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The Following are some commonly used investment terms and their definitions as used at NetVest.
ACCRUED INTEREST
Interest accrued on a bond or other fixed income security since the last interest payment was made. At the time of a sale, the buyer of a bond pays the market price plus accrued interest to the seller. Exceptions are bonds that are in default (termed to be 'trading flat'). Accrued interest is calculated by multiplying the coupon rate by the number of days that have elapsed since the last payment.ALL OR NONE (AON)
A stipulation to either a buy or a sell order which instructs the broker to either fill the order in its entirety of to fill none at all, the customer won't accept a partial execution (only 300 shares out of an order for 1000).AMERICAN DEPOSITORY RECEIPT (ADR)
Certificate issued by an American bank which represents a foreign stock share held on deposit. The certificate, transfer, and settlement practices for ADRs are identical to those of 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. For most practical purposes, trading an ADR is equivalent to trading the foreign stock.APPRECIATION
The increase in the value of an asset.ASKED PRICE
The lowest price that anyone has declared that he will sell his security for at a given time. In over-the-counter stocks, the "ask" is the best quoted price at which a Market Maker is willing to sell a stock.ASSET
Any item of value that an individual or a corporation owns.ASSIGNMENT
Notice to an option writer (seller) that the holder (buyer) has exercised his option and the writer will be required to sell (in the case of a call) or purchase (in the case of a put) the underlying security at the specified strike price.AT-THE-MONEY
An option where the strike (exercise) price is exactly equal to the trading price of the underlying security.BANKING ACT OF 1933
Adopted by Congress in 1933 to restore stability to the financial system, regain the public's confidence, and prevent abusive banking and securities practices. Created the system of federal deposit insurance, separated commercial and investment banking (through the Glass-Steagall Act); and established geographic restrictions on the operations of commercial banks.BID PRICE
The highest price anyone has declared that he wants to pay for a security at a given time.BRANCH OFFICE
Any location identified by any means to the public as a location in which a securities firm conducts securities business.BROKER
(1) An individual or a firm that charges a fee or commission for executing buy and sell orders submitted by another individual or firm. (2) The role of a brokerage firm when it acts as an agent for a customer and charges the customer for its services.BROKER-DEALER
A securities firm that is acting as either a broker and/or a dealer. Most securities firms act in both capacities.BUYING POWER
The dollar value of additional marginable securities (assuming a 50% initial requirement) a customer may purchase against the existing marginable securities in the account.CALL OPTION
An option contract that gives the holder the right to purchase, and places upon the obligation to sell, a specified number of shares of the underlying stock at the given strike price on or before the expiration date of the contract.CANCEL
Instruction given to a broker to stop work on an order previously given. If part of the order has already been executed, a cancel instruction stops work on the remainder of the order.CAPITAL
Accumulated money or goods used to produce income.CAPITAL GAIN
The gain (selling price minus cost basis) on an asset.CAPITAL MARKETS
Markets where debt or equity securities are traded.CASH ACCOUNT
A type of brokerage account which requires that transactions must be settled in full (no margin or borrowed monies) by the settlement date. Some types of accounts such as Individual Retirement Accounts and Custodian for Minor accounts must be cash accounts.CASH DIVIDEND
A cash payment to a company's stockholders out of the company's current earnings or accumulated profits. The dividend must be declared by the board of directors.CLEARING AND SETTLEMENT
A comparison of the details of a transaction between brokers prior to settlement; final exchange of securities for cash on delivery.COMMERCIAL PAPER
Short-term loans with maturities ranging from 2 to 270 days that are made to banks and corporations.COMMODITY
Bulk goods such as metals, foodstuffs and grains which have the price determined by competitive bids and offers.COMMODITIES EXCHANGE ACT
Federal Act which regulates futures contracts and options on futures contracts; requires that all such contracts be traded on an organized commodity exchange. The Act is administered by the Commodity Futures Trading Commission (CFTC).COMMODITY FUTURES TRADING COMMISSION (CFTC)
The federal regulatory agency established by the Commodity Futures Trading Commission Act of 1974 to administer the Commodities Exchange Act. The Commission is composed of five commissioners appointed by the President and subject to Senate approval.COMMON STOCK
An equity security that represents ownership in a corporation.COMMUNITY PROPERTY
Form of ownership for assets accumulated by a married couple and belonging to them jointly.CONCENTRATION
Margin account condition whereby one or two positions are heavily represented. Typically the brokerage firm carrying the account will require a higher level of equity to offset the risk.COST BASIS
For tax purposes, the cost of an asset (including commissions and other fees) used to determine the gain or loss.COUPON RATE
The actual interest rate stated on a bond, typically payable in semi-annual installments.COVERED OPTION
A form of option writing in which the writer (seller) owns the underlying security and sell a call against that security. If the option is exercised, the stock can be "called away". Covered writing can also mean selling a put when one is short the stock.CREDIT BALANCE
The amount of cash left over in either a cash or margin account (or a combined balance of the two) after all securities have been paid for.CURRENT YIELD
The interest rate relationship stated as a percent of the annual interest received to the actual market price of the bond.CUSIP NUMBER
A unique 9-digit number code for a given class of security (i.e.: Microsoft common stock or Acorn International Fund). CUSIP stands for the Committee on Uniformed Security Identification Procedures.DAY ORDER
An order to buy or sell which, if not executed, expires at the end of the trading day it was entered.DEALER
The role of a securities firm when it acts as a principal in a particular trade. A firm is acting as a dealer when it buys or sells a security for its own account and at its own risk and then charges the customer a markup or markdown.DEBIT BALANCE
In a customer's margin account, that portion of the overall total market value of stocks, bonds, or other securities held with credit extended by the brokerage firm to the margin customer, i.e.: the total amount owed to the brokerage firm including any loans, interest charges, commissions, etc.DEBT SECURITY
Tradable evidence of borrowing that must be repaid, stating the amount, a specific rate of interest (or discount from the maturity price).DERIVATIVE
A financial contract whose value depends upon the value of an underlying instrument or asset (typically a commodity, bond, equity or currency, or a combination of these). Three classes of financial products fall under the heading of derivatives: derivative securities; exchange-traded derivatives; and over-the-counter (OTC) derivatives.DIVIDEND
A distribution of the earnings of a corporation Dividends may be in the form of cash, stock or property (other securities owned by the corporation). A dividend can only be paid by declaration of the board of directors of the corporation.
DO NOT REDUCE (DNR)
Stipulation to order that instructs the broker not to decrease the limit price on buy-limit and sell-stop orders on the record date of a cash dividend.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. Visit EDGAR here.EQUITY (in a corporation)
The ownership interest of common and preferred shareholders in a corporation.EQUITY (in a brokerage account)
The market value of securities (long market value minus short market value) minus any debit balance and plus any credit balance..EXCHANGE
Any organization, association or group of persons that maintains or provides a marketplace in which securities can be bought and sold. An exchange does not have to have a physical place of business and several electronic exchanges do business.EXERCISE (OPTION)
When the holder of a long option position purchases (if calls are owned) or sells (if puts are owned) the underlying security at the exercise (strike) price. The exercise is accomplished when the customer holding the long position gives his broker instructions to exercise his position. This must be done in accordance with the rules pertaining to timing established by the exchanges and individual brokerage firms.EXERCISE PRICE
Also known as the strike price. The price that the owner (purchaser) of an option can buy (if calls are owned) or sell (if puts are owned) the underlying security by exercising his option.EXPIRATION DATE
The date on which an option expires. If an option has not been exercised prior to expiration, it expires worthless and the buyer no longer has any rights.FAST MARKET
A market condition characterized by wide price fluctuations and/or heavy trading volumes. Fast market conditions typically concern only one security of a particular group of related securities (i.e.: Internet stocks), and not the market as a whole.FEDERAL CALL (Reg. T Call)
A demand for the deposit of cash or marginable securities to have proper collateral for the cost of the transaction. See the explanation of margin for more complete information on using margin leverage in your investing.FEDERAL RESERVE SYSTEM
The central bank system for the United States, commonly known as the Fed. Its Chief responsibility is to regulate the flow of money and credit. The Board of Governors of the FederalReserve System is a seven member group appointed by the President (subject to the approval of Congress) to oversee operations of the Federal Reserve System.FILL OR KILL (FOK)
An order stipulation instructing the broker to present the order in the marketplace and either fill it in its entirety or kill it if it cannot be filled immediately at its stipulated price limit.FISCAL POLICY
The federal tax and spending policies set by Congress and/or the President.FOREIGN
A non U.S. Company with securities trading in the U.S.FORWARD CONTRACT
A cash market transaction in which a future delivery date is specified. Forward contracts differ from futures contracts in that the terms of forward contracts are not standardized and are not traded in contract markets.FUTURES
Exchange-standardized contracts for the purchase or sale of a commodity at a future date.FUTURES CONTRACT
A standardized, exchange-traded contract to make or take delivery of a particular type and grade of commodity at an agreed upon place and point in the future. Futures contracts are transferable between parties.GOOD DELIVERY
Designation meaning a certificate has the necessary endorsements and meets all requirements so that title can be transferred by delivery on the settlement date to the buying broker.GOOD 'TIL CANCELED (GTC)
An order to buy or sell which remains in effect until it is either executed or canceled. NetVest accepts orders good for a maximum of one month. For GTC orders executed over several days, a commission is charged based on each day's activity. Customer's are responsible for monitoring GTC orders to avoid duplication.HELD
A situation where a security is temporarily not available for trading (e.g. Market Makers in OTC stocks or the Exchange in listed stocks are not allowed to display quotes).HOUSE MAINTENANCE REQUIREMENT
Internally set and enforced rules of individual brokerages regarding customer's margin accounts.INDEX
A statistic to measure market performance. A popular index is the Standard & Poor's 500, which incorporates a broad base of 500 stocks, including 400 industrial companies, 20 transportation companies, 40 utilities, and widely considered the benchmark for large stock investors. Some of the stocks in the index have a greater influence on the direction of the market than other stocks do, so the S&P 500 is calculated by giving a greater weight to some stocks.INDEX ARBITRAGE
Trading in order to profit by temporary differences between the value of stocks in an index and the price of the future contract for a derivative index.IN-THE-MONEY
Description of an option when the current value of the underlying security is above (for calls) or below (for puts) the exercise (strike) price.INDEX OPTIONS
Calls and Puts on indexes of stocks. Broad-based indexes cover a wide range of companies, narrow-based indexes consist of stocks in one industry or sector of the economy. Owning an option provides investors with the opportunity to buy or sell, but they aren't committed to do so.INDIVIDUAL RETIREMENT ACCOUNT (IRA)
Personal retirement account for employed persons. Subject to limits, contributions are deductible against income earned that year. Interest and profits accumulate tax-deferred until the funds are withdrawn at age 59 1/2 or later. Early withdrawals are subject to a 10% penalty. IRA ROLLOVER provision of the law enables persons receiving lump-sum payments from their company's pension or profit sharing plan because of retirement or other termination of employment to ROLL OVER the amount into an IRA account. Once rolled over, the account continues to accumulate tax-deferred until withdrawal.INITIAL MARGIN
Amount of cash or eligible securities required to be deposited with a broker before engaging in margin transactions. The minimum equity to establish a margin account is currently $2,000, and 50% of the price of a new purchase must be in customer equity.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 (ask) prices.JOINT TENANTS WITH RIGHTS OF SURVIVORSHIP
Form of account where two or more account holders agree that, upon the death of one account holder, ownership of the remaining account assets passes to the remaining account holders. This transfer of assets escapes probate, but estate taxes may be due.KNOW YOUR CUSTOMER
A concept both stated and implied by various securities regulatory bodies regarding suitability of investments for customers. Article 3 of the Rules of Fair Practice of the National Association of Securities Dealers is typical: "In recommending to a customer the purchase, sale or exchange of any security, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs. "Customers must supply enough financial and level of sophistication information to a brokerage firm upon application for an account to satisfy the "know your customer" rules.LAST-SALE REPORTING
An electronic entry by NASD members detailing the price and number of shares involved in a securities transaction. The trade reported must be submitted to the NASD within 90 seconds of the execution of the trade.LIMIT ORDER
An order to buy or sell a stated quantity of a security at a specified price or at a better price (higher for sales or lower for purchases).LONG
Indicates ownership. 'I'm long 100 Ford' indicates the speaker owns 100 shares of Ford.MAINTENANCE CALL
A demand for the deposit of additional cash or securities due to the account being below the firm's required maintenance levels.MARGIN ACCOUNT
Brokerage account allowing customers to buy securities with money borrowed from the broker. Margin accounts are governed by REGULATION T of the Federal Reserve Board, the National Association of Securities Dealers (NASD), the New York Stock Exchange and by brokerage firm house rules. A signed MARGIN AGREEMENT is a prerequisite to establishing a margin account.MARKET MAKERS
The NASD member firms that buy and sell NASDAQ securities, at prices they display in NASDAQ, for their own account. There are currently over 500 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 ORDER
An order to buy or sell a stated amount of a security at the best price available at the time the order is received in the trading marketplace.MATERIAL NEWS
News released by a publicly traded company that might possibly be expected to affect the value of a company's securities or influence investor's decisions. Material news includes information regarding corporate events of an unusual and non-recurring nature, news of tender offers, unusually good or bad earnings reports, and a stock split or stock dividend. (See also "Trading Halt".)MUNICIPAL BOND
A debt security issued by a state, a municipality, or another subdivision (such as a school, hospital, sewer or other taxing district), to raise money to finance capital expenditures.NAKED OPTION
Option position that is not hedged from market risk, i.e.: an option position that is not offset by an equal and opposite position in the underlying security.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.NASDAQ Small Cap Market Securities
The NASDAQ Small Cap Market consists of over 1,400 companies that want the sponsorship of Market Makers, have applied for listing and meet specific 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.NET CHANGE
The difference between today's last trade and the previous day's last trade.ODD LOT
An amount of stock less than the customary 100 share unit.OFFER
see asked price.OPENING TRANSACTION (OPTION)
Transaction in an option account which establishes a new option position.OPEN ORDER
Also known as Good 'til Canceled. An order to buy or sell a security that remains in effect until it is either canceled by the customer or executed. Open orders placed electronically expire automatically after one calendar month.OPTION
A right to buy (call) or sell (put) a fixed amount of a given stock n options.OPTION PREMIUM
The amount per share paid by an option buyer to the seller. An option premium that is quoted at 2 1/8 means an option buyer would pay $212.50 for an option contract controlling 100 shares.OUT-OF-THE-MONEY
Description of an option when the current value of the underlying security is below (for calls) or above (for puts) the exercise (strike) price.OVER-THE-COUNTER (OTC)
Marketplace for securities that are not listed on an exchange. OTC trading is regulated largely by the NASD, a self-regulatory group. OTC securities are traded by many registered dealers rather than through an exchange specialist. Other OTC markets include those for government and municipal bonds.PENNY STOCKS
Low prices stocks trading in the over-the-counter market. Typically refers to shares trading below one dollar a share.PREVIOUS DAY'S CLOSE
The previous day's last reported trade.PRINCIPAL
When a brokerage firm sells securities from their own inventory for a mark-up they are acting as a principal.PUT OPTION
When purchased gives the buyer the right to sell a specific quantity of a security at a specific price until a specific date.SETTLEMENT DATE
Date on which a securities transaction must be settled. Buy orders must be paid for in cash and sell orders must have securities in legal (good) delivery form presented to the new owner. REGULAR WAY SETTLEMENT of stock and bond transactions is three business days after the trade was executed. Listed options, government securities and mutual funds settle the next business day following the transaction. The brokerage firm representing the customer must settle on the specified settlement date whether or not the customer has paid the monies or delivered securities to the firm.SHORT SELLING
Sale of any security not owned by the seller. The security is 'borrowed' from the brokerage firm and all short sales must be done in a short (margin related) account. Customer's must state that a sale will be 'short' at the time the order is placed with the broker. The customer "selling short" is using a legitimate trading strategy and assumes the risk that he will be able to buy the stock at a more favorable price than the price at which he sold short.SPECIALISTS
Specialist firms are those securities firms which hold seats on national securities exchanges and are charged with maintaining orderly markets in the securities in which they have exclusive franchises. They buy securities from investors who want to sell and sell when investors want to buy.SPREAD (OPTION)
Purchase of an option at one exercise price and the simultaneous sale of another option on the same underlying security at a different exercise price and/or expiration date. The limit price on a spread order is stated as the desired spread (difference in options premiums) stated as a net debit or a net credit.SPREAD (PRICE)
The difference between the bid and asked price for a stock. For example, if a stock is bid at 25 and asking 25 1/4 it has a 1/4 point (equal to 25 cents) spread. The spread for a security is influenced by a number of factors, including:
SPLIT
The multiplication of the outstanding number of shares of a corporation into a larger number of shares. A two-for-one split by a company with one million shares outstanding results in two million shares outstanding. Holders of 100 shares before the split would have 200 shares after the split.STOCK SYMBOL
A unique letter symbol assigned to a security. For U.S. securities, one- two- and three-letter symbols indicate that the security is listed and trades on an exchange. NASDAQ traded securities have a unique four- or five-letter symbol assigned. If a fifth letter appears on a NASDAQ security, it identifies the issue as other than a single issue of common stock or capital stock. A list of fifth-letter identifiers and a description of what each represents follows:
STOP ORDER
Order type which becomes a market order when the stock trades at or beyond the specified price. Thus, the price at which the order executes may not necessarily be the specified stop price. A sell stop is placed below the current trading price and is used to protect unrealized profits or limit losses on holdings should the price begin to decline. A "trailing stop" is a stop price that is moved up periodically as the security price moves up.Note: If a stop order is placed at a price that would trigger an immediate execution, then the specialist or the market maker rejects the order as invalid, and no order exists. For example, ABC stock closes at 50 on Monday. Monday evening, a customer enters a sell stop order at 49 1/2. Since the market is closed at the time the order is placed, it will not become a working order until the opening bell the following business day. The next day, ABC actually opens at 49 3/8, an eight less than the stop price. The new stop order is canceled, with no order (or downside protection) working. Had the order been placed as a good til canceled order during market hours the previous day, then it would become a market order following the opening trade, which was below the stop price. For your protection, always try to place stop orders during market hours. If this is not possible, verify that your stop price was not violated on the opening the next business day. Also, on stocks selling below $5 per share, stop orders typically are rejected by the market makers. Always verify your order if you are unsure. STREET NAME
Securities held in the name of a brokerage firm rather than the customer's name. All securities purchased on margin and those the customer wishes to have the broker hold are held in street name. Since the securities are in the broker's custody, transfer of the shares at the time of sale is easier than if the stock were registered in the customer's name and physical certificates had to be transferred.STRIKE PRICE
Dollar price per share at which, during the life of an option, a call option buyer can purchase the underlying stock or a put option buyer can sell the stock.SUITABILITY ('KNOW YOUR CLIENT') RULES
Guidelines that those selling financial products follow to ensure that investors have the financial means to assume the risks involved. Customers opening accounts at brokerage firms must supply financial information that satisfies the "know your customer" requirements that the firm is subject to.TENANTS IN COMMON
Form of ownership whereby two or more persons hold title in such a way that when one of them dies, the deceased's undivided interest passes to his or her heirs and not the surviving tenants.TIME IN FORCE
The length of time that a customer's order is to remain working. NetVest only accepts orders for the day placed or good for one month.TRADING AUTHORIZATION
Document granting power-of-attorney rights to an agent of the account holder(s). You will find downloadable forms for both Limited Trading Authorization and Full Trading Authorization in the Industry Forms Download area.
TRADING HALT
The temporary suspension of trading in a security, usually for 30 minutes, while material news from the issuer is being disseminated over the news wires. A trading halt gives all investors equal opportunity to evaluate news and make buy, sell, or hold decisions on that basis. A trading halt may also be imposed for purely regulatory reasons, either by the listing Exchange, the NASDAQ Stock Market, or the SEC.TRANSFER AGENT
A transfer agent keeps a record of the name of each registered share owner, his or her address, the number of shares owned, and sees that certificates presented for the transfer are properly canceled and new certificates issued in the name of the new owner.UPTICK
Transaction executed at price higher than the preceding transaction in that security. Short sales may only be executed on upticks (also known as plus ticks) or zero- plus ticks (same price as previous transaction but higher than the last transaction at a different price).WHEN ISSUED
Stands for 'when, as and if issued.' Term refers to a transaction made conditionally because a security, although authorized, has not yet been issued.YIELD TO CALL
Yield on a bond using the assumption that the bond will be redeemed by the issuer on the next available call date. The same calculations are used to calculate yield to call as yield to maturity except that the principal value used is the call price and the call date is used in place of the maturity date.YIELD TO MATURITY
Yield calculation which takes into account the price discount from or premium over the face amount. It is greater than the current yield when the bond is selling at a discount and less than the current yield when the bond is selling at a premium.ZERO-COUPON BOND
Bond that makes no periodic interest payments but instead is sold at a deep discount from its face value. The owner of the bond receives his return by the gradual appreciation of the security until maturity at face value. Under U.S. tax law, the imputed interest is taxed as it accrues, although the investor received no cash. For this reason, the principal appeal of zero coupon bonds is for IRA and other tax sheltered retirement accounts. Tax-free municipal zero-coupon bonds are also traded.
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