Here is small dictionary to understand terms in investment.
Stock Index – A way of using a select group of stocks for long-term evaluation. The performance of a group of stocks that experts regard as important is averaged, and over time that average serves as an indicator of the market’s general movement.
Debenture – A promissory note backed by the general credit of a company and usually not secured by any specific collateral, such as a mortgage or property.
Capital Stock – All shares representing ownership of a business, including preferred and common.
Turnover Rate – The volume of shares traded in a year as a percentage of total shares listed on an Exchange, outstanding for an individual issue or held in an institutional portfolio.
Future – A contract specifying a future date of delivery or receipt of a certain amount of a specific tangible or intangible product. The commodities traded in futures markets include stock index futures; agricultural products like wheat, soybeans and pork bellies, metals, and financial instruments. Futures are used by business as a hedge against unfavorable price changes and by speculators who hope to profit from such changes.
Short Covering – Buying stock to return stock previously borrowed to make delivery on a short sale.
Book Value – An accounting term. Book value of a stock is determined from a company’s records, by adding all assets, then deducting all debts and other liabilities, plus the liquidations price of any preferred issues. The sum arrived at is divided by the number of common shares outstanding and the result is book value per common share. Book value of the assets of a company or a security may have little relationship to market value.
Bull Market – A condition of the stock market when prices of the stocks are generally rising.
Diversification – A portfolio strategy designed to reduce exposure to risk by combining a variety of investments, such as stocks, bonds, and real estate, which are unlikely to all move in the same direction.
Dividend – The payment designated to be distributed pro rata among the shares outstanding. For preferred shares, the dividend is usually a fixed amount. For common shares, the dividend varies with the fortunes of the company and the amount of cash on hand, and may be omitted if business is poor or if it is determined to withhold earning to invest in plants and equipment. Sometimes a company will pay a dividend out of past earnings even if it is not currently operating at a profit.
Issue – Issuance of a series of securities conferring identical property and non-property rights to their owners.
Issuer – A legal person issuing (or having issued) its securities.
Financial Futures – Futures contracts based on financial instruments such as treasury bonds, certificates of deposit and other interest-sensitive issues, currencies and stock market indicators.
Financial Brokerage Firm (FBF) – An entity holding a licence to provide investment services.
Trader – Individuals who buy and sell for their own accounts for short-term profit. Also, an employee of a broker/dealer or financial institution who specializes in handling purchases and sales of securities for the firm and/or its clients.
Fundamental Research – Analysis of industries and companies based on such factors as sales, assets, earnings, products or services, markets and management.
Index – A statistical indicator that is designed to measure change in a market or an economy.
Institutional Investor – An organization whose primary purpose is to invest its own assets or those held in trust by it for others. Includes pension funds, investment companies insurance companies, insurances and banks.
Investment Company – A company or trust that uses its capital to invest in other companies. There are two principal types: the closed end and the open end, also known as a mutual fund. Shares of closed-end investment companies, are readily transferable in the open market and are bought and sold like shares of stock. Capitalization of these companies remains the same unless action is taken to change, which is rare. Open-end funds sell their own new shares to investors, stand ready to buy back their old shares, and are not listed. Open-end funds are so called because their capitalization is not fixed; they issue more shares as people want them.
Investment Banker – Also known as an underwriter, the “middleman” between a corporation issuing new securities and the public. The usual practice is for one or more investment bankers to buy outright from a corporation a new issue of stocks or bonds. The group forms a syndicate to sell securities to individuals and institutions. Investment bankers also distribute very large blocks of stock or bonds, perhaps held by an estate.
Price/Earnings Ratio (P/E) – A popular way to compare stocks selling at various price levels. The P/E ratio is the price of a share of stock divided by earnings per share for a twelve-month period.
Capitalization – In the text also called “market capitalization” or “market cap.” Total market value of one or several issues of securities, calculated by the number of securities by the market price of those securities. Capitalization may include bonds, debentures, preferred and common stock and any surplus.
Commission – The broker’s basic fee for purchasing or selling securities of property as an agent.
Liquidity – How easily one’s assets can be converted back into cash. For example, money in an account that can’t be withdrawn for ten years is not very liquid;
– The ability of the market in a particular security to absorb a reasonable amount of buying or selling at reasonable price changes. Liquidity is one of the most important characteristics of a good market.
Bear Market – A condition of the stock market when prices of stocks are generally declining.
Dealer – An individual or firm in the securities business who buys and sells stocks and bonds as a principal rather than an agent. The dealer’s profit or loss is the difference between the price paid and the price received for the same security. The dealer’s confirmation must disclose to the customer that the principal has been acted upon. The same individual or firm may function, at different times, either as broker or dealer.
Broker – An agent who handles the public’s orders to buy and sell securities, commodities or other property. A commission is charged for this service.
New Issue – A stock or bond sold by a corporation for the first time. Proceeds may be used to retire outstanding securities of the company, for new plants or equipment, for additional working capital, etc.
Bond – A promissory note of a corporation, government or municipality, which is evidence of debt on which the issuing company usually promises to pay the bondholder a specified amount of interest for a specified length of time, and to repay the loan on the expirations date. A bondholder is a creditor of the corporation, not a part owner as is the shareholder.
Covered Option – An option position that is offset by an equal and opposite position in the underlying security.
Block – 1/10 or more shares or voting shares of a company.
Common Stock; Ordinary Shares – One of two types of stock an investor may purchase in a company. Most stock is common stock. Investors who purchase it have voting rights at the company’s annual stockholders’ meeting. Common Stockholders are not guaranteed dividends, but they may receive higher dividends during the company’s prosperous periods. If a company fails or liquidates, common stockholders are paid after bondholders and preferred stockholders. (Also see Preferred Stock)
Option – A right to buy or sell a fixed amount of a given stock at a specified price within a limited period of time. If the right is not exercised the option expires and the buyer forfeits the money.
Put – A right to sell.
Call – A right to buy.
Initial Public Offering (IPO) – The first sale of stock by a company to the public.
Trading Session – The period of time established by the Management Board of the Stock Exchange, during which the Stock Exchange members may place, amend or cancel orders, the securities price is fixed and transactions are concluded.
Recession – A period of no or negative economic growth and high unemployment.
Market Price – The last reported price at which the stock or bond sold, or the current quote.
Going Public – A term for a privately owned company which seeks a listing on a stock exchange and issues shares for the general public.
Technical Research – Analysis of the market and stocks based on supply and demand. The technician studies price movements, volume, trends and patterns, which are revealed by charting these factors, and attempts to assess the possible effects of current market action or future supply and demand for securities and individual issues.
Stock Exchange – An organized marketplace for securities the activities of which are aimed at concentrating, by organisational and technical facilities, supply and demand of securities and thus enabling trading parties to conclude transactions in accordance with the prescribed trading rules
Public Offering – offering and transfer of securities by addressing the general public or more than 100 persons.
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