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.
A call option gives the owner the right, but not the obligation, to buy the underlying stock at a given price (the strike price) by a given time (the expiration date). The owner of the call is speculating that the underlying stock will go up in value, hence, increasing the value of the option. The purpose can be to speculate with the option (hope it goes up and sell for a profit), to invest in the underlying stock at a locked in price if the stock price goes high enough, or to generate income. Each option contract equals 100 shares of stock. For example, an AAA MAR 65 call, would give the owner the right to buy 100 shares of AAA at $65 (strike price) per share between now and the third Friday in March (expiration date).
A security redeemable by the issuer before the scheduled maturity. The issuer must pay the holder a premium price if the security is retired early. Most Corporate and Municipal Bonds are callable. US Government issues are generally not callable. They are called when interest rates fall so significantly that the bond issuer can save money by floating new bonds at the lower rate. The first call date is the date to or after which a specific call price will be offered by the issuer, usually a premium price to par, as an incentive to the bondholder to redeem the bond.
A buy or sell order that is canceled before it has been executed. In most cases, a Limit Order can be can be canceled at any time as long as it has not been executed. A Market Order may only be canceled if the order is placed after market hours and is then canceled before the market opens the following day.
The buying and selling of a security or other appreciating asset that has increased in value during the time you owned it. It is subject to capital gains tax, as listed on IRS Form 1040, Schedule D.
Amount of money or property contributed by stockholders to be used as the financial foundation for the corporation. It includes all classes of common and preferred stock.
Orders placed in a cash account are settled on a cash basis, meaning that cleared funds must be in the account within three (3) business days to cover purchases.
The amount that may either be withdrawn in cash, or used to purchase additional securities without creating a debit balance. It is a combination of credit balances in all accounts and excess credit balances in margin accounts.
Whenever a transaction occurs that affects cash, the cash balance is debited or credited. The cash balance is usually invested in a money market mutual fund that pays interest. Money market funds can be taxable or tax-exempt. In brokerage accounts, the balance in cash is swept into the money market daily.
Net income plus depreciation and other non-cash charges. A strong cash flow is important for covering interest payments, particularly for highly leveraged companies.
A market in which security or commodity transactions occur within a few days of the trade date. Also called the spot market. The opposite is the futures market, where transactions are completed at a specified future date, price, and quantity, which is determined in the present. Stock, bond, and mutual funds trade in the cash market.
The amount of cash divided by total number of common stock shares outstanding for a given stock. A corporation with a high cash/share amount relative to the current price per share is said to be "cash rich" and may be considered low risk or undervalued.
The current interest rate for a given CD (certificate of deposit).
Investment created by banks, which pays stated interest at either fixed or variable rates. If sold directly by banks, principal is returned at maturity subject only to penalties for early cashing in. If sold through brokers (called Broker CDs), principal value can vary like with bonds, and early cashing in can fetch a principal lower than amount paid.
Shares of stock issued by the same company but having some difference, such as voting rights, or a dividend preference or participation.
A computerized facility that compares and reconciles both sides of a brokerage trade.
The mutual fund is currently closed to new investors. To be sure, call the mutual fund for the latest information.
The commission deducted from the proceeds before calculating realized gain or loss. It is the fee charged by your broker to execute your trade. It may be a composite of several fees & charges.
The market price you receive when you sell or buy-to-cover your security.
Unsecured short-term debt, usually from 2 to 270 days, issued by banks and corporations, which is generally safe and flexible. It is usually a major component of money market fund investment portfolios.
Fee charged by broker to execute your trade. May be a composite of several fees & charges. Commission is taken into account when calculating realized gain or loss. The buy, or opening commission, is added to the cost basis and the sell, or closing commission, is deducted from the proceeds before calculating realized gain or loss, therefore commissions reduce taxable gains and increase losses. Total commission is the sum of both buy and sell commission. Commission rates take into account the quantity of the purchase, the unit price of the security (low priced stocks may have higher commission rates), and the type of investment (options have higher commissions).
Represents the total number of common shares outstanding, excluding treasury stock (stock issued but re-acquired by the company through buy-backs). This number is expressed in thousands, so add three zeros.
The amount of the underlying asset covered by the options contract. This is 100 shares for one option unless adjusted for a special event, such as a stock split or a stock dividend.
The price at which convertible securities, such as bonds and preferred stock, can be converted into common stock at a set conversion ratio. For example, if the conversion ratio is 25 to 1, and you own a $1000 face value convertible bond, then the conversion price is $40 per share. The conversion value is the value of 25 shares at the current price per share. If you assume $32 per share, then the current value is 25 x $32 = $800. In this example, it is clearly better not to convert.
A debt security that is exchangeable for a set number of shares of another type of security, usually common stock, at a predetermined price.
A debt security investment in obligations of U.S. corporations. Corporate bonds are taxable and have a specific maturity date. They are often traded on major exchanges.
A covered call seller or writer is an investor who owns a stock and sells a call option against it to generate additional income, which comes from the premium received for selling the option. If things work out right for the writer, the stock price will stay below the strike price and the writer will retain both the premium and the stock. However, if the stock price rises enough, the stock will be called away by the call buyer who has exercised the option and now gets the stock and pays the writer the strike price . Whether the writer makes a profit or loss on the stock that is called away depends on the purchase price (the cost basis).
For cash accounts, it is the uninvested money in your account. In a margin account, it is the money on deposit against a short position.
The price change over the time period shown, plus any dividend, interest, or capital gains paid and reinvested over the period shown for any given security. Note that for stocks, the periods are complete calendar years, but for mutual funds, periods are rolling up to the current month.
Measures the price change over the period of time indicated, ending at the current date (or the date the price was last updated). This measure includes any dividends paid and reinvested during the period measured. Cumulative return can also be referred to as total return. It is the most useful measure of performance among different asset classes, such as stocks, bonds, cash, and so forth.
Includes the price change over the period of years indicated, ending at the year shown, plus any dividend paid and reinvested over the period shown. The bar graph represents the total value of your portfolio.
The ratio of current price divided by last two quarters earnings per share (EPS) plus next two estimated quarters EPS. See Price/Earnings Ratio.
The highest and lowest price for a given bond during the current calendar year.
For a stock, the annual dividend divided by the current price per share. For a bond, the annual interest payment divided by [current price divided by 100 times quantity]. A measure in percentage terms of how much income you can derive from the security. Of great importance to fixed income investors and of minimal importance to growth investors.
An industry code which uniquely identifies nearly all traded stocks and bonds.