10-K Report see “Annual Report”

Account Executive another term for a stockbroker

Account Statement a statement sent by a brokerage firm to a client summarizing the activity of the client’s account (dividend or interest payments, liquidations or purchases of stocks, mutual funds, bonds, or other investments)

Acquisition takeover (friendly or unfriendly), when a company buys all of another company’s stock

Administrator someone appointed by the court to settle a person’s estate

Advance/Decline Line indicates the number of stocks going up compared to stocks going down, and is used to show the general direction of the market

Aftermarket trading in an IPO immediately following its offering

Aftermarket Performance the change in price of an IPO as measured from the offering price forward; sometimes tracked instead from the first day close

Aggressive Growth Mutual Fund a mutual fund that invests in companies with significant growth potential but that also carries a higher degree of risk

Allocation in an initial public offering (IPO), the amount of stock the underwriter grants to an investor (usually substantially less than the indication of interest)

All-or-None Offering type of offering in which a company will cancel the offering if a certain number of shares are not sold

American Depository Receipts (ADRs)/American Depository Shares (ADSs) shares (or fractions thereof) of a non-US company that are listed on a US exchange; they are referred to as receipts because they represent a specific quantity of the company’s actual shares

Analyst a professional who researches companies to provide information to clients about which securities indicate a buy, sell, or hold action

Angels friends, family members, or wealthy individuals who invest in start-up companies

Annual Report a document every public corporation is required to distribute, indicating the names of the board of directors, the company’s overall financial condition (earnings, assets, etc.), management’s discussion of operations, etc.

Annuitize when a client starts to withdraw money from an annuity

Annuity contract by which an insurance company agrees to make periodic payments to a client

Arbitration a less expensive and quicker alternative to the court system; most brokerage client account forms include an arbitration clause, indicating that the client agrees to arbitrate disputes with her or his broker

Ask price at which a client may purchase a security

Asset Allocation dividing investments among a variety of categories (stocks, bonds, cash, etc.)

Auditor a firm of certified public accountants who provide an independent review and records of a company prior to a public offering

Back Office where client records are processed and maintained

Balance Sheet part of a company’s annual report that shows a company’s net worth (assets, liabilities, and capital)

Balanced Mutual Fund a mutual fund combining investments in stocks and bonds

Basis Point when measuring the change in interest rates for bonds and notes, equal to 1/100 of a percentage point (0.01%)

Bellwether Stock a company that has substantial influence on market direction

Beneficiary under a will, trust, or insurance policy, the person who is to receive property

Best Efforts Offering describes a situation in which a securities firm will make its “best effort” to sell the stock of a new company without a guarantee of money to the company

Beta statistical measure of risk of a stock or mutual fund

Bid price at which the client may sell a security

Big Board a nickname for the New York Stock Exchange

Block Trade a trade involving 10,000 shares or more

Blue Chip Stocks stocks of large, well-known companies (IBM, GE, etc.) that are considered less volatile investments than those of other companies

Blue Sky refers to state securities laws that affect both companies and mutual funds, and are designed to protect individual investors from fraud; Congress and the SEC are in the process of establishing national laws and regulations to supersede these rules

Board of Directors A company’s board of directors is usually composed of inside and outside directors; inside directors can include management, venture capitalists, vendors, and significant shareholders, among others, while outside directors have no pre-existing financial or personal relationship with the company that might result in a conflict of interest. Outside directors are not prohibited from owning stock, but are not large shareholders.

Bond a long-term debt instrument, which pays a set rate of interest until maturity, and which pays the face value at maturity

Book Value the equity or net worth of a company; in other words, the company’s assets minus liabilities

Bottom Fishing investors are said to be “bottom fishing” when they buy stocks that have declined significantly in value

Broker-Dealer another term for a brokerage firm

Call (1) with regard to bonds, a decision by the issuer to pay off bonds before the date of their maturity; (2) with regard to stock, the right to purchase stock with certain conditions

Capital Gain the profit a client realizes when selling a stock, bond, or mutual fund for more than he or she paid for it

Capital Loss the loss when a client sells a stock, bond, or mutual fund for less than he or she paid for it

Capitalization the price of a company’s stock multiplied by the number of outstanding shares; if a company’s shares are selling for $25 per share and the company has 1,000,000 shares outstanding, the capitalization is $25,000,000

Cash Account a brokerage account that allows transactions using cash, as opposed to a margin account, which allows transactions using loans

Cash Management Account (CMA) type of brokerage account consolidating all client transactions (including stocks, bonds, options, etc.), that frequently allows the client to write checks and also to borrow money through use of a CMA credit card

Certificate of Deposit (CD) a fixed-interest debt instrument issued by a bank for a specified period of time; its value is usually guaranteed by the federal government up to $100,000

Churning an illegal practice in which a broker engages in excessive trades with a client’s account in order to generate commissions

Class Action Suit A class action suit may be brought against a company whose stock has declined in price by shareholders alleging misstatements or omissions in material the company communicated to the public. Such lawsuits have become more difficult as a result of Federal legislation, and tend to be centered on recent IPOs and technology stocks.

Closed-End Mutual Fund an investment company with a “closed” or fixed number of shares, as opposed to an open-end fund that has an unlimited number of shares; shares of closed-end funds are usually traded on a stock exchange

Closely Held Company used to describe a company where a small number of people own large amounts of its stock

COLA Cost of Living Adjustment

Commissions a broker’s fees for handling securities transactions; when an IPO is purchased at offer price, no commission is paid, and the underwriter charges the issuer what is called a gross spread

Common Stock represents ownership in a company and is one way for a company to raise money; it is traded on a stock exchange

Contrarian an investor who, in buying or selling, does the opposite of what most other investors are doing

Control Person a person who has a special influence in a company (an officer of the company, a member of its board of directors, a person who own at least 10% of the company’s stock), and who must therefore adhere to particularly strict regulations in buying and selling the company’s stock

Convertible Debenture a bond that can be converted into common stock

Cost Basis the initial cost of an investment, used by the IRS to determine tax liability

Cost of Living Adjustment an adjustment to wages, Social Security benefits, etc., to account for inflation

Crash describes a situation in which stock or bond markets fall precipitously

Cyclical Stock a stock that performs poorly during recessions but does well during times of economic recovery

Day Trading trading an account actively on a daily basis hoping to profit from small, short-term moves. This strategy entails substantial risk and should only be considered by professionals.

Dead Cat Bounce describes a brief rebound made by a stock following a significant drop in price, often the result not of real buying, but of short sellers closing out positions

Debenture bonds that have no collateral, but are backed instead by the “full faith and credit” of the company, usually issued only by strong, well-established companies

Default inability to meet debt payments

Defensive Stocks stocks that perform well during recessions (usually stable companies producing basic necessities such as food)

Defined-Benefit Plan a pension plan in which the employer guarantees the client a certain sum of money at retirement

Depository Trust Company (DTC) DTCs serve as clearinghouses between brokers and institutional buyers and sellers, enabling institutional investors to buy and sell stock through multiple brokers

Dilution issuing new shares, which effectively reduces the percentage of ownership for current shareholders

Discretionary Authority when a client allows a broker or other party to make trades without prior notification, the client is giving the broker or designated agent discretionary authority

Diversification attempting to reduce the risk of loss by spreading money into different types of investments

Dividend a payment to shareholders of a corporation, either cash or stock, usually quarterly, and subject to the decision of the board of directors

Dog and Pony Show a means for the underwriter to generate interest in a new offering, often by making presentations to brokers and institutional investors

Dow Jones Industrial Average composed of 30 major stocks, this is the most widely watched stock market indicator

Due Diligence in-depth examination of a proposed initial public offering by the underwriter’s lawyers and investment bankers as part of the process of taking the company public; material information related to the company’s prospects must be disclosed in the prospectus for the IPO; research conducted that supports a recommendation for a security

Earnings Per Share the profits of a company divided by the number of shares of common stock (e.g., if a company earns $2,000,000 and has 1,000,000 shares of stock owned by the public, its earnings per share will be $2)

ECN acronym for electronic communications network, of which there are several; ECNs allow the user to compete directly with market makers for the best price available

EDGAR a system established by the SEC to enable companies and mutual funds to file documents electronically, EDGAR is also accessible to individual investors through the Internet (www.edgar.gov) so that investors can obtain documents such as IPO prospectuses or annual reports for free

Emerging Market a country in the developing world (which may include countries in Eastern Europe, Asia, and Latin America) poised for economic growth; some mutual funds invest specifically in emerging markets

Equity see “Common Stock”; also, in a margin account, the excess market value of securities over debit balance

ESOP Employee Stock Ownership Plan, through which companies buy their own stock on behalf of a retirement plan for their employees