Glossary of Wall Street Jargon

AAA — American Arbitration Association.

Account Activity — That portion of a brokerage account statement that indicates what occurred in an account during the reporting period, i.e., purchases, sales, dividends, interest charges, disbursements, etc.

Arbitration — The process by which the parties to a dispute submit their differences to the judgment of an impartial person or group selected by mutual consent or statutory provision.

Back-End Mutual Funds — A mutual fund that charges no commission when bought if the buyer holds the fund for a certain period, but charges a declining balance of commission if the fund is liquidated early.

Bear — One who believes that market prices will fall.  A bear market is a declining market.  A bear spread in futures or securities is one that should yield a profit if the market falls.  See Bull.

Beta — A volatility measure of the tendency of a security to move with the market.  A beta of less than 1 means that the security moves less than the entire market, a beta of greater than 1 means that the security moves more than the entire market.

Blue Chip Stock — A common stock issued by a major company with a reputation for stability, financial strength, and good dividend return.

Bond — A long-term certificate evidencing ownership of a debt due to be paid by a government or corporation to an individual holder and usually bearing a fixed rate of interest.  Interest on American issues normally paid semiannually.  Face (par) value usually $1,000, but may be more or less.

Broker — One that acts as an agent for others in negotiating purchases or sales, usually for a fee or commission.

Bull — One who believes that the market prices will rise.  A bull market is a rising market.  A bull spread in commodities or securities is one that should yield a profit if the market rises.  See Bear.

Call — (1) The option to buy a security at a specified price on or before a specified date.  (2) The redemption of a preferred stock or of a bond before its due date.

Call Writing — The selling of a call option, granting to the buyer of that option the right to exercise the option to purchase the security on which the option is based, on or before the date the option expires.

Churning — Excessive trading by one who controls a securities account belonging to someone else and who benefits from the trading usually by sharing in the commission revenue.  Control may be formal (power-of-attorney) or de facto (actual control).

Closed-End Bond Funds — A fund made up of bonds that offers a finite number of shares on its initial public offering and thereafter trades on the stock market.

Closing Total Net Worth — Portfolio’s total net worth at the end of the current month’s reporting period as shown on the monthly statement.

Commodities — A basic product, usually but not always agricultural, mineral, or financial which is traded on a commodity exchange.  See Futures.

Common Stock — Equity securities that represent an ownership interest in a corporation and usually have last claim on residual assets and earnings of a corporation.  Common stock dividends usually paid only after preferred stock dividends paid.  Usually having voting rights of one vote per share, common stockholders normally have the power to elect directors, authorize new stock issues, and approve or disapprove of major corporate changes.

Confirm — The confirmation document sent to a customer containing details of a purchase or sale.  It generally provides a description of a transaction, including such details as the date, purchase or sale price, and commissions, and the amount owed by or to the customer.

Corporation — An association of individuals, created by law and having an existence apart from that of its members as well as distinct and inherent powers and liabilities.

Discretionary Account — An account in which the customer gives the broker or someone else the authority, which may be complete or within specific limits, as to the purchase and sales of securities or commodities.  Authority may not be verbal but must be given via a general or limited power of attorney.  The latter is often called a trading authority.

Diversification — The purchase of varying assets in order to minimize the risk associated with a portfolio.

Dividend — A distribution to stockholders declared by a corporate Board of Directors.  It may consist of cash, stock, or property.

Duty to Mitigate — The obligation imposed on an injured party to exercise reasonable care in attempting to minimize the damages or avoid aggravating the injury.

Equity — (1) The share of security value in a brokerage account belonging to a customer.  In effect, the difference between total value and debit balance. (2) A portfolio’s total new worth. (3) The net worth section of a corporate balance sheet.

Front Running — An illegal action in which a stockbroker places an order to buy stock or options for one or more clients at different times of the day thereby purchasing the stocks and options at different prices and then deciding who gets what price.

Fundamental Analysis — An analysis of industries and companies based on such factors as sales, assets, earnings, markets, and management.

Futures — Contracts for the sale and delivery of commodities at some future time.

Guaranteed Bonds — A bond on which the principal or income or both are guaranteed by another corporation or parent company in case of default by the issuing corporation.

Guaranteed Stock — A stock whose dividends are guaranteed by a company other than the issuer.  Usually preferred stock.

Hedge — Protecting a long position in one asset while being short in another in order to reduce overall risk.  In commodities one side of the hedge is in the cash market and the other in the futures market.

High Yield Bonds — See Junk Bonds.

Individual Retirement Account (IRA) — A retirement program which may permit an investor to set aside a limited amount toward retirement each year and deduct some or all of the amount from taxable income.

Initial Public Offering (IPO) — A new issue of stock sold to the general public.

Insider— An individual who has special information dealing with the financial status of a firm before that information is released to the public or to stockholders.  Insiders may be officers, directors, large stockholders, attorneys, investment banking personnel, and others.

Investment Company — A company organized primarily to invest in the securities of other companies.  Organized either as closed end or open end.  Shares of closed-end investment companies are traded like any other stocks either on or off exchanges.  Shares of open-end companies are bought or sold directly from the company or its sponsors.  Open-end investment companies and mutual funds are synonymous.

Investment Grade Bonds — Bonds rated Baa or higher by Moody’s bond rating system, BBB or higher by Standard & Poor’s system.

Junk Bonds — Bonds with ratings below “investment grade,” i.e., below Baa by Moody’s or below BBB by Standard & Poor’s.  May be new issues associated with leveraged buy-outs or restructuring or may result form the downgrading of outstanding issues.  Also called high-yield issues because of the high yields needed to compensate holders for high risk.

Liquidity — Easily converted into cash.

Limited Partnership — A partnership in which limited partners are not personally liable for incurred debts of the partnership, but may lose up to the entire amount of investment.

Long — The position of one who has bought and holds a security.  A long position does not always result from a purchase because the buyer could be covering a formerly established short position.  A long position is held by one who expects an increase in the price of the securities or holds these securities for income.

Margin — (1) The funds required to be deposited by one purchasing securities. (2) The percentage of equity in an account owned by someone who has bought on credit.

Margin Account — Any brokerage account where securities can be bought with the aid of credit given by the buyer’s broker.
Margin Call — A demand by a broker that a customer deposit additional funds either because additional securities have been bought or sold short (original, federal, or Regulation T call) or because there has been adverse market action (maintenance call).  See Regulation T.

Margin Interest — The interest paid on securities bought on credit.

Market Makers — See Principal Transactions.

Money Market — A financial market in which funds are borrowed or lent for short periods as distinguished from the capital market for long-term funds.  See Money Market Instruments.

Money Market Fund — A mutual fund which invests its assets in money market instruments.

Money Market Instruments — Short-term debt instruments such as Treasury bills, bankers’ acceptances, certificates of deposit, commercial paper, repurchase agreements, and certain Eurocurrency instruments.

Mutual Fund — See Investment Company.

National Association of Securities Dealers (NASD) — An industry association of brokers and dealers created under the Maloney Act of 1938.  Regulates in a quasi-governmental manner over-the-counter dealers in corporate securities, investment banking, and mutual funds.

National Association of Securities Dealers Automated Quotation (NASDAQ) — A system for providing a network of competing broker and dealers electronically with current price quotations to enable them to operate in effect as a stock market without a trading floor.

New Issue — A stock about to go public that has never traded before.

New York Stock Exchange — The largest, most prestigious security exchange in the world, reorganized under its existing name in 1863.

Off-Loading a Loser — The illegal practice of placing bad trades in particular clients’ accounts to rid the broker of them.

Open Order — An order to buy or sell securities that has not yet been executed.  May be placed at market price or at a fixed price.  Synonymous with good-til-canceled order.

Opening Total Net Worth — The closing balance from your last month’s statement shown on current monthly statement.

Option — A privilege sold by one party to another which offers the buyer the right to buy (call) or sell (put) a security at an agreed-upon price during a specified period or on a specified date.  May be listed (exchange options) or traded over the counter (conventional options).

Option Spreading — The simultaneous purchase and sale of options within the same class.

Order — Instructions to a broker to buy or sell securities.

OTC Trades — See Over The Counter.

Over Bought — Reflecting an opinion about price levels.  May refer to a security that has had a sharp rise, or to the market as a whole after a period of vigorous buying.

Over Sold — The reverse of overbought.

Over The Counter — Trading among firms usually by telephone in which orders are not filled on floors of exchanges.  Firms may act either as brokers or dealers.  Sometimes called “off-board”.

Preferred Stock — Corporate stock which has a claim on earnings, dividends, and assets ahead of the common stock but behind debt.  Sometimes regarded as quasi-debt because of the pressure, if not obligation, to pay dividends.  Dividends frequently are cumulative.

Principle Transactions — Those transactions in which you are purchasing securities directly from the brokerage firm or from the issuer of the securities.  The brokerage company is not acting as your agent but is selling securities that it either purchased in the open market or has held in its own inventory.  Also known as market making.

Prospectus — A summary of the registration statement filed with the Securities and Exchange Commission for most new issues.  The prospectus is partially a selling device and partially a means of making certain that buyers of new issues have had all essential information about the issue disclosed to them.

Put — An option which gives the holder the right to sell the underlying security at a specified price for a certain, fixed period of time.

Real Estate Investment Trust (REIT) — An investment company which invests in real estate rather than securities.

Regulation T — A rule determining the amount of credit which a customer may receive from a broker when trading securities.  The percentage may vary as to the type of securities bought or sold short and may be raised or lowered by the Federal Reserve Board.

SEC — See Securities and Exchange Commission.

Secondary Market — any market in which securities can be readily bought and sold after their initial issuance.  The national listed securities exchanges provide secondary markets.

Security — An investment contract containing the following elements: (1) a transaction in which money is invested; (2) the investment is in a common enterprise; and (3) there is an expectation of profit resulting from the efforts of others.  Important examples of securities are stocks, bonds, and options.  Commodity futures have been held not to be securities.

Securities and Exchange Commission — A U.S. government agency established in 1934 to regulate the issuance and trading of securities and securities markets, including options but not commodities, and personnel including investment advisers operating in the securities business.

Short — The sale of a security which is settled by the delivery of borrowed securities rather than by delivery of securities owned by the seller.  The seller may wish to retain his securities for such reasons as tax advantage or control.  He may not own the securities at all.

Short Sale — A transaction made by a person who believes a stock will decline and places a sell order, though he or she does not own any of these shares.

SRO— Self-regulatory organization.

Standard & Poor’s (S & P) 500-Composite-Stock Index — An index of stock prices composed of 385 industrial firms, 56 financial firms, 44 public utility firms, and 15 transportation firms.

Stock — The legal capital of a corporation divided into shares.

Stop-Loss-Order — An order to sell stock at a particular price.  A stop order becomes a market order when the stock sells at or beyond the specified price and thus may not necessarily be executed at that price.

Suitability — A determination of whether a strategy or trading philosophy is in accordance with an investor’s financial means and investment objectives.

Ticker Tape — The instrument that prints prices and volumes of securities transactions in cities and towns throughout the U.S. and Canada within minutes of each trade on any listed exchange.

Technical Analysis — Analysis of the market and stocks based on supply and demand.  The technician studies price movements, volume, and trends and patterns which are revealed by charting these factors and attempts to assess the possible effect of current market action on future supply and demand for securities and individual issues.

Total Return — The amount of dividend income plus the difference in the value of the stock when sold from the purchase price.

Trading — The act of buying and selling securities or commodities.

Trading Away — A practice of some securities salespersons of recommending the purchase by their customers of products not handled by their firm.  May be considered unwise if not unethical.

Unauthorized Trading — Trading which takes place in an account without permission of the customer or account holder.

Volatility — A measure of the amount by which a security is expected to fluctuate in a given period of time.