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Stock Market Help

Here is a list of common financial terms. Click on the letter that corresponds with the first letter of the financial term to get the definition.

Account

A collection of investments, either taxable or tax-deferred. Account can be real (contains investments actually owned) or model (hypothetical). Account type can be brokerage, mutual fund, or other (a mutual fund can be an account if the fund is purchased directly from fund company or it can be an investment within an account, if purchased through a broker). Legally, accounts are set up as taxable or tax deferred. The legal owner of an account can be an individual, joint , corporate, custodian, estate, or trust. See Real Taxable Accounts, Joint Accounts, and Real Tax-Deferred Accounts.

Account Description

Information that includes Account Type, Tax-deferred, Tax Method, and Account Note. These items are primarily used to classify accounts for tax purposes.

Account Note

Descriptive text about an account that you can enter for your information, such as "for College."

Account Type

When placing an order through this site, you must be sure to select the proper Account Type for the position you wish to trade. If a particular position resides in your cash account, for example, this site will automatically reject a sell order that specifies your margin account, and vice versa.

Accrual Method

Accounting method where income and expenses are recorded when items are booked or billed. Contrast with a more common method, cash method, where income and expenses are logged from the time cash is actually spent or received.

Accrued Interest

Interest earned but not yet paid. For most taxpayers, tax is due in year accrued interest is paid. When buying a bond, buyer pays seller any interest accrued since the last payment date. When the buyer eventually sells the bond, the new buyer pays any accrued interest. The accrued interest is subject to taxes for the seller, but reduces the tax liability for the buyer. For example, if a bond buyer paid $30 accrued interest to a seller, then received $150 interest for the rest of the year, the buyer needs to pay taxes on $150 - $30 = $120.

ADR/ADS

Stands for American Depository Receipts or Shares. These financial instruments allow stock in a foreign corporation to be traded on a U.S. stock exchange in U.S. currency by representing the actual shares from the native exchange.

After Tax Real Rate of Return

The percentage gain on an investment, account, or portfolio after taxes and inflation have been deducted. Note that the after tax real rate of return for money market mutual funds is frequently less than zero, so you should use these accounts only as temporary cash accounts.

All or None Order

In brokerage, order instruction, particularly for large orders, to execute the total quantity or none.

American-Style Option

American-style is 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. All stock options are American-style.

Annualized Return

Projects the year to date return over a full 12 month calendar year. Most useful for projecting return for money market funds, CDs, and bonds. Annualized return for equities can be misleading if YTD return is high and covers a short period of time.

Arbitrage

A financial transaction where an arbitrageur (arb) simultaneously purchases in one market and sells in another where there is a slight price differential. Often it is a full hedge, and therefore, a risk-free transaction. Arbs play an important role in keeping markets liquid and efficient.

Ask

The lowest price at which a seller is willing to offer a security at this time.

Asset

Something of value that you own. Appreciating assets, such as stocks, have the potential of increasing in value and/or producing income. Depreciating assets, such as a car, lose value over time. Assets minus liabilities (what you owe) equals net worth.

Asset Allocation

The process of deciding what kinds of assets you want to own, and the percentage of each. Tactical asset allocation is a sophisticated form of market timing in which an investor decides how much to allocate to each asset class based on market indicators, particularly interest rates. As conditions change, the percent allotted to each asset class changes.

Asset Classes

Appreciating assets are put into 7 asset classes: maximum capital gain equity, long-term equity, international equity, U.S. government bond, corporate bond, precious metals, and cash.

Assigned on an Option Transaction

When you sell an option you now have the obligation to sell or purchase stock. You have or may not have to fulfill that obligation. You are considered to be "assigned" if you are being required to fulfill that obligation. Typically this occurs when the option is in-the-money.

At-The-Money Option

When the price of the underlying security is equal to the strike price, an option is at-the-money.

Average Annual Return

The cumulative return divided by the number of years of the life of the investment or account, with the compounding effect factored in. In reverse, the average annual return times a given number of years equals the cumulative return for that time frame. AAR is used to compare returns of two or more investments of unequal track records.

Average Cost

The average price plus commission.

Average Daily Volume

The consolidated trading volume for all exchanges averaged for the last 20 trading days.

Average Price

The total cost less total commission of all lots you own of a particular security divided by the total number of shares owned.

Average Proceed

The sum of net amounts received from all short open lots divided by the total number of shares short for that security. Average proceeds is for short investments what average cost is for long investments.

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