seeks to track the performance of a specific MSCI Index. Many of these indices have been used by investment professionals for more than 25 years. WEBS are listed on the American Stock Exchange and trade like any other stock.

Refers to a technical chart pattern of two converging lines connecting a series of peaks and troughs to form a wedge. The converging lines move in the same direction with one line rising while the other line falls or one line rising or falling while the other line stays horizontal. Rising wedges occur as interruptions of a falling price trend and falling wedges occur as temporary interruptions of upward price rallies.

Weighted Industry Index
An index where the importance of each stock is related to its market capitalization.

Weighted Average Market Capitalization:
This is the average market value of all outstanding common stock of companies included in a portfolio, weighted in proportion to their percentage of net assets in the fund.

Weighted Average Maturity
The arithmetic mean of maturities of securities held by a mutual fund.

When Issued
A short form for the phrase “when, as, and if issued.” Refers to a transaction made conditionally because an authorized security has not yet been issued. In a newspaper listing a ‘WI’ is placed beside the price of such a security. New issues of stocks and bonds, stock that has split and Treasury securities are all traded on a ‘when issued’ basis.

Losing money on both sides of a price swing.

Refers to making losing trades as prices rise and fall, or used in technical analysis to refer to misleading signals in chart trends of markets or specific securities. A trader has been whipsawed if they have bought just before prices fall or sold just before prices rise.

Whisper Stock
Refers to stock that is rumored to be a takeover target. Whisper stocks may trade in heavier than usual volume and investing in them is risky because the takeover rumor may be inaccurate. Arbitrageurs and speculators may buy shares in whisper stock because they may make huge amounts of money if the whispers are true and a takeover is announced.

Whistle Blower
Refers to an employee or other individual with inside knowledge of wrongdoing inside a government agency or company. Employees are supposed to be protected from reprisals by law. Whistle blowers providing Revenue Canada with information about illegal insider trading or other illegal activities that leads to a conviction may qualify for a percentage bonus (or bounty) based on what money is collected by the government.

White Knight
A company that rescues another in financial difficulty, especially one which saves a company from an unwelcome takeover bid.

White Sheets
Refers to a list of prices published by the National Quotation Bureau for market makers in over-the-counter stocks traded in Chicago, Los Angeles and San Francisco.

White-shoe Firm
An anachronistic term once used to describe some brokers and dealers as ‘upper-crust’ and above such practices as participating in hostile takeovers. The term comes from the 1950s in which members of elite fraternities and clubs at Ivy League colleges wore white buck shoes.

An anti-takeover strategy whereby a target company sells a large amount of stock to a friendly party at below-market prices. This technique is intended to keep existing management in control by putting a potential raider in the position of needing to buy a sizable amount of stock at inflated prices in order to get control.

Wholly Owned Subsidiary
Term used for a company whose common stock is virtually 100% owned by the parent company.

Wide Opening
Refers to an unusually large spread between the bid and asked prices of a security at the opening of a trading session.

Widow and Orphan Stock
Refers to stock that pays high dividends and is very safe. Widow and orphans stock is often associated with non-cyclical businesses and usually has a low beta coefficient.

Characters in a quote symbol or Dos file name that indicate an undefined, but categorized, value.

Williams’ R
Overbought and oversold indicator that is used to determine market entry and exit points.

Wilshire 5000 Equity Index
Refers to a market value-weighted index of about 6,500 U.S. based equities traded on the American Stock Exchange, the New York Stock Exchange and the NASDAQ stock market. The Wilshire 5000 is prepared by Wilshire Associates, Inc. of California and is widely followed as an indicator of the broad trend in stock prices.

Windfall Profits Tax
A tax on profits that results from a sudden windfall to a particular industry or company.

Either the cashier department of a brokerage firm where delivery and settlement of securities transactions take place, or a limited time during which an opportunity should be exercised or it will be lost (often referred to as a window of opportunity).

Window Dressing (Securities)
A trading activity that occurs near the end of a quarter or fiscal year end that is intended to dress up a portfolio so that it can be presented to clients or shareholders in a good light. For instance, a fund manager may sell losing positions in order to display only positions that have gained in value in their portfolio.

Winnipeg Commodity Exchange (WSE)
Incorporated in 1903, the WSE is Canada’s only agricultural futures and options exchange. The WSE conducts the world’s only futures market for flaxseed, rye and canola. The WSE also trades feed grades of wheat, oats and barley.

Wire and Order
Refers to the operating department of a brokerage firm that receives customers’ orders from the registered representative and transmits them to the exchange floor where a floor ticket is prepared, or directly to the appropriate registered representatives.

Wire Room
Refers to the operating department of a brokerage firm that receives customers’ orders from the registered representative and transmits them to the exchange floor where a floor ticket is prepared, or directly to the appropriate registered representatives.

Wire House
See Futures Commission Merchant (FCM)

Witching Day
A day on which two or more related classes of options and futures expire.

Withdrawal Plan
The ability to establish automatic periodic mutual fund redemptions and have proceeds mailed directly to the investor.

Working Capital
In a narrow sense, defined as the difference between a firm’s current assets and its current liabilities. More broadly, working capital encompasses both a firm’s current assets and liabilities, and working-capital management is concerned with the management of current assets and liabilities.

Working Capital Ratio
Current assets of a company divided by its current liabilities. This is a measure of a company’s liquidity.

Work-Out Quote
Subject quote in which the trader estimates the price at which he thinks the security can be bought or sold if given time to find a market.

Wrap Account
A type of fully discretionary account in which a client has given specific written authorization to a partner, director or qualified portfolio manager of an investment dealer to select securities and execute trades for him or her. A single annual fee, based on the account’s total assets, is charged instead of commissions and service charges being levied separately for each transaction. The account is then managed separately from all other wrap accounts, but is kept consistent with a model portfolio suitable to clients with similar objectives. This is also known as a wrap fee program.

To sell an option. The investor who sells is called the writer.

One who sells an option. A “writer” (or grantor) obligates himself to deliver the underlying futures position to the option purchaser, should he decide to exercise his right to the underlying futures contract position. Option writers are subject to margin calls because they may have to produce the long or short futures position. A call writer must supply a long futures position upon exercise, and thus receive a short futures position. A put writer must supply a short futures position upon exercise, and thus receive a long futures position.

W-Type Bottom
A double bottom where the price or indicator chart has the appearance of a W.

X or XD
A symbol used in newspapers to signify that a stock is trading ex-dividend (without dividend). The symbol X is also used in bond tables to signify ‘without interest’.

A symbol used in newspapers to signify that a stock is trading ex-rights, or without rights attached.

A symbol used in newspapers to denote that a stock is trading ex-warrants, which is without warrants attached.

Yankee Bond Market
A dollar-denominated bond issued in the U.S. by foreign banks and corporations. Bonds are issued in the U.S. when market conditions there are more favorable than on the Eurobond market or in domestic markets overseas.

Yates’s Correction
When a small amount of data is available for testing, the chi-square formula is adjusted to account for the small sample base.

Year-to-Date (YTD)
Refers to the period from the beginning of the calendar year, or fiscal year, to the reporting date. For instance, the third quarterly results of a corporation would be reported for the quarter and for the year-to-date which would be a total of nine months.

Yellow Sheets
Wholesale quote sheet for corporate bonds used by dealers.

Yen Bonds
Any bond issue dominated by the Japanese yen. International bankers using this term are usually referring to yen-dominated bonds issued or held outside Japan.

In general, a return on an investor’s capital investment. For bonds, the coupon rate of interest divided by the purchase price, called current yield. Also, the rate of return on a bond, taking into account the total of annual interest payments, the purchase price, the redemption value, and the amount of time remaining until maturity.

Yield (Bonds)
The coupon rate of interest divided by the purchase price is the current yield. Also, the rate of return on a bond after taking into account the total annual interest payments, purchase price, redemption value and the amount of time remaining to maturity.

Yield (Stocks)
The rate of return paid in dividends on a common or preferred stock, expressed as a percentage.

Yield Curve
A graph linking the term structure of interest rates and showing the general pattern of yields to maturity on Treasury obligations.

Yield Elbow
The point on the yield curve that indicates the year at which the economy’s highest interest rates occur.

Yield to Average Life
Refers to a yield calculation where bonds are retired systematically during the life of the issues as in the case of a sinking fund with contractual requirements. An issuer will buy their own bonds on an open market to satisfy their sinking fund requirements if the bonds are trading below par. To this extent, there is an automatic price support for such bonds.

Yield to Call
The percentage a bond will yield to the date at which it is eligible to be redeemed by its issuer.

Yield to Maturity
The total percentage yield a bond will produce if held for its full term of maturity.

Yo-Yo Stock
Refers top stock that fluctuates in a volatile way, similar to the quick rise and fall of a yo-yo

Zacks Estimate System
A service by Zacks Investment Research of Chicago which compiles earnings estimates and brokerage buy/hold/sell recommendations from more than 200 Wall Street research firms covering more than 4,500 stocks. Zacks tracks the number of analysts following each stock, how many analysts have raised or lowered their estimates and the high, low and average earnings estimated for each quarter and fiscal year. Zacks provides a multiple selection of data bases, print reports, and software for institutional and individual investors.

Zero Coupon CD
A certificate of deposit that pays interest only upon maturity.

Zero Coupon Bonds
Usually high quality federal or provincial government bonds originally issued in bearer form, where some or all of the interest coupons have been detached. The bond principal and any remaining coupons trade separately from the strip of detached coupons, both at substantial discounts from par. Also called strip bonds.

Zero Downtick
A sale that takes place at the same price as the previous sale but at a price lower than the last different price. For example, if a security trades at $40, $39 and $39, the last traded price was made at a zero-minus tick because it was made at the last traded price but at a price lower than the last different price. This is also referred to as a zero-minus tick.

Zero Uptick
A sale that takes place at the same price as the previous sale but at a price higher than the last different price. For example, if a security trades at $40, $41 and $41, the last traded price was made at a zero-up tick because it was made at the last traded price but at a price higher than the last different price. This is also referred to as a zero-plus tick.

Zero-Coupon Government Bonds
Government bonds that are purchased at a deep discount and pay no cash dividend, unlike regular bonds.

Zero-coupon Security
Refers to a security that is sold at a deep discount price and makes no periodic interest payments. Income is earned from the gradual appreciation of the security, which is redeemed at face value on a specified maturity date.

Zero-Minus Tick
A stock trade at a price equal to the preceding trade but lower than the last different price.

Zero-Plus Tick
Term given to a sale made at the same price as the trade that preceded it providing that the previous trade was above the price of the sale it preceded.

Zero-sum Game
A game in which the losses of the losers are matched by the gains of the winners. Futures and options trading are zero-sum games because for every investor holding a profitable contract there is another investor holding a losing contract. While the total amount of wealth held by all traders in zero-sum games remains the same, the wealth is shifted from some traders to other traders.

The percentage change in an options price per 1% change in implied volatility.

In a bull market, an Elliott 3-wave pattern that subdivides into a 5-3-5 pattern with the top of wave B noticeably lower than the start of wave A. In a bear market, this pattern will be inverted.

Refers to companies that continue operations even though they are insolvent and bankrupt. These companies may also be referred to as living dead or brain dead.

Zurich Stock Exchange
The largest of three Swiss stock exchanges. The Geneva, Basel and Zurich exchanges operate simultaneously and are linked by computers that allow orders to be executed on any of the three exchanges. Trading is by open outcry.