A

Amortize

The extent in which principle owed on a loan has been reduced to regular payments. The purpose of amortization is to establish resale or redemption of assets.

Arbitration

(1) The simultaneous purchase and sale of a security in order to profit from a differential in the price. This usually takes place on different exchanges or marketplaces. (2) A method of resolving simple contract disputes by having both parties submit to settlement recommended by an agreed upon neutral mediator who also has the power to execute a settlement as if administered in a court of law.

B

Bear market

A market condition in which the prices of securities are falling or are expected to fall. Although figures can vary, a downturn of 15%-20% or more in multiple indexes (Dow or S& P 500) is considered an entry into a bear market.

Bull market

A market in which prices of a certain group of securities are rising or are expected to rise.

Bond

A debt security which obligates the issuer to pay interest (usually semi-annually) and to repay the principal amount when the debt matures.

Broker

(1) an individual or firm that charges a fee or commission for executing buy and sell orders submitted by an investor.
(2) the role of a firm when it acts as an agent for a customer and charges the customer a commission for its services.

C

Call

(1) an individual or firm that charges a fee or commission for executing buy and sell orders submitted by an investor.
(2) the role of a firm when it acts as an agent for a customer and charges the customer a commission for its services.

Comercial Paper

An unsecured, short-term loan issued by a corporation, typically for financing accounts receivable and inventories. It is usually issued at a discount reflecting prevailing market interest rates. Maturities on commercial paper rarely range any longer than 270 days.

Coupon

The interest rate stated on a bond when it's issued. The coupon is typically paid semiannually.

D

Discount Bond

Also called a zero-coupon bond, which is issued at a state par value (usually $1000 minimum) but without a stated rate of interest. No semi-annual interest payments are made. Instead the bonds are purchased at a discount from par and are redeemed at maturity at par value.

Disinvestment

1. Refers to the sale or liquidation of an asset or subsidiary of an organization or government. Also known as divestiture.
2. A reduction in capital expenditure, or when a company decides to not replace depleted capital goods.

Dividend

A cash payment from profits announced by a company's board of directors and distributed among stockholders.

N

Nominal Value

The stated value of an issued security that remains fixed, as opposed to its market value, which fluctuates.

O

Options

A privilege sold by one party to another that offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security at an agreed-upon price during a certain period of time or on a specific date. Options are extremely versatile securities that can be used in many different ways. Traders use options to speculate, which is a relatively risky practice, while hedgers use options to reduce the risk of holding an asset.

P

Par Value

Also called face value of a bond; dollar amount that is assigned to a security when representing the value contributed for each share in cash or goods. Bonds generally have a par value $1,000 while most money markets instruments have higher par values; stocks will typically have a par value of $0.01 or none at all.

Primary Market

The market in which investors have the first opportunity to buy a newly issued security.

Put

1. 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.
2. The act of exercising a put option.
A put becomes more valuable as the price of the underlying stock depreciates.

S

Secondary Market

A market in which an investor purchases an asset from another investor, rather than an issuing corporation. A good example is the New York Stock Exchange. All stock exchanges are part of the secondary market, as investors buy securities from other investors instead of an issuing company.

Securities and Exchange Commission (SEC).

A government commission created by Congress to regulate the securities markets and protect investors. In addition to regulation and protection, it also monitors the corporate takeovers in the United States. The SEC is composed of five commissioners appointed by the President of the United States and approved by the Senate. The statutes administered by the SEC are designed to promote full public disclosure and protect the investing public against fraudulent and manipulative practices in the securities markets. Generally, most issues of securities offered in interstate commerce, through the mail, or on the Internet, must be registered with the SEC.

Securities Investor Protection Corporation (SIPC)

A nonprofit corporation that insures investors against A nonprofit corporation created by an act of Congress to protect the clients of brokerage firms that are forced into bankruptcy. Membership is composed of all brokers and dealers registered under the Securities Exchange Act of 1934, all members of securities exchanges, and most NASD members. SIPC is an insurance that provides brokerage customers up to $500,000 coverage for cash and securities held by the firms (although coverage of cash is limited to $100,000).

Suscription Right

The right to buy newly issued shares ahead of the general public in order to maintain current proportion of ownership in a company.

Stock

Share ownership of a corporation.

T

Trading Post or Specialist

A person on the trading floor of certain exchanges who holds an inventory of particular stocks. The specialist is responsible for managing limit trades, but does not make information on outstanding limit orders available to other traders.

Glossary

A